The chaos of the past few years has put distributors on alert. The COVID-19 pandemic severed global supply chains and exposed the dangers of dependence on single-source supply. Surging post-COVID inflation pushed distributors away from lean inventory models and demonstrated the value of prioritizing stock availability. Historically high tariff rates and the conflict in the Middle East accelerated this shift.
Beyond stop-gap measures like holding more inventory, distributors are increasingly turning to supplier diversification as a strategy to navigate global instability. When distributors are reliant on just a handful of suppliers, they face a much higher risk of disruption in the event of a global supply shock. They lose negotiating leverage, they're unable to quickly adapt to changing market conditions, and they’re in a weaker position to meet customer demand, which can lead to frustrated customers and lost business.
While distributors can address some of these issues with improved forecasting and risk analysis, more efficient inventory management, and improved contingency planning, they will still be in a precarious position if they fail to reduce supplier concentration. Resilience and agility will be critical for wholesale distributors in the coming years, and supplier diversification is a key element of developing these capacities.
Distributors are bracing for global instability
A Phocas survey found that 70% of global distributors are carrying more than 5,000 stock-keeping units (SKUs). High levels of inventory indicate that distributors are prioritizing customer retention amid global instability, as the ability to fill orders quickly and consistently is crucial for keeping customers happy. Even though larger inventories lead to higher carrying costs, distributors are willing to pay these costs for the sake of product availability and customer satisfaction.
According to a recent Netstock survey, a majority of U.S.-based SMBs say tariffs have had an even greater impact on their supply chains in 2026 than 2025. Seventy-two percent report that increased costs are their top tariff concern, while three-quarters are passing these costs along to customers in the form of direct price increases. At a time when one of the top challenges cited by distributors is increasing competition, measures like holding more inventory can improve customer loyalty by ensuring that orders are filled reliably. But this advantage can be offset by rising costs and consequent price increases.
Many distributors are willing to accept the costs that come with holding more inventory to hedge against supply chain volatility in an era of geopolitical instability and regulatory uncertainty. Purchasing excess inventory can also guard against price increases as inflation remains sticky. It’s no wonder that the majority of distributors have inventory for at least 60 days, and more than one-fifth have stocks for over 90 days. But the maintenance of larger inventories alone isn’t enough. Distributors must also strengthen their supply chains through diversification.
A rapidly emerging trend among distributors
A series of economic and geopolitical shocks over the past few years have led distributors to make supplier diversification a major focus. During COVID-19, the United States discovered how vulnerable the market can be when one country dominates critical supply chains. When inflation hit multi-decade highs and supply chains were disrupted around the world in 2022, distributors needed to find immediate alternatives to overburdened suppliers. As tariffs rates spiked to their highest levels in nearly a century last year, the immense risk of supplier concentration was painfully apparent once again.
The Phocas survey found that the average wholesaler already has over 50 suppliers across all revenue bands, but 29% intend to further diversify their supplier network this year. This is consistent with an accelerating global trend. What was once described as the “China plus one” strategy for supplier diversification has become “China plus many.” McKinsey reports that the Top 3 countermeasures to global tariffs last year were increasing inventory, sourcing from more suppliers, and nearshoring (which is another form of supplier diversification). A major shift has been the American diversification away from China toward Mexico and ASEAN.
War in the Middle East is the latest shock to global supply chains and yet another reminder that distributors need diverse and resilient networks capable of adapting in real time. However, diversification isn’t enough on its own. Distributors also must ensure that they are fully leveraging their relationships with suppliers to keep their supply chains healthy and resilient.
Making the most of supplier diversification
While the Phocas survey found that many distributors are building inventory and diversifying suppliers, their No. 1 priority is improving efficiency. Distributors must be capable of collecting and analyzing data to accurately forecast demand, prepare contingency plans, and ensure that relationships with suppliers are as productive and transparent as possible.
Distributors ranked better forecasting and planning as the No. 1 competitive differentiator. The Top 3 changes in inventory strategy they anticipate are: a new approach to demand forecasting, increased data automation, and more segmentation of data. This focus on data extends to distributors’ supplier relationships, as 87% are sharing data to improve supplier performance. The most commonly reported benefits of this strategy are improving the accuracy of lead times, better forecasting and joint planning, improved pricing and rebates, and better delivery performance and service reliability.
Distributors report that accurate demand planning helps them reduce costs, improve service, and increase revenue. Robust planning and data sharing are even more important in an era of economic and geopolitical volatility, as these approaches enable distributors and their supplier partners to anticipate shocks and respond quickly. The distributors that diversify their supply chains and forge healthier relationships with each of their suppliers will be in a strong position to increase efficiency, improve customer service, and navigate an unpredictable world.
