What is Supply Chain Disruption?
A supply chain is a system of individuals, groups, and tasks that moves a product from its point of origin to its final consumer. Any interruption in the performance of a procedure involving any organization engaged in the production, marketing, or distribution of a certain good or service is referred to as a supply chain disruption. The greatest level of resource quality and the preservation of product quality from start to finish require a well-managed supply chain. In a manufacturing system, congestion or bottlenecks can cause delays and higher production costs. The Covivirus-19 epidemic presents many challenges, but one of the biggest is the disruption of the supply chain.
While certain supply networks may be far simpler or more complicated than others, supply chains will be used by the great majority of organizations. No matter where the disruption occurs, this connected chain may experience delays and inefficiency. These effects are heightened when a single supplier serves as the sole source for a particular supply chain link or when the majority of supply options are concentrated in a single area.
Consumers are rarely aware of the numerous factors and actions that go into providing them with a complex piece of technology or even something as basic as a roll of toilet paper, until it becomes unavailable.
Five types of supply chain disruptions
1. Pandemics: COVID-19, the epidemic of a novel coronavirus, has affected global supply chains over the past few weeks and months. Multinational pandemics and other public health emergencies can have significant consequences on the supply chain due to the amount of individuals, regions, and global firms involved, which can disrupt routine operations at every stage of manufacturing.
2. Natural calamities: On March 11, 2011, a magnitude 9.0 earthquake occurred off the coast of Japan, triggering a tsunami that subsequently caused a nuclear crisis at the Fukushima Daiichi Nuclear Power Plant. Numerous businesses and the global economy were adversely impacted by the catastrophe, resulting in the temporary closure of factories that reportedly produced 22% of the world’s supply of 300-millimeter silicon wafers (a necessary component in semiconductors) and 60% of certain essential auto parts.
Natural disasters such as this one, as well as hurricanes, tornadoes, wildfires, and floods, frequently bring attention to supply chain linkages in affected regions. Depending on its location, even a limited tragedy might have widespread effects on the supply chain.
3. Transportation breakdowns and delays: The prevalence of multinational providers in supply chains has expanded as a result of globalization and increased trade. This has resulted in expanded commercial prospects, but also increased pressure on international and domestic transit networks, resulting in congestion and delays.
Even in the best of circumstances, transportation delays can occur, but other supply chain disruptions can exacerbate the issue. For instance, natural disasters might obstruct transportation and commerce routes in affected areas. Or, in the case of the COVID-19 pandemic, several governments and areas have instituted lockdowns to prevent viral spread, making it more difficult for freight carriers to carry commodities by land, sea, or air and slowing the movement of even essential supplies.
4. Product issues: Issues with items at any step of the supply chain can lead to problems and delays with the final product. No company wants to send substandard items to clients or cause shipment delays due to faulty products, thus it is essential to create a quality management system with the expectations of customers in mind and communicate this to all suppliers.
5. Variations in price: Price increases for suppliers in your supply chain can also cause disruptions, as you may be forced to choose between switching suppliers, increasing your own prices, or reducing your profits by absorbing the expenses yourself. Numerous variables might contribute to price swings. For instance, commodity prices, such as crude oil, are famously variable and can have a significant impact on the operating expenses of a variety of manufacturing and transportation factors.
6. Cyber assaults: Any organization that is not sufficiently safeguarded is vulnerable to cyberattacks at any time. Inadvertently, your supply chain may expose you to assault. If any link in your chain has insufficient security protocols, it may be possible for hackers to access your data.
In 2014, the mega-retailer Target suffered a significant security breach that was initiated by a phishing attack on its HVAC partner. The likelihood of your supply chain being interrupted by cyberattacks or leading to you being attacked yourself makes it crucial to maintain excellent communication and connections with all nodes in your supply chain, as well as to be aware of any potential vulnerabilities.
Levels of Supply Chain Disruption
There are numerous types of supply chain disruptions, but they may be categorized primarily by two factors: probability of occurrence, which refers to the possibility that it will occur, and severity, which can be grouped into three degrees:
- Low: these interruptions have short-term consequences and are typically resolvable after the individual problem has been rectified. Among these are logistical issues and transportation-related delays.
- Medium: This is any disruptive incident that can have an effect on output for weeks to months. Any occurrence on the factory floor that slowed work so significantly and generated losses that it must be reported in the organization’s quarterly financial report is an illustration.
- High: severity interruptions will have lasting repercussions on time, money, and the supply chain as a whole. This is exemplified by the current pandemic and its economic impact on numerous businesses.
Effects of Supply Chain Disruption
The global cost of disruptions, such as those brought on by the pandemic, has been significant. These interruptions have a significant influence on the entire supply chain and will certainly have a number of long-term consequences. The following are the observable repercussions of supply chain disruptions:
- Massive shortages: or the lack of a certain product due to a lack of raw materials
- Inflation: the rise in demand may induce price increases
- Factory/store closures: a reduction in production or output may lead to business closures
- Unemployment: variables such as massive shortages, inflation and business closures can result in an increase in unemployment, similar to a domino effect.
- Threat to national security: broadly defined as the nation’s capacity to protect the well-being of its citizens is one of the unseen consequences of the supply chain disruption.
How to Respond or Manage Supply Chain Disruptions Proactively
Businesses must strengthen the strategy and resilience of their supply chains to adapt to changing conditions. The following are some factors businesses might take into account while dealing with disruption:
- Business Intelligence: Recognize the risks of supply chain disruptions and the productivity effects they may have: This can assist in effectively spotting problems early on. Using a predictive analytics tool is a fantastic method to accomplish this.
- Supply chain diversification and evaluation of sourcing tactics: To minimize interruption in the event that a key supplier is compromised, businesses should have secondary to tertiary backup plans for material supplies.
- Reallocating capital: The unexpected lockdowns at the beginning of the pandemic emphasized the demand for remote work options, which led to a change in how businesses allocated cash and would probably persist beyond the pandemic.
- Distribution Methods: By adhering to appropriate distribution practices, distributors will be shielded from circumstances that could potentially destroy their customer base as well as their reputation in the business.
- Business Continuity Plan: In order to maintain operations despite business interruptions, enterprises should fundamentally have a successful BCP in place.
- Transparency: Big data, intelligent systems, and interconnected ecosystems can be used to implement supply chain transparency. The advantages of doing this include the following: 1) It will be simple to communicate shortages or problems at any point in the supply chain, making it easily adaptable; 2) It will ensure customer satisfaction and brand loyalty by guaranteeing the products and their provenance; and 3) It will improve industry practices, which aren’t just beneficial to the particular business but can also be advantageous to the industry as a whole.
It is easy to take your supply chain for granted when it functions without interruption. In times of difficulty, however, it is crucial to have a solid long-term plan in place (or to be able to devise an effective crisis management strategy on the spot). Supply interruptions are unavoidable, but by carefully planning your reaction, assessing potential supply chain risks, and diversifying your suppliers, you may be prepared for even the most unthinkable events.