Supply chain disruptions
Supply chain disruptions are unexpected events that significantly disrupt the flow of goods and services. These events can range from natural disasters, political unrest, and economic instability to cyberattacks, labor shortages, and transportation breakdowns. Supply chain disruptions can have a major impact on a company's ability to deliver products and services on time, at the right cost, and with the required quality. They can also lead to a disruption in customer service, loss of market share, and damage to a company's reputation. To prepare for and manage supply chain disruptions effectively, companies must have proactive plans in place to identify risks and implement mitigation strategies.
Example of supply chain disruptions
- Natural Disasters: Natural disasters such as floods, hurricanes, earthquakes, and wildfires can have a devastating effect on supply chains. For example, the 2011 tsunami in Japan caused severe damage to many of the country's ports and manufacturing plants, leading to significant disruptions in the supply chain.
- Political Unrest: Political unrest, such as civil wars, can have a major impact on supply chains. For example, the civil war in Syria has led to the closure of many of the country’s borders, making it difficult for companies to move goods in and out of the country.
- Economic Instability: Economic instability, such as currency fluctuations and rising inflation, can also have a significant impact on supply chains. For example, the devaluation of the Turkish lira in 2018 caused significant disruption to companies importing and exporting goods in and out of the country.
- Cyberattacks: Cyberattacks can have a major impact on supply chains. For example, the 2017 ‘NotPetya’ attack caused significant disruption to many companies’ operations, including their supply chains.
- Labor Shortages: Labor shortages can lead to delays in production and delivery, which can lead to supply chain disruption. For example, the shortage of truck drivers in the US in recent years has caused delays in the delivery of goods.
- Transportation Breakdowns: Transportation breakdowns, such as traffic jams, can disrupt the flow of goods and services. For example, the traffic jam in China in 2010, which lasted for 11 days, caused significant delays in the delivery of goods.
Avoiding supply chain disruptions
- Anticipating and managing disruptions due to natural disasters, political unrest, or economic instability: Companies can use supply chain disruption strategies to plan for potential disruptions and mitigate their impact. They can analyze their supply chain networks and identify potential risks, develop contingency plans, and adjust their supply and demand forecasting.
- Responding to cyberattacks, labor shortages, and transportation breakdowns: Companies can use supply chain disruption strategies to develop and implement strategies to respond quickly and effectively to cyberattacks, labor shortages, and transportation breakdowns. This could include using alternative sources of supply, adjusting inventory levels, and changing delivery schedules.
- Improving supply chain visibility and responsiveness: Companies can use supply chain disruption strategies to improve their visibility into the supply chain and respond quickly to changes in demand and supply. This could include using digital technologies such as analytics and artificial intelligence, as well as implementing modern supply chain practices such as agile supply chains and demand-driven supply chains.
- Enhancing customer service: Companies can use supply chain disruption strategies to improve customer service by ensuring timely delivery of products and services. This could include improving forecasting accuracy, optimizing inventory levels, and improving delivery times.
Steps of managing supply chain disruptions
An effective response to supply chain disruptions requires preparation and collaboration across the entire supply chain. Here are the steps to take to effectively manage supply chain disruptions:
- Identify Potential Risks: Companies should conduct regular risk assessments of their supply chains to identify potential disruptions. This should include a review of internal processes, suppliers, and external market conditions.
- Develop Strategies: Companies should develop strategies to mitigate potential risks and plan for supply chain disruption. This should include developing alternative sources of supply, diversifying suppliers, and establishing contingency plans.
- Implement Mitigation Strategies: Companies should implement the strategies developed to mitigate potential supply chain disruptions. This should include monitoring suppliers and markets, maintaining adequate inventory levels, and developing strong supplier relationships.
- Monitor the Impact: Companies should monitor the impact of supply chain disruptions on their operations and financial performance. This should include tracking key metrics, monitoring customer feedback, and regularly assessing the impact of the disruption.
- Respond and Recover: Companies should develop strategies to respond to and recover from supply chain disruptions. This should include developing communication plans, developing alternative solutions, and working with suppliers to restore operations.
In addition to proactive plans, there are several other approaches that companies can use to manage and mitigate supply chain disruptions. These include:
- Developing a comprehensive risk management strategy: This includes identifying potential risks, assessing the likelihood of disruptions, and developing strategies to limit the impact of disruptions.
- Creating a centralized, cross-functional team to coordinate the response to disruptions: This team should be responsible for identifying and mitigating supply chain risks and coordinating the response to disruptions.
- Establishing back-up plans and alternative sources of supply: Companies should create back-up plans and alternative sources of supply to ensure that they can quickly and efficiently respond to disruptions.
- Leveraging technology to improve visibility and agility: Companies should leverage technology to increase visibility and agility in the supply chain. This can help them quickly identify and respond to disruptions.
- Improving communication and collaboration with suppliers: Companies should ensure that they have clear communication and collaboration with suppliers to ensure a rapid response to disruptions.
In summary, there are a variety of approaches that companies can use to prepare for and manage supply chain disruptions. These include developing a comprehensive risk management strategy, creating a centralized, cross-functional team to coordinate the response to disruptions, establishing back-up plans and alternative sources of supply, leveraging technology to improve visibility and agility, and improving communication and collaboration with suppliers.
|Supply chain disruptions — recommended articles|
|Supply chain integration — Supply chain networks — Integrated supply chain — Supply chain risk — Global supply chains — Supply chain collaboration — Agile supply chain — SCM system — Processes of supply chain|
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- Chopra, S., & Sodhi, M. S. (2014). Reducing the risk of supply chain disruptions. MIT Sloan management review.
- Tang, C. S. (2006). Robust strategies for mitigating supply chain disruptions. International Journal of Logistics: Research and Applications, 9(1), 33-45.