The COVID-19 pandemic and resulting economic unrest produced supply chain disruptions like nothing the modern world had ever seen. Financial uncertainty, massive labor issues and government lockdowns, socio-political turmoil, and transportation snafus created long-reaching impacts that are still being felt today.
However, as bad as it was, the pandemic was certainly not the first serious supply chain disruption, nor will it be the last. Smart companies learn from mistakes and bad situations, and there are ways to prepare for and improve many common supply chain problems. Let’s go over some of the most common disruptions to the modern supply chain and discuss some potential solutions.
In an increasingly globalized market, governmental or bureaucratic issues are among the top worries for businesses. This is especially applicable to companies that acquire a large portion of their materials, components, or products from overseas suppliers, but it’s still a relevant problem for domestic businesses. The fact that a great majority of the supply chain has been globalized means that international manufacturing and transportation impacts even those businesses that try to source much of their products and materials from domestic suppliers.
For example, things like batteries, microchips, and even personal protective equipment (PPE) are essential components for many businesses, and almost all of it is manufactured in foreign countries. So, even if a particular business prioritizes sourcing components or products from domestic suppliers, the sub-components of those products are likely potentially impacted by political turmoil, bureaucracy, inefficiency, or governmental interference in their country of origin or somewhere along the journey.
This can be something as basic as governmental corruption, such as product inspectors requiring bribes or special consideration in order to release batches of components or materials. Or it can be shutdowns or delays due to a regime change or bureaucratic red tape. Political maneuvering such as blockades, punitive trade protectionism, tariffs, boycotts, and economic sanctions have been widely used by governments attempting to influence the responsible global behavior of other countries, and it’s impossible to predict when these measures may be taken.
Additionally, many industries today are heavily regulated. Compliance with local and international regulations can be complex and varies widely by region, leading to potentially severe legal and financial penalties if the often nebulous rules aren’t followed.
Material shortages are a constant worry for both domestic and globally supplied companies. Businesses relying on a unique (often proprietary) raw material, plant, extract, ore, or specialized component must always be concerned about those items coming into short supply, being overutilized, or becoming unavailable. Material shortages can be caused by multiple factors, including sharply increased demand (which is the Catch-22 of any retail business), poor environmental management, inefficiencies at the source, political turmoil (as noted above), severe weather events, war, and other issues.
As materials/component supply begins to dwindle, prices increase, and may spike dramatically if multiple entities are clamoring for the materials. Materials costs can increase to the point where it’s no longer feasible to manufacture or sell a competitively priced product.
Rapid, large increases in fuel prices have wide-reaching impacts on the supply chain, whether locally or globally. Even if materials can still be sourced at low prices, transporting those materials can become cost-ineffective if fuel/transportation prices rise too high. Prices for nearly all goods and services tend to follow fuel prices generally, since everyone depends on getting people and things from one place to another… and we haven’t figured out teleportation yet.
Global shipping is a $2.2 trillion dollar per year industry, but is still susceptible to weather, attacks from local militants, captain/pilot errors, and other threats. As recently as late 2023, the Suez Canal was deemed by some shipping companies to be hazardous enough to avoid, due to commercial shipping attacks by Yemen's Houthis. And of course everyone knows about the March 2021 incident when one of the world’s biggest container ships, the Ever Given, ran aground and blocked the canal for 6 days, causing a backup of at least 369 ships, costing an estimated $60 billion in global trade, and eventually requiring a $540 million settlement from the shipper to have the vessel released from government confiscation.
In addition to occasionally impassable canals, key ports can be closed, blocked, captured, or destroyed. Railways can be damaged. Tunnels can collapse. Roadways and bridges can fail and require months or years of reconstruction, causing costly detours. Severe weather, local rioting, or political coups can also delay or prevent logistics efforts.
Problems with labor are another common supply chain disruption. These can be as simple as a shortage of adequate laborers at the origin of raw materials as demand rises. Or it can be any disruption in labor availability anywhere along the supply chain, from sourcing to manufacturing/production to transportation to warehousing to delivery. Labor strikes may remove an entire section of the workforce for weeks or months. Pandemics may cause mandatory lockdowns of vital workers and team leaders, preventing sourcing, production, shipping, warehousing, last-mile logistics, and/or customer delivery/retail sales.
Inaccurate demand planning is a common cause of supply chain issues, and may result in either a surplus of product or an inadequate supply. Both are problematic for the supply chain. Too much inventory may result in inefficient use of transportation resources and warehouse space, raising operating costs while at the same time necessitating a drop in product price (and profit) in order to alleviate the overstock condition. Inadequate inventory can cause spikes in demand (which may sound like a good thing but often isn’t), and may result in unhappy clients, suppliers, and customers… all of which can severely impact the bottom line for current and future sales.
Wise business managers will always keep in mind the fact that even the latest tech or most in-demand paid service may eventually become obsolete or extinct. Typewriters, payphones (and printed phone books), newspapers, and all their manufacturing and service supply chains have all gone the way of the dodo, for example. At one time, it would seem absurd to suggest that effectively no one would be purchasing and reading the newspaper. Today, it seems laughable to suggest that people would want to. Every technology has the potential to become irrelevant, and these sea changes are not always easy to anticipate.
Inconsistent, dishonest, ineffective, or unreliable suppliers and vendors cause massive problems with supply chains. Poor suppliers can cause costly delays, impact product quality, and ruin corporate confidence in key projects and teams. Prices go up, quality suffers, sales may drop, and entire product lines can be lost or abandoned.
The Amazon generation has grown up with same-day shipping and overnight delivery as a default. The COVID-19 pandemic further increased consumer expectations regarding the need for rapid delivery of everything from dish soap, to high-end electronics, to prescription medications, to restaurant food and groceries, and everything in between. The growth of entertainment streaming services has spoiled today’s customers further, and anything greater than about 30 seconds now seems like a long time to wait for a product or service. Customers also expect free returns/exchanges, instant refunds, and limitless brick-and-mortar inventory availability. All of these factors make things extremely difficult for supply chain managers and anyone dealing with consumer product fulfillment and customer relations.
The increasing demand for near-instant shipping adds stresses and costs to sourcing, production, warehousing, sales, and, of course, last-mile delivery. Excessive returns create a nightmare for reverse logistics/shipping departments as well as demand forecasters and financial teams.
Ineffective warehousing and inventory management is another common problem that may cause supply chain disruption. Poor inventory management can lead to excess stock, which ties up working capital and increases storage costs. Or it can lead to unanticipated product shortages, resulting in lost sales and a poor customer experience, damaging a business’s reputation and hindering future sales/marketing efforts.
Now that we’ve covered 10 of the most common problems impacting the modern supply chain, let’s go over some proven ways to help alleviate or prevent these disruptions.
Naturally, if there’s only one source in the world for, to borrow a term from popular culture, unobtanium, you may be out of luck, if your product line absolutely depends on unobtanium-containing components. However, most companies can benefit from diversifying sources, suppliers, and/or vendors. It may be more expensive up front to utilize a wider range of sources or suppliers. For example, obtaining certain raw materials from one country may be costlier compared to sourcing those materials from another country. However, if there are serious supply chain disruptions that slow or prevent the flow of materials from the formerly cheaper source, the pricier backup source may seem like a bargain.
Similarly, while one supplier might be a long-term partner to your company and provide the best prices and service, it’s not wise to put all of your eggs in one basket. A good supplier will understand a company’s need to maintain relationships with alternative suppliers in case of supply chain breakdown. Of course, if both suppliers are sourcing their supply from the same place, and THAT source is disrupted, then both suppliers will likely be unable to provide your company with an adequate supply. However, maintaining multiple sources of materials and supply will help lessen the financial impact of any shortages, at least until suppliers’ excess inventory is used up. This can potentially stretch your available supply to cover a disruption.
Today, just-in-time (JIT) manufacturing is all the rage, and when supply chains are reliable and everything is running as it should, JIT can save significant money and resources. However, as many businesses learned (or re-learned) during the recent pandemic, JIT manufacturing is extremely susceptible to supply chain disruptions, and companies relying on this practice took a very long and expensive time to recover from major shortages. Some are still feeling the effects.
So, consider maintaining a reasonable buffer inventory of key components and materials where possible. This excess inventory will of course require some expense for management and rotation, but if a materials/component shortage, transportation snafu, spike in demand, or other supply chain disruption occurs, the extra inventory will help see a company through until the supply chain returns to some semblance of normality. At the very least, it will lessen the blow.
Just as smart company leaders will push for supplier and sourcing diversification, they should also develop alternative transportation plans. If one shipping lane is shut down, logistics specialists should be able to ramp up existing, alternate routes to keep the supply moving. In some cases, it can be smart for companies to maintain two or three main transportation avenues to obtain their normal supply, with at least one being a different transport method altogether. For example, if a company is mostly reliant on shipping and ports for its supply, leaders should consider air freight, rail, or trucking a portion of that supply where possible. With two or three alternative, concurrent transportation plans in place, it can be much more seamless to close one down temporarily during a supply chain disruption and ramp up another one, as opposed to scrambling to set up a previously nonexistent alternative after the primary system is disrupted.
Again, keeping a surplus alternative transportation plan/system in place preemptively may be frowned upon by hardcore cost-cutting auditors, but supply chain disruptions are fairly common, and the extra resources, time, and cost used to develop and maintain alternatives can be viewed as good insurance during times when things go badly wrong.
If company leadership doesn’t wish to actually have the alternative transportation methods up and running proactively, then they should at least develop the alternative plans and have relationships and conditional contracts in place and ready to go should something happen to disrupt the primary transportation system.
As mentioned above, if all your company does is make specific widgets out of unobtanium, you’re pretty locked in to that unique supply chain, and are therefore vulnerable to disruptions that threaten that supply. We mentioned earlier that building and maintaining a buffer inventory can alleviate some of that risk, but consider adding a related product line, or even something completely different, to flesh out additional revenue streams. Many companies have found that their “alternative” or “secondary” product/service lines are even more well-received than their original main line offerings, and smart managers will pivot where appropriate. Some businesses are now known for pivoting to what was originally their secondary or tertiary offerings, and their original business plans are nearly or fully extinct. Amazon, Netflix, Nokia, Avon, YouTube, and Nintendo are just a few examples.
Labor shortages and other related issues are challenging to address, but a multi-faceted approach can have significant benefits, depending on your business and needs.
This is easy to say but hard to achieve. However, a business’s financial leadership should ideally build and maintain sufficient financial liquidity to absorb fluctuations in price and supply. If there’s a global spike in prices for a key, high-demand component or material, companies that have the ready cash to pay the upcharge and keep moving forward will outlive those that can’t. Hopefully, the spike in price will normalize and the supply disruption will dissipate before a company’s liquid assets are used up. But it’s wise to at least have the option to stay in the game.
The Ever Given container ship mentioned above had protection and indemnity (third party) liability coverage of $3.1 billion. In addition, container ships of this size are typically insured for hull and machinery damage of at least $100 million and $140 million, respectively. The Suez Canal Authority originally asked for $1 billion in damages due to the accident, but as noted, eventually settled on “only” $540 million. We mention these numbers only to add perspective. Now, certainly risk management is much more involved than just buying insurance. However, a thorough risk management assessment of your company from a trusted consultant can not only bring peace of mind, but may save your business. Make sure to have regular risk management audits as your company grows and diversifies.
In many cases, it’s worth the time and cost to consult outside specialists in international business relations, regulatory affairs, compliance, quality control, warehousing, procurement, manufacturing, logistics, or other areas along the supply chain. Often, outside consultants can see holes in a business’s strategy or provide options and insights that haven’t been considered by in-house teams.
Technology integration can improve nearly every aspect of supply chain management, if that technology is vetted carefully and is well-developed. Supply chain software can include platforms and integrations for warehousing/inventory management, supplier relationship management, data analytics, demand planning/forecasting, supply planning and visibility, customer relationship management, logistics/transport management, project management and communication, and more.
Rather than dwell on previous failures during supply chain disruptions, intelligent companies learn all they can from these experiences. Leaders should identify each area of vulnerability and make specific plans to improve future responses to a similar threat to the supply chain. Regularly review all available information, ideally with real-time monitoring, to check for regulatory updates, market changes, world events, and new risk management needs. All supply chain management strategies and plans should also be regularly reviewed and audited to identify areas that may be improved.
The ORI Excellence Platform is the only software and AI tool purpose-built to help you achieve top-tier sales and operations planning and execution in one place. Reduce risk, manage uncertainty, and increase resilience with ORI.
Get a free demo and find out how ORI’s 30 years of experience and best-in-class technology can help you.