Supply chain disruption – like that we’ve seen over the past couple of years due to the pandemic – isn’t a new concept. Supply chain professionals, such as those at manufacturing and distribution companies, have always faced challenges.
They’ve always had to be flexible and build resilience against supply chain disruptions big and small, be they global, regional or internal, including:
- Natural disasters. According to McKinsey, damage from 40 weather disasters in 2019 cost more than $1 billion each.
- Global trade issues, such as disputes and tariffs.
- Geopolitical climate and policies.
- Cybersecurity risks. McKinsey reports that increasingly digital business infrastructures create new and expanded vulnerabilities. And Interos found a majority of supply chain experts experienced 2 or more breaches over the year before their Annual Global Supply Chain Report.
- Unanticipated supply shortages and demand spikes.
- Power outages at facilities or offices.
- Shutdowns and lockdowns along the supply chain, out to third-tier suppliers and beyond.
Based on McKinsey’s assessment of disruptions, “acute climate events” like hurricanes have an estimated cost of shock ranging in the hundreds of billions to trillions of dollars. Trade disputes range in the hundreds of billions. A pandemic or extreme pandemic ranges as high as a “Supervolcano” or meteoroid strike: tens of trillions. The lowest-cost disruptions are theft and counterfeit.
Ernst and Young reports that 72% of respondents in a survey of supply chain executives experienced a negative effect due to the disruption caused by the pandemic. Almost every industrial products representative (97%) reported a negative effect, and every automotive representative reported a negative effect.
Here’s a look at some of the costs of supply chain disruption at various points of the chain and across industries.
Costs of Supply Chain Disruption
The financial impact of supply chain disruption stretches from lack of resources on the production line to lack of container space at the ports and shortage of raw materials at far-tier suppliers.
Direct revenue loss
- A majority (85%) of global supply chains experienced reduced operations and 6% had to close down entirely. (Forbes)
- Shortages of products and materials brought about by disruption delayed and stalled revenue-building business activity. (White House)
- The National Retail Federation reports 97% of members surveyed have experienced port and shipping delays, and 70% have experience 2 to 3 weeks of delay in their supply chains due to congestion. As a result, they’ve experienced additional costs related to transportation and warehousing.
- In June of 2021, ocean shipments from China took 42% longer to arrive compared to June 2020. (EPS News)
- The Institute for Supply Management found that the Manufacturing sector hit a historic high for its Backlog of Orders index in May 2021, at 70.6%, and Services hit a high in June, at 65.8%.
- The blockage in the Suez Canal in March 2021 is reported to have delayed up to $10 billion in products.
- 71% of goods require trucking in the United States and the industry is experiencing a significant driver shortage. According to the American Trucking Associations, to solve for this shortage and account for truckers entering retirement, the industry must hire 1.1 million drivers in the next decade.
- Due to supply shortages, the price of commodities rose 19% between May 2020 and May 2021. (White House)
- Shipping costs for containers, as reflected in the Freightos Baltic Index, continue to rise, even after tripling from rates in mid-2020. (EPS News)
- In January of 2021, The Washington Post reported a 27% price increase for imported industrial supplies by December 2020 versus prices in April 2020.
- In Q1 of 2021, warehouse rents rose in all U.S. markets as demand increased and vacancies dropped, according to Supply Chain Dive.
- Most respondents to the Interos survey (83%) reported reputational damage due to supply chain disruptions, a clear yet difficult-to-calculate impact to revenue as companies lost customers and struggled to acquire new business.
Managing supply chain disruptions big and small
Moving forward, costs will continue to rise for businesses as they build future-ready supply chains. According to Interos, 74% of supply chain experts surveyed still assess their supply chain operations manually. And many businesses have low visibility over their supply chains.
Yet, according to Forbes, “Organizations best able to manage the pandemic were the ones that embraced digital transformation.”
These organizations curbed some of the costs related to supply chain disruption. They had greater visibility so they could act in a timely manner to respond to demand, secure supply, and keep customers informed. Companies that embraced automation weren’t subject to informational delays about supply chain issues, leaving their staff to focus on providing quality customer service amid a worldwide crisis.
Conexiom for Supply Chain helps distributors and manufacturers automate the procure-to-pay process – a flow through which the most essential supply chain information travels. Red flags that signal potential delays or lack of supply are clearer in real-time.
Supply chain disruptions will always be a reality. Those who rely heavily on manual processes to track and manage their supply chain operations are at a disadvantage in the face of cybersecurity risks, major weather events, days-long power outages and global health issues. Start making strategic moves now.
Start by closing the digital automation gap in your supply chain processes.