Supply Chain Disruption
Strategies to Manage and Prevent Future Crises
What is a Supply Chain Disruption?
A supply chain disruption occurs when the regular flow of goods in a supply chain is interrupted, causing delivery delays, increased costs, production stoppages, lost revenue and customer dissatisfaction. Not every supply chain disruption is as dramatic as the examples cited above- in fact, businesses must contend with everyday challenges that threaten disruption, such as local labor shortages, equipment breakdowns, quality control issues with a batch of materials, and production errors. While these challenges don’t make headlines, they can cause significant supply chain disruptions that create headaches for business leaders and supply chain managers alike.
The COVID-19 pandemic caused widespread supply chain disruption, affecting nearly every sector of the global economy. In June 2021, the Biden Administration published a summary of the pandemic-driven supply chain disruptions experienced by U.S. companies, highlighting how different industry sectors were impacted and how the supply chains across different industries were adjusting and recovering.
As this chart illustrates, manufacturers, builders, retailers, wholesalers and service industries took the brunt of supply chain disruption during the summer of 2021.
The manufacturing sector was impacted by COVID-19 lockdowns and restrictions which drove disruptions in workforce availability. This in turn caused production halts that rippled throughout the supply chain which manifested as product shortages downstream. According to the U.S. Bureau of Labor Statistics, manufacturing output during the pandemic fell at a 43-percent annual rate and hours worked fell at a 38-percent rate in the second quarter of 2020, the largest declines seen since World War II. At the same time, demand was increasing for certain products, such as home goods, was increasing at a time when manufacturers were ill-equipped to meet it. Lastly, manufacturers also contended with skyrocketing transportation costs that ate into profitability.
Construction companies, particularly homebuilders, experienced significant supply chain disruption related to shortages in key materials such as framing, lumber, wallboard, appliances, and roofing. In May 2021, a record number of builders– some 92%- reported material shortages.
Retailers and wholesalers alike struggled to manage sudden surges in consumer demand, labor shortages at factories, disruptions in raw material supply chains, transportation and logistics challenges, including surging rates. Spot shipping prices for containers coming from China to the U.S. rose to more than 1000 percent of 2019 levels.
Service industry businesses, particularly restaurants, were forced to shift to a new business model virtually overnight. With lockdowns and closures in place, consumer demand for takeout and delivery surged, with spending on food delivery increasing 70% in March 2020 as compared to March 2019. While restaurants were scrambling to transition to an app-based, “no contact” fulfillment model, they were also contending with labor shortages and shortages of key ingredients and supplies.
Current Trends Impacting Supply Chain Disruptions
This is but one example of many when it comes to supply chain disruptions. Let’s take a look at global trends that threaten to disrupt supply chains:
Geopolitical Instability
Geopolitical instability, from trade wars to military conflicts, creates supply chain disruption by introducing uncertainty, risk, and chaos in the global movement of goods and materials. Geopolitical instability can upend well-established trade routes, requiring companies to seek new suppliers for key materials used in their products. In the event of trade wars, tariffs imposed by one country on another can lead to a tit-for-tat escalation including sanctions and embargoes that further increase costs for companies that are sourcing from or selling to the affected countries. In war-torn countries, or those with high levels of corruption, supply chains that don’t break outright can buckle, becoming unreliable and excessively costly due to bureaucratic red tape, the breakdown of the rule of law, theft, and delays.
The International Monetary Fund (IMF) has studied how trade restrictions how trends in trade restrictions march in lockstep with geopolitical risks:
And how geopolitical events directly and negatively impact trade relations:
In a real world example of the potential impact of geopolitical events, the supply chain of one of Sheer’s clients, a global manufacturer of industrial materials, was jeopardized when seaborne attacks by Houthi rebels crippled shipping in the Red Sea. Through our integration with the client’s Real-Time Transportation Visibility Platforms (RTTVP), Sheer was able to provide predictive alerts to our client, and as result, the client was able to quickly assess alternative shipping routes and mitigate the impact on their supply chain.
Climate Change and Natural Disasters
Natural disasters have always posed a significant threat to the supply chain. As the effects of climate change become more widely recognized and better understood, most climate scientists agree that over time, the effects of natural disasters such as hurricanes, floods, drought, wildfires and other events will only be exacerbated.
Natural disasters disrupt the supply chain in many ways. First, they can damage and destroy critical infrastructure, including roads, bridges, ports, warehouses, manufacturing plants, and gas stations. They can knock out utilities such as electrical power, natural gas lines, and water and sewage systems. Damaged or destroyed infrastructure can cause delays in the transportation of goods and raw materials that creates a ripple effect throughout the supply chain. If the power is out, manufacturing plants can’t operate. If trucks can’t fill up on diesel, they can’t run. If roads are flooded, workers can’t get to warehouses and distribution centers. If a key bridge is out, alternate transportation methods must be devised. The end result of these disruptions is transportation delays, increased costs, shortages of raw materials and finished goods, potential stockouts and lost revenue.
Not all natural disasters are weather-related. In one instance, a Sheer Logistics client suffered a catastrophic fire in their main food production facility, completely halting their operations. To support our client, the Sheer Logistics team:
- Restructured the services agreement to provide financial relief while the client rebuilt.
- Worked with the client to identify and implement alternative contract manufacturers.
- Sourced carriers to service the new facilities.
- Helped the client maintain service to end customers.
- Restructured the carrier network to serve the new facility.
- Provided benchmark data and supply chain analysis to quantify impact.
As a result of the supply chain resiliency measures the client and Sheer Logistics had implement, the client was able to rebuild and successfully resume operations.
Cybersecurity Threats
Cybersecurity threats contribute to supply chain disruption by targeting the digital systems and supply networks that undergird the modern supply chain. As the supply chain becomes more digitalized and interconnected, the number of “attack surfaces,” or vulnerabilities, increases, creating greater vulnerability to cyberattacks from criminal elements, state actors, or even disgruntled current or former employees.
Consider that a cyberattack need not be focused on the supply chain itself in order to have a negative impact on supply chain function- cyberattacks on key digital infrastructure can quickly spread to connected systems.
Here is a breakdown of the most common types of cyberattack:
Title: Cyber-Attacks by Type.
Creator: Elochukwu Ukwandu, Hanan Hindy, Mohamed Amine Ben-Farah, Miroslav Bures
Source: https://www.researchgate.net/figure/Cyber-Attacks-by-Type_fig2_359155431
Copyright information: Creative Commons CC BY 4.0
According to Gartner®, “since the release of GenAI, attackers are increasingly employing tools along with large language models (LLMs) to carry out large-scale social engineering attacks, and Gartner predicts that by 2027, 17% of total cyberattacks/data leaks will involve generative AI.”
As cyberthreats increase, “worldwide end-user spending on information security is projected to total $212 billion in 2025, an increase of 15.1% from 2024, according to a new forecast from Gartner, Inc.
Labor Strikes
Labor strikes can cause significant supply chain disruptions by interrupting production, transportation, and overall business operations. Labor strikes can cause delays, shortages, and increased costs. Even strikes of limited duration can have a tremendous impact on the supply chain and the wider economy. The recent strike by the International Longshoremen’s Association (ILA), while only lasting three days, is estimated to have cost $3.8-$4.5B a day in lost economic activity. Supply chain experts estimate that each day of disruption will take five days to clear through the U.S. supply chain. A port strike lasting one to two weeks would have snarled the supply chain into early 2025.
One of the effects of a labor unrest is a spike in dwell time. The charts below show how dwell time skyrocketed in 2023 at West Coast ports. This occurred even though a formal strike had not been called- the dock workers simply staged a coordinated “no show” that closed ports due to lack of labor.
To understand the impact of a longer strike, consider the strike by machinists at Boeing. The strike began on September 13, 2024, and ended when Boeing and the machinist’s union reached a tentative deal on October 19, 2024. Over the course of the roughly five weeks of the strike, the aerospace industry as a whole saw a 12% decrease in aircraft and part production, driving output down 27% compared to 2017 levels. The economic loss resulting from the strike has been estimated at $7.64B, affecting not only Boeing and its employees, but also impacting Boeing’s suppliers to the tune of $1.77B.
Supply Shortages
Supply shortages, either due to labor strikes, natural disasters, or other causes, create supply chain disruptions that affect the flow of goods, increase prices, and cause strain between suppliers, manufacturers and customers. Supply shortages can create a “bullwhip effect,” in which small fluctuations in demand cause larger fluctuations up the supply chain. For example, when companies face supply shortages, they may place larger than normal orders to hedge against the uncertainty of future supply, exacerbating the issue throughout the supply chain.
The semiconductor chip shortage (yet another casualty of the COVID-19 pandemic) hobbled the automotive manufacturing industry, only returning to a semblance of normalcy in 2023. According to S&P Global Mobility, “in 2021 more than 9.5 million units of global light-vehicle production was lost as a direct result of a lack of necessary semiconductors, with the third quarter of 2021 experiencing the largest impact with an estimated volume loss of 3.5 million units.” Additionally, the chip shortage had a paradoxical effect in that it contributed to higher-than-usual sales driven by panic buying. The chart below illustrates the dramatic effect chip shortages had on vehicle production beginning in 2020:
Consequences of Supply Chain Disruptions for Business
Now that we’ve explored some of the causes of supply chain disruption, let’s take a look at the impacts these disruptions can have on businesses.
Financial Losses
When disruption leads to delays, lost sales are sure to follow, particularly for companies in industries that are seasonal or time-sensitive, such as retail, automotive and electronics. Simply put, you can’t sell a product that you don’t have.
Customer Dissatisfaction
Supply chain disruptions can quickly erode customer loyalty. When a product is unavailable, the damage to companies can be both immediate and lasting. Not only do companies miss out on the revenue from the initial purchase; future sales are put at risk as consumers look to other brands to fulfill their needs. The inability to meet customer’s needs can also damage your brand’s reputation, creating a deeper and more lasting challenge.
Loss of Market Share
When consumers can’t purchase their usual brands, they must turn to competing brands to meet their needs. Here’s why this can be so disastrous for businesses: according to SimplicityDX, over the last ten years “customer acquisition costs have risen by 222%. Brands today lose on average $29 for every new customer acquired, up from $19 a decade ago. This is a fully loaded cost, including contribution to overheads and factoring in returns. It assumes that all the cost of new customer acquisition is borne by the first sale, and consequently puts the emphasis on the second and third sale to drive profitability.”
Increased Costs
In addition to negatively impacting sales revenue and market share, businesses that experience supply chain disruption often face increased costs as well. When the supply chain breaks down, shippers must scramble to identify alternative suppliers, often at less-than-favorable terms. When disruptions cause delays, companies often seek to maintain customer satisfaction by expediting shipments, which carries a higher cost than normal shipping rates. When production backlogs occur, companies must pay workers overtime to get caught up. Businesses are often compelled to pass these higher costs along to their customers, which can exacerbate customer dissatisfaction and risk further eroding market share.
Key Strategies to Manage Supply Chain Disruptions
Clearly, the impact of supply chain disruption can be significant. Let’s take a look at the strategies companies are employing to minimize the frequency and mitigate the impact of supply chain disruptions.
Diversifying Supplier Networks
Relying on a single supplier is a classic case of putting all your eggs in one basket. To reduce your vulnerability to supply chain disruption, look to establish relationships with multiple suppliers whenever feasible. Doing so will insulate your supply chain from the risk of disruption and may offer the added benefit of ensuring that your suppliers maintain the desired service levels while keeping their pricing competitive.
Strengthening Cybersecurity Protocols
Strengthening your cybersecurity protocols can stop a potential incident before it can cause significant disruption. By implementing strong firewalls, intrusion detection systems and endpoint security, you can detect and block malicious activity before it negatively impacts supply chain operations. It is also critical to conduct regular employee training to build a cybersecurity-conscious culture.
Building Supply Chain Resilience
Diversifying your supplier base and hardening your technology stack are key to building supply chain resilience, minimizing the frequency of supply chain disruptions, and managing them once they occur.
Prevention Strategies for Future Supply Chain Disruptions
In recent years, many companies learned painful lessons about the resilience- or lack thereof- of their supply chains. In response, they are implementing a number of strategies to prevent significant supply chain disruption in the future.
Nearshoring
Nearshoring was already gaining momentum prior to the pandemic, but lockdowns in China, where many products consumed in the U.S. are manufactured, spurred business leaders to accelerate their plans for nearshoring. As a result, Mexico has now eclipsed China as the U.S.’ biggest trade partner. Nearshoring to Mexico offers multiple advantages: shorter transit times, lower transportation costs, and more optionality for transporting shipments (rail, over the road, air) rather than relying solely on ocean shipping to bring goods to the U.S.
Supply Chain Visibility
Building real-time visibility is essential for spotting supply chain issues before they become full-blown crises, and can help you recover when a disruption occurs. Leveraging tools such as Real-Time Transportation Visibility Platforms (RTTVP), IoT (Internet of Things) devices, RFID tracking, and AI tools provide critical data on the status of your supply chain, including inventory levels, supplier performance, production stages, and the status of shipments in transit.
Technology Integration
As your supply chain tech stack grows in complexity, technology integration becomes more critical. Integrating your disparate technology platforms such as ERP, Transportation Management Systems (TMS), Warehouse Management Systems (WMS), Inventory Management Systems (IMS), Real-Time Transportation Visibility Platforms (RTTVP) as well as integrating with your supply chain trading partners, can help you create a best-in-class logistics ecosystem that creates visibility, enhances data accuracy, improves your supply chain resilience, and prevents future disruptions.
Sustainability
Sustainable supply chains are more resilient to disruption. Why? Because the same strategies that make your supply chain more sustainable also make it more resilient: prioritizing environmentally-friendly sourcing, utilizing energy-efficient transportation, and minimizing resource waste all help mitigate supply chain risks associated with resource scarcity, regulatory pressures, and climate change.
Case Studies of Companies Mitigating Supply Chain Disruptions
To really bring this to life, let’s take a closer look at actual companies and how they built- or failed to build- resilient supply chains.
The Boeing Company, a leading global aerospace manufacturer, has had more than its share of supply chain snafus. In 2004, Boeing announced the development of the new Boeing 787 Dreamliner commercial aircraft. The Dreamliner was supposed to make its debut in 2007, but due to seemingly endless setbacks the first completed aircraft was not delivered until 2011. Instead of the smashing success Boeing executives had hoped for, the Dreamliner instead has become a case study in supply chain failure.
In order to meet its objectives for rapid development at a low cost, Boeing outsourced production of key parts and components as well as engineering work to an army of more than 50 different suppliers from multiple countries around the world. Boeing was simply unable to manage the complexities inherent with such a sprawling global supply chain, and the shortages of critical parts, quality control issues, and resultant delays piled up.
Unfortunately for Boeing, this is just one example of supply chain and quality control issues impacting the company. More recently, the company’s 737 Max 9 aircraft has suffered a string of incidents, including fatal crashes in 2018 and 2019. In January 2024, the door plugs in the mid exit door of a 737 Max 9 failed at 16,000 feet. The door blew off, decompressing the cabin rapidly (thankfully, no injuries were caused). According to Boeing, four key bolts that should have secured the door were not reinstalled after Boeing mechanics removed them to repair rivets in the exit door.
But that’s not all. The development of Boeing’s Starliner spacecraft saw cost overruns of $1.6 billion, due to delays and price increases related to supply chain issues. Further issues with the crafts thrusters and helium leaks in its propulsion system effectively stranded the crew of its first-ever manned flight on the International Space Station. NASA deemed it too risky for the astronauts to return to earth on the Starliner; the crew is planned to return home in February 2025 on a SpaceX Crew Dragon capsule instead.
Clearly, Boeing’s reputation has taken a serious hit. These failures are also reflected in the free-fall of Boeing’s stock price, which is down nearly 40% in 2024.
In October 2024, Boeing announced a $6.2 billion loss– $4 billion of which came from its commercial airline unit. In fact, Boeing has reported annual losses for the last five consecutive years. The company has not earned an annual profit since 2018.
Meanwhile, Boeing’s main competitor, Airbus, has swooped in and taken market share from the beleaguered manufacturer. How has Airbus prospered while Boeing continues to struggle? Part of the answer lies in Airbus’ supply chain strategies.
To be fair, Airbus has had its share of challenges: shortages of critical materials such as semiconductors and titanium, labor shortages, and transportation delays have impacted the manufacturing process, leading to Airbus cutting its production targets in 2024 from 800 aircraft to 770. The announcement of the reduced production targets saw Airbus’ stock price tumble to the tune of 10%.
To overcome these supply chain challenges, Airbus has undertaken a variety of measures. In early 2024, Airbus CEO Guillaume Faury announced that Airbus has grown its internal supply chain management team by 150% over the last two years in order to mitigate the risk of ongoing supply chain disruption. Like Boeing, Airbus relies on a sprawling global supply chain. To keep better tabs on their suppliers, Airbus embeds supply chain personnel within their supplier’s organizations to monitor their financial health and avoid disruption in the flow of critical components.
In addition, Airbus has committed to increasing inventory levels to create buffer stock against future parts shortages. Airbus has digitalized its global procurement process to streamline operational procurement and enhance supply chain visibility. In a recent interview with McKinsey & Company, Delphine Bazaud, senior vice president and head of industrial supply chain and digital operations at Airbus, shared that the company is currently engaged in “hundreds of initiatives” involving data and analytics, with a focus on creating supply chain visibility, improving communication among stakeholders including suppliers and partners, using predictive analytics to prevent production bottlenecks, facilitate forecasting, optimize transportation, accelerate decision-making, and to harmonize supply chain systems and metrics. According to a report in Kavout.com that compares Boeing and Airbus, “Both companies are grappling with supply chain disruptions, but Airbus’s proactive measures, such as diversifying its supplier base and investing in digital technologies, suggest a more resilient approach…In the battle between Boeing and Airbus, Airbus emerges as the clear leader in 2024.”
Conclusion
The ability to manage and prevent supply chain disruptions has become a vital differentiator for businesses in today’s interconnected global economy. As we’ve explored, global events that cause potential disruptions can arise from a variety of sources, including geopolitical instability, natural disasters, labor strikes, cybersecurity threats, and more. While these challenges are formidable, companies can mitigate their impact by adopting proactive strategies such as developing contingency plans, diversifying suppliers, strengthening cybersecurity protocols, and leveraging new technologies to enhance visibility and resilience. As businesses continue to navigate this volatile landscape, those that invest in flexible and resilient supply chains will be better positioned to weather future crises and sustain long-term success.
- Accenture. The impact of supply chain disruptions on business growth.
- Interos. Supply chain risk and intelligence: 2023 survey.
- U.S. Bureau of Labor Statistics. Impact of COVID-19 on manufacturing output and hours worked.
- IMF (International Monetary Fund). The relationship between geopolitical risks and trade restrictions.
- National Geographic. The effects of climate change on weather and supply chain resilience.
- Gartner. Global cybersecurity spending and trends.
- ResearchGate. Ukwandu, E., Hindy, H., Ben-Farah, M. A., & Bures, M. Cyber-attacks by type: Insights into digital vulnerabilities.
- LinkedIn. Jason Miller. Supply chain impacts of the 2024 Boeing machinist strike.
- BP Micro. Semiconductor shortages: A supply chain case study.
- The Economist Impact. The business costs of supply chain disruption.
- Kavout. Boeing vs. Airbus: Supply chain strategies in 2024.
- McKinsey & Company. Airbus supply chain initiatives and digital transformation.
- Airbus. Expanding supply chain management to enhance resilience.
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