What is Supply Chain Disruption: Meaning, Causes, Examples, and How to Manage It?

The supply chain refers to an entire mechanism responsible for all the processes, from producing a product to making it available to the customers. It is linked to the livelihood of millions involved in the process. However, supply chain disruptions have become a considerable concern in recent years. The latest geopolitical developments have created a scare that supply chains are vulnerable. Keep reading to learn what supply chain disruption is and how it can be managed.

What is Supply Chain Disruption?

Disruptions are unforeseen disturbances that affect a business's operations. Several businesses are involved in the supply chain. Imagine a disruption or unforeseen disturbance in it. Supply chain disruption can clog the entire flow of goods, causing multiple problems at all stages.

A smoothly functioning supply chain can ensure that raw material is transformed into finished goods and is seamlessly available for consumers. However, a supply chain disruption means losses for all involved: suppliers, manufacturers, transporters, distributors, retailers, and consumers. Everybody suffers.

As the name suggests, the supply chain is a chain of activities. Even if a link is broken, the entire supply chain becomes disrupted. The world noticed the far-reaching impact of supply chain disruption during COVID-19.

Causes of Supply Chain Disruption

Now, you would want to know what causes supply chain disruptions. Are only significant events responsible for large-scale disruption of activities, or do minor localised problems cause a big scare? Here are the important causes of supply chain disruptions:

• Natural Disasters

Infrastructure is critical for the functioning of the supply chain. Natural disasters can damage factories, roads, railways, ports, and other infrastructure. Floods, earthquakes, cyclones, landslides, and other natural disasters can make moving goods through the supply chain difficult.

• Pandemics

We all saw worldwide lockdowns very recently during the COVID-19 pandemic. These lockdowns disrupted supply chains by halting people's movement, leading to paused manufacturing. 

The deadly virus's wrath spared nothing. However, there was a silver lining. Supply chains could function by onboarding with third-party apps like Amazon, Swiggy, Blinkit, etc. Their contactless delivery came miraculously in handy in navigating the pandemic scare.

• Political Instability

Businesses have always suffered the consequences of political upheaval. Supply chain disruptions are not far from places facing political conflicts. Here are the problems supply chains face politically:

• Notorious Protests & Strikes: Politically motivated and funded protests are not new to the world, especially in democracies. The ambitions of some notorious elements can put people's livelihoods at risk and disrupt consumers. Workers' strikes have often been misused as a means to blackmail businesses.
• Local Conflicts and Coups: Conflicts between groups and rebels have long-term impacts on the supply chains. The Middle East is prone to such conflicts. Most recently, the problem of pirates in the Indian Ocean due to the Houthi Rebels conflict led to the abduction of many trade shipments, which had to be rescued by the Indian Navy. It disrupted the supply chains by blocking the route to the Suez Canal, forcing ships to take a longer route.
• Wars: Wars lead to the formation of naturally conflicted groups. Supply chain disruption is the major setback created by wars. Some wars are deliberately designed to affect supply chains.  Currently, two major wars are happening involving Russia-Ukraine and Israel-Hamas. 
  • The oil supply chain saw disruption due to the Russia-Ukraine war.
  • The Israel-Hamas war has choked the Middle-Eastern trade routes, the Suez Canal, to be precise. 
  • It has increased the distance between the West and the East.
• Sanctions: You may see sanctions as the by-product of wars and conflicts, but they are equally responsible for supply chain disruptions. Who pays the price? All those who are associated with the supply chain.
• Favouritism: Political favouritism can be the death knell of supply chains. Every powerful leader wants his representatives to control the supply chains, and their ambitions can cause disruptions.

• Economic Shifts

The economic cycles of recession, recovery, growth, and expansion keep repeating. Each one has a different effect on the supply chains. High inflation can cause a recession, which leads to supply chain disruptions. Reduced demand or sudden spikes in demand can overwhelm the supply chains.

• Supplier Failures & Breakdowns

The supply chain comprises many small players and some bigger ones. If one of the large suppliers faces issues in production, breakdowns or bankruptcy, it can lead to supply chain disruption.

• Cyberattacks

Hacking and cyberattacks are the most significant risks of technology. It's not uncommon for crucial supply chains to be infected by malware. Such attacks have the power to bring the supply chain to halts.

• Accidents

Accidents in factories or during transportation can cause the loss of product. Without the product, supply chain disruption is inevitable.

• Hoarding

Hoarders prevent essential goods from reaching the markets, creating artificial scarcity. They disrupt the supply chain to raise prices. As the prices rise, hoarders sell their products to capitalise on the starved customers.

We have tried to cover many points, but it is only possible to enumerate some causes in just one blog. Even the most negligible cause can lead to a wide-scale supply chain disruption.

Types of Supply Chain Disruption

Based on the causes, we can divide the supply chain disruptions into the following types:

Effects of Supply Chain Disruptions

To understand the importance of the supply chain for businesses, you should first see the effects of supply chain disruption. Here's how disruptions can affect various players:

• Production Halts: Disruptions in the supply chain lead to the non-availability of raw materials. Without it, production halts, leading to heavy losses for manufacturers.
• Delayed Deliveries: Production or transport delays inevitably lead to delays in goods delivery. Shipments get delayed, leaving the customer's demands unmet.
• Unavailability of goods: Supply chain disruptions can make essential goods like food and medicines scarce, leaving customers stranded.
• Increased Costs: The scarcity of goods can lead to unwanted inflation. This inflation benefits hoarders who accumulate essential goods and sell them at high prices later.
• Loss of Revenue: The businesses involved in the supply chain lose money because they cannot sell goods to customers. Customers might also turn to competitors for their products.
• Customer Dissatisfaction: A company's reputation is built on serving its customers well. However, supply chain disruptions can leave a bad taste, and customers can move to competitors.

Managing Supply Chain Disruptions

Supply chains are often vulnerable to various disruptions. Some of them are also beyond our control and cannot be stopped. However, you can prepare in advance and take steps to manage supply chain disruptions:

• Buy from Multiple Suppliers: Instead of relying on a single supplier, you can diversify. Having multiple suppliers can help you avoid the consequences of supply chain disruption. You can always bank on others if things go south with one supplier.
• Use Technology: Using advanced technology, you can manage the entire supply chain and always locate the goods. Tools like AI, blockchain, predictive analysis, etc, are very helpful in identifying problems and finding solutions beforehand.
• Develop Contingency Plans: Creating contingency plans can help you find alternatives in challenging situations. Multiple suppliers, transportation routes, machinery and workforce can help you manage supply chain disruptions.
• Improve Communication: Proper communication is the key to everyone's preparedness. When information is available beforehand, there are fewer chances of oversight and more chances of quick recovery.
• Localise your Supply Chain: Going global is a boon, but not for supply chains. There can be any number of risks and fallouts that lead to supply chain disruptions. It is better to source your raw material locally to ensure no significant surprises.
• Maintain Safety Stock: Companies tie their hands by depriving them of enough raw materials for cost-cutting. Keeping only the required amount and relying on JIT (Just-in-time) inventory can prove fatal. Hence, you should always keep a reserve stock that ensures the safety of operations.

Supply Chain Disruptions Case Study & Examples

We live in an era where there is no shortage of examples of supply chain disruptions. Some of the recent events that disrupted the Global Supply Chain are:

• US-China Trade War and US Sanctions - Since 2018
• COVID-19 Pandemic
• Brexit from the European Union
• Suez Canal Blockage 2021 - Ever Given Ship got stuck in the Canal
• Global Semiconductor Chip Shortage 2020-2022
• Russia-Ukraine War and US & EU Sanctions
• Israel Hamas War

These are some significant examples of supply chain disruptions in the last decade. The figures for the impact of these events alone would be eye-opening. 

For example, the COVID-19 pandemic. According to a report published, 72% of global corporations faced severe negative impacts, and more than 97% of companies manufacturing industrial products faced supply chain disruptions. When it came to India, we felt the shortage of Active Pharmaceutical Ingredients (API) quite severely. Our heavy dependence on the Chinese industries to source raw materials led to an acute shortage that disrupted the production of essential medicines.

As the world is highly globalised today, there are more threats to the supply chain than ever. Even a minor glitch can cause supply chain disruption and heavy loss for those who are a part of it. While stopping them might be beyond one's control, you can certainly prepare yourself in advance. To manage supply chain disruptions, it is essential to understand the causes and make the most of advanced technology.