How to Stay Operational During Supply Chain Disruptions

With supply chain disruptions, a singular event can have wide-reaching impacts – leading to material shortages, delayed production, and huge losses for manufacturers.

Supply chain disruptions affect every part of the production cycle in our globally linked economy. Inefficiencies at the plant level can compound the problem, leading to more extensive delays and operating losses.

On the flip side, building a sound defense plan can help you mitigate the impact of unexpected operational disruptions, so you can keep your business up and running even in the face of chaos.

In this article, we’ll look at some common causes of supply chain disruptions, and what businesses can do to enhance their resilience in the face of unexpected challenges.

What Is a Supply Chain Disruption?

Simply put, a supply chain disruption refers to any unexpected event that breaks the flow of goods or services, preventing a business from completing production or delivering shipments on time. These disruptions may stem from a wide variety of causes, but often have similar impacts on the business, its consumers, and the broader economy.

Main Causes of Supply Chain Disruptions

Common causes of supply chain disruptions include:

• Natural disasters

  Weather events such as floods, earthquakes, hurricanes, and blizzards can prevent deliveries from arriving due to road closures and other infrastructure damage, or even lead to factory power outages that shut down operations altogether.

• Geopolitical events

  Border closures and sanctions due to war or political tensions can restrict foreign trade, forcing companies to seek out alternative suppliers that may be more expensive and take longer to ship their goods

• Logistical challenges

  Sometimes, the problem is getting a shipment from Point A to Point B – the Suez Canal story is a prime example of this type of challenge. Major route closures, port congestion, and driver shortages can all lead to delayed shipments.

• Raw material shortages

  When raw materials essential to production have limited availability, production can be delayed, and material prices spike. Imported goods may also become cost-prohibitive due to factors such as tariffs and inflated shipping charges.

• Labor shortages

  Widespread illnesses can cause significant absenteeism: In 2020 during the height of the COVID-19 pandemic, meatpacking plants saw a 25% reduction in production capacity largely due to worker absenteeism. Other factors such as immigration visa issues, skills gaps in hiring, workers’ strikes, and layoffs also contribute to production bottlenecks. <

• Cyber attacks

  Nearly half of all organizations globally are expected to suffer an attack on their software supply chain by 2025. The impact can be enormous, leading to operational shutdowns, legal liabilities, and reputational damage. The average cost to restore operations after a data breach is nearly $5 million.

Supply Chain Disruptions Impact

Supply chain disruptions have impacts on businesses and consumers alike. Primary impacts may include:

• Increased costs

  Disruptions may lead to price hikes for businesses, driven by factors such as increased inventory holding costs, higher prices for goods and materials, and increased transportation costs. These inflated costs are often passed on to consumers down the line, in the form of higher prices.

• Production delays

  If facilities don’t have the materials or workers they need to produce their goods, they may be forced to shut down production lines or operate at reduced capacity, delaying the factory’s output – or even eliminating specific product lines if they don’t have the capacity to manufacture them.

• Loss of customer loyalty

  Production delays, product shortages, and price increases can all lead to customer dissatisfaction. As a result, companies who are impacted by supply chain disruptions may lose market share to competitors who are able to better manage their supply issues. For instance, during the supply chain disruptions brought on by the COVID-19 pandemic, 77% of consumers said they changed their preferred brands or shopping behaviors.

No matter the cause, the impact of these disruptions can be extreme. McKinsey estimates that supply chain disruptions cost companies 45% of one year’s profits over a decade due to revenue losses, higher costs, and reputational damage.

Businesses that can effectively mitigate the impact of supply chain disruptions will be able to remain resilient in the face of chaos – but before we discuss ways to do that, let’s first explore why the manufacturing industry is particularly vulnerable to these events.

Supply Chain Disruption Impact on Manufacturing Facilities

While many types of organizations, including logistics operators, construction businesses, and retail brands may feel the pain of supply chain disruptions, these issues are particularly tough on the manufacturing industry for a few key reasons.

The Downside of Lean Manufacturing

Many manufacturing and warehousing facilities have moved to a “just-in-time” inventory model, limiting their goods and materials sourcing to the minimum required to fill anticipated orders. When things are running according to plan, this model helps you save costs by avoiding overstock and maximizes efficiency. But if you’re responding to a current supply chain disruption, it can be significantly more difficult to get back to baseline production levels when incoming shipments are delayed.

The Skilled Worker Shortage in Manufacturing

Skilled manufacturing workers are also in short supply, with recent estimates showing as few as one skilled candidate for every 20 open positions. Today, there are more than 400,000 manufacturing roles in the U.S. sitting unfilled. In fact, one in 5 manufacturers failing to meet production goals reported that a shortage of skilled workers was a key constraint.

As such, unplanned absenteeism or worker turnover leaves no room for error when you don’t have a ready supply of skilled workers to step in and fill the gaps. Worker shortages often lead to high rates of overtime and increased production costs, as well as delayed production cycles and higher safety incident rates. In fact, the cost of unplanned absenteeism among hourly manufacturing teams adds up to roughly $3,600 per worker per year.

Cause and Effect in Supply Chain Disruptions

It’s called a supply chain for a reason. Every part of the manufacturing process is interlinked.

That means when a critical material isn’t available or doesn’t arrive on schedule, your operations team needs to quickly recalibrate and come up with a new plan. This disruption often results in product shortages or delays. The same applies when your workers don’t show up. Your HR leaders will need to juggle resources and call in temp or overtime workers, leading to budget overages and delayed production schedules.

The sad truth is, supply chain disruptions can be completely unpredictable. Whether a ship gets stuck somewhere in the North Sea or a group of unionized workers go on strike, there’s no way to fully protect your organization against the countless variety of incidents that may impact your business operations and production cycles.

What can you do? Set up guardrails to ensure your organization remains sustainable, no matter what comes its way.

By using the right technologies to promote visibility and transparency throughout your business operations, you’ll be prepared to make agile shifts that keep your facility running smoothly in the face of a disruption.

4 Key Strategies to Stay Operational During Supply Chain Disruptions

No matter the source of the disruption, building an effective mitigation plan can help you curb its impact. Consider these strategies to help you streamline operational management when responding to supply chain issues.

1. Diversify Your Supplier Network

   Many American companies discovered the risks of failing to diversify vendor networks the hard way earlier this year when tariff rates jumped to 20% on all Chinese imports, with the threat of further rate hikes to follow.
   
   Whether due to tariffs, weather events, geopolitical conflicts, or any number of other factors, over-relying on materials or products from one vendor or region can leave your business extremely vulnerable, with no Plan B if you’re not able to secure supplies on schedule or within your budget.
   
   Instead, build a diverse supplier network that includes multiple vendors, including nearshore companies that can ship goods more quickly. By doing so, you’ll be able to craft a sourcing strategy that helps you pivot quickly in the face of unexpected outages, delays, or price hikes.

2. Build Flexibility into Your Inventory Model

   “Just-in-time” manufacturing is an ideal model in theory, but most businesses need the security of a built-in buffer to account for potential shortages or bottlenecks. Use predictive analytics to help you calculate the minimum amount of inventory you need at any given time, based on seasonal demand – and then build a margin of error into that to account for supply chain disruptions.
   
   Immediately after the pandemic, 59% of manufacturers increased their inventory buffer, though the number has since fallen to 34%. Automotive manufacturers, for instance, often hold two to three months’ worth of safety stock to hedge against the risk of global component shortages or delays.
   
   By modeling risk analysis scenarios, you’ll be able to determine the right amount of inventory you need to ensure continued operations in the face of supply chain disruptions.

3. Create and Test Contingency Plans

   Take control of chaos with advanced preparation. Just as you have standardized processes for day-to-day operations, it’s important to build an operational playbook that covers what happens when operations are disrupted.
   
   What should you do in the face of an event such as an extended power outage, a workers’ strike, an equipment breakdown, a data breach, or a critical supply shortage? Who’s responsible for making decisions, and what’s the standard protocol in each scenario? How can you instantly check in with your employees with important announcements and updates?
   
   Your playbook should include the roles and responsibilities of each department in managing your team’s response, with a centralized communication platform for collaborating. By running through each scenario on the platform, you’ll be well-prepared to respond in the case of a real event.

4. Use Technology to Increase Operational Visibility

   As we’ve already touched on briefly, adopting best-in-class technology can help you keep your business running on all cylinders, no matter what’s going on behind the scenes.

Real Example of Supply Chain Disruptions

$60 Billion Lost in the Suez Canal Disruption

The Suez Canal is a man-made waterway in Egypt that connects the Mediterranean Sea to the Red Sea. It is only 673 feet wide at its narrowest point – allowing for one-way passage along this popular trade route. So when a large ship got stuck in the canal for six days in 2021, it was no mere traffic jam: The route was effectively shut down, delaying more than 400 ships from reaching port.

The ripple effect was monumental. Delivery delays forced manufacturing facilities to halt production worldwide, with losses of nearly $10 billion every day until the blockage was cleared. Even once the ships cleared port, unloading delays and trucking shortages meant that some companies weren’t able to get back to their normal production schedule for up to two months.

As this example illustrates, one setback in one tiny waterway can disrupt an entire chain of events across the world.

Best Supply Chain Tools and Software 

Some common tools to help you streamline operations and enhance transparency include:

• Forecasting tools

  Data analytics tools that look at historical trends and use predictive analytics to assess scenarios can help you build accurate predictions around how different types of supply chain shortages might impact your business operations. Armed with these insights, you’ll be able to build effective resilience plans.

• Communication tools

  Streamlined cross-department collaboration is crucial in the face of supply chain issues – so look for secure, industry-compliant, mobile-first communication tools that your team members can easily use to share and document information. Make sure your comms platform is intuitive to use, or critical frontline employees aren’t likely to engage there.

• Labor visibility tools like TeamSense

  During supply chain disruptions, every second of downtime adds up to lost profits. By using solutions like TeamSense, an absence management platform that helps you get real-time visibility around workplace attendance, you can schedule operations more efficiently and minimize overtime pay.