Supply Chain Disruptions and How They Affect Businesses

Nick Mirev
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    Every few years, businesses are experiencing difficult times. Whether it’s the effects of economic stagnation or another economic condition, no company is immune to hardship. Supply chain disruptions are among the factors affecting business growth negatively. In fact, they can cause whole sectors to shut down. Furthermore, these disturbances also increase the effects of inflation and can easily lead to business recession. In this article, we’ll share more about the different types of supply chain disruptions. We’ll also give more information on how businesses can turn them around and benefit from them. This blog post is part of our series on market conditions. Check out our articles on deflation in businesses or the effects of low interest rates on businesses.

    What Are Supply Chain Disruptions and What Causes Them

    The term refers to a situation in which the flow of goods or services is disturbed by one or more factors. Supply chain disruptions are often associated with difficulties in logistics. However, they can include interruptions of information, finances, or other services. These disturbances can occur in various stages of the supply chain. For example, they can be caused by shortages of raw materials or by the inability to transport goods due to geopolitical factors.

    What Can Cause Supply Chain Disruptions

    1. War and other geopolitical factors. Instability caused by coups, trade wars, or sanctions can cause major supply chain disruptions. These factors can cause lengthy and significant disturbances in various supply chains.
    2. Labor strikes. Disruptions in the workforce can affect manufacturing, transportation, and other stages of the business cycle. Labor strikes usually don’t last for more than a few weeks. However, supply chains need additional time to get to full speed even after the strike is over.
    3. Natural disasters. Wildfires and floods can cause heavy damage to the agricultural sector. This can lead to an increase in both retail and wholesale prices of grains or crops. In addition, hurricanes and earthquakes also have the potential to disrupt logistics and damage the infrastructure.
    4. Economic conditions. Circumstances such as inflation or recession can lead to shifts in various supply chains.
    5. Cyberattacks. Cybersecurity is becoming an increasingly important thing for governments and corporations. Cyberattacks have the potential to knock out industrial companies or cause data leaks. These attacks often target critical infrastructure like transportation systems and software.
    Key takeaway: Supply chain disruptions can cause significant turmoil in the global economy. If they are caused by minor factors like labor strikes, they usually have a short-term effect. But if they’re caused by wars or other significant instabilities, they might last for years.
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    Negative Effects of Supply Chain Disruptions

    Disturbances in logistics and supply chains can cause a wide range of troubles not just for single businesses but for the economy as a whole. As we mentioned in our article on the effects of high interest rates on businesses, today’s economy is very interconnected. So if one sector is going through hard times, others will feel the effect soon. Let’s dive a little deeper into the main troubles caused by supply chain disruptions.

    Reduced Revenue

    All businesses aim to increase revenue and maximize profits. However, during a period of supply chain disruption, sectors can lose revenue. That’s because of product and material shortages. In addition to losing revenue temporarily, businesses might lose a significant proportion of their market share. If customers turn to other competitors that are better prepared for these disturbances, companies will need to invest a lot in marketing and ads to establish their positions once again.

    The increased cost of goods sold is also one of the aspects of shifts in supply chains. This can include increased operating expenses for transportation or sourcing materials. This can squeeze profit margins for businesses and even cause them to operate at a loss.

    Delays and Dissatisfaction

    Meeting customers’ demands is crucial, especially in highly competitive sectors. That’s why late deliveries and the dissatisfaction they cause might be disastrous for retailers. Furthermore, a business might not be able to follow with long-term contracts which might lead to lawsuits. So, reputation damage can be even harder than supply chain disruptions.

    Negative Impact on Global Markets

    Major disturbances in business logistics can negatively impact countries and markets globally. They might cause heavy volatility and a fast increase in price levels. This might force central banks to increase interest rates as a way to reduce the impact of inflation on businesses. Economies might need years to recover from these high-impact disruptions.

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    Positive Effects of Supply Chain Disruptions

    Although major shifts in global logistics almost certainly have a negative impact on companies, businesses might turn them to their advantage as well. Here are a few ideas.

    1. Innovate and think outside the box. Disruptions in the supply chain can drive innovation and cause businesses to adapt to the change in markets. This can be done by cutting costs or optimizing processes as a way to achieve higher ROI and maximize revenue during a difficult period.
    2. Diversification. Companies have the option to diversify their supply chains by partnering with additional wholesale suppliers. In fact, a period of disruption can also give bargaining power to a business.
    3. Market opportunities. Companies that haven’t properly prepared for supply chain disruptions can have a hard time servicing their debt. Ergo, disruptions might create opportunities for well-prepared businesses to make strategic acquisitions or rapidly increase their market share.
    4. Optimization. A company should constantly optimize its processes and products. During a period of economic growth, companies are often focused on increasing their manufacturing capabilities. A period of decrease, however, incentivizes businesses to invest in automation and optimization of their processes. 
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    Frequently Asked Questions about Supply Chain Disruption

    Do you wish to know how a business can prepare for supply chain disruptions? Below we’ve answered that question as well as some additional questions on the topic of business logistics disturbances.

    How to Prepare for Supply Chain Disruptions?

    Supply chain disruptions don’t occur overnight. There are signs of upcoming disturbances that give business owners time to prepare for them. Here are a few ways to prepare for logistics disruptions.

    • Conduct a risk assessment. Use business analytics tools to check out how disruptions will affect your operations and prepare for them.
    • Invest in technology integrations. By automating certain tasks, you are less susceptible to some forms of disturbances.
    • Diversify. Aim to expand your network of distributors. Find suppliers you can count on even if your current distributors are experiencing difficulties. Also, consider diversifying your services and products portfolio. That way, if supply chain disruptions make it impossible to produce certain products, you can switch to others.

    How Long Do Supply Chain Disruptions Last?

    The length of supply chain disruptions depends a lot on the cause of that disturbance. For example, a disruption that has been caused by a strike can be over in a few days. However, if it’s been caused by war or other geopolitical factors, it can last for years. That’s because wars and natural disasters can cause damage to key infrastructure and machinery necessary to manufacture or transport goods or services. Therefore, it might take months or even years to replace it.

    What Businesses Suffer the Most During Supply Chain Disruptions?

    During supply chain disruptions, all companies suffer. However, that’s especially true for businesses that rely on inventory to manufacture or sell goods. Retailers like stores or eCommerce businesses can have a lot of items out of stock. Manufacturers might not be able to get all the raw materials needed to produce their goods. Disruptions in food and agricultural supply chains can be troublesome for hospitality groups and the restaurant industry. Additionally, supply chain disruptions can snowball. So, even businesses that are not very dependent on them will experience negative impacts.

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