Supply chain disruption is any event that halts production and increases costs, whether it’s an earthquake, natural disaster, terrorist attack, conflict or disease. It can affect a company’s ability to make its products, or even have the raw materials needed for production. Supply chain disruption can occur at various severity levels, and it’s important for businesses to understand the risks and prepare accordingly.
High-severity disruptions impact the long-term operational efficiency of an organization, and can take months or even years to recover from. For example, the COVID-19 pandemic caused factory closures, transportation bottlenecks and fluctuating demand across multiple industries, which had a major impact on costs and lead times.
Low-severity disruptions are usually short-term and can often be resolved once the specific issue is resolved. For instance, the COVID-19 pandemic increased the cost of eggs in the United States by up to 70% — but there were a number of reasons behind this increase. One reason was that avian flu impacted poultry production, and the conflict in Ukraine delayed shipment of wheat, which is a key ingredient in chicken feed.
Political factors can also play a role in disruptions, such as changes to regulations related to trade agreements or environmental standards, or imposing sanctions. These can result in a halt to production or delays in shipments, as companies change processes and materials to comply with new laws. Disruptions can also result in a loss of business as customers lose trust in an organisation that’s been unable to meet customer demands due to delays or stock shortages.