What is supply chain disruption: definition and potential impact of supply chain disruption

Supply chain disruption is an event or series of events that hinders the flow of materials, services, or goods necessary for the uninterrupted functioning of a business, potentially causing problems across the entire organization. The impact of supply chain disruption can manifest in a wide range of negative consequences, such as:

• Lost revenue and increased expenses
• Slowdowns, shutdowns, or bottlenecks in production
• Delayed or disrupted logistics
• Damage to customer satisfaction and partnerships
• Strain on supplier and distributor relationships
• Accelerated wear or breakage of equipment

Why is it important to prepare for supply chain disruption?

It’s incredibly important to prepare for supply chain disruption because supply chain management (SCM) is the bedrock of efficient business operations. Any disruption in supply chain can affect the entire organization if not properly mitigated. Today, in a vast proportion of businesses, supply chains have become global and interconnected. This makes companies sensitive to supply chain disruptions due to both internal factors and external ones: economic shifts, global and regional trade disruptions, and unforeseeable calamities like pandemics and natural disasters.

To make their supply chains resilient, companies need a proactive strategy for mitigating local, regional, and global supply chain disruptions—and the right technologies to empower it. The overarching goal of such strategy is to make supply chains lean and fast to pivot, giving SCM leaders the right insight and capabilities to not only anticipate and avoid disruptions that can be avoided but also to minimize the impact of supply chain disruptions that cannot even be foreseen, let alone prevented.

What are the causes of supply chain disruption?

The causes of supply chain disruption are varied, but it’s important to make the distinction between internal and external causes because the two types are best remedied by two different approaches, which together form a well-rounded supply chain disruption management strategy. Let’s break this down.

Internal causes of supply chain disruption: examples

Broadly speaking, internal causes of supply chain disruption are issues within the organization, its processes, or direct operations. Some examples of internal causes of supply chain disruption include:

• Equipment failure
  For example, a manufacturing machine breaks down, halting production of a component used in further production.
• Unoptimized logistics
  Poorly planned logistical routes end up performing below expectations, slowing down delivery of crucial materials and shifting the entire production timeline.
• Inaccurate forecasting and planning
  For example, unrealistic, faulty calculations or poor inventory management lead to inventory stockouts or excess.
• Poor supplier communication
  Miscommunication with one of the suppliers has left the company unprepared for a shortage of materials that supplier typically provides, but the company doesn’t have extensive enough supplier network to quickly find a replacement; the result—disruptions in supply chain cause production slowdown, which leads to revenue loss.

There are countless other examples of internal causes of supply chain disruption, but these showcase a key uniting factor: they’re all more or less within the realm of the organization’s control. They can be anticipated, which means they can be prevented or at least addressed before they become a disruptor. The key? Transparency and maximum visibility—in other words, data and technologies. This takeaway will be important when we get to supply chain disruption management strategies.

External causes of supply chain disruption: examples

To name just a few, examples of external supply chain disruptions include:

• Sudden shifts in consumer demand
  Sudden new customer demand can put pressure on the product development team to roll out new products or value-adding features, which may require different materials and components or cause an unexpected shortage. In extreme cases, consumer demand can even start competing with organizations’ demand. For example, at the start of the COVID-19 pandemic, a massive increase in consumer demand for hand sanitizer affected the pricing and availability for organizations that typically needed it as part of their supply chain, such as restaurants and hospitals. Interestingly, many distilleries and breweries pivoted to producing hand sanitizer then, exploiting their supply of alcohol.
• Political shifts
  Trade disruption affects local and global supply chain disruption patterns in a number of ways. Tariffs imposed as part of trade wars, isolationist policies, or attempts at domestic protectionism can drastically alter pricing forecasts, create supply bottlenecks, and downright halt production if crucial components become unavailable for import and have no domestic replacements. But even for goods and materials that aren’t affected directly, trade volatility itself can be damaging: suppliers may change prices preventatively to protect themselves from uncertainty—and it will be your supply chain bearing a part of that cost.
• Rapid demographic changes
  Rapid changes to workforce availability—which can result from policy or catastrophic events like war—can cause a variety of supply chain disruptions, too. For example, understaffing can affect supplier productivity and, over time, cause shortages of some supplies. A lack of qualified maintenance staff can speed up equipment wear and breakdown, putting more pressure on the procurement team to source replacements.
• Sudden energy and raw material shortages
  Regional turmoil affecting territories that are rich in certain natural resources, effects of climate change, or an unforeseeable natural phenomenon can affect availability of raw materials and energy that can be hard or impossible to replace. For instance, there are only so many countries that have significant deposits of some platinum group metals (PGMs); if one of these, for example, becomes too embroiled in a war to maintain the extraction rate and logistics, manufacturers that rely on these materials will be hard-pressed to avoid disruption in supply chains. Although agricultural production is now much less dependent on weather and better protected against crop and livestock diseases than in the past—a particularly bad drought or flu can still ravage supply, leading to shortages and price spikes. Similarly, certain types of energy and goods have rigid logistics, which are easy to disrupt and hard to re-route. If a gas pipe is damaged or a sea route blockaded, companies need to either pay the premium on getting supplies delivered via another route or have the agility to pivot to a different supplier, whose logistics aren’t affected.

What’s caused supply chain disruptions in recent years?

The few examples above should all sound familiar because we’ve all seen the devastating impact of supply chain disruption they’ve caused.

A recent outbreak of avian flu has led to a temporary shortage of eggs in the United States, resulting in consumer frustration, a surge in prices, and a disruption in supply chains of countless businesses, including restaurants, bakeries, and processed food manufacturers.

Just as the post-pandemic world was recovering from the shocking global supply chain disruption caused by COVID-19, the Russia-Ukraine war ignited another wave of supply chain disruptions. This single event has involved sanctions on Russia (a major supplier of various natural resources and energy), devastation of productivity in Ukraine (also a major supplier of goods and raw materials, and a key player in energy logistics), destruction of some energy infrastructure, temporary blockades of trade in the Black Sea, which for some time hindered the delivery of essential agricultural produce like grain, massive demographic impact that affects workforce and, by extension, supplier productivity in certain industries, and the tectonic shift in trade logistics. The long-term impact of supply chain disruption caused by this war is still hard to fully quantify.

Supply chain disruption risks are hard to predict

There are two important takeaways from these supply chain disruption examples:

• It doesn’t take sophisticated analytics to establish that some supply chain disruption risks are simply unavoidable, and many cannot be predicted. Few had expected the pandemic, and hardly anyone could have accurately predicted the exact impact of supply chain disruption caused by the Russia-Ukraine war, even when it was already underway.
• In today’s interconnected yet volatile global economy, it does take sophisticated technology and strategy to survive and mitigate supply chain disruptions. In fact, an effective strategy for supply chain disruption management has to focus on both anticipation and reduction of risk—and proactively improving supply chain resilience and ability to adapt to whatever challenges arise.

How to prevent supply chain disruption—or prepare for those you cannot prevent

Supply chain disruption management relies on two elements of risk management: prevention (trying to avoid the disruption) and mitigation (minimizing impact of the disruption that did happen). Both require leadership, proactive strategy, and technology.

As noted above, the avoidable supply chain disruption risks are often the result of a human error or lack in visibility, especially the internal supply chain disruptions. The solution? Better monitoring equipment and software, digitized inventory management, data-driven forecasting and planning, real-time insights informing decision-making, AI-powered analysis—in other words, tools for transparency and end-to-end visibility. Even the most brilliant SCM analyst or manager could do better with the right tools.

But the final piece of the puzzle is supply chain resilience: its ability to recover from disruptions, pivot, and minimize the damage done by disruptions that couldn’t be avoided, or even foreseen. This is a crucial point: completely removing uncertainty is practically impossible, so supply chain managers need to be proactive in preparing for disruptions. This doesn’t mean opting for the just-in-case (JIC) inventory strategy to have a stock or the just-in-time (JIT) model to keep it lean. Building a resilient supply chain means:

• Nurturing an extensive supply chain network so you can pivot between suppliers quickly.
• Optimizing and connecting supply chain processes, as well as synchronizing finance management and supply chain planning, so you can react to disruptions quickly.
• Digitizing as many aspects of your supply chain as possible and using Internet-of-Things (IoT) sensors and trackers, to maximize end-to-end visibility your decision-makers have when creating or adjusting supply chain strategies.
• Exploiting sophisticated technologies that can extend the time-to-survive and support supply chain professionals across every task, providing data-driven insights, real-time analytics, time-saving automation, AI-enhanced forecasting, and other advantages.
• Integrating real-time operational, sustainability, and business data to make sure every supply chain decision is guided by accurate, in-the-moment insights and full business context.

If it looks like disruption-proofing your supply chain is a complex task, that’s because it is. But there are more powerful tools to help with it than ever before. Which is why making use of technology is no longer a competitive advantage—it’s the foundation of a resilient supply chain.

How can technology help prevent and mitigate supply chain disruption: 10 tips for resilience

Because of how complex and interconnected global supply chains have become, keeping them resilient is no small task. But with the threat of supply chain disruptions ever-present and very real, and the amount of uncertainty and risks, supply chain professionals increasingly turn to technology for help. Here are ten actionable, practical tips to help put technology to use and build a resilient supply chain:

Tip 1: Assess your current supply chain risks and visibility

Take an unflinching audit of your current processes, workflows, and assets. Map the roles, workflows, and flow of orders and goods across your supply chain from end to end, starting with raw materials producers and suppliers through to manufacturers, shippers, distributors, sales and marketing, and finally the customers themselves. Then, make an honest assessment about how much visibility and control you actually have over your supply chain:

Identify all sources of data: Are there IoT sensors or other monitoring equipment that generates data? Do you currently use SCM software that gathers or manipulates data? Do you have a convenient dashboarding interface that actually lets you see that data in one place, or is it fragmented across a patchwork of legacy systems with limited visibility? Are the business planning tools integrated with your digital supply chain? Is any of the information retrieval and reporting automated, or does everything rely on you constantly seeking out insights?

Look at your risk and inventory management processes: With the most recent disruptions you’ve had to deal with, did you have the information that could have helped you anticipate them, or did those supply chain disruptions seem to come out of the blue and blindside you?

Talk to your people: Do teams assessing supply chain risk have the insights they need for accurate finance and supply chain forecasting? If not, what’s the obstacle: is there a blind spot or a gap in data, is the dashboarding not informative enough, or are there siloes in how processes and teams are set up that hinder end-to-end visibility and cross-functional coordination? Do they have the right algorithms, machine learning capabilities, or even artificial intelligence (AI) to make planning and forecasting more accurate?

Look at your supply chain assets and logistics: How much oversight do you have over fleets, manufacturing machines, automated equipment? How do you tell if those assets are operating most efficiently and safely? Do you have software and hardware to track logistics in real time, and, if any disruptions are detected, are there algorithms to synchronously recalibrate forecasts and timelines for all elements of the supply chain that relied on those logistics?

Tip 2: Decide how you can use technology in supply chain transformation

Now that you know where you are, it’s time to decide where you’re going. Consider the weak links and blind spots you’ve uncovered and think about which tools and which changes to processes can eliminate them.

Here’s a high-level checklist of technologies you might need:

• For end-to-end visibility: IoT sensors and trackers, AI-assisted visual inspection capabilities, data-driven analytical tools with informative dashboards and integration with various sources of data, a robust SCM data cloud infrastructure that delivers clean and governed data to power analytics and enable real-time intelligence.
• For accurate forecasting and supply chain planning: Cloud computing capabilities that enable scalable, real-time analysis of relevant data, financial management software for synchronization with supply chain planning and forecasting, and a solid, trusted data foundation.
• For optimized, disruption-ready operations: A powerful business suite or platform that can connect and integrate your applications, data, and AI for greater agility and scale; trade and tax management software that can automate trade and tax operations—especially valuable for global supply chains.
• For accurate demand planning: AI-assisted applications enabling what-if scenario modeling, machine-learning algorithms that support demand sensing.
• For coordinatedplanning and workflow: An integrated business technology platform that connects supply chain management to other aspects of the business, enabling collaboration and eliminating silos.
• For optimizing asset lifecycles: Enterprise-grade asset management software that provides complete lifecycle visibility through a unified digital thread, applies AI to generate insights and automate tasks, and orchestrates end-to-end asset management with a closed-loop process.
• For mitigating sudden supply chain disruptions: An extensive supplier network that allows to quickly pivot if existing suppliers suddenly become unavailable or themselves experience a disruption, collaborate with trading partners on planning, inventory, and quality management processes, or find new suppliers as needed for new products or value-added offerings.

This list is far from exhaustive; there are many technologies that can help with supply chain disruption management, and the exact tools you need depend on your unique operations and challenges. But whatever they are—there’s an app for that.

Tip 3: Build the right team to optimize your supply chain management processes

At this stage, it’s important to identify needs and gaps in the skills and leadership you’ll need for your supply chain transformation. As part of a robust change management strategy, you’ll want to bring your HR team members on board early. They can help you pinpoint existing employees who can most efficiently be upskilled or reskilled. They will also be best positioned to assist you with building profiles and job descriptions for any new talent you may need to support new operations or technologies. In addition, consider opting for software that has integrated AI built into the flow of work: AI-assisted recommendations or even a handy copilot that supports agentic AI could help existing employees close that knowledge gap faster and make better use of the software.

Tip 4: Reduce dependency and supplier risk

A significant portion of supply chain disruptions originate with lower-tier suppliers, particularly when geographical distance adds to a lack of visibility. Of course, businesses need to be able to count on their suppliers to deliver consistent pricing and reliable volumes, but that’s only part of the risk management picture. Supply chain managers need to have complete confidence as to the provenance of the goods in their supply chain: from raw materials sourcing and handling to the ethics and workplace practices of their suppliers. Cloud-based supply chain and integrated business processing tools are capable of connecting a network of suppliers in real time. This means that not only are connected supply chains more transparent, but they also allow businesses to build a more diverse network of suppliers: if one fails, they have others to fall back on quickly.

Tip 5: Optimize your inventory management

A fundamental challenge for every supply chain manager is balancing shortage and surplus. In the past, this has been a largely backward-looking task where analysts tried to assess past market and customer activities to predict an optimal inventory balance. Today, businesses have access to real-time and predictive data analytics to help build more accurate forecasts and supply chain visibility. Many businesses have demand forecasting specialists whose instincts and experience are invaluable. Demand forecasting and inventory optimization technologies that employ artificial intelligence (AI), machine learning, and advanced analytics can augment the talents and skills of those specialists.

Tip 6: Design everywhere, produce everywhere

Reliance upon one or two sources for design and production contributes to supply chain vulnerability. A key step in the transformation to a more resilient supply chain is to leverage smart technologies like AI, machine learning, and advanced analytics to help you coordinate a domestic and global network of design and production partners. On-demand elasticity in design and production not only reduces supply chain risk and vulnerability, but it also allows businesses to cast a wider net across a growing network of talented designers and producers worldwide.

Tip 7: Consider nearshoring to manage supply chain disruptions

Today, political, economic, trade, regulatory, and environmental factors are making some of the long-established global supply chains harder to sustain. Historically, the economic disparity between countries like the U.S. and China has meant that it simply wasn’t feasible to compete using domestic sourcing and manufacturing. The challenge has been to find ways to narrow the cost margins just enough to make nearshoring realistic. With the use of smart supply chain technologies, businesses can more efficiently and precisely estimate their manufacturing needs, use Internet of Things (IoT) solutions to optimize machines and assets, and significantly reduce waste. Other innovations like on-demand 3D printing can help reduce costs with “virtual inventories.” And access to flexible product design and manufacturing networks can further increase the feasibility of nearshoring many significant lower-tier supply chain functions. It might not be an easy fix, but even a single regional or global supply chain disruption may prove it worthwhile.

Tip 8: Make elastic logistics work for you

Transportation management and logistics have been the backbone of every supply chain for thousands of years—as well as one of its greatest expenses and vulnerabilities. Traditional logistics operations are costly and limited as they are typically comprised of a company-owned fleet or fixed contracts with one or more third-party logistics providers. Elastic logistics refers to a scalable, on-demand logistics network that can stretch and shrink as required.

Tip 9: Prioritize supply chain planning

Every supply chain is comprised of crucial yet all-too-often siloed functions such as:

• Sales and operations planning (S&OP)
• Forecasting and demand
• Response and supply
• Demand-driven replenishment
• Inventory planning

Cloud connectivity, smart technologies, and solid supply chain planning strategies can integrate these functions to help analyze and leverage data and insights from across the business. The goal-setting and self-auditing processes in the “early preparation stage” above can help build a culture of better communication and responsiveness across your entire supply chain. And software solutions that integrate these business planning functions are at the heart of today’s supply chain agility and resilience. Technologies like AI, machine learning, advanced analytics, and IoT all come together to deliver supply chain planning capabilities that are powerful and fast.

Tip 10: Start preparing for supply chain disruption today

Although it can seem like a daunting task to optimize often decades-old supply chain operations, it doesn’t have to happen all at once. Every step you take toward a more strategic and visible supply chain makes you that much more resilient. A good start can simply be to get those team leaders talking to each other. Learn firsthand where the most fixable problems are and where the lowest-hanging fruit is for quick and easy wins to jump-start your supply chain transformation. The best time to start is always today—because tomorrow, you might just wake up to a new supply chain disruption.

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