Supply Chain Disruptions: An Expert Guide

Some supply chain disruptions are obvious: If the largest factory producing a certain item shuts down, there’s a shortage of that item. But most supply chains are more complex, making supply chain disruptions difficult to anticipate. Their elusiveness makes them no less critical to maintaining business operations, though. Read on to learn about supply chain disruptions, their common causes, and how to mitigate them.

What Are Supply Chain Disruptions?

Supply chain disruptions are unexpected conditions or events that throw a wrench into the flow of goods and services at any point in the supply chain — meaning the route between suppliers, manufacturers, distributors, retailers, and customers.

Natural disasters, geopolitical instability, labor issues, trade issues, and — as the world learned firsthand in 2020 — pandemics can all affect the supply chain. These and other events can create shortfalls of raw materials, delay manufacturing and transportation of goods, and increase costs for both raw materials and finished products. The consequences of supply chain disruptions reach far and wide, particularly in a global economy. Developing contingency plans for supply chain disruptions is a smart move for organizations to take.

Key Takeaways

• Supply chain disruptions are conditions or events that interrupt or disturb the flow of goods and services at any point along the supply chain.
• The causes of supply chain disruptions vary widely. They include human-based factors like labor concerns and cyberattacks, as well as natural factors such as pandemics and natural disasters.
• Changes in the supply chain affect organizations financially, operationally, and reputationally.
• There are a number of ways to mitigate supply chain disruptions, including diversifying suppliers and following best practices in risk assessment and risk management.

Supply Chain Disruptions Explained

A supply chain is the system through which raw materials are converted into finished goods. Take a loaf of bread purchased from a supermarket. It began with farmers who grew the wheat, manufacturers who created the yeast, and miners who sourced the salt; these raw materials were then processed into flour and culinary-grade salt. These are the suppliers. From there, those materials go to industrial-grade baking facilities, where they’re transformed into bread thanks to the bakers and facility operators; those are the manufacturers. The finished loaves go to distributors, perhaps warehouses that store finished bread for a short period of time, and then go to retailers. In this case, that’s the supermarket, where customers buy a finished loaf of bread. Materials were transported from stop to stop along the supply chain — the wheat went to the mill, the flour went to the industrial baking facility, the finished loaves were transported to distributors, the distributors delivered them to retailers.

If something happens at any stage along that supply chain, it might escalate into a supply chain disruption. Floods could destroy a wheat crop, causing a wheat shortage that makes flour too expensive for many facilities to manufacture. A contaminant could infect yeast supplies on a large scale, triggering a yeast shortage. The machine operators at the baking facility could go on strike. The distributor’s computer system might be the victim of a cyberattack, scrambling its logistics so it’s impossible to deliver the loaves to the retailers. A local labor shortage could cause a supermarket to curtail its hours of operation, so the customer who can only shop in the evenings can’t get a loaf of bread. And at any point along the way, transportation issues — labor strikes, inclement weather, even the supply chain of gas and transportation vehicles — can halt the process of bread getting on someone’s dinner table.

Bread is a simple product — so simple, in fact, that when there were bread shortages across the United States at the beginning of the COVID-19 pandemic, many people turned to making bread at home, even cultivating their own yeast in areas facing a yeast shortage. Now imagine a more complex product, such as a car, a computer, or a new municipal sports facility. Something that seems unrelated to the finished product could in fact be a major issue that prevents the item from being produced in the desired quantity and at the desired time.

For example, the 2021 surge in cryptocurrency seems completely unrelated to the automotive industry. But cryptocurrency uses mining computers that rely on semiconductors, or materials that can conduct electricity in a special way. Today’s automobiles also rely on semiconductors. Many factors went into the recent semiconductor shortage, but cryptocurrency was one of them, and the auto industry suffered as a result of the shortage.

A number of factors can play a role in a supply chain disruption, and disruption can happen at any point along the chain. This kind of holdup is problematic for businesses because it can cause delays in production and increased cost, which ladder up to lost revenue. Supply chain disruptions can also have a ripple effect, extending outward to other industries that rely on the goods and services in short demand.

Many causes of supply chain disruptions can’t be predicted, but organizations can be proactive in making sure they’re as protected as they can be. While managing risk won’t prevent supply chain disruptions from happening, they can limit an organization’s suffering.

Common Causes of Supply Chain Disruptions

While there are distinct causes of supply chain disruptions, many of these factors play into one another: For example, natural disasters affect transportation; labor shortages are created by geopolitical issues. In general, though, there are broad categories of triggers for supply chain disruptions; 13 of them are below.

1. Natural disasters. Floods, earthquakes, wildfires, tsunamis, hurricanes — all of these can alter the supply chain by halting operations in affected areas, impacting the availability of raw materials as well as production.
2. Geopolitical issues and trade policies. In a global economy, a civil war or currency devaluation on one side of the world can affect the availability of raw goods halfway across the globe. Similarly, trade policies such as tariffs can have ripple effects well beyond the border of the countries that instituted them.
3. Supplier financial difficulties. If one spot on the chain is suffering financially, it may have to change its operations, including diminishing its production capacity, raising prices, lowering the quality of its goods, or lengthening production schedules. It may also be unable to pay for its own raw supplies. That can have a ripple effect across all suppliers and customers.
4. Cyberattacks. If any spot on the supply chain falls prey to a ransomware attack or data breach, every stop on the chain could be affected. Logistics and sensitive information can be compromised, triggering delays; in the case of a denial-of-service attack, production might need to cease. Intellectual property theft can even muddle the supply chain via supplier confusion.
5. Technology failures. We’re in a tech-centric world, so practically every aspect of operations is affected by technology failures. Communication glitches, inventory management concerns, data loss, opacity surrounding supply chain issues — all of these add up to the potential for a snag in the supply chain.
6. Pandemics and health crises. COVID-19 gave the business community a lesson on how health crises can trigger problems in the supply chain. But even localized epidemics can spread supply chain disruptions: If there’s an outbreak near a large manufacturer of a key material, their customers may feel the pinch, even if the disease stays contained within local borders. Transportation issues, production shutdowns, labor shortages, sudden shifts in demand — all of these make pandemics a multipronged cause of supply chain disruptions.
7. Transportation disruptions. Even when materials are flowing and production is on track, if materials and goods can’t be transported, the supply chain is altered, particularly as transportation plays a critical role in both supply chain management and logistics. Transportation problems lead to shipping delays, increased costs, inventory management issues, and customer dissatisfaction.
8. Quality control issues. Depending on the severity of the quality-control problem, shipments may be delayed while the supplier handles the issue — or regulators may step in, delaying or halting production and causing a cascade of supply chain issues.
9. Demand fluctuation. If demand for one item in a supply chain decreases, suppliers may need to reconfigure their business cycle or even cease operations entirely, causing an issue for existing customers. Conversely, if demand increases, that can trigger a shortage for both new and existing customers.
10. Regulatory changes. If laws and regulations shift, producers may need to modify their production process to be compliant. These may lead to an uptick in cost, which can also affect the supply chain. Add international regulations into the mix, and the global supply chain feels the effects.
11. Labor shortages. Without people to operate machinery, handle goods, and oversee production, the supply chain runs off course. Production may be delayed, labor costs increase, production capacity is reduced, and safety issues may loom large. Strikes, protests, and talent shortages all contribute to labor issues.
12. Currency fluctuation. When one nation’s currency changes, it can affect the cost of goods and materials, changes in payment terms, shifts in logistics, and demand.
13. Raw material shortages. Perhaps the cause of supply chain disruption that’s easiest to understand, raw material shortages mean that there isn’t enough of the material to meet the demand for it. This can lead to production delays, changes in quality, higher costs, and market fluctuations. Many in the supply chain will feel the pinch, and some might have to opt out altogether if materials are simply unavailable.

Impact of Supply Chain Disruptions

As we witnessed with the supply chain disruptions related to the COVID-19 pandemic, supply chain disruptions can impact the day-to-day lives of the public. Most supply chain disruptions aren’t as directly public-facing, but their impact can be just as significant to the people and organizations affected by them. There are numerous effects of changes in the supply chain, but most of them loosely fall into the categories of financial impact, operational impact, and reputational impact.

• Financial impact. Supply chain disruptions can increase costs: paying more for limited goods, doling out fees for expedited services, or sourcing alternative materials to be able to maintain production, for example. If production or delivery is delayed because of a supply chain disruption, the goods might not reach customers in time, leading to lost sales and lost customers and thus reduced income. Supply chain disruptions can also create regulatory risk, which can result in fines for the company.
• Operational impact. Production delays, inventory shortages, quality-control concerns, even safety risks — supply chain disruptions can trigger all of these operational issues. In addition to the financial cost that each of these can incur, these fallouts from supply chain disruptions can make personnel have to troubleshoot, often with little notice, diverting their labor from other areas of the operation.
• Reputational impact. Organizations doing their best to make do in the face of a supply chain disruption may have to cut corners somewhere. If the end consumer or entities along the organization’s own supply route become vocally dissatisfied with the product — perhaps because of a dip in quality, a spike in price, or a delay in delivery — a company may find itself facing reputational damage. Customer dissatisfaction and brand image may take a hit, and that can attract media attention. Investors may lose confidence in the company, leading to a drop in stock prices. At its highest level, reputational damage can invite regulatory attention.

Strategies for Mitigating Supply Chain Disruptions

Organizations might not be able to stop supply chain issues in their tracks. However, they can invest in supply chain management tools and strategies to help manage supply chain disruptions when they arise, ultimately reducing their impact. Here are five primary tactics for easing the fallout from supply chain disruptions:

• Diversification of suppliers and supply chain networks. By diversifying where they source materials and supplies, organizations reduce the impact that any one supply stream has on their operations. For example, if one supplier’s own supply chain prompts a delay in delivery, an organization can turn to another supplier in its network to get the necessary materials on time.
• Collaboration and communication with suppliers and partners. While some supply chain disruptions can’t be predicted, those in the know can often forecast with reasonable accuracy. By fostering strong communication with suppliers, organizations increase the likelihood that those suppliers will alert them of potential concerns. A collaborative partnership also invites both parties to approach supply chain disruptions with a flexible, how-can-we-fix-this-together mindset.
• Risk assessment and management. All attempts to preemptively soften the impact of supply chain disruptions are, in a way, risk management. But as a discipline, risk assessment and management means identifying and prioritizing risks, developing contingency plans, having an action plan in place to respond to risk factors when they arise, and continuously working to improve resilience. All of these combine to help organizations anticipate scenarios and develop ways to continue operations if those scenarios come to fruition.
• Data analysis and forecasting. An organization improves its resilience in the face of supply chain disruption when it uses the data it has to make intelligent, informed choices. Data can help organizations better anticipate demand fluctuations, spot potential issues in the supply chain by granting real-time visibility into inventory levels, and predict problems based on historical data and current patterns.
• Investment in technology and innovation. Devoting resources to improved technology such as automation and machine learning can help improve supply chain efficiency by maximizing resources, which makes an organization more flexible when a supply chain disruption emerges. Investing in digital supply chain technology such as cloud-based services and 3D printing can help make an organization more nimble, too. Also, investing in technology can support stronger, more usable data analysis (see above).

Supply Chain Disruption Examples

You might have heard about supply chain disruptions without fully realizing that’s what you were hearing about — the rush on semiconductors, for example. Here are five examples of supply chain disruptions:

• Natural disasters: the 2011 earthquake in Japan. Businesses that were affected by the 2011 earthquake and tsunami in Japan saw a reduction in both their number of suppliers and their number of customers compared with organizations that were able to continue as usual. The long-term fallout? A 0.47 percentage point decline in Japan’s GDP growth the following year.
• Transportation disruption: the 2021 Suez Canal obstruction. When a container ship ran aground in the Suez Canal in 2021, it blocked the passage of 369 ships for nearly a week, costing between $14 million and $15 million each day the canal was unusable.
• Cyberattacks: the 2017 Maersk hack. In 2017, shipping giant Maersk was targeted by Russian hackers via a piece of malware called NotPetya, causing $10 billion in damages across the globe.
• Labor concerns: the post-COVID-19 truck driver shortage. The shortage of truck drivers the United States and other nations face in 2023 illustrates how two causes of supply chain disruptions — labor issues and transportation disruptions — work hand in hand. Given that nearly 70% of all freight in North America is transported by truck, the shortage has implications for keeping businesses of all kinds stocked with proper inventory.
• Pandemics: H1N1, SARS, and COVID-19. Chances are you remember a few supply chain disruptions from the COVID-19 pandemic, including shortages of everything from toilet paper to yeast to coins. But COVID-19 isn’t the only pandemic to have affected supply chains. In 2009, H1N1, also known as swine flu, led to factory closures and workforce shortages in affected areas. The same is true of the SARS outbreak of 2003. And even when humans aren’t getting sick in large numbers, epidemics can affect the supply chain: When 57 million birds became affected by avian flu in 2022 and 2023, the price of eggs skyrocketed.

Future Supply Chain Disruption Predictions

Even the most skilled forecasters can’t predict every disruption in the supply chain. But through a combination of tools such as scenario planning, data analysis, environmental scanning, in-network listening, and risk assessments, experts largely agree that some areas are primed for problems — and some of those are already in play.

• Metals. Already reliant on a highly complex supply chain for production, which increases the vulnerability points for problems, metals are also in high demand now thanks to their use in electric vehicles, technology, and large-scale products such as renewable energy infrastructure. Combine that with the fact that metal production takes place in areas of high environmental and geopolitical risk, and there could be a supply chain disruption waiting to happen.
• Chemicals. The production of chemicals is subject to strict regulation, making any regulatory changes a spark for supply chain disruption. As with metals, chemicals are also in increased demand and rely on a complex supply chain, leaving the entire category vulnerable.
• Automotive. Labor shortages, environmental regulations, an increasing reliance on electronic parts — which in and of themselves are ripe for supply chain disruption, as shown above in regard to metals — and geopolitical tensions all add up to make the automotive industry at risk of a supply chain crisis. Add the fact that consumers are shifting their preference to electric vehicles, necessitating time for manufacturers to adapt, and there’s a bottleneck waiting to happen.
• Semiconductors. The world has already seen a semiconductor shortage, and though it has stabilized as of 2023, it remains a vulnerable industry. Semiconductor production is concentrated in a few areas that are particularly subject to geopolitical tensions, including Taiwan, South Korea, and China. Compounding the issue is a continued swell in demand, capacity constraints among producers, and a complex supply chain.
• Technology. The tech sector checks a number of boxes that make an industry susceptible to supply chain disruptions: a reliance on cybersecurity, a complex supply chain, an increase in demand, and environmental impact. Tech’s unique characteristics add to its vulnerability, including the extraordinary pace of innovation and data privacy regulation, which requires time to navigate, eventually impacting the supply chain.

Weather Any Supply Chain Disruption With NetSuite Supply Chain Management

With a supply chain management solution, organizations glean insights into their supply chains and are better able to both anticipate and temper supply chain disruptions. NetSuite Supply Chain Management streamlines supply chain management records and integrates them with other key elements of an operational software suite, including production data, financial records, inventory management, and outstanding orders.

Investing in NetSuite can help organizations prevent stockouts, production delays, and fluctuations in quality. With a proven record of supporting organizations to bring faster time to value through supply planning and supply chain execution tools, NetSuite Supply Chain Management becomes a critical tool in both risk aversion and operational optimization — both of which help protect against supply chain disruption.

The entire business community faced hard lessons with the most clear-cut cases of supply chain disruption brought about by the COVID-19 pandemic. But with the right planning, strategic insights, and key understanding of supply chain disruptions, organizations can emerge from this era with a better understanding of how to protect their business.

Supply Chain Disruption FAQs

What are the main causes of supply chain disruptions?

The main causes of supply chain disruptions include natural disasters, geopolitical concerns, cyberattacks, problems in labor and transportation, regulatory shifts, shortages in raw materials, financial difficulties among suppliers, currency fluctuation, and pandemics.

What are the most common strategies for mitigating supply chain disruptions?

To ease the potential for harm carried by supply chain disruptions, organizations can try a number of tactics. These include diversifying suppliers, collaborating and developing robust communications with suppliers and partners, following risk assessment and risk management best practices, engaging with data analysis and forecasting, and investing in technology and innovation.

How can technology help prevent or mitigate supply chain disruptions?

Automated processes can help organize information on a large scale in ways that may be impractical to do manually. This data analysis can help spot potential supply chain disruptions down the line and work around them before they happen. And if a supply chain disruption is already on an organization’s doorstep, the visibility supported by technology can help people manage with minimal issues.