Over the last four years, global supply chains have been stretched thin, exposing the vulnerabilities of a complex system that influences everything from toilet paper to computer chips. These disruptions affect more than our daily routines—they have serious impacts on local and national economies and businesses of all sizes.
Ordering items from different corners of the country or outsourcing production internationally used to be simple, but now we’re facing new limitations. A 2022 Council of Economic Advisers report points out that our current supply chain is fragile and can easily break down in the event of a pandemic, natural disaster, or war. Helping small business owners bounce back from these disruptions is vital for reviving trade both domestically and globally, enhancing customer experiences, and improving business outcomes. Let’s dive into the causes of supply chain disruptions and explore five strategies businesses can use to recover from them.
Understanding Supply Chain Disruptions and Their Causes
A supply chain involves organizations, people, and activities that move products from suppliers to manufacturers and then from distributors to fabricators and finally to customers. The complexity of supply chains varies with the product; a smartphone, for example, has a more intricate supply chain than a banana.
Supply chain disruptions occur when there’s a hiccup in any of these organizations, people, or activities. Take a farmer short of workers to harvest raw materials, or a factory unable to source parts to repair its machinery—these problems create a chain reaction affecting everything downstream.
What causes these disruptions? Since supply chains are intricate, a wide range of issues can crop up. Here are key challenges businesses must tackle:
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Natural Disasters: Events like earthquakes, floods, hurricanes, and fires can cause chaos and interruptions due to destruction, power outages, and emergencies. The 2011 tsunami in Japan, for instance, temporarily shut down factories producing vital auto parts, impacting more than half the country’s supply.
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Cyber Attacks: As technology increasingly integrates into supply chains, while it boosts efficiency, it also opens weak points. Hackers trying to steal sensitive info or disrupt operations for their own gains can exploit these vulnerabilities.
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Transportation Delays: Bad weather, workforce shortages, and heightened seasonal traffic can delay transport. Holiday season shipments are especially at risk when demand peaks.
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Price Fluctuations: Shifts in material availability, energy prices, and surging demand can cause prices to fluctuate. These fluctuations lead to business hiccups and shipping delays.
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Global Pandemics: COVID-19 dramatically affected global supply chains. Its onset forced shutdowns, and some supply chains are still recovering. Labor shortages persist, and cargo ships remain off-schedule, rippling through global logistics.
Five Strategies for Recovering from Supply Chain Disruptions
These days, supply chain disruptions are an expected business challenge, regardless of company size. It’s not about if they’ll happen, but when—so having strategies to tackle these challenges and minimize inevitable disruptions is crucial. Here are five tactics small businesses can use to recover from supply chain disruptions.
- Audit Your Supply Chain
You can’t improve what you don’t fully understand. Start by thoroughly auditing your supply chain to spot areas with the most vulnerabilities. For example, if you run several warehouses but rely on one transportation provider, that reliance introduces a significant risk.
An audit allows you to rank vulnerabilities based on their risk and importance to your business. You can then prioritize which issues to address first. Regular audits are important, as changing circumstances with business partners can quickly alter the landscape.
- Diversify Suppliers
Building strong relationships with business partners is key, but relying entirely on one is no longer feasible. To effectively bounce back from supply chain disruptions, diversify your suppliers.
If your entire inventory depends on a single supplier, you’re in trouble if they can’t deliver due to labor or other upstream issues. Establishing ties with backup suppliers ensures continuous operations when a primary partner faces constraints.
- Stock Backup Inventory
Before COVID-19, just-in-time inventory was the norm. With supply chains now proving less resilient, consider building a reserve of backup inventory to tackle disruptions or delays.
Each business should determine the appropriate amount of backup stock, varying by product and season, to avert stockouts and maintain sales and customer confidence.
- Craft a Contingency Plan
Supply chain troubles show no sign of disappearing, so having a plan for when things don’t go smoothly is crucial. Despite COVID-19 concerns easing, factors like natural disasters, wars, and economic uncertainty keep things volatile.
Your contingency plan should outline how to communicate with customers during disruptions and efficient ways to source needed products. When designing your plan, include these four strategies:
- Prevention: What proactive measures can you take to minimize supply chain disruptions?
- Preparedness: How will you spring into action immediately after an event occurs?
- Response: How will you respond to different types of disruptions?
- Recovery: How quickly can you resume normal operations?
- Improve Supply Chain Transparency
Supply chain transparency, or visibility, has been problematic but is crucial to address. Transparency means how easily your processes are to track and analyze across the supply chain.
While you may know your direct suppliers, what about their suppliers and distributors? Utilizing technology like RFID tags and warehouse management systems can help keep real-time data flowing, improving communication and strengthening a fragile system.
COVID-19 exposed many frailties in supply chains, and these weaknesses have persisted over the years. Building a more resilient system that can efficiently handle future disruptions is clearer now. These measures can help your small business boost efficiencies, enhance supply chain visibility, deliver a better customer experience, and achieve stronger business results.
