Supply chain disruption occurs when a supply chain element fails to meet expectations, creating unexpected impacts across business operations and production cycles. Managers need to be prepared for a wide variety of incidents that can occur, from natural disasters to labor shortages, warehouse access restrictions and political conflict.
Disruptions can be costly, affecting product quality and consumer pricing. They also create unintended consequences that may have ethical implications. For example, during the COVID-19 pandemic, opportunistic retailers used their buying power to pressure suppliers for favourable product allocations and impose delivery requirements that could lead to stock-out situations and price gouging. These opportunistic decisions by customers, supply chains and the firms involved in them can foster unethical practices and shift relationships and networks in ways that were not anticipated.
The best way to mitigate these risks is through strong planning, smarter use of data and technology tools and by enhancing flexibility in the supply chain. For example, increasing inventory buffers – even with added holding costs – helps provide a safety net in the event of a short-term disruption. In addition, managers should diversify their sourcing options by working with multiple suppliers for critical components and ingredients and by searching out regional producers. And they should work with suppliers and logistics partners who are located closer to their centers of operation and/or the end point of their supply chains to cut cycle times and reduce the potential impact of transportation delays.