The Effects of Supply Chain Disruptions

Before the pandemic, few people outside of the shipping and manufacturing industries talked about the global supply chain. Now over two years later, supply chain issues are front and center in the news and around conference tables. The United States is experiencing a baby formula shortage, a global semiconductor shortage that decreased auto industry sales by more than 21 percent in the second quarter of 2022, and 51 percent of consumers have experienced grocery and food shortages this year. Overall, 75 percent of organizations have been negatively impacted due to delays and disruptions to their business.

What is a supply chain?

According to Investopedia, “A supply chain is a network between a company and its suppliers to produce and distribute a specific product to the final buyer. This network includes different activities, people, entities, information, and resources. The supply chain also represents the steps it takes to get the product or service from its original state to the customer.” When the series of steps involved in getting a product or service to a customer is disrupted, it results in delays and higher production costs that cause shortages and price increases for consumers.

Disruptions around the world

Morningstar, Inc., a financial services firm, reports the following supply chain disruptions across the world:

• In California, shipping delays average seven days, nearly double pre-pandemic levels. Globally, ocean freight schedule reliability is at 36 percent—less than half of 2019’s average levels.
• In Michigan, Ford and General Motors halted production at their assembly plants due to missing parts. In Germany, Volkswagen shut down production due to a shortage of parts from Ukraine.
• In Michigan, The Abbott Nutrition factory shutdown contributed to the U.S. baby formula shortage.
• The Russia and Ukraine war has disrupted global commodity markets affecting household staples such as grains and cooking oil.
• In China, more COVID lockdowns in Shanghai and Beijing have affected manufacturing output and delayed the flow of goods.

The supply chain has been further affected by labor shortages—especially in the transportation and logistics industries. At the end of 2021, The American Truckers Association reported a shortage of 80,000 drivers—a record high and a 30 percent increase from before the pandemic. The rail, port, and warehousing sectors are also strapped for workers which is contributing to supply chain delays and shortages.

What does this mean for organizations?

Organizations in most industries are feeling the effects:

• The chip shortage is threatening the development of new technology. Companies that planned to increase their use of artificial intelligence (AI) and automation are experiencing delays as they wait for PCs, chips, switches, and accessories. Supply chain issues cost Apple $6 billion in sales during the company’s fiscal fourth quarter. To keep the development of the new iPhone 13 going, Apple decreased its iPad production by half and shifted components from its older iPhone models to the iPhone 13 due to the global chip shortage
• Because they can’t increase supply to meet demand, some multinational corporations have had to pull back on advertising and marketing their products and services. 55 percent of companies plan to downgrade their growth outlooks or have done so already.
• A survey conducted by Hanover Research found that the current financial climate has 51 percent of organizational leaders planning to increase prices.

Planning is key

Lead times are unpredictable and supply is limited. How your organization and IT department planned and budgeted for hardware replacement in the past must be re-evaluated. To manage IT supply chain shortages and keep your business operating efficiently:

• Plan appropriately: If you plan appropriately, you have more product choices and control over when you receive them. Because of the delays, if you want to upgrade hardware in the second quarter of 2023, you should be looking and planning now. Three months was enough time before supply chain delays but at least six months is required. Poor planning can lead to limited availability and rushed orders resulting in higher costs, downtime, and loss of productivity.
• Build a backup inventory: Take time to identify the life cycle of your technology equipment, take stock of your inventory, and build a backup supply of the hardware that you need for maintenance. 
• Diversify your supply base: Pre-pandemic, you may have been able to rely on a single supplier for hardware, software, and office supplies. Now, you may need to diversify—47 percent of leaders plan to expand their supplier network—to ensure you are not scrambling for a solution at the last minute. Building relationships with several suppliers with help alleviate supply chain delays and disruptions.

This blog was written by Lume Strategies Director of Professional Services Michael Hensley.