The Real Business Costs of Supply Chain Disruption

As businesses continue to rebound from the supply chain disruptions of 2020, what measures are organisations taking to future-proof themselves and build resilience, and what ongoing challenges do they face?

The Business Costs of Supply-Chain Disruption is a new report from The Economist Intelligence Unit, commissioned by GEP.

In November and December 2020, The Economist Intelligence Unit surveyed 400 senior supply-chain and procurement executives – half of whom work in organisations with annual revenue of over US$1bn – across eight countries to determine the ultimate cost of supply chain disruption in 2020.

The report addresses:

• The biggest disruptions to supply chains, and how market leaders responded.
• Impacts to enterprises beyond the bottom line.
• How organizations need to change to weather future disruptions.

The report notes that while COVID-19 has proven to be the biggest disruptor of supply chains in recent years, it is the concurrence of a number of disruptive forces that are testing the complexity and interdependence of global supply chains. This includes:

• Trade disputes
• Cyberattacks
• Commodity price fluctuations
• Increasing frequency and severity of natural disasters
• Economic slowdown in China
• Tariffs
• Brexit

Respondents to the Economist’s survey highlight seven key consequences of these ongoing supply chain shocks.

1. Damage to brand reputation

As many as 38% of survey respondents reported damage to brand reputation and image as one of the biggest challenges their organisation has faced in the past few years.

Many organisations were dependant on single-source or just-in-time (JIT) supply chains pre-pandemic, which meant it wasn’t long before the subsequent delays and disruptions led to supply shortages and stockouts.

As supply chain leaders scrambled to find alternate suppliers to source crucial components, production slowed and, in some cases, halted entirely. This was a particularly big problem for the healthcare and pharmaceutical industries, with many organisations suffering huge damage to their brand’s reputation as a result.

2. Increased operational costs

More than 30% of survey respondents said they had experienced increased operational costs.

Customer demands have shifted and fluctuated drastically in the past 18 months and in an effort to meet these needs, manufacturers have been repeatedly forced to pivot their operations.

This has resulted in inefficient operations, increased waste, and the onboarding of new (often more expensive) vendors to fill supply gaps.

3. Delayed cash flows

Delayed cash flows is a challenge that impacted 31% of survey respondents.

The disruptions caused by COVID-19 have significant cash flow implications across the entire supply chain. SMEs in particular, who typically have smaller or unstable cash flows, have struggled to stay afloat during this time and posed a significant risk to supply chain leaders.

4. Customer complaints

Thirty per cent of respondents report an uptick in customer complaints as a key challenge. It’s no surprise that in the year of a global pandemic, customers experienced order delays and, in some cases, a dip in product quality.

Many organisations committed to orders and timelines they simply couldn’t uphold, which resulted in a swathe of unhappy customers.

5. Loss of regular customers

A loss of regular customers was a challenge cited by 23% of survey respondents.

Alongside dissatisfied customers, organisations have also had to contend with their regular customers spending less money as a result of uncertainty brought about by the pandemic.

6. Loss of productivity

In the past year, several factors have contributed to a dip in productivity – a challenge cited by 23% of survey respondents.

Local and national lockdowns, social distancing measures, quarantine laws, and employee sickness have made it almost impossible for manufactures to run their factories at full capacity, which means output has significantly slowed.

7. Loss of sales and market share

Nineteen per cent of survey respondents said they experienced a loss of sales and market share, something which will take time to recover in the coming months.

Download the report in full to learn more about how organisations are responding to these challenges and the shifting priorities of supply chain leaders.