The Impact of Supply Chain Disruptions on Businesses

For many years now, the “Just-in-Time” (JIT) method of managing inventory and manufacturing schedules has been hailed as the best way to improve efficiency and maximize profits. But because of catastrophic disruptions in global supply chains as a result of the COVID-19 pandemic and an ever-shifting series of economic sanctions against individuals, companies, and nations, the old ways of doing business are no longer sufficient.

According to the Harvard Business Review, approximately 44% of private companies in the United States are involved in the supply chain (defined as a business that primarily sells its products to other businesses, also known as B2B). And 98% of those businesses are small to medium-sized, which can make it prohibitively expensive for them to make the technological investments needed to adapt, particularly with upgrading to new enterprise software and implementing changes to their manufacturing processes.

A recent academic paper analyzing the importance of innovation in the supply chain economy revealed that B2B companies represent the lion’s share of highly skilled STEM (science, technology, engineering, and mathematics) workers who are paid wages 66% higher than business-to-consumer (B2C) and retail companies, leading to enormous disruptions in the economy, should those businesses struggle to meet the challenges of this new economic era.

The results of a large-scale survey by Logistics Management into supply chain disruptions revealed that almost 72% of companies are currently facing supply chain problems and some 58% are struggling with transportation capacity shortages.

Unfortunately, respondents see more problems ahead as 93% reported that they strongly or somewhat agree that supply chain disruptions will continue in 2023, and 96% said that there is “usually, always, or sometimes” a problem with their company’s supply chains.

Meanwhile, a survey conducted by Business Wire (a Berkshire Hathaway company) revealed that 75% of CEOs believe that their companies need to adapt to supply chain disruptions.

At the same time, however, 85% of CEOs admit that they don’t quite know where to start when dealing with the problem. Part of the problem is that advances in technology are happening too quickly for businesses to keep up, while 73% of responding CEOs said that shifts in workforce values and preferences are preventing them from adapting.

A survey of business owners conducted by Hello Alice revealed that some of them have taken a number of proactive steps to reduce supply chain issues by doing things such as being honest about backlogs and production delays, making adaptations in how products are sourced, increasing inventory, and offering coupons or gift certificates that can be redeemed by customers when a product becomes available.

Retailers and other B2C companies may be better able to respond to changing technological demands as new innovations in augmented reality (AR) and virtual reality (VR) are empowering things like virtual shopping, virtual fitting rooms, and virtual navigation.

Other B2C technological innovations include the use of chatbots and AI-powered digital assistants to transform customer experiences, but any business involved in selling tangible goods (as opposed to digital-only) will still be vulnerable to disruptions in the supply chain.

Perhaps the one bright spark amidst the gloom is the increasing use of artificial intelligence (AI) to create new paradigms in logistics. According to a McKinsey report, some 70% of companies will rely on AI to partially or wholly manage their logistics by the year 2030. This may include things like relying on AI to power driverless trucks, ships, and trains as well as automating every aspect of warehouse management, including sorting, picking, data entry, and loading/unloading of goods, which can drastically reduce inefficiencies and costs. Other uses of AI include improving sales and operational planning as well as sharing real-time data between suppliers and manufacturers.

For most companies, the race to stay afloat in face of these ever-changing demands will be difficult, requiring things such as retraining workers and improving their access to capital to buffer disruptions in the supply chain as well as investing in new technologies. New legislation such as the Inflation Reduction Act in the United States can also help in the form of subsidies and funds to rebuild the country’s industrial base and create more resilient and sustainable supply chains.

Whatever the future holds, it is clear that big improvements in automation, technology, worker training, integration, and business forecasting will be the only way to reduce supply chain complexity and thus minimize and reduce ongoing disruptions in the global economy.