The increasing causes of supply chain disruptions
octubre 4, 2024
Actualizado el: octubre 4, 2024
6 min de lectura
Over the course of the past twenty years, supply chain resilience has been put to the test. Time after time major and unexpected events catch global supply networks unaware. Often starting as a local issue in one part of the world, our global interconnectivity sees the reach and impact of each event multiply. Each time the different causes of supply chain disruptions become inevitable as the normal way of life adapts and changes.
2008 - The global financial crisis
After decades of relative stability, a small issue with mortgage lending in one country sent shockwaves throughout the world. As a result of the economic crisis, the number of loans that were available decreased. Less money to borrow meant less finance for production and inventory and less demand for finished goods.
This meant that global trade volumes decreased by almost 15% [1]. This event marked the beginning of a series of modern global supply chain disruptions. They highlighted the interconnectedness of the global economy and the vulnerability of supply chains to economic shocks.
2010 - The Eyjafjallajökull volcano eruption
Volcanic ash blasted into the sky in Iceland caused havoc with aircraft engines. As a result, this closed the airspace across Europe to air traffic. Passengers and air freight found themselves stranded as they searched for alternative ways to reach their destination.
The disruption to air travel had a significant impact on various industries. This includes automotive manufacturing and the fresh produce supply chain. Automotive parts were unable to reach assembly plants, causing delays in production. International supplies of flowers, fruits, and vegetables also faced disruptions, which led to shortages in supermarkets.
Kenya, a major exporter of flowers, had to discard ten million flowers destined for Europe. Also, they had to resort to feed their cattle vegetables intended for export [2]. The logistics challenges that were brought about by the volcanic eruption remained for a number of weeks.
Once again, this highlights the vulnerability of global supply chains to unexpected events. Therefore, proving the need for more supply chain resilience and adaptable systems.
2019 – The coronavirus pandemic
Starting with a small outbreak of COVID-19 in Wuhan, China, this virus spread globally unhindered.
There was a wide range of responses from nations and individuals in response to this crisis. Some countries implemented measures such as lockdowns and social distancing to contain the virus. These measures, on the other hand, caused supply chain disruptions to networks and resulted in shortages of vital goods.
There were reports of local shortages of food and toilet paper in a number of different regions. At the same time, global shortages of medical supplies, such as masks and ventilators, became a major concern [3].
These causes of supply chain disruptions caused a sudden and massive increase in demand for essential goods. However, adequate inventories and state-level interventions in distribution networks did not meet it.
2021 – Suez Canal closure
One of the largest container ships in the world, the Ever Given blocked the Suez Canal for six days in March 2021. The wind blew the ship off course in the narrow waterway, resulting in it colliding with one of the banks. The passageway was completely blocked up for any other ships.
As a result, hundreds of vessels transporting goods between Europe and Asia could not continue to their destinations. The closure of the canal held up an estimated £7bn of goods each day, causing supply chain disruptions across Europe [4].
In response to the Suez Canal crisis, businesses and governments began to re-evaluate their supply chain strategies. Diversifying shipping routes, increasing inventory levels, and exploring alternative modes of transportation became more common practices. The incident pointed out the value of investing in infrastructure and technology. Both are essential for optimising efficiency and global supply chain resilience.
2022 – Conflict in Ukraine
Russia began a significant escalation of the conflict in Ukraine, by launching air strikes and a ground invasion. This war has had a profound impact on global supply chains, particularly in terms of agricultural exports.
There is a major amount of wheat, maize and sunflower oil produced in Ukraine. However, the conflict has disrupted its ability to export these vital commodities. As a result, there have been global food shortages and rising inflation [5].
International sanctions have been imposed on Russia. These measures aim to isolate the country from the global economy. They also seek to pressure Russia to end its war against Ukraine.
These sanctions have restricted Russia's ability to import foreign technology and services, as well as export raw materials. Russian supply chains have been impacted by these sanctions. However, the country has found ways to mitigate their impact. One method involves using third parties to disguise foreign trade [6].
2024 – Global IT Outage
A faulty software update disabled millions of computer systems all over the world, leading to all kinds of logistics challenges. The error in a popular cyber-security software application made by CrowdStrike caused computers running Microsoft Windows to crash.
The widespread outage had a devastating impact on critical infrastructure. This led to disruptions in transportation, healthcare, finance, and other vital services. Essential systems in airports, hospitals, banks and others went offline, with more than 5000 flights cancelled [7].
The outage also caused significant disruptions in supply chains, as businesses were unable to communicate or process orders effectively.
Tesla CEO Elon Musk, condemned the incident’s impact on the automotive supply chain. Therefore, he removed the affected software from all of Tesla’s computer systems [8].
The global IT outage of 2024 served as a stark reminder of the interconnectedness of modern infrastructure. It also showcased the potential consequences of widespread technology failures. It stressed the urgent need for robust cybersecurity measures and redundancy in critical systems. It also showed that effective disaster recovery plans are crucial to prevent such catastrophic events in the future.
Twenty years ago, no one was preparing for the effects of a global financial crisis. The possibility of a major war on the European continent was not on anyone's radar for one of the potential causes of supply chain disruptions. There was especially no foresight regarding a global pandemic leading to logistics challenges.
The level of supply chain resilience required to prepare for these events would have seemed absurd. So, each time there has been a major event, global supply chain disruptions have been the inevitable consequence.
In light of these recurring disruptions, manufacturers must re-evaluate their supply chain strategies. The level of resilience once deemed excessive now appears essential. By diversifying sourcing, investing in robust risk management systems, and fostering stronger relationships with suppliers, manufacturers can better prepare for future uncertainties. This will help to ensure the continuity of their operations.
Citations
[1] https://www.ecb.europa.eu/pub/pdf/other/mb201010_focus02.en.pdf, “Trends in world trade following the financial crisis”, October 2010, European Central Bank
[2] https://www.nbcnews.com/id/wbna36650533 , “5,000 Kenyans out of work due to volcano”, April 2010, NBC News
[3] https://www.whitehouse.gov/cea/written-materials/2021/06/17/why-the-pandemic-has-disrupted-supply-chains/ , “Why the Pandemic Has Disrupted Supply Chains”, June 2021, The White House
[4] https://www.bbc.co.uk/news/business-56533250 , “Suez blockage is holding up $9.6bn of goods a day”, March 2021, BBC News
[5] https://kpmg.com/us/en/articles/2022/impacts-russia-ukraine-war-supply-chains.html , “Immediate and long-term impacts of the Russia-Ukraine war on supply chains”, 2022, KPMG
[6] https://www.bbc.co.uk/news/world-europe-60125659 , “What are the sanctions on Russia and have they affected its economy?”, February 2024, BBC News
[7] https://news.sky.com/story/outages-latest-airports-business-and-broadcasters-experiencing-issues-worldwide-13180821 , “Global IT outage: More than 5,000 flights cancelled; how security 'arms race' led to crash”, July 2024, Sky News
[8]https://www.bloomberg.com/news/articles/2024-07-19/musk-says-he-s-deleted-crowdstrike-from-systems-after-outage , “Musk Says He’s Deleted CrowdStrike From Systems After Outage”, July 2024, Bloomberg
