Most manufacturers have experienced the effects of supply chain disruptions over the past few years. Consumer goods manufacturers have been forced to extend their order commitments with their suppliers in order to save production capacity. This significantly impacts inventory and agility. But ultimately, when companies are not able to replenish retailer shelves, they leave space for small and newcomers to enter and become competitors.
Those issues, and others, are the result of supply chain disruptions.
What are supply chain disruptions?
Answering that question requires first defining the term “supply chain.” Simply put, a supply chain is an end-to-end system of producing and delivering a product.
Consider, for example, a production facility that creates the packaged desserts we occasionally include in our kids’ lunches. That facility might require soybean oil from Illinois, sugar from Brazil, flour from Kansas, and chocolate from Belgium, as well as a host of other ingredients from around the world.
A supply chain disruption can occur when one or more of those ingredients, for whatever reason, is unavailable. Unless the producer has a supply of that ingredient on hand, production slows down or comes to a halt.
If there is a COVID outbreak in that facility and the packaging department is shut down due to a lack of workers, production is further limited. Additionally, the items that are produced need to make it to store shelves. If there’s a shortage of truck drivers, stores can’t keep store shelves stocked.
The supply chain disruption: 2020, 2021, and Today
Although supply chain disruptions over the years stem from various causes, it’s no surprise that many of the recent disruptions are directly attributable to the spread of COVID-19.
Supply chain disruption examples in the early days of the COVID pandemic were clearly visible via shortages of items such as toilet paper and frozen foods. Although the pandemic took much of the blame, other factors included factory fires, cyber-attacks, and commodity pricing fluctuations.
COVID-related disruptions became an increasing issue in 2021, compounded by weather-related events such as the deep freeze in Texas and Hurricane Ida in Louisiana, as well as a weeklong blockage of the Suez Canal thanks to the grounding of a container ship.
Adding to those disruptions was the war in Ukraine. According to analysts at economic research firm Rabobank, Europe, in particular, depends on Russia, Ukraine, and Belarus for much of its energy imports, as well as some chemicals, oilseeds, iron and steel, fertilizers, wood, palladium, and nickel, amongst others. Production of products using those commodities slowed down significantly or came to a complete halt as supplies became scarce. The country is also home to several factories that produce glass bottles, and some of those factories have been shuttered due to the war.
For decades operations and supply chain professionals were taught to optimize flows, production batch sizes and quantities in stock. Recent disruptions have upended this paradigm: now you try to have a stock of everything, whatever the cost.
The causes of supply chain disruption
Supply chain disruptions over the course of the pandemic can be attributed in part to a few primary issues, each of which rose and fell in importance over the past few years. When the public first became aware that lockdowns might be on the horizon, many people began hoarding supplies such as the aforementioned toilet paper and frozen foods. That resulted in widespread shortages of those items.
As lockdowns went into full effect and people found themselves shut into their homes, they began spending time on household projects such as detail-cleaning the kitchen or scrubbing walls. That, in turn, led to shortages of cleaning products and similar items. Additionally, many people dramatically increased their use of items such as hand sanitizer and cleaning supplies.
At the same time, many of the factories producing those items – or the ingredients that go into those items – began scaling back operations or shutting down completely. Factories all across China shut down during the height of the pandemic, resulting in shortages of electronic components for mobile phones, computers, and automobiles. With most manufacturers these days relying on a just-in-time inventory system, an interruption in the supply chain of just a few days brought production to a halt.
The fact that many people had begun working remotely influenced supply chains as well. In normal times, for example, toilet paper production is a mix of brands meant for the home and those big rolls meant for restrooms in commercial office buildings. With few people going into the office, demand for home-use brands skyrocketed while demand for the type used at the office came to a near halt. That issue, combined with hoarding, forced stores to limit the amount any one shopper could purchase.
How Unilever experienced and adapted to supply chain disruptions
Multinational consumer goods company Unilever faced many of these challenges during the pandemic. Demand for the company’s restaurant and out-of-home products, for example, declined to near zero as those businesses shut down, while demand for hygiene products, hand sanitizer, and home cleaning supplies skyrocketed.
Additionally, shopping channels faced a dramatic shift from brick-and-mortar operations physical to e-commerce. That led to an increased demand for delivery drivers and fewer items headed to stores. That led to challenges in getting items into the hands of customers.
And although it’s unclear as to whether the threat of COVID-19 is behind us, there’s a good chance that many of the challenges of the COVID crisis are still to come.
“It is going to be an era of structural disruption,” says Marc Engel, former chief supply chain officer with Unilever, in a 2021 interview.
“There's a shortage of everything,” Engel said. “There's a shortage of logistics, shortage of truck drivers, a shortage of certain commodities - wood, steel, microchips. You see a lot of flights being canceled because there's not enough staff. There are energy shutdowns because of dependencies from one country to another in their energy supply.”
The global impact of the supply chain disruption
Estimates vary, but analysts at the International Monetary Fund (IMF) estimate that supply chain disruptions reduced global gross domestic product (GDP) growth by as much as a percentage point in 2021. One study estimates those disruptions cost large corporations $182 million in lost revenue in 2021.
Supply chain shortages and other issues are likely to get worse before they get better, Engel said. They’re also likely to last much longer than many people think.
George Alessandria, an economist at the University of Rochester, told the World Economic Forum that supply chains are facing shortages not seen in decades.
“This is the worst that it’s been in 50 years—and it’s probably getting worse, considering that China has been shutting down cities and production facilities,” he told the WEF. “The massive lockdowns in Shanghai and Beijing will eventually ripple through the system again.”
Looking ahead: why are supply chains still disrupted?
Although quarantines have been lifted, social distancing requirements have been loosened, and in most places, mask mandates have been lifted, supply chain disruptions continue. Alessandria predicts those disruptions could reduce industrial production by as much as 5% over the next two years. He expects at least another year of low growth, high prices, and empty store shelves before the disruptions end.
Most economists agree that continuing disruptions are due to a combination of faster-than-expected demand growth and ongoing labor shortages.
Because many people weren’t commuting during the height of the pandemic, the gasoline demand declined significantly, prompting oil and gas companies to shut in production. Bringing those wells back online takes time. Many workers who found themselves unemployed moved on to other positions, leaving their previous employers struggling to replace them. Cargo ships are lined up at ports, waiting weeks to be unloaded because of a lack of dock workers. When they are unloaded, products sit in warehouses because of a lack of truck drivers.
In Europe, many energy-intensive companies are being forced to reduce or stop their production due to untenable energy price increases. Depending on the country and the source of energy, prices are expected to rise dramatically in the coming months.
The way forward
As business leaders seek ways to secure their supply chains, consumer goods, and food and beverage manufacturers are being asked questions such as:
- How much of our material is blocked due to quality issues, and how much of it can be recovered?
- Which of our suppliers represents a higher risk to our operation?
- How fast can we shift to multi-sourcing?
- How many complaints did we receive from our key accounts due to late or missed deliveries?
The answer to these questions requires information from different parts of the organization, which all are (or should be) connected to a unified Quality Management System in pursuit of operational excellence.
One of the many lessons learned from the recent (and continuing) supply chain disruptions is that making sources of internal inefficiency more visible and assessing risks throughout the supply chain are two crucial steps to increasing the resilience of any company. That’s nearly impossible with traditional tools such as Excel spreadsheets or paper-based reports.
“Using yesterday’s tools to manage suppliers infuses uncertainty, inefficiency, and a lack of traceability and transparency at every step,” said Sophia Finn, a resident supplier quality expert with Veeva Systems. “’The way it’s always been done’ introduces a level of risk entirely unnecessary given the availability of modern, cloud-based supplier quality management solutions.”
Veeva’s unified platform and solutions deliver full traceability and operational efficiencies that let organizations move faster—and safer than their competitors. Companies can respond to market trends, supply chain disruptions, and consumer behaviors with greater agility, using practices that have been codified and proven in the most highly regulated industries. Organizations can establish traceability and visibility into their processes via a single source of truth and a proven cloud platform.
For more information on how Veeva can help your organization unify supplier quality management, reach out to one of our experts.