5 Types of Supply Chain Disruption with COVID-19 Examples

By: on October 2, 2020

Social distancing requirements, stores closing, and shipping delays are just a few of the real-life disruptions we’re all experiencing daily due to the COVID-19 pandemic. Supply chain professionals are feeling these disruptions perhaps greater than any other business sector.

The Institute for Supply Management found that nearly 75% of the companies it surveyed in late February and early March reported some kind of supply chain disruption due to the COVID-19 outbreak. And more than 44% of the companies didn’t have a plan for how to handle a supply chain disruption from China.

In this article, we’ll go over five common types of supply chain disruption and give examples that have occurred due to the pandemic. In order to avoid being caught off guard by another unprecedented supply chain disruption like COVID-19, use this information and these examples to update your supply chain disruption plan and bring in other departments to help support your plan.

What is supply chain disruption?

Supply chain disruption is when an external force acts upon your business’s ability to get, make, ship, and/or sell products. Let’s break this down with some examples.

First off, what’s an “external force?” This would be any event or change that happens outside your business—one that you did not create, but is having an effect on you. Some examples include the current COVID-19 pandemic, government changes to policies involving the global supply chain, or a cyberattack on your IT systems.

Let’s go over common effects of disruptive events and look at some examples for each.

Common types of supply chain disruptions with examples

The COVID-19 crisis was not part of many businesses’ supply chain disruption plans. With its unexpected global impact, it is a good example to illustrate each of the following supply chain disruption types.

You’ll see the connections and dependencies between disruptive events and the type and number of disruptions you could experience. Use this understanding of the holistic impacts of supply chain disruption to garner support from other departments for your supply chain disruption plan.

Disruption type 1: Demand drops

The need or desire for your product can fluctuate for myriad reasons and a reduction in desire is a demand drop. It can be easier to predict and mitigate the impact of an internally-driven change, such as a new product design or a reduction in marketing efforts, as you know what’s happening and when. It’s external disruptive forces that can and have spiraled demand.

Example of demand drop: Airlines have experienced extreme disruption as demand for air travel dropped by more than 95% this past April compared to April 2019. People needed to stay home and stay safe, so business trips, vacations, and other non-essential travel came to a halt. Ongoing restrictions, health concerns, and border controls have continued to impact air travel demand and will for quite some time.

Disruption type 2: Demand surges

The inverse of a demand drop is the sudden increase in the want and/or need for your product—a demand surge. While some spikes in demand, such as the upcoming holiday season, can be predicted and accounted for, events like the pandemic can cause demand surges on wholly unprepared supply chains.

Example of demand surge: Oh, the infamous toilet paper crisis of early March 2020. When the U.S. states began announcing quarantines, people panic-bought more toilet paper than suppliers had planned for. This was a demand surge.

On the other side of this surge is the demand drop in commercial-use toilet paper. People weren’t at the office, out at restaurants, or in airports using the restroom so the need for large-roll, commercial toilet paper practically ceased. This is an example of a both a drop and a surge for the same product, but for different types of the product.

Disruption type 3: Reduced productivity

Reduced productivity can be the result of a labor shortage, equipment shortage, or pretty much any event that reduces the output of your business.

Each stage in supply chains can experience fluxes in employee headcount, broken equipment, etc. resulting in reduced productivity, but this viral outbreak has caused an unprecedented decrease across every stage. Both the reduced number of employees and the emotional and physical well-being of those employees are factors in reduced productivity during this pandemic disruption.

Example of reduced productivity: Sysco, a leading supplier for restaurants, let go or furloughed 33% of its massive workforce by the end of March 2020. Fewer workers means decreased productivity. Coupled with the pandemic, low morale, fear, confusion, and high anxiety levels experienced by the employees who got to keep their jobs, and productivity is going to take another hit.

Pro tip: It’s not just your employees who can disrupt production levels, but also those of your key supplier, manufacturing partners, and even your alternate suppliers. So be sure to regularly evaluate the health of your critical suppliers’ productivity and be prepared to shift to alternative ones.

Disruption type 4: Storage and access restrictions

Manufacturing plants suffering contamination issues and warehouse shutdowns are common types of storage and access disruptions affecting the supply chain. Natural disasters and viral outbreaks are two external forces that often cause these types of restrictions.

Examples of storage and access restriction: Amazon closed an apparel returns warehouse in Kentucky due to the COVID-19 outbreak, forcing supply chain leaders to make substantial changes to storage and product handling. Others have reconfigured the layouts of warehouses in order to comply with social distancing requirements for employee safety.

Meat production and storage has been disrupted due to the pandemic, causing storage and supply issues. Cold storage options need to be converted to handle the changes in supply chain demands, the risk of exposure to the virus creates building access restrictions, and meat products that were planned for commercial consumption need to be stored, disposed of, or repackaged for consumer purchase.

Disruption type 5: China and raw material shortages

We can’t discuss supply chain disruption without discussing China. As The Institute for Supply Management’s CEO Tom Derry said in an interview with The Atlantic,“You have to realize that there’s almost no industry sector—and when I say that, I mean manufacturing and nonmanufacturing—that isn’t reliant on China in the United States.”

Disruptions in China’s ability to source, manufacture, assemble, and ship products affect nearly every market in the U.S. China has struggled to export cotton for clothing and shoes, microprocessors for laptops, and chemicals critical to medicine production. Therefore retailers, tech companies, and hospitals have all been deeply affected by shortages in China.

Example of raw material shortages and procurement issues: Even the electronics behemoth Apple isn’t resilient enough to avoid supply chain disruptions in China. Chinese factories experienced issues producing iPhone casings and memory chips. Apple had to place a temporary purchase limit of 2 iPhones per person in several markets and this year’s release of the new versions of iPhone have been officially announced to be delayed due to supply chain disruptions.

Pro tip: To help mitigate the risk of this type of disruption, evaluate and update your strategic sourcing plan and include procurement partners in other countries.

A positive disruption example

Not all disruptions are necessarily bad for business. Yes, they require you to react and make changes, but in the case of a demand surge, it’s possible this disruption generates more sales than if it didn’t happen.

Church & Dwight, maker of household cleaning and beauty care products, have seen an increase in demand and reported major growth in Q1 and Q2 of 2020. They’ve had to increase short-term production of essential staples such as Arm & Hammer laundry detergent and continued with a planned expansion of a large warehouse.

Strengthen your supply chain disruption plan

We hope you found this article helpful in understanding the common types of supply chain disruptions and that the examples shared show that disruptions occur no matter the size or nature of a company. Now you can review your disruption plan and ensure you’re taking into account each of these types of disruptions.

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