According to a new report, "Cost of Supply Chain Disruption", while COVID-19 has been a significant disruptive factor, it was only one of the forces that strained and occasionally broke supply chains. US firms in particular have been beset by a variety of problems amidst a U.S.-China trade dispute.
The report was released by GEP, a supply chain software provider, based on a survey of C-suite executives at European and U.S. global companies, and was conducted by The Economist Intelligence Unit (EIU).
The biggest supply chain challenges global organizations face moving forward, according to the report, are compliance with constantly changing trade regulations, cyberattack, supplier risk, and managing brand reputation.
The report reveals the high cost of supply chain disruptions to global companies and how they are responding, including:
- Nearly half (45%) report that COVID-19 "significantly" disrupted their supply chain, but it is only one of several challenges facing multinational companies, including cyberattacks (36%), commodity pricing fluctuations (33%), and diverging regulations (32%);
- 64% of companies with revenue greater than USD$1 billion reported revenue losses between 6% and 20% in 2020, which GEP calculates represents between $2 trillion to $4 trillion in lost revenue;
Note: This figure is based on insights from The EIU. GEP has calculated that up to $4 trillion in revenue may have been lost as a result of supply disruptions. GEP calculations are based on cumulative 2019 revenue of US + EU-based Fortune 2000 companies with >$1 billion revenue: $21.8 trillion
- 38% of companies with revenue greater than USD$1 billion report "significant damage to company's brand reputation" and one-third (33%) said their "operational costs increased" significantly as a direct result of supply chain disruptions;
- Sales top challenges: Adjusting sales and pricing strategies (40%) and adapting to evolving customer preferences (40%) as a result of disruptions;
- Finance top challenge: Ensuring availability of lines of credit from investors and funders (40%) as a result of disruptions
Supply chain disruptions are expected to become more common. While COVID-19 upended every company's supply chains and operational plans last year, geopolitical risks — regional trade policy, instability, corruption — represent an organization's biggest concern (31.5%) than any other factor, including increasing labor costs in supplier countries.
"While COVID-19, understandably, gets all the press, it is far from the only force wreaking havoc with the world's global supply chains that costs most companies double-digit revenue loss and, perhaps more important, immeasurable reputational damage and customer loyalty," says John Piatek, GEP's vice president, consulting, and chairman of the firm's Thought Leadership Council. "Supply chains and procurement are a key driver of sustainable competitive advantage, but despite spending millions on ERP solutions, most global companies are ill-equipped to effectively manage complex global supply chains in face of uncertainty, global warming, tariffs and trade wars, and national governments increasing control of natural resources and strategic industries."
The report also provides a new road map for companies building resilient supply chains:
- Signaling a major shift in strategy, sixty one percent (60%) of respondents agree that "redundancy and resilience in their company's supply chain are more important than speed and efficiency."
- More than half of the executives surveyed (54%) say that organizations must make significant changes to effectively manage supply chain disruptions in the next five years.
- Companies are pursuing a range of actions to mitigate the impacts of future disruptions, including strengthening relationships with existing suppliers, implementing permanent supply chain risk management teams and processes, accelerating investment in digital technology, and integrating supply chain and procurement more closely with finance and IT.
