Disruptive supply chains have been in the news for the past few years. Since the pandemic began, we’ve witnessed multiple instances of interrupted access to supplies. 

The first event occurred at the very beginning of the COVID-19 pandemic. There was a shortage of numerous items — toilet paper, hand sanitizer, masks, COVID tests, and even food. 

People were so scared of what was unfolding that they rushed into the grocery stores and stockpiled everything they could get their hands on. The result was a lack of supplies and bare shelves at stores across the country.

While that supply catastrophe was partly driven by human nature, it wasn’t helped by inventory policies that many manufacturers had adopted. These policies followed just-in-time inventory management, resulting in the production of inventory that manufacturers thought would be needed — based on history. 

Faced with mounting shortages, companies had to speed up their manufacturing processes to meet production needs. However, sick workers and people concerned about catching COVID left manufacturing companies with staff shortages — further compounding the issue.

The pandemic’s beginning saw the most severe supply chain shortages, but others have popped up since then. Even six months after COVID-19 began, stores struggled with keeping inventory on their shelves. 

Gym closures led to a run on people purchasing home exercise equipment. Remote work led to a shortage of office desks and chairs. Puzzles even flew off the shelves as people tried to find ways to entertain themselves at home. 

Even when companies stepped up their manufacturing to meet needs, there were issues getting goods to stores. Lockdowns around the world made certain necessary items in the manufacturing process unavailable. 

In addition, global shipping was impacted by lockdowns and sick workers. While we rely on cargo shipping for many of our products obtained from overseas, one case of COVID could lead to multiple sick workers on a single boat — further worsening the issue.

Impact of Supply Chain on U.S. Companies

A report from Allianz found that 94% of companies experienced a supply chain disruption in the U.S. as a result of the COVID-19 pandemic. That’s huge! In addition, 25% of the companies that experienced such a disruption found it to be severe. 

On the other hand, the pandemic severely impacted 17% of companies based in other countries. This may be due to the relative isolation of the U.S., which is quite far from the manufacturing powerhouses in Asia. Countries within the E.U. and Asia were better connected and received goods more quickly. 

How Can We Better Prepare for Supply Chain Disruptions?

While no one foresaw the pandemic, it did highlight the fact that being better prepared and having a stronger supply chain can help mitigate risks. For example, by facilitating stronger coordination between various partners in the organization, companies can ensure that no lapse occurs between business partners. 

Companies often rely on a number of vendors to fulfill their manufacturing needs. If they only have one vendor who manufactures parts or items for a product, it can severely disrupt the supply chain if this vendor cannot supply their orders. Having multiple vendors who can source parts or items is helpful. 

If a vendor operates from overseas, it’s wise to have alternatives available that can be accessed from a variety of locations. 

For example, if one company relies on a single part produced in China, they may also locate a vendor who produces the same part in India — and one in South America — and source products from all three vendors. This reduces the dependence on one vendor.

Businesses may also change their inventory methods. Rather than using a just-in-time model, they may choose to stockpile more items in their warehouse and reduce the potential for sold-out merchandise.

Forecasting is also an important part of the supply chain process. By adopting more efficient technology and upskilling their finance team through clearer forecasting processes, businesses are in a better position to respond quickly to changes that become apparent. 

Finally, ensuring that any risks to the supply chain are identified and addressed quickly can result in minimized supply chain disruptions. 

Most manufacturers rely on trucking companies and other methods of transport, including railroads and cargo ships. Having a wide variety of options to choose from can ensure that goods are shipped on time. 

Effective Planning for Interruptions to the Supply Chain

There was a significant focus on the supply chain from the beginning of the pandemic until today. It’s clear that companies need to be prepared for potential future interruptions. 

The best way to do that is through effective planning, collaboration, and the use of efficient tools. While this may not prevent a severe supply shock — such as what we experienced during the pandemic — it can help mitigate the effect if it happens again. 

Learn More About the Supply Chain Issues in Our Community

Looking to learn more about the supply chain issues? Controllers Council is a national community and platform of Controllers, Accounting and Finance professionals focused on accounting best practices, information and resources, recognition and networking. Membership has many features and benefits to propel your career and expertise, and to be an active participant in our exciting community. The Controllers Council Forum allows members to pose questions about advancing your career and other topics. Become a member today.

Meet the CFO - Interview Series - Shannon NashWebinar Thursday, September 29

The next interview in the series features Shannon Nash, CFO of Wing, the drone delivery unit of Google parent company Alphabet. Shannon is a CPA, and a recovering attorney with a JD.