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Do supply chain disruptions cause financial instability?

Do supply chain disruptions threaten shareholder value and can they affect the financial performance of the company and lead to long-lasting damages.

A recent report ("From Vulnerable to Valuable: How Integrity Can Transform a Supply Chain,") from PricewaterhouseCoopers (PwC) suggests that the average stock return of companies suffering from supply chain disruptions was almost 19 percentage points lower over a two-year period relative to the benchmark group. An earlier report (couple of years earlier) from The Aberdeen Group revealed that recovery costs from disruptions can average to seven figures.

But, what factors drive supply chain disruptions? - things like lack of alternate suppliers, over-reliance on outsourcing, having very lean operations, poor collaboration, demand-supply variations, etc. Besides, supply chain disruptions can also be caused due to natural calamities, part shortages, manufacturing delays, shipping and cargo delays, rollout problems, order changes by some customers etc.

Effects of Supply chain disruptions: Profit and sales dips, increased manufacturing costs, inventory accumulations and drop in level of customer service to name a few.

Examples of supply chain disruptions in the past:

  • Year 2000 - Fire at a supplier of microchips created havoc in companies like Ericsson and Nokia. Nokia tied up with other suppliers quickly to fare better.

Case Study Quotes

"Pretty much, Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart. We make it by innovation". - Steve Jobs, Apple