The Zurich study found that IT and communication issues present the primary supplier risk, followed by transportation problems, labor unavailability, and regulatory changes. Surprisingly, while natural disaster was a key cause of supply chain disruption, many interruptions were not directly tied to the physical damage but to secondary issues such as power outages, infrastructure problems, labor and ingress/egress challenges.
In addition to these supplier risks, we have found the root cause of most supplier challenges are interrelated (and fundamentally related to communication), ranging from Bill of Materials (BOM) changes to rogue activities, supplier certification issues, tooling, and quality issues. BOM changes are frequent during the launch phase, and miscommunication related to those changes can lead to missed launch dates, higher costs, and loss of revenue, leaving the company’s reputation damaged. Miscommunication can also delay the completion of a Production Part Approval Process (PPAP), which can impact cash flow because the associated tooling will not be reimbursed by the customer until the PPAP is complete. Quality issues may result from tools running over capacity limitations, or past the quoted lifetime of the tool. Another consequence is parts nonconformance, which may cause shutdowns, warranty issues and recalls.
These disruptive events have negative consequences on a company’s long-term viability. Beyond penalties assessed by customers, a major disruption results in an average 25% reduction in stock price over two years (reputation), a 9% drop in revenue, and an 11% increase in costs. More: supply chain disruptions impact business relationships upstream and downstream. When a supplier creates a crisis for a customer, the customer may re-evaluate the value of the relationship. They may impose financial penalties, or they may choose another supplier entirely when awarding future contracts.
Internally, even minor disruptions take employees away from current projects, contributing to future issues and delays. If it happens regularly, firefighting lowers employee morale and is directly tied to increased turnover. Supplier challenges often cause an erosion of trust between Purchasing and Sales teams. Better intelligence about the supply chain can positively transform an entire organization.
Beyond uncovering opportunities for efficiencies, a launch portal for new product introductions mitigates risk and delivers broad financial and reputational return on investment. By leveraging historical, real-time, and forecast data, decision makers can anticipate disruptions and speed recovery time in the event of an incident. They are better informed, more agile, and empowered to be proactive.