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6min

What is Value Chain Disruption?

What causes value chain disruption, and how can future disruption be prevented before it (inevitably) happens again?

Today, modern product companies can no longer afford to assume disruption is a remote risk. Not after the last few years. 

If you’re a product or quality manager and you’re still thinking, “phew, the worst is behind us” — you’re either a blind optimist or you’re simply not taking your risk management seriously enough.

Let’s run through the list, shall we? Value chain and supply chain disruption in the past few years has been caused by:

  • A worldwide Covid-19 pandemic stymying the global supply chain 
  • A wedged cargo ship blocking trade through the Suez Canal
  • Government mandated safety protocols that drastically reduced available labor
  • Trade sanctions and new tariffs against massive material exporters
  • A war in Ukraine, slowing any supplier procurement out of the “world’s breadbasket”
  • An urgent consumer-led demand for sustainability via the adoption of new technologies and responsible manufacturing

Of course, these are just a handful of recent stand-out disruptors, and there are many areas of exposure that increase a company’s risk to be hobbled, or even taken out completely, by a disruption to their value chain. 

Even knowing all this, there are still so many companies across entire industries who are not being proactive, instead opting for short-term, reactive solutions to mitigate supply shocks one by one.

If we’ve learned anything from lockdown, it’s that there is no singular critical turning point for businesses – there could be several all at once, with more on the horizon. At this stage, the important measurement of success is how they react to them.

Yossi Sheffi, director of the MIT Center for Transportation and Logistics, said it best: “A crisis is a terrible thing to waste.”

So let’s start from the top. First, businesses need to understand why their value chains get disrupted, how disruptions impact their KPIs and objectives, and what strategies to put in place. 

Value Chain Disruption vs. Supply Chain Disruption

When we say “value chain” we don’t just mean the supply chain that puts your product in a customer’s hands—we mean everything that brings value to your customers, from the contract design and manufacturing organizations, 2nd and 3rd tier supplier partnerships, through to the support your customers receive when they contact your support channel.

To understand value chain disruption, we have to agree on a fundamental fact of business: today’s economy is a worldwide economy. 

Winning business in local markets requires outpacing and outmatching competitors at a global scale. Successful enterprises have built empires across the globe thanks in part to intricate supply networks, strategic shoring decisions, challenging logistics management, and vertical integration. 

Companies are liable to severe thrashing when their value chain is disrupted, or worse, broken. The impact of unmitigated risk can ripple out from supply chain operations to the inherent value of the end product. 

Each link in your value chain has its own set of stressors unique to its vulnerabilities and local characteristics. Natural disasters such as extreme weather around Houston’s oil refineries and Taiwan’s semiconductor factories impact two different sets of value chains.

Consequences of Disruption, Expected and Unexpected 

Effects of value chain disruption are pervasive enough that even the average consumer now has a basic understanding of supply chain management. Indeed, everyday buyers became very aware of it in real-time when they needed to buy toilet paper in the spring of 2020.

Now, lockdown weariness has led to declines in patience—customers are ready to shop again, but brands are struggling to provide.

The truth is shortages that seemed short-term in the initial coronavirus panic, have rippled out into long-term bottlenecks for raw materials. In such cases, customers aren’t always seeing empty shelves clearly caused by panic-buying, they’re just seeing longer and longer delivery times for which they don’t have an adequate explanation. MIT Sloan refers to this as the “Bullwhip Effect.”

“[Disruptions] start with retailers and spiral out in greater magnitude to distributors, producers, and then suppliers in the first, second, and third tiers. Upstream suppliers are likely to be severely damaged.”

Let’s break down these consequences as they ripple upstream through the supply chain, and eventually double back on customer experience—the value chain.

1. Longer response times from suppliers and manufacturing partners

Behind the scenes, product companies are scrambling for components they desperately need. They’re waiting on longer and longer response times from suppliers and manufacturers—whether they’re sourced locally, based in China, or  anywhere in between. 

2. Harder to find, and often more expensive, alternative parts and suppliers

The next logical steps for these companies looking to shorten these waiting periods is to seek out alternative suppliers. Of course, if every product company is seeking alternatives, those alternate suppliers also become either more scarce, more expensive, or both.

3. Longer responses to your customers and prospects

Companies are unable to make any long-term guarantees to their current customer base, which over time can degrade loyalty. Brand credibility will take a hit as well, pushing prospects towards competitors.

4. Longer time-to-market

With longer wait times for components and raw materials, the logical effect is a longer time-to-market with new products. Unsurprisingly, new product introduction can be demonstrably less effective without a hard arrival date. When customers start asking to refund their pre-orders, you know you’re in trouble. 

5. Less market penetration (smaller market cap)

After long wait times from components and materials stuck in bottlenecks, reduced customer loyalty, and a high rate of returns, it stands to reason that a product won’t gain the market share it needs to match (let alone beat) the competition. 

6. Fragile security and IP stealing attempts (a lesser expected, but very real consequence)

Though it feels like the risks of cyber security have been harped on for years, it’s no longer a vague, far-off risk. In 2021, breaches not only happened at a record high, but indeed doubled the previous record in 2013. Companies with vulnerable security are left with this seemingly left-field consequence (on top of all the ones listed above). Now they’ve lost time while they bulk up security, possibly find all new suppliers, and recoup the losses.

The solution is prevention.

Though we’ve just rattled off some pretty dire impacts that a multitude of companies are feeling right now across every industry, building value chain resilience is still a real possibility.

With technological advancements that have very sparsely been adopted—product companies have every opportunity to not only get a leg up over the competition, but to completely outpace them with innovation.

According to McKinsey, “Today technology is challenging old assumptions that resilience can be purchased only at the cost of efficiency. The latest advances offer new solutions for running scenarios, monitoring many layers of supplier networks, accelerating response times, and even changing the economics of production.”

Solutions like Propel are helping product companies feel safe from the next disruption by connecting stakeholders at every step of the value chain, from concept designers, to product managers, to quality assurance, to commercial teams. With this built-in workflow automation, any potential problems are flagged and disseminated instantaneously so teams can work together to solve the problem while simultaneously reassuring customers (if needed).

It’s not too late. Maybe the best time to plant a tree was 20 years ago, but the next best time is now. Though product companies have been rocked by a multitude of macro crises on a global scale (the pace of which seems to be accelerating), they’ve also been primed with the need to adopt preventive, proactive solutions. 

Businesses that fail to adopt modern processes will have to answer to their stakeholders why the latest risks to their value chain were not identified and mitigated. Don’t be them. 

Read more on how Propel can help you protect and innovate your value chain. Next in this series, we’ll look at specific, actionable ways to improve your business and beat competition.

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Post by
Grant Bremer
Product Manager, Propel

Grant is a Product Manager at Propel with over six years of experience in B2B SaaS. He is data driven and focused on creating product that penetrates key markets with high revenue potential.

Fun Fact: Before finding his passion of building customer-delighting products, Grant explored a variety of jobs like Beer Brewer, Olive Oil Researcher, and Flight Attendant.

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Grant Bremer