April 17, 2024

The Impact of Supply Chain Disruptions on Inventory Management

Navigating the intricate web of global supply chains has become increasingly challenging in the wake of the COVID-19 pandemic, geopolitical tensions, and climate-induced


The Impact of Supply Chain Disruptions on Inventory Management

Navigating the intricate web of global supply chains has become increasingly challenging in the wake of the COVID-19 pandemic, geopolitical tensions, and climate-induced disruptions. These upheavals have spotlighted the pressing need for businesses to fortify their resilience against unforeseen disruptions.  

Recent reports underscore the staggering financial toll of supply chain vulnerabilities, with companies facing significant financial losses averaging $184 million annually due to disruptions. McKinsey's analysis further illuminates the sobering reality: prolonged interruptions can erode up to 45% of a company's yearly profit, with potential impacts of 30–50% on annual EBIDTA.  

In the face of such formidable challenges, safeguarding the bottom line — encompassing costs, cash flow, and revenue — is paramount. Herein lies the pivotal role of inventory management. By optimizing inventory levels, streamlining supply chain operations, and enhancing responsiveness, businesses can mitigate the financial impacts of disruptions. Improved inventory management not only minimizes excess costs but also bolsters cash flow and safeguards revenue streams. This proactive approach not only shields against immediate losses but also fosters long-term financial resilience in an increasingly volatile business landscape.

What are Supply Chain Disruptions?

Supply chain disruptions refer to any event that halts the normal flow of products and services that a company needs to run smoothly.

The following are examples of some of the most common causes of interruptions in the supply chain:

  • Crash events
  • Intense political turmoil
  • Issues with transportation
  • Problems with the supplier
  • Issues with quality
  • Unforeseen changes in demand

Product shortages, partial order fulfillment, and delivery delays all contribute to a decline in sales, which in turn makes it harder to meet end-user demand. Businesses need to have plans to deal with disruptions in the supply chain to keep operations consistent and resilient.

Businesses and consumers are both vulnerable to the effects of supply chain disruptions. Production delays, higher expenses, and trouble satisfying consumer demand are all possible outcomes.

What are some of the major causes of supply chain disruption?

There are multiple causes of supply chain disruption, including:

  • Relying on a Single Supplier

When businesses put all their eggs in one supplier's basket, they become vulnerable to supply chain disruptions if that source experiences problems. It could lead to delays, higher expenses, or even a halt in production.

  • Lack of Adequate Inventory Management

When a product becomes temporarily unavailable due to inadequate inventory management, it results in consumer dissatisfaction and lost sales. On the other hand, overstocking can also give rise to complications as it results in the wastage of valuable resources, such as money and warehouse space. Ineffective Inventory Management ultimately leads to increased costs.

  • Natural Disasters

When calamity strikes, it may wreak havoc on the company’s supply chain. Transportation infrastructure damage, power outages, and raw material shortages are some of the many potential causes of such disruptions.

  • Political Instability

When governments are unstable, it can significantly disrupt supply chain management by halting the free movement of products and services. Trade disputes, sanctions, and tariffs are all examples of this kind of instability; they all hinder the free movement of commodities across borders, leading to price hikes and delivery delays.

  • Cybersecurity Breaches

Information systems in the supply chain are vulnerable to cyberattacks and data breaches, which can impede operations, compromise sensitive data, and affect network communication and coordination.

  • Pandemics

Pandemics like COVID-19 greatly affect the management of supply chains and the smooth movement of products and services. Goods shortages, transit delays, and production and manufacturing setbacks are among the many potential causes.

  • Demand Volatility

Disruptions to the supply chain can occur when there are sudden consumer tastes, industry trends, or customer demand shifts. Unexpected changes in demand can impact production and distribution and lead to shortages or surpluses in inventories.

How do supply chain disruptions affect inventory management?

Inventory management is greatly affected by interruptions in the supply chain because these events make it more difficult to maintain ideal inventory levels by halting the flow of goods and resources throughout the supply chain.  

The following disruptions impact inventory management:

Inventory Excess or Shortages:

A lack of necessary goods on hand might result from supply chain interruptions, including transportation delays or raw material shortages. Companies can find themselves short-handed in meeting customer demand if this trend continues. Consequently, they risk running out of stock, having fewer sales, and unhappy consumers.  

Another consequence of supply chain disruptions is an overabundance of inventories. One common cause of overstocking is corporations' tendency to hasten subsequent shipments if one is delayed. In addition to increasing carrying costs and perhaps leading to product obsolescence if the product is out-of-date, having an excess inventory ties up money and warehouse space.

Increased Holding Costs:

Longer lead times and more time spent in inventory are common results of supply chain interruptions, which in turn raise holding costs. As a result, warehouse rent, utilities, insurance, and depreciation—all involved holding costs—increase. Companies can end up spending more on holding expenses if they try to lessen the impact of interruptions by investing in more storage space or faster transportation.

Demand Forecasting Challenges:

Precise demand forecasting may prove challenging if the supply chain is interrupted. Businesses face difficulties in effectively predicting their inventory needs because of factors such as fluctuating consumer demand, uncertain lead times, and shifting market conditions. Inaccurate demand forecasting might cause substantial disturbances to inventory.

Out of sync Production planning and execution:

Supply chain disruptions can potentially cause delays in production timelines and halts in manufacturing processes, which can, in turn, affect production planning. As a result, supply and demand mismatches can become even more problematic in inventory management. As a result, businesses may incur more expenses and experience inefficiencies as they try to adapt output levels to fluctuating inventory levels.

Mitigating Supply Chain disruptions with TADA

Businesses are vulnerable to supply chain interruptions, which can lead to increased expenses, customer frustration, and delays. Nevertheless, these interruptions can be handled efficiently with the correct tactics and technologies, reducing their effect on inventory levels. Supply chain leaders can easily navigate disturbances with TADA's Inventory Management Solution.

1. TADA's Real-time Insights for Swift Responses

With the real-time insights provided by TADA's inventory management solution, businesses can swiftly respond to disturbances in the supply chain and lessen their effect on inventory. With an understanding of the current stock levels, supply chain managers are better equipped to understand costs and further reduce them.

2. TADA's Integration to Overcome Disruption Barriers

TADA is a platform for connectivity that integrates data sources to give complete visibility and make cooperation easier, both of which are crucial for handling disturbances seamlessly. The connectivity aspect helps in better production planning creating a direct link within individual stakeholders

3. TADA’s Heightened Visibility through Digital Twin Technology

TADA’s Digital Twin platform offers a comprehensive view of the supply chain ecosystem as a whole. It goes beyond mere recognition of disturbances; it allows supply chain managers to comprehend the far-reaching consequences that they can have. This helps tremendously in getting an overview of demand forecasting; stakeholders can ensure that their inventory is aligned with the requirements of the future.


Disruptions in the supply chain may cause businesses to face delays, higher expenses, and missed sales opportunities. However, companies can safeguard their bottom line and reduce the impact of disruptions like these by improving their inventory management methods.

Improved inventory management can be achieved by developing a backup plan, increasing inventory, and diversifying the supply chain.

In addition, companies can utilize platforms, like TADA, to monitor and control their stock in real-time, which helps them detect and handle supply chain disruptions faster.