A new report has projected the cost to U.S. and European multinational companies from supply chain disruptions due to the 2020 covid-19 pandemic at as much as $4 trillion. The figure is the result of a study from GEP, which provides supply chain strategy and procurement services to global Fortune 500 and Global 2000 enterprises, working with the Economist Intelligence Unit (EIU).
The study’s findings are detailed in its “Business Costs of Supply Chain Disruption” report, a commissioned survey of 400 C-suite executives at European and U.S. global companies in five sectors (food/agriculture, industry, retail/consumer goods, healthcare/pharmaceutical, and energy/utilities), half of them generating more than $1 billion in annual revenues. The survey was conducted by EIU in November and December 2020.
Among those blue-chip companies with yearly revenues in excess of $1 billion, 64 percent reported 2020 revenue losses between 6-20 percent, a maximum value that GEP calculates at $2-4 trillion in lost revenue. The report found that revenues were hurt not just by increased operating costs from physical supply shortages, but also reputational costs due to brand value damage. In fact, 38 percent of companies in the highest-earning bracket reported “significant damage to brand reputation” as a result of supply-chain problems in 2020. European companies reported larger losses, on average, than American firms.
Covid-19 was listed as the single-most disruptive event to supply-chain operations of the past three years by 45 percent of respondents. Other exogenous events have also played havoc with global supply chains, with 36 percent listing “global cyberattack” as a significant disruptor. And 33 percent listed “major commodity price fluctuations” as a disruptive factor.
While aggressive vaccine rollouts have brightened the 2021 economic outlook in many markets, GEP and EIU say that supply chain disruptions are expected to become more common. Specifically, geopolitical risks— including regional trade policy, instability, and corruption — now represent a bigger concern (identified as such by 31.5 percent of those surveyed) than any other factor, including increasing labor costs in supplier countries.
“While COVID-19, understandably, gets all the press, it is far from the only force wreaking havoc with the world’s global supply chains that costs most companies double-digit revenue loss and, perhaps more important, immeasurable reputational damage and customer loyalty,” said John Piatek, GEP’s vice president, consulting, and chairman of the firm’s Thought Leadership Council.
“Supply chains and procurement are a key driver of sustainable competitive advantage, but despite spending millions on ERP [enterprise resource planning] solutions, most global companies are ill-equipped to effectively manage complex global supply chains in face of uncertainty, global warming, tariffs and trade wars, and national governments increasing control of natural resources and strategic industries.”