Even before COVID-19, global manufacturers faced a range of disruptive shocks that highlighted supply chain vulnerability, from natural disasters and cyberattacks to trade disputes and financial crises. According to McKinsey Global Institute’s Risk, Resilience and Rebalancing in Global Value Chains report, the manufacturing sector will need to adjust to reduce the cost of future disruptions as these shocks become more frequent and more severe. On average, disruptions lasting one to two weeks occur every two years, while more extreme events of two months or longer, like the pandemic, occur every five years.
Overall, companies can expect to lose an average of 42% of a year’s profits every decade due to disruptions. To improve supply chain resilience, the report suggested companies strengthen risk management capabilities and improve transparency, build redundancy in supplier and transportation networks, hold more inventory and reduce product complexity, work to flex production across sites, and improve the financial and operational capacity to respond to and recover from shocks.