How do supply chain disruptions impact the external business environment?

Supply chain disruptions can destabilise the external business environment by affecting prices, availability of goods, and market competition.

Supply chain disruptions can have a significant impact on the external business environment. One of the most immediate effects is on prices. When a disruption occurs, it can lead to a shortage of goods. This shortage can then lead to increased prices as businesses scramble to secure limited resources. For example, if a natural disaster disrupts the supply of a key raw material, the cost of that material will likely increase due to its reduced availability. This can lead to increased production costs for businesses, which may then be passed on to consumers in the form of higher prices.

Another impact of supply chain disruptions is on the availability of goods. If a disruption prevents a business from receiving the materials it needs to produce its goods, it may have to reduce or halt production. This can lead to a shortage of goods in the market, which can affect both businesses and consumers. Businesses may struggle to meet customer demand, which can lead to lost sales and damage to their reputation. Consumers, on the other hand, may struggle to find the goods they need or want, which can lead to frustration and dissatisfaction.

Supply chain disruptions can also affect market competition. If a disruption affects only certain businesses or industries, it can create an opportunity for others to gain a competitive advantage. For example, if a disruption affects the supply of a key component used by many businesses in an industry, those businesses that have diversified their supply chains or have stockpiled resources may be able to continue production while others cannot. This can allow them to gain a larger market share, at least in the short term.

Finally, supply chain disruptions can have broader impacts on the economy. For example, they can lead to job losses if businesses have to reduce or halt production. They can also affect trade balances if a country has to import more goods due to a disruption in its domestic supply chain. These broader impacts can create additional challenges for businesses operating in the affected economy.