Guarding Against Digital Supply Chain Disruptions
Digital supply chain disruptions are becoming increasingly common , with a recent notable increase in cyberattacks and supplier errors .
A significant incident in July 2024 saw a flawed security upgrade by CrowdStrike impact 8.5 million Windows computers . The fallout impacted various industries, including airlines, hospitals and 911 services. This led to the cancellation of 2,800 flights and delays for 11,000 more.
Threats surrounding the looming trade war between Canada and the United States are also threatening the digital supply chain. The digital supply chain encompasses many goods and services, including video streaming platforms, software, digital content, video games, e-books, online storage, education and training content, and food delivery services.
According to a McKinsey report from October 2024 , companies seem to be easing up on efforts to strengthen supply chain resilience, even as disruptions continue to occur. The survey found “considerable gaps in the ability of organizations to identify and mitigate supply chain risks, with few new initiatives aimed at addressing those weaknesses.”
Digital supply chain disruptions are particularly problematic because they can have immediate global effects. Unlike physical supply chains, digital suppliers can’t rely on inventory as a buffer. As is clear from major industry disruptions to the digital supply chain , organizations often lack feasible alternatives for their digital suppliers – there is no plan B.
However, the resilience of digital supply chains is given little attention, despite its critical role in the global economy.
Our recent research explored how businesses’ choice of digital supplier – either the same as their competitors or different ones – impacts competition and vulnerability to supply chain disruptions.
Using an economic model, we analyzed how disruptions at a service provider impacted a firm’s customer demand and, in turn, how the firm managed service provider risks.
We found that when companies rely on the same digital suppliers, they also share risks. In contrast, choosing alternative suppliers can help mitigate those risks. However, businesses often mimic their competitors and share suppliers – a strategy that is not always wise.
Disruptions to digital supply chains are inevitable, and the effects of these disruptions, particularly on consumer demand, are often underestimated. These disruptions can spread rapidly, without giving companies enough time to react. Cyberattacks or service losses at a single supplier can take multiple businesses offline at once.
Issues like privacy breaches and service disruptions can even cause customers to change their buying habits . While a disruption at one firm may lead consumers to switch to competitors, broader industry disruptions can diminish overall trust and demand.
Companies with complementary products should consider using different digital suppliers to mitigate the compounded negative effects of any disruption.
Additionally, advanced technologies like AI are transforming industries such as customer support and health care, meaning digital supply chain disruptions are also more likely . Automation can also exacerbate this risk .
Canadians have many concerns about online privacy and security , and business leaders face challenges addressing these concerns moving forward.
Addressing these concerns is difficult due to several factors, including rapidly changing technology, expanding opportunities for attacks, high costs to address privacy and security, and lack of employee awareness, among others.
Our research leads to a number of suggestions for companies, industry coalitions, governmental regulators and consumers. For businesses, building resilience against digital supply chain disruptions and supplier outages requires strategic partnerships. Companies must consider how inevitable disruptions will affect not only their customer demand, but also how competitors’ disruptions could affect them, and vice versa.
For industry coalitions and governmental regulators, understanding the ripple effects of shared digital supply chain risks can help determine whether supply chains should be shared or separated. Industry-specific needs may differ and change over time, which could justify breaking up digital service monopolies to increase supplier diversity or, in some cases, maintaining them.
Consumers should also be aware of the potential for a digital supply chain disruptions. If an industry-wide outage occurs, having a workaround plan can be essential. For example, when purchasing services that can’t be physically stored, like airline tickets, it’s wise to plan for unexpected disruptions. Booking a flight a day earlier than necessary or allowing extra time to return home can provide a buffer against system-wide failures.
Breaches of online privacy and service disruptions caused by unforeseen events , bad actors and foreign governments can cause customers to alter their buying habits and negatively impact Canadian competitiveness .
With Canadians expressing grave concerns over online privacy and security, everyone must recognize the importance of preparing for and mitigating these risks.
Raymond A. Patterson currently receives funding from the Haskayne School of Business and the National Cybersecurity Consortium (NCC). Previous funding has been obtained from a variety of private and public sources.
Erik Rolland, Hooman Hidaji, and Lisa Yeo do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.