How Prepared Are You Really? Supply Chain Black Swans

Supply chain risk. It’s a topic that just never seems to go away (nor should it!). Everyone and their uncle has probably read at least one article, blog, research report, etc. on the topic. We’ve covered it here extensively on the 21^st Century Supply Chain blog, and Kinaxis has even produced a great infographic about it.

There’s no denying it’s a very important subject when it comes to good supply chain management. Recently however, I’ve been thinking about supply chain risk in a whole other light. Thanks mostly to a fabulous guest post by MIT’s Yossi Sheffi on the Wall Street Journal, which I had the good fortune to stumble across. In it, Sheffi talks about the concept of a ‘black swan’, no not the risk of slightly unstable ballerinas invading your supply chain, but rather a term popularized in 2007 by Nassim Taleb that’s used to describe occurrences that are thought to be impossible.

At first blush, it all sounds a bit familiar. Make sure you prepare for the unexpected. Got it. We’ve long been proponents of making sure your supply chain risk management strategy targets three key areas: anticipated risk, uncontrolled anticipated risk, and unanticipated risk.

Surely this concept of a black swan fits squarely into the third category, which is characterized by an event that is entirely out of our control and hard to anticipate and plan for. And it does. But where I think a lot of people fall short, myself included, is taking the idea of completely unanticipated risk to the next level.

Natural disasters are what most often come to mind for me when someone asks me about unanticipated supply chain risk, followed closely by global conflicts. I suspect that’s a direct result of my news junkie tendencies as those stories are most often covered on a wide scale. Sheffi makes note of how companies with manned oil platforms in the Gulf of Mexico have emergency procedures in place in case of a hurricane. They’re designed to shut down production ahead of the threat and come back online as quickly as possible following the storm. It’s a great strategy, but all this talk of the impossible makes me wonder just how far reaching those supply chain risk plans go?

What happens if the storm wipes out an entire drilling platform? Or ALL of them? Have those involved in creating the risk management strategies gone that far in their planning? Perhaps. That however would then negate them from being a so-called black swan. Why? Because as Sheffi so aptly puts it, black swans “are never rehearsed because they are perceived as beyond-the-pale disruptions. Yet the likelihood of a black swan is not zero.”

By creating, and practicing, any supply chain emergency procedures, you’re rehearsing. So does that then mean we have to start thinking about even more impossible scenarios? Like aliens invading and demanding you ramp up production of a specific SKU in your supply chain by 300%. Improbable? Yes. Impossible? Well that depends on your beliefs on whether or not we’re alone in the universe.

Practically speaking, spending anything more than a couple of minutes contemplating the supply chain implications of these scenarios that live well beyond the farthest perceived edges of reality is probably not a very wise use of your time. Does that then mean it truly is impossible to plan for these black swans?

My answer is both yes and no. Yes in the sense that you will never be able to create a plan for every single imaginable scenario – because again, we’re talking about things so far-fetched you would never see them coming. Everything would be running smoothly and then BAM your supply chain is in shambles and you’re left scrambling to put the pieces back together. No, because while you may not be able to guess, or even fathom, what could potentially happen to your supply chain, there are ways to manage your supply chain that will make it easier to respond to any supply chain risk or disruption – no matter if it’s an anticipated risk, an uncontrolled anticipated risk, or a completely unanticipated risk.

See Clearly Seeing that you have a problem, or even a potential one, is the first step to solving it. That means having a unified view of your entire supply chain, both upstream and downstream.

Manage the Exceptions Utilize exception-based notifications that call attention to urgent supply chain changes. Understand the context and impact of the problem and possible solutions so you can make an informed next step.

Collaborate Freely Identify which suppliers and customers are impacted, and then bring together the necessary people to collaborate on possible resolutions.

Be Agile The ability to react quickly to any developing supply chain situation is critical. But be warned, it’s not just about the speed of implementing a solution. It’s also about the quickness of understanding the situation and its consequences. That means having a solution in place that allows for sensing and responding faster, but also trained staff who comprehend the situation and the outcomes. Do not just let the machine push the button! The human element is still a very important one no matter how sophisticated the technology you’re using. With a few key changes to your supply chain risk management strategy, you can help minimize potential risks, and maximize the effectiveness of your response in case the totally unexpected really does happen.

What supply chain risk strategies has your organization put in place? Have you ever been caught off-guard by a completely unanticipated event? Let us know in the comments area below.