Menu
Beware the 'black swans' in your supply chain

Beware the 'black swans' in your supply chain

You may think you're planning ahead, but you'll probably still miss the big ones

Enterprises know that merely having a supply chain involves a certain amount of risk, but few do enough to protect against the one-off, extreme incidents that can disrupt them.

That's according to Yossi Sheffi, an MIT professor who is director of its Center for Transportation & Logistics.

"Events that rarely happen but wreak havoc pose the most dangerous threat to corporate health," Sheffi wrote in an article this week in The Wall Street Journal.

Such events -- sometimes referred to as "black swans" -- include unanticipated catastrophes such as Hurricane Katrina, the BP Horizon oil rig explosion, the 9/11 terrorist attack, the tsunami that hit Japan in 2011, and even the Volkswagen emissions scandal.

While most risk-planning processes focus on events that happen relatively often, such as routine weather emergencies, they often ignore the extreme ones that are considered too unlikely to worry about, Sheffi argues.

While such events are unlikely, the probability that they'll happen isn't zero -- as history has proven again and again.

"Black swans are never expected," Sheffi said in an interview. "There are many examples of low-probability, high-impact disruptions. People don't believe they can happen, but they do -- and there will be more."

Vendors such as Resilinc and Elementum along with IBM, SAP and Cisco are increasingly coming out with software to help companies protect themselves, he noted.

But it's not easy to connect all the dots. A large enterprise can have thousands of suppliers, for instance, and each of those companies may have suppliers of their own. With all those moving parts, managing all the places disaster can strike is a complex matter.

To begin assessing the impact of a catastrophic event, a business needs to go through the bill of materials for each of its products, with an eye toward not just its main suppliers but secondary ones as well. "Often you just get the address of headquarters, which is not where the plants are," Sheffi said.

When a black swan happens, companies must quickly determine what products are affected and which customers are using them, along with the financial contribution from each. Plant locations and inventory levels are key. Equipped with that information, companies must decide where to focus their recovery effort. 

It can't always be an automatic process, either. 

"Say you're a small parts supplier, and you just got a small contract with GM," Sheffi said. To a computer it may look like any other contract, but with a company the size of GM it's an opportunity for a lot more business in future.

Given the high levels of churn among customers and suppliers, systems must also be updated frequently.

Making the process easier is that many software vendors are focusing on industry verticals, Sheffi said, helping to disseminate any knowledge about particular suppliers.

Sheffi recommends that companies begin by talking with the people in their supply chain, and also investigating any software available for their industry.

Joining industry groups can be another effective way to make progress -- "many of these things are done that way," he said.

Even on issues such as social responsibility, it's important to keep in mind suppliers' impact.

"If you're running a large enterprise, you may not be polluting the environment, but maybe one of your suppliers is," he says. "That can be a really serious issue, because consumers will respond."


Follow Us

Join the newsletter!

Or

Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

Featured

Slideshows

The making of an MSSP: a blueprint for growth in NZ

The making of an MSSP: a blueprint for growth in NZ

Partners are actively building out security practices and services to match, yet remain challenged by a lack of guidance in the market. This exclusive Reseller News Roundtable - in association with Sophos - assessed the making of an MSSP, outlining the blueprint for growth and how partners can differentiate in New Zealand.

The making of an MSSP: a blueprint for growth in NZ
Reseller News Platinum Club celebrates leading partners in 2018

Reseller News Platinum Club celebrates leading partners in 2018

The leading players of the New Zealand channel came together to celebrate a year of achievement at the inaugural Reseller News Platinum Club lunch in Auckland. Following the Reseller News Innovation Awards, Platinum Club provides a platform to showcase the top performing partners and start-ups of the past 12 months, with more than ​​50 organisations in the spotlight.​​​

Reseller News Platinum Club celebrates leading partners in 2018
Meet the top performing HP partners in NZ

Meet the top performing HP partners in NZ

HP has honoured its leading partners in New Zealand during 2018, following 12 months of growth through the local channel. Unveiled during the fourth running of the ceremony in Auckland, the awards recognise and celebrate excellence, growth, consistency and engagement of standout Kiwi partners.

Meet the top performing HP partners in NZ
Show Comments