Minimizing the Distraction of a Potential Black Swan

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In today’s day and age we have been conditioned by the media to fear the unexpected. We are bombarded with “Breaking News…” tickers on our tablets and TVs and trending topics on Twitter. A tsunami hits South East Asia. Are you prepared for the next one that might hit North America? A volcanic eruption leaves large parts of Europe covered by a cloud of smoke paralyzing air travel. Which volcano in the world will blow next? A financial meltdown with numerous major financial institutions forced out of business. What lending institutions can you still trust? I recently read an article by Scott H. Thompson about a term coined by Nassim Nicholas Taleb to represent these unforeseen events. “ The Black Swan ” theory highlighted three main characteristics:

1) It was not predicted, meaning it came as a surprise (to the observer) 2) The event has a huge, widely-felt impact 3) Even though the event was not expected or predicted, human nature causes the observer to believe that the event was perfectly predictable and foreseen.

All of us who work with supply chains for a living are no different. We have been conditioned to fear unpredicted natural disasters and unforeseen events. When in reality the things in a supply chain that can often cause the most damage to financial results, for a business, are the day-to-day challenges of supply and demand balancing that just aren’t managed properly. These may include a labor disruption in a manufacturing plant, a power failure in a supplier’s facility, the rising pricing of fuel and the ever fluctuating currency exchange rate. These less sensational yet complex challenges are often a huge bottleneck in the supply chain. It’s obvious the probability of identifying these more mainstream events in the supply chain is much higher than trying to predict the next “Black Swan”. How organizations respond to these supply chain challenges or disruptions is important. However, “response management” can also be viewed as passive or too reactive. Companies who balance supply and demand the best usually don’t wait to respond, but are running simulations of various ‘what-if’ scenarios related to high probability events.

The element of predictive or what-if analysis becomes a powerful capability when evaluating potential disruptions in the supply chain. The concept of a Control Tower to oversee all supply chain processes becomes a powerful asset to assess the situation and compare multiple scenarios to devise the best course of action. So the next time an over-zealous supply chain software marketing or sales person tries to invoke fear through a “Black Swan” event, tell them you are more interested in learning how they can help you manage the “White Swans” better.

Discussions

Kevin L.
- 12월 05, 2012 at 10:55오전
Excellent thoughts on the Taleb article. To add to your thoughts the idea of a Black Swan is preparing for an event that you know will occur you simply don't know when. The theory is that I only need to see one Black Swan to know that they exist, no matter how rare.

The implications for supply chain are clear, and this is a great way to think about planning the robustness of your supply chain. While you could spend more time than any of us have available planning for countless unexpected disruptions, that doesn't provide an excuse to not plan for any.

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