What Will You Do When the Lights Go Out?
CONTRIBUTION BY Stephen F. DeAngelis – Founder, President, & CEO of Enterra Solutions, LLC
Research from the Kellogg School of Management and London Cass Business School notes, “Supply chain management is a delicate balancing act in these unpredictable times on the one hand, there is pressure to keep the supply chain as cost efficient as possible, while on the other, it needs to be flexible and resilient in the face of unforeseen events.” This tension begs the question: “How do leaders proactively manage the risk of disruption?” The article continues, “Supply chain management has grown increasingly sophisticated in recent decades; … but as supply chain complexity has increased, so too has the potential for disruption.” The study recommends a few strategies for preventing, mitigating, and/or responding to disruptions (such as, regionalizing and segmenting the supply chain as well as applying a ‘go global, but think local’ approach). The question remains:
[blockquote style=”2″]Is your supply chain prepared for the Unexpected? That’s an enigmatic question. After all, if you are prepared for something, then it is not unexpected. On the other hand, you can expect something but not know when that something might occur.[/blockquote]
Ann Grackin (@AnnGrackin), from ChainLink Research, insists that just because some events are rare, it doesn’t mean that we can’t or shouldn’t forecast them. Grackin writes, “Creating a resilient enterprise is critical to customer protection and employee welfare, as well as securing the financial viability of the company. Yet many firms think that since rare events are unpredictable, then there is no sense in doing much about them other than ‘risk transfer’ (purchasing a risk product, if one is available, such as product liability, property and casualty and so on).… Modelers and forecasters look through a faulty lens; they discount these events because they are rare.” Renee Boucher Ferguson asserts that technology has now advanced far enough that assessing the possibility of black swan events should be a part of every company’s risk management process. She writes, “New research suggests that by exploiting many types of data, managers can help prevent (or at least contain) the damage related to black swan events and other risky blind spots. The caveat: organizations should rely less on management experience and intuition and rely more on integrated data to point to potential risks.”
That’s really what supply chain risk management is all about anticipating events that could cause supply chain disruptions even when you don’t know when such events might occur. Although some disasters are caused by accidents, like fires and explosions, some of the most devastating events are so-called “acts of God,” like flooding and earthquakes. It’s not just terrestrial events with which risk managers need to be concerned. Sometimes celestial events can also cause disruptions. Carter Maguire reports that in 2012 the Earth narrowly escaped a celestial event that could have created significant supply chain disruptions. “Two years ago,” he writes, “modern infrastructure came very close to a serious disruption. The culprit? One of the largest solar storms in recorded history. Plasma exploding from the surface of the sun in a coronal mass ejection barreled through space and crossed through Earth’s orbital path on July 23, 2012. If the flare had erupted about one week earlier, Earth would have been squarely in the line of fire.” Stephanie Stoughton (@stephstoughton) reports that the chances are good the lights may yet go out as a result of sun storms. She writes:
[blockquote style=”1″]Space weather can play havoc with air-to-ground communications.… Most people have no idea that combating the effects of geomagnetic storms is a part of doing business for industries worldwide. With enough warning time, operators of New York’s power grid can alter voltage and reduce transfers across the system to protect against the strong ground currents generated by the storms. Companies that rely on GPS services may delay drilling, mining, or land surveys when satellite communications are disrupted by space weather. But corporations and the federal government may not be prepared for a severe geomagnetic storm akin to a 100-year flood that could fry electrical equipment and wipe out power to major cities for weeks or longer.[/blockquote]
How well could your company operate without electricity or communications systems? An enormous solar flare falls under the Black Swan category; but, assessing the impact of such an event and having a mitigating plan in place would be prudent for most organizations. You cannot anticipate every event (i.e., there truly are some unexpected things that could disrupt supply chains), but preparing for a reasonable number of different kinds of events will make your company better situated to respond should the unexpected occur.
 “Is Your Supply Chain Prepared for the Unexpected?” IEDP, 18 July 2014.
 Ann Grackin, “Black Swan? Hardly! Revolutions and Tsunamis Come and Go!” 5 April 2011.
 Renee Boucher Ferguson, “The Science of Managing Black Swans,” MIT Sloan Management Review, 19 February 2014.
 Carter Maguire, “That was a close one! Study: Massive solar storm barely missed us in 2012,” CNN, 25 July 2014.
 Stephanie Stoughton, “Who Turned Out the Lights? The Coming Mega Sun Storm,” Bloomberg BusinessWeek, 3 July 2014.