Supply Chain Risk Analysis: Learn from Past Issues

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I’ve written various posts over the previous couple of years about provide chain danger administration. This one is a brief addition to the sequence.

As I wrote earlier than, volatility, uncertainty, complexity, and ambiguity (collectively referred to as VUCA) are making provide chain managers’ jobs rather more tough than within the earlier 30 years.

The most recent hair-raising occasions are the sudden lockdowns of sure cities and provinces of China, forcing tens of hundreds of factories to cease all exercise briefly. Fortuitously, to date, it has been much less impactful than we feared, however the specter of extreme outbreaks has actually not disappeared.

One solution to tackle the ‘VUCA’ is to attract an inventory of foreseeable dangers and to make use of it as a foundation to type a enterprise continuity plan.

About two years in the past, I wrote this recommendation to begin planning for enterprise continuity:

Make an inventory of all of the occasions that might forestall your organization from functioning as supposed and preserving your prospects (and different stakeholders) blissful.

Some might be inside, for instance:

A key worker leaves immediately, leaving you unable to carry out some actions on the similar stage

Extremely confidential data is leaked to competitors, and a big buyer is suing your organization over that leakage

Some might be exterior, for instance:

A big buyer goes out of enterprise, and you may not cowl all of the fastened prices

A severe epidemic forces all corporations within the space to stay closed for six weeks

I want I’d additionally added this necessary tip:

Take a look at the problems which have occurred prior to now, to tell your danger evaluation. Begin with these. In the event that they already occurred, there’s a good probability they are going to come again in some unspecified time in the future.

‘Distinctive’ points that might have been foreseen by wanting again on the previous

Really, many of the present “distinctive” points might completely be foreseen, just by wanting on the previous.

Instance 1: freight value variation

If one seemed on the freight value over time, not just for customary containers but in addition for tank and bulk transport. This value graph reveals some extreme peaks & valleys:

(Due to Lars Jensen for pointing this out in Linkedin. The picture supply is his publish.)

Instance 2: the coronavirus pandemic

It is a “as soon as a century” occasion that epidemiologists have been warning us about for a very long time. The 1918 pandemic killed thousands and thousands.

It did inspire some presidents (e.g. George W. Bush in 2005) and a few public well being specialists (e.g. Invoice Gates in 2015) to take steps. Sadly, it’s clearly not ample to scare most decision-makers into taking preventive measures.

Instance 3: the warfare in Ukraine

All people is watching in horror on the scenario in Ukraine. And, as unhappy and revolting as this invasion is, it was clearly foreseeable for the reason that 2014 invasion of Crimea and the publication of Putin’s intentions.

In consequence, Ukraine’s military has been doing intensive preparations and are in a a lot better state of preparedness than they had been 8 years in the past, therefore the difficulties Russian troops are experiencing.

This isn’t a minor occasion. Financial development is slowing down. This invasion and its reactions could outline the geopolitical state of the world for many years to return.

Who is aware of, worldwide commerce is likely to be compelled to drop prefer it did within the Thirties (one other precedent to have in mind). Some are beginning to surprise if as we speak’s world provide chains are a great factor.

Instance 4: the rise of the RMB

Some importers have been complaining in regards to the rise of the RMB. And it’s true, the latest development hasn’t been favorable to overseas patrons.

Nevertheless, if one appears on the longer historical past of that trade charge, one can see that the development was a lot worse from 2005 to 2008.

Instance 5: the present wave of extinction of species on Earth

This isn’t “as soon as a century”. The rely is in lots of of thousands and thousands of years. However biologists have been warning us that we could also be dwelling the sixth nice extinction.

Here’s a good article in regards to the previous 5 nice extinction occasions which have occurred to date on planet Earth.

Conclusion

I suppose one can conclude with a easy rule of thumb — if it has occurred prior to now, it would most likely occur once more.

And there may be one other rule of thumb that most likely must be forgotten — if somebody has been in place for a sure time, count on it to stay in place sooner or later for a similar period of time. It doesn’t look like excellent steerage in these troubled instances.