Decoding The Black Swan - Event on The Supply chain - Liladhar Pasoo

DECODING THE BLACK SWAN -
EVENT ON THE SUPPLY CHAIN
The term “Black Swan” is coined by renowned finance professor Nassim Nicholas
Taleb in his 2007 book “The Black Swan”. He defines black swan-events that are
impossible to foretell due to their extreme rarity yet having disastrous after effects.
He advocates that it is important for people to always assume a black swan-event is
a possibility, whatever it may be, and to plan accordingly.
Countries of advanced industrial economies and their technologically advanced
companies arelinked by globalized customers and supply networks together with
finely honed transport strategies that deliver JIT(Just-in-time).Normally, the existing
system functions very effectively. Unfortunately, the system is also susceptible to
events that are either not forecast-able or is able to forecast but not able to prevent
it. The usual planning models and forecasting do not seem to or cannot capture
disruptive blackswan-event.
The challenge is how do we plan, factor and mitigate the black swan-event
damage?
One aspect of globalization has been the rise of Asia, asa manufacturing hub for
supplying western markets. Indeed, since the 1980s, awareness of the potential for
value creation by use oflow-cost Asian suppliers has resulted in growth of high traffic
while encountering different dynamics phased across the supply chain.
Supply systems increasingly demand effective forecasting, accurate and reliable
logistics, and very flexible production models to ensure goods are available when
and where neededand more importantly swift response to service the demand of the
market or demographic.
Adoption of Just-In-Time (so-called JIT) quality and supplier partnership philosophy
for value creation also benefitted both suppliers and buyers and further increased
trades but usually this are best for stable conditions.
Analysis of the full cost of a black swan-event whose likelihood can only be an
estimate but whose outcome is so severe and so difficult that it calls for strategically
bold and leveraged action. The company must gauge the impact of such black swanevent
and try to built-up a cost to shield itself from such business crisis. It has to
work-out cost benefit analysis before such cost factoring is incorporated into
business strategy.
Though it is impossible to plan for this black swan-event, in a way one can never be
able to create a plan for every single imaginable scenario but if the response to such
scenarios are well-planned you can put the pieces back together promptly. Clearly
seeing that you have a problem, or even a potential one, is the first step to solving it
while having a unified view of your entire supply chain, both upstream and
downstream.
We at Liladhar Pasoo encourage supply chain solutions that re-looks at its risk
profiles as a potential profit opportunity. End to end logistics solution provider

Understand the context and impact of the problem and possible solutions so you
can make an informed next step:
1. Collaborate freely– Identify which suppliers and customers are impacted, and
then bring together the necessary people to collaborate on possible resolutions.
As I always say collaboration is the first step to build up any business strategy.
It’s about right partnering and working towards the Vison. The conventional
approach not only accumulates vendors who don’t merge into the vision and
goals, while also spend huge cost to manage such vendors performance.
2. Be Agile– The ability to react quickly to any developing supply chain situation is
critical. But beware, it’s not just about the speed of implementing a solution. It’s
also about how quick one can understand the situation and its consequences and
respond faster with solution. The situation can be countered better and
effectively through the trained and experienced staff while remaining customercentric
and building strong partnership base. 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.
In conclusion, 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 event really does happen. Hence,being
aware and preparedness on occurrence of such event will help us mitigatingthe black
swan-event effect on Supply Chain.