6. • Intertwined networks – energy,
transport, financial, ICT and
human – mean that the
consequences of failure in one can
be critical and unforeseen.
• Central London bombings were an
example – this had implications
for bus, tube, cellphone, IT
networks which spread and
brought down the transport
network across the South East of
England.
Black Swans and the modern world
• Most business professionals assume we live in a world of mild randomness,
where events don’t stray far from the mean.
• However Taleb argues that, because of tightly integrated markets, we live in
periods of wild randomness where small probability events carry major
consequences.
7. Black Swan Events in Supply Chains
Modern supply chains have the following attributes:
• Lean inventory
• Centralised
• Just in time
• Remote production
• Use of developing countries
• Multiple tiers of suppliers
They are designed to keep labour and inventory costs to a minimum,
but also create SYSTEMIC VULNERABILITY
Bob Lutz, former vice chairman of General Motors says it best;
“Running your procurement purely on a short term, point in time,
cost minimization model is like shopping for rock bottom home
insurance. It looks real smart until your house burns down.”
9. Internal versus external risk
Supply Chain Characteristic Internal Risk External Risk
High Stock Levels High Low
Lean Supply Chains Low High
‘Bundled’ in‐house production High Low
‘Unbundled’ out‐sourced
production
Low High
Globalised sourcing Low High
When people talk about supply chain risk, they usually mean ‘external’ threats.
However the relation between external and internal risk is very close.
For example, increasing inventory levels increases ‘internal’ risks (redundancy,
wastage, financing etc) but mitigates external risks (the impact of a disruptive event on
supply).
14. • Direct cost £133bn in Japan alone
• Cost to global supply chains much greater
• Japanese electronics sector hardest hit, with many
consequences for the automotive sector.
• Chemicals also affected
• Honda’s and Toyota's plants in the UK shut down production
due to interruptions to component supply
Event 2: Japanese Tsunami 2011
15. • Thai Floods – 2011
• 10,000 factories were forced to close
• Automotive and high tech (especially hard disk drive production)
again hardest hit
• Dell and Intel profits hit
• Total cost $15‐20bn
Event 3: Thai Floods