4 Replies Latest reply on Jun 3, 2011 1:51 PM by hnaeini

    The problem of managing unanticipated events

    George Newbie

      The problem of managing unforeseen risks, responding to unanticipated supply chain events is very urgent.

      Many recent incidents demonstrate that unanticipated events require a lot of attention, because they can greatly affect a supply chain entity or process that could eventually interrupt the operations of other supply chain members. Nowadays, unanticipated events are far-reaching, and the likelihood of their occurrence has increased significantly.

      «Thus the worldwide economic losses from natural catastrophes and man-made disasters reached $222 billion last year - more than triple the losses in 2009. Moreover, the number of deaths due to catastrophe reached 260,000  in 2010, which is the highest figure since 1976, and more than the total killed through terrorism over the last 40 years».

       

      I find it very interesting to find out what real practices are used in the companies to respond quickly to unanticipated events, to evaluate unforeseen risks and what the efficiency of such actions.

       

      I would be very much obliged to you if you will share any information or case studies about the experience of planning (e.g. scenario planning) and managing unanticipated events in the supply chains or just show the direction for my research in this sphere.

        • Re: The problem of managing unanticipated events
          Kerry Zuber Apprentice

          George,

           

          The ease of creating scenarios with the freedom to change virtually any data or business rule that governs the supply chain greatly simplies the task of considering significant unplanned events and the consequences they might yield.   Customers of our product (including myself while I worked for Honeywell) have leveraged this capability to perform risk management assessments allowing them to balance supply chain investments or consider supply chain alternatives to offset risks against the potential business consequences of not taking those measures.    In one instance the consequences of significant delays in production following an outsourcing decision were evaluated to help establish inventory investement decisions in advance of the transition.   These decisions proved fruitful when the outsourced supplier had unplanned issues affecting his output.   We also currently have a number of customers using RapidResponse to consider both upside and downside sales volumes to better understand the range of performance risks at both ends of the spectrum.   In the pharmacuetical space it is used to consider the implications of regulatory product approval delays with various timing considerations.  

           

          The idea of having pre-established scenarios with trigger events (when the unplanned becomes reality) allows companies to react quickly and thereby avoid both lost sales on the upside or signficant liabilities on the downside.  

          • Re: The problem of managing unanticipated events
            Duncan Klett Elite

            George, great question.

             

            As in Kerry's reply, there are three sides to my response:

            • Is the unaticipated event truly unanticipated?  Should it have been?  If you could reasonably foresee the event, then where do you draw the line at preparing for it?
            • If you are not prepared for the event, how to respond effectively?
            • Whether prepared or not, how do you rapidly change your execution in response the the event?

             

            The question of planning vs response is being discussed in LinkedIn: http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=52779257&gid=73495&commentID=39684097&trk=view_disc

             

            I think the summary is that one should think about events that might happen, plan for the more likely or more devestatng of those, and be ready to change execution should one of those possible events happen.  However, you rapidly reach into the realm of diminishing returns if you plan for everything that might happen.  Thus, you need to balance between over-planning and being prepared.

             

            Ideally, the same approaches/tools that help you plan for the more likely events also help you respond when something does happen.  Again, as suggested by Kerry, I know that several of our customers (using Kinaxis RapidResponse) formed special teams in response to the earthquake and tsunami in Japan to secure new supplies and to revise executing plans.  As a result of simulation and access to supply chain data, they were able to obtain replacement supply and to shift production plans.  Other companies, that were not as responsive, found their options severley restricted or simply that no supply was available.  Furthermore, the unresponsive companies suffered longer shutdowns because they could not get supply nor figure out what they could build with the supplies they could get.

            • Re: The problem of managing unanticipated events
              janhusdal Apprentice

              Great replies so far.

               

              One of the problems or issues with scenario planning is that you more often than not are unlikely to hit the nail on the spot, e.g. you plan for some disturbance or disruption, but then something completely differently happens. However, that should not deter you from planning, as long as you remember not to go by the book, if an event occurs that is slightly off your carefully laid scenario plan. As Eisenhower said, "Plans are nothing planning is everything", implying that the process of planning and thinking about possible outcomes is what will help you in a real-life situation, not the plan itself. Another implication is that regardless of event, you will probbaly use many of the same resources or take the same steps or measures to address it, i.e. the way you approach scenario A will have much in common with the way you approach scenario B.

               

              As to unanticipated events, I find the framework described in Predictibable Surpises by Bazerman and Watkins quite useful, next to Taleb's Black Swan events. It may also be useful to think about how crises often develop from what were deemed insignificant events, as described by Christophe Roux-Dufourt.

               

              In my opinion, there are four basic ways to prepare an organization for unanticipated events: By making it robust, resilient, flexible or agile. Ideally, you may perhaps want it all, but that is not possible, since, say robustness and flexibility are mutually exclusive. However, you could apply different strategies for different business areas or for different scenarios. Resilience, which has become the latest buzzword, is quite a complex  matter and requires an organization with a different mindset, but resilience can be learned. Alex Fullick's Heads in The Sand is also quite a good read when it comes to managing unanticipated events.

               

              You said that "Nowadays, unanticipated events are far-reaching, and the likelihood of their occurrence has increased significantly." I would object to that, as I don't think that there has been an increase in unanticipated events in supply chains. If there is, then that is perhaps a result of improper planning. That said, supply chains have become more volatile and turbulent and uncertain, if that's what you mean.

               

               

              You said that "the number of deaths due to catastrophe reached  260,000  in 2010, which is the highest figure since 1976, and more than  the total killed through terrorism over the last 40 years".  While I won't question the numbers, I don't think the number of deaths or cause of death is significant when it comes to the impact on supply chains. Here's some interesting recent research on the impact of disasters on supply chains and how to measure the effect. As it turns out, the kind of disaster and the place a company has in the supply chain  matters considerably. Interestingly, upstream partners  enjoy a positive impact, while downstream partners have to plan for the  opposite, obviously.

               

              Just my two cents,

              Jan.

                • Re: The problem of managing unanticipated events
                  Elite

                  Great comment Jan.

                   

                  but I don't agree with that paragraph where you say:

                  "In my opinion, there are four basic ways to prepare an organization for unanticipated events: By making it robust, resilient, flexible or agile. Ideally, you may perhaps want it all, but that is not possible, since, say robustness and flexibility are mutually exclusive. However, you could apply different strategies for different business areas or for different scenarios."

                  I believe we can have robustness, resilience, felexibility and agility in an enterprise all together! They are not mutually exlusive but supplementary.

                  Lets investigate it from supply chain system point of view.

                  A flexible supply chain system is the one that can be adjusted in response to any unpredicted/predicted event that happens.

                  An agile supply chain system is a flexible supply chain that responds to changes really fast.

                  A robust supply chain system is the one that keeps working efficiently even if an unpreidicted event happens. Mostly supply chain owners who are not risk neutral like this type of behaviour.

                  A resilience supply chain system is the one that is not only robust but also is able to recover from any disater or distruption happening really fast.

                   

                  Regards,

                   

                  Hossein