Talk:Black swans and supply chain strategic necessity

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Review of Karim Camara -- Karim Camara (talk) 07:21, 19 November 2012 (PST)

Title: Black swans and supply chain strategic necessity

Authors: Raj Aggarwal & Jerry Bohinc

Publication: August 22, 2011 Journal of Transport Security, Forthcoming


Abstract

This article describes in general terms what globalization where supply chain is very important means for especially intercontinental operating organizations, the risks that this entails. Furthermore, the author has attempted in this article to give a few suggestions on how organizations should change their strategies to limit these risks (black swan). Nowadays terrorist attacks takes place in almost every continent. These attacks cause both material damage as human damage. Because globalization has a high priority in the current trade, the trade is not only limited to national borders but rises far outside its own geographical boundaries. With a possible disruption of the supply chain this not only effects one company but there could be many companies involved which can cause the damage to take another turn very fast. It clearly shows that especially international companies should not only focus on the prevention of vulnerabilities within their own geographical boundaries but that a good cooperation with all stakeholders is needed to ensure a total guarantee. The strategy that is applied when they only have to deal with companies in their own geographical area does not apply when they also have to deal with companies in other countries. The world is no longer as stable as it was before. Companies must adjust their strategy when they are cooperating with companies in other countries, taking into account many vulnerabilities cannot be left out of consideration in our current society. This, at first side far located vulnerabilities, can all of a sudden cause a lot of damage within the own company because of the complexity in which companies nowadays cooperate. According to this article companies do well to evaluate the risks that may arise by Black Swan in advance and perhaps take this in to the total view of costs of a product/service which is offered by the company. These risks can indirectly bring costs for the company. The author has emphases that companies should bear this in mind.


Critical reflection on the review

The review on the article has been done well because the reviewer generally has discussed many important aspects of the article. What I do miss in this review is that there is no critical view to the substance of the major options for mitigating or deterring supply risk that has been given by the author. In my opinion several things can be said about some of these options. There is, for example, by the author advised to use the Develop contingency plan for disruption (but remember the tsunami effect) to reduce the risks which entails unforeseen changes. However the author of this article has given no clear suggestion about how this needs to be done. I think it would be better if the author had come across with, for example, a framework or something like a guideline about how this contingency plan should be realized. Generally, most companies have a contingency plan but whether this is suitable for all types of disasters is a second question. Furthermore, in my opinion I think that the reviewer overlooked one of the main pillars of an international operating company which applies intercontinental trade of application, this is namely the adaptability (flexibility). This is the aspect where the current trade is all about. A company must be able to adapt quickly to the changing environment. This is treated with Complex Adaptive systems (John H. Holland, 1995), and with Adaptive Cycle model (Abcouwer et al., 2012).

Critical Reflection by Chiyuan Li -- Chiyuan Li (talk) 12:07, 19 November 2012 (PST)

As to the fellow student’s review, he agrees the viewpoint of the literature. With development of business globalization, the supply chains have been expended to achieve a global network recently, followed by greater influence of terrorism. Hence, how to effectively manage such a complex supply chain is a core issue. One of the most vital problems is disruption risk (Black swans). I will complement the definition of “black swans” in the literature view, which I think is helpful to understand the literature. According to the authors, black swans are terrorism-related events that are not only unexpected and difficult or impossible to forecast, but have consequences with exaggerated outcomes, for instance, labor strikes, weather or natural catastrophe, financial crisis, war, or terrorist events.

I support the fellow student’s view that the usual planning models and forecasting realistically do not seem to or cannot capture disruptive (black swan) events. We need some special framework or steps to assess and mitigate “Black Swan” Events. So the authors introduce direct cost and indirect cost to present a formula to model the insidious outcomes from black swans. I have some additional opinions on the formula. I agree with the authors that the indirect cost is relatively difficult to evaluate, so the accuracy of the estimation may be low. In addition, the authors do not prove the applicability and reliability of the formula in the real business.

In the literature review, the fellow student mentions the section of options for mitigating or deterring supply risk. The authors think that they cannot mitigate the supply chain arising from “black swan” events such as acts of terrorism. I have the same idea with the authors. After that, they consider that companies need to seek out both tactical and strategic deterrence or mitigation that is proportionate, and give some examples. But I think that the authors just provide a general suggestion without many details. Indeed, it is really difficult to solve the issue. In the end, the authors suggest that the government should play an important role in the mitigation of the negative effects of many “black swan” events facing global supply chains, which I believe it is a good idea.

In summary, the literature review provides a good summary of the article. Most of my opinions are the same as the student. The literature gives me a new and enlightening view of the “black swans”—the perspective of global supply chains.

Re: Critical Reflection by Chiyuan Li -- Irshad Rampersad (talk) 11:31, 23 November 2012 (PST)

I think the big question is: 'Are we ever prepared to overcome a black swan?'. If we relate the question to the domain, I would say yes and no. Yes, because, in my opinion, it is possibile to solve small black swans. No, because there are always black swan events that goes out of our limit to control such an event. Think for example of natural disasters. Developing a formula for predict the consequences of a black swan may be useful for risk management, but how reliable is such a formula? Can prediction be predicted? Just like Chiyan, I agree with the authors that the government should play an important role of the mitigation of the negative effects of black swan events facing global supply chains. Without the current supply chain network, organizations and stores can not provide its customers of products.

With reference to my question: I do not think we can be optimally prepared on a black swan event (whether or not with input of risk management). Some events are above our limit. What we can do is take those events serious. For example having a sort of plan B ready in case of a natural disaster. Of course, testing if an organization is well defended against a black swan is difficult, because some black swans can not be reconstructed. I think an organization can focus on the black swans it can prevent and be aware of 'heavier' black swans. In my opinion preventing a black swan starts whitin the organization. What are your opinions about black swans and how they effect the supply chain?

Re: Re: Critical Reflection by Chiyuan Li -- Sander Zijlmans (talk) 06:05, 2 January 2013 (PST)

I think we can prepare to overcome a black swan, but we cannot overcome all black swans. As you already say, there will always be black swans that are above our limit. Like the author stated, I think that the government should play an important role to mitigate the negative effects of black swans.