Supply Chain Risk Management theory and COVID19 – what went wrong?
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I went back to my work in the 2000’s at Cranfield University on supply chain risk management and reviewed the concepts and theories in the light of covid19.
As illustrated above top left, he core concept was to classify risk as external or internal, with the breakdown of external being split into supply, demand or environmental risk. Clearly the COVID19 is an environmental threat that extends far beyond the focal firm and its supply and demand. But very nearly every company is impacted also on demand and supply. Internally, the risk elements were process or control combined with any mitigation measures specific to the business that were put in place to anticipate the potential risks identified. The big idea was that if a business was able to identify its areas of risk exposure it could put in place mitigation measures, subject of course to the investment required.
Bottom left of the diagram shows the basis of risk assessment with 4 elements: cost, scale, recovery measures and duration. The key conclusion of the work was that probability is not a useful risk assessment measure since it tends to bias the process and be the entire focus of discussion. It is the cost, scale, duration and recovery impacts that should determine if mitigation measures should be put in place. With COVID19 we now understand that the implications of the pandemic are an existential threat not just for individual firms but for countries, global society and economics. It is the scale, duration and recovery that are exceptional in the current situation – global in scale and impact and pan-industry and business. Given the literature on virus evolution and ‚jumping’ – this was a known problem in #Rumsfeld terms.
This work was delivered to government, and subsequent contact at the time of SARS, made it clear that pandemics were being war gamed as a matter of routine. So why are we collectively now surprised?
The answer is almost certainly that the scale of the investment in mitigation measures was not politically manageable in the context of the supposed low probability of a situation as severe as we now face. That probability assessment now looks flawed and the context of the investments that might have been made now makes any mitigation measures look trivial. Indeed probability should never have entered into the consideration. Plagues and pestilence have been a feature of history with huge swathes of the population being wiped out – not to mention wars. This was indeed a stone cold racing certainty – at some point. But politics and economics is a competitive game both between nations and between politicians who want to be elected – psychologically they all most hope that such an outsider does not come in the winner on their watch!
And then there is #climatechange which is a well telegraphed crisis in the making unlike #covid19. The world has proved incapable of investing collectively and appropriately in its mitigation and the clock is now close to midnight. Both these global risks carry a massive risk of social unrest, mass migration and warfare.
So my concerns are:
- Looking ahead to the recovery and there will be one – will our institutions have learnt and be able to adjust their language, thinking and approaches and processes to a different set of societal goals and priorities?
- How do we overcome Bannerjee and Duflo’s (Nobel Economics Laureates 2019) 3 ‚I’s’ – Ideology, Ignorance and Inertia in a world where misinformation is rife and some leasers seem more than content to propagate it.
This is an opportunity – if only we can grasp it.