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Preparing for Disruptions Through Early Detection

Book Description

Detecting the potential for disruptions to business operations — ideally before the disruptions occur — can help companies reduce their negative impact. Different disruptions have different degrees of impact, which affects how companies prioritize risk management efforts, and different disruptions occur with different frequencies or likelihoods. Author Yossi Sheffi notes that many risk management experts categorize potential disruptions by two dimensions: likelihood of occurrence and magnitude of impact. However, he writes, there is an important third dimension: the detection lead time. This is the amount of warning time during which a company can prepare for the disruption and mitigate its effects. As the author explains, some disruptions involve long-term trends that are widely discussed in the media (for example, aging populations in the Western world, China, and Japan) or are prescheduled events (such as new regulations or labor union contract deadlines; some (for instance, hurricanes) occur after a short warning of a few days; while others such as fires, earthquakes, or power outages occur without warning. Still other disruptions (such as product contaminations or design defects) may not be discovered until well after they’ve occurred or may never be recognized (for example, industrial espionage or cyberattacks). Drawing on examples from companies including Dow Chemical, Ikea, BNSF Railway, Walgreen’s, Cisco Systems, UPS, and FedEx, the article presents nine data sources that leading companies use to improve their ability to detect potential disruptions early: monitoring the weather; tracking the news; using data from sensors; monitoring the supply base; visiting suppliers; being on the alert for deception; developing traceability capabilities; monitoring social media; and tracking regulatory developments. The article then discusses four ways companies can improve their abilities to both detect and respond to disruptions: (1) mapping the supply chain to determine the locations of their suppliers to assess supplier risks, (2) assessing global events to identify potential disruptions that could affect production or revenues, (3) creating supply chain control towers with technology, people, and processes that capture and use supply chain data to enable better short- and long-term decision making, and (4) improving response time through data and analysis. “Detection means vigilance on both specific near-term events and potential future events that might disrupt the company,” the author writes. “It depends on creating visibility into the supply chain and understanding how the global moving parts connect to each other and impact each other.” He adds: “At its heart, detection is the conversion of the relevant unknowns into salient knowns in a timely fashion.”