Dancing with the Black Swan

Companies often do a good job of preparing for the likely disruptions to their supply chains, but Yossi Sheffi, director of the Massachusetts Institute of Technology’s Center for Transportation & Logistics, is of the opinion that companies should instead be placing more emphasis on preparing for less likely events.

Writing in the Wall Street Journal, Sheffi has noted that it's not the likely events that are the most severe risks. Rather, it's the "black swan" events - occurrences which are thought to be so unlikely as to be near impossible. As a result, in the incredibly rare occasions in which they happen, companies are left completely unprepared, and unable to respond. Of such events, Sheffi cites Hurricane Katrina, the Horizon oil rig explosion, and even the 9/11 terrorist attacks as examples.

In preparation for such "black swan" events, Sheffi suggests incorporating the following approaches into a company's disaster preparedness:

  • Maintaining an emergency operations center, to assist in promoting a quick response, and to allow for contact of key members of an organization
  • Aggressive identification of potentially disruptive events, so as to allow for early and advance planning
  • Learning from experience, to incorporate key lessons from previous responses, and project for future responses.