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How Can Supply Chains Prepare for Black Swans?

Supply chains across industries and around the globe experience significant disruptions due to various unexpected global events. The Covid-19 pandemic has thrown the world into disorder as borders closed and lockdowns were imposed. As variants of the coronavirus continue to wreak havoc in many nations worldwide, supply chains need to adapt constantly to sustain themselves.

What is a black swan?

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Because of COVID-19’s far-reaching global impact, many are describing it as a black swan event. The term “black swan”, first coined by Nassim Nicholas Tale, describes the extreme impact of unpredictable and rare events. For an event to be considered a black swan, it needs to meet the following criteria:

  1. It has to be outside the realm of regular expectations.
  2. It has to have a severe impact.
  3. Despite being an outlier, it has to be explained in hindsight as if it was a
    predictable catastrophe.

The global health crisis has exposed how fragile the global economy and supply chains are, causing organisations to find better ways to prepare. Companies need to “explore the principles involved in managing risk and resilience and provide a comprehensive and relevant learning experience”. There are a few things supply chain leaders can do to prepare for future black swan events.

Heighten visibility

In the past year, about 74% of companies around the world have encountered a supplier-related disruption, primarily due to a lack of visibility over their supply chain. Supply chain visibility pertains to the ability to track sub-assemblies, individual components, and final products as they get released from the supplier and reach the consumer. Visibility is critical in supply chains as it allows companies to gather information about their operations, reduce their risk, improve their efficiency, increase their profits, and provide better customer service.

If there is a lack of visibility, the entire supply chain suffers, including brand owners, suppliers, manufacturers, retailers, and customers. For this reason, supply chain leaders should focus on boosting visibility over the whole supply chain. One way to do this is by having a more effective and efficient correspondence with the other supply chain players that they rely on. Doing so gives them the agility needed to build resilient supply chains and recover quickly in times of extreme crises.

Switch to agile planning

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In black swan events, the dependencies and intricacies of a lean supply chain constantly change. Supply chain leaders should therefore adjust their rules and plans around lead times, inventory, and production schedules. By staying flexible, supply chain players can adjust as black swan events unfold and eliminate dependence on static supply chain activities such as just-in-time processing. This is often something that many people struggle to do on their own: the human brain can only adjust so fast.

That’s where AI can help. Prescriptive AI can provide real-time supply chain recommendations based on current conditions, allowing them to stay flexible, make better pricing decisions, and optimise overall supply chain operations. At Evo, we’ve found that prescriptive AI can help companies bounce back from supply chain disruptions in a much shorter time than would be possible without AI tools. In fact, prescriptive AI regularly increases supply chain resiliency and efficiency by 20-30%. In a case study published by Microsoft, Boggi Milano increased sales by 4% and inventory efficiency by 18% in just a few weeks after switching to a prescriptive model developed by AI experts at Evo. Agile, prescriptive AI planning allows companies to easily adapt, significantly offsetting supply interruptions.

Keep sourcing strategies up-to-date

Having a robust sourcing strategy avoiding sole-source suppliers can help supply chain leaders be ready for extreme disruptions. Sole-source suppliers are highly prevalent in extended supply chains and can easily be interrupted by minor black swan events, which makes them a key supply chain threat. To overcome this, supply chain players should keep an eye on sole-source suppliers and further reduce their risk through additional inventory.

Overcoming black swans

Unexpected events can easily topple today’s supply chains, especially if they haven’t taken the necessary precautions. However, the world is quickly changing and supply chain companies need to be ready to face any challenges that may suddenly arise. By increasing their visibility, switching to agile planning, and updating their sourcing strategies, supply chain executives can ensure their company’s continued success even when facing black swan events.

About the author

Kaylee Holt works as a financial manager in the retail business. Her experience has pushed her to delve deeper into the industry, and she loves to learn about the nuances of supply chain management, customer service, and anything else connected to retail.

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