From Superstorms to Factory Fires: Managing Unpredictable Supply-Chain Disruptions (HBR)

Firms are exposed to a variety of risks which may disrupt their operations and supply chains. These risks are often difficult to predict and quantify and therefore hard to manage. Lacking sufficient tools to examine these risks rigorously, managers often deploy suboptimal mitigation strategies, leaving their firms dangerously exposed to some risks while squandering resources to mitigate other risks that do not pose a significant threat. In conjunction with Ford Motor Company, we address this practical need by developing a model which allows management to examine the impact of a disruption originating anywhere in the firm’s supply chain. This impact can be quantified using a variety of operational and financial performance metrics, including lost production, lost profits, and lost sales. We demonstrate how Ford has applied this model to identify previously unrecognized risk exposures in order to develop effective risk mitigation actions.

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