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Day 36 in MIT Sloan Fellows Class 2023, Introduction to Operation management 5 - Operation Resilience

MIT SFMBA global operation

A black swan 

According to a dictionary, definition of "black swan" is as follows.

an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences.

 

Japanese all know how serious it is. We have overcome a lot of natural disasters such as tsunamis, earthquakes, and typhoons.  How should we deal with that? No one knows optimal amount and strategy of investments against such a risk. 

 

Global insured losses have increased in the recent years.

What makes this issue more serious is the trend of impact of these events. Thanks to the latest sophistication of all the operations, our operations become more vulnerable to such an uncontrollable and unexpected event.

 

 

 

Understand the risk of your operation quantitatively and objectively

In our operation management class, we learned three key concepts to quantify the risk in operation management. 

 

  • TTR (Time to recover): how long should we wait until the supply recovery after incidents
  • PI(Potential Impact): How much value will we lose due to accident and shut down of specific supply/supply chain
  • TTS(Time to survive): Thanks to safe stock and overproduction, how long can we survive without losing sales/demand

These three concepts are crucial to assessing risks in operations quantitatively and objectively.  The gap analysis between supplier investment and PI is a good example.

 

 

Suggestion

  1. Identify the risky point with quantitative analysis(PI, TTS, and TTR). 
  2. Invest in flexibility
  3. Invest in culture/organization

The first step in getting resilience is to understand your vulnerability against a black swan event more quantitatively. We should not include the probabilistic concept in this approach because a black swan event is usually less likely to happen and mitigates low-risk but impactful events.

Then, we should prepare for a black swan with contingency plans.  Dual source and component commonality will increase your resilience dramatically. 

Finally, training and investment in the supply chains will differentiate you from competitors. It would be difficult to quantify the value of this action, but without it, you could not avoid massive damage after incidents.