It’s typically not a good idea to follow Anne to the stage but here goes. I wanted to extend the conversation she started last week on Black Swan events and Category Management (CM). First, there are some that currently argue that the coronavirus is NOT a Black Swan event – other than the specific strain, this should be considered a Predictable and Inevitable event. The challenge is for the world to take proactive action and develop the capability to deal with the next such event. The cost of that would be significantly less than the impact that SARS had (remember that?) or that COVID- 19 (coronavirus) is having on the global GDP. But this deserves a deeper dive in the future.
You may have heard about the entire cruise ship (Diamond Princess) that was quarantined but now almost all of the passengers not showing symptoms have been released – in the middle of Tokyo, one of the most populated / congested cities in the world, with one of the busiest public transportation systems!! They looked at the same data and information that many others did and came to the conclusion that the risk was manageable.
It turns out that that most of the people who have died of COVID-19 in China are in their 70’s with health complications. If you are a 70 year-old in China, you probably didn’t get good medical care till recently to begin with. Children and pregnant women (the other high-risk populations) are not getting that infected OR effected. Typically, the symptoms are not worse than the common cold – not even the flu! Most people who get it stay asymptomatic. In the US, far more people will still die from this year’s influenza or flu virus than anything else.
Alumni from Category Management/Strategic Sourcing “U” will remember the simulation called “Common Errors – Available Information is Best” during the Decision-Making module where you were asked to pick between two choices to prove how current news influences our decisions even though a analysis of the facts dictates a different course of action.
Here’s the duh statement of the week – all risk is dynamic. Therefore, CM strategies should be fluid and flexible enough to adapt and change. If in fact too many news stories about COVID-19 drove the initial reaction and decision, then there may be a risk arbitrage opportunity. For example, if your company banned all travel to and from China based on the information you had available at that time, is it now time to start planning otherwise in the near future? Are there suppliers and regions that you had temporarily blocked but now you may want to reconsider? If you can help your company make the right decision at the right time here, you could lock up supply chain capacity ahead of your competitors because the sudden demand when everyone comes back will clearly outweigh supply capacity. That is a risk arbitrage opportunity.
The purpose of CM should be to help proactively manage risk by identifying risk arbitrage opportunities and based on your risk appetite, exploiting those opportunities. Disruptions in supply chains are mostly Predictable and Inevitable and by treating them as such, we can convert them into a competitive advantage. Black Swan events ought not to be feared but rather looked at as opportunities if you follow Anne’s advice from last week. Oh yes, before I forget, the reason for infants and pregnant women not being impacted as much is because of the antibodies found in mother’s milk 😊.
