What's good is also what's bad: understanding complexity's role in supply disruptions
New research looks at how both the "dark" and "bright" sides of complexity play out when major supply chain disruptions take place
At 2:46 pm Tokyo time on March 11, 2011, the Tōhoku earthquake and tsunami struck Japan. The magnitude 9.0 undersea earthquake lasted approximately six minutes, and its resulting forces killed over 15,000 people, damaged over 4,000 roads, 100+ bridges, close to 30 rail lines, three nuclear reactors, and more than 1M buildings across Japan. It is, to this day, the largest and broadest natural disaster of modern time, and its impact was felt all over the world across many of the world’s most vital industries.
Because of its impact, the Japan earthquake/tsunami (“JET”) has become a natural experiment for researchers wishing to understand the impact of disruptions on global supply chains. An extensive literature has built up examining how the JET affected supply chain design and disaster recovery plans, with often conflicting lessons learned for global supply chain designers and managers. For example, some analysts looked at JET and concluded that complex sourcing models made recovery harder and thus recommended simplifying the supplier base. Other analysts saw a broad supplier base as an edge in recovery and recommended expanding the supplier list to increase resiliency. Similar debates arose in 2020 in response to the pandemic, bringing to the fore a critical question: does complexity in supply chains make recovery in, and after, a crisis easier or harder?
In thinking about this question, it helps to remember two related concepts. The first is something called normal accident theory (“NAT”), which holds that complex systems generate accidents as a “normal” byproduct of their very (complex) nature. Thus, the more complex the system — a supply chain, for example — the more disruptions one can expect to see. This view is countered by classic portfolio theory from finance, which argues that having a multiplicity of positions yields lower overall risk — a theory that has many proponents in the operational world. Back to the main question, then. What’s the better supply chain risk management strategy: simplify your operation, or add multiple options to limit the damage when the inevitable NAT events appear?
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