Wednesday, July 2, 2014

Supply Chain Disruptions, Latent and Manifest Resilience


It seems that the severity and frequency of supply chain disruptions seems to be increasing. In response, more attention is being placed on building resilient organizations. Resilience is the ability to bounce back from disruptive events and to continue operating. Programs such as Business Continuity Plans, Crisis Management Plans and emergency programs are all meant to augment a company's ability to get back to normal. With the advent of supply chain disruptions, resilience plans are also starting to incorporate supply chain issues. There is not a week that goes by where I am invited to attend a conference or talk at a panel about supply chain disruptions and organizational resilience. Indeed, focus on organizational resilience seems necessary. In a recent survey conducted by Zurich Insurance 15% of companies confirmed that they have experienced disruptions causing in excess of $1 Million. Data collected by the Supply Chain Disruption Research lab (SCDrl) at Rutgers Business School suggests that over 30% of manufacturers are highly concerned about the  their tier 2 and above suppliers' resilience. 


But there may be a systemic concern in how supply chain disruptions are being dealt with. Some argue that most companies are programmed to build their efforts based on what they have experienced in the past, rather than what they will experience in the future. Often resilience enhancements are based on response to high probably and low impact (HPLI) type disruptions, the advent of low probability-high impact (LPHI) disruptions become more prevalent under these new settings. LPHI disruptions can be natural (such as Superstorms unseen in the East Coast of the United States), or man-made (such as the BP Oil Spill in the Gulf of Mexico).

Companies can improve the way they "bounce back" using a combination of two primary forms of resilience. The first is latent resilience - what is done in preparation for unfortunate events, and to limit their potential for occurring. In the supply chain arena, latent resilience can be developed through system redundancies, system flexibilities and innovation. For instance, duplicate production lines, buffer inventory and extra capacity are forms of system redundancies. Flexibility comes in the form of interchangeability or commonality (in parts, personnel, equipment, suppliers and customers). Innovation can be continual improvements in processes and products so as to limit the potential damage of a disruption. Latent resilience is particularly effective for disruptions that the firm has observed before. For instance, it is much easier to know how to manage a supplier plant fire if there is organizational memory on the type of damages that it causes across the supply chain for instance.




However, many of the new forms of supply chain disruptions show unique characteristics that companies may not be familiar with. The Tsunami/nuclear disaster in Japan, and super-storm Sandy are examples of large scale disruptions that were difficult to fully anticipate and predict. Alongside latent resilience, facing these types of disruptions is particularly dependent on the response and recovery efforts. During response and recovery (after the disruption occurs), how decisions are made and executed become more important. Ample anecdotal evidence suggest for cases when bad executive decisions made a bad situation worse because resources and attention were not directed correctly. The Leadership and system's behavior during Response and Recovery (or R2) is the other important aspect of resilience: that of Manifest Resilience. Manifest resilience in systems can be "ready-made" packets of response that can fit any unforeseen event - one that is experienced before or not. Manifest resilience in systems can also be in the form of distributed decision making - so as to avoid the need for a central body to manage all the decisions. For leadership, manifest resilience is in the ability to handle tough situations, and to make the "tough choices" quickly and responsibly. Resilient leadership combines care and concern through situational awareness, with the agility to make expeditious and the spot decisions.



Much of the efforts, resources, investment and efforts placed in developing latent resilience can be wasted if manifest resilience is not properly executed. Years of preparation and planning can go to waste, simply because the leader did not make the right decision, or the systems in place did not respond as expected. Despite the importance of manifest resilience, as compared to latent resilience, our understanding of manifest resilience is limited. The Center for Supply Chain Management and its affiliate laboratory SCDrl, are placing focus on this particular phenomenon. 


Sunday, December 29, 2013

Chain of Events, Chain of Supply and Quality of Decisions in disasters- The case of Piper Alpha

Sometimes looking again at past events provides a new perspective that may not have been as apparent. The Piper Alpha offshore drilling platform incident in 1988 may be one of those unfortunate events that provides insight, for supply chain disruptions and for better decision making during response and recovery.

I had the chance to watch the presentation by Brian Appleton, the Technical Assessor to the Cullen Inquiry into the event. You can see it here by clicking on the picture, and I highly recommend it (note: it's a little long).Nat Geo does a great job with the details: LINK to MOVIE

 Appleton Video of Piper Incident

Below are a couple of slides on what the lessons learned are already. They are from a presentation by David Reynolds of Clyde and Co, during a 2013 conference by Lloyds (link). Of the 226 crewmembers, 167 were killed, 30 of whose bodies were never recovered. Only 59 men survived and most of these were scarred for life, not only from horrific burns, but from the memory of the explosion and fire on the Piper Alpha on 6th July 1988 and the loss of lifelong friends and workmates.


But there are three areas that may be worth looking at again, these have to do with the effects of the supply chain (in this case multiple platforms),  and decision quality of those in charge:

1) The effect of "chaining supplies": 
First, is in terms of communication across separate entities in a "chain". What caused the real damage at Piper, and made the situation astronomically worse was that the supply from the other two platforms (which were being routed to Piper to consolidate and send to shore) were never stopped! The continuous supply fed the fire, which weakened the gas lines, which caused the major gas line. Report of the disaster note:

"The Tartan (11 miles away) and Claymore (21 miles away) platforms continued to supply oil and gas, despite the flames from Piper being visible to them. If they had shut down the supplies to Piper, the fire and subsequent explosions would have been much less severe and may have been have been limited to the Gas Module. Although the explosion and fire caused by the escape of gas from the PSV blinds was the initial cause of the disaster, the failure and rupture of the gas risers were responsible for Piper's destruction and preventing the crewmembers evacuation. (Source).

Here's what is written about the accident: " Despite the fire on Piper being visible from both these platforms" but gas was still being supplied from Claymore and Tartan, and would continue for some time". With the gas supply from Tartan "there was no way of going back" as increased fire and explosions make more of the pipe of supply to fail and add fuel to the fire...the result is explosion after explosion.....

What does this mean in supply chain language: Well, to start this is the equivalent of a supplier providing parts that are causing downtime downstream for the manufacturer. But the manufacturer doesn't know the cause. Since the manufacturer is unable to communicate, and the supplier doesn't know (and doesn't realize the ramifications of his action), the problem escalates. Supplier keeps sending parts that cause more damage to the manufacturer. How Claymore and Tartan reacted is essentially the same, they never thought about their fresh fuel adding to the inferno. 

In a supply chain context, this is the equivalent of an oblivious supplier providing parts, even if the manufacturer can not use them. Except in this case the extra supply extended the problems being faced by the manufacturer. One way to look at it is below: 



2) The Butterfly effect: The massive inquiries on this disaster by the British authorities highlight the primary cause of failure as paper work. Quite sombering is their findings: Two work permits one on a pump and the other on its safety valve were the cause, simply because they were not kept together. The pump was back online, but without a safety valve and those who need to know did not know. The operators used it. This caused the first explosion, which then caused a loose fitting metal disk to cause a second explosion. The second explosion caused the firewalls to break up and shatter into piping. One of the piping was carrying condensate, which caused a larger explosion, which caused fuel leaks on to rubber matting that divers left on the rig. This provided a long lasting fire which caused high pressure pipes providing fuel from Titan to burst....from there, other pipes blew up one after another in a sequence as the rig became hotter and hotter. 

We could tell the cause of this regrettable story this way:

Faulty paperwork 
Caused the pump without the safety-valve to 
Cause an explosion to 
Cause the loose fitting metal disk to 
Caused a larger explosion to 
Cause the firewalls to burst, and fly around like bullets to 
Cause rupture to an oil pipe that dripped onto the improperly placed diving rubber mats to 
Cause a pool of crude oil, to 
Cause a hot enough fire to 
Cause a high pressure gas line to burst to 
Cause hotter and more ongoing fire to 
Cause other pipes carrying fuel from other platforms to 
Cause Piper Alpha and 176 of its crew to fall to the bottom of the ocean.

In short, it was a tightly linked chain of events in a complex system that caused the failure in Piper Alpha. 
A break anywhere in the chain could have made the damage much less. 

3) Decision quality, preparedness of decision makers: 
Many of those killed  died from asphyxiation in the accommodation because they decided to stay in the accommodation section of the platform. Most of those who took the risk of jumping off of the platform actually survived. Those who stayed apparently were never told that they ha better odds if they left the quarters. Of course, no safety manual would suggest for a worker to jump off the equivalent of 11 stories into a thick black smoked sea. However, if those in charge were able to read the situation better, perhaps they would have told others to follow those who jumped of which 59 survived. 

What do we learn? As systems become more complex, the probability of small events causing larger ones becomes more real. This is already known. A rogue trader can bring down a banking empire (Nick Leeson and Barings Bank). A faulty supplier using bad paint can cause major damage to a major toy manufacturer (Mattel) . A momentary lapse by a train operator kills people and shuts down New York rail system for an entire day (see a post below) and issues with batteries used for backup and start can down an entire fleet of airplanes (Boeing) for months. So, it should not be surprising to see small matters cause major issues. Of course, if we could predict these small issues, we would not have to deal with the aftermaths like these. So, it may be best to raise vigilance and ability to respond, or the cliche word: Resilience. Resilience at the individual level, and the work group level, at the organizational level and at the supply chain level can help - not just to avoid mishaps, but to be better prepared to deal with the aftermath. 

Brian Appleton's report and presentation on Piper Alpha purposefully mention how "The details of an industrial accident don't repeat themselves". Indeed it is these details that will be difficult to try and predict and control to the full extent. Rather, a bit of situational awareness from the part of the suppliers and managers may have helped limit the damage here. 









Thursday, December 5, 2013

New York Train Derailment, “loss of awareness argument” and the topic of near-misses

Learning from “Near Miss” Incidents and the “loss of awareness argument”
Or
The “crying wolf” Story:
Maybe the Villagers’ should have asked more questions. 

Arash Azadegan, PhD and Andryi Petronchak, MBA

This week’s train derailment in New York City caused us to refocus on the topic of near misses. Reports suggest that the driver of the Metro-North Railroad commuter train “experienced loss of awareness”. Labelled as an episode of “highway hypnosis”, this particular accident killed four passengers, injured many others and created a havoc in the area’s rail system for days[i].
We have all had a similar situation happen to us. While driving a car, the cell phone starts to ring. The number on the cell phone screen is too important to not answer the call. We know that it’s wrong to answer the call while driving in high speeds, it may be unlawful, and it clearly is dangerous!

The car may have drifted into the other lane - slightly. We may have gotten scared for a few milliseconds, put the phone away, slowed down, and felt a moment of guilt. This was our version of a “momentary loss of awareness”. But it ended up as a faultless near-miss. Nothing happened, right? Even if it did, it would be causing damage to our own lives. We forgive ourselves, and go back to the norms of our lives. We may soon forget about the whole thing.
Now consider this: We are driving a vehicle at three hundred miles per hour. There are a couple of hundred people in our vehicle. Here, a “momentary loss of awareness” may have more serious consequences. It may mean derailment. If it does end up there, it would cause damage to other’s lives and livelihood. In that case, things are different. We can’t forgive ourselves, and we can’t got back to the norm. We may never forget about it – ever.


The hypothetical “distance” between guilt and no guilt, lost lives and kept lives are all decided during those small few seconds. These types of critical seconds don’t just happen on Sunday mornings on New York’s rail cars. They are what commercial pilots, cruise ship captains, hi-speed train drivers and other professions with people’s lives in their hands operate in every hour of every work day.  Added up, the social structure of our transportation system, service delivery system, and the chain of events supporting them deals with many many hundreds of these critical seconds every week. And why is it that we do not learn from these many hundreds and thousands of hours of experience? Why is it that near-misses do not provide enough of a basis to avoid the real catastrophe?
A near miss is an incident that does not cause a physical harm, sickness, or property damage, but has a high probability of serious impact on either people or material assets. In other words, “near miss” is a variation in a normal process that, if continued, could have a negative effect on people or valuables of a different kind. Some call it a “false alarm”. Often a lucky interruption in the sequence of mishaps during a near miss leads to the damage not taking hold. Near misses can be an effective source of input for organizational learning. The downside costs of the damage are not present. We have a near-miss each time we reach over to re-program the GPS device and the car swerves over to the next lane.
In “The psychology of the Near Miss” R.L. Reid [ii] gives an interesting definition of the term from the perspective of the game and gambling industry.
“A near miss is a special kind of failure to reach a goal, one that comes close to being successful. A shot at a target is said to hit the mark, or to be a near miss, or to go wide. In a game of skill, like shooting, a near miss gives useful feedback and encourages the player by indicating that success may be within reach. By contrast, in games of pure chance, such as lotteries and slot machine games, it gives no information that could be used by a player to increase the likelihood of future success”.

Reed suggests that how useful a “near miss” is can depend on how the information is collected, processes and concluded. Too many “near misses” go undetected because the systems are not in place to look for them. Often we consider them as a (un)lucky turn of events, that as Reed suggests, “give no information to increase the likelihood of success”. But running an operation is not about pure chance. Operating a car, a train or a company is more like a game of skill than a game of chance. So learning from near-misses should be part of the process of getting better.
So the question again comes up? Why do we have an issue learning from near-misses or even from false alarms? Why do companies (just like operators, pilots and even auto drivers) fail to incorporate these learnings into their processes? There are several possible reasons:

First, reporting any problem (personal or system related) can be difficult. Thinking, picturing, talking and exchanging hypothetical scenarios about near misses tends to raise the emotional flare-ups of past accidents and the uncomfortable memories that accompanied them. Of course, there is also the blame-game. Often the person raising an issue is among those who is blamed for the cause or volunteered to fix it. For many over-worked members of an organization, it’s best to not report anything!
Second, there is more to learning from near-misses than reporting them. By emphasizing on the importance of “near misses”, we don’t just encourage to report all the “near misses” that take place in the organization. That information also has to make sense from operational and occupational safety perspective.
Third, how to learn from and how to allocate resource to the reporting of near-misses can be debatable. How to properly interpret the incidents, and incorporate the conclusions into a risk management practices can be complicated.  “Digesting” the information the ultimate purpose of almost every business process, but each business has to find its own way of processing the information.
Fourth, by reporting too many minor near-misses we risk to devalue such information. Processing their real message becomes harder as we “overload” the system.  With too much noise, the real possible message gets lost. Ironically, we create another type of “loss of awareness” of what causes accidents. But this time instead of loss of awareness by the operator, in the entire system is lost in the details. 
Remember the boy from the folktale, screaming “Wolf!” to fool the villagers and amuse himself? When the real wolf attacked the boy, nobody took his scream for help seriously because of the people’s immunity to his annoying numerous jokes. In his blog titled “Public warnings--why crying wolf is downright bad” [iii], Gerald Baron writes about the potential harm from over-reporting.  He notes how the public were weary of the “crying wolves” in Italy over predicting possibilities of earthquake. A spokesperson is quoted to say: “If the risk is between zero and 40%, today they will tell us it’s 40, even if they think it is closer to zero. They’re protecting themselves, which is perfectly understandable.” In other words, “crying wolf” is merely a way for authorities to protect their jobs rather than people’s welfare.  The risk here is when there is a real 40% possibility earthquake. If the public translates the message as one with a close to zero likelihood, based on the previous false alarms, Large numbers of people will be caught off-guard and surprised by the actual event while in their state of denial.
So if it is so difficult to learn from near-misses may be we are better off to forget about them. Let’s look at this option: 
What would ignoring near-misses do to the organization’s culture, behavior and learning? Could it be that by ignoring near misses we create a breeding ground for becoming desensitized to recognizing causes of accidents?  Maybe not enough attention to near misses leads to “loss of awareness” by the entire organization would be the result?
Back to the “crying wolf” story, the villager’s strategy was to “not” learn from possible false alarms, because they were not providing any useful information. Interestingly, what the crying wolf story doesn’t include [the versions we could get our hands on] is the villagers asking any questions about details that may have suggested as to whether the boy was telling the truth or not – in any of the events. There was no investigation to the near-miss, the boy or the wolf!
So was the fault with the boy or with the villagers? While the wolf was clearly harmful, the boy was actually helpful – admittedly some of the time! So, maybe we need to give the “boy who cried wolf” a break, and consider the downsides of not listening to him, even if the message was sometimes incorrect.
These days, the problem with handling near-misses might not be in dealing with “too much reporting”, but in having the static, permanent, prone-to-bias “processing centers” responsible for delivering solutions and making decisions. These “processing centers” (safety committee, activist group, flight crew, members of a household, etc.) may have the leadership and authority built on rotational basis to avoid biased decisions. Every member of the organization should feel responsible for the safety of others.
Having a healthy combination of an active safety-related data collection and intelligent filtering of this information inflow may create an adaptive yet sensitive mechanism of responding to early warning signs in each organization that concerned about safety matters.
Let’s go back to our “crying wolf” example one more time. This time we can try to retell the story from the “near miss” perspective. The villagers verified the boy’s first call for help, found out where wolf came from, and reinforced the young sheppard with a guard dog with all the canine’s keen senses (!). In a modern version of the tale, there would even be wolf-sensoring electronic devices placed around the area!
What we are trying to say that each concerned organization must establish the system that is sensitive to warnings and is able to distinguish the false alert from legitimate alert. Organizational structure must foster responsible reporting of near misses by showing the benefits of such process in a form of displaying days without accident and/or monetary savings to the company budget that materialized because of accident prevention “near miss” reporting. We think that communicating of lessons that were learned “the hard way” (the powerful “Remember Charlie?” safety video, for example) would deliver a clear message about unparalleled value of accident prevention and “near miss” reporting.
This blog suggests for a reorientation: Events like the one in New York Metro-North Railroad have almost always put the focus on what DID happen. Case in point: A few dozen NTSB professionals are looking into the “cause” of the accident as we speak. But maybe the event should make us think about the times when it did “NOT” happen – or when we had the “near-miss”. 
Often times is a fine line between a near miss and the “real-miss”, what DID and did NOT happen. Often times, that fine line also tells us about passengers saved and passengers lost. More thorough collection, analysis and reporting of the near misses” is necessary. Afterall, it is too late to start looking for clues after the derailment if we really want to save lives.

Notes:

Monday, September 9, 2013

NEAR MISSES - CAN THEY BE LEVERAGED TO PREVENT SEVERE ACCIDENTS?

NEAR MISSES - CAN THEY BE LEVERAGED TO PREVENT SEVERE ACCIDENTS?
Amit Shah, Shruti Singh and Arash Azadegan, PhD

If learning from mistakes is too costly, could learning from near-misses be a more reasonable alternative in mitigating the effect of accidents? A near-miss is an event, observation, or situation that possesses the potential for improving a system’s performance and flexibility in the face of a disruptive force. On the upside, recognizing near misses helps in making future decision making by not only identifying the root cause of the issue, but by also helping take more educated actions. However, for near misses to work effectively, recognition, disclosure and classification of near misses is very important. For instance, how far the performance by members of a supply network can be stretched (before it breaks) is one potential benefit of near-misses.
One way for this recognition to happen is through near-miss mockups or experiments. Closely related to emergency fire alarm drills, near miss experiments can help identify weak links and prepare the system to cope up with future accidents. By introducing small and deliberate near-misses, we identify its weaknesses and hope to make it more resilient in coping with more serious circumstances. Small-scope experiments help find out further shortcomings and loopholes that can be filled so as to minimize future high impact occurring from accidents. This will not only allow us to leverage near misses to prevent future disruptions in the supply chain but, but can also provide the supply chain with more flexibility and adaptability. Thus, it will prepare the industry for similar disruptions in the future and will also give it a chance to figure out what else they could change to be better prepared if any of our proposed experiments were to actually occur. Since these experiments will be in controlled conditions, it will not impact the supply chain, but they will certainly give us an idea of what needs to be changed in order to handle a similar or a larger crisis.
Another aspect of near miss that be looked at is the extent of the impact it has on the operational structure. Near misses which have a smaller impact are easier to reproduce and control, whereas, larger near misses are more practical, more extensive and more insightful but at the same time are more complex to reproduce. The larger near misses are the ones that will test the limitations of the supply chain and may provide for a steeper learning curve. Higher sloped learning curve provides the basis to help more easily identify, prevent or mitigate major accidents.
A third aspect of near misses importance is their probability of occurrence. The ones with the most probability provide the most visibility of what could go wrong. But the ones with the least probability could be the one to cause most number of hidden problems. These are the ones for which a supply chain may not be prepared and hence, the ones which may lead to potential accidents. Testing with these scenarios is of immense importance to manage the risk associated with them and also to expose the system’s limitations during these scenarios.

        Fire drills and war games are common learning tools in fire departments and the military. Indeed, running exercises are frequent means for testing military preparedness. As supply chains become more competitively fierce, it may be necessary to seriously consider the need for near-miss “mockups”. After all, how did each of us learn how to ride a bike without training wheels if mom or dad let go of the handle, knowing that they would catch us before falling over?  Some parents run this particular near-miss exercise in a soft, grass-laden backyard to curtail any possible bruises. Such is the spirit behind running near-miss experiments. Toughening through learning with minimal possible damage.  

Hurricane Warnings – What their lack of specificity leads to -


By Sowjanya Goddey and Arash Azadegan, PhD.
Sep 9, 2013 

By now everyone one has heard about  the destruction left behind by Superstorm Sandy last year.  The largest hurricane to ever hit the U.S. mid-Atlantic and North East regions, ended up flooding streets, tunnels and subway lines and cutting power in and around New York City. The damage was $68 Billion including 7.5 million homes & businesses and costing over 300 lives. Are we, as advocates and poll bearers of public awareness to be held responsible for the damages caused by the likes of Sandy? Perhaps or perhaps not. Nevertheless, our warning systems may be able to do a better job.



Federal and state agencies declared before the storm that 90% of the East coast would get affected but did not announce what kind of damage it could impose. There were neither clear warnings nor proper evacuation protocols across the coastal areas issued by the government. At the minimum, this caused areas of confusion.

For instance, even though the forecast for sandy was fantastic, not issuing clearer hurricane watches or warnings along the New Jersey and New York coasts were a clear drawback. In comparison, the hype factor of hurricane Irene (last year’s weak sister to Sandy) was a clear contradiction. Irene did cause a significant amount of damage in New England area, but it was nowhere close to the hype that was created prior to the event. So, the Irene hype created a false prediction, which left people in a fix as what to truly believe.

Another area of confusion was in not issuing hurricane watches or warnings along the New Jersey and New York coasts. Lack of clarity in communicating the message to general public was a problem. For instance, The National Hurricane Center issued warnings that the storm would become extra tropical and thus not become a hurricane as it pushed inland. To the general public, the message is unclear. What does “extra tropical” really mean? Moreover, the National Hurricane Center allowed the local National Weather Service offices to issue their own warnings. Finally, the information issued by NHC or NWS were all over the place. For instance, some of the warnings such as “High wind warnings” were not only issued along the coasts where Sandy made landfalls, but also as far south as North Georgia. The broader the area that the warnings affect, the larger the worry and concerns become for the public.



State and local officials issued mandatory evacuations orders for many thousands of families in the low-lying areas and also shut down the mass transit systems just hours before the super storm hit them. Although, people who could afford to evacuate and bunk in at a friend or relative’s place or at the luxuries of a hotel did evacuate for their safety. What did the others do? They stayed back assuming the damage would not be major since there were no dramatic warnings. If people were told to evacuate their homes, then many people did. But lack of preparatory time and the lack of infrastructure in the face of such surges caused chaos.

In the end, we couldn’t escape the deaths and destruction induced by both of these storms. This is where we have to ask ourselves – how much information is too much or too little? How to broadcast the to be issued warnings to general public in a simple and less complex way? How to process the issued data?  To what extent, can we relay on it?

So the aftermath was the wrath of homes, loss of lives, flooding, shortage of food and water, shortage of disaster shelter homes, gasoline shortages, power outages, closure of roads & public transportation, non-operating traffic signals, closed out restaurants & diners, businesses and adding salt to the swollen wound was the fact that it was peak winter. It was a total chaos. Life came to a standstill for weeks. It took couple of weeks for some to rebound and months for others. Some of them such as New York & New Jersey tourism, businesses & homes are still recuperating. We cannot really blame anyone here. No one saw this coming.



To draw the line is like searching for McKenna’s gold (looking for a moving target?). Yet, we do have the treasures of past experiences that can be put to good use. And yet, we cannot assuredly rely on these. We must realize that every storm is different in its own way. Ironically, that is the reason they have their individual names. So what does it prepare us for? Predictable as well as unpredictable conditions!!  Every storm has its way of telling a story on how closer are we getting in predicting the next one. Our suggestion to everyone of those like us looking for answers to nature’s fury whether it is a storm or draught or Tsunami is - make the best of the inventory and tools we have. Strengthen upon the weaker links especially the infrastructure. Wait, watch and learn! And above all, it’s ok to not know everything.

Friday, June 21, 2013

Oklahoma tornadoes: Do early warning systems help or hinder?


Oklahoma tornadoes: Do early warning systems help or hinder?
By Andriy Petronchak and Arash Azadegan,
Supply Chain Disruption Research Laboratory, Rutgers Business School
Remember the empty supermarket shelves before and after the Superstorm Sandy and Thanksgiving blizzard? The general public’s “panic mode” led to a huge disruption of the supply chains - simply because everyone was buying “a lot of everything”. Skyrocketing demand on household items that are normally not so popular, created a deficit and a “black market” (remember the overpriced generators, batteries and even hotel rooms, doubled in price during Sandy?). In turn, when the storm was over, supply chains are overwhelmed with reverse logistics activities, handling the unused “emergency supplies”. These swings cause huge losses to the distribution channels and force the companies to create excessive “safety” stocks that escalate the total cost, transferred onto the consumers. 
Similar to the Sandy hurricane, the recent Oklahoma tornadoes have shown how difficult it is to manage these natural phenomena. Tornadoes are hard to predict, they escalate their force rapidly, and cause ground damage immediately. As far as advanced notices, tornado warnings can rarely be issued more than thirty minutes in advance. Every minute and every second counts in these cases when someone is in the midst of such a situation. They often feel alone and sequestered from the rest of the society and actions that are often too excessive to survive the oncoming “armagedon”. While personal preparedness and awareness are the constructive aspects of dealing with the disruption, many of the citizens’ precautionary steps may not be the right choice.
The Moore, Oklahoma tornado on May 20, and associated storms, could cost up to $5 billion in insured losses, disaster modeling company Eqecat has estimated, making it the second costliest tornado after Tuscaloosa. Arguably, part of the issue is the mismatch between warning systems and available shelters. Because of the continuing advances in storm prediction have enabled forecasters to warn people before a funnel cloud is upon them, giving them precious time to seek shelter. But there are cases where shelters are not within reach during those previous minutes. The result is miscalculated decisions and imprudent reactions by the public. Some may try to drive madly across town to pick up a loved one, causing road accidents. Others may jam the phone lines with calls to 911 and other first respondents to get a better sense of the situation. This was the case during the Oklahoma events on May of 2013. As reported by Sean Murpy of AP, “many panicked residents opted to flee their homes, and interstates and roadways became gridlocked with people trying to outrun the approaching storm. Many were encouraged by a local television meteorologist who warned viewers that if they couldn’t get underground, they should leave the relative safety of their homes and drive south”.
While improvements in building safe rooms and reinforcing residents are important, perhaps the right approach is to make sure warning systems are corresponding to available resources. Yet this is a difficult task. The entire public culture needs to become a disaster-resistant way of thinking and the change must happen on all the levels: from the general public to the government. The public and the public servants need to recognize their role in the large system and avoid making early warning into early panic. Although resilient supply chains will recover eventually,  the number of innocent citizens that  get harmed, displaced or even killed by the natural disaster rises because of lack of coordination.  This is when the taxpayers money should finally come into play. Public safety is every society’s basic need and it’s the role of government to satisfy this need. Some residents insist that safe rooms should be a main concern in Oklahoma – above all in Moore, since it has a record of falling victim to tornadoes. “If they can afford a $5 million football stadium, they can afford a safe room,” 67-year-old John Lemmon, a Moore resident who lives near Plaza Towers Elementary School, told Bloomberg. “They should have done it right after they had the last big one.”
Large masses of people cannot be expected to work as the perfect mechanism, especially in time of crisis. Human traffic must be coordinated by the authorities, otherwise it will lead to disaster on its own, even without the external disturbance. Therefore, an early warning may not be the first priority when it comes to a bottom line-saving lives. Availability of the basic storm shelters and coordination of the evacuation efforts may play a far greater role in preparedness for the next disasters.

Tuesday, May 28, 2013

Ethics and risks in supply chain - Building Collapses in Bangladesh (Article from Christian Science Monitor)

Is it ethical to keep buying clothes from Bangladesh?

Yes, say international garment firms and a US diplomat, because the Bangladesh garment industry is ripe for reform. Many, but not all, retailers have agreed to a labor accord that commits them to independent inspections of suppliers' garment factories in Bangladesh  ;

By G. Jeffrey MacDonald, Correspondent / May 27, 2013
Wages are as low as $38 a month. Sweatshops proliferate. Labor conditions are so dangerous that an estimated 1,800 garment workers have lost their lives in factory fires and building collapses since 2005. The latest collapse claimed 1,127 lives, the world's worst industrial accident since 1984.
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Welcome to Bangladesh. Is this where you want your clothes made?
For many well-known global retailers, trying to remain true to their ethical standards, the answer is a resounding yes. One reason? Having profited from the cheap labor in Bangladesh's 5,000 garment factories, retailers are seen as having a duty to improve working conditions. Given the horrific scale of last month's collapse of the eight-story Rana Plaza building outside its capital, Dhaka, Bangladesh may be ripe for reform.
"On the labor issue, absolutely, buyers have a critical role and they must be engaged," Wendy Sherman, US under secretary of State for political affairs, said at a news conference Monday in Dhaka. The US backs the nation's reforms for the garment industry, she added.
Socially responsible investing groups echo the message.
"There is a moral imperative for companies that have been in Bangladesh for a substantial time and have benefited from the comparatively low wages there" to keep operations there, says David Schilling of the Interfaith Center on Corporate Responsibility (ICCR), a New York-based coalition of institutional investors. "The risks have jumped off the charts. But let's stay and minimize the risk factors."
Many retailers have signed an accord on fire and building safety in Bangladesh, led by the International Labor Organization, unions, and other activist groups.Among the retailers who signed up: H&M, Inditex (Zara), Primark, C&A, Tommy Hilfiger, PVH (Calvin Klein), Tesco, Benetton, Marks & Spencer, and Carrefour. The accord commits retailers to rigorous, independent inspections of their suppliers' factories.
The retailers' response is not monolithic. After voicing concern about conditions in the wake of a factory fire in Dhaka in November, which killed 112 workers, Disney announced earlier this year that its licensees would no longer source apparel in Bangladesh.
Disney's move drew sharp criticism from advocates. But Disney might have maximized its leverage for improving conditions in Bangladesh: It explained why it was leaving and told Bangladeshi officials what they would have to do to win back Disney's business.
"There are different ways of responding to [a qualitative] decline in a firm or a country," says Adam Kanzer, director of shareholder advocacy at Domini Social Investments, a socially responsible mutual fund firm based in New York."Disney left, but they did so in a noisy way. That's responsible. [Whereas] if you just sort of quietly disappear, [that's] not going to have much impact" on working conditions.
Other retailers, notably Wal-Mart, are shunning the accord and using their own methods to improve factory safety.
"While we agree with much of the proposal, the IndustriALL plan also introduces requirements ... on supply chain matters that are appropriately left to retailers, suppliers and government, and are unnecessary to achieve fire and safety goals," Wal-Mart said in a statement. Instead, the company says it will conduct its own in-depth safety inspections at all 279 Bangladesh factories with which it works and publicly release the names and inspection information. The Gap also declined to sign because of a dispute-resolution measure.
Bangladesh is such a big garment producer – No. 2 behind China – that a company that sources lots of apparel there can't immediately switch to other countries because they lack sufficient infrastructure to handle big volumes, notes Mr. Schilling of ICCR.
Still, companies will diversify away from Bangladesh, says Julia Hughes, head of the US Association of Im-porters of Textiles and Apparel.
As they do, that will goad some Bangladeshi operations to improve, says Arash Azadegan, director of the Supply Chain Disruption Research Laboratory at Rutgers Business School. Still, inherent risks will persist in Bangladesh. Government oversight is apt to remain weak since the industry is so powerful, he says.
Also, some factories could quietly let conditions worsen as they vie to offer lower-cost alternatives.
"It's a relationship, not unlike a marriage," says Mr. Azadegan. "There are times when people stay [in relationships], make improvements, and get things back on track.... There are other times when you decide things cannot be changed, and you just pull out."