Traditional methods for managing supply chain risk rely on knowing the likelihood of occurrence and the magnitude of impact for every potential event that could materially disrupt a firm’s operations. For common supply-chain disruptions—poor supplier performance, forecast errors, transportation breakdowns, and so on—those methods work very well, using historical data to quantify the level of risk.
But it’s a different story for low-probability, high-impact events—mega disasters like Hurricane Katrina in 2005, viral epidemics like the 2003 SARS outbreak, or major outages due to unforeseen events such as factory fires and political upheavals. Because historical data on these rare events are limited or nonexistent, their risk is hard to quantify using traditional models. As a result, many companies do not adequately prepare for them. That can have calamitous consequences when catastrophes do strike and can force even operationally savvy companies to scramble after the fact—think of Toyota following the 2011 Fukushima earthquake and tsunami.
Ford’s supply chain, like those of many other companies, has become increasingly globalized, complex, and extended. This has had the effect of introducing more potential points of failure that Ford must recognize and manage.
This video describes Ford's examination of its supply chain to evaluate whether the company should "virtually integrate" on the Dell Computers model.
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