Political / Econonic Black Swans – worth some supply chain consideration?

We had a lot of pretty mixed economic and political news last week. The German economy powers on, as Reuters reports,

“Germany's economy will grow more than expected this year, influential institutes said on Thursday as better-than-expected industry data supported the view the country's future continues to brighten. The twice-yearly estimate from Germany's eight top economic research institutes expected Europe's largest economy to grow 2.8 percent in 2011, a significant step above the government's current forecast of 2.3 percent”.

Meanwhile, UK factory gate inflation was at the highest for two and a half years, with a worrying and unexpectedly high 0.9% rise in prices just for February, giving an annual increase of 5.4%. The prospect of stagflation for the UK looks more likely than ever, although the PMI services index was surprisingly strong.

Portugal asked for an EU bailout – but was warned that they would have to agree even harsher austerity measures than their politicians have previously rejected. And of course the picture from Japan continued to be far from clear.

And the US Government just avoided shutdown but will have another political battle soon over the raising of their debt threshold (which stands at $14.294 trillion, if you’re interested).

So does this all mean anything to procurement?  Is there anything we should be doing?

A Black Swan event, as described by Nassim Nicholas Taleb, is by definition an event we can't easily predict – an unknown unknown as we might say. But we can look at events that seem unlikely, but are nevertheless at least imaginable, and think about what the implications might be for supply chain and procurement. Looking at the current economic and political situations, it might be a good time therefore to think about the effect of what might seem to be unlikely events.

Are western Governments running a huge Ponzi scheme that must unravel one day soon? Will the Eurozone collapse with some countries going their own way and back to local currencies? Might countries default on their debts?  Will we see a period of stagflation in many European countries (including the UK)? A dollar collapse as it becomes clear that there is no political will to address their deficit or debt? A UK election much earlier than might seem likely as tensions in the Coalition emerge?

Now, none of these are likely to have as great an effect on global supply chains as the Tsunami recently did, even if they do come to pass. But it’s worth spending a bit of time as part of your risk management approach considering what, if anything, they could mean to your procurement and supply chain.

Voices (2)

  1. Peter Smith:

    That’s a very powerful thought actually…. I might argue that you need to do both – look at specific scenarios but also ensure you have the general robustness

  2. bitter and twisted:

    I take the opposite lesson from Taleb. Because Black Swans cannot be predicted, the remedy is not to plan for specific scenarios, but have general robustness and redundancy in your supply chain.

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