Managing Risk: Lessons from the Japanese tsunami

In an excellent blog, Michael Koplov of Software Advice examines the business impact of the Japanese earthquake and tsunami. Specifically, he has explored ‘who has recovered fastest and how?’

As Micheal observes, the lean supply chains that have driven such efficiency become a source of immediate risk when there is a major disruptive event. But as he then illustrates, many large corporations have recovered from the disaster in Japan much faster than expected. In part, this may be due to the tendency in the aftermath of most disasters to exaggerate the consequences. However, it is also clear that those who recovered fastest did so through collaborative behavior. In some instances, it was due to maintaining ‘redundant’ capacity through additional supply relationships; in others, it was a result of selecting suppliers with diverse production facilities; and some achieved recovery because they are part of an innately collaborative culture.

In all these cases, it appears that the winners were not driven by a sense of unbridled competitin and voracious cost-cutting. The findings suggest that these rapid recoveries were achieved by organizations that understand the value of good relationships, not just low-cost transactions. And the point here for suppliers is that many customers do understand value – so long as the supplier can explain distinctive capabilities that truly benefit their customers.

In the end, the thing I find especially interesting about this analysis is that it once again illustrates that businesses do not go backwards. No one is seriously talking about eliminating ‘lean’ or reversing global relationships. The answer to problems is rarely to revert to a former approach, but is rather to identify new solutions and fixes. In this instance, it is very much about suppliers and customers thinking more broadly about the capabilities they offer or need in order to overcome supply risk. The solution is in part to ensure diversity of supply, but also – as Michael’s article clearly illustrates – to adopt more collaborative approaches that encourage collective problem-solving.