If you have ever been in a casino, you will know that roulette is one of the more popular games. Roulette is French shorthand for “small wheel” and allows gamblers to place bets on one or many numbers and also colors. I’m far from an expert (I prefer low-stake craps), but the game seems incredibly straightforward. The croupier [Sidebar: link is to a really good movie about an English writer/croupier] spins one ball around the rim of the spinning roulette wheel and when the momentum ends, it lands on one of 37 (in Europe) or 38 (in the US) numbers.
The basic roulette bet in the US has a 1-in-38 chance of winning and pays out 35-to-1. So, like every casino game, the odds favor “the house,” which means that over a long enough period of time, all roulette players will lose more than they win. That doesn’t mean people don’t enjoy it. But to be certain, the odds that the ball will land on your number are 1-in-38 – on every spin. Roulette is gambling, but it is a passive sport. Nothing you can do will improve your odds.
This is unlike many other casino games, where the odds of winning actually shift during the course of play. For example, in craps, you are much more likely to roll another eight to win than you are to roll another four and many of the potential follow-on bets that gamblers make have better odds in different situations.
Despite the fact that the odds on every spin are the same, some “serious” gamblers have developed self-proclaimed strategies to beat the house. Math and statistics prove that they are fooling themselves and those that buy their books and use their strategies. While it is possible that they may win more with one strategy over another, it is not probable.
The casinos, no fools themselves, have figured out how to play into the psychology of the “break the bank” believers by posting the last 20 or so numbers that have been hit on each table – as if to say that the recent pattern can help bettors or at least the smart bettors pick the next winner. The last numbers played do not indicate what the next number will be and the gambler using a “smart” strategy and the drunken novice have exactly the same odds of winning.
So, what does this have to do with supply risk?
Great question.
I began this article with the premise that supply risk was a lot like roulette simply from the standpoint that there is an element of risk in playing and that expecting to “win” simply by tracking what has happened in the recent past is not a wise strategy. There are macro factors that can and do override history and recent trends (companies with great histories and strong balance sheets, after all, do sometimes fail). But unlike roulette, supply risk is not a passive sport – it is something that is much more nuanced, where the odds can constantly change and different strategies are better for different scenarios.
For example, “conflict minerals” hadn’t been a concern before 2010, but they are now due to greater regulation and greater public awareness of what’s lurking in their products. Likewise, natural disasters like the tsunamis that rocked south and east Asia in 2004, 2009, and 2011 illustrate the far-reaching impact that sudden, fast-developing weather systems can have on a globalized economy. As a result, procurement teams and suppliers have had to increase their visibility into their supply chains and in many cases line up alternative suppliers to mitigate these developing risks that, 20 years ago, weren’t nearly as prominent.
Supply risks are not what they used to be, and they’re evolving every year. Gaining greater visibility into supply chains, finding alternative suppliers, and getting ahead of crises before they become disasters are just a few of the ways that Chief Procurement Officers can better play the odds in today’s game of supply risk roulette.
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