Throughout the course of business history, there have been events or market shifts that have either positively impacted concepts such as technology and innovation of processes / programs or caused financial upheaval and a devastated marketplace. Events that seemingly “come out of nowhere” and cause such havoc are known as “black swan events,” defined below (courtesy of Wikipedia):
- The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.
- The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities).
- The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs.
A caveat to the three points above is the notion that, with clear hindsight available, a black swan event is often incorrectly rationalized after-the-fact by pundits across the world. The theory of these events, developed by Nassim Nicholas Taleb over a decade ago, was initially created with financial-impact events in mind but was expanded to include non-business instances (think 9/11 or the rise of the World Wide Web). Today’s article applies this theory to the world of supply management.
While these instances are quite rare (as described above), they certainly have an impact on how procurement can execute upon their strategies and initiatives. When the economic downturn hit just six or so years ago, procurement’s entire mantra was transformed from “enterprise cost-cutter” to “enterprise hero” in a matter of months. As a function, procurement has historically been on the after-effect side of black swan events…but, is it time that this function experiences one of its own?
Is procurement due for a black swan event of its own that will alter the way Chief Procurement Officers (CPOs) look at their processes, capabilities, and solutions?
By the very definition of these events, the simple answer is “No, they can’t be predicted, right?” No matter the willingness to accept that it could happen in today’s procurement world, what we can do is hypothesize and develop a few scenarios that could be prime candidates for what could be a black swan event in the procurement spectrum:
- A supply chain disruption that affects total, global commerce. Natural disasters and other extreme supply chain disruptions certainly affect a wide range of businesses and procurement units alike; however, these events never impact the global marketplace in a significant manner. A disaster such as an isolated earthquake or tsunami may affect a particular region of a procurement function’s supplier base. However, multiple disasters within a short period of time across various global regions could spell a period of significantly-disruptive total commerce and not only slow down, but also negatively-impact, how the CPO and its team can effectively support its greater organization.
- A complete breakdown of electronic commerce and interconnectivity. The contemporary business world is connected via mobile devices, cloud computing, and other technological advances that professionals rely on 24 / 7. A sudden and prolonged disruption of that connectivity can critically-alter how enterprises conduct business on a global scale, adversely-affecting sourcing, procurement and supply management strategies for an determined amount of time. While it may sit more in science-fiction than procurement research, a massive solar flare is just one instance of how connectivety can be “knocked out” for a significant period of time.
- Economic disaster that sets back current financial management strategies (i.e., dynamic discounting, supply chain finance, etc.). Two of several key major financial management strategies that weren’t quite at their “apex” during the economic downturn of the late aughts were dynamic discounting and supply chain finance. While these solutions and strategies are still a few years away from major adoption (top-performing organizations do heavily-rely on these aspects to support greater supply management strategies), another economic downturn may possible set these innovations back for years.
There’s no telling how the future will play out, and most procurement functions are already doing what they can to prepare for various disruptions that could occur at any moment. However, it needs to be said that in today’s fast-paced, electronically-connected and networked world, that something as a simple as an hour of global internet downtime could affect billions of dollars in worldwide commerce. Over the course of decades of business history, there are numerous instances of events that forever change how various corporate functions shape their strategies and approaches. For procurement, that day could be tomorrow.
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