Supply chain planning in a 30-sigma disruption (COVID-19)

We are in the middle of a global pandemic crisis which is so novel that it is really hard to grasp what to expect in coming days, and its second order impacts on the global economy. 

Situations are changing every day and we are all anxiously waiting to see where it goes. Clearly, next few weeks will give us a sense of how difficult it may get before it gets better. 

Last week, US department of labor published weekly unemployment claim at staggering 3.3 millions. Based on usual weekly variability of unemployment numbers, 3.3 million was a 30-sigma data point. 

I felt the “30-sigma” data point of unemployment claim actually captures nicely how extreme of an event we are all experiencing now. 

In supply chain, we talk about hedging for variabilities in planning and prepare inventories to cover for 2 sigma or 3 sigma demand surges. But extreme nature of current situation is easily 10X worse than our planned “extreme events”.

So our usual planning practices may not work nicely in this current environment. This is a time that will test the resiliency of our supply chains. 

Efficiency in supply chain usually comes from being lean and fast - which also mean not carrying extra capacities or inventories. 

But event like this reminds us that maybe it is okay to keep some inefficiency in the system to be more resilient.