Risk-related rambling

Not a new extreme sport, but some thoughts prompted by John Naughton’s column today on the vulnerability of important economic networks, such as just-in-time manufacturing or supermarket supply chains. It seems to me there’s an important gap between businesses making rational individual decisions about what they outsource and where, and how this aggregates up. For one manufacturer to outsource a vital component because there are lots of potential suppliers may be entirely sensible, but what if all the potential suppliers are clustered in one place, as is so often the case in global manufacturing chains? I doubt this question has made it to many businesses’ risk matrices. There’s an issue about diversity here – just as the border between the wisdom of crowds and the madness of crowds turns out to be all the individual members of the crowd having distinct ideas, not influenced by each other. For a supply chain that’s both efficient and resilient, you’d want the individual downstream components not to be linked to each other.

Network mathematics are tricky – I just looked in Barabasi’s 2002 , my reference on the subject, and can’t find anything there on this issue. I’ve read  by Duncan Watts and  by Nicholas Christakis and can’t remember if the discussion of vulnerability and resilience in those touched on this diversity question. But somebody must have looked at it.

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