A dynamic model of managerial response to grey swan events in supply networks

Abstract

In our increasingly volatile world, very unlikely events, so-called black swans, occur more often, inflicting massive damage on production environments. But there are also so-called grey swan events, equally destructive, but not utterly unpredictable. They have already occurred in the past, perhaps in related production settings. We present a dynamic model that analyses how grey swan events originate in supply networks and how they can be prevented. Most of the literature so far has focused on external risks, beyond the scope of managerial control. This paper introduces a formal model in which a central role is played by management and its inability to observe and act timely on signals of growing operational issues which cause grey swan events. The paper starts with an empirical investigation of one grey swan event, the Airbus A380 introduction. Our model can replicate this type of grey swan behaviour. With this model, we conduct a system dynamics analysis of the mechanisms that can create or prevent a particular type of grey swan event, a business tsunami. The level of managerial preparedness to actively ‘search for the grey swans’ is found to be a key prerequisite to prevent destructive impact on production supply networks. Our paper suggests ways in which the field of production research can help foster such structurally high managerial preparedness.