COVID-19 and its Butterfly Effect on Supply Chains and the World Economy
In chaos theory, the butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a deterministic nonlinear system can result in large differences in a later state. In simple wording, when applied to business, the butterfly effect means that small events sometimes yield large consequences. Compare also Black Swans
China, the biggest factory on earth, is confronted with the current outbreak of the deadly nCOV found in Wuhan. And the world is witnessing a global decline in sales, stock markets, oil prices and a well-noticed shortage in supply chains and aviation activities that have a wide impact on the trade exchange across the globe.
COVID-19 exposed a weak link in the global drug supply, automotive manufacturing, and other sectors.
has become the objective and goal of a lot of businesses. But the question now is: how can we strengthen the resilience of our supply chains
while maintaining the value and cost chains intact?
Modern Portfolio Theory stands as a suggestion for a solution in the future for such an epidemic; though it is a suggested solution for VCs when investing in new capitals.
Nonetheless, the essence of the theory reminds me of my grandma's idiom: "Don't put all your eggs in one basket".
and not counting on one supplier/source should balance the risk and maximize the return of the business decisions within value supply chains. See also Kraljic Purchasing Matrix
⇨ What other mechanisms can be put in place to avoid or mitigate such supply chain risks and consequences in the future?