In March of 2021 the world was astonished when a large cargo ship, the Ever Given, became stuck in the Suez Canal. Virtually everyone is oblivious to the movement of any single cargo ship around the world. However very quickly the colossal ramifications, including to investors, of this singular event became known to all.
The blockage of the Suez Canal by this one ship immediately impacted global Supply Chains. Over $9 billion per day (12% of global trade) moves through the 120 mile canal.
While the ship was freed after about a week, in the intervening time ships were debating whether to take the longer trip around the Cape of Good Hope in Africa or wait for the salvage operation. It all underscored the vulnerability of having a single point of failure in any Supply Chain.
Do you have a single point of failure in your Supply Chain?
Defining a Single Point of Failure
A single point of failure is some singular element which, if it stops functioning as expected or is unavailable for its intended purpose, causes the entire operation to cease performing.
A single point of failure may be a process, a resource, a component or piece of material, a supplier, an organization, missing functionality, or a capability.
No redundancy or contingency exists for the single point of failure. This does not mean that the single point of failure is a surprise to anyone. In many cases it is unavoidable or understood, and a decision has previously been made to accept that level of risk.
The Suez Canal is a case in point. It would not have made sense for instance to build two parallel canals in the extraordinary case that one would become blocked. As such, despite the long odds, everyone who used the canal either knowingly or unknowingly accepted the risk that a blockage of the canal, for any reason, would stop their movement of goods immediately.
In the human body your heart or your brain would be single points of failure; without either one you would die. In business a single point of failure can exist in numerous instances:
- Lack of cash
- Single or sole sourced components
- Business critical process failure
- Parts/materials shortage
- Supplier bankruptcy/insolvency
- Labour strike/shortage
- System outage
- Rogue or fraudulent behaviour
- Political unrest
- Natural disasters
- Man-made disasters
- Intellectual property protection
- Constrained or bottlenecked resources
- No back-up/contingence plans or resources
If any of these singular situations were to materialize any one of them can single handedly stop a business from operating, or even worse, cause a business to go out of business.
Mitigating or Preventing Single Points of Failure
There exists the opportunity for error in anything that we do. Even if the probability of failure is infinitesimally small there is still a chance of a problem occurring.
The chances of failure happening increase proportionately with the amount of risk that is assumed. For instance if your developers design in components or materials that are sole sourced (ie. there is one, and only one, supplier of particular goods), and if there is any disruption in the supply of those items, then there is 100% certainty that your Supply Chain will stop until that supply line is restored.
Early in my career I ran the Power Supply division Operations and Supply Chain for a Global manufacturing company. Realizing that if a power supply malfunctions that an entire system ceases to operate our designers and our customers often insisted on designing in redundancy. Duplicate components, extra circuits and even dual power supplies were used so that in the off chance that one power supply failed the second power supply would continue to operate, dramatically lowering the probability of a system outage.
Later in my career I was responsible for the Supply Chain and operations of a large retailer. With a large system cutover pending shortly after I started I was surprised that there was no parallel test system in place to check the operation of the new system before we went live. Despite whatever testing and planning was done in preparation we were going to cut over to the new system on our live database. This single point of failure exploded. On cutover the system did not work and we came close to shutting down the operations of a major retailer, which could have sunk the company.
To mitigate, or eliminate, the prospect of a single point of failure kicking in it is necessary to perform a conscious and calculated risk assessment. If you make these sketchy decisions without a risk assessment you are really living on the edge of the abyss.
A formal risk assessment should be conducted and signed off by all of those involved. That risk assessment should include, as appropriate, contingency plans, back up plans, and disaster recovery plans. The nature and impact of the potential failure should determine whether any steps should be taken to eliminate the single point of failure in the first place. Then it should be determined what level of contingency plans should be enacted.
Contingency plans should explore and delineate all possible options and alternatives to be conducted whenever these situations occur. These plans must be audited, reviewed and updated regularly so as to ensure that they are still valid, up to date, complete and viable.
The Suez Canal is an example of a single point of failure in Supply Chain. With all things considered the risk was accepted that a blockage could stop all movement through the canal. Given that the probability of this was low the risk was accepted.
With the Ever Green blockage of the canal the remote eventuality occurred. As the situation has now been resolved it is likely that no changes will be made to resolve this single point of failure.
But in your day to day business there may be any number of single points of failure. Left unchecked failure will inevitably occur and put you out of business. No matter how busy you are it is important to take the time to identify these single points of failure, make a formal risk assessment, and take whatever steps are deemed appropriate as a result of that assessment.