by Harold L. Sirkin

Companies are always shocked when low-probability events such as an earthquake or a tsunami disrupt their supply chains — as has happened after the tragic events in Japan two weeks ago — because of two fallacies.

One is the mistaken belief that no corporation can prepare for such events; they can't even be predicted. For instance, the scenario that an earthquake, a tsunami, and a nuclear crisis would simultaneously hit Japan Inc. seems far-fetched, so most companies hadn't drawn up a suitable Plan B.

The other is the persistent feeling that supply chains represent a cost. Most companies focus on minimizing costs rather than maximizing flexibility, which would entail making large investments in supply chains. For instance, many companies feel they don't need to develop alternatives to Japanese suppliers because they buy so little from them nowadays. However, they forget that their Chinese suppliers are big customers; nearly 19% of Japan's exports went to China last year.

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