Sunday, May 30, 2010

BP Oil Rig Environmental and Economic Disaster and Supply Chain Design

I returned recently from speaking at a workshop in Honolulu, Hawaii, where I heard from many locals of their outright physical pain and disgust at the growing oil spill from the Deepwater Horizon rig blowout in the Gulf of Mexico. I have refrained from writing about this disaster, with the explosion dating to April 20, 2010, until now, since, as many, I was hoping that, perhaps, the "top kill" approach might work to block the massive flow of oil spilling from this deepwater rig. It has not worked, which is another very serious setback.

Elisabeth Rosenthal writes in The New York Times
, that already half a decade ago, David Eyton, who was then BP's Vice President for deepwater development in the Gulf, noted that: IF we’ve learned anything so far about the deepwater Gulf of Mexico, it is that it contains surprises. And that means an operator needs depth — depth in terms of resources and expertise — to create the capability to respond to the unexpected.

As a professor at the Isenberg School of Management, who is in the Department of Finance and Operations Management, it is clear to me that there was insufficient risk assessment conducted prior to this drilling endeavor. The potential benefits (think profits) were weighted more highly than any potential costs, including risks; not to even mention the potential adverse environmental impacts.

Companies must recognize the importance of corporate social responsibility and the negative externalities of their actions on citizens, on nature and the environment, and on a sustainable way of life. Ways of life of those who have labored hard and long, including the fishermen, in areas so adversely affected are being transformed for the foreseeable future. The anger and frustration are felt by us all.

The design of our supply chain networks so that environmental and risk issues are explicitly incorporated is essential. We, as faculty and students in business schools, need to collaborate across boundaries (disciplinary and professional ones) to provide tools that can assess the potential impacts of corporate actions.

In a week, the ALIO-INFORMS conference begins in Buenos Aires, Argentina. One of the talks that I will be presenting there is entitled: "Sustainable Supply Chain Network Design: A Multicriteria Perspective." The presentation has now been posted and is available for download (in pdf format).

This talk is based on the paper, with the same title, which is now in press in the journal, The International Journal of Sustainable Engineering. The paper captures, in a quantifiable way, multicriteria decision-making in supply chain design, which includes, for example, environmental impacts associated with different technologies.

As for other ways, in addition to solid research, that business school students and faculty can help with regards to this environmental and economic disaster, although we may be physically thousands of miles away, read this blog post.

It is clear that worse-case analysis was not addressed in the planning and construction of this deepwater oil rig in the Gulf of Mexico.