Would Proper Risk Assessment and Management Have Minimized the Damage to Japan?

The New York Times in a provocative article is raising the question of whether attention to risk assessment for nuclear power plants in Japan might have reduced the scale of the damage from the triple earthquake-tsunami-nuclear disaster. The article even highlights that Japanese engineers focused on deterministic as opposed to probabilistic approaches in determining the safety of the associated engineering structures. According to the article, over the decades, preparedness against tsunamis never became a priority for Japan’s power companies or nuclear regulators. They were perhaps lulled, experts said, by the fact that no tsunami (itself a Japanese word) had struck a nuclear plant until two weeks ago. Even though tsunami simulations offered new ways to assess the risks of tsunamis, plant operators made few changes at their aging facilities, and nuclear regulators did not press them.

Also, engineers took a similar approach with earthquakes. According to Masaru Kobayashi, an expert on quake resistance at the Nuclear and Industrial Safety Agency, Japan’s nuclear regulator, "When it came to designing the Fukushima plant, official records dating from 1600 showed that the strongest earthquakes off the coast of present-day Fukushima Prefecture had registered between magnitude 7.0 and 8.0." We all know that the earthquake that struck Japan on March 11, 2011, has now been upgraded from an 8.9 earthquake to a 9.0 one.

The Times article stated: For whatever reasons — whether cultural, historical or simply financial — Japanese engineers working on nuclear plants continued to predict what they believed were maximum earthquakes based on records. Those methods, however, did not take into account serious uncertainties such as faults that had not been discovered or earthquakes that were gigantic but rare, said Greg Hardy, a US-based structural engineer.

Indeed, in the West, risk management and assessment has become a focus not only of engineering studies and analyses but also a critical component of business decision-making. Drawn from techniques in finance, probability, and, I would add, optimization and decision-making under uncertainty, risk management has been integrated with design and analysis with a notable body of literature now in existence especially in the area of global supply chains (clearly also impacted by the Japanese set of disasters).

As a faculty member in the Department of Finance and Operations Management at the Isenberg School at UMass Amherst, I have been researching, along with my students and associated colleagues, risk management in different network systems from transportation and logistic ones to economic and financial ones. Our research on the integration of risk management and decision-making under uncertainty with complex networks began over half a decade ago and has yielded publications such as:

Supply Chain Networks, Electronic Commerce, and Supply Side and Demand Side Risk
Anna Nagurney, Jose Cruz, June Dong, and Ding Zhang, European Journal of Operational Research 26: (2005) pp 120-142.

Multitiered Supply Chain Networks: Multicriteria Decision–Making under Uncertainty
June Dong, Ding Zhang, Hong Yan, and Anna Nagurney, Annals of Operations Research 135: (2005) pp 155-178.

Global Supply Chain Network Dynamics with Multicriteria Decision-Making Under Risk and Uncertainty
Anna Nagurney and Dmytro Matsypura, Transportation Research E 41: (2005) pp 585-612.

Financial Networks with Intermediation: Risk Management with Variable Weights
Anna Nagurney and Ke Ke, European Journal of Operational Research 172: (2006) pp 40-63.

Modeling of Supply Chain Risk Under Disruptions with Performance Measurement and Robustness Analysis
Qiang Qiang, Anna Nagurney, and June Dong, in Managing Supply Chain Risk and Vulnerability: Tools and Methods for Supply Chain Decision Makers, T. Wu and J. Blackhurst, Editors, Springer, Berlin, Germany (2009) pp 91-111.

Supply Chain Outsourcing Under Exchange Rate Risk and Competition
Zugang Liu and Anna Nagurney, Omega 39: (2011) pp 539-549.

Risk Reduction and Cost Synergy in Mergers and Acquisitions via Supply Chain Network Integration
Zugang Liu and Anna Nagurney, to appear in the Journal of Financial Decision Making.

Supply Chain Network Design for Critical Needs with Outsourcing
Anna Nagurney, Min Yu, and Qiang Qiang, Papers in Regional Science 90: (2011) pp 123-142.

Only with the right methodological and analytical tools can we assess risk and prepare appropriately for emergencies and disasters!

Supply Chain Disruptions Post the Japanese Earthquake and the Tsunami

The devastation in Japan post the 8.9 earthquake and subsequent tsunami is severe (although it seems, for the most part, that Hawaii and the western part of the US have been spared).

Companies with operations in Japan met post the earthquake to assess the damage. According to The New York Times, In the immediate aftermath, most companies evacuated and closed plants. Some injuries and some damage to factories have been reported, but the unknown for many operations could be the effect on supply chain operations and on the ability to receive parts and ship finished goods.

Cargo shippers reported that major Japanese ports were closed, though the shutdowns may be precautionary. The country’s major seaports, most of them south of Tokyo, play a crucial role in Japan’s export-driven economy. Japanese exports — chiefly automobiles, machinery and manufactured goods — rose by almost 25 percent in 2010, the first increase in three years, and a lengthy shutdown could create costly delays up and down the global supply chain. Several airports, including Tokyo’s Narita, had been closed.

Recently, Dr. Patrick Qiang and I revised our paper, "A Bi-Criteria Measure to Assess Supply Chain Network Performance for Critical Needs Under Capacity and Demand Disruptions ," which we had submitted to a special issue of a transportation journal on Network Vulnerability. The paper provides a model for supply chain disruptions in which capacities on various links from production to storage and transportation are affected due to disruptions (all of which is happening now post the disaster in Japan). The objective is to minimize the total network costs, which are generalized costs that may include the monetary, risk, time, and social costs.

In this paper, we consider two different cases of disruption scenarios. In the first case, we assume that the impacts of the disruptions are not as severe and, although there are capacity reductions, the demands for products can still be met. In the second case, the demands cannot all be satisfied. For these two cases, we propose two individual performance measures. We then construct a bi-criteria measure to assess the supply chain network performance for critical needs (products that are needed in disasters, specifically).

I started this blog over two years ago for several reasons, and am now experiencing a case of deja vu. One of the reasons was that my co-author Dr. Patrick Qiang and I had finished our Fragile Networks book and with so many disasters occurring in the world, I thought it important to have relevant research disseminated and discussed. Plus, students and colleagues had been providing gentle pressure that I start a blog and it would serve as a good forum for commentary. Also, my daughter was at the Bement School in 9th grade then, and her class was about to embark on a trip to the Dominican Republic to assist in an orphanage there and I thought it would be interesting to share some of their experiences after their return. Who would know that less than a year afterwards a major earthquake would hit Haiti, which shares an island with the Dominican Republic. Moreover, she will soon be off on another community service trip.

Also, Dr. Qiang and I, based on a tutorial that I gave on the subject of Fragile Networks at the ALIO-INFORMS conference in Buenos Aires, Argentina, wrote a summary of some of the highlights in our book, and the article is now in press in the International Transactions in Operational Research. Our work has been applied to assess infrastructure vulnerability, especially in the context of critical infrastructure, including transportation, in various countries.

Will a Tsunami Hit and, If So, Where?

Many of us in the Northeast awoke to the news of the earthquake that struck northeastern Japan, making it the largest earthquake to ever strike the country and the fifth largest ever recorded in the world since 1900! The massive earthquake was registered at a magnitude of 8.9. President Obama was awoken at 4AM this morning due to tsunami warnings, with Hawaii, the west coast of the US, Latin and South America on alert. The warning has been lifted for New Zealand but initially 50 countries were notified about a potential tsunami.

The images from Japan have been striking with boats and vehicles being swept by massive waves, as well as houses, and the infrastructure collapsing. The buildings swayed in Tokyo, which is over 200 miles from the earthquake's epicenter, with airports closed, communications down, the high speed trains at a standstill, and fires raging in the northeast of the country. Luckily, the nuclear power plants were shut down automatically. Japan has an extensive, well-thought out building code, from lessons learned after the Kobe earthquake.

When I saw the news early this morning I immediately contacted my colleagues in Hawaii, a former student whose family lives in Japan (he just sent me a message that they are alright), and I even have a colleague at UMass Amherst who is scheduled to fly for spring break today to Costa Rica, another country where the alert has been sounded, not to mention Chile (which had an earthquake just last year and a tsunami warning), Colombia, and Peru. My last email correspondence last night was with a colleague in New Zealand so I breathed a sigh of relief that the tsunami warning has been lifted there since this country had its own recent earthquake that devastated Christchurch.

And my colleague from Hawaii just wrote to me: Anna: Thanks for your kind thoughts. Waves are beginning to hit the shoreline right now, and we should have a clearer idea soon of what kind of magnitude to expect.

We will have to wait, watch, and see what happens over the next several hours.

We are a global community so when disaster strikes the impacts propagate. Let's hope for the best.