The Number of Suppliers Issue - Reconsidered

In the United States following the terrorist attacks of September 11, 2001, logistics networks were suddenly halted, and did not resume functioning for a number of days. The resulting disruptions in industrial activity had a predictable effect businesses began to increase the number of their suppliers (Assrf et al. 2006). We 

As brief as this description is, a number of sources of biases in the thinking that leads to increasing the number of suppliers should be readily apparent. The first and perhaps most obvious is that these events are likely to evoke the availability heuristic and be subject to easy recall based upon several features. These events all impacted lots of people and businesses, caused major suffering, and were subject to a tremendous amount of news media reporting. All these features should make events easy to recall, and therefore, we tend to overestimate the probability of such events. 

The magnitude of negative impact, one part of our assessment of risk, has also been shown to affect our assessments of the likelihood of an event. Thus, since the types of events hsted all cause major supply dismptions, they tend to be very salient, standing out in our memories. Thus, unless we actually collect the data and calculate the frequencies, the odds are good that we will confound the two terms in our algebra of the supply risk associated with major events, since as a short cut to understanding the risk, we substitute the extent of damage for how representative such an event is of daily experience. 

We are likely to believe that disaster is imminent following well-publicized business dismptions with their roots in public events that are experienced at least in part through supply failures. From this perspective we can see that following such events we are likely to see a wide-spread drive to do something to address supply risk. 

Why do we add suppliers The roots of this decision may be found in how we look at the probability of the risk. Imagine for a moment that you have ten coins, and that these coins are fair when tossed into the air and allowed to land on a surface (e g., that in a long series of such tosses, the overall probability of landing on one side is the same as landing on the other side - we will ignore the trivid probability of standing the coin on its edge). Now we will take one side as success and the other as failure. If we toss the first coin, it will land as either a success or a failure. What is the probability of failure  

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