Thailand: When the Water Rushes In

Standing water two meters high. Millions of dollars of manufacturing equipment under water. Employees camping out in the hallways of the upper levels of high-tech companies' buildings. Moving production to other factories. Loading products onto motor boats and chugging them over a mile of standing water to trucks waiting on drier land.

That's what it looked like in Thailand during last fall's monsoon season. Large swaths of the Chao Phraya River basin were hit with the worst flooding anyone can remember. The last time a natural disaster of this magnitude happened in this part of the southeast Asian country, John F. Kennedy was president of the US.

The unexpected surge has been blamed on any number of things, the obvious of which were heavy rains. After two days here in Thailand speaking with government officials, high-tech executives, and business-trade officials, it sounds like any number of other factors could have contributed to the deluge. Maybe it was a lack of canal maintenance, infrequent checks of flood-detection/prevention controls, or higher-than-normal water level reserves that may have helped farmers grow a third crop of rice for the year.

But, the speculation's neither here nor there at this point. Now that initial recovery efforts have returned business operations to (by and large) normal, and Thailand's electronic supply chain pipeline is filled with hard disk drives, autos, and related components, the focus is on "What do we do next?"

What's next is not just about building dikes and retention walls that would keep flood waters away from the plants. Core to the next phase of recovery is an evaluation of supply chain practices. And, one thing is for sure: The dusty emergency management books sitting on some back-office shelves need serious updating.

Kevin Camelon, general manager of global supply chain at Fabrinet, which provides precision optical, electro-mechanical, and electronic manufacturing services, said:

This has been the ultimate test for supply chain management. You learned about what emergency policies were written down and what needed to be updated. Logistics was one of the most important things to consider. You have to know where your products and how to get them out of the factory. How do you do that when there's water miles wide and two meters deep?

Companies spent hundreds of millions of dollars to clean up their plants and get lines up and running as soon as possible after the floods peaked in October. While the government helped cover some of the disaster recovery costs, many tech companies are still waiting for insurance checks to cover some of the damage.

They also scrambled to transfer production to other facilities on higher ground in Thailand, and acknowledged that while many of their customers are committed to staying with them in Thailand, a small number made a decision after the flood to diversify their production, either moving manufacturing orders to less flood-prone regions within Thailand or moving some work outside the country.

Executives also talked about how things like off-site vendor-managed inventory hubs helped keep the supply chain pipeline flowing because some days of inventory were available away from some of the main factory sites, and sourcing and delivery from non-impacted suppliers could be diverted through the VMI and routed other factories in Thailand or elsewhere. In almost the same breath, executives acknowledged the downside of having most of your suppliers located too close to a plant's site -- in a case like flooding, if you're flooded, your neighbors probably are too.

Next week in our sister publication, Velocity, we'll focus on more details about the recovery efforts, lessons learned, and how supply chain practices are evolving as a result of the flood.

Check back this week to see companies such as Benchmark Electronics, Fabrinet, Celestica, Maxim Integrated, Western Digital, and others expanding operations here and why they see Thailand as an attractive business investment. We'll also look at steps Thailand and businesses have taken to build up its engineering and skilled workforce as they shift production away from low-value goods to complex products.