Did Japan Tsunamis, Thailand Floods Lessons Sink in?

You know the saying: "Those who fail to learn from history are doomed to repeat it."

The natural disasters that buffeted the supply chain in 2011 are now history, albeit recent history. In March of that year, a massive earthquake, subsequent tsunami, and consequent nuclear disaster in northern Japan severely disrupted both the electronics and automotive supply chains. Then, in the fall, monsoons led to severe flooding in Thailand, swamping hundreds of factories, including several that made critical hard-disk-drive components.

The big question two years later: Has the industry learned its lessons? Would similar disasters today have such dramatic impacts? The year 2012 was mild, with a lower than usual number of dramatic weather events (with the notable exception of Superstorm Sandy in the United States), so it's easy to become complacent. But that's dangerous, if studies of climate change that claim increasing numbers and magnitude of violent weather events are accurate.

The truth is, only time will tell whether the supply chain is any better prepared today than in 2011. Some analysts say the events got the industry's attention enough to initiate some changes. But at least one analyst thinks the electronics industry is doomed to repeat history.

After 2011, several of Technology Forecasters' clients -- especially midsize OEMs and lower-tier contract manufacturers -- "came to us and said, 'We've had disaster preparedness on our to-do list for years; now we need to put it into place,' " says Pamela Gordon, president of the consultancy."

Bob Ferrari, managing director of Ferrari Consulting and Research Group and founder and executive editor of the blog Supply Chain Matters, also thinks the supply chain has learned from the 2011 disasters. "It was like our 9/11," Ferrari says. "Although supply-chain organizations used to talk about the implications of a major supply-chain disruption, we had never really seen one until 2011."

Consequently, companies are making some changes, according to Gordon and Ferrari. Specifically, at least some companies are doing the following:

Looking beyond Tier 1 suppliers
The Japanese tsunami, in particular, exposed real vulnerabilities in the lower tiers of the supply chain. OEMs initially were reassured when they learned that their first-tier suppliers weren't badly impacted, only to suffer later when they realized the disaster had wiped out some "40% of the silicon wafer supply," says Ferrari. Today, companies are looking deeper into their supply chains to identify the components and materials that are sole-sourced or where the supply is concentrated in a certain geographic region (such as disk-drive manufacturers in Thailand).

Emerging regulations and political pressures are already pushing companies to get "full material disclosures" [FMDs] from their suppliers, which identify the countries of origin of materials and components, says Gordon. Now companies are seeing how useful these disclosures can be in a disaster. With FMDs, OEMs immediately know whether a given area is a key source of certain parts or materials, and can build alternative sources into their disaster planning, she explains.

Improving communications plans
The 2011 events exposed shortcomings in communication; it was more complex and took much longer than companies anticipated, says Gordon. Companies realized they needed better plans for how to communicate (if lines were down or power was out) and with whom they should be communicating, says Ferrari. It was the start of a new awareness "that social media can be a good alternative in communicating during a crisis," he notes. Since 2011, more companies have started to monitor media such as Facebook and Twitter to get alerts when disasters happen, to get the word out to employees or suppliers in harm's way, and to receive information from the affected area when other means of communication are unavailable.

Indeed, Ferrari monitors social media carefully himself. In late March, for example, he saw a surge of reports on Twitter that a major 6.1 magnitude earthquake had occurred in central Taiwan. "Knowing that this area is the epicenter for high tech and consumer electronics supply chains, we immediately re-tweeted this news with hopes that our readers would be on alert to both the event and the potential for disruption," he says.

Among the companies in the area are TSMC (the world's largest semiconductor manufacturer), United Microelectronics, Innolux, and AU Optronics. Although two TSMC facilities were reportedly evacuated, it turned out that there was minimal damage. But it was a reminder of how vulnerable Taiwanese facilities are. "They are all in that earthquake zone,” he says. "We dodged a bullet."

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