While the topic of demand and supply uncertainties has been covered in previous posts from different perspectives, I think it is worthwhile addressing it once again. Perhaps, it bears repeating many times, since there always seems to be a need to be reminded to plan for the uncertainties we face so often. And yet we put pre-emptive actions on our collective back burners. (See: Avoiding Inventory Overload.)
But, before I continue, I want to say both for myself and on behalf of my company that our hearts go out to all the people affected by the disastrous flooding in Thailand. It is heart-wrenching to have seen these events unfold before us.
As we watch the aftermath of this, another natural disaster, the worst flooding in Thailand in 50 years, we are once again looking at the potential for significant disruptions in our supply chain. The commodity most likely to be affected in this latest disaster is disk drives.
About 25 percent of all the world's hard disk drive assembly facilities are in Thailand. According to a Forbes article, "Some observers believe that the impact of Thailand flooding on the hard disk drive supply chain may be worse than the disruption caused by the Japanese earthquakes earlier this year."
A Gartner research report published in mid-October states: "Gartner believes that 20 to 30 million HDDs will be taken out of the planned production of 180 million HDDs in 4Q11. This estimate could worsen."
Disasters like this force all of us to look at the potential they have to disrupt our supply chain. We can't know when the next natural disaster will hit. And component suppliers have to produce product in the most cost-effective, and not the most risk adverse, manner.
We have seen countless examples of public-private partnerships where key components are manufactured in a regionalized industrial zone. This attracts other suppliers, and in time the area attracts more manufacturers to support the central product. Think of the glory days of American car manufacturing. As production of those key components become more and more centralized, the area becomes overly dependent on the particular industry and alternative sources from other regions become scarce.
In the face of this phenomenon, is it possible to run a lean supply chain and still have a pipeline of adequate product in the event of a disaster? The answer for many commoditized products is no! So, what can we do to minimize the impact when natural disasters hit? How can we prevent or at least minimize disruptions in the supply chain?
Once again, we start at the beginning of a product cycle and put the responsibility back on Engineering and Purchasing for disaster planning in the design stage. No longer can this function be an ad hoc responsibility turned over to an intern.
Below are a few ideas that immediately come to my mind. I would like to expand the list and also hear what your organizations are doing to prevent disruptions.
- Know the country of origin for every component in your supply chain. Are too many located in one country or region?
- Build a safety stock into your supply chain for critical parts and factor that into the cost of the product.
- As soon as a disaster hits, be prepared to identify parts affected by a disaster and implement a plan immediately (ahead of your competitors).
- Have preferred independent distributors identified for rapid response teams to locate open market material when needed.
- If you multi-source components, make sure not all parts are made in the same region.
Whenever supply is limited, whether by allocations or natural disaster, the difference between production and line-down is planning. Let's build a list of the top 20 most valuable things you can do to prevent disruptions. Some will be commonsense. Others might require advanced understanding of the supply chain. Either way, let's get everything on the table!
I look forward to your ideas.