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!
The manifestations of natural disasters should be a factor to be put in place by companies when it comes to design, supply or purchase of the components. Considering the problem in Japan, Thailand and other countries. The bottom line is to be diverse in planning, investing and Purchasing
The role of the purchase and design department becomes important while considering the effects of natural disasters. Also, it affects the consumers because the floods in Thailand will definitely increase the price of hard disks.
It makes sense not to put all your eggs in one basket, so that you still have a supply line in the event of such disasters. But if that basket typically gives you the best quality at the cheapest price, it may be hard to resist, particularly when you need to stay competitive with many other companies.
The flooding damage to hard drive manufacturers in Thailand will have significant impact globally on computer industries, as the components source and the production sites are really affected. The cost of the hard drive already in the market will definitely go high and there will be shortage. part of the plan for this unpredictable occurence is for the manufacturers to have production plants elsewhere apart from the one close to the source of materials so that if a plant goes down, the other will be in operation.
While we are worried about the effects of the disasters like Japan earthquake and Thailand floods on the component sourcing, we have to also look at the effects of such disasters on the sales of the final products. Because of such disasters there could be a sudden dip in the demand of the finnished products from the affected regions, as millions of the affected people are trying to just survive and get their basic needs back on track.
Such sudden slack in demand means excess inventories in your stores. How do we plan for this unpredictable situation.? if we reduce the intake , the whole supply chain gets disrupted.
Most companies have a large task simply in determineing disaster recovery plans for their own facilities. The concept of determining exposures in the supply chain as well can be an overwhelming task. Some good points in the article, however....we need to be aware of regionally based supply lines concetrate risk of large impacts from one major event.
@Mark--I don't think we can ever re-visit the subject enough. I've been writing about the supply chain 20-plus years and it always gets back to the same thing: mismatch between supply and demand. The best minds in the industry--and there are many--still haven't come up with the right formula. Sometimes, some basic due diligence, as you outline in your blog, can help companies withstand disruption. And thanks for your note on the human suffering this flooding has caused--we should never set that aside even when we are trying to manage a very complex business.
I found this article to be interesting and should be followed by many companies. After a few major catastrophes this year alone, companies need to put some thought into planning for the unknown. If more companies plan for the future and the unpredictable, certain industries could avoid serious issues.
You plan for the unknown by spreading out the risk, over numbers of people or organizations, over geography, and over time. The first you do by affiliation. Civilization itself is a coping mechanism for natural disasters and barriers to individual survival. Companies affiliate all the time to gain mutual advantage. The second you do by spreading out, either via colonies, if you are a civilization, or via internationalization, if you are a company. The third you do by putting away for a rainy day when times are good.
I found the title of your post very interesting. After all, how do you plan for the unknown? I personally feel that we will always have supply issues to contend with. Lately, the number of disasters have been overwhelming. The only way to safeguard against production interruption, is to multisource every critical piece of your product. While this may help if production is interrupted, it causes companies to lose their negotiation and buying power. It is a double edge sword. Companies are sourcing products oversees to save money and take advantage of low production costs. If they lose cost advantage to insure product availability through multiple suppliers, how does that aid in obtaining a cost advantage in their market. I am not sure that there is a good answer.
Strong relationships between suppliers and customers is essential. In the event counterfeit parts turn up, channels of communications are open and issues are easier to resolve.
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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