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Planning for the Unpredictable

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.

9 comments on “Planning for the Unpredictable

  1. eemom
    November 1, 2011

    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.

  2. jbond
    November 2, 2011

    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.

  3. Barbara Jorgensen
    November 2, 2011

    @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.

  4. Eldredge
    November 2, 2011

    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.

  5. prabhakar_deosthali
    November 2, 2011

    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.

  6. JADEN
    November 7, 2011

    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.

  7. Ariella
    November 7, 2011

    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. 

  8. itguyphil
    November 23, 2011

    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.

  9. Kunmi
    November 24, 2011

    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

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