Thailand Flood Impact Lingers

Just over five months since the historic flooding began in Thailand, the water levels to the north and in parts of Bangkok have begun to recede. Meanwhile, the massive runoff continues to place southeastern regions on high alert.

Even with a history of flooding, elaborate sluice gates, and complex irrigation systems, no one seems to have been truly prepared to handle the rain and runoff, which quickly covered an area the size of Kuwait. As human and financial tolls continue to mount, global supply chains are revisiting disaster management strategies and the costs of agglomeration.

Low consumer confidence in mature economies means soft enterprise purchasing, yet emerging economies continue to expand. The global electronics supply chain has been in a push-pull situation and has responded with leaner inventory, localized and low-cost manufacturing strategies, conservative utilization levels, and a scaling back by many in capital expenditures to build, improve, or expand production capabilities.

When the flood warnings in Thailand were issued, there was a small window during which some finished products and some equipment could have been moved to higher ground. However, the majority of the equipment in these industrial high-tech parks is immovable. Little time was available to seal buildings to withstand well over 10 feet of rushing and now standing water, where fish and crocodiles swim over loading docks.

Lean inventory management, the agglomeration from localized manufacturing, and a historic natural disaster have created a major global supply chain disruption for the semiconductor and electronics industry. Not only were major manufacturers caught in the floodwaters, but the smaller but still critical component suppliers were also shut down. Furthermore, there has been a huge toll on employees, many of whom face not only emotional hardship, but also the loss of logistical infrastructure in areas north of Bangkok.

Assessments are still pending for almost all semiconductor and electronics companies that operate in Thailand. The end of November may bring better visibility into the duration of production halts and the enormous efforts required to rebuild, power, and restart electronics manufacturing in the affected regions.

Meanwhile, we do know that the effects are global, deep, and costly. Hard disk drives (HDD), both external and internal, are already in shortage situations that will likely worsen during the first quarter and hopefully ease during the second half of next year. As a result, production costs and purchase prices are rising for HDDs and PCs, in particular. But the price hikes have extended to other sectors, such as automotive, optics (including digital cameras and fiber optics), LEDs, packaging, and test and assembly equipment for the semiconductor and electronics industry.

On the financial side, reduced margins and lost sales due to lost production volume will take a bigger bite out of revenues for many companies beginning this quarter and likely lasting through the second quarter of 2012 at least. For some small and midsized companies in an already extremely challenged economic arena, this “perfect electronics storm” caused by lack of product and limited production may prove insurmountable.

On the positive side, we'll likely see serious re-examination of current business practices to make global supply chains more dynamic, more diversified, and stronger.

14 comments on “Thailand Flood Impact Lingers

  1. AnalyzeThis
    November 28, 2011

    Thanks for the update on this unfortunate situation, Layla.

    As you mention, there wasn't much time for preparations to be made to protect much of the expensive equipment and it's likely that many operations will be damaged beyond repair.

    What are your thoughts on the  likelihood  of the high-tech players in the region to not bother to rebuild, cutting their losses and moving elsewhere?

    I think it's safe to say that not every company will rebuild at this point. But what percentage do you think will abandon Thailand completely? Any vague guesses?

  2. electronics862
    November 28, 2011

    Its really a bad impact on thailand people in short time and definitely have its impact on the globe in the longer market needs. We shoud come with a better process where we can protect the equipment by moving it to safer areas via high tech transportation. Goods wise we will lost the market needs in the short time where we can improve the yield by securing equipments in the long life.

    November 29, 2011

    I believe we are already seeing price increases for PCs and netbooks.  I wonder when the situation will be fully recovered?

  4. SunitaT
    November 29, 2011

    It's been in the news recently that supply of laptops to India is likely to be delayed as production of its critical components from Thailand, a major manufacturing hub, has got disrupted due to floods there. I guess this shortage will push the prices of the products higher in the future.

  5. SunitaT
    November 29, 2011

    I wonder when the situation will be fully recovered?

    @FLYINGSCOT, According to industry estimates that it should take around six weeks to get back to normal situation.

  6. saranyatil
    November 29, 2011

    It will take some time for them to get out of water just joking, but they need to restore all the manufacturing plants and then look to start the manufcaturing at a full run.

    It will take minimum of 3- 5 months for the companies to resolve and get on to high production numbers.

    We need to wait and see for the reduction in price only with increase in supply prices can be slashed.

  7. Jay_Bond
    November 29, 2011

    It is hard to imagine the amount of effort it is going to take in just clean up, let alone getting manufacturing plants operational. I'm thinking best guess is Q2 2012. In that time I'm sure we are going to see price increases in products missing key components. I wonder how many companies will reinvest and stay in Thailand. I'm sure many are going to reevaluate staying in the region; this could hurt Thailand even more.

  8. Barbara Jorgensen
    November 29, 2011

    I wonder if the supply chain will take the kind of action it needs to minimize the effects of a natural disaster such as this flood. Companies were going to change their practices after the Japan quake, but I haven't heard about any major shifts going on. We just move through one disaster to the next. At the same time, that's probably the reason we haven't seen change–there is no time or money for an in-depth examination of the supply chain.

  9. prabhakar_deosthali
    November 29, 2011

    In my opinion , for the kind of natural disasters as Japanese tsunami and now the Thai floods, there is little that manufacturing sector can do . We have to just wait and watch the destruction caused by the nature . There is no pint in having a knee-jerk reaction to such disasters in chnaging your supply chain policies as who knows such disaster may not repeat in the next whole decade or a totally different kind of disaster will strike at a totally unpredictable place.

    The long term planning however needs to be changed to take into account the possibility of recurrence of such tragedies.

    Since the current tragedies have struck at the two supply chain hubs of eletronic industry , they will surely affect the long term policy planning.


  10. Himanshugupta
    November 29, 2011

    @prabhakar, you hit the bullseye with your comments. This year has been a steep learning curve year as far as supply chain goes, first with Japan disaster and now Thailand disaster. The natural disasters are unpredictable and thus only limited buffer can be generated to subsidize the effect. 

  11. Anne
    November 29, 2011

    The Thailand floods is an unfortunate incident and the impact will be globally felt in auto and computer industries especially hard drive in particular.

  12. Ms. Daisy
    November 29, 2011

    @prabhakar, I will also add that we need to look into the lessons learned from these disasters as we make longterm plans for the supply chain. There is no need for knee jerk reactions, good short term strategies will help with riding the wave of the impact of the floods.

  13. Damilare
    November 30, 2011

    It will be difficult to completely protect manufacturing industry against natural disaster as this will involve huge costs full re-structuring of the current industry practices. Although, a newer, leaner and more effecient supply chain may emerge from the ashes of this double disaster.

    I anticipate a follow on impact on the financial sector from the huge strain on insurance companies from the companies they have underwritten.

  14. Barbara Jorgensen
    November 30, 2011

    The observation about fish and crocs really helped me visualize what people and companies are going through in Thailand.  My basement flooded a couple of years ago and we still haven't restored it–it's just too much to deal with. On another note, I'm wondering what distributors recommed customers do in situations like this. The normal reaction is to go out and stockpile products and we all know how that ends up. How do you guard against this?

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