When Mother Nature Wants Your Business

In just the past three years, tsunamis in Japan and floods in Thailand provoked shortage crises in the electronics industry. Now, the industry is learning how to plan for other natural disasters.

The often-stated irony of the electronics industry is that its supply chain is not nearly as high-tech as its products are. In many other industries, statistical models of supply risk have been in place for more than a decade, and advanced mapping of extreme weather changes are part of the usual analysis of supply efforts. (A suggestion: Take a look at soft drink supply schemes some day, or automobile spare parts.)

Electronics has lagged, but it's slowly coming around. Take predictive modeling. The idea isn't very complicated: By analyzing the possible outcomes of a supply situation, and comparing those to the probability of different sorts of interruptions, you can come to a pretty reliable sense of what you need to prepare for an unexpected event.

Those kinds of techniques are slowly making their way into the discussion. At Europe's High Tech Supply Chain Summit in Amsterdam, not just predictive modeling but two other IT-based advances — joint collaboration and global mapping — were under discussion.

The mapping technologies are perhaps the most relevant to semiconductor industry supply risks. The idea, once more, isn't so complicated — though the results are dazzling. Using ever-improving digital visualization technology, and marrying that to better capacity to assimilate mountains of data, a company can create a custom map showing the geologic, weather, political, and fuel price risks to its particular supply chain.

The maps are dynamic. If a typhoon forms in the Pacific, the map reflects the probability that a ship leaving Hong Kong might not arrive in Manila on time. The result is days more time to recalibrate supplies so that everything keeps humming.

But what happens when the event isn't visible, even from space? Events like Japan's horrific earthquake and tsunami disaster can only be predicted in the broadest terms — Japan is a seismic zone, we know, but when will it happen? In those cases, companies seem more and more inclined to collaborate and get through the crisis collectively, than let an entire industry collapse.

Limited cooperation
A study by Japan's Institute of Developing Economies compared the automotive industry to the electronics industry in Thailand, where floods wiped out much of the world's disc drive capacity in 2011. The study, published in March of this year, found that electronics companies had collaborated in Thailand when necessary, where the car makers were far less likely to help each other out.

“The difference between the automotive and electronics industries,” the study found, “…is the impact of competitive pressure on supply chain collaboration formation. Only firms in the electronics industry are encouraged to do so when they are under a competitive pressure enough to motivate them to be more innovative.”

Put more simply: When the pressure was on, the electronics firms worked together and kept the systems operating, covering each other's shortages (for a fee, naturally).

The idea that you'll know when a disaster is coming is counterintuitive. But it's more and more possible. The question is whether the electronics industry will adopt these new practices as much as others have — shoes and apparel is another.

If they don't, it will be an irony. It will also be a cost. Because we know one thing: What happened in Thailand in 2011 will happen again, somewhere. Probably sooner than we'd hope.

10 comments on “When Mother Nature Wants Your Business

  1. Tom Murphy
    June 6, 2013

    I'm starting to believe that, in my lifetime, weather will cease to be perceived as something that everyone talks about but nobody does anything about.

  2. SP
    June 6, 2013

    Doesnt electronics industries spend good amount of planning and money for disaster management.With the examples of Tsunami and Japan earthquake, governments must spend good attention on weather engineering. But the problem is unless a problem comes no one wants to spend big funds on these studies and risk planning.

  3. _hm
    June 6, 2013

    @Tom: Yes, that is true. One prime reason can be cost factor. In this very thin profit margin, who will risk this added burden?

    I also think that one should not worry too much. Electronics industry in general has extreme agility and they invents new ways of resolving similar situation with novel and better products.


  4. Tom Murphy
    June 6, 2013

    I think the reason that tech companies are reluctant to invest in planning models more than they do — and some do — is because of thin margins on the global marketplace. Other industries, like energy, can afford to spend more. But it is pennywise pound-foolish thinking, imho.  Collaborative planning efforts would benefit all market players.

  5. Marc Herman
    June 7, 2013

    That's true, but at this point we can probably say with confidence that the disaster hit, we know what it cost, and we know the cost savings of preparation. That wasn't true even ten years ago. So excuses are getting a bit less convincing.

  6. Mr. Roques
    June 7, 2013

    Very random and crazy idea: Will we ever see air or space factories? Somewhere in thr sky, a company is building microprocessors.

  7. Tom Murphy
    June 7, 2013

    Why would we need space factories? Except to make things that are to be consumed in space, like parts for space ships that are too heavy to launch from Earth.

  8. Tom Murphy
    June 7, 2013

    Actually, we have a story coming Monday that suggests we don't know what disasters will cost because we haven't had some of the really big ones that we are likely to have — 500 year disasters, and 1,000-year disasters.

    Think big meteor, or an earthquake that goes far beyond the Richter scale. I wouldn't say we've been lucky, but we haven't been really unlucky yet.

  9. elctrnx_lyf
    June 11, 2013

    The complexities in electronics supply chain managments gets much more tougher in case of natural disasters. This is mainly due to the fact that man times an electronic component will not have any alternative. So if a pacticular component can not reach the factory then it will not be possible to continue manufacutring, this could result in havoc for any company and in turn business loss. This is one of the primary reasons why electronic conponent and product manufacturers manufacture same components/products in different locations as a mitigation. But it could not be practically feasible to follow this strategy all the time. The companies need to be better prepared to tackle the netuaral disasters with less maintainance and very minimum overhead costs at the same itme.

  10. itguyphil
    June 11, 2013

    I'll second that. Hopefully we don't have one in our lifetimes.

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