Tuesday, November 1, 2011

Flooding in Thailand Disrupts Global Supply Chain, But Not Often

Recent flooding in Thailand has interrupted the supply of a large number, and wide variety, of that nation's exports. Early predictions are that these floods will disrupt hundreds of supply chains in industries all over the world, from the United States, to Japan, Taiwan and beyond.

Several industries have been hit particularly hard. In the electronics sector, for instance, computer manufacturer Asutek has publicly stated that they only have an inventory of hard disk drives to last through the end of November. And by some estimates, the United States gets around 1/3 of its imported hard drives from Thailand.

This year has been particularly difficult for supply chain managers, between a volcano eruption in Iceland, an earthquake, tsunami and nuclear disaster in Japan and now flooding in a major industrial area of Thailand.

But in Thailand's case, supply chain managers should not necessarily look at this latest disruption as a case of poor decision making, but rather an example of risk management in supply chain planning. Joseph Sternberg of the Wall Street Journal has an excellent article that discusses this very idea.

While some armchair supply chain analysts may wonder why some companies might decide to build factories on a known flood-plain, Sternberg makes the point that Thailand actually offers many advantages that make it an attractive location to source elements of a supply chain, and that these advantages outweigh the relatively rare instances of natural disasters in the area.

I feel that in light of the fundamentals of supply chain management that we discussed last week, this is a particularly good example that remind us that risk management strategies do not eliminate risk entirely, but advance planning can allow a company to mitigate these disruptions when they do occur.

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