Hard Drive Disruptions/Thai Flooding – “Deluges” Now Driving Supply Risk and Disruptions

In less than a year, we've now seen natural disasters wreak havoc with Asian supply chains not once, but twice (and arguably more, if you count more minor incidents on the broader sub-continent, including India, where food disruptions have led to numerous price spikes since last summer). Most recently, the flooding in Thailand has emerged as the cause of significant disruptions in the hard drive business (which impacts a wide variety of items from PCs to DVD players to cars to industrial controls). According to the above-linked analysis from HIS iSuppli, as a result of the flooding, "the HDD industry in the fourth quarter will suffer its worst downturn in three years. HDD shipments in the fourth quarter will decline to 125 million units, down 27.7 percent from 173 million in the third quarter."

iSuppli further notes that "the drop is the largest sequential decrease on a percentage basis since the fourth quarter of 2008 when shipments fell 21.2 percent during the worst point of the last electronics downturn" and that an estimate of "30 percent of HDD production in the fourth quarter this year will be lost because of the disaster" resulting in "a significant shortage of HDDs." The flooding will also shake up the overall supply market for hard drives and "Western Digital is likely to lose its status as the world's largest shipper of HDDs, with its rank expected to fall two positions to third in the fourth quarter, down from first place in the third quarter. Toshiba's rank could fall to fourth place, down from fifth."

In an earlier post on supply risk, we noted that geographic and geo-spatial (i.e., map/location-based) analysis of suppliers and facilities can be key to rapidly determine the impact of potential disasters on your supply chain -- including tier one and lower tier suppliers. Moreover, in the wake of these Black Swan supply chain events, it's crucial to think through all of the disaster recovery elements necessary to respond quickly and effectively. D&B, which offers supply risk monitoring services and software, suggests that to respond effectively in the immediate wake of such a supply chain event, there are a few questions companies ask themselves as part of their supplier risk planning, including "how quickly can I access reliable information about the situation?" and "how quickly can I analyze the information to understand how the situation affects me?"

While access to information is essential, our own research suggests that the ability to share information internally and collaborate across functions (e.g., a centralized risk function sharing information with materials managers and plant managers) is essential. And when it comes to information sharing, especially around immediate information to surface in the aftermath of an event, there's no replacement for tools that enable the gathering and sharing of both structured and unstructured general content (e.g., news feeds, information shared on social networks) as well as the plotting of such information using geographic and geo-spatial-focused tools.

We often hear as horrible floods proverbially described -- no pun intended -- as biblical in proportion and nature. Given the long history we've had in managing events just like this, one might think that the over-localization of an entire supply chain is something we would consider as part of overall sourcing strategy and supplier selection. Guess again. Let's hope this time around, after the Japanese tsunami, nuclear and earthquake disaster and now Thailand, that geospatial and region-centric analysis plays a greater role in our overall strategic sourcing and supply risk mitigation planning efforts.

Jason Busch

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