Don't put all your supply chain eggs in one basket

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As those of you who have read this blog may have gathered…I’m a bit of a geek.  I recently decided that my home computer system needed replacement so I did what any geek would do…I gathered parts over several weeks and built myself a new computer.  While I was in that mode, I was monitoring the prices of various computer components, so I noticed firsthand the incredible increases in the price of computer hard drives. As most know, Thailand has been hit hard by flooding during this year’s monsoon season. There has been a horrible human cost with hundreds dead, and millions of people affected. What many don’t know is that Thailand is a major manufacturer of hard drives and major brands like Seagate and Western Digital have factories there…thus the price increase for hard drives.  Not only is Thailand a primary producer of hard drives, they also produce components that go into hard drives, so even companies that don’t manufacture in Thailand are affected because they can’t get components. As you would expect, the hard drive shortage is affecting upstream manufacturers too.  Many companies only have a few weeks of supply on hand and are seeing shipments impacted because they can’t get components.   Fortunately, it looks like the flood waters are starting to recede and some hard drive manufactures will start producing again this month, although forecasts show that high hard drive prices and shortages will continue well into 2012. From a supply chain perspective, these events have again highlighted the need for companies to implement and maintain a supply chain risk management process. There is much content on risk management, but there are a few key points relevant to what we’ve seen recently;

  • Identify key components and where they come from.  If you have multiple suppliers for these components, GREAT!  If these suppliers are in the same geographic region, however, you still can be at risk.
  • For your key components, be sure to look at where your suppliers are getting their components from.  Thailand also has significant hard drive component manufacturers that supply hard drive manufacturers around the world.  Even if you source from different hard drive manufacturers in different regions, they all may get their components from a single supplier or region.
  • Review your key components on a regular basis.  Many companies do this as part of their S&OP cycle as there is a logical affinity between risk management and S&OP.
  • Make sure that you have the tools in place to be able to quickly assess and respond to a significant event like the Thailand flooding. ERP systems and Excel can’t do this fast enough to make a difference.  You need a tool that can model your entire supply chain, allow simulation and reporting to be able to get on top of a fast moving situation like this.

2011 has been another record year for major events with supply chain impact.  Japan is still recovering from the effects of the earthquake and tsunami.  The flooding in Thailand has impacted other manufacturing segments besides hard drives.  Companies operating on a global scale must look at how a regional event could impact their  supply chain. For further reading, I (and others) have covered Supply Chain Risk Management in some detail over the past couple of years, including a white paper titled Essential Characteristics of a supply chain risk management strategy.  Has your company been impacted by the Japan earthquake or the Thailand floods?   Comment back and let us know

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