Supply Disruption (Candy) – Halloween in Massachusetts

Today, October 31, 2011 is not Halloween, at least in certain parts of Massachusetts. It has been postponed. A “Nor’easter” has taken down the power, phone, and internet across a huge region. This unusual storm has made it dangerous and all but impossible (fallen trees on electrical wires) for children to walk safely outside this evening. But, cry not for the children of our local towns. Halloween will now take place on Friday, Saturday, or Sunday in many local neighborhoods. The show will go on; there are contingency plans – the candy supply chain will survive. Candy delayed is not candy denied.

Supply Disruption (10,000+ Factories) – Flooding in Thailand

Automotive: Of much greater concern is the much bigger disruption (estimated by some, to be more than $5 Billion) that last week’s flooding in Thailand has caused. The human toll, that is now approaching 400 and expected to grow, is certainly the greatest concern. The business impact is also significant as experts now expect that the damage from these floods will far surpass the impact of the Japanese crisis earlier this year. Already today, Honda has withdrawn its annual earnings guidance, stating that the floods have directly impacted its Thailand production facility and will halve the production at six Canadian and US factories and require the adjustment of output for several weeks (at least). One-tenth of Honda’s Thai-based Tier One suppliers have been hit.

Disk drives: Thailand is the second largest producer of disk drives (China is #1). Already, LSI Corp. has announced that it expects a full ten percent dip in its hard drive business. Lenovo has made a similar announcement. Broadcom sees production falling by 50% in Q4 2011 and one industry expert predicts that the entire disk drive industry production will fall by 30% in the last quarter of 2011 – this shows that memory delayed is sales denied.

Tier two supply chain: While certain industries (noted above) have been directly hit by this huge global disaster, many other industries will be impacted. Thailand supports a huge number of supply chains at the secondary level of production – 14,000 factories have been impacted. When a disruption of this magnitude hits, even the best-prepared companies can take a hit. Some companies may have insurance or at least, self-insure. Some companies may have contingency plans. For companies that sole source key materials and goods from suppliers in Thailand (or elsewhere), the risks associated with that strategy are presumably understood and ideally managed. It is when the visibility into a supply chain does not extend very far down that companies bear risks that they have not identified. Ardent Partners believes that many companies are unknowingly exposed to supply chain risk in Thailand and we predict a rash of supply chain disruptions will be caused by the Thai flooding – we hope we are wrong.

Tagged in: Predictions, Strategy, Supplier Performance Management, Supply Risk