Global Supply Chains and Natural Disasters: What You Should Know and What You Can Do
Technology. The modern world runs on it, but new technology still must face the balance of Mother Nature. When natural disasters strike, electronics may be knocked out, roads blocked, and supply chains disrupted. If your company needs electronic components or technology, and you need them to arrive quickly and steadily, you might be out of luck when natural disasters affect the supply chains you depend on. You can face delays and price hikes, meaning your company might have trouble keeping promises and staying out of the red.
The Impact of Natural Disasters on Supply Chains
Natural disasters have far reaching consequences on local and global supply chains. Consider the floods in Thailand in 2011. As the second largest producer of hard disk drives, many of the world’s largest computer manufacturers had factories in Thailand, and over 1,000 factories were swamped with corrosive floodwaters. As a result of this natural disaster, many electronic components supply chains broke down, causing price hikes in external hard drives and similar electronics. This was especially damaging because, at the time, a single Thailand facility in Bang Pa-In was producing about 25 percent of the world’s supply of “sliders,” a key electronic component in hard disk drives. Furthermore, it was difficult to predict when these technology supply chains would recover as the floodwaters were slow to recede.
In that same year, Japan was hit with both a devastating earthquake and an even more harmful tsunami. The country – well-known for its manufacturing of electronic components, vehicles, and automobile parts – found itself facing billions of dollars in damage, tens of thousands dead, and a nuclear crisis on its hands. The global supply chain was hit hard by this natural disaster for months, with far-reaching industry impacts felt around the world. Shortages in microcontrollers, paint pigments, and other components complicated production and forced some car producers to cancel orders that they could no longer make.
Natural Disaster Supply Chain Risk: Where Do You Stand?
The reality is that many supply chain executives are not taking the precautions that could mitigate global supply chain risk due to natural disasters. In a study done by the Global Supply Chain Institute at the University of Tennessee in 2014, none of the executives surveyed used outside expertise in assessing risk for their supply chains, and only 10 percent quantified risk when outsourcing production. Even more precarious, about 40 percent of all U.S. imports came from areas with a high or severe risk of experiencing natural disasters.
What Can You Do to Manage the Risk of Supply Chain Disruption Due to Natural Disaster?
While there is no technology that will stop a natural disaster in its tracks, there are plenty of things you can do to mitigate the risk that comes with natural disasters in your supply chain:
- Find Alternatives in Advance: While you may opt to go for the lowest-cost supplier as your primary, you should also establish at least one other alternate supplier that faces a lower risk of natural disaster, has more reliable power grids and transportation networks, stable political circumstances, and/or close proximity to raw materials. By doing this, you still save money by using the cheaper primary supplier, but you are not scrambling if something happens in their area and you need supplies to keep up with your orders.
- Plan Facilities Carefully: When you establish manufacturing facilities in any given region, make sure to plan the location and construction carefully to make sure it can withstand disasters. Establish careful work and safety regulations and ensure maintenance schedules are adhered to. Also, make sure engineers work to protect the site against fire, heavy winds, flooding, and other natural disaster damage that could pose a risk to your supply chain and jeopardize your facility and the lives of those in it.
- Strategize with a Crisis Team: Establish a crisis team within your organization. This team will be in charge of making decisions and communicating them to your supply chain. This way, if typical means of communication are damaged during a natural disaster, these select few will be in charge of finding ways to communicate with your supply chain managers to determine what can be done. It is also important to run through a variety of different scenarios with this team in order to establish what they need to do ahead of time, limiting the amount of confusion and chaos that takes place during a situation.
- Communicate Openly: If your company experiences internal or external uncertainty, you increase the risk of chaos, shortages, and other issues that result from this uncertainty. If you are transparent and open with employees, partners, and suppliers throughout the crisis situation, keeping them informed in a timely manner, the recovery process becomes easier and smoother than if you hadn’t kept the lines of communication open.
- Solicit External Risk Assessments: It’s a good idea to make sure an outside logistics expert examines your supply chains for vulnerability to natural disasters and other risk factors. Have them look at your inventory sites, where your suppliers are located, existing backup and response plans, and other factors to determine your supply chain’s stability in the case of a natural disaster. Use the data that they give you to refine your backup and response plans, coordinate with your crisis team, and establish alternate suppliers.
Whether you deal in electronics, automobiles, foods, fashion, or any other goods that rely on global supply chains, natural disasters pose a risk to your business that you cannot afford to ignore. Make sure you evaluate and address your supply chain risk in order to prevent a halt in the lifeblood of your business.
Doug Braun is the general manager and co-founder of Braun Electronic Components, with an extensive background in obsolete electronic parts distribution and supply chain management.