Thai Floods Ripple Through Global Supply Chain

[webfact]

Thai floods ripple through global supply chain

by David Watkins and Yuka Ito

TOKYO, November 18, 2011 (AFP) - Thailand's worst floods in decades may gradually be subsiding but ripples will be felt by companies and consumers for months to come, analysts say, underlining the fragility of the global supply chain.

Thailand is a production hub for many firms, and severe flooding since October has left hundreds dead while hurting a wide range of industries, particularly the automotive and computer hard-disk drive (HDD) sectors.

The consequences have been global, hitting companies such as personal computer maker Dell, HDD makers Toshiba and Western Digital, and auto giants Toyota and Ford.

As with supply chain woes after Japan's March earthquake, analysts say the Thai disaster raises questions as to how well companies understand their supply networks for essential parts, and whether risks could be better managed.

However, "companies are limited in what they can do because possessing extra inventory pressures corporate earnings and can heighten risk," said Masaki Nakamura, analyst at MM Research Institute in Tokyo.

In particular, the "just-in-time" delivery system pioneered in Japan and often used in the technology and car sectors to deliver components and raw materials only when needed is vulnerable to such shocks.

"While the basic concept behind 'just-in-time' will remain unchanged, firms will now further reduce production risks" by establishing facilities elsewhere after the floods, said Toru Nishihama, senior economist at Dai-Ichi Life Research Institute.

Thai factories supply about 40 percent of the world HDD market and while analysts do not see much of an impact on PC sales in the Christmas holiday shopping season, conditions will remain tight into 2012.

"During the Christmas season, consumers may not see too much in terms of price increases for PCs" because components for those goods were pre-ordered in the previous quarter, IHS iSuppli analyst Fang Zhang told AFP.

"However, if they need to purchase external HDDs, they will see a big price increase."

In Tokyo's Akihabara electronics district, signs can be seen in shops selling HDDs calling on buyers to purchase now to beat price hikes. Others have stopped selling altogether.

"We can't buy HDD stocks as prices are four- to five-times higher than normal," said Yu Sugawara, a buyer at Hamada Electrical Equipment Manufacturer.

"Customers won't buy at higher prices, so we can't pass on higher costs through retail prices. We've stopped selling hard disks rather than squeezing our business."

The flooding has made a bad year worse for Japanese firms that were already fighting to restore output after the March earthquake and tsunami, and as they grapple with a profit-eroding strong yen.

By late October more than 400 Japanese companies suspended operations or lowered output due to the Thai floods that claimed more than 560 lives and damaged millions of homes and livelihoods.

Japan is Thailand's biggest foreign investor. Its industrial zones and quality infrastructure have attracted Japanese firms looking to escape higher corporate tax and labour costs.

Nevertheless, Indonesia, Vietnam, and India look set to receive more investment from Japanese firms than Thailand next year as companies look to ease production concentration risks, Dai-Ichi's Nishihama said.

In September Toyota said global motor vehicle production had recovered to normal after it hired thousands of temporary workers to make up for lost output following the March quake.

But it was forced to halt its three assembly plants in Thailand in early October due to the flooding and will not reopen them until November 21. Toyota and Honda withdrew their annual earnings forecasts as they assess the damage.

Automakers Nissan and Mitsubishi Motors and electrical firms Pioneer, Sony, Canon and Nikon were also forced to adjust global production due to the Thai plant shutdowns and supply woes.

Some companies in the flooded Ayutthaya industrial zone about 80 kilometres (50 miles) upriver of Bangkok have at least been able to send in divers to retrieve hardware containing crucial data as waters there gradually recede.

While limited production has restarted at some facilities away from the floods, analysts warn the effects of the disaster may last longer than Japan's earthquake and tsunami.

"Japanese companies could start restoration about two months after the tsunami," said Nishihama.

"But with facilities still flooded in Thailand, it is harder to predict when production can return to normal."

-- (c) Copyright AFP 2011-11-18

[alant]

Indonesia, Vietnam, and India look set to receive more investment from Japanese firms than Thailand next year as companies look to ease production concentration risks, Dai-Ichi's Nishihama said."

[animatic]

In the short term this will cause layoffs and lost jobs in dozens of countries,

and cause companies that supply bigger companies to fail, because they have no supply chain from Thailand, so don't buy from other small suppliers for other parts until full production can return.

100's of thousands will be out of work world wide by this.

All this pain just to save the rice crop,

and payback the puyais for delivering the vote of their masses.

Edited November 18, 2011 by animatic

[robsamui]

Current editorials in the computer press indicate that around 50% of the world's supply of hard drives are made in Thailand and that already there is a shortage of 60 million drives and prices have risen 50-60%.

Manufacturers of computers are increasing their prices . . .

Conversely, prices of solid state drives are falling - now's the time to go SSD!

R

Edited November 18, 2011 by robsamui

[robsamui]

In the short term this will cause layoffs and lost jobs in dozens of countries,

and cause companies that supply bigger companies to fail, because they have no supply chain from Thailand, so don't buy from other small suppliers for other parts until full production can return.

100's of thousands will be out of work world wide by this.

All this pain just to save the rice crop,

and payback the puyais for delivering the vote of their masses.

I wonder if this event and the series of knock-on effects arising might finally convince the Thai nation that they are not able to live in their own little bubble any more, with the nasty farang world somewhere outside and far away and nothing at all to do with them . . .

But probably not.

R

Edited November 18, 2011 by robsamui

[IsaanUSA]

at least been able to send in divers to retrieve hardware

Wow!!

[lovetotravel]

at least been able to send in divers to retrieve hardware

Wow!!

I met a guy a few days ago who worked for a company where divers were sent in. His comments? Thai's have a big heart, but don't understand the situation. I.E. Once underwater, the equipment is toast. His company is now sending him to Malaysia to start a new operation there.

The current government may have just shot themselves in the foot big time?

[osiboy]

" "thailands quality infrastructure attracted them" !!!............? ..... they must be talking about the pavements that belong to vendors or are non-exsistant and the wonderful spagetti-style power cables that look soooooooo high -tech !, not to mention that the cooking from gas bottles and plugs that wont stay in a socket !

[RedNIvar]

Current editorials in the computer press indicate that around 50% of the world's supply of hard drives are made in Thailand and that already there is a shortage of 60 million drives and prices have risen 50-60%.

Manufacturers of computers are increasing their prices . . .

Conversely, prices of solid state drives are falling - now's the time to go SSD!

R

You must be smoking something real good!

FYI, SSD prices are not dropping. In fact the price of SSD had actually slightly increased given the additional incremental demand in SSD in this quarter. There is about USD$1 difference in price per 1GB of storage between SSD and HDD. You would have to pay additional USD$500 for a 500GB SSD drive. That's 15,000Bhat additional to a 3000Bhat 500GB Mobile HDD or 1000Bhat for a 500GB Desktop HDD.

How's that saying again, a fool and his money.......

[tlansford]

Current editorials in the computer press indicate that around 50% of the world's supply of hard drives are made in Thailand and that already there is a shortage of 60 million drives and prices have risen 50-60%.

Manufacturers of computers are increasing their prices . . .

Conversely, prices of solid state drives are falling - now's the time to go SSD!

R

prices are going up, of course.

Thailand has 40% of the world's manufacturing capacity for HDD. 25% is off-line. Some of the key components for drives are also seriously impacted (drive motors). This will be a hit on the industry, according to estimates, of about 2 quarters.

[noitom]

What a refreshing, informative article. Then I noticed that it wasn't written by Thais or byThe Nation amateurs. The article points out clearly why Thailand is a huge risk for foreign firms. Concentrating a large percentage of supply chain in a very poorly managed country with many risk exposures, political, infrastructure, geography, weather, education level, ..etc. is just very poor management. Seeking better margins on the back of historically lower labor costs exclusively is very myopic. Public foreign companies with major dependencies and operations in Thailand should be scrutinized by their boards as to whether they performed adequate due diligence and how the money is accounted and reconciled in these operations.

Thailand has essentially outlived its usefulness as a manufacturing and distribution hub. They have continually engaged in major examples of risk. coups, political and military uncertainty, military governments, civil strife and almost daily killings in the south, airport closings, civil unrest, bloodshed, and killings, blocking commercial activity, inadequate application of law, blatant corruption and graft, absence of recourse, eg..nightclub fires and mass deaths, unregulated worker and student vans and major deaths, refusal to apply law and ignorance of building safety and zoning considerations. Many more and last but not least, the country's inability to protect its citizens and residents from safety precautions and rapid recovery and any understanding of DRP and BCP (Disaster Recovery Planning and Business Continuity Planning). Think about the standards and procedures implemented to do post flood clean up in clean factories, and warehouses. All of this is magnified considerably by poor communication, misrepresentation of news, facts, censorship, suppression of information, opaque business operations, and the absence of disclosure.

Mentioning a few side points, there were previous photos and content showing Thai factory workers "repairing soaked, wet" , and irreparably damaged hard drive hardware.This article also points out something that was shocking about the low level of awareness and comprehension of Thais by indicating that some Thai manager thought that it was great that "divers" had fished out hard drives to "recover and repair hard drive data." What a preposterous thing to do! Just think about the QA and reliability of those products. If you were running a major foreign company, why would you invest in Thailand? Why would you keep repeating the same decisions and investments expecting the results to be different?

[sietau]

What a refreshing, informative article. Then I noticed that it wasn't written by Thais or byThe Nation amateurs. The article points out clearly why Thailand is a huge risk for foreign firms. Concentrating a large percentage of supply chain in a very poorly managed country with many risk exposures, political, infrastructure, geography, weather, education level, ..etc. is just very poor management. Seeking better margins on the back of historically lower labor costs exclusively is very myopic. Public foreign companies with major dependencies and operations in Thailand should be scrutinized by their boards as to whether they performed adequate due diligence and how the money is accounted and reconciled in these operations.

Thailand has essentially outlived its usefulness as a manufacturing and distribution hub. They have continually engaged in major examples of risk. coups, political and military uncertainty, military governments, civil strife and almost daily killings in the south, airport closings, civil unrest, bloodshed, and killings, blocking commercial activity, inadequate application of law, blatant corruption and graft, absence of recourse, eg..nightclub fires and mass deaths, unregulated worker and student vans and major deaths, refusal to apply law and ignorance of building safety and zoning considerations. Many more and last but not least, the country's inability to protect its citizens and residents from safety precautions and rapid recovery and any understanding of DRP and BCP (Disaster Recovery Planning and Business Continuity Planning). Think about the standards and procedures implemented to do post flood clean up in clean factories, and warehouses. All of this is magnified considerably by poor communication, misrepresentation of news, facts, censorship, suppression of information, opaque business operations, and the absence of disclosure.

Mentioning a few side points, there were previous photos and content showing Thai factory workers "repairing soaked, wet" , and irreparably damaged hard drive hardware.This article also points out something that was shocking about the low level of awareness and comprehension of Thais by indicating that some Thai manager thought that it was great that "divers" had fished out hard drives to "recover and repair hard drive data." What a preposterous thing to do! Just think about the QA and reliability of those products. If you were running a major foreign company, why would you invest in Thailand? Why would you keep repeating the same decisions and investments expecting the results to be different?

Basically, one reason, labor cost. I am sure you know the difference in labor cost between Thailand and the rest of the world. Mark my word,Thailand will recover.They will clean up the mess and thousands more will probably die as a result of the floods, but they will comeback.

[hellodolly]

What a refreshing, informative article. Then I noticed that it wasn't written by Thais or byThe Nation amateurs. The article points out clearly why Thailand is a huge risk for foreign firms. Concentrating a large percentage of supply chain in a very poorly managed country with many risk exposures, political, infrastructure, geography, weather, education level, ..etc. is just very poor management. Seeking better margins on the back of historically lower labor costs exclusively is very myopic. Public foreign companies with major dependencies and operations in Thailand should be scrutinized by their boards as to whether they performed adequate due diligence and how the money is accounted and reconciled in these operations.

Thailand has essentially outlived its usefulness as a manufacturing and distribution hub. They have continually engaged in major examples of risk. coups, political and military uncertainty, military governments, civil strife and almost daily killings in the south, airport closings, civil unrest, bloodshed, and killings, blocking commercial activity, inadequate application of law, blatant corruption and graft, absence of recourse, eg..nightclub fires and mass deaths, unregulated worker and student vans and major deaths, refusal to apply law and ignorance of building safety and zoning considerations. Many more and last but not least, the country's inability to protect its citizens and residents from safety precautions and rapid recovery and any understanding of DRP and BCP (Disaster Recovery Planning and Business Continuity Planning). Think about the standards and procedures implemented to do post flood clean up in clean factories, and warehouses. All of this is magnified considerably by poor communication, misrepresentation of news, facts, censorship, suppression of information, opaque business operations, and the absence of disclosure.

Mentioning a few side points, there were previous photos and content showing Thai factory workers "repairing soaked, wet" , and irreparably damaged hard drive hardware.This article also points out something that was shocking about the low level of awareness and comprehension of Thais by indicating that some Thai manager thought that it was great that "divers" had fished out hard drives to "recover and repair hard drive data." What a preposterous thing to do! Just think about the QA and reliability of those products. If you were running a major foreign company, why would you invest in Thailand? Why would you keep repeating the same decisions and investments expecting the results to be different?

Care to enlighten us to the country that dosen't have all these happenings that you point out and can still supply cheap labor.

Like so many of the TV posters you seem to think the grass is greener on the other side of the fence only you have no idea of what it is really like.

Yes I am sure Thailand will lose some business but they will not be going to countries who have no problems. Some of the big corparations like Toyoto are in the money making bussiness and if they think they can start up all over again in a country that dosen't have the problems you talk of here and still get cheap labor they will be gone in a heart beat.

Wait and see what they do.

[piewarmer]

Thailand used to be very stable politically but that is no longer the case. Every country has its problems with all kinds of natural disasters so It's difficult to weigh up the risks for the big multinationals, I wish them well with their decisions.

Relocating within Thailand would be the best option in my humble opinion.

[mahtin]

http://windowssecrets.com/top-story/what-you-can-do-about-soaring-hard-drive-prices/#story1

By Woody Leonhard, who lives in Phuket. Good article.

[ThaiKiwi]

What a refreshing, informative article. Then I noticed that it wasn't written by Thais or byThe Nation amateurs. The article points out clearly why Thailand is a huge risk for foreign firms. Concentrating a large percentage of supply chain in a very poorly managed country with many risk exposures, political, infrastructure, geography, weather, education level, ..etc. is just very poor management. Seeking better margins on the back of historically lower labor costs exclusively is very myopic. Public foreign companies with major dependencies and operations in Thailand should be scrutinized by their boards as to whether they performed adequate due diligence and how the money is accounted and reconciled in these operations.

Thailand has essentially outlived its usefulness as a manufacturing and distribution hub. They have continually engaged in major examples of risk. coups, political and military uncertainty, military governments, civil strife and almost daily killings in the south, airport closings, civil unrest, bloodshed, and killings, blocking commercial activity, inadequate application of law, blatant corruption and graft, absence of recourse, eg..nightclub fires and mass deaths, unregulated worker and student vans and major deaths, refusal to apply law and ignorance of building safety and zoning considerations. Many more and last but not least, the country's inability to protect its citizens and residents from safety precautions and rapid recovery and any understanding of DRP and BCP (Disaster Recovery Planning and Business Continuity Planning). Think about the standards and procedures implemented to do post flood clean up in clean factories, and warehouses. All of this is magnified considerably by poor communication, misrepresentation of news, facts, censorship, suppression of information, opaque business operations, and the absence of disclosure.

Mentioning a few side points, there were previous photos and content showing Thai factory workers "repairing soaked, wet" , and irreparably damaged hard drive hardware.This article also points out something that was shocking about the low level of awareness and comprehension of Thais by indicating that some Thai manager thought that it was great that "divers" had fished out hard drives to "recover and repair hard drive data." What a preposterous thing to do! Just think about the QA and reliability of those products. If you were running a major foreign company, why would you invest in Thailand? Why would you keep repeating the same decisions and investments expecting the results to be different?

Care to enlighten us to the country that dosen't have all these happenings that you point out and can still supply cheap labor.

Like so many of the TV posters you seem to think the grass is greener on the other side of the fence only you have no idea of what it is really like.

Yes I am sure Thailand will lose some business but they will not be going to countries who have no problems. Some of the big corparations like Toyoto are in the money making bussiness and if they think they can start up all over again in a country that dosen't have the problems you talk of here and still get cheap labor they will be gone in a heart beat.

Wait and see what they do.

After living here for more than 20 years, I would say that Thailand is one of the safest countries in the world from natural disasters. They keep happening in China, India, Vietnam, Australia, USA etc. but very rarely do we see Thailand being hit so hard by natural disasters. There are a few local areas in the south that get hit and then it is generally a cold spell in the north on top of the mountains or a hot summer. The droughts are pretty common but have been for so many years that it has become a way of life rather than such a natural disaster.

This year of flooding is truely an exception and caught everyone unprepared.

[TechnikaIII]

" "thailands quality infrastructure attracted them" !!!............? ..... they must be talking about the pavements that belong to vendors or are non-exsistant and the wonderful spagetti-style power cables that look soooooooo high -tech !, not to mention that the cooking from gas bottles and plugs that wont stay in a socket !

.. and not to mention cheapskate foreigners who live in Thailand because they want everything for nothing, complain about visa fees, puny charges on bank transfers ... ad infinitum. You get what you pay for. Like it or lump it. You want the best money can buy? ... higher standards of everything? It's time you relocated to where it exists, .. AND PAY FOR IT.

[TechnikaIII]

Thailand used to be very stable politically but that is no longer the case. Every country has its problems with all kinds of natural disasters so It's difficult to weigh up the risks for the big multinationals, I wish them well with their decisions.

Relocating within Thailand would be the best option in my humble opinion.

@ "Relocating within Thailand would be the best option in my humble opinion."

Better to stay put, get the wheels turning asap, and construct dykes around the estates. Then during the next flood, the task will be to ship components in, and products out. The Thai based foreign companies affected in this crisis only have themselves to blame, so too do the consumers all over the world who want cheap cheap cheap. This leads companies to take risks, for example build a factory on a flood plane without proper defences, as well as run factories with working conditions and rates of pay that would be unacceptable in the wealthy customer countries. Such is the darker side of bloody minded, dog eat dog capitalism.

Imagine setting off on a very nice but amazingly cheap cruise, when disaster strikes. Something has ripped a whole in the very thin metal of the hull. There are no bulk heads to isolate the damage and the ocean is rushing in. You find that there are no life boats, rafts, life jackets or anything. .. only to be told as you were going down, "The ship owner didn't budget for sinking. .. Well, you wanted cheap didn't you?"

[sabye]

What a refreshing, informative article. Then I noticed that it wasn't written by Thais or byThe Nation amateurs. The article points out clearly why Thailand is a huge risk for foreign firms. Concentrating a large percentage of supply chain in a very poorly managed country with many risk exposures, political, infrastructure, geography, weather, education level, ..etc. is just very poor management. Seeking better margins on the back of historically lower labor costs exclusively is very myopic. Public foreign companies with major dependencies and operations in Thailand should be scrutinized by their boards as to whether they performed adequate due diligence and how the money is accounted and reconciled in these operations.

Thailand has essentially outlived its usefulness as a manufacturing and distribution hub. They have continually engaged in major examples of risk. coups, political and military uncertainty, military governments, civil strife and almost daily killings in the south, airport closings, civil unrest, bloodshed, and killings, blocking commercial activity, inadequate application of law, blatant corruption and graft, absence of recourse, eg..nightclub fires and mass deaths, unregulated worker and student vans and major deaths, refusal to apply law and ignorance of building safety and zoning considerations. Many more and last but not least, the country's inability to protect its citizens and residents from safety precautions and rapid recovery and any understanding of DRP and BCP (Disaster Recovery Planning and Business Continuity Planning). Think about the standards and procedures implemented to do post flood clean up in clean factories, and warehouses. All of this is magnified considerably by poor communication, misrepresentation of news, facts, censorship, suppression of information, opaque business operations, and the absence of disclosure.

Mentioning a few side points, there were previous photos and content showing Thai factory workers "repairing soaked, wet" , and irreparably damaged hard drive hardware.This article also points out something that was shocking about the low level of awareness and comprehension of Thais by indicating that some Thai manager thought that it was great that "divers" had fished out hard drives to "recover and repair hard drive data." What a preposterous thing to do! Just think about the QA and reliability of those products. If you were running a major foreign company, why would you invest in Thailand? Why would you keep repeating the same decisions and investments expecting the results to be different?

[sabye]

What a refreshing, informative article. Then I noticed that it wasn't written by Thais or byThe Nation amateurs. The article points out clearly why Thailand is a huge risk for foreign firms. Concentrating a large percentage of supply chain in a very poorly managed country with many risk exposures, political, infrastructure, geography, weather, education level, ..etc. is just very poor management. Seeking better margins on the back of historically lower labor costs exclusively is very myopic. Public foreign companies with major dependencies and operations in Thailand should be scrutinized by their boards as to whether they performed adequate due diligence and how the money is accounted and reconciled in these operations.

Thailand has essentially outlived its usefulness as a manufacturing and distribution hub. They have continually engaged in major examples of risk. coups, political and military uncertainty, military governments, civil strife and almost daily killings in the south, airport closings, civil unrest, bloodshed, and killings, blocking commercial activity, inadequate application of law, blatant corruption and graft, absence of recourse, eg..nightclub fires and mass deaths, unregulated worker and student vans and major deaths, refusal to apply law and ignorance of building safety and zoning considerations. Many more and last but not least, the country's inability to protect its citizens and residents from safety precautions and rapid recovery and any understanding of DRP and BCP (Disaster Recovery Planning and Business Continuity Planning). Think about the standards and procedures implemented to do post flood clean up in clean factories, and warehouses. All of this is magnified considerably by poor communication, misrepresentation of news, facts, censorship, suppression of information, opaque business operations, and the absence of disclosure.

Mentioning a few side points, there were previous photos and content showing Thai factory workers "repairing soaked, wet" , and irreparably damaged hard drive hardware.This article also points out something that was shocking about the low level of awareness and comprehension of Thais by indicating that some Thai manager thought that it was great that "divers" had fished out hard drives to "recover and repair hard drive data." What a preposterous thing to do! Just think about the QA and reliability of those products. If you were running a major foreign company, why would you invest in Thailand? Why would you keep repeating the same decisions and investments expecting the results to be different?

Please note that the divers were diving for the companies hard drives to recover their own information. They were not trying to repair and resell the flooded hard drives