Thai floods ripple through global supply chain

November 18, 2011 by David Watkins and Yuka Ito
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'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.

Severe flooding since October, which has left hundreds of people dead, has also hurt a wide range of industries in the production hub, particularly the automotive and computer hard-disk drive (HDD) sectors.

Severe flooding in Thailand since October, which has left hundreds of people dead, has also hurt a wide range of industries in the production hub, particularly the automotive and computer hard-disk drive (HDD) sectors.

The consequences have been global, hitting companies such as Dell, HDD makers Toshiba and , 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" pioneered in Japan and often used in the technology and car sectors to deliver components and 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 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, said IHS iSuppli analyst Fang Zhang.

"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. The southeast Asian nation's 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.

By late October more than 400 Japanese companies suspended operations or lowered output due to the Thai floods. Japan is Thailand's biggest foreign investor. The southeast Asian nation's industrial zones and quality infrastructure have attracted Japanese firms looking to escape higher corporate tax and labour costs.
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."

Explore further: Japan disasters could send gadget prices higher

Related Stories

Japan disasters could send gadget prices higher

March 31, 2011

Disaster-hit Japan churns out many of the world's smartphones, video cameras and other gadgets and while sales are not expected to suffer around the globe, industry analysts expect prices to rise.

Thai floods disrupt computer hard drive production

October 12, 2011

(AP) -- Western Digital Corp., one of the world's largest manufacturers of hard drives for personal computers, said severe flooding has halted production at its crucial Thai factory.

Thailand flooding could affect PC supplies, prices

October 19, 2011

(AP) -- The personal computer industry, already reeling from depressed demand, has been dealt another setback: Massive flooding in Thailand has curtailed production of a critical component - computer storage drives.

Thai flooding disrupting hard drive supplies

October 29, 2011

The massive flooding in Thailand is disrupting supplies of hard disk drives (HDDs) for the world's personal computer makers, according to companies and market intelligence firms.

Thai floods expected to hit PC shipments into 2012

November 10, 2011

Thai flooding will significantly slow the global production of personal computers well into 2012, analysts said Thursday, as the country's huge hard disk drive industry struggles to its feet.

Recommended for you

Team develops targeted drug delivery to lung

September 2, 2015

Researchers from Columbia Engineering and Columbia University Medical Center (CUMC) have developed a new method that can target delivery of very small volumes of drugs into the lung. Their approach, in which micro-liters ...

Not another new phone! But Nextbit's Robin is smarter

September 2, 2015

San Francisco-based Nextbit wants you to meet Robin, which they consider as the smarter smartphone. Their premise is that no one is making a smart smartphone; when you get so big it's hard to see the forest through the trees. ...

Team creates functional ultrathin solar cells

August 27, 2015

(Phys.org)—A team of researchers with Johannes Kepler University Linz in Austria has developed an ultrathin solar cell for use in lightweight and flexible applications. In their paper published in the journal Nature Materials, ...

Magnetic fields provide a new way to communicate wirelessly

September 1, 2015

Electrical engineers at the University of California, San Diego demonstrated a new wireless communication technique that works by sending magnetic signals through the human body. The new technology could offer a lower power ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.