IQMS Blog for Manufacturing ERP Expertise

It's Time for the Vertical Supply Chain to Mature

Posted by John Asi on Thu, Feb 16, 2012 @ 09:25 AM

Broken Supply Chain Growing up can be very disillusioning. As a child, we can be sheltered from so many of life's challenges and issues. Life was one big adventure after another with amazing discoveries waiting around each corner and nothing more than a thought needed to make fiction a reality.

 Man was adulthood a shock. My eyesight started to slip a bit, there is a creaking in my left knee and over the last several months, prices for hard drives have gone through the roof. What is up with that? Is the global supply chain we rely on in that much of an infancy to believe that nothing can go wrong, ever? 

I propose that the global supply chain needs to do a little maturing, and quickly. There have now been two high profile global events in the space of a year that have shaken up the supply chain and the thinking behind how vertically challenged it has grown.

So what happened this time? If you happen to be in an IT related field or part of the supply chain that supplies automotive or computer related industries, you may have noticed that some components have become very difficult, if not impossible, to acquire. This is the result of a devastating flooding that hit Thailand over the course of several months. 

The area of flooding was staggering and the number of people displaced even more so. In addition to the personal loss of property, more than 900 manufacturing facilities located in the flood zone were either severely damaged or destroyed. To make matters worse, this flooding event was not something that hit and then subsided, it was ongoing for months. 

Beyond the local economic damage sustained, this disaster has had, and will continue to have, a long term global impact on the supply chain and economy in several sectors. Remember the 900 manufacturing facilities I mentioned that were out of commission? Included in the loss of manufacturing are companies like Nikon, Honda, Hitachi and Western Digital. OK, so they have facilities there, so what? How much impact can that have on the global world supply chain? Quite a bit it seems. 

Let's just focus on one company: Western Digital lost approximately 70 percent of its manufacturing capacity for a period of time. It produced 25 percent of the world's slider units used in hard drives. Within a week of the flood, prices for hard drives increased from 50 percent to 150 percent as supplies dropped dramatically. 

The story is repeated like this for other manufacturers. All in all, more than $250 billion in economic losses are attributed to the flood. This accounts for the majority of the world's economic losses for 2011. Once this disaster has subsided, the long road to recovery is still ahead with rebuilding and trying to establish operational facilities. Some estimate that this will take more than a year to complete.

Companies are starting to figure out that completely vertical supply chains don't work. The issue is going to be how to diversify and still be able to offer competitive prices for the goods that everyone has come to expect to keep decreasing in cost. The balance between risk and cost needs to be carefully considered in order to continue supporting a healthy growth. Besides that, I want to be able to purchase my hard drives for my projects without giving up my arm and leg.


While you can't control the global supply chain, you can successfully manage your own with supply chain management tools from IQMS. Click below to learn more:
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Tags: manufacturing ERP software, IQMS, Supply Chain, IT/Data Services