Five Natural Disasters That Threatened To Break IT Supply Chains4:00 PM EST Thu. Nov. 03, 2011
Carrying inventory of components or finished goods is expensive, pushing manufacturers and distributors to employ "just in time" manufacturing techniques to keep inventories down. To work properly, "just in time" manufacturing requires careful control of supply chains.
IT supply chains can be precarious in the best of times. But a natural disaster can disrupt well-tuned supply chains, break the "just in time" system, and quickly cause shortages and price spikes in key components and products.
The Thailand floods currently wreaking havoc with the hard drive market are only the latest in a string of natural disasters which disrupted IT supply chains, or at least showed just how fragile they are.
Turn the page to look at five recent natural disasters and see just how thin the line between success and failure in the IT business really is.
Massive floods are currently inundating many of Thailand's industrial parks where hard drives are built. Analyst firm IHS iSuppli estimated about 25 percent of the world's hard drives are manufactured in Thailand. The flood is also disrupting the production of components, including electric motors and slider assemblies, needed to make the drives in other countries.
Western Digital has been forced to curtail its Thailand production and put both storage OEMs and reseller customers on allocation, while Seagate is seeing component constraints in its facilities in other countries.
The result is a shortage of hard drives leading to price spikes and supply allocation, especially for PC vendors who are more likely to see curtailed shipments than server or enterprise storage vendors.
Hong Kong, along with the Philippines and southern China, in September was pummeled by Typhoon Nesat. Winds of up to 100 miles an hour forced the closure of the Hong Kong harbor and airport.
Because of the amount of finished IT products and IT components which are sent via air freight from China via Hong Kong to other parts of the world, system builders were for a few days on the edge of their seats over potential disruptions to their business. Fortunately, the air freight disruption was short-lived, and left only a minor impact. However, it underscored the dependency of the IT industry on overseas manufacturing and the potential harm to business that could result from a disruption in air freight services.
The huge March 9.0 earthquake and subsequent tsunami which struck Japan caused massive flooding several miles inland and disrupted the world's semiconductor supply chain for months afterwards.
The tsunami damaged facilities which produced DRAM wafers, gasses and color filters used in LCD panels, and cells used to produce mobile PC batteries. Production of certain components such as LCD panels in factories outside the earthquake impact zone also took a hit from power blackouts which required recalibrating the production lines.
Severe Acute Respiratory Syndrome (SARS), a deadly and easily-transmitted viral respiratory illness which started in late 2002 in southern China, by the Spring of 2003 had disrupted travel to and from Asia and shut down several Asian IT manufacturers where as few as a single case appeared.
Eventually, about 8,100 people worldwide became sick with SARS during the 2003 outbreak, of whom 774 died.
While the IT supply chain impact was limited as infected countries quickly moved to contain outbreaks, the SARS epidemic's bigger impact was the realization that a similar epidemic, if not contained, could cause massive business disruptions as factories closed and workers refused to go to work for fear of getting infected.
A massive 7.6 earthquake hit Taiwan in September of 1999, causing a huge disruption in the supply of crucial components including DRAM and leading to a price spike of up to eight times normal prices before production was restored.
That earthquake struck central Taiwan, about 90 miles south of the capital city of Taipei and close to the Hsin-chu Industrial Park, home to some of Taiwan's most advanced high-tech companies.
These included the world's two largest IC fabrication plants and several ASIC and other semiconductor manufacturers, which at the time produced more than 70 percent of the world's graphics chips and 40 percent of the world's chipsets. Taiwan also supplied about 10 percent of the world's DRAM chips.