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OM in the News: A Sea of Disk Drive Shortages

November 25, 2011

It was just a few days ago in Boston, at the DSI conference, that Jay and I were discussing supply chain disruptions with three York College colleagues–Professors Sumutka, Lam, and Palmer. We all agreed that manufacturers need to protect their supply chains from the mega-disasters we have witnessed recently.  As if to confirm, the latest Businessweek (Nov.28, 2011) featured an article called “After the Floods, A Sea of Disk Drive Shortages”, which discussed the impact of 6 weeks of flooding on the disk drive industry in Thailand.

Compared to the scores of disk drive companies whose factories there have been swamped, Seagate Technology is lucky. Its Thai factories fell outside the flood zone and are high and dry. Unfortunately, each of the 100,000’s of drives Seagate  ships every day contain parts from 130 suppliers, many of whom are still under 3 feet of water. Seagate’s CEO says that pre-flood production levels (which supplied 40% of the world’s drives) will not be reached for at least a year. The impact: anyone who needs a hard drive–from laptop and DVR makers to data centers that host websites–will feel the pinch of 20-40% price hikes and shortages. Some Seagate customers have offered $250 million up front, hoping to lock in capacity.

Disk drives, by the way, are incredibly complex, despite their cheapness. Inside each one, a suspension arm hovers above a disk spinning 7,200 revolutions per minute. Each drive has 200 parts, most of them designed for specific models.

Seagate competitor Nidec has decided not to wait for water to subside at its seven flooded Thai factories. Nidec cut a hole in the roof of one plant, sent divers into toxic waters to unbolt heavy equipment, lifted it unto boats, and then shipped it to their plants in China and the Philippines. Seagate thinks it will take a year to replace gear at suppliers and wants many to relocate to higher ground.

Discussion questions:

1. Can Seagate benefit from the flooding?

2. What is the solution to this supply chain dilemma?

2 Comments leave one →
  1. November 26, 2011 2:06 am

    The world is truly complex and inter-related today. These supply chain issues make excellent talking points in class. Thanks for sharing this timely information.

  2. freebird permalink
    November 29, 2011 10:40 pm

    1. The stock market seems to think so (compare STX vs WDC). Big gains coming in gross margins and market share, partially offset by market shrinkage due to parts supply constraints should improve the bottom line. Timing for this disaster was perhaps rather fortuitous from what may be coming on the demand side.

    2. Diversification. Two ways come to mind– one use multiple suppliers and two keep a fat parts inventory. Both methods costly, but think of these as insurance premiums.

    I’m surprised that Nidec went to the trouble of salvage. Do they expect to continue to meet their specs with equipment that spent days submerged? We don’t knowingly buy flood-damaged used cars for a reason.

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