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OM in the News: Supply Chains and Thailand–A Year After the Flood

October 14, 2012

Disruptions in global chains have moved from an academic subject to a daily topic in the past two years. The Wall Street Journal (Oct.6-7, 2012) headline “After Floods, Businesses Still Wary of Thailand” provides a good classroom topic when you are covering Supplement 11. A year after massive floods in Thailand that disrupted the global supply chain for cars and electronics, most factories are at work again, but not always like before.

Some foreign companies—having learned hard lessons about concentrating too much of their production in one country—are shifting to other parts of Southeast Asia. Thailand’s worst floods in 50 years, coming just seven months after Japan’s earthquake and tsunami, exposed the danger of relying on narrow, concentrated supply chains. So foreign companies are hedging their bets by building facilities and finding suppliers in other regions so they can quickly resume operations if disaster hits.

Western Digital, one of Thailand’s largest foreign employers, moved some manufacturing of hard-disk drive components from Thailand to Malaysia. The company, based in Calif., also asked some suppliers to take similar steps, hoping to avoid a components shortage like last year. Western Digital now employs 25,000 people in Thailand, compared with 37,000 before the floods.

Japan’s Omron Corp. shifted some production of relays—electromagnetic switches for automobiles and motorcycles—to Japan and China. Nidec Corp., also based in Japan, moved part of its production of hard-disk-drive motors to China and the Philippines. This production “will not be coming back to Thailand,” said its president. Yet he added that Thailand has “skill and technology that overcomes other issues.”  Nidec, which suffered damage to eight of its Thai factories last year, has cut production of disk drive motors in the country to protect against another disaster.

Discussion questions:

1. How can firms avoid supply chain disruptions?

2. What can Thailand do to regain manufacturing jobs lost due to the fear of future flooding?

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