Tuesday, November 1, 2011

Long term impact of thailand floods on automotive supply chain

Thailand is flooded with unprecedented amount of water. Bangkok is somehow holding up. But thats not the news. What I am most curious about is what Japanese automotive companies are going learn from this double disaster, first Tsunami at Tohoku and now the floods in Thailand

Scale of both events is quite different. Japan is almost 8 times bigger production base than Thailand. Tsunami was probably more devastating than the floods. But the impact of both events is idetical. Local production has stopped, component production has stopped which has a ripple effect on production facilities all over the world.

What are the learnings?

1. Propser assessment of climatic risk has to be done before opening new plants. Going one step forward stress test of current production facilities in the wake of changing climatic conditions must be done. One must de-risk the supply chain from climatic conditions.

2. Multiple Sources in different climatic conditions must be the foundation of new supply chain. Current Thailand floods have resulted in production stoppages in Malayasia and US. The reason : Thailand was a single source for the components and CKD kits. This needs to change.

3. Finally, JIT has to be put under scanner. No doubt its the most efficient system to manage supply chain. It also the lowest cost to automakers who are already struggling to stay in black. But these frequent climate related production stoppages are not good either. JIT needs to evolve to overcome short term disruptions. The automotive companies need to figure out how to ensure the supply chains carry at least 2-4 weeks inventory to keep plants running in case of such unforeseen circumstances.

Japanese companies had paved the way to lead the world in innovsting the supply chain a few decades ago...may be its time they need to do it again.

Spoke on CNBC about the Thai floods

Spoke to Bloomberg about Impact of Thailand Floods


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