How flooding in Thailand is making hard drives more expensive
Strategic Sourceror on Tuesday, January 24, 2012
Though floodwaters have receded in Thailand, businesses across the globe are still struggling to contend with the resulting shock to their supply chains, The New York Times reports.
Flooding in parts of Thailand last year affected technology companies throughout the world, prompting executives to overhaul supply chain management as critical manufacturing facilities were damaged. Makers of computers and other electronic equipment struggled in the wake of the serious floods to secure new suppliers, which affected many such firms' earnings.
Though the floods that swept throughout Thailand in 2011 have largely retreated, they inflicted so much damage in the Southeast Asian nation that many businesses are still struggling to resume production. Thai companies play a critical role in the supply chains of companies such as JVC, Panasonic and Hitachi, and the flooding is continuing to cause headaches for executives.
Of the 227 factories authorized to operate in Khlong Luang's industrial zone, only 15 percent have restarted production, according to Nipit Arunvongse Na Ayudhya, a director at a firm that manages a large industrial zone just north of Bangkok. He said that the nation has faced myriad obstacles in its quest to emerge from the devastating effects of the historic flooding.
"The recovery has not been that easy," he noted.
For technology companies, the slow recovery is a continual source of anxiety. Thai companies supplied critical electronic components for products ranging from televisions to tablets. The abrupt halt in production there left foreign businesses with little choice as to where they could potentially secure new supplies. Some firms have worked with procurement consultants in an effort to improve performance, while others have instead reviewed supplier contract negotiations, searching for potential third party manufacturers.
Even when placed on a global scale, Thailand's woes are substantial. Prior to last year's unprecedented flooding, the country was responsible for the production of 40 percent to 45 percent of the world's hard disk drives. While corporate executives had hoped for a speedy recovery, the bleak reality of the nation's troubles is exacerbating concerns at computer companies.
Ultimately, consumers will likely face the ramifications of the country's dilapidated manufacturing sector. For businesses, hard drive sourcing is rapidly becoming the buzz word de jour, as prices of the important technology equipment have surged more than 40 percent in the wake of the floods. Such steep prices could remain until the end of 2012, according to HIS iSuppli analyst Fang Zhang.
"By the end of the year, [hard drive prices] could come back to preflood level for certain drives," he contended.
Statements from some of the biggest players in the hard drive market corroborate such an estimate. Manufacturing capacity at Western Digital, for example, was severely hampered by last year's floods. Western Digital chief executive and president John Coyne asserted that the company's factories – responsible for more than 30 percent of the world's hard drives – would not return to preflood output until September.
Moreover, Coyne affirmed that more than 60 other companies that manufacture hard drives in Thailand were also significantly impacted by the storm. Other firms are still struggling to sort through piles of rusted equipment and damaged factories. Their options are rather limited, however, as many such companies do not have enough funding to fix their facilities.
While firms such as Western Digital are endeavoring to find a way out of the crisis, their purchasing services departments are struggling to secure new component suppliers. The Thai crisis shows no signs of abating, and experts assert affected companies will likely have to wait for their suppliers to come back online.