Yesterday, an earthquake measuring 6.3 magnitudes struck eastern Taiwan and it adds more food for thought in terms of having active supply chain risk mitigation plans.
This latest major quake was reported to have struck at a depth of 19.5 kilometers and the epicenter was reported as 52.9 kilometers south of the coastal city of Hualien.
This tremor shook buildings in Taipei and according to a published Bloomberg report, caused the temporary evacuation of one of world’s largest semiconductor fab facilities. Limited damage was reported to the international airport.
Taiwan Semiconductor Manufacturing Company (TSMC) temporarily evacuated three separate fab facilities, but workers returned to their areas shortly thereafter. Another semiconductor producer, United Microelectronics Corp (UMC) temporarily suspended its operations and work was reported to have resumed after a few hours. According to Bloomberg, the administration of Hsinchu Science Park, where many of Taiwan’s high-tech companies reside, reported no reports of damage nor did the island’s 62 industrial parks. However, quite a number of aftershocks have occurred on the island.
This is not the first time that Supply Chain Matters has highlighted severe tremors in this region. Our last was in March of this year. Regarding yesterday’s occurrence, we were interested to read the U.S. Geological Service summary of this latest earthquake incident. The report notes: “This region of Taiwan is familiar with moderate to large earthquake activity, and has hosted over 60 events of M6 or greater within 250 km of the October 31 event in the past 40 years.”
Interesting read when you consider that a considerable amount of the globe’s semiconductor chip fab capacity is located in the region. In August, we highlighted a study from a supply chain risk consulting services provider which identified that within certain automotive and high tech supply chains a vast majority of suppliers are dependent on component supply from just four semiconductor suppliers. Guess where many of their fab facilities are located?
And, if the Taiwan incident is troubling, consider that yesterday, a magnitude 6.6 tremor occurred in Chile. The two countries was the largest reserves and mining capacity for lithium, which is now rather important for automotive and alternative energy related product supply chains, are Bolivia and Chile. Chile was hit by a 8.8 magnitude quake in 2010.
Supply Chain Matters does not normally cite or comment on the huge plethora of opinion research studies concerning the discipline and state of global supply chain management. By our view, there are too many outlets, beyond experienced analyst anchored firms, producing so called research vs. opinion of the day among a limited set of respondents.
We were recently able to obtain a copy of The Chief Supply Chain Officer Report 2013, Pulse of the Profession, conducted and compiled by SCM World, and we were impressed with the research approach as well as the key findings. The full report is available for no-cost download by registered members of SCM World and is well worth a reading. An Executive Summary can be obtained by no-cost registration.
This is fourth year of this particular study and the continuity of the study and its findings adds particular meaning. This year’s research survey was conducted during late July and August of this year and was noted as including over 750 completed responses, which is a substantial study considering today’s practices in these types of surveys. It is current and timely.
The goal of this commentary is not to re-produce the findings but rather to add some of our impressions to the findings. SCM World, the authors of the report have done a great job of articulating individual findings.
Our impressions are the following:
More and more, senior supply chain executives now have a seat at the senior executive table but that comes with the reality check of added accountabilities. According to the summarized findings, supply chain leaders are apparently caught in the middle of rising customer demands and expectations and the global growth ambitions of their firm’s management teams. The conundrum of objectives directed at continued reductions in costs while helping to grow the business are being taken on. There is rather interesting detail that points to how these pressures now manifest themselves in stated supply chain process and management objectives, which should capture the attention of peer supply chain executives.
By our Supply Chain Matters lens, this is not an area that is addressed by summarizing multiple years of industry performance and metrics, but rather leadership for weighting and interpreting key business objectives to required supply chain outcomes.
The report further provides compelling evidence on the impact that omnichannel online fulfillment is having on retail supply chains as well as key suppliers to retail. The report concludes: “the omnichannel model is swamping traditional store-based operations.”
We were fascinated with some of the findings related to changing perspectives and landscapes surrounding the firm’s supply chain related social and environmental responsibilities (SER). Responses point to more and more focus towards leading corporate social responsibility efforts, while consumer willingness to pay for socially responsible products remains low. SER efforts continue to be driven by cost and efficiency goals, but the recent visibility to health and safety issues has increased the ranking of health and safety objectives across the global supply chain
Concerning the area of supply chain risk management, the authors point to responses indicating easing concerns in this area. Executives actually quantified multi-million impacts of recent risk events in their responses and the report authors conclude that this easing stems from supply chain teams investing in risk sensing and management capabilities these past few years. Survey findings rank the top ten risk mitigation practices, and by our view, tend to have a procurement focused bias toward continuity of supply. Report authors point to more executive mindshare now focused on other cost and price risks which we believe, further reinforces a procurement lens, and perhaps the need for broader cross-functional perspectives related to other forms of key risk.
In these times, no supply executive survey neglects to reinforce the challenges related to overall talent management and the annual occurrence of this particular survey provides a historic perspective to some progress being made in this area. The findings point to specific successes in knowledge workforce development but efforts to provide an overall compelling career management perspective in supply chain remains challenging. Again, there is interesting data related to different perspectives, a broader skills umbrella, and advocating for broader cross functional and cross business training initiatives.
Overall, we view this research as insightful and thought-provoking, and recommend that industry supply chain executives take the time to review and absorb the findings.
Supply Chain Matters has frequently reminded our readership on the increased existence of supply chain risk in a multitude of commentaries. Our latest was a mere few weeks ago when we called reader attention to a Resilinc published study indicating that concentrated risk remains in sub-tiers of global supply chains and that for automotive and high tech supply chains, that risk is concentrated in four countries and four major component suppliers.
Last night, we picked-up an alert to postings by the San Francisco Chronicle and the Huffington Post Green site which caused us a pause. Perhaps our readers, especially those with supply chains, product development or design operations located on the U.S. west coast should also take note.
Both postings report that a recent U.S. Geological Survey reveals that if a large earthquake, on the magnitude of 9.1 or higher, were to strike off the coast of Alaska, it could trigger a devastating wave of tsunamis that could cause widespread destruction to California coastal regions. That destruction potential is described by USGS scientists as at least $10 billion, and have the potential to destroy the port facilities of Oakland, Los Angeles and Long Beach, as well as flood low lying areas of San Francisco and the Bay Area. Scientists also predict that widespread flooding could impact 13 low-lying counties of California including flooded buildings, facilities and warehouses with likely damage in the hundreds of million. These reports did not address other west coast regions potentially at-risk such as Oregon or Washington.
While our readers may initially come to the conclusion that such a magnitude tremor is not likely, best recall that the Tohoku earthquake and resultant tsunami that devastated Northern Japan in 2011, and caused multiple and considerable industry supply chain disruption, was of this same magnitude. In their reported briefing of officials, USGS scientists characterized this type of event occurring in Alaska and the U.S. west coast as “hypothetical but plausible”.
If this latest study does not capture attention, consider that in preparation our Supply Chain Matters Top Ten Predictions for 2013, we included in our honorable mentions commentary, a report from the Guardian indicating that geologists believed that a 7.9 magnitude earthquake could hit the “Ring of Fire”, composed over 75% of the world’s active and dormant volcanoes and earthquakes, sometime in 2013. The “Ring of Fire” is an arc stretching from New Zealand, along the eastern edge of Asia, north across the Aleutian Islands of Alaska, and south along the coast of North and South America. Thus far, we have noted multiple reports of significant sized tremors occurring in the Ring, particularly off the coast of Japan.
Again, we do not portend to be alarmists nor do we believe that supply chain teams have to incorporate plans for any conceivable “black swan” event. However, we will continue to advise that supply chain teams need to be able to identify and quantify where potential risk exists in the extended value-chain, have certain plans to mitigate the most obvious risks, and have playbooks in-place to respond to major disruptions when they occur. New and evolving predictive analytics capabilities provide supply chain planners will the ability to conduct what-if and scenario planning around multiple potential events.
In the meantime, take heed to the latest U.S. focused study noted above. After having a few beers or some wine this weekend, check on your contingency planning related to U.S. west coast value-chain operations.
Last week, global reinsurance services provider Swiss Re Group shared some rather interesting statistics regarding natural disaster costs in the first-half of 2013.
A preliminary analysis of natural disasters in the first-half of this year indicates $56 billion in economic losses from disasters. That compares with $67 billion reported in the first-half of 2012. Global insurance covered upwards of 35 percent of these losses, amounting to $20 billion. These disasters claimed 7000 lives.
According to the Swiss Re analysis, flooding was a main-driver of natural catastrophe related losses accountingfor nearly $8 billion in global insurance claims. The reinsurer states that this figure indicates that 2013 is already the second most expensive calendar year in terms of insured flood loses. To no surprise of our supply chain management reading audience, 2011 was the single most expensive year.
The most significant flooding event this year concerned the heavy rains that impacted Central and Eastern Europe in June which Supply Chain Matters alerted our readers to. Economic losses due to flooding in Europe were reported to be $18 billion. The flooding in northern Germany was described as the worst flooding to hit parts of that region in more than 50 years. Significant flooding also impacted Alberta, Canada as well as western and middle portions of the United States.
As was the case in 2012, severe tornado occurrences also impacted the U.S. Midwest region. One of the largest recorded tornadoes, rated 5 on the Enhanced Fujita scale, impacted the areas around Moore Oklahoma in May.
While the global trend for disaster losses in only slightly better thus far in 2013, who knows what is in store for the second-half of this year. Already, parts of Asia have entered the typhoon and monsoon rains season.
This data is yet another timely reminder for supply chain and product management teams to insure that robust supply chain risk identification, mitigation and business continuity plans are vibrant. Reviewing some recent research surveys, Supply Chain Matters was somewhat taken back by indications that risk management has taken a lower priority in supply chain circles. Focus on the above data highlights, especially the losses that are uninsured or self-insured, not to mention the disruption to supply chains.
While teams have little ability to change the forces of climate change, they can be prepared as much as possible for certain effects of major supply chain disruption. For our part in education and knowledge, Supply Chain Matters will continue to alert our readers to events and consequences.
Feel free to share in the Comments section below, the challenges that your organization faced from occurrences of natural disaster and catastrophe.
If you are a frequent reader of this blog than you know all too well, about our constant reminders of having a robust supply chain risk mitigation plan in-place. Search on that very topic under Categories on the right-hand panel and you fill find over 280 Supply Chain Matters postings referring to various updates on this topic.
Last week, supply chain resiliency services provider Resilinc alertedSupply Chain Matters to recent findings from mapping exercisesconducted on a subset of supply chain sourcing data involving hundreds of suppliers across thousands of supplier sites spread among 50 countries. These findings, by our view, are indications that those manufacturers in certain industries have not done due-diligence regarding mitigation of potential supply chain risk.
The analysis specifically focused on sub-tiers of certain industry supply chains. Industries included involved high tech and automotive. Recall that during the 2011 severe earthquake and tsunami that struck Japan, and later that year the monsoon floods that devastated certain industrial parks in Thailand, many manufacturers discovered later the most significant supply disruptions occurring in these supply chain sub-tiers, often discovering that certain components were either sole-sourced, or that the vast majority of manufacturing capability for certain key components were concentrated in one specific geographic region. In most cases, these sub-tier suppliers lack full visibility from existing supply planning or S&OP processes of higher tiered manufacturers and OEM’s.
The summary of findings uncovered by Resilinc indicates that global supply chain risk continues to be concentrated in certain sub-tiers of industry supply chains. That should be of high concern for either Chief Supply Chain or Procurement Officers.
The most profound aspect of this study is that within certain automotive and high tech supply chains, Resilinc uncovered the fact that a vast majority of suppliers are dependent on component supply from just four semiconductor suppliers: Amkor, ASE, United Microelectronics (UMC) and Taiwan Semiconductor (TSMC). The surprise for some readers may be the new dependence that automobile manufacturers have on intelligent electronics in motor vehicles.
More than half of all sites are located in just four countries: China, Japan, Taiwan and the United States, as noted in the graphic provided by Resilinc:
What struck us is that certain sites within both Japan and Taiwan geographically lie in high earthquake-prone regions. China has had its share of recent major disasters and certain semiconductor manufacturing areas within the U.S. west-coast region either lie on well-known earthquake fault lines or have been impacted by recent unusual weather involving heavy rains, mudslides or severe drought and wild fires.
We recently called attention to how Apple was changing its semiconductor sourcing strategies to buffer the previous high dependency on Samsung Electronics, and now including TSMC for sourcing of important microprocessors. Samsung itself has sourced from other semiconductor suppliers.
Once again we state the obvious. Every supply chain management team needs to have a vibrant supply chain risk mitigation and management plans in-place. Evidence continues to point to yet more profound reminders to the ongoing existence of supply chain risk.
Frequent readers of this blog are more than aware of our many commentaries addressing supply chain risk management and business continuity planning. While many consultants and others are jumping on this bandwagon of late, we were calling attention and advising our readers and clients on strategies related to supply chain disruption and risk management as far back as 2008.
One area that we continually focused on in both blog commentaries and conference presentations was making teams aware of the importance of leveraging social media tools as a component part of a risk management strategy. To state that this was somewhat hearsay just a few years ago is an understatement. In 2011, I co- participated in a webinar sponsored by Kinaxis, that addressed how some early innovators were leveraging social-media based tools and concepts to effectively manage business continuity planning and overcoming some of the potential perils of brand or product risks. During that webinar, both myself and Lora Cecere, a co-presenter, stressed both the importance, but also cautioned on the internal obstacles that needed to be addressed.
The reason for recounting this history is because a very critical milestone has occurred.
I believe that the Supply Chain Risk Management Council (SCRLC) represents one of the foremost benchmarking resources and leadership forums for identifying and managing supply chain risk. Its membership represents the true innovators in this important area. When we present to audiences or workshops related to supply chain risk management, we cite SCRLC as a benchmarking resource for teams to consider.
In the latest SCRLC Quarterly Newsletter, the lead article is titled: Social media- A Valuable Operations and Risk Management Tool. This article describes that during its recent triennial meeting, SCRLC members discussed the growing importance of social media outlets on business operations and its potential for minimizing supply chain risk. We urge supply chain leaders and teams to absorb the very important messages brought forth from this leadership forum.
The article notes that social media can be defined in five categories that include Blogs, Facebook and Twitter. It acknowledges that while social media can present a slippery slope, corporations can benefit in many ways from an effective social media based strategies. One important quote of the article declares: “When executed properly, social media can be a boon, but it carries considerable risk as well.” The SCRLC discussions further stressed that it is very important to remember that social-media is a two-way communication tool. “Critical information gathered from clients can improve operations and reduce overall risk.”
If you had doubts on Supply Chain Matters previous insights as to the importance of incorporating aspects of social-media mechanisms in your supply chain risk mitigation plans, we call your attention to how the recognized global leaders in this critical area view its use. If you needed further evidence to help your senior management understand its importance, benefits or risks, the SDRLC can be an important resource.
We again encourage our readers to share their views on leveraging social media based mechanisms as a component to supply chain risk mitigation action planning.