原创 Preparing for the next Big One (for now)

On a human scale, tracking the destruction caused by last year's Great East Japan Earthquake and the subsequent tsunami was a heart-wrenching experience. With more than 15,000 people known dead, many more displaced and video of houses being tossed like scraps of paper on massive waves, not to mention a nuclear power plant on the cusp of a full on meltdown that would have hurt many more, the availability of photoresist for making semiconductors seemed in many ways trivial.

But such is the world we live in. Our hearts went out to Japan, but our heads viewed the devastation with an eye toward how a disruption in the supply of things made there would impact our bottom lines.

Since the earthquake last March, we've had another massive natural disaster, flooding in Thailand, which received far less publicity but in some ways may have been even more destructive to the global electronics supply chain. 

Coming off a year that was shaped by these two natural disasters, it's no wonder that semiconductor suppliers, distributors and OEMs are all singing from the same song book about the virtues of ensuring adequate supply in the pipeline. Executives who spoke on an industry panel on supply chain issues at last week's DESIGN West event, moderated by EBN Editor-in-Chief Bolaji Ojo, said the natural disasters of 2011 taught many lessons about risk management in the supply chain.

"Last year taught us a lot about how the supply chain reacts to disruptions," said Karl Braitberg, vice president of supply chain operations and global supplier management at Cisco Systems Inc.

Braitberg said Cisco was fortunate it started its risk management group five years ago. The group is responsible for analyzing risk throughout Cisco's business, from supply chain crisis management to financial risks.

Brad Phillips, director of strategic sourcing at Rockwell Automation Inc., echoed Braitberg's sentiments. Like Cisco, Rockwell had been making a big push in inventory risk management prior to the Japan quake. "When Japan happened, we were very fortunate that we had gotten our investments where they should be."

But, for the electronics supply chain, the most fortunate coincidence of the timing of the Japan earthquake was that it happened at a time when there was an oversupply situation for many components, according to Dale Ford, vice president of electronics and semiconductor research at IHS iSuppli. "It was just fortunate," Ford said. "It wasn't by design."

Ford said he believes that supply disruptions from natural disasters and other events will occur more frequently in the future, and that electronics firms had better be prepared to weather them as best they can. "In terms of risk planning, you have to move from a mindset of, 'this is something that might happen every five to 10 years,' " Ford said, "to 'I am going to have to deal with disruptions of varying magnitudes on an ongoing basis.' "

It's easy enough for firms to heed the lessons of 2011 now, while they are still fresh in our minds. But will these companies have the discipline to continue investing in contingencies for emergency supply disruptions if, knock on wood, we go a few years before the next one? Don't forget that after the man-made crisis of 2001, when the dot com bubble burst and suppliers of all stripes were left holding excess inventories, the pendulum swung toward extremely low inventories on hand and "just in time" manufacturing. 

According to Braitberg, it's a natural tendency of companies to question risk management investment at times when risks have not resulted in crisis. Braitberg said it was "tough sledding" at times to justify the investment in risk management in the years before the Japan quake. Companies' willingness to bet on risk is sometimes suspect, Braitberg said, "because you don't see the payback unless there is an issue."

Ford said he doesn't believe the electronics industry can go three to five years between emergencies, be they natural disasters or other types, that will impact the supply chain. "I think there will be different types of challenges," Ford said. "The challenge will be for companies to have balanced responses [to disruptions] in place so that they don't overcorrect."

Renesas' trials and tribulations
Renesas Electronics Corp.'s trials and tribulations in the aftermath of the Japan quake have been well documented. In the immediate aftermath of the disaster, about half of Renesas' manufacturing capacity was off line. Renesas' Naka fab, one of its largest, remained offline for several months.

During last week's panel, Ali Sebt, president and CEO of Renesas' North American subsidiary, recounted the impact of the quake and some of the lessons Renesas took away from it, including reinforcing its fabs to withstand earthquakes of greater magnitude, establishing foundries as second source suppliers for most of its parts and greater emphasis on inventory management through conversations with customers about "where it makes sense to have inventory in the supply chain."

Sebt said the biggest eye opener for Renesas—and for many of its customers—was that the firm had literally hundreds of customers who had long ago outsourced so much of their manufacturing that they were completely in the dark when the earthquake hit and many production facilities went down.

"When the disaster occurred, they had no idea where parts were in the channel," Sebt said. "They had completely divorced themselves from that. And it was a very rude awakening for them."

Sebt said he is hopeful that one long-lasting impact of the disasters of 2011 will be that companies will have better knowledge of where parts are in the channel, even if they continue to outsource manufacturing to contract manufacturers and the like.

Ford said IHS found that one of the biggest issues in Japan in the aftermath of the quake was a complete lack of communication between customers and suppliers. A lot of customers, he said, had trouble finding out what was happening or when production would resume.

But as bad as the disasters in Japan and Thailand hit the global electronics supply chain, a Taiwanese earthquake of similar magnitude to that which struck Japan would likely have been much worse. Taiwan is home to the vast majority of the world's chip foundry manufacturing capacity. 

Panelists generally agreed that the electronics industry's concentration of manufacturing in Asia creates significant risks, though responses about what can be done about it were generally mixed.

"If there are no second source capabilities in other regions, you have to deal with that risk," Braitberg said.
Ford said the strong regional concentration of capabilities in certain regions—such as the concentration of hard disk drive manufacturing and components suppliers in Thailand—poses inherent dangers. "I think at this point, people really have to understand the concentration of their supply chain," Ford said.