Know your dependencies

How could a flood in Thailand stop car production in Japan and slow down laptop sales in America?

Well, a third of the world’s hard drives are made in the Bangkok area and some key auto parts suppliers are in the same area.

A flood hit Bangkok in 2011 and lasted for two months.

As a result, Toyota had to halt production in Japan (at a cost of $2.5bn) and Ford had to stop producing Fiestas.  Apple and Dell laptop production slowed to a very low level, and supplies to customers were rationed right through 2012.

None of those companies realised the criticality of these dependencies, nor, apparently, that Bangkok was an area prone to flooding, which it is, owing to its tropical savannah climate and big rivers.

Since then, Dell has set about performing business continuity assessments of all its suppliers and, as a consequence, started diversifying its sources of supply.

 

Source: “Mastering Catastrophic Risk” – Howard Kunreuther and Michael Useem

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