Smith & Associates: Thailand Floods Underline Global Supply-Chain Threats

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Risk Management Essentials for Today's Disaster Strategies

Beyond risk management and disruption mitigation, today's tough marketplace means that even normal supply-chain challenges require sophisticated solutions.

The flooding in Thailand continues to worsen. After months of heavy monsoon rains that have yet to ease, approximately one-third of the country is under water, making this the country's worst flood in more than 50 years. For companies that haven’t yet realized the importance of multi-level risk management, agile value chain partners and diversified risk strategies, Thailand's flooding situation serves as a bleak reminder that such threats can quickly and significantly impact the global supply chain, according to Smith & Associates, a leader in the independent distribution of semiconductors and electronic components.

The Fallout From the Flood
A human toll of more than 340 deaths, more than 2 million displaced people(1), and concerns over impending food shortages are set to push Thailand's GDP down. Exports are likely to fall by 40 percent(2) as thousands of businesses are shuttered, without power and flooded. The Bank of Thailand(3) continues to update damage costs ranging well into the billions of dollars and a reduction in the country's GDP to the 3 percent range.

Coming only seven months after the devastation to strike Japan, Thailand's situation once again highlights the fragility of business supply chains. Major semiconductor manufacturers are still unable to gain entry to evacuated high-tech industrial parks that are inundated with roughly 3 meters (more than 10 feet) of water. These manufacturers are facing devastating situations, and the semiconductor and electronics industry will see reduced volume as a result. The most severely affected companies include ON Semiconductor, Western Digital(4), Hutchinson Technology, Seagate Technology, Toshiba and Microsemi, among others(5). ON Semiconductor(6) recently announced that it will have to shutter Thai facilities for months, leading to a three to four-quarter reduction not only in volume production but also in profits; ON Semi expects to lose US$40-60 million per quarter as a result of these temporary closures(7).

Single-Node Supply Chains are No Longer Viable
Risk management is not news to any industry, especially one as heavily reliant on just-in-time supply chains as the semiconductor and electronics industry. Yet the demands of risk management are changing. Lean management, demand-soft economic conditions and high manufacturing costs are limiting the amount of inventory available at any given time. And as many have been reminded, single-node supply chains with limited partners in agglomerated areas are no longer viable.

Supply-chain issues faced during disasters put companies in a catch-22 situation. On the one hand, localization and cost efficiencies, both in terms of logistics and economies of scale, have furthered agglomeration. But when a disaster stalls the entire supply chain, those cost savings can be completely eliminated within a quarter or less. As a result, agility and diversification have become increasingly important risk-management considerations.

The Importance of a Dedicated Partner
The semiconductor and electronics supply chains have tightened, rather than grown, as the industry has matured. Costs, localization and recent demand-soft conditions due to macro-economic uncertainties have made chains increasingly fragile. As they have matured, these industries have increasingly recognized and accepted the importance of having dedicated, secured value-chain partners already on board.

"Beyond risk management and disruption mitigation, today's tough marketplace means that even normal supply-chain challenges require sophisticated solutions," said Marc Barnhill, Chief Trading Officer at Smith & Associates, a trusted partner to many leading electronics manufacturers. "Electronics manufacturers need diversified supply chains that are well-tested and provide complete visibility along partners. Only then can manufacturers have the right solution and components, delivered anywhere on a just-in-time basis. With our deep experience and intimate industry knowledge, Smith can respond immediately to companies' short- and long-term needs, around the world and across product lines. Our many partners affected by the terrible situation in Thailand today know they can rely on our impeccable quality standards to keep their supply chains agile enough to withstand the disaster."

A Disaster Strategy Includes Partners
Now more than ever, as the impacts of natural disasters intensify companies' already-delicate chains, having certified and well-trusted partners in place is more than just good risk management. It is an essential part of everyday business strategies. With a comprehensive understanding of the semiconductor markets, logistics and component inventory, Smith & Associates provides the customized solutions that companies need to meet the challenge of today’s risk-management environment.

About Smith & Associates
Founded in Houston in 1984, Smith & Associates is a leader in the independent distribution of semiconductors and electronic components to electronics and high-tech manufacturers. Smith offers shortage sourcing for commodity and obsolete parts, innovative purchasing and inventory management solutions, redistribution of excess inventory, and component stocking for warranty and repair programs.
A privately held company, Smith & Associates employs more than 300 people worldwide, with annual revenue in excess of US$400 million. Smith's regional hubs in Houston, Hong Kong and Amsterdam are ISO certified and IDEA compliant. In addition, sales and purchasing offices are located in Silicon Valley, Barcelona, Guadalajara, New York, Shanghai, Shenzhen, Seoul, Singapore, Taipei, and Denver. For more information or to reach a Smith representative 24 hours a day, please call: 1.800.HOUSTON or +1 713.430.3000

(1)Bangkok Post, "Flood Death Toll Rises to 342," Oct. 21, 2011.
(2)Bangkok Post, "Post-Flood Export Recovery Plans," Oct. 19, 2011.
(3)Bloomberg Businessweek, "Thai GDP May Shrink This Quarter, Prasarn Says After Rate Pause," Oct. 20, 2011.
(4)Western Digital Press Release, "WD Provides Update on Effect of Thailand Floods: Primary Manufacturing Site Flooded, Second Site at Risk; Significant Impact on December Quarter," Oct 17, 2011.
(5)Smith MarketWatch Commentary, "UPDATE2 Thailand Flood Extends Reach: Assessments begin, disruptions certain," Oct. 19, 2011.
(6)ON Semiconductor Press Release, "ON Semiconductor Updates Impact of Thailand Flood," Oct. 19, 2011.
(7)Wall Street Journal, "Thai Floods Shut Down Chip Plant," Oct. 19, 2011.


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