For risk management professionals like us who look at supply chain mapping data for a living, the chart presents a very scary picture
Milpitas, CA (PRWEB) October 10, 2017
A North Korea military conflict that brought violence to South Korea, even using traditional weaponry, would not only bring global supply chains to a grinding halt, but the time to recover back to current levels could take several years. This prediction is based on an analysis of several tiers of the global high-tech electronics industry supply chain.
Resilinc is the global supply chain mapping intelligence organization with a key focus on the High Tech, Automotive, Life Sciences, Pharmaceutical and Medical Devices industries. The company has amassed vast amounts of supply chain mapping intelligence since 2010, having mapped global supplier locations for over 40,000 suppliers and tracked over 2,000,000 parts across 90,000 factories in more than 130 countries. Most importantly, the data is collected from the companies in the supply chain directly, as they report the sites they use to manufacture, store or distribute their raw materials and parts.
South Korea: The Electronics Supply Chain Hotspot
Over 200 suppliers have reported sites they are dependent on within range of artillery in the area of the North Korean Kaesong base, and over 1300 suppliers have reported dependence on sites within the high-risk zone of a coordinated attack. Further, an analysis of over 1500 High Tech electronics products, their bills of material and parts mapping data shows that almost every product depends on at least one South Korean site, in the direct tier 1 supplier base or indirect tier 2 supplier base. Resilinc highlights multiple failure points in the Seoul and Incheon areas that are vital to the electronics manufacturing.
Our phones, tablets, cars, medical devices, coffee machines, appliances, machines, trains, airplanes, ATMs, ticket machines… every product today has electronics in it. Even shoes have chips that sync with the phone and record footsteps.
Understanding Semiconductor Manufacturing
Each of these products have semiconductor devices or integrated circuit (IC) chips. These chips follow Moore’s Law. Intel’s Gordon Moore predicted in 1965 that the number of transistors per square inch on integrated circuits would double approximately every 18 months. This law has held true until about the last 5 years, but continues to have tremendous implications for supply chains, and is one reason for the massive capacity constraints Resilinc predicts will be experienced in even a small incident in this area of the world. IC manufacturing is a highly precise and complex process, which begins in a highly controlled, vibration and climate sensitive, clean room environment called a wafer fab. Here, hundreds of ICs are made on a thin slice of silicon and then cut into chips. These chips are then shipped to an assembly and test facility where they are packaged into the black box with pins sticking out we are familiar with.
Because of Moore’s Law, about every two years, new lines with smaller manufacturing footprints are brought online, and made to scale to produce tens of millions of ICs. Given the complexity of the process, bringing a fab online is billions of dollars in investment and can take several years. And, because of this ubiquitous consumption of electronics components in our products today, each fab today runs at 95% plus capacity. Therefore, one fabrication facility’s capacity being taken off of the market could result in massive impacts on capacity, supply and pricing. This is particularly so given that almost 40% of worldwide wafer capacity is located in South Korea and Japan, the countries most threatened by North Korea.
“For risk management professionals like us who look at supply chain mapping data for a living, the chart presents a very scary picture. And even then, it shows only a partial picture of the supply chain. Because by looking at it, we may think that in a Japan and/or South Korea conflict scenario, 37% of the wafer fab capacity could be impacted,” said Bindiya Vakil, CEO. “What people don’t always realize is that the Taiwan wafer capacity could effectively go down. This is because Resilinc’s part site mapping data shows that almost 75% of parts that are wafer fabricated in Taiwan, are shipped to South Korea’s assembly test sites for packaging. This means that almost 50% of IC capacity could be at risk if wafers produced in Taiwan could not be processed.”
Resilinc shared two charts which showed data collected directly from operators of wafer fabrication facilities in South Korea and Japan. Wafer fabrication manufacturers estimate times to bring production back up to pre-production volumes to be over 9 months. The names of the suppliers on the X-axis were masked to preserve confidentiality. The data shows that many of the suppliers estimate that it could take them as long as 1 year to resume pre-disruption run rate. In addition, the duration to catch up to unfulfilled demand and get the supply chain back on track could be at least another year, as suppliers would have to allocate supplies to the most critical parts and products only.
“How many companies today can afford to survive if the supply of parts used to manufacture their products were to dry out for almost a year?” said Joe Carson, Chief Strategy Officer at Resilinc. “Many smaller companies could go into severe financial distress if even a full quarter of revenues were to be wiped out, let alone 2-3 quarters. There isn’t enough inventory that any one company could hope to buy to cover every single part that needs to be purchased.”
Learn More about North Korea Conflict Supply Chain Impact
The web seminar examined the various scenarios associated with the geopolitical dynamics of North Korea and the possible outcomes from the current war of words with the US administration. The company developed the scenarios in collaboration with renowned geopolitical expert, Robert Kyle, Partner at Hogan Lovells who held senior positions in the White House and Congress and sat in Security Briefings for critical issues.
In order to learn more about the various scenarios, and the supply chain impact of each, as well as to understand the interdependencies of these scenarios and their outcomes please watch the detailed webinar. Visit http://www.resilinc.com.
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