Another major disaster --the chemical explosion in the northeastern Chinese city of Tianjin, roughly 75 miles East of Beijing --has recently resulted in a significant loss of life. The blast occurred “[…] at a warehouse owned by Rui Hai International Logistics, a private company that was licensed to handle hazardous cargo,” according to the New York Times. First, firefighters responded to a fire but shortly after battling the blaze came two significant explosions 30 seconds apart, each with such force that they registered as magnitude 2.3 and 2.9 events, respectively, on earthquake seismic scales, according to the same NYT story.
Unfortunately, more than 100 people have been confirmed dead and many injured, a significant tragedy that may continue to mount. There is nothing comparable to the loss of life, but this disaster also caused significant, widespread industrial and business damage for a many-mile radius and with hazardous chemicals polluting the air and area, evacuations are occurring and it will take time to resume normal life and business. The primary industries affected by the disaster are iron ore transport service, some industrial lubricants, and vehicle plants.
For the semiconductor and electronics industry, there has yet to be any confirmed disruptions related to the disaster, sources inside the components industry confirmed Saturday. Given the continued evolution of the events and hazardous material releases, it is still early in assessing the extent of any additional disruptions. As PCWorld reported, the “[…] explosion occurred in the Binhai new district, an economic hub that’s also home to electronics manufacturing. Companies with facilities there include Samsung, Foxconn Technology Group and Lenovo.”
What this tragic event does impart to our industry is the ever-present need for disaster readiness and management. Supply chain strategies of course include risk mitigation, but ensuring that the disaster plans are updated , Approved Vendor Lists (AVL) for alternate vendors are current, that Vendor Managed Inventory (VMI) solutions are in place, and diversified sourcing strategies are regularly reviewed and able to meet operations and process demands in a moment’s notice.
Diverse sourcing is truly one of the best strategies to mitigate supply chain disruptions, as EPS recently discussed. There are many issues that quickly are raised when you delve into how to implement diversification strategies. At the end of the day, it is not as simple as much of the industry rhetoric would have one believe. One recent article by EPS’ Barbara Jorgensen underscores the recent evolutions in our industry and the changing lines.
As any disaster disruption, we are reminded that supply chains are vulnerable. There are serious implications in the semiconductor and electronics industry related to the still ongoing rounds of M&A and consolidation. The increasing loss of initial component (and compound material) suppliers along our industry (and supporting industry) supply chains has serious implications when disruptions occur. As a result, the recent, tragic and still unfolding events in Tianjin must remind us that in the quest for lean management and margin improvements, there needs to be greater securing of supplier diversification strategies. It is a good time now, particularly as the evacuation and containment plans continue to expand related to the hazardous chemical releases from the explosions, to revisit the risk-reward analyses of current lean, yet globally interdependent, supply chains where only a small handful of suppliers exist for critical components.
An additional note, we all recognize that even the most vociferous of those who demand only franchised solutions know that the industry has matured and that there are highly professional, reputable, and excellent independent distributors as well as increasingly agile franchised distributors; one needs to evaluate AVLs on case-by-case, vendor-by-vendor, component-by-component situations. Hence, this honest and serious evaluation process demands continuous updating to ensure that when disasters and disruptions do strike, as we know they will, “Plan B” can be quickly, seamlessly, and reliably implemented to preserve manufacturing, supply chain continuity, and logistics operations.