Contemporary Marketing 16th Edition by Louis Boone,David Kurtz

Exercise 24

Aside from tragic human losses and incalculable damage to property, manufacturers around the world were affected by two recent, unprecedented natural disasters. First came the magnitude 9.0 earthquake and tsunami that hit Japan, followed by deadly flooding in Thailand in the same year. While damage to Japan's automotive parts makers and Thailand's disk drive industry immediately affected customers like Honda and Apple, manufacturers as far away as Ohio and Denmark, making products from shoes to aircraft tires, also were hampered by supply chain disruptions.
Danish shoe manufacturer ECCO used scuba divers to retrieve specialized shoe molds from a flooded Thai factory to continue producing at other locations. Honda employees in Ohio grappled with temporarily reduced hours while awaiting parts from Thailand. Some key Honda suppliers in Japan had still not resumed shipments of components unobtainable anywhere else. Nissan, meanwhile, sent car parts normally intended for U.S. plants to Asia in order to continue production. Apple and Hewlett Packard predicted reduced future earnings, based on supply disruptions after hard-drive manufacturer Seagate suffered damage to its two Thai factories. And without hard drives, computer manufacturers had less need of computer chips, so Intel also predicted lower revenues.
In Japan alone the economic costs of the earthquake and tsunami were running at $210 billion before the year was over, and losses in Thailand reached an estimated $30 billion only weeks after the floods receded.
The two disasters' lingering (and sometimes cascading) effects led some companies to reconsider their reliance on lean, decentralized manufacturing methods, including just-in-time, all of which increase efficiency and reduce costs but may leave companies vulnerable to supply chain disruptions. Natural disasters are unavoidable, and even early warning offers limited advantages.
With the likelihood of more extreme weather to come, some companies have pulled back from lean methods and invested once again in redundancy-multiple suppliers, backup facilities, and stockpiles of critical parts. After all, in an insurance company's survey completed before the earthquake in Japan, 600 CFOs were asked what threat to their revenue drivers they most feared. The most common answer: supply chain disruptions.
QUESTIONS FOR CRITICAL THINKING
1. Do you think companies are wise to favor backup systems over lean manufacturing? Why or why not?
2. In what other ways could companies safeguard their supply chains, including transportation methods, against natural disasters?