Global warming ‘hots’ up
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As the monsoon season approaches Thailand, farmers are not alone in watching the rolling clouds, but also factory owners and workers.
Unlike the farmers who hope for the rains to flood seedling plots, workers worry that devastating floods might follow and drown factories. The floods of 2011 inundated 250 factories, putting 200,000 people out of work and disrupting global supply chains of electronics and auto parts. As the Thai government readies plans to fight floods, foreign manufacturers aren’t taking chances, reorganising supply-chain networks and looking for alternative sites for production.
In retrospect, 26 of the 90 provinces in Thailand were seriously affected by a sheer amount of floodwaters. Many automotive-assembly plants and parts-maker factories for Honda, Toyota, Isuzu, Nissan and Ford, situated in and around Ayutthaya and Pathum Thani provinces, suffered greatly from the destructive floods, with severe effects on the world’s automotive markets. Automotive production in Thailand has certainly been affected in the near term due to the shortage of auto parts as a result of the floods, with no apparent medium- or long-term effect on the country as an automotive production hub in the region.
Almost 10 per cent of total auto parts for local production come from the country’s flood-affected regions. Toyota, Auto Alliance Thailand, Mitsubishi Motors, Nissan all depend on auto-part makers in this particular region. Frost & Sullivan, ID, reports that some of the factors likely to be considered by original equipment manufacturers in the future include increasing the stockpile in terms of auto parts and revisiting the process of just-in time production.
A new production model would entail exploring a multi-sourcing strategy that involves not only sourcing parts from different suppliers but from different regions as well – a climatic de-risking of the supply chain with original-equipment manufacturers investing in geographic locations least impacted due to natural disasters.
Manufacturers could be losing confidence in Thailand or any other locale struggling to cope with the challenges of climate change.
As analysts have anticipated, reduced supply coupled with high capital expenditures, as a result of the floods, has meant that hard-drive prices have gone up, already engendering ripple effects across the industry. Computer makers were supply-constrained and could not make as many systems as they thought they could sell. Thus, they had no choice but to raise prices on the computers they could make to meet revenue goals.
Although the floodwaters have receded, it does not mean that hard-drive makers and component manufacturers could just walk back into their fabrication plants, flip a switch and get back to work. Some facilities remained offline as companies repaired and replaced expensive manufacturing and process equipment. The concerns among foreign investors are not only on nature’s damaging floods, but also the “political floods,” with various actors in Thai politics exploiting the disaster to undermine opponents, thus delaying necessary cooperation and the speediest solution to the problem.
