Natural Disasters and Their Effects on Supply Chains

Words: 1398
Topic: Business & Economics
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Introduction

Natural disasters like earthquakes and hurricanes experienced in China, Thailand, and Japan affected not only people’s lives but also world businesses. A supply chain is the circulatory system of any company (Canis, 2011). It links the manufacturing and distribution departments of an enterprise to the world. In this era of globalization, every company is striving to improve its supply chain to take advantage of the vast resources.

The supply chain facilitates establishing a global market niche and reduce production costs. In recent years most companies have found themselves in awful states after being hit by natural disasters. Many companies are affected by natural disasters because their supply chains are consolidated and streamlined. A slight disruption halts the entire supply chain (Canis, 2011).

Companies and industries should plan and think beyond profits and the daily problems that they encounter. Besides, they should strategize to reduce vulnerability to their supply chains. Companies should think beyond being efficient since efficiency increases vulnerability.

This paper will explore how natural disasters affect global supply chains. It will start by identifying emerging global supply chains and how they are prone to natural disasters (Wedawatta, Bingunath & Dilanthi, 2011). In addition, the paper will use the cases of Thailand and Japan to explain the impacts of natural disasters on supply chains.

The Supply Chain and Risks

No company or enterprise wants to be out of business. Globalization and the emergence of liberal groups have made most companies aim to extend their market share to foreign countries. Businesspersons believe that market diversification not only leads to increased profit but also cushions businesses against disasters.

Hence, companies have improved and streamlined their supply chains to make sure that goods are produced and supplied on time (Christopher, 2011). These high integration strategies have made global supply chains even more complicated due to the wider geographical coverage.

To achieve this, most entrepreneurs and companies have opted for offshore activities. Offshore activities refer to situations where businesses come up with other plants in foreign countries that produce and supply the same goods and services (Christopher, 2011).

Market diversification helps companies to have several branches in different markets to cater to their target markets. The benefit of market diversification is that it is cost-effective and has a larger production scale. A good example of a company that has utilized the diversification privileges is Toyota.

The company has its presence in over 40 countries. According to Hendricks and Vinod (2005), companies that utilize market diversification can extend their supply chains from one end of the globe to another.

There is no supply chain that is not prone to risks, no matter how efficient it might appear. Managing risks associated with natural disasters has now become a key subject of discussion for most corporations and industries.

Establishing a risk assessment committee has become rather expensive since natural disasters do not seem to occur daily (Jones, 2005). Therefore, it is hard for a company to protect its global supply chain from risks related to natural disasters. A business that serves customers in a wide geographical area subjects itself to interferences due to unanticipated natural disasters.

According to Jones (2005), emergency management specialists should encourage companies to use advanced supply chain modeling tools. “The modeling tools help to surmise financial impacts of natural disasters on global supply chains” (Jones, 2005, p. 14). In addition, they help to measure the impact that a product entering a new market has on a companies’ financial position.

Case study: Japan and Thailand

Japan and Thailand are among the countries that many businesses have rooted their supply chains. Additionally, the two countries have been most hit by natural disasters affecting numerous global businesses.

Japan does not only supply automotive spare parts to the majority of the motor companies but also manufactures chemicals and other products for the global market (Wedawatta et al., 2011). Japan was hit by what is globally known as the great east Japan earthquake in 2011. The earthquake had devastating effects on supply chains and the global economy.

On the other hand, Thailand is a key supplier of electronic gadgets and automotive spare parts to many countries. In 2011, Thailand was hit by torrents that devastated the country’s infrastructure. Due to this natural disaster, the country’s supply chain was majorly affected (Wedawatta et al., 2011). The floods led to many businesses coming to a standstill. The two cases are vital in showing how natural disasters impact supply chains worldwide.

The Great East Japan Earthquake

The March 2011 earthquake resulted in a tsunami. The tsunami leads to Japan losing over $200 billion. Manufacturing plants were destroyed, and nothing could be salvaged. The Fukushima nuclear plant melted down, leading to a power outage.

Consequently, it was hard for companies to control their production processes as well as supply chains. It was hard for companies to supply their products due to poor transport systems. Moreover, organizations with electronic supply systems could not track their products due to a lack of electric power.

Apart from affecting the manufacturing companies, the earthquake also affected other industries that rely on Japan for the supply of raw materials. Consumers of Japanese products in developing countries were not left out. It was hard for Japanese companies to supply their products to the global market.

The disaster affected not only the global economy but also the global labor sector (Wedawatta et al., 2011). The disaster led to companies incurring huge loses. Additionally, it helped companies to realize how vulnerable their supply chains were to natural calamities.

The Thailand Floods

Between the months of June and December 2011, major floods hit Thailand. The floods made it difficult for manufacturing companies to continue with their operations.

Thailand’s supply chains were affected. The floods destroyed transportation infrastructure, making it hard for companies to distribute their products. Moreover, manufacturing companies were unable to transport raw materials from the source to their plants (Wedawatta et al., 2011).

Recommendations

Natural disasters cause economic damage and affect not only the suppliers and manufacturers but also consumers. There are also indirect effects of natural disasters that influence supply chains. The government should play a significant role in ensuring that global supply chains are protected. Without supply chains, a country cannot attract investors.

The government should, therefore, help companies to build supply chain resilience through the enactment of policies for disaster management (Mason, 2006). In addition, the government should assist companies to come up with long-term solutions that can facilitate disaster recovery.

The government cannot help in disaster management without the help of private companies. Consequently, private companies should work in partnership with the government to formulate and implement disaster management strategies. Adverse weather conditions are forces of nature that cannot be controlled. Thus, companies should try to identify and address the gaps in their supply chains (Mason, 2006).

A country that has been hit by a tsunami or earthquake has higher chances of suffering from the same catastrophes in the future. Hence, companies operating in such countries should diversify their supply chains. In addition, companies can look for alternative sources of raw materials to cushion themselves from natural disasters (Kimura & Mitsuyo, 2005).

In addition, companies should look for alternative distribution channels. In other words, companies should strive to keep their supply chains active even it times of natural disasters (Kimura & Mitsuyo, 2005). Every company should have a balanced approach to supply chain management.

The creation of an updated disaster recovery plan will help companies to remain operative in case of natural calamities. The plan should include employee training to ensure that they can cope with disasters. Moreover, companies should come up with measures to protect their supply chains’ data. They can protect data by creating backups and other relevant documentation.

Conclusion

Companies should revisit their supply chain strategies and avoid using centralized systems. The majorities of the global companies’ supply chains are fragile and cannot withstand natural disasters. The disasters in Thailand and Japan should be good examples. Companies should learn lessons and prepare their supply chains for any eventualities.

In addition, they should think about the future of their businesses and come up with measures to mitigate the disruption of supply chains. As companies anticipate making the best out of the global market, they should invest in excellent strategies that will protect their supply chains. Having a consolidated production scale will not be a solution since natural disasters are unpredictable.

References

Canis, B. (2011). The motor vehicle supply chain: Effects of the Japanese earthquake and tsunami. Washington, DC: Congressional Research Service

Christopher, M. (2011). Logistics and Supply Chain Management. Harlow: Pearson Education Limited.

Hendricks, K., & Vinod, R. (2005). An empirical analysis of the effect of supply chain disruptions on long-run stock price performance and equity risk of the firm. Production and Operations Management, 11(1), 35-52.

Jones, P. (2005). Creating a disaster resilient America: Grand challenges in science and technology. Washington, DC: The National Academies Press.

Kimura, F., & Mitsuyo, A. (2005). Two-dimensional fragmentation in East Asia: Conceptual Framework and Empirics. International Review of Economics and Finance, 14(3), 317-348.

Mason, B. (2006). Community disaster resilience: A summary of the March 20, 2006 workshop of the disasters roundtable. Washington, DC: The National Academies Press.

Wedawatta, G., Bingunath, I., & Dilanthi, A. (2011). Building up resilience of the construction sector SMEs and their supply chains to extreme weather events. International Journal of Strategic Property Management, 14(4), 45-57.