THE MAGAZINE

Planning for Disaster

By Laura Spadanuta

Renesas Electronics Corporation, the world’s largest manufacturer of microcontrollers and one of the world’s largest manufacturers of semiconductor systems, was hit hard by last year’s earthquake in Japan. A number of the Renesas factories were badly damaged, including the company’s leading-edge factory in Naka, Japan. The company was able to have the factory back up and running in a few months, but Renesas is taking supply-chain and business-continuity lessons learned during the earthquake to heart.

Renesas is one of hundreds, if not thousands, of companies that have been affected by recent natural disasters. According to an international survey on supply-chain resilience by the Business Continuity Institute (BCI), 85 percent of respondent companies were affected by at least one supply-chain disruption last year, with 20 percent of companies affected by the earthquakes and tsunami in Japan and New Zealand. Denise Harrison, executive vice president and COO at Center for Simplified Planning, Inc., says that the recent flooding in Thailand may have affected even more types of companies than Japan’s disaster.

The price of a supply-chain disruption can be far more than just the actual cost of replacement of the lost inventory or capacity or loss of current sales. “Everything is about brand management in the modern world, and if you’re not managing your brand image, then you’re going to start losing not only short-term sales, which most large organizations can live with, but actually losing market position,” says Lyndon Bird, BCI’s technical development director. That’s much harder to recover from, he notes.

An oft-pointed-to case study that illustrates this point occurred in 2000 when lightning struck a Philips microchip plant in New Mexico. Mobile phone manufacturers Nokia and Ericsson were among the major customers for the chips. Nokia quickly switched to another supplier but Ericsson did not, leading to a major loss in market share from which the company never quite recovered before merging with Sony a year later.

Companies that want to avoid that fate must plan ahead. Among the issues they need to address are: which of their suppliers are critical, what risks are likely to affect those suppliers, and what countermeasures can mitigate the risks.

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