The Lessons of Thailand’s Flood
The hard drive industry shows that responding to disasters can be more important than preventing them
Tawan Suppapunt stands outside the wall of the main building at Western Digital’s Bang Pa-In factory, where he is managing director of hard disk drive operations, pointing to a blue line above his shoulder. The line marks the high-water point—1.8 meters from the ground—of the October 2011 flood that devastated this part of southern Thailand. Floodwaters inundated this plant, the surrounding roads, and many other factories in the region for more than a month. Outside the country, the severe shortage of hard drives caused prices to spike and put a big dent in the profit of global PC, chip, and memory companies.
In the past year, the industry has regrouped and rebuilt—faster and more successfully than analysts expected—and is now enjoying higher profit margins than before the flood. IEEE Spectrum visited Thailand in August to see how companies like Western Digital managed to rebound.
Thailand is a tropical country with annual monsoons, but nearly 2 meters of water was well beyond most factories’ flood prevention plans. When the rain started, Western Digital organized teams of factory workers to fill and stack sandbags around the perimeter of the plant. But it soon became clear that these would be no match for what has been described as a once-in-a-century event. “We were pumping water, and when the amount coming in was more than we could pump out, that’s when we knew we were doomed,” says Joe Bunya, a Western Digital senior vice president.
Thailand assembles about 40 percent of the world’s hard drives, and if you account for drive component manufacturing, it’s the global leader, according to Fang Zhang, a storage analyst at market research firm IHS iSuppli. Seagate was the first company to bring some of its hard drive manufacturing to the country, in 1983, and as it built up a local network of specialized part suppliers and workers, others soon followed. It’s now such an important industry to the country that multiple Thai universities offer curricula designed by hard drive manufacturers to replenish their engineering workforces.
This clustering of a highly specialized industry has become common in the global trend toward lean supply chains and just-in-time manufacturing. Companies can save costs by minimizing the components they store in inventory and minimizing their distance to suppliers. “We encouraged suppliers to be nearby so that cycle time was shorter and there was less inventory,” says Bunya. For example, Donaldson, a filter company, employs hundreds of workers at a nearby plant that produces only the tiny air filters that collect loose material inside drive enclosures. That facility, along with many others, also went underwater.
Losing so much of the hard drive supply chain meant the flooding had an international impact. “It was very painful during the flood because we actually hurt a lot of our customers,” says Bunya. PC makers didn’t have enough stockpiled drives to wait out the flood, so by early 2012, they had to start limiting shipments. Dynamic RAM manufacturers, which were already outpacing demand, were further hurt by the dip in PC sales.
Still, the industry managed to recover much faster than analysts predicted. Western Digital’s first hard drive rolled off the line just 46 days after the flood; it took another couple of months before the plant was back to normal capacity. The quick recovery didn’t come cheap: Western Digital puts the total cost “in the hundreds of millions of dollars.” But it seems to have paid off. By the time Suppapunt gave Spectrum a tour, thousands of young women were again loading and unloading hard drives into assemblers like clockwork every 11 seconds.
In interviews with more than a dozen manufacturers, it became clear that successful recovery required quick improvisation beyond the insufficient contingency plans most companies had on file. At contract manufacturer Benchmark Electronics, employees fabricated rafts from sheet metal they had on hand to float inventory out of the facility. Instead of waiting for water levels to recede, Western Digital brought in divers to retrieve submerged equipment. Each recovered machine was disassembled, decontaminated, and reassembled. Eventually, 80 percent of the damaged machinery was restored, estimates Sampan Silapanad, vice president of the plant’s magnetic-head operations.
Western Digital has taken basic steps to prevent future flood damage by building a 3-meter-high wall around the campus and moving all essential manufacturing equipment off the ground floor. But the company hasn’t made major changes to its larger manufacturing strategy. Despite diversifying some production—it recently started manufacturing at a facility in Penang, Malaysia—the company isn’t eager to give up the benefits of the Thailand cluster. “There’s no perfect location, no matter how you measure,” says Michael D. Bennett, a consultant at Jones Lang LaSalle, in Chicago, who helps companies select sites for new facilities. If lots of other factors are favorable—labor supply, tax policies, infrastructure, and so on—then “it’s a no-brainer” to spend money to protect the existing investment, Bennett says.
Western Digital and its largest rival, Seagate, were both fortunate that reduced production from the flooding had a silver lining. The recovery expenses have been partially offset by inflated hard drive prices, which “have not dropped to preflood levels since,” says Thomas M. Coughlin, a data storage consultant. According to IHS iSuppli, both companies have seen gross profit margins go from around 20 percent before the flood to around 30 percent.
Editor’s disclosure: Travel and accommodations were provided by the Thailand Board of Investment.