SME supply chains and Post-Flood recovery

When we have natural disasters such as the floods in Thailand that have been the worst in 69 years, the key to turning crisis into opportunity is the effectiveness of a company's logistics and supply chain management.

We saw examples of this in the retail sector, as big chains such as Big C, Tesco Lotus and 7-Eleven ran out of essential stock after the floods in Ayutthaya and Pathum Thani inundated factories and warehouses. 

This led to loss of stock, then panic buying, and for a few days many shelves lay empty.

The retailers have largely recovered since then, with most items back in stock after they quickly opened up new supply chains, including imports of water, noodles, canned fish, eggs and UHT milk from Malaysia. 

They also set up new warehouses and distribution centres that helped them to restock their shelves.

For manufacturers, unfortunately, it was not so easy to mend their broken supply chains. Many of the flooded factories were producers of electronic, automobile, computer and optics parts that were essential to the global supply chain. 

Manufacturers around the world were therefore forced to cut production, as were factories in unaffected parts of Thailand such as Rayong.

This disruption of supplies has led to much discussion about the current trend for supply chains to be both thin (with only small stockpiles) and global which means they are always vulnerable to natural disasters somewhere, such as occurred in Thailand and Japan this year.

Despite the disruption to supply chains and the losses suffered as a consequence, I see no likelihood of this model changing, as this is an efficient way to organise business. 

Manufacturers today don't like to hold large supplies of stock because the rapid pace of technological change means that parts will quickly become outdated. 

They also like to take advantage of the specialised, skillful and relatively cheap labour force in places such as Thailand, where they can also be close to major markets.

Major manufacturers have already given assurances that they don't wish to leave Thailand. As the automobile industry expert Michael Dunne explained to the Wall Street Journal, companies will want to stay in Thailand because of the "world-class work" that Thailand produces.

"The (Thai) workforce is skilled and still relatively cheap and it has close proximity to a Southeast Asian market hungry for cars," he said.

There is no question, then, that Thai industry will survive. But what does it need to do to thrive _ and be prepared for similar disasters in the future?

One lesson is the importance of not just having a business continuity plan but also conducting regular risk assessments that cover all possible scenarios from market risk to operational risk to economic risk. 

Producers should also consider how they can limit their exposure to a single geographic location. Additionally, the coming rebuilding effort will present an opportunity to review manufacturing processes, so as to maximise flexibility, speed of adaptation and resilience in the future.

Most of the damaged suppliers are specialised and highly skilled medium-sized businesses that have become an indispensable part of the global economy. 

This means the large international companies that rely on them will give them the support they need to recover quickly.

This disaster has demonstrated how successful Thailand producers have been in filling key global supply chain niches so I am confident that they will have the skill and imagination to turn this crisis into an opportunity.