Spate of Disasters Exposes Supply Chain Weakness

When flood waters rose in Thailand, Wal-Mart stores in Japan ran out of mouthwash.

“We were out of mouthwash in Japan for about four days,” Scott Price, Wal-Mart’s Asia chief executive officer, said at the APEC business leaders’ summit. “A good portion of mouthwash is manufactured in Thailand for Asia.”

A string of natural disasters has exposed a vulnerability in global supply chains: How do you set up a network that is compact enough to be efficient but spread widely enough that no single unexpected event can knock it out?

Japan’s earthquake and tsunami in March caused auto parts shortages worldwide. Thailand’s recent flooding shut down some of the world’s largest hard drive makers, which could cut personal computer shipments by as much as 20 percent in the first quarter of 2012.

Earthquakes are occurring even in unexpected places such as Washington, D.C., and Oklahoma.

Business leaders at the Asia-Pacific Economic Cooperation meetings said the disasters forced them to rethink the wisdom of relying on a limited number of vendors or locations.

APEC members agreed this week to develop public-private partnerships by next year’s summit so they can respond more effectively when disasters strike.

In 2011, Asia-Pacific economic losses from natural disasters will exceed $200 billion, U.S. Secretary of State Hillary Clinton said.

“This is a problem for all of us, whether or not we have experienced a natural disaster firsthand,” she said at the APEC meetings earlier this week. “While we cannot stop all earthquakes or floods from occurring, we can become more resilient so that when they strike they cause less harm.”

For businesses, an efficient supply chain means goods move swiftly and cheaply but it can also mean empty shelves when catastrophe strikes.

Spreading out the chain may prove costlier initially but it serves as “a form of insurance” against disaster, said John Rice, vice chairman of General Electric.

(Reporting by Emily Kaiser; Editing by John O’Callaghan)