Thai Flooding, a Problem for 'Detroit of the Orient'

♠ Posted by Emmanuel in , at 10/20/2011 10:31:00 AM
You are likely familiar with the chronic flooding which has adversely affected many of our Thai friends since it's been in the headlines for weeks on end. With relatively little chance of subsiding soon, I'm afraid that this situation looks set to run for quite some time to come.

One of the industries affected by this chronic flooding has been auto manufacturing. With the Japanese still looking to broaden their operating base throughout the Asia-Pacific as a natural hedge against a mighty yen back home, Thailand has become something of a Southeast Asian hub for car assembly and the like. Hence some dubbing it the 'Detroit of the Orient.' However, the severity of Thai flooding at the current time may cause shortages in the tightly-integrated 'Factory Asia' concept of Japanese manufacturers who've grown accustomed to just-in-time and lean manufacturing procedures. While they do cut down on waste (muda) during normal times, these techniques may also make the supply chain less resilient during times of supply disruption alike the present. From the Asahi Shimbun:
The automobile manufacturing center in Thailand known as "Detroit of the Orient" halted operations on Oct. 20 due to the historic flooding there. Although Honda Motor Co. is the only automaker whose plant has been flooded, all other Japanese car makers were forced to stop operations because their supply chains have been severed.

Nissan Motor Co. decided to suspend production until Oct. 28 because it could not get parts delivered. It said 20 of its suppliers have been damaged by the flooding. The Thai plant's main product line is the compact March vehicle [Nissan Micra to the rest of the world]. Between 5,000 and 6,000 units are exported to Japan each month. Nissan officials insist that the suspension will not affect sales in Japan, but if the suspension of operations is prolonged Nissan's inventory in Japan will drop, and that could hurt sales down the road.

Mitsubishi Motors Corp. manufactures about 210,000 vehicles annually in Thailand. Production of sports utility vehicles and pickup trucks stopped from the evening of Oct. 13 due to a parts shortage. Production of sedans has been suspended since Oct. 20.
Knock-on effects are certainly being felt:
Honda's plant in Ayutthaya province is swamped with water, making entry to the facility impossible. A total of 1.64 million vehicles are manufactured annually in Thailand, with half being exported, mainly to Southeast Asia and the Middle East. The stoppage of production will hurt the profit plans of Japanese automakers...

As Thailand is a major supply base for auto parts to Southeast Asia, there is concern about how the flooding will affect those nations. Honda has reduced production at its Malaysia plant because the supply of parts from Thailand has been cut off. Production has stopped even in areas 100 kilometers from the area in Bangkok that has been flooded.
The thing about doing business in this part of the world--the Pacific Ring of Fire--is that natural incidents will always remain a background threat to business activity.