2016 Taiwan Earthquake: Assessing the Foreseeable Supply Chain Impact
On February 6, a 6.4 magnitude earthquake hit southern Taiwan at the start of Lunar New Year. With a death toll of 114, it is the deadliest earthquake to hit the island since of 1999.
Resilinc recently released a paper studying the potential supply-chain impacts of the quake.
Taiwan is the world’s leading producer of semiconductors and integrated circuits. “While initial reports of the quake emphasized minimal damage and interruption to the major chip foundries concentrated in southern Taiwan,” said the report, “there are less apparent global supply chain impacts that will likely be felt in the near future.”
Within 62 miles of the earthquake’s epicenter, is the Southern Taiwan Science Park, home to over 160 companies supplying electronics and components to companies around the world.
As an island nation, Taiwan relies on seaports to ship products and goods in and out of the region. There were no reports of disruptions at the Port of Kaohsiung, the 12th largest container port in the world, nor were there disruptions reported at the 20 airports in southern Taiwan.
Semiconductor fabs are delicate operations. Power outages can cause damage to wafers in the machine, and a shutdown of air purification processes can contaminate entire batches.
Short-staffing such as happened around the New Year can prolong the assessment of damages to wafers in production, the structural integrity of the production machines, and the recalibration of the plant. To To take one company as an example, the Taiwan Semiconductor Manufacturing Company Ltd. (TSMC) is the world’s largest contract semiconductor manufacturer, accounted for over $50 billion of Taiwan’s $70 million in Taiwan’s semiconductor volume in 2014 and 53.7 percent of the worldwide semiconductor market share. TSMC supplies chips to Apple and Qualcomm.
TSMC has stated that there was neither structural damage nor equipment movement at the company’s plants. It’s machines were up and running within two to three days of the earthquake. Still, the impact on available product for manufacturers is possible.
“It is reasonable to assume that TSMC’s largest clients, like Apple, will receive preferential allocations following the disruption,” said the Resilinc report. “Large companies have deep pockets and supplier leverage to weather supply continuity issues of this kind. However, smaller companies and sub-tier nodes reliant on TSMC’s production may then experience shipment delays, causing a bullwhip effect on other unsuspecting companies and brand owners.”
Resilinc advices downstream OEMs to “assume your competitors are calling suppliers, vying for available inventory and capacity. Determine which sites, products, parts, and materials are derived from
southern Taiwan and which may be impacted by the quake. Contact suppliers to discuss and agree on your replenishment program, and establish a collaborative planning process to counter the involved
supply chain risk. Take steps to proactively mitigate future vulnerabilities that will be exposed by