"As we emerge from the aftermath of the flooding, we are mindful of coming back with a more robust supply chain model that seeks to disperse in-house and supplier risks across geographies and factory locations. This dispersal of volumes across a wider geographical area will contribute to some structural and logistical cost increases which should be recovered from customers in order to maintain the continuing investment required in what is a high-technology and capital intensive business. An unanticipated benefit of our recovery activities is that we are taking advantage of the downtime to improve process efficiencies and cycle-times.
—
Western Digital Second Quarter Fiscal 2012 Conference Call
This should serve as a lesson to all those companies who keep thinking that operating margins can just expand infinitely as they move labor to lower and lower cost countries, and get to operate under less onerous regulation on foreign shores. This game can only go so far until you get to the point where your supply chain is so brittle that any shocks to the system completely disrupt it.
Having said that, kudos definitely need to go out to the Western Digital folks and their Thailand suppliers, as well as the Thailand government on how they’ve handled the floods. The news coming out of the affected companies (including Western Digital) seems to be overwhelmingly positive, and the recovery is proceeding quickly.
