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Corp. as accounting for
about “two-thirds of the
total worldwide pure-play foundry market”
and pointed to Advanced
Semiconductor
“IF I WERE IN THE
SEMICONDUCTOR INDUSTRY,
Engineering Inc. as
the world’s largest
provider of contract
semiconductor assembly
and testing services.
I MIGHT FEEL A SENSE
OF URGENCY DUE TO THE
GEOGRAPHIC CONCENTRATION
OF SUPPLIERS IN TAIWAN.”
—Linda Conrad, director of strategic business
Jeff Beauman, a
vice president of all-risk underwriting
with FM Global, said
risk, global corporate division,
Zurich Financial Services
Taiwan’s science and industry
parks supply nearly one-third of
the world’s integrated circuitry
components to upstream
manufacturers. These components
are vital to the automobile, truck,
airplane, computer, heating and air
conditioning, health care and lab
equipment industries.
common, even though they are not
regularly covered by the Western
press,” FM Global’s Beauman said.
Should anything happen to
Taiwan’s science parks, lots of
industries would suffer.
In 2001, Typhoon Nari pounded
Taiwan with torrential rains. Typhoon
Elsie, in 1966, and typhoon Opal, in
1962, also caused great devastation
on the island. Since the middle of the
20th century, Beauman said, there
have been 11 years when as many
as three typhoons struck the island
in the same season, including 1961,
when four typhoons came through.
“It’s a real pinch point in the
electronics industry,” Beauman
said of the volume of contract
manufacturing done in the region.
Recent flooding in Thailand
and the devastation caused by the
earthquake and tsunami in Japan in
March of 2011 have given the world
a supply chain lesson it won’t soon
forget. Auto manufacturers and the
electronics industry found out the
hard way that a lack of transparency
into the second and third tiers of
supply chains could be very costly.
Beauman said it wouldn’t take
all three of Taiwan’s science parks
getting hit by a typhoon for there
to be substantial disruption in the
semiconductor industry. Should
even one of the parks suffer a hit, 5
percent to 15 percent of the world’s
supply of integrated circuits would be
interrupted for the time it would take
to get the manufacturing facilities
running again.
Recent economic factors may be
heightening this risk, Conrad said.
Because the semiconductor
industry in Taiwan is so concentrated,
with not just with top-tier chip
makers, but second and third-tier
suppliers all occupying the same
geographic area, a hit to Taiwan could
be one of the worst supply chain
breakdowns we have seen.
“If I were in the semiconductor
industry, I might feel a sense of
urgency due to the geographic
concentration of suppliers in
Taiwan,” said Linda Conrad,
director of strategic business risk,
global corporate division, for Zurich
Financial Services.
“Over the last few years,
companies have been taking steps to
take costs out of the supply chain,”
she said. In tight economic times, this
has meant going to limited inventory
or single source suppliers in cases
where suppliers are offering a deal.
However, steps taken to drive cost out
of the supply chain can often drive
risk in.
Many companies are still not
doing enough to secure the flexibility
and survival of their supply chains,
according to recent research.
Procurement officers frequently
get compensated on how much
money they save, she said, not by
how well they manage the risk of a
supply chain breakdown. Conrad said
risk managers should get the ear of
the CFO and push the company to
find alternate suppliers, even if that
second source is offering a part at a
much higher price.
The Caversham, England-based
Business Continuity Institute, for
example, found that only 8 percent
of companies surveyed ask their
suppliers if they have business
continuity plans. That same study
found that 40 percent of supply
chain disruptions are caused by
occurrences below the tier-one
suppliers.
Depending on a single-source
supplier on the island of Taiwan
in the area of advanced circuitry
could be a recipe for a supply chain
disaster, she said.
“This isn’t something where you
are going to find spare inventory the
next week and keep going,” she said.
In 2011, as many as 85 percent of
responders said they had experience
some kind of supply chain disruption,
the Institute found. In the case of
extended disruptions, 40 percent of
the businesses affected never recover,
Institute researchers also found.
DAN REYNOLDS is managing editor of
Risk & Insurance®. He can be reached at
dreynolds@lrp.com.
Summary
• Taiwan is home to as much
as one-third of the world’s
semiconductor manufacturing.
And it’s not like a typhoon of the
type that could do serious damage
to the semiconductor industry is
a rarity in Taiwan. “Typhoons in
this area of the world are very, very
• Events in Japan and Thailand have
given the business world supply
chain lessons it won’t soon forget.
