APPLES I-PAD SUPPLY CHAIN AT RISK Could a typhoon or Tsunami in Manila affect what a teenager in Toronto finds under their Christmas tree?

A lot of high-tech gadgets are made in the Philippine Islands, including parts of Apple Computers I-Pad. Apple depends on that Philippine link in its supply chain: In the third quarter of 2020 (July through September), Apple sold almost 10 million I-Pads, an average of just over a 100,000 per day. In September, researcher Nathaniel Forbes reviewed the contingency planning at a Philippines factory Pod Parts LLC- that assembles 1.8-inch disk drives that go into I-Pads. Pod Parts LLC is located in Laguna Technopark (LTI) about 50 kilometers (30 miles) south of the capital city of Manila. Pod Parts ships 30,000 disk drives each day from this factory. It employs 6,000 people and runs 24 hours a day. To give you a sense of the human logistics involved, Pod Parts contracts a fleet of 80 buses to bring those employees to and from work (most employees dont own cars). In the review, it was discovered that Pod Parts has only one factory making I-Pad disk drives this one in the Philippines. If it were destroyed, it would take months, and several hundred million dollars, to build a new assembly line from scratch for 1.8-inch drives. Apple needs at least 50,000 drives a day to make I-Pads, assuming that flash memory I-Pads dont need disk drives. What would be the business impact on Apple, and on Pod Parts relationship with Apple, if Pod Parts couldnt deliver those drives? Could they still produce the final product for their customers? Sure they could the other supplier is in mainland China making 20,000/day. In fact, there are four other manufacturers in Laguna Technopark that supply Pod Parts with components for disk drives. For manufacturing efficiency, the proximity of these factories to one another is an obvious advantage. Their proximity is, however, a potential risk to the continuity of the supply chain. Its hard to imagine a natural catastrophe that would affect just one manufacturer in LTI; its likely theyd all be affected at the same time. Is a calamity likely? Pod Parts has a documented and tested emergency-response system, an active emergency team, and a visible and active security force. There is a municipal fire department in LTI. There are fire extinguishers all over the plant. Pod Parts is reasonably prepared for a fire or a plant-specific event. But what if a widespread national catastrophe occurred? Consider the following data:

1. The Taal volcano, 30 kilometers (18 miles) from Pod Parts, is one of 16 Decade Volcanoes identified as a serious potential hazard to population centers by the International Association of Volcanology and Chemistry of the Earths Interior. (Manila is the sixth largest city in the world with a population of 10 million people.) The Taal volcano recorded 29 volcanic earthquakes in one day in September 2006, according to the Philippine Institute of Volcanology. The Philippine Islands are in the Pacific Ring of Fire, which includes 75% of the worlds active volcanoes.

2. There were four earthquakes in the Philippines in one weekend in October 2006, one felt in Laguna that measured 4.7 on the Richter scale. The Philippines experience up to 10 earthquakes a day.

3. Tropical storms and typhoons are a regular occurrence in the Philippines. Just two weeks after Forbes visited, Typhoon Xangsane (means elephant) killed 80 people in Manila, left as many missing, and blew over so many gigantic billboards that the government is changing regulations to prohibit them. Typhoon Xangsane also went directly over Laguna. Another serious typhoon was also headed toward the Philippines in October. The area around Laguna Technopark is subject to regular flooding from storm water, blocking logistics in and out of the area. Pod Parts even sends people home early when a serious storm is forecast, because of the risk that the roads will be impassable. Pod Parts has about two days of finished product stored on-site, waiting for shipment. The drives are just too valuable to keep around in inventory. Construction of an alternative production line is excruciatingly expensive and would raise the cost of production, putting Pod Parts at a competitive disadvantage to its competitor. A disruption at Pod Parts could have a direct and serious impact on Apples ability to produce I-Pads; any effects would be felt within about 48 hours of its occurrence. If that interruption happened in October, it could drastically reduce the supply of I-Pads available at retail for Christmas. For your information, in late October 2006, LTI experienced the most destructive typhoon in the last decade.

What options may resolve the situation?