OM in the News: Human Rights Abuse Investigated by Nestle

Most of Thailand's seafood workers are migrants brought in illegally by traffickers
Most of Thailand’s seafood workers are migrants brought in illegally by traffickers

The seafood industry in Thailand suffers from widespread labor and human rights abuses, exposing virtually all American and European companies that buy seafood from there to the “endemic risk” of having these problems as part of their supply chain, according to a report just released by the food giant Nestlé. The report cataloged deceptive recruitment practices, hazardous working conditions and violence on fishing boats and in processing factories. It also faulted the industry for taking insufficient steps to ensure that workers were not underage. (Nestle had been sued in August, with the claim that its Fancy Feast cat food was the product of forced labor, reports The New York Times–Nov. 24, 2015).

Most of Thailand’s seafood workers are migrants from neighboring Cambodia or Myanmar; they were provided fake documents and often sold to boat captains. On fishing boats, these workers routinely faced limited access to medical care for injuries or infection; worked 16-hour days, 7 days a week; endured chronic sleep deprivation; and suffered from an insufficient supply of water for drinking, showering or cooking. “Sometimes, the net is too heavy, and workers get pulled into the water and just disappear,” one Burmese worker said. “When someone dies, he gets thrown into the water.”

Workers sometimes went a year before receiving any wages, and some faced physical and verbal abuse if they did not meet production quotas. Nestlé said that next year it would announce new requirements for all potential suppliers as well as the details of a plan for hiring auditors to check for compliance with new rules. Because Nestlé is the world’s biggest food company, it is seen as a leader in the industry, and could have a positive impact on the whole industry by raising the bar on labor protection.

Classroom discussion questions:

  1. Why did Nestle issue this report?
  2. What can be done to stop worker abuse?

OM in the News: A Sea of Disk Drive Shortages

It was just a few days ago in Boston, at the DSI conference, that Jay and I were discussing supply chain disruptions with three York College colleagues–Professors Sumutka, Lam, and Palmer. We all agreed that manufacturers need to protect their supply chains from the mega-disasters we have witnessed recently.  As if to confirm, the latest Businessweek (Nov.28, 2011) featured an article called “After the Floods, A Sea of Disk Drive Shortages”, which discussed the impact of 6 weeks of flooding on the disk drive industry in Thailand.

Compared to the scores of disk drive companies whose factories there have been swamped, Seagate Technology is lucky. Its Thai factories fell outside the flood zone and are high and dry. Unfortunately, each of the 100,000’s of drives Seagate  ships every day contain parts from 130 suppliers, many of whom are still under 3 feet of water. Seagate’s CEO says that pre-flood production levels (which supplied 40% of the world’s drives) will not be reached for at least a year. The impact: anyone who needs a hard drive–from laptop and DVR makers to data centers that host websites–will feel the pinch of 20-40% price hikes and shortages. Some Seagate customers have offered $250 million up front, hoping to lock in capacity.

Disk drives, by the way, are incredibly complex, despite their cheapness. Inside each one, a suspension arm hovers above a disk spinning 7,200 revolutions per minute. Each drive has 200 parts, most of them designed for specific models.

Seagate competitor Nidec has decided not to wait for water to subside at its seven flooded Thai factories. Nidec cut a hole in the roof of one plant, sent divers into toxic waters to unbolt heavy equipment, lifted it unto boats, and then shipped it to their plants in China and the Philippines. Seagate thinks it will take a year to replace gear at suppliers and wants many to relocate to higher ground.

Discussion questions:

1. Can Seagate benefit from the flooding?

2. What is the solution to this supply chain dilemma?

OM in the News: “Thin Supply Chains” and Thai Flooding

Workers at Japanese hard-drive maker Nidec Corp.’s plant in Thailand have a remedy for the flooding that has shut 1,000’s of factories there. They use narrow wooden boats to ferry boxes of delicate motors across a flooded plain to a truck that will haul them to Bangkok. But The Wall Street Journal (Nov.3, 2011) asks: “Are the companies to blame for some of the economic costs of the disaster”? Some experts say, yes, that flooding in Thailand should serve as a warning to companies world-wide: thin supply chains for critical components are vulnerable to disasters.

“Companies  never see the big picture, and see where the potential problems in their supply chains might be; and this is especially true as these supply chains become more geographically dispersed”, says a McKinsey & Co. partner. Thailand’s flooding (as did Japan’s earthquake) has ricocheted around the world in ways few businesses expected. For example, about 1/4 of the world’s hard-drive output is under water. And Honda’s main Thai plant is semi-submerged, choking off the supply of key components to factories around the world. (The Honda factory in Brazil is cutting production by 1/3). In all, 7 of Thailand’s industrial parks are flooded.

Supply chain experts say much of the disaster “could have been averted if companies themselves hadn’t been so focused on saving money by using lean supply chains”. In a country prone to major flooding,  insurers may now be reluctant to offer coverage, forcing manufacturers to move out. Nidec has already announced plans to transfer some output to the Philippines and China, even as its workers in Thailand paddle out to salvage what they can from the plant.

Discussion questions:

1. Discuss the danger in “thin” (lean) supply chains.

2. What is the solution for the OM manager?