Supply Chain Matters provides our fourth update concerning the series of strong earthquakes that impacted the Emilia Romagna region of Northern Italy in late May. Sadly, twenty-three persons lost their lives and an estimated €4 billion euros in damage was incurred by a series of severe earthquakes.

In our previous update penned in early June, we highlighted that the impacted region included a biomedical production supplies district in Medolla and in nearby Mirandola where 90 factories that produce disposable medical items along with equipment for transfusions and dialysis. Reports indicated that the majority of these facilities suffered some form of damage.

Published reports in both the Financial Times and London Telegraph indicate that Baxter Healthcare has warned hospitals and healthcare providers that potential supply disruptions stemming from the earthquake will limit some supplies of the sterile plastic tubes utilized in that company’s intensive dialysis treatment machines. The shortage will affect hospitals worldwide that use Baxter specific dialysis machines, as they can only accommodate Baxter designed tubing. While Baxter is warning healthcare providers of a potential supply disruption in early October, as opposed to declaring a total supply disruption presently, hospitals in the UK and elsewhere are increasingly concerned about reliable ongoing supply. Hospitals within the National Health System in Great Britain are beginning to feel the effects of this shortage. According to these reports, Baxter is rationing supplies to prevent panic buying. Shortage fears have prompted some UK hospitals to raise the threshold at which patients are provided certain dialysis treatments. Some hospitals have discovered that existing inventories will only last a week.  The looming shortage has created particular alarm in London where some hospitals are dealing with increased healthcare service needs as a result of the currently underway 2012 Olympics. For its part, the NHS will attempt to manage through this situation by re-allocating existing inventory within its healthcare network.

In the discrete manufacturing sector, UK based Titan Europe, a provider of wheels and undercarriages for mining, construction and agricultural vehicles has recently warned that it could not rule out a short-term volume loss from its Finale Emilia business which was impacted by the earthquakes.

The impacted area is also a prime agricultural and production area for premium cheeses including our favorite Parmigiano-Reggiano and Grana-Padano varieties. Initial reports indicated that as much as a million wheels of both varieties were reported damaged with revised damage estimated to be upwards of $150 million euros. The current Eurozone financial crisis has special meaning for agricultural interests in this region since cheese that is aged has to be financed, and that is becoming more expensive for producers as the Italian banking sector deals with higher borrowing costs. Higher costs for premium cheeses from this region will eventually make their way into global markets.

In the category of opportunity taken from supply chain disruption, NBC News Europe featured a news story of The Brazzale family, a family firm of seven generations and some 200 years that is the top producer of butter in Italy and among the biggest producers of Grana Padano cheese. In 2000, Brazzale elected to invest in a cheese production facility located in the Czech Republic. This dairy located in Litovel in the traditional farming region of Moravia was chosen because of the quality of its cattle and cheese products. The cheese in this region is made using identical methods within Italy and aged for 9-24 months. Brazzale exports up to 70 percent of its Czech Republic output and has the potential to make Gran Moravia an alternative for food producers and consumers of premium hard grainy cheeses.

Our coverage of major supply chain disruption incidents consistently indicates that the real effect of the disruptions comes several weeks and months after the initial incident, as various industry supply chains wait for the effects.  A proactive supply chain mitigation and subsequent response plan helps to buffer the direct impacts to the business. In the case of the Northern Italy incident, the effects to industry supply chains are ongoing and could well continue to present implications in the coming weeks and months.

We encourage our readers to let us know about what impacts your business is encountering a result of the implications of this incident.

Bob Ferrari