Here at Supply Chain Matters, we often highlight for our readers’ important areas of industry supply chain risks. That is why recent published reports by Bloomberg Businessweek and by Reuters specifically regarding South Korea caught our attention. Our readers have most likely been reading and hearing of growing tensions between the United States and North Korea over the latter country’s continued development of a missile system.

The Bloomberg Businessweek report, A Korean War Could Cut Pipeline of Vital Technologies to the World (Paid subscription required) indicates that: “If South Korea were to be hit by a missile, all high-tech electronics production will stop.” Noted is that the globe’s premier manufacturing center for advanced organic light-emitting diode (OLED) panels, the LG Display Co. facility in Paju, is in just a 15-minute drive from the Demilitarized Zone that separates North and South Korea, and within easy range of North Korea’s artillery capability. Further reported by Bloomberg is that about 12 percent of Apple’s existing suppliers are from South Korea, with LG Display being one of its largest suppliers. Once more, South Korea’s semiconductor manufacturers, including SK Hynix and Samsung Electronics reportedly supply tw0-thirds of the world’s electronic memory chips. A manufacturing supply disruption here would impact not only high-tech and consumer electronics, but various other equipment sectors as-well.

Reuters concurs that any interruptions could significantly disrupt global manufacturing of smartphones, televisions, computers, and tablets, but further notes that investors continue to pour money into South Korea’s equity markets, despite such risks.

Risks among other industry supply chain sectors are also noted.

Two of South Korea’s most prominent drug makers, Samsung BioLogics and Celltron have facilities located in a special economic zone located about 25 miles from the DMZ.

South Korea also hosts three of the globe’s largest shipbuilding firms, Daewoo Shipbuilding & Marine Engineering, Hyundai Heavy Industries, and Samsung Heavy Industries, and according to the report, two could be likely targets because they produce war ships.

The Bloomberg report raises concerns for South Korea’s logistics and transportation facilities being disrupted, which potentially could impact multinational manufacturers such as Hyundai and Kia Motor.

While businesses in this region have continually be sensitized to business risks because of their specific proximity to North Korea, most firms have forms of supply chain or other risk mitigation plans.  However, as noted from industry experts interviewed by Bloomberg, tensions this time seem far higher, along with the overall scope.

The takeaway from both reports are that a war with North Korea could indeed paralyze the global electronics industry and disrupt vital trade routes in the Pacific. While tensions in the area are not a new phenomenon, and have been accepted for many years, the unanswered question remains if the building escalations are now different, with added concerns.

Supply Chain Matters would additionally add that certain leading-edge high-tech producers have their supply chain risk mitigation teams sensitized to conducting various risk contingency scenario analysis and contingency planning. That would include augmenting some safety stock levels for certain top-line revenue components as well as back-up sourcing scenarios of alternative suppliers of DRAM and other electronics components. In the case of OLED displays, such back-up plans may have limitations due to an inherent shortage of the technology.

Yet other stark reminders of global supply chain risk.

Bob Ferrari

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