The year 2011 proved to be a watershed year for the hard disk drive storage industry with ripple effects across all of the IT industry.
As an industry we faced unprecedented, multiple natural disasters including an earthquake in Japan in March and flooding at production sites in Thailand in November, both impacting component suppliers and threatening the manufacturing of more than half the world’s disk drive supply.
It couldn’t have happened at a worse possible time. The hard disk drive business, a long-staid commoditized market segment, had been experiencing a renaissance in the midst of a swift run up resulting from cloud computing, social networks and mobile devices creating an avalanche of new content that requires higher capacity, better performing and more secure drives. Suddenly hard disk drive storage was strategic to the success of all IT market segments reliant upon it.
The disasters put a strain on all parts of the supply chain from our component suppliers with facilities under water or offline after the earthquake, to our employees in Japan and Thailand who were idled awaiting components, to our distribution and OEM partners who faced allocation constraints and a rise in pricing due to fewer drives and the absence of inventory buffers.
Never had the storage industry been so challenged. Relationships and partnerships across the supply chain were put to the test. How we chose to respond to the needs of our employees, suppliers and customers would impact market share as well as bottom lines, test production and operational assumptions, cement the strategic importance of storage in IT, and ultimately set new standards for risk mitigation and — most importantly — responsible corporate behavior.
Some of the lessons we’ve learned at HGST (formerly Hitachi Global Storage Technologies and now a wholly owned subsidiary of Western Digital) as a result of the disasters would be what you might expect.
It is important to respond quickly and generously to alleviate human suffering in the affected regions. It is important to also do the right thing by your employees by keeping them on payroll, even as they sit in idle production facilities awaiting components.
Business continuity and risk management dictate maintaining multiple souring for critical components and geographical diversity and redundancy for key production sites. Maintaining adequate inventory levels, while an expense, can make a big difference to customers and to you during periods of disruption. Our historic proclivity to build inventory buffers as a response to rapid change in market demand rather than follow a JIT model helped us recover faster from the earthquake and differentiated us in the eyes of customers in the aftermath of the flood.
Other lessons were less evident. Redundancy in suppliers is moot if everyone affected is in the same region. We learned staying the course with current suppliers and sharing the burden of the hit to their business while helping them rebuild is both less expensive and more expedient in the short term. It also establishes beneficial and lasting relationships.
Customers expect and deserve to be treated fairly. They want to receive consistent, transparent, and timely communications during periods of disruption. They will remember partners who outline a fair allocation process and who maintain reasonable pricing and agreement terms in the face of resulting shortages. They appreciate a willingness to be flexible, as well as individualized solutions to their business requirements.
Customers appreciated our approach. As a result of our response both to the crises and to them, we found a corresponding willingness among our customers to also adapt. They, like the component suppliers, shared in the burden the disasters had placed on the entire supply chain ecosystem. They assumed higher costs, signed multi-quarter agreements, pre-paid orders or paid orders faster – even took direct delivery benefiting cash flow and getting product to their customers faster. They also rewarded responsible suppliers with more business, lead supplier status and higher vendor ratings.
During this challenging period it was hard to see any positive effects. The storage industry is on its way to recovery. I can look back and see how this period improved our team’s ability to truly partner and assist our employees, suppliers and customers. We needed each other like never before.
Showing great determination and spirit, the Japanese and Thai people have worked hard to rebuild their lives and their countries. The component suppliers showed a resilience that was truly awe-inspiring, relocating their facilities to other areas and resuming production just weeks after the flood. This recovery of the storage industry is, indeed, a remarkable achievement given the multiple disasters and profound impact on hard drive production in the second half of last year.
Perhaps the biggest lesson to me has been the importance of acting responsibly and creatively with our employees, our component suppliers and our customers in the face of these disasters and industry disruption. Together, we were able to find creative ways to share the manufacturing burdens and defray costs, while we strove to alleviate the human suffering. It turns out that doing the right thing to help our people, our suppliers, our customers, and our industry recover in the end meant doing the right thing for our business and reputation as well.
Steve Milligan re-joined Western Digital Corporation as president in March 2012. Immediately prior to returning to WD, Milligan was president and chief executive officer of Hitachi Global Storage Technologies (HitachiGST). During his tenure, Milligan led Hitachi GST through a financial and operational turnaround culminating in WD’s acquisition of Hitachi GST in March 2012.