Rethinking resilience: How typhoon Yagi redefines supply chain strategies in northern Vietnam

Typhoon Yagi and its aftermath have provided valuable lessons in managing and mitigating the impacts of natural disasters on supply chains, particularly in a region as industrially significant as northern Vietnam, writes Julien Brun, managing partner of CEL, a leading consulting firm specializing in supply chain solutions.

Typhoon Yagi, a severe climate event, left a notable imprint on the global supply chain and logistics landscape. With 75% of businesses reporting disruptions, the event underscored the acute vulnerability of this sector to natural disasters.

This analysis delves into the specific impacts on various sectors, infrastructure damages, and the broader economic implications, providing strategic recommendations for future resilience.

Business impact and sector-specific effects

The typhoon's effect varied across different sectors, with the supply chain and logistics sector bearing the brunt.

Our survey on 216 businesses operating in Vietnam showed that 15.4% of businesses faced severe disruptions, 53.6% experienced manageable delays, and 24.6% reported minor impacts. Only a small fraction (6.2%) escaped unscathed.

The manufacturing sectors followed closely in terms of impact, highlighting the interconnectivity of global supply chains. Conversely, the retail and distribution sectors reported lesser impacts, attributed to proactive supply planning which mitigated the adverse effects.

Transportation emerged as the most affected area, with over half of the businesses across sectors like manufacturing, retail, and distribution feeling the pinch. Warehousing and inventory management were the second most impacted areas, revealing significant vulnerabilities in these foundational aspects of supply chain operations.

In the retail and distribution sector, a notable 28.6% of companies reported issues with supplier availability, exacerbating the challenges during the recovery phase.

The survey was done within seven days after super typhoon Yagi, from September 10-15. Of the 216 responses from surveyed companies, 38.7% are in the manufacturing sector, 26.9% in supply chain and logistics, 15.1% in retail and distribution, and the remaining in other sectors like services.

In northern Vietnam, where over 100 industrial parks host major FDI investors like Samsung and Goertek, the stakes were particularly high. These parks contribute significantly to Vietnam’s exports, primarily driven by FDI firms such as Samsung Electronics, LG Electronics and Fushan Technology.

The region’s strategic focus on high-tech manufacturing and electronics made it exceptionally vulnerable to the disruptions caused by Yagi.

Infrastructure and economic damage

Northern Vietnam, contributing 32% to the national GDP and ranking among the fastest-growing regions, faced unprecedented damage. Typhoon Yagi inflicted substantial infrastructure damage across the area, including flooding, roof damage, structural collapses, and widespread power outages.

These damages were not only costly to repair but also led to significant operational downtimes. Preliminary estimates suggest that the typhoon caused over VND50 trillion (approximately $2 billion) in damages, potentially reducing the annual GDP growth by about 0.15 percentage points from the projected 6.8-7%. Such economic impacts highlight the broader repercussions of such natural disasters on national and global scales.

Challenges in disaster preparedness and recovery

The recurring theme from the typhoon's aftermath is the challenge in disaster preparedness and the importance of robust recovery strategies. The unpredictability of such severe weather events makes it difficult for supply chain leaders to prepare adequately. Most damages were to facilities designed to withstand only known levels of disturbances, pointing to a significant gap in current architectural and regulatory standards.

Recovery efforts were often hampered by the lack of formalized business recovery plans. The common practice post-disaster involved moving goods from exposed to safer warehouses, covering sensitive equipment, and finding alternative logistic routes.

However, the effectiveness of these measures was limited by the absence of pre-planned, structured responses, leading to prolonged and chaotic recovery processes.

Recommendations for future resilience

Enhancing resilience within supply chains requires a multi-faceted approach:

● Infrastructure Upgrades: There is a critical need for better quality buildings that can withstand severe weather events. This involves architectural and regulatory shifts towards more robust construction standards.

● Decentralization: Adopting a more decentralized network can prevent complete operational failures when one facility is compromised. This strategy ensures that parts of the network can still function, albeit at reduced capacity.

● Formalized recovery planning: Implementing and training for business recovery plans should become a standard practice across all supply chain and logistics operations.

● Building alternative capacities: Developing alliances with companies in diverse locations can provide emergency support, maintaining operational continuity during disruptions.

According to Julien Brun, managing partner of CEL, the path to resilience is complex and requires a cultural shift towards long-term sustainability over immediate profitability. Resilience takes time and requires incremental learning for every event.

Typhoon Yagi and its aftermath have provided valuable lessons in managing and mitigating the impacts of natural disasters on supply chains, particularly in a region as industrially significant as northern Vietnam.

By adopting more rigorous preparedness and recovery frameworks, and investing in resilient infrastructure, the global supply chain and logistics sectors can enhance their capabilities to withstand future climatic challenges.

The ongoing development and implementation of these strategies are essential not only for the recovery from Yagi but also for the proactive management of future risks, safeguarding the economic vitality of vulnerable regions like northern Vietnam.