Fire in Obscure Small German Company Threatens World Auto Production

There was a fire in a factory in the tiny German town of Marl, in a factory belonging to Evonik Industries, on 31 March 2012.

This is hardly earth shattering news – on the same day, there were probably fires in your own home town too, and countless others elsewhere in the world.

But, as uninteresting as this fire in a far away place may seem, today we live in a global village.  Nowhere is far from anywhere else in terms of trade and dependencies.

This was hinted at, in a less surprising and more intuitively obvious manner, when the Japanese earthquake and tsunami last year disrupted the production of various computer and home electronic items – it is rumored to have even delayed the release of the latest versions of Apple’s iPads and iPhones.

But we accepted that – after all, the tsunami impacted massively on much of Japan and elsewhere in the world as well, and the radiation clouds from the damaged reactors circled the globe.  It seemed appropriate that the outcomes of such a huge global event should in turn be massive and global in scale.

But now, back to the small factory in the town of Marl (population 90,000).  This one factory produces between a quarter and a half of the world’s supply of a chemical which is required in the manufacture of automotive brake and fuel systems.  Without it, cars and other vehicles can’t be completed.

How long will it take to get the damaged factory producing again?  At least three months and maybe longer.  So for three months or more, the world’s automakers, no matter whether they be in India or China, Europe, Mexico, or the US, will only be able to make half as many vehicles as they had planned on making.

This illustrates the lack of ‘fault-tolerance’ in our modern society.  So much of what we consume and rely on every day ends up having critical and non-redundant components.

On the face of it, the world’s auto manufacturing industry seems to be distributed and fault tolerant.  You could close down an entire country’s manufacturing plants and those in the rest of the world would have little trouble compensating for the loss of production elsewhere.  There are probably hundreds of different manufacturing locations, in tens of different countries, all around the world.

But when you drill down beneath the surface, you find surprising critical elements such as is now being exposed by the fire in the Evonik Industries facility in Marl, Germany.  One single supplier provides an essential ingredient for half of the entire world’s production of automobiles.

This is an outcome that few people would ever anticipate or expect.  But it is a situation that is increasingly possible – increasingly probable – to be repeated, in all sorts of other industries and finished goods.  Industrial consolidation and specialization has concentrated the manufacturing process into fewer and fewer companies and factories, and just-in-time deliveries and inventory have effectively zeroed out the former inventory buffer to compensate for occasional interruptions in supply.

Fortunately, a halving in the global production of automobiles for 3 – 6 months is unlikely to change the world as we know it, or to impact on our lives much at all.

But what about other things that are more essential to our lives?  For example, disruptions to our electricity grid that would require the replacement of major transformers – it takes three years from ordering a major transformer to it being delivered, and being as how the US no longer has any manufacturers of transformers in-country, we’re also reliant on another country and its companies choosing to do business with us – something that can’t be taken for granted in perpetuity.

This is why we prepare.  Because so much of what we take for granted are not things that truly should be taken for granted any more.  And, if a disruption does occur, the time it takes to restore things back to normal may be substantial, and potentially life threatening.

More information about the Marl fire and its impact on the auto industry here.