make or break a companys existence. One of the most famous (or rather infamous) cases is the fire at the Philips microchip plant in Albuquerque, New Mexico, in 2000, which simultaneously affected both Nokia and Ericsson. However, both companies took a very different approach toward the incident, and in hindsight, clearly displayed how to and how not to handle supply chain disruptions.
Ericssons downfall
I havent been able to find much research literature on Nokias supply chain risk management, maybe because it went so well for Nokia. Ericsson, on the other hand, is another story. The incident turned disaster cost the Swedish company $400 million in lost sales, and it had to quit the mobile-phone business, leaving Nokia to cement its position as the European market leader. What went wrong?
Day by day
Read a detailed account of the events in The fire that changed an industry, an article in the Financial Times.
Lessons learned
Not only Ericsson, but many other companies have also learned from this incident. Supply chain risk management (SCRM) is a necessary component of any supply chain. SCRM may lead to increased costs in the from of prevention measures, and SCRM may lead to increased lead time, in order to have buffers, should something happen. In essence though, risk exposure always has a price, and as a company one should think through what price (or rather cost, as in disruption cost) that is acceptable or not. In his 2006 article Robust strategies for mitigating supply chain disruptions, Christopher Tang uses Nokias approach as one of three prime examples of how to counter supply chain disruptions. Most recently Jon Hansen of Procurement Insights decided to reopen the case and ask industry experts to weigh in with their opinion as to what happened at Ericsson and why, and what they believe should take place to address the obvious shortfalls on a go forward basis.
References
Norrman, A., & Jansson, U. (2004). Ericssons proactive supply chain risk management approach after a serious sub-supplier accident International Journal of Physical Distribution & Logistics Management, 34 (5), 434-456 DOI: 10.1108/09600030410545463
Latour, A. (2001). Trial by Fire: a blaze in Albuquerque sets off major crisis for cellphone giants. The Wall Street Journal, January 29, 2001.
Author links
ncsu.edu: How do suply chain disruptions occur? ufl.edu: Big Lessons from Small Disruptions (pdf) Financial Times: The fire that changed an industry Business Week: Improving the ability to fulfill demand Times Online: Can Suppliers Bring Down your Firm?
Related posts
husdal.com: Single or dual sourcing which is better? husdal.com: The six ways of dealing with risk husdal.com: Risk Management Contingent versus Mitigative