We Supply Chain Managers love to brag about our achievements. However, we fail too sometimes. And when we fail, it is all over the newspapers or hurts our company badly. Let’s remind ourselves about some famous disasters and hopefully learn something out of it.
So, let me share with You a couple of cases that occurred in large companies and revealed how much the Supply Chain can destroy or bring the company to the next level.
First is a fire in a chip factory that caused Ericsson a 200 million USD loss.
So, here goes the story: The year is 2000. A fire broke out in a Phillips factory, responsible for making chips for mobile phone manufacturers Nokia and Ericsson. It did not cause much damage, so the initial information sent out to both customers was that the production will resume within a week. Ericsson believed them and waited, while Nokia started looking for alternative options and was in daily contact with the Phillips team. Two weeks after the fire Phillips admitted that the cleaning and factory restart will take more time. In total, it took them six weeks to resume operations. While Nokia had already alternative supply and almost no effect on the production, Ericsson lost 200 million USD. The message: always have an alternative plan for your core materials, at least a phone number you can call if things go wrong.
The more recent 2018. KFC - DHL Supply chain disaster was indeed very well covered by media. On Valentine’s Day, KFC switched their logistics provider. The reason was, of course, cost-cutting. So, from having multiple distribution centres across the UK, the new provider switched to one. A week later, two-thirds of KFC’s across the country were closed as they have run out of chicken. And this lasted for over a week. Some articles state that it started with an accident that prevented trucks leaving the single distribution centre. Others state that the companies had issues with synchronization of the IT systems. I believe it is a combination of IT and unpreparedness of the team to handle such volume of orders. Seems they never heard of Murphy’s law: “Things will go wrong in any given situation if you give them a chance”
Of course, the scandal with Tesco and horse meat. An independent investigation found that one of Tesco’s suppliers mixed horse meat in the beef burgers. Tesco did not do anything wrong, in fact. They did not poison anybody. They did not order burgers with horse meat inside. They could not figure it out while doing the normal supplier audits. Yet, they paid the price of an estimated 300 million pounds, together with Aldi and Burger King. A very interesting story, showing how important it is to know not only your Tier 1 but as well Tier 2 and 3 suppliers.
Boeing is currently in the headlines due to the 787-MAX issues, and this is not the first time. The original 787 development took them over 3 years. The main reason was the decision of Boing not to outsource only the production, but as well the development of different components of the aircraft. The supplier did not have the knowledge and experience to do it, and as well was not able to manage their suppliers. After the development became a complete disaster, they had to jump in and redo most of the development. A great example that outsourcing and offshoring is not a simple decision. It affects the complete supply chain, and if done at such scale like in this case (Boeing went from 35-50% to 70% outsourcing, plus outsourced product development), ends up in occurring more cost.
Is Supply Chain so important? Well, Target had to close all Canada shops as their Supply Chain failed to deliver. They went in bold, simultaneously across the country and into 124 shops. Less than 2 years later, they closed the operation completely. Reason? The supply chain was not able to provide the right product at the right place on time. Mistakes in the IT system, local taste differences and the fact that Canada is a huge country added together, resulting in the inability to fulfil the request. The lesson here: bigger is not always better. First, try it out on a small scale. If it works, great, go big. If not, it is always easier to manage and fix.
Below you will find links to articles that went much more into details.
Sources and links:
The Fire That Changed an Industry: A Case Study on Thriving in a Networked World
3 Supply Chain Lessons From the KFC Fowl-Up
Horsemeat scandal: where did the 29% horse in your Tesco burger come from?
How Barbie SUVs snarled traffic
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