Can Suppliers Kill You By Their Inaction?

pexels-photo-346885

Let me tell a story.

This is a very entertaining story, but that is not the reason I am telling it. It has even greater business value, especially for strategists, and senior executives.

It shows how supply chain security irrevocably altered the fortunes of a company that was a global leader at one time in the then nascent mobile phone industry.

A High Profile Industry

This story is in public domain and involves two behemoths of the mobile phone industry at that time – Nokia and Ericcson. I tell this story in my book THE 5-STAR BUSINESS NETWORK.

Think of the time before Iphone and Samsung phones came along and conquered the supply chains of the industry, and the minds of the users. I tell that story elsewhere.

Here we focus on the simpler times.

An Uncontrollable Event

City Lit Up at Night

A seemingly trivial random event, in a remote corner of the world, on a fateful day in March 2000, changed the destiny of the industry.

Both Nokia, and Ericcson, the stalwarts in the mobile phone industry at that time, were equally impacted by the same event – a lightening fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.

Both Nokia and Ericsson experienced business disruption to an equal extent as a result.

Fire damage to the stocks was extensive

Firemen Blowing Water on Fire

More importantly, the manufacturing capacity of the plant was damaged and it was difficult to estimate the time for repairs.

This is where the events take an interesting turn. Not everyone thinks of supply chain security beyond the physical security of goods in transit. For example only a few people think in terms of continuity of supply.

In fact, all the security experts who have no background in supply chain security fail on this count – they never think deep enough in terms of the layers of supply chain, while they do think deeply in terms of layers of physical security. Look at what happened in our real life story next.

Nokia had invested months, if not years, in creating and perfecting a robust and responsive supply chain security, while Ericsson’s business network was relatively a middle-of-the-line affair that worked well when things were good.

Ericcson staff were content to go with the flow, without too much care and worry about this part of supply chain security.

Nokia Sees the Future Before Ericcson, or Even Philips Does

Man Looking at Telescope during Daytime

After the fire, Nokia was able to see the full impact of the chip shortage on its own business, as well as the entire industry with a lot more clarity than Ericsson, and even Philips.

Moving quickly, it activated other parts of its business network to shore up supplies, to redesign some of the chips to manufacture them in other plants, and to take pre-emptive steps in the network.

Ericcson Did Not Move to Secure The Supply Chain; It Lost Out For Ever

Ericsson let the situation evolve at its own pace and made decisions more reactively.

The resulting gain in profitability and market share for Nokia and the loss of these for Ericsson tipped the balance of the industry to an extent where within a few years Nokia pulled far ahead of the Ericsson which never caught up with its erstwhile equal rival.

So, Why Do I Tell This Story?

It does have some anecdotal entertainment value.

But the business value is even higher. Here are some points to ponder:

  1. Supply Chain Security is amultilayered affair – for the best results organise it as such:
    1. Supply Chain Layers
    2. Physical Security Layers
    3. Virtual Security Layers
  2. A random event can change the fortunes of an industry
  3. Better prepared companies generally wins in such events
  4. You do not need to be perfect, you just need to be better than your competitors
  5. If you don’t work to keep the supply chain advantage, you will lose it in a jiffy:
    1. Ericcson lost out to Nokia
    2. Nokia eventually lost out to IPhone (that is a story, I tell elsewhere in my posts)
  6. Supply chain advantage, when you have it, translates into industry leadership, fat margins and cushy life.
  7. Supply chain security is directly corelated with supply chain advantage. DO NOT IGNORE SUPPLY CHAIN SECURITY.

I could easily turn this above 7 point list into a large magazine article (listicle), but my readership is wise enough to connect the dots themselves, and do not need ot labour through the obvious.

Given the quality of my readership – I have created a 350 page report on supply chain security – which is available at a small (or relatively trivial) expense by sending an email to info@globalscgroup.com

If you really want to pay due attention to supply chain security there will be nothing comparable on this globe – get this report NOW by directly emailing me.

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Vivek Sood

I write about "The Supply Chain CEOs", "The 5-STAR Business Networks", and, how to "Unchain Your Corporation". In my work, I help create extraordinary corporate results using several 'unique' supply chain methodologies. Contact me for interesting, high impact projects, or, to get access to my IP for creating transformations using these methodologies.

  • Annie_Kane says:

    A good read indeed. I think most important thing to consider here is take into account both proactive and reactive approaches to deal with such unfortunate events faced by Nokia and Ericsson. You have highlighted very important aspects of supply chain but you have focused more on being proactive. Whereas, I think companies with better strategies also fails to handgrip such events of catastrophic nature. It’s not the mitigation plan that matters; it’s the execution of the mitigation plan that helps companies to overcome the unforeseen happenings that leads to substantial physical and financial losses. The focus on the management and execution of mitigation plan is perhaps the point you neglected to contain in this article.

  • Marshall says:

    Great article. While summarizing the article you have ignored the importance of being perfect. I don’t agree with you at this point. It’s not always a wise tactic to design a company’s manifesto on the aim of just outperform their competitors. In my opinion, it’s perfection that comes first. If Nokia and Ericcson were perfect enough they wouldn’t have to face that bloody dragon that eat them up financially to the extent that they were at the verge of being extinct. Competing the competitors is good but not the whole good thing. Survive in market as leading company demands perfection. Nokia and Ericcson were supposed to be performing at a level that goes beyond perfection in every dimension and aspect of their contribution.

  • Steven says:

    Interesting article on the subject of supply chain and a company’s willingness to accelerate despite all the damage. I guess in all fire lightening in the chip manufacturing incident it was just the readiness of Nokia to intensify their earlier reputation and glory. Despite of immeasurable recovery time, the company’s decision to find out all the flaws and bugs into existing system and learning lessons from the chip fire incident Nokia left far behind its competitors. After reading this article I have realized that it is only by investing time and effort a company could bring a balanced supply chain security and management.

  • Jacob_Jack says:

    I strongly agree with the argument mentioned in this article “random events can change the fortune”. I believe that you have said the right thing. Being a professional, I have experienced this fact several times that it is actually the random actions that cause massive disruptions. Whether its supply chain planning, security, management or execution the company has to work even more effectively and efficiently to ensure that even minute details are considered and noticed. This is how companies are driven towards enhanced productivity. This was probably the approach that Nokia adopted lately and placed extra attention towards minute details and random events that could cause gigantic interference.

  • Richard Richi says:

    I agree with you that you have written in this article but one of your statements has however puzzled me. “You have to be better than your competitors”. Isn’t it a half reality? How can you perform better when your only aspiration is to lag behind your competitor? I am keen to know how this is even possible to claim on realistic grounds. This is probably the mindset of many frustrated and powerless companies the fail to attain both the trust of customers and financial gains. I tend to resonate with my very own opinion the inclination towards this conviction results only in a bleak future that yields no revenues but losses. The promulgation of this approach is rather dangerous and precarious for any industry to survive and blossom to its complete extent. I believe that a sophisticated thinking is to touch the concentrated level of perfection and it’s when your competitors would make deliberate attempts to compete you at your industrial level of production.

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