What We Can Learn About Supply Chain Security From One of the Shrewdest Pivots In Business History

Here is a story of the fire than tipped the balance within an industry.

Two stalwarts in the mobile phone industry in March 2000 were equally impacted by the same event – a lightning fire in the chip manufacturing plant of their common supplier, Philips, in New Mexico.

Both Nokia and Ericsson experienced the business disruption to an equal extent as a result. Fire damage to the stocks was extensive.

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

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

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.

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.

Source: The 5-STAR Business Network http://www.5starbusinessnetwork.com

I write about The Supply Chain CEOs, The 5-STAR Business Networks and Unchain Your Corporations. My website is at http://viveksood.com

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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.

  • Jack Noel says:

    When faced with a supply chain disruption, proactive and reactive supply chain risk management can in fact make or break a company’s 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.

  • Linmayu Appavu says:

    Nokia acted swiftly and moved to tie up spare capacity at other Philips plants and every other supplier they could find. They even re-engineered some of their phones so they could take chips from other Japanese and American suppliers. Ericsson, meanwhile, had accepted early assurances that the fire was unlikely to cause a big problem, and settled down to wait it out. When they realized their mistake it was too late: Since Ericsson a few years earlier had decided to buy key components from a single source to simplify its supply chain, Ericsson now had to face the bitter realization that it had no other source of supply. Nokia had already taken it all.

  • Becky Blenton says:

    My first mobile phone in 1996 was in fact a Nokia, but I switched to Ericsson in 1999, because they made much better phones, so I thought. While the phones may have been better, risk management for sure wasn’t. Single sourcing may have its benefits, but it has its costs, too. Ericsson lost many months of production, and hence many sales in a booming market that could now be dominated by Nokia. Bummer. Eventually Ericsson merged with Sony in order to survive, and eventually I too had to switch back to Nokia.

  • Zee Chastain says:

    Ericsson learned its lesson and now has a completely different supply chain risk management system in place. It starts with mapping all the components and products many tiers upstream the supply chain and identifies critical suppliers and sites that have to be prioritized and assessed further. After a rough assessment on how shortage will affect the supply chain, a more thorough investigation into probability and impact of different accidents at different suppliers is conducted to assess the impact on the supply chain as a whole, particularly the impact on business recovery time. Finally, risk management actions are evaluated against risk costs to avoid over-action or over-insurance against incidents.

  • Kyron Henn says:

    At the point when looked at inventory network disturbance, proactive and responsive actions taken by an organization’s administration can represent the moment of truth about the level of its presence in the market. A standout amongst the most popular (or rather notorious) cases is the flame at the Philips microchip plant in Albuquerque, New Mexico, in 2000, which at the same time influenced both Nokia and Ericsson. Be that as it may, the two organizations adopted an altogether different strategy toward the occurrence, and looking back, obviously shown how to and how not to deal with supply chain network interruptions.

  • Howard says:

    Well, I think Nokia acted quickly and moved to tie up extra limit at different Philips plants and reached every other provider they could discover. They even re-designed a portion of their telephones so they could take chips from other Japanese and American providers. Ericsson, in the interim, had acknowledged early confirmations that the flame was probably not going to cause a major issue, and settled down to endure it. When they understood their error it was past the point of no return: Since Ericsson, a couple of years sooner had chosen to purchase key parts from a solitary source to disentangle its store network, Ericsson now needed to confront the harsh acknowledgment that it had no other wellspring of supply. Nokia had effectively taken everything.

  • Amelia Kutney says:

    Nokia acted quickly and moved to tie up extra limit at different Philips plants and reached every other provider they could discover. They even re-designed a portion of their telephones so they could take chips from other Japanese and American providers. Ericsson, in the interim, had acknowledged early confirmations that the flame was probably not going to cause a major issue, and settled down to endure it. When they understood their error it was past the point of no return: Since Ericsson, a couple of years sooner had chosen to purchase key parts from a solitary source to disentangle its store network, Ericsson now needed to confront the harsh acknowledgment that it had no other wellspring of supply. Nokia had effectively taken everything.

  • J. Amanda says:

    My first cell phone in 1996 was in truth a Nokia, however, I changed to Ericsson in 1999, on the grounds that they improved many telephones, so I thought. While the telephones may have been something more, risk administration personnel without a doubt weren’t. Single sourcing may have its advantages, yet it has its expenses, as well. Ericsson lost numerous long periods of creation, and henceforth numerous deals in a blasting business sector that could now be overwhelmed by Nokia. In the end, Ericsson converged with Sony so as to endure, and in the long run, I also needed to change back to Nokia.

  • Matt LeBaron says:

    Ericsson took in its exercise and now has a totally unique supply chain network and administrative framework set up. It begins with mapping each and every parts and item at numerous levels to upstream the supply chain network and recognizes basic providers and locales that must be organized and surveyed further. After an unpleasant appraisal on how nonexistence will influence the manufacturing network, an increasingly careful examination concerning likelihood and effect of various mishaps at various suppliers is led to evaluate the effect on the supply chain network, all in all, especially the effect on business recuperation time.

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