FC NOW: The Fast Company Weblog
June 30, 2005
The $2 Billion Fire
At the end of 2000, Ericsson announced a $2.34 billion loss in its mobile phone division, a huge number that was the wholly unintended result of a tiny event--a small fire at a chipmaking plant owned by Ericsson supplier Philips NV. The damage to Philips, however, only totalled about $40 million in lost revenue.
How a small problem at just one end of your supply chain can morph into a devastating loss if you're not careful is the subject of a interesting new book called Resilient Enterprise: Overcoming Vulnerability for Competitive Advantage, by Yossi Sheffi, an MIT professor who directs the MIT Center for Transportation and Logistics. His premise is that a company's success depends more on what its executives do before a crisis than how they act during that crisis.
I haven't gotten too far yet, but the Philips story was fascinating. According to Sheffi, Nokia and Ericsson responded in entirely opposite ways to the Philips fire, with huge consequences. Nokia was proactive, pressuring Philips to immediately come up wtih alternative chip supplies as soon as they realized that there was going to be a significant disruption in production. They escalated the problem up the chain and got senior executives involved. Ericsson, however, was a bit too laid back, keeping the problem from senior executives and assuming that the disruption wouldn't last long. This, says Sheffi, was a cultural difference, one that meant that the fortunes of the two companies were set to diverge long before the fire came along. Ericsson's lack of focus on the items it thought it had no control over made it extremely vulnerable to any disruption.
Having just averted our own crisis, thanks in large part to actions our own leadership took both before and after it happened, the book resonated immediately here at Fast Company. Do you have similar stories to share?
Posted by Jennifer Reingold at June 30, 2005 3:53 PM | Category: leadership |
5 Comments
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Jennifer,
You must be on the privileged list to get a hold of this book so soon. Amazon is anticipating an Oct. 2005 ship date. Do you have any leads on where to buy the book sooner than that?
MAS
The most important part of this story is how interconnected companies have become and how the supply chain has become the circulation system of many organizations. It is relatively easy to outsource or replicate adminstrative tasks, ut try to maintain production if you cannot access the parts needed for your products. I recently explained to an aquaintance that at some point our society will see more outsourcing of white collar jobs oversees and that many production jobs will come back here. It is easy to send a spreadsheet over the internet, but it takes weeks and much risk to send it accross the ocean and expect it to show up on your dock at a designated time.
All,
I am the author of the book and I hope Jennifer would like it all the way through...it has many more case studies and examples.
Dear Russell - you can get the book from MIT Press a few weeks before it will be avaialable on Amazon.com or other book stores. In any case, I think the book will be available earlier.
Cheers
Yossi
Do you recall reading/hearing about how (I think it was) Toyota responded to the 9/11 attacks (in terms of their operations)? I seem to recall that their entire effort was the natural result of their corporate culture and was truly remarkable.
Perhaps it wasn't Toyota, as I've had no luck in finding any current information about it.
Anyway, it was one manufacturer who's culture got them through (logistically) 9/11. If you can find out who, I'd love to read that story again.
I found what I was looking for. The title of the article: Decentralized Intelligence
What Toyota can teach the 9/11 commission about intelligence gathering.
"In 1997, the Toyota group suffered what seemed like a catastrophic failure in its production system when a key factory—the sole source of a particular kind of valve essential to the braking systems of all Toyota vehicles—burned to the ground overnight. Because of their much-vaunted just-in-time inventory system, the company maintained only three days of stock, while a new factory would take six months to build. In the meantime Toyota's production of over 15,000 cars a day would grind to an absolute halt. This was the kind of disaster with the potential to wreck not just the company itself, but the entire Japanese automotive industry. Clearly, then, Toyota, along with the more than 200 other companies that are members of the extended Toyota group, had ample incentives to find a solution."
You can read the whole article (and how Toyota overcame this problem) here:
http://slate.msn.com/Default.aspx?id=2104808