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Supply Chain Disasters
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Case 03The 11 Greatest Supply Chain Disasters
Group 312EM03 Arjyama Choudhury
25NMP26 Mahendra Pratap
25NMP47 A. Suresh
25NMP48 Ajay Singh
25NMP51 Pradeep Toppo
25NMP54 Narendra Raju Poranki
Management Development Institute - Gurgaon
Supply Chain Management
National Management Programme: XXV / Energy Management: 2012-13Term-IV (Jan - Mar 2013)
Presentation Date: 29.01.2013
Role in Supply Chain
Drug Manufacturer
FoxMeyer(Distributor & Wholesaler)
Retailer Stores
1. The FoxMeyer’s 1996 Distribution Disaster
Second largest drug exporter in US, 1996 (Sales: $ 5 Billion)
Intense Competition / Increased cost pressures
Revamping IT & Distribution Systems• New ERP System• Highly automated DC in Ohio
Anticipated huge operational profits Started bidding for future contracts expecting
cost reductions
1. The FoxMeyer’s 1996 Distribution Disaster
FoxMeyer DisasterSAP’s first high distribution foray
Unable to handle huge volumes & was unmanageable
DC Automation System - Disaster• Constant Bugs• Software fail (hence Stop & Restart) in the middle of the
process• Deployed hundreds of workers to fix the issues
•Ran simulations with low volume data•Ignored consultant’s many warning signs & felt
trivial
Tens of millions of $ unrecoverable shipping errors
Sold @ $ 80 million after Bankruptcy & lawsuits are continuing
Reasons for the Disaster
• Planning– Poor selection of the ERP Software– No consideration of other consultants’ advice– Lack of contingency planning– No end user involvement (Top down approach)
• Implementation– No restructuring of the business process was done– Insufficient testing– Over-ambitious project scope– Lack of end-user cooperation (ignored warnings)– No end-user training program
Failure in integration plans in the distribution & order fulfillment segment
Disaster
1980’s : GM’s CEO, Smith, fascinated with technology
Smith planned to increase the number of robots in GM plants from 300 to 14,000 GM’s Radical business plan to automate and modernize• Cost - $ 40 – 45 billion• Robots never really worked & productivity lowered, Finally scraped
2. GM’s Robot Mania
Robots painting themselves and dropping windshields on to front seats“GM could have bought both Toyota and Nissan for this amount” - CFO, GM
Avg. no. of autos produced by an employee
GM 11.7
Ford 16.1
Toyota 57.7
False assumptions - Replacing people with machines could increase productivity
Involvement of high cost- high tech un-proven technology Missed essence of Toyota’s low-cost production success
JIT inventory, TQM, Attention to production processes, Lean production, Extensive employee training, Close cooperation with suppliers
Consistency of manufacture comes before automation Push supply chain approach: anticipating customers orders
Productivity is not only based on labor costs but the entire production system
2. GM’s Robot Mania
Manufacturing cycle: ISCM Problem
• Business model was constructing highly automated warehouses costing $25-30 million per WH
bring a faster, cheaper, more efficient delivery and drive out logistic cost to make solid profits.
• However the strategy was dependent on high volumes to drive high level of system utilization, which never materialized.
3. The Webvan story
Analysis of Failure:• Aggressive expansions, spent too much on
infrastructure and exhausted its reserves without maximizing operating efficiency
• Over estimation of demand, which never reached the level that were high enough to pay off huge investment.
What they should have done:• Company should have worked on making
existing operations more efficient.• As it was not a tried and tested model, ideally a
smaller pilot project should have been developed and taken further if successful.
3. The Webvan story
SRM
ISCMDisaster
SRM
• Implemented New warehouse management system in its DC.• Tried to force Integrated Software Logistics to port their Unix-
based system. • Didn’t take the time to find a suitable initial WMS vendor. • First vendor abandoned the project, subsequently another
vendor was found.• Frustrated by long project delays, Adidas went live before
system was ready.• The new system did not work, leading to failure in right time
order processing and shipment• Company could execute only 20% of its $ 50 million orders,
result was huge loss of market share.
4. Adidas 1996 Warehouse Meltdown
Analysis of Failure:• A poor and rushed management decision• Lack of technical expertise of WMS vendors as
well of Adidas faulty implementation• Launching without proper system testing and
debugging.
What they should have done:• Adidas already knew how its supply chain was
configured and simply needed to choose an adequate WMS vendor to supply a functioning system.
• should have taken time to test and verify the usability of the new system
4. Adidas 1996 Warehouse Meltdown
Disaster
• Denver International Airport and United Airlines attempted at implementing an automated baggage handling system.
• The system failed as a result of poor communication between contractors, the airlines, airport officials.
• Little background checks, backup plans and collaboration was used between the parties lead to one of the greatest material handling fiasco of all time.
5. Denver Airport Baggage Handling System
Analysis of Failure:
• Complex system, mismatch of design considerations• Inability to understand the complexity of issues• Miscommunication, failure of implementation of systems, not
enough test-runs are all causes of failure• The stages of implementation were staggered and lost in
translation between contractors, vendors, and the airline.What they should have done:
• Proper Communication• Airport officials should have made sure that all parties
involved with the project were on the same page.
5. Denver Airport Baggage Handling System
6. TOYS R Us.com
Pre Dec10’ 1999
• Online retailing started to heat up
• Heavy ads with promise to deliver Christmas orders placed before Dec10
Post Dec10’ 1999
• Tens of thousands of orders
• Inventory mostly in place
• Picking, Packing and Shipping is not fast even for closer places
• Some Employees worked for 49 straight days to fill the order
2000
• Unable to fulfill orders in time
• Co. sent 1000s of “We’re Sorry” mails 2dy before Xmas
• - ve PR in Media• Customers irritated• Outsourced on-line
retailing to Amazon.com
Analysis Economy of Scale: by Outsourcing online retail to Amazon.com
• Toys R Us was inventory systems masteredo Poor online-specific customer service (tracking orders, …)
• Amazon.com was online delivery mastero Experience in online logisticso Trust in the Amazon name for online shopping
Why failed ?• Poor Demand Forecasting
o Failure in estimation of order fulfilling capacity• Inexperience in handling e-commerce platform
Take Home
Problems
Picking
Packing
ShippingUpstream Side
DownstreamSide
Focal Firm
Detailed e-fulfillment capability analysis is required before going
online
External support may be sought if new technology is used with
inexperienced manpower
Packing and Shipping are equally critical as Inventory
7. Hershey’s Halloween: Nightmare 1999
1998-1999
• $100m spent on New order management, SC Planning, & CRM system
• To transform company’s IT infrastructure & SC
• Intended to ease shipping and logistics between plants and retailers
Post April’1999
• System schedule Apr’99 slips
• Rather than waiting till next year, Co. switched over in the summer to the new system before Y2K
• Resulted in failure of Transactions and Inventory visibility
September 1999
• More than $150m order were lost
• 3rd Qtr profits dropped by 19%
• Headlines across business press
• Stock drops from 57 (Aug’99) to 38 (Jan’00)
• Took couple of years to recover
Upstream Side
Downstream Side
Focal Firm
Problems
Tracking Inventory
Order Fulfillment
Take Home• Phased wise implementation in place of Big
bang approach • it timed its cutover during its busy season-no
slack time available• Testing & Simulation could have been done for
the processes and systems• Risk analysis could have been done
beforehand
8. Cisco's 2001 Inventory Disaster
• Rode technology wave of the 1990s• famous for 'being the hardware maker that did not make
hardware’• This allowed to concentrate on marketing & product innovation,
also liberated it from hassle and expense of maintaining inventory
• Ordered large quantities well in advance, based on demand projections from the company's sales force
• To make sure that it got components when it needed them, Cisco entered into long-term commitments with its manufacturing partners and certain key component makers
Cisco
Contract manufacturers responsible for final assembly
Suppliers of processor chips and optical gear
Commodity suppliers all over the globe
Cisco's supply Chain Disaster
ISCM• It was caught in a vicious
cycle of artificially inflated demand
• Cisco's supply-chain system couldn't show the spike in demand representing overlapping orders
• Communication gaps between the tiers
• In 2000, Nike launched the Supply Chain project through SAP• Purpose: For effective forecasting & changing trend• Feb, 2001 Nike went live with new system: “Big Bang” approach
What happened• Erroneous forecast – Integration Problems, lack of training etc.• Software provider blamed Nike for improper implementation
Effects:• $100 million revenue shortfall• Nike's stock value fell by more than 20 %• Supply problems led to significant inventory shortages & excesses
9. Nike’s 2001 Planning System Perplexity
9. Nike’s 2001 Planning System PerplexityLearning:• Risk Analysis : Knee jerk overhaul of supply chain should be
done with due diligence • Change in system is complex and challenging• Implementation partner should be experienced
Disaster
Disaster
10. Aris Isotoner’s Sourcing calamity• Aris Isotoner was a highly successful division of Sara Lee
Corp.
• A manufacturer of gloves and slippers - sales of $220 million, 15% net profit, and high growth.
• Isotoner’s plant in Manila had highly skilled labour – producing 27 million pairs of gloves a year at very low cost.
• Chasing even low costs: Manila plant closed and sources production to other Asian locales
10. Aris Isotoner’s Sourcing calamityWhat happened• So called ‘ Low Cost” supplier - Ended up costing
between 10% and 20% more• Turn around of orders as quickly as before• Product quality plummetedEffects• Sales had fallen in half, to $110 million. • In late 1997, sold to Totes Inc. for a bargain price
Learning:• Focus for overall result is prime in place of
overemphasizing on cost cutting• Sourcing : It affects efficiency and responsiveness
in a supply chain.
Disaster
11. Apple: Missed Power Mac Demand
Mid-1990s 1993 1995Apple was often the leader in market share in the then still deeply fragmented PC market
Apple had been unable to predict demand for PowerBook laptop and had been burned by excess inventory and production capacity
• New Power Mac PCs introduced in a very conservative manner just before the Christmas season
• Low forecast, Explosive demand, Lack of flexibility in SC & Delivery issue from suppliers
• $1billion unfulfilled orders • Stock price crashed by half • CEO lost job & Shareholders law suits
pouring in • Apple lost the market position &
Recovered years later with iPod launch
Take Home• Conservative Demand forecasting will lead to
big loss• Lack of Planning in Risk Management :
proactive plan in place of a reactive.• Lacked in both push & pull cycle• Vendor Management system can’t be ignored in
view of Capabilities, Capacity & Constraints.• Flexibility is important in supply chain
Disaster
Other Supply Chain Disasters• Ford’s land Star division
– In 2001 its sole source of chassis for a new vehicle was nearly bankrupt and started back mailing to keep production going
– New model’s launch was about to be cancelled – Land Rover purchased the supplier and situation salvaged
• Federal Emergency Management Administration– Poor response to ensure supplies to victims of Hurricane Katrina
• Snap-on Tools- There was failure of order management system which led to loss of $50 million and operating cost increased by 40%
• Tri-Vally Growers— New ERP and Supply chain planning system could not be used and replaced with new one
• Norfolk Southern— It was unable to successfully combine its systems with fellow rail carrier Conrail— Lost $100 million in business
ConclusionEven a small disruptions in SRM, ISCM, CRM & integration can lead to
• Financial Impact (Bankruptcy)• Decline of Stock Price• Loss of Brand Equity• Ineffective Market coverage
Hence, the planning & implementation of SCM should include
Process Workflows Supporting Workflows • Business Modeling• Requirements • Analysis & Design Implementation• Test & Deployment
• Configuration & Change Mgmt
• Project Management• Environment
http://www.personal.psu.edu/fup2/blogs/ba302/2008/09/11_supply_chain_disasters.html#comment-35469
http://www.informationweek.com/570/70iuad2.htm
http://csantaella2011gs.wordpress.com/2012/10/27/disaster-incubation-theory-adidas-1996-warehouse-meltdown/
http://www.logisticalchallenge.com/2009_11_01_archive.html
en.wikipedia.org/wiki/History_of_robots
http://www2.isye.gatech.edu/~jjb/wh/tidbits/top-sc-disasters.pdf
References
Thank You…