How to Use Disasters to Fine Tune Your Supply Chain

Supply chains are your first line of defense. They can also be your Waterloo if you don't learn the lessons taught by recalls, lightning strikes and fires.

Recalls aren’t the only events that put supply chains to the test. Disruptions of all sorts can provide insight into how robust and efficient your supply chain is.

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Loose supply chains can hamper companies in interpreting information, says David Simchi-Levi, a professor in the civil and environmental engineering department at MIT. For example, lightning struck Philips Semiconductor’s factory in New Mexico in 2000, sparking a fire that shut down production of its radio frequency chips, which both Nokia and Ericsson were then using in their cell phones. Within three days, Nokia’s supply chain systems detected a slowdown of incoming parts from Philips and alerted plant managers and then corporate managers, says Simchi-Levi, who studied how the companies managed this disruption.

Within two weeks, Nokia redesigned its phone to use other companies’ chips and persuaded Philips to shift production of its chip to other factories.

Ericsson, on the other hand, didn’t respond to the problem until four weeks after the fire, in part, says Simchi-Levi, because its manufacturing and supply chain systems weren’t programmed to spot risks early enough. Nokia locked up alternate suppliers; Ericsson lost market share that it never regained. By the end of the year, it was out of the phone business.

Supply chain problems, Simchi-Levi concludes, “change markets.”

Copyright © 2007 IDG Communications, Inc.

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