• Sedat Onat

Broken Supply Chain of Ericsson

Updated: Jun 22


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The Fire

On 17 March 2000 of Philips’ history, a fire due to stroke of lightning breaks out at the factory in New Mexico, where Philips produced semi-conductors that are also used for Nokia and Ericsson telephones (40% of its capacity). The fire is extinguished within 10 minutes. Soma damages are inflicted in the unit where semi-conductors are produced. Moreover, due to dust and dirt that occur during the fire is extinguished, the number of dust which has to be 1 morsel for 1 cubic meter (that is 10.000 times cleaner than a surgery environment) reaches higher levels and causes the chips at to store to become unusable.


Philips authorities calculate that that may start their production phase within one week by underestimating the problem. They negotiate with Nokia and Ericsson authorities and notify that they will give them priority right after they start their production.


The authorities on Ericsson side rely on the notification of Philips, in the direction that they will start their production within one week. They do not procure an action plan due to the fact that they are not aware of the gravity of the condition yet.

Nokia side

Nokia production planning supervisors have been tracking the Suppliers’ productions on daily basis for 5 years, thanks to their control mechanism that they have developed. As soon as the situation occurs, Nokia’s production and purchasing authorities procure evaluations after visiting the facility. As purchasing manager of Nokia used to work at a factory that produced semi-conductors in the past, he guesses that aforementioned producing may take longer than one week and informs the top management about the situation. Under the light of this information, Nokia immediately takes the action.


Due to intense contact between Nokia and Philips that has been ongoing, explanations of Philips does not reassure Nokia. On the contrary, Nokia suppresses their colleagues at Philips in order for making them find more active solutions.


On 31 March 2000, i.e. 2 weeks after the incident, the firm of Philips makes and explanation and declares that production process will take 6 weeks by approximate means. In this way, the term takes 8 weeks.


In this case that would affect the production of millions of telephones; Nokia takes the action through 3 ways;

  • A team works with Philips on alternative plans that would include other production facilities, too,

  • Another team changes the designs, and works on productions at other facilities of both Philips and other producers’ facilities,

  • The last team, moreover, starts looking for different Suppliers in order to relieve the pressure on Philips. Thus, two available Suppliers answer in the affirmative on the 5th day of the inspection.

  • Additionally, all stocks of appropriate chips are provided by all producers from all around the world.

Ericsson side

Nonetheless, the firm of Ericsson does not recognize the seriousness of the condition until early April. Therefore, they gum up the works.


Nokia saves the day thanks to taking immediate and effective precautions and increases its profitability and market share. So much so that, aforementioned fire is not mentioned in the annual report of the year of 2000.


On the Ericsson side, however, the problem gets heavier and mobile phone unit ends the year with 200 million dollars loss due to the lack of semi-conductor due to the fire, according to the report dated 20 July 2000. After six months, the situation gets more serious and the loss becomes 1,68 billion dollars.


On April 2001, i.e. 13 months after the fire, the firm of Ericsson is forced to transfer some of its units to Flextronics and to decapitate most of its employees.


Eventually, in consequence of long-term unofficial negotiations, the firm of Ericsson is sold to the firm of Sony on October, 2001.


A fire of 10 minutes affects a large firm very deeply and reshapes the market of mobile phone and Ericsson becomes Sony Ericsson…



References

  • A Fire in Albuquerque Sparks Crisis For European Cell-Phone Giants [Çevrimiçi] / yaz. Latour Almar // The Wall Street Journal. - 29 January 2001. - https://www.wsj.com/articles/SB980720939804883010.

  • Ericsson [Online] // Wikipedia. - https://en.wikipedia.org/wiki/Ericsson.

  • The Fire That Changed an Industry: A Case Study on Thriving in a Networked World [Online] / auth. Mukherjee Amit S. // FT Press. - October 1, 2008. - September 7, 2015. - https://www.ftpress.com/articles/article.aspx?p=1244469.


January 9, 2016 - Istanbul

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