Analysis of 11 greatest supply chain disasters

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Key learnings from 11 famous supply chain disasters across the globe

Key learnings from 11 famous supply chain disasters across the globe

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  • 1. Management Development Institute Gurgaon January 2014 Post Term: III (Dec 2013 – Feb 2014) Graduate Program in International Management PGPIM: 2013-15 Management Development Institute - Gurgaon Global Supply Chain Management Case 04 11 Greatest Supply Chain Disasters ID Name 1 13PGPIM -04 Aniruddha Karlekar 2 13PGPIM-12 Harsh Matur 3 13PGPIM-16 Kushal Agarwal 4 13PGPIM-25 Shashank Gupta 5 13PGPIM-27 Shreya Sinha 6 13PGPIM-42 Felix Frauendorf Presentation Date: 07/01/2014
  • 2. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”2 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 3. Management Development Institute Gurgaon January 2014 01 – Foxmeyer´s 1996 Distribution Disaster Group 4 Major Project: “11 Greatest Supply Chain Disasters”3  In 1996, Foxmeyer was the 2nd largest wholesale drug distributor in the U.S., with sales > 5 bn US$  Ambitious project to revamp the company´s IT systems and its distribution facilities  New ERP  Automated DC  Foxmeyer estimated huge efficiency gains and started to bid future contracts based on the expected cost reductions  SAP´s order processing system was unable to handle the volumes of orders  Also the DC automation system had constant bugs  Snowball effect between the combined system issues  Tens of millions of dollars in unrecoverable shipping errors occured  Due to assumed higher efficiency and capacities, the large bidding contracts led to filing for bankruptcy  After filing for bankruptcy, the main operating division of the $5 bn company was sold to a larger rival (for $80 mn) ChainIssues Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Oper-ations Outbound logistics Marketing & Sales Service
  • 4. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”4 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 5. Management Development Institute Gurgaon January 2014 02 – GM´s Robot Mania Group 4 Major Project: “11 Greatest Supply Chain Disasters”5  In the 1980´s, GM´s CEO Roger Smith was fascinated with technology and implemented 1,400 robots from Fujitsu- Fanuc in GM factories by 1990  The project occured costs of billions of dollars, but the robots never really worked (robots accidentally painted themselves and dropped windshields on the front seats  The introduction nof the robots actually lowered GM´s factories production significantly, rose costs and shrunk market share  Meanwhile, Toyota delivered low cost, high quality vehicles using comparatively low tech lean production techniques  One GM finance exec later noted, at the time the company could have bought both Toyota and Nissan for the money invested in the failed robot technology ChainIssues  CEO Robert Smith invests billions in robot technology that mostly doesn´t work  Smith fired  Low tech Toyota uses lean manufacturing techniques to gain strong competitive advantages as GM´s market share shrinks Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 6. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”6 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 7. Management Development Institute Gurgaon January 2014 03 – The WebVan Story Group 4 Major Project: “11 Greatest Supply Chain Disasters”7  WebVan was among several major online grocery initiatives launched during the late 1990s  Backed by Goldman Sachs and hired a high profile CEO from Accenture  Went public and raised billions of US$  Erecting hugely automated warehouses that cost 25 – 30 mn each  Grocery industry usually has margins in the low single digits  WebVans Plan to drive out logistics costs enough to make a solid profit  That strategy, though, depended too much on huge volumes to drive high levels of system utilization, which never came close to materializing ChainIssues  Online grocer has many problems, including massive investment in automated warehouses that drain capital and aren„t justified by demand  Company goes from billions in market capitalization to bankrupt in a matter of months Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 8. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”8 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 9. Management Development Institute Gurgaon January 2014 04 – Adidas 1996 Warehouse Meltdown Group 4 Major Project: “11 Greatest Supply Chain Disasters”9  Attempt to implement first one and then second warehouse management system in its distribution center  Featured heavy automation  Requiring extensive logic and integration in the WMS  Adidas insisted vendor„s Unix-based system be ported to fault tolerant Stratus computers  First WMS vendor couldn„t make it work and went „belly-up“ in mid-project  Second WMS vendor then tried to implement their system  Due to long project dealys Adidas decided to go live before the system was really ready  Because the system did not really work Adidas was unable to process and ship orders (only ~20%) ChainIssues  New warehouse system and DC automation just don„t work  Company underships by 80%  Adidas suffered market share losses that persisted for years  IT and logisitcs staff left the company in droves Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 10. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”10 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 11. Management Development Institute Gurgaon January 2014 05 – Denver Airport Baggage Handling System Group 4 Major Project: “11 Greatest Supply Chain Disasters”11  Set-up of a hugely automated underground baggage handling system with a computer driven railroad network for moving baggage  Bags were mis-delivered, luggage was chewed up and cars derailed and jammed tracks  Issues:  Underground tunnels to be used fot the conveyance system had been already built before the prime contractor was awarded the contract  Therefore, the system was not designed with this level of automation in mind  Mis-communication between the prime contractor, airport officials and the airlines  Inability to see the interrelated problems  Not enough time to test the system ChainIssues  Complex, hugely expensive automated handling system never really works  Airport opens late and a huge PR fiasco  System is only minimally used from start and shuttered totally in 2005 Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 12. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”12 … 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 13. Management Development Institute Gurgaon January 2014 06 – ToysRus.com Christmas 1999 Group 4 Major Project: “11 Greatest Supply Chain Disasters”13  Online retailing business is finally strating to heat up  Leading toy retailer Toys R Us advertises heavily and promises it will make Christmas deliveries for any orders placed by December 10.  The company is swamped with tens of thousands of orders and simply cannot pick, pack and ship the orders fast enough  Toys R Us writes famous „We„re sorry“ e-mails 2 days before Christmas  Fire storm of negative PR  The brand takes a big hit, even though other e-tailers have some similar problems ChainIssues  Can not fulfill thousands of orders for which the company promised to deliver by Christmas  The Christmas of 1999 causes hundrets of companies to analyze their e-fulfillment capabilities in more detail  Outsourcing of fulfullment to Amazon.com Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 14. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”14 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 15. Management Development Institute Gurgaon January 2014 07 – Hershley´s Halloween Nightmare 1999 Group 4 Major Project: “11 Greatest Supply Chain Disasters”15  More than $100m spent on transforming the company„s IT infrastructure and supply chain  New order management  Supply chain planning  CRM  Hershey Foods planned to go live will all the systems in parallel  Whole project was delayed from April to the summer.  Major issues were faced implementing these systems  Products were ready, but due to non working transactions, they couldn„t be shipped  Inventory would not be visible for allocation  Supply chain and logistics executives had to be trotted regularly to Wall street analysts for assurance of no more glitches  Intra system communication was also changed – EDI messaging ChainIssues  Order management & warehouse implementation issues caused Hershey to miss critical Halloween shipments  The company lost atleast $150m in revenue, stock dropped from 57 to 38 and profit went down by 19% Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 16. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”16 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 17. Management Development Institute Gurgaon January 2014 08 – Cisco´s 2001 Inventory Disaster Group 4 Major Project: “11 Greatest Supply Chain Disasters”17  Along with other companies, Cisco too rode the technology wave in 1990 and grew immensly  The networking industry had no experience with a downturn and thus Cisco resoponded to high order patterns with higher build rates and substantial inventory accumulation  Cisco was unable to see the slowing demand and continued high production  Cisco was thus left unprepared when the tech bubble burst and there were piles of inventory left  Thus the “Cisco bubble” burst and the company was heavily criticized in the business press along with huge losses to stocks ChainIssues  Lacking adequate demand and inventory visibility, Cisco was caught with piles of inventory due to the slowing demand  Company forced to take a $2.2 billion inventory write-down and drop in stock by 50% Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 18. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”18 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 19. Management Development Institute Gurgaon January 2014 09 – Nike´s 2001 Planning System Perplexity Group 4 Major Project: “11 Greatest Supply Chain Disasters”19  Nike„s newly implemented supply chain planning system in 2001 invited a myriad of issues  Software bugs  Integration problems  Complexity, change for planners, lack of training  Citing “Software problems”, the CEO, Phil Knight said that the supply problems had created significant inventory abnormalities and were the cause for a $100m revenue shortfall  Prices had to be slashed to get rid of the additional inventory causing immense pressures on profit margins  This is also a result of the“Big-bang“ approach rather than a phased implementaion approach ChainIssues  Trouble with new planning system caused Nike inventory and order problems  Inventory issues led to a $100 million shortfall in revenues and 20% drop in Nike‘s stock Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 20. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”20 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 21. Management Development Institute Gurgaon January 2014 10 – Aris Isotoner´s Sourcing Calamity in 1994 Group 4 Major Project: “11 Greatest Supply Chain Disasters”21  Aris Isotoner was one of the most well known brands in gloves and slippers in the US with $220m sales, 15% net profit and a high growth  Production plant in Manila produced gloves at a very low cost, even cheaper than the Chinese units and had highly skilled workers  The decision to move out of the Phillipines proved to be costlier  Production costs increased by 10-20%  Quality plummeted alongwith the production quantity  Sales declined by 50% and operating losses totaled $120m  Additional amount of $100m also had to be invested to keep the company afloat Chainissues  Aris Isotoner decides to move from Manila to even lower cost locations but this decision proves to be disasterous as the quality plummets and costs rise instead of falling  Due to relocation of the production unit, Aris Isotoner„s profit making business turned to a loss making one and had to be sold to Totes Inc., a unit of Bain Capital Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 22. Management Development Institute Gurgaon January 2014 Agenda Group 4 Major Project: “11 Greatest Supply Chain Disasters”22 01 – Foxmeyers´s 1996 Distribution Disaster 02 – GM´s Robot Mania 03 – The WebVan Story 04 – Adidas 1996 Warehouse Meltdown 05 – Denver Airport Baggage Handling System 06 – ToysRus.com Christmas 1999 07 – Hershey´s Halloween Nightmare 1999 08 – Cisco´s 2001 Inventory Disaster 09 – Nike´s 2001 Planning System Perplexity 10 – Aris Isotoner´s Sourcing Calamity in 1994 11 – Apple Misses Power Mac Demand
  • 23. Management Development Institute Gurgaon January 2014 11 – Apple Misses Power Mac Demand Group 4 Major Project: “11 Greatest Supply Chain Disasters”23  Apple planned to introduce its Power Mac PCs in the Christmas season in 1995  It had a previous experience of excess inventories and production capacity for a similar product  Thus, Apple„s forecast for Power Mac was highly pessimistic and totally off the mark  There were certain delivery issues with some parts suppliers also  At one point, Apple had as much as $1 billion in unfilled orders  Stock price was cut in half, CEO fired, lawsuits by shareholders and a permanent hit to Apple„s position as a market leader Chainissues  A conservative forecasting strategy led Apple to be incapable of meeting the demand for Power Macs  Apple lost the position of the leader in market share and could never recover from that point Procurement Technology Human Resources Firm‟s infrastructure Inbound logistics Operations Outbound logistics Marketing & Sales Service
  • 24. Management Development Institute Gurgaon January 2014 Summary & Lessons Learnt Group 4 Major Project: “11 Greatest Supply Chain Disasters”24
  • 25. Management Development Institute Gurgaon January 2014 Summary and lessons learnt Group 4 Major Project: “11 Greatest Supply Chain Disasters”25 “decided to go live before the system was really ready…” “huge loss of market share” “IT and logistics staff left the company” „massive investment in automated warehouses that drain capital and aren‘t justified by demand“ Human failure Technological failure Company failure
  • 26. Management Development Institute Gurgaon January 2014 Thank You! Group 4 Major Project: “11 Greatest Supply Chain Disasters”26