Management Development Institute - Gurgaon

Supply Chain Management

Case 03

The 11 Greatest Supply Chain Disasters

Group 3
12EM03
25NMP26 25NMP47 25NMP48 25NMP51 25NMP54

Arjyama Choudhury
Mahendra Pratap A. Suresh Ajay Singh Pradeep Toppo Narendra Raju Poranki

Presentation Date: 29.01.2013

National Management Programme: XXV / Energy Management: 2012-13

Term-IV (Jan - Mar 2013)

1. The FoxMeyers 1996 Distribution Disaster

Role in Supply Chain

Retailer Stores FoxMeyer (Distributor & Wholesaler)

Drug Manufacturer
Second largest drug exporter in US, 1996 (Sales: $ 5 Billion)

1. The FoxMeyers 1996 Distribution Disaster

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

FoxMeyer Disaster
SAPs first high distribution foray
Ran simulations with low volume data Ignored consultants many warning signs & felt trivial 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

Unable to handle huge volumes & was unmanageable Tens of millions of $ unrecoverable shipping errors Sold @ $ 80 million after Bankruptcy & lawsuits are continuing

Reasons for the Disaster

Failure in integration plans in the distribution & order fulfillment segment Planning
Disaster

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

2. GMs Robot Mania

1980s : GMs CEO, Smith, fascinated with technology Smith planned to increase the number of robots in GM plants from 300 to 14,000 GMs Radical business plan to automate and modernize Cost - $ 40 45 billion Robots never really worked & productivity lowered, Finally scraped

Avg. no. of autos produced by an employee

GM
Ford Toyota
GM could have bought both Toyota and Nissan for this amount - CFO, GM

11.7
16.1 57.7

Robots painting themselves and dropping windshields on to front seats

2. GMs Robot Mania

Manufacturing cycle: ISCM Problem

False assumptions - Replacing people with machines could increase productivity Involvement of high cost- high tech un-proven technology Missed essence of Toyotas 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

3. The Webvan story

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.

SRM

ISCM
Disaster

SRM

4. Adidas 1996 Warehouse Meltdown

Implemented New warehouse management system in its DC. Tried to force Integrated Software Logistics to port their Unixbased system. Didnt 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

Disaster

5. Denver Airport Baggage Handling System

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.

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 Were 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 mastered
o Poor online-specific customer service (tracking orders, )

Amazon.com was online delivery master

o Experience in online logistics o 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
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
Packing
Upstream Side Focal Firm

Picking

Downstream Side

Shipping

Problems

7. Hersheys Halloween: Nightmare 1999

1998-1999
$100m spent on New order management, SC Planning, & CRM system To transform companys IT infrastructure & SC Intended to ease shipping and logistics between plants and retailers

Post April1999
System schedule Apr99 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 (Aug99) to 38 (Jan00) Took couple of years to recover

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
Upstream Side

Focal Firm

Downstream Side
Problems

Tracking Inventory

Order Fulfillment

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's supply Chain Disaster

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
Cisco
ISCM

Contract manufacturers responsible for final assembly Suppliers of processor chips and optical gear Commodity suppliers all over the globe

9. Nikes 2001 Planning System Perplexity

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. Nikes 2001 Planning System Perplexity

Learning: 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 Isotoners 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. Isotoners 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 Isotoners Sourcing calamity

What happened So called Low Cost supplier - Ended up costing between 10% and 20% more Turn around of orders as quickly as before Product quality plummeted Effects 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 Apple was often the leader in market share in the then still deeply fragmented PC market 1993 Apple had been unable to predict demand for PowerBook laptop and had been burned by excess inventory and production capacity 1995 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 cant be ignored in view of Capabilities, Capacity & Constraints. Flexibility is important in supply chain

Disaster

Other Supply Chain Disasters

Fords 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 models 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

Conclusion
Even 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
Business Modeling Requirements Analysis & Design Implementation Test & Deployment

Supporting Workflows
Configuration & Change Mgmt Project Management Environment

References
http://www.personal.psu.edu/fup2/blogs/ba302/200 8/09/11_supply_chain_disasters.html#comment35469

http://www.informationweek.com/570/70iuad2.htm
http://csantaella2011gs.wordpress.com/2012/10/27/ disaster-incubation-theory-adidas-1996-warehousemeltdown/ http://www.logisticalchallenge.com/2009_11_01_arc hive.html en.wikipedia.org/wiki/History_of_robots

http://www2.isye.gatech.edu/~jjb/wh/tidbits/top-scdisasters.pdf

Thank You