SupplyChainDigest Identifies Worst Ever Supply Chain Disasters

published: cw 04, 2006 in Supply Chain Management

SupplyChainDigest, the supply chain and logistics industry?s leading on-line publication and information website, released its report on the top supply chain disasters of all time.

The report comes at a time when an increasing number of corporations are citing supply chain progress ? and challenges ? in explaining corporate financial performance.

The new report, available at SCDigest?s web site, lists the top 11 supply chain snafus since the term ?supply chain? came into common use about 20 years ago. The examples cited in the report range from Foxmeyer, at the time the nation?s second largest drug wholesaler, which ultimately went bankrupt over a failed order management and warehouse automation project, to GM?s disastrous effort in the 1980s to deploy massive numbers of robots in its factories. Many of the examples are well known, while others, such as glove maker Aris Isotoner?s decision in the mid-1990s to close its own factory in the Philippines to use contract manufacturers elsewhere in Asia ? with terrible results ? were less well publicized at the time.

Many of us rightly take pride in the growing recognition role of supply chain both within companies and in the public markets. An increasing number of companies cite supply chain initiatives and prowess in annual reports and meetings with financial analysts.

But of course the opposite effect must then also occur ? supply chain snafus are increasingly cited by CEOs and CFOs to explain poor financial performance. The latest (see News and Views story nearby) is Canadian grocer Loblaw, which for the second consecutive quarter blamed a problematic network redesign for higher costs and lower sales. That follows the Body Shop last week blaming poor inventory planning for lower North American Christmas sales, ConAgra recently referencing higher than expected distribution costs, etc.

No guts, no glory.
All of which got me thinking, what have been the greatest supply chain disasters we?ve seen in the 20 years or so since that term started being used? SCDigest Contributing Editor Mark Fralick and I did a lot of research to find out ? and I hate to say it was actually kind of entertaining to go back and find and recount those stories.

First, some caveats: we focused only on ?man made? disasters, and so excluded such things as Mother Nature and factories burning down, even though, as Contributing Editor Gene Tyndall reminded us, these often evidence holes in supply chain strategy and risk reduction plans. Second, we looked for examples that had a significant impact on the company in terms of finances, stock price, brand equity, etc. Third, it?s still subjective, and we probably missed a few ?good? candidates.
So, our summary list is presented below, in order from worst to not quite as worse. A more detailed version can be found in our new report on the topic, downloadable by clicking here. You can also download a table of this ?Top 11? (weird number, I know, but we just couldn?t find one to cut).

Foxmeyer?s 1996 Distribution Disaster: New order management and warehouse automation systems lead to inability to ship product and failure to achieve expected savings; bankruptcy and sale of the company follow
GM?s Robot Mania: CEO Robert Smith spends $40 billion in the 1980s on robots that mostly don?t work, while Toyota focuses on ?lean? and cleans up
The WebVan Story: $25 million automated warehouses just make no sense given the market; company goes from billions in market gap to gone in just months in 2001
adidas 1996 Warehouse Meltdown: Not well known story, adidas can?t get a first and then second warehouse system and also its DC automation to work. Inability to ship leads to market share losses that persist for a long time
Denver Airport Baggage Handling System: New airport opens late in 1995 due to failure of highly automated, hugely expensive system, which never really works and is completely shuttered
Toys R Christmas 1999: On-line retail division can?t make Christmas delivery commitments to thousands; infamous ?We?re sorry? emails on Dec. 23; eventually, Amazon takes over fulfillment
Hershey?s Halloween Nightmare 1999: New order management and shipping systems don?t start right, as Hershey can?t fulfill critical Halloween orders; $150 million in revenue lost as stock drops 30%
Cisco?s 2001 Inventory Disaster: Lack of demand and inventory visibility as market slows leads to $2.2 billion inventory write-off and stock price cut in half
Nike?s 2001 Planning System Perplexity: New planning system causes inventory and order woes, blamed for $100 revenue miss as stock loses 20%
Aris Isotoner?s Sourcing Calamity in 1994: Then a division of Sara Lee, Isotoner decides to shut successful Manila glove/slipper plant to chase even lower costs elsewhere; costs rise, quality plummets, revenue cut by 50%; soon sold to Totes Inc.
Apple Misses Power Mac Demand: In 1995, Apple plays conservative with commitments and capacity and can?t deliver on demand for new PCs. Market share takes permanent hit.

We?re out of space for much more comment, but obviously we have nothing later than 2001 on our list. While many companies have had supply chain issues, it appears these lessons have at least led companies to avoid the biggest failures. You?ll enjoy our full report, where we also list a few foibles that almost made it.

I figured it was unlikely we would get a sponsor for the report (LOL). Full report here.

What would you add or detract from our list? Any additional comments? Does it seem companies have reduced the level of disasters of late?

Source: Supply Chain Digest

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