Case Number: 5-111-007, Year Published: 2012
HBS Number: KEL673
Control Systems, Corporate Strategy, Decision Making, Global Strategy, International Business, Logistics, Operations Management, Supply Chain Management
In March 2000 a fire broke out at the Royal Philips Electronics plant, damaging its supply of semiconductor chips. Nokia Corporation and Ericsson LM relied on these chips to produce their cell phones; together they received 40 percent of the plant’s chip production. Both companies were about to release new cell phone designs that required the chips. At Nokia, word of the setback spread quickly up the chain of command. Nokia’s team, which had a crisis plan in place, sprang into action. With an aggressive, multipronged strategy, Nokia avoided any cell phone production loss. In contrast, the low-level technician who received the information at Ericsson did not notify his supervisors about the fire until early April and had to scramble to locate new sources for the chips. This search delayed production and proved a fatal blow to Ericsson’s independent production of mobile phones. Nokia’s handling of its supply chain disruption provides a dramatic example of how a company’s strategic risk management can alleviate financial disaster and lay the groundwork for success in the future. Perturbations in supply chain management are inevitable, and grow harder and harder to assess as the marketplace becomes more globalized.
Students will learn the following concepts: • The best way for a company to manage risk and prevent shocks is to seek as much information as possible about all of its operations, especially when it depends on a single supplier for crucial components. • Once it has collected information, the company needs to make sure it disseminates that information up the chain of command. • A company must recognize that that there is no retribution for lost opportunity.
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