supply chain

Topics: Supply chain management, All rights reserved, Denver International Airport Pages: 13 (4023 words) Published: September 26, 2014
January 2006

The 11 Greatest Supply
Chain Disasters

Introduction
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. Which got us 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 did a lot of research to find out.

First, some caveats: we focused only on “man made” disasters, and so excluded such things as Mother Nature and factories burning down, even though 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.

Below you will find a summary table of our “Top 11,” ( weird number, yes, but we just couldn’t find one to cut) in order from worst to not quite as worse, as well as more detailed stories of the nature and impact of each disaster.

Interestingly, none of our Top 11 occurred after 2001. Coincidence? While at one level we see more public attention to supply chain issues, it appears the lessons from failures in the past have at least led companies to avoid the catastrophic impacts.

1. Foxmeyer’s 1996 Distribution Disaster
In 1996, Foxmeyer was the second largest wholesale drug distributor in the U.S., with sales over $5 billion dollars in a highly competitive industry. The disaster started with an ambitious project to revamp both its IT systems and its distribution facilities. This involved a new ERP system, and a highly automated DC in Ohio that relied on huge number of carousels for order picking and conveyors for product movement.

The company was estimating huge efficiency gains from the new systems – so much so that it started to bid future contracts based on the expected cost reductions.
Not a smart move, it turns out.
1

© SupplyChainDigest 2006 All Rights Reserved.

First, this was perhaps SAP’s first foray into the world of high volume distribution. The system was unable to handle the volumes of orders. “We ran some simulations,” said one company exec, “but not with the level of data we have in an operating environment.”

Foxmeyer, for a myriad of reason, ignored many warning
signs. Said one consultant on the project, “Every time we
showed them something that didn’t work, they’d say ‘Is it a deal breaker?’ Well, no one thing was a deal breaker. But
if you put enough cinder blocks in a rowboat, it’s going to sink.”

Lights out
warehousing? Try
“lights out” Foxmeyer.

But the order processing system wasn’t the only issue. The DC automation system also was a disaster. At the time, it was one of the most highly automated facilities in the U.S.
Nothing much worked right. The automation controls had constant bugs, and Foxmeyer had to deploy hundreds of workers to work around the issues. “The underlying software would fail in the middle of the process, so we’d have to stop and restart in the middle of intense picking hours,” said one logistics executive. The whole thing snowballed between the combined system issues. An order would be partially shipped due to DC problems. The customer would receive a partial order, and call to complain. Unable to see the rest of the order had shipped on a later truck, the customer service rep would authorize a replacement shipment for product already on its way to the customer. Tens of millions of dollars in unrecoverable shipping errors ensued. Add to that cost savings that weren’t ever likely to materialize at the level Foxmeyer had assumed in bidding some large new contracts,...
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