Question

In March, 2000, a thunderstorm struck the Philips semiconductor plant at Albuquerque in New Mexico, which made silicon chips for products like cellphones. Damage at first seemed minor, and fire fighters soon left the premises. At first, Philips told major customers like Nokia and Ericsson that the delay to production would only be one week. But damage to some of the clean areas in the plant – created by smoke and water – was actually going to take months to remedy. Clean rooms in semiconductor plants must be spotless, and particles of more than 0.5μ are filtered out.

The one-week delay was quickly reported by Tapio Markki, Nokia’s chief component-purchasing manager, to Pertti Korhonen, Nokia’s top troubleshooter. ‘We encourage bad news to travel fast’, said Mr Korhonen. While Philips initially rejected offers of help from Nokia, it soon became apparent that production delays would be much more than one week. Korhonen put together a team to find solutions to supplying the five chips that were affected by the Philips fire. Three were quickly re-sourced from Japanese and American suppliers, but the other two were only supplied by Philips. This time Philips cooperated at the highest level. Nokia’s chairman and chief executive, Mr Ollila, met with the Philips CEO Mr Boostra and the head of the Philips semiconductor division, Mr van der Poel. Factories at Eindhoven and at Shanghai were rescheduled to supply the missing chips, and engineers from both Nokia and Philips worked to accelerate the return of the Albuquerque plant to full production. As a result of these intensive efforts, there were relatively minor delays to Nokia’s cellphone shipments.

Executives at Ericsson in Sweden only learned of the problem several weeks after the fire. Company culture was less proactive than at its Finnish rival. The bad news was withheld from senior management long after it became clear that delays were becoming serious. By the time that Ericsson realised the magnitude of the problem, it was too late to find alternative sources. Nokia had seized remaining world capacity, and it took nine months for the situation to be rectified. The disruption led to a 3 per cent loss of market share by Ericsson, and contributed in turn to its exit from the phone handset market.

What are the key lessons from this case for dealing effectively with disruptions to the supply chain?

Answer 1

The key lessons from the case of the thunderstorm at the Philips semiconductor plant in Albuquerque are effective communication, diversification of suppliers, and collaboration and cooperation.

Step-by-step explanation:

The key lessons from the case of the thunderstorm at the Philips semiconductor plant in Albuquerque are:

1. Effective communication: Philips initially provided an optimistic estimate of a one-week delay to its major customers, which turned out to be incorrect. Open and transparent communication, even if it involves delivering bad news, is crucial in managing disruptions to the supply chain.
2. Diversification of suppliers: Nokia had to quickly find alternative suppliers for the affected chips when Philips could not meet the demand. This highlights the importance of having multiple suppliers to prevent disruptions and reduce dependency on a single source.
3. Collaboration and cooperation: When faced with a major disruption, Nokia and Philips worked together to find solutions. Philips cooperated at the highest level, rescheduling production and leveraging resources from other factories. Collaboration between companies during times of crisis can help mitigate the impact of disruptions on the supply chain.