Managing the supply chain – some businesses see it as a box to be checked, like feeding the cat or backing up your data.
But supply chains are slippery things, subject to a variety of risks, many of which are outside your control. Or are they?
Here, we’ll take a look at a handful of high profile supply chain disruptions from the past three decades, and explore whether things could have been handled another way or whether the outcomes might have been different with a system like Kodiak Hub in place. Because knowing your supply chain starts with knowing your supplier.
1991 – Nike sweatshop scandals
The early 1990s heralded a new era of what we now know as corporate social responsibility. Back in 1991, an investigative journalist and labor activist lifted the lid on horrific practices that were taking place at its factories in Indonesia. The list of practices was truly horrifying, from child exploitation to hazardous working conditions to sexual harassment.
One report led to another, which led to an undercover documentary, and Nike simply dug itself in deeper by denying any knowledge of or culpability for these types of practices in its supply chain.
Of course, the Nike scandal was one of the major drivers that led to a change of attitude and the corporate social responsibility practices that are in place today. But the events of the 1990s almost meant the end of the road for Nike. It literally took decades for the stain on the brand’s reputation to eventually fade.
Today, monitoring business practices in far-flung manufacturing locations, including performing special visits & on-site audits, is a fundamental aspect of any responsible business’s supplier appraisal processes. One thing is certain – ignorance was no defense in the 1990s, and it certainly isn’t today with the management and monitoring tools that are at our disposal.
1995 – Apple Power Mac debacle
In the mid-1990s, the world was on the cusp of a personal computing revolution. This was the year that Windows 95 and Java Script came out, it was the point in history when walled gardens like CompuServe gave way to the world wide web and it was a year in which global sales of PCs went up by 25 percent.
It was an exciting new world, everyone wanted in, and specifically, they wanted Apple’s new Power Mac laptop. The PC market was highly fragmented at the time, and this was the moment when Apple could have established a stranglehold on the market. Instead, the likes of HP and Compaq were presented with an open goal as Apple was unable to come close to meeting demand. The reason was that two years earlier, they had had their fingers burned, overproducing the 1993 Power Book and ending up with excess inventory.
In 1995, fear of the same thing happening led to $1 billion of orders it could not fulfill. Waiting lists were at two months when buyers were unwilling to wait two days and the consequences were catastrophic. Apple’s stock price halved overnight and the company went into decline at a moment when it should have had the world at its feet. It took some magic from founder Steve Jobs, who parachuted back in the following year having been ousted in 1985, to rescue Apple from the brink of bankruptcy.
Apple’s problem was not with its supply chain per se, but with the way it used it. Understanding demand is not an exact science, but this was more than a miscalculation, it was fear-induced inertia. A focus on the past instead of the present and future meant that in what should have been the most successful quarter in the company’s history, Apple’s sales figures were almost identical to those of the same quarter a year before, while that extra $1 billion of orders went unfulfilled.
2000 – Ford & Firestone Scandal – Exploding Tires
This dispute escalated in Aug 2000 when Ford recalled about 6,5 million Firestone tires. The issue was that tires had been exploding, causing the vehicle to roll over, leading to at least 62 people’s lives being lost and 100 people being injured in car accidents.
Why exactly this happened and who was to blame, the vehicle (Ford) or the tires (Firestone), sparked a long investigation and finally came down to several factors and issues leaving both sides responsible.
One factor that could’ve easily been avoided – Firestone conducted inadequate quality checks on their tires and had very old manufacturing facilities.
Some workers stated that they had to check over 100 tires per hour, which was far too many to have enough time to inspect them thoroughly and meet quality standards. Which in turn led to workers signing off on tires they hadn’t really inspected.
If Ford had simply conducted supplier evaluations, they would’ve seen the lack of quality processes at Firestone and lacking work conditions, which would’ve led to on-site audits that could confirm what the assessments had flagged for.
2005 – Hurricane Katrina and some harsh lessons learned
In 2004, you could have sat down and spoken to any business on the Gulf of Mexico, from Houston TX to Mobile, AL and they would all have volunteered the fact that one of their most significant business risks was the dreaded “really big one” would blow in next hurricane season.
Fast forward to the last week of August in 2005, and that’s exactly what happened. The astonishing thing was the variability in the impact that it had on businesses, despite all of them being well aware that it might be just around the corner.
Banana distributor Chiquita shifted distribution and warehousing operations from Gulfport, MI to Freeport, Tx, and Port Everglades, FL at the first sign of trouble and rode the waves, as it were, with minimal disruption. Louisiana-based Almond Bros also had a contingency plan but was less successful. The lumbar firm’s idea was to use short-term warehousing at the Port of Houston. The problem here was that when it tried to do so, there was no room at the inn. Businesses had already snapped up what was available, amid rumors of growing lawlessness in New Orleans in the wake of Katrina. As company secretary and CFO William Almond explained, “Nobody wants to do business with a gun pointed at his head.”
In short, Katrina demonstrates just how much you can mitigate against natural disasters. Chiquita used, and continues to use, cutting-edge software tools as part of its contingency planning. Almond Bros did not. Kevin O’Marah is a supply chain evangelist who worked as an analyst with AMR Research in the wake of Katrina and has gone on to be a major influence at Amazon. He observed at the time that businesses can use optimization tools to fine tune their supply chain processes to cope with different contingencies. O’Marah said “These systems are event-driven—and if there was ever an event, Katrina was it. But you can’t just wait for a disaster to happen and start doing supply chain optimization. You need to have everything in place before it hits.”
2007 – Boeing Dreamliner – for want of a fastener
For want of a nail, the kingdom was lost – we’ve all heard variations on this ancient proverb, and in 2007, it came home to roost at Boeing’s Assembly Plant in Everett, Washington. The new Boeing 787 Dreamliner was the plane that would turn the tide in Boeing’s ongoing battle with Airbus for supremacy in the skies, but the plane’s development was hampered by a succession of supply chain issues.
When the first completed plane was unveiled in July 2007, Boeing had orders for an unprecedented 677 Dreamliners. Yet the aircraft that was shown off to the media that day was a sham. A shortage of aviation fasteners meant that many of the plane’s components were held together by non-aviation fasteners purchased from Home Depot. Naturally, these were replaced by the correct components when the supplier was able to come up with them, but the incident was a headline writer’s dream and the ultimate own goal in Boeing’s scrap with Airbus.
An effective process of supply chain management would contemplate this sort of eventuality. Sure, with many airplane components, you probably don’t have a wide choice of suppliers. But to not have a backup supplier for something as fundamental as flight fasteners demonstrate obvious shortcomings in the supply chain management process.
2021 – Ever Given – could it happen again tomorrow?
Let’s be frank, 2021 brought us no shortage of dramatic events and images. But for those of us in the supply chain management business, the one that’s hard to shake from the mind’s eye is one of the largest container ships in the world blocking the Suez Canal and all but bringing global shipping to a halt for a week.
Around 300 vessels had their voyages delayed by the incident, and if there is one thing that shipping companies enjoy doing even more than shipping goods, it is filing claims. When the vessel was finally moved, it was promptly arrested by the Egyptian authorities pending resolution of the Suez Canal Authority’s (SCA’s) $1 billion claim. Then there were the scores of other lawsuits flying around. All this paled into insignificance compared with the non-financial costs. One life was lost during the recovery process and it was rumored that between 150,000 and 200,000 animals died, trapped in livestock containers with insufficient food and water.
The Suez Canal is absolutely vital to global shipping, and there’s simply no other way from A to B. The topography of North Africa hasn’t changed in the past 200 years, and if there was an easy alternative, they wouldn’t have spent 10 years digging the 120-mile artery back in the 19th century. That means investing more in ensuring it is fit for purpose in the 2020s, a process that is ongoing.
Perhaps the most worrying aspect of the incident is that there is still no real clarity on who was at fault in the Ever Given incident. Pilots were onboard the vessel, but only in an advisory capacity, as is the accepted practice. Should the pilots instead take full control of the ship, as they do on the Panama Canal? The rumor is that moments before the accident, the Master of the ship was arguing with the pilots on how to deal with the sudden sandstorm that had blown in.
There is also no clarity on what sort of weather assessments take place prior to ships starting the voyage through the canal. This is in spite of one expert mariner’s remark that sudden gusts of wind can cause the containers to act like a sail and rapidly change the vessel’s course.
Could the Ever Given incident happen again tomorrow? The SCA maintains it was a freak incident and that measures are being taken to reduce bottlenecks in the Suez. That doesn’t really answer the question, though. One could argue that Hurricane Katrina was a freak incident, but we have seen how rigorous supply chain management processes can help businesses mitigate the impact of such an event.
In the case of the Suez, there must be doubts as to whether current measures are sufficient in this age of mega container ships. It could be the case that it will take another Ever Given incident to convince stakeholders that current practices at the Suez need more than a sticking plaster and significant investment is needed both in the physical infrastructure and the operational processes.
Supply networks are subject to constant threats of different types. Some are more predictable than others, but genuine “black swans” are as rare as the name implies and are seldom catastrophic.
The most disruptive supply chain disaster scenarios almost always stem from an event that should be on any business’s risk management radar. Rather than lying awake worrying that some event will occur tomorrow or next week or next year, businesses can use supply chain management tools to explore how major risks might affect their supply chain and implement controls, ranging from supplier evaluation to diversifying suppliers.
About Kodiak Hub
Kodiak Hub is a cloud-based Supplier Relationship Management (SRM) platform that helps global procurement and sourcing teams to buy smarter & power sustainable supplier relationships.
Kodiak Hub offers a modular suite of supplier relationship management solutions that teams can plug n’ play to capture supplier data & information, spot supply chain risks, manage contracts, categories, documents, and products, assess and audit supply chain compliance, evaluate and improve supplier performance and drive buyer-supplier innovation.
The journey towards smart and sustainable strategic sourcing starts with Kodiak Hub!