The Fire That Changed an Industry
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1. What were the causes and subcauses of the main problem? Set it in the right sequence, you can also use Ishikawa Diagram or other useful tool. All started with a lightning bolt struck a high-voltage electricity line in March 17, 2000, it caused a fire broke in a manufacturing plant. The cause of the main problem was that the production takes place in “clean-room” conditions, ten thousand times cleaner than a hospital operating rooms. Fire produces smoke and trigger sprinklers. As a result fire, smoke and water had contaminated millions of chips that had been stored for shipment. The subcause is that at first Philips thought that cleanup would take at least a weak but two weeks after the fire, Philips admitted it would need more time to fix the problem. The plant remained out of action for six weeks.
2. How Nokia managed with the problem?
At a Nokia plant outside Helsinki, a production planner who was following a well articulated process for managing chip inflows from Philips failed to get a routine input he needed from Philips. They passed on word of a possible problem to Tapio Markki, the top component purchasing manager. Mr. Markki knew that the cleanup would take more than one week so on March 20 he informed his bosses. Nokia began checking the status of the five parts made in New Mexico once a day instead of the customary once a week. Nokia took three key steps:
* One team seeking a major role in developing alternative plans, Philips responded by rearranging its factories as far away as Eindhoven and Shanghai. * Second resigned some chips so that they could be produced in other Philips and non-Philips plants. * Third worked to find alternative manufacturers to reduce pressure on Philips. Two current suppliers responded within five days. 3. How Ericsson managed with the problem?
Ericsson got a call from Philips. Until this call, Ericsson´s planners and managers had not sensed any discrepancy in Philips ´performance. As such, its management had no reason to disbelieve Philips ‘explanations. At the end of March Ericsson finally came to appreciate the gravity of its problem. However it sill did not act speedily. Jan Warby did not get involved till early April. They had very few options left.
4. What were the final consequences of that problem for these two companies? Nokia´s profits rose 42% as it expanded its share of the global market to 30%. The annual report for 2000 did not even mention the fire. Ericsson reported that the fire had caused a second-quarter operating loss of 200$ million in its mobile phone division. Annual earnings would be lower by between 333$ million and 445$ million. Six month later, it reported divisional annual losses of 1.68$ billion, a 3% loss of market share and corporate operating losses of 169$ million.
5. What would you do if you were a manager in Ericsson Company? I would put higher quality controls to detect production failures quickly. When they realized about the problem, I would search for other plants which can offer the same or similar chip to use in the mobile phones or try to develop other in their plants in a different way which could work.