11 Top Supply Chain Disasters of All Time

By Dan Gilmore - Editor-in-Chief

Published in May 7, 2009

Introduction
The list is totally subjective, although, then and now, a lot of work and
research by me and the staff went into it. Just to be clear, the list is meant
mostly to be for fun and maybe shed a few lessons for us all, not to
"embarrass" any given company receiving the "honor."
Most of us have experienced major issues of one kind or another.
Fortunately, most often they don't make the press, or if they do, it's on the
back pages. Just a few lucky ones get to grace page 1 of the Wall Street
Journal. (Most Important)

 what have been the greatest supply chain disasters weve 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, its 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
couldnt 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.

Agenda
1. Foxmeyers 1996 Distribution Disaster
2. GMs Robot Mania 1980-1990
3. The Webvan Story

4. Adidas 1996 Warehouse Meltdown

5. Denver Airport Baggage Handling System
6. ToysRus.com Christmas 1999
7. Hersheys Halloween Nightmare 1999
8. Ciscos 2001 Inventory Disaster
9. Nikes 2001 Planning System Perplexity
10.Aris Isotoners Sourcing Calamity in 1994

11.Apple Misses Power Mac Demand

1-Foxmeyers 1996 Distribution Disaster

In 1996, Foxmeyer was the 2nd largest wholesale drug distributor in the U.S., with
sales > 5bn US$

Ambitious project to revamp the companys IT systems

and its distribution facilities.
1.

New ERP

2.

Automated DC

Foxmeyer estimated huge efficiency gains and started to

bid future contracts based on the expected cost
reductions.

SAPs order processing system was unable to handle the

volumes of orders.

Also the Dc automation system had constant bugs.

Snowball effect between the combined system issues.

Ten of millions of dollars in unrecoverable shipping errors

occurred.

Due to assumed higher efficiency and capacities, the

large bidding contracts led to filing for bankruptcy.

The underlying software would fail in the middle of the

process, so wed have to stop and restart in the middle of
intense picking hours, said one logistics executive.

After filing for bankruptcy, the main operating division of the $5 billion company was sold to its larger rival,
McKesson, for only $80 million. Last we knew, there were still outstanding lawsuits working there way through the
process between Foxmeyer and several technology and consulting companies.

2-GMs Robot Mania (1980s)

General Motors CEO in the 1980s was

Roger Smith was fascinated with
technology. Among other projects, such as
the purchase of IT firm EDS, Smith embarked
on a very aggressive effort to implement
robots in GM factories.
When Smith was appointed, GM had
approximately 300 robots of one kind of
another. He soon created a joint venture
with Japans robot designer Fujitsu-Fanuc,
and said he planned to deploy 14,000 new
robots in GM plants by 1990.

Bad Move
Costing billions of dollars, the robots never really worked.
As one observer wrote, The robots accidentally painted themselves and dropped
windshields on to front seats.

A show place factory in Hamtranck, MI turned out to be more like a basket case.
Introduction of the robots lowered productivity.
A nearby Mazda plant produced just as many vehicles, with 1,500 fewer employees.

The entire project was later largely scrapped, as GMs costs rose and market share
shrunk.
Meanwhile, Toyota delivered low cost, high quality vehicles using comparatively low
tech lean production techniques.
As one GM finance executive later noted, at the time the company could have
bought both Toyota and Nissan for the money invested in the failed robot technology,
a point especially painful given GMs troubles and Toyota and Nissans success today.

1. CEO Robert Smith spends $40 billion in the 1980s on robots that mostly dont work,
while Toyota focuses on lean and cleans up.
2. And Atlast Smith Fired From His Job.

3-WebVan Automates its Way to Oblivion: 2001

Online grocer has many problems, including massive investment in automated
warehouses that drain capital and arent justified by demand.
WebVan was among several major on-line
grocery initiatives launched during the late 1990s.
$25 million automated warehouses just make no
sense given the market; company goes from
billions in market gap to gone in just months in
2001.
Backed initially by prominent financial outfits like
Goldman Sachs, hiring a high profile CEO from
Accenture.
Went going public and raising billions of dollars.
Automated warehouses that cost $25-30 million
each.

Plans to drive out logistics costs enough to make a

solid profit

And the company shut its doors completely in 2001.

Would survival have been possible with less spending on the automated Warehouses? Hard to say, but building them
certainly made survival impossible.

4- Adidas 1996 Warehouse Meltdown

Two Mistakes Simultaneously, 1-New warehouse system, 2-DC automation just dont work.
Attempt to implement first one and then second warehouse
management system in its distribution center.
Featured heavy automation
Requiring extensive logic and integration in the WMS

Adidas insisted vendors Unix-Based system to be ported to

fault tolerant stratus computers
First WMS vendor couldnt make it work and went, bellyup in mid-project.
Second WMS vendor then tried to implement their system
Due to long project delays Adidas decided to go live
before the system was really ready.
Because the system did not really work Adidas was unable
to process and ship orders able to fill 20% of its $50 million
It took many months to get the system up to full speed.

Company under ships by 80%

Adidas suffered market share losses that persisted for years.

IT and Logistics staff left the company in droves () .

5-Denver Airport Baggage Handling System 1995

Complex, hugely expensive automated handling system never really works.
Set-up of a hugely automated underground
baggage handling system with a computer driven
railroad network for moving baggage.
Bags were mis-delivered, luggage was chewed up and
cars derailed and jammed tracks.

Issues:
Underground tunnels to be used for the conveyance
system had been already built before the prime
contractor was awarded the contract.

Therefore, the system was not designed with this level of

automation in mind.
Mis-communication between the prime contractor,
airport officials and the airlines.
Inability to see the interrelated problems

Not enough time to test the sytem.

Airport opens late and a huge PR fiasco.

System is only minimally used from start and shuttered totally in 2005.

6-Toys R Us.com Christmas 1999

Can not fulfill thousands of orders for which the company promised to deliver by Christmas.
Firms
Infrastructure

Online retailing business is finally starting to heat

up.
Leading toy retailer Toys R Us advertises heavily
and promises it will make Christmas deliveries for
any orders placed by December 10.
The company is swamped with tens of thousands
of orders and simply cannot pick, pack and ship
the orders fast enough.
Toys R Us writes famous, Were sorry e-mails 2
days before Christmas.
Fire storm of negative PR.
The brand takes a bit hit, even though other etailers have some similar problems.

The Christmas of 1999 causes hundreds of companies to analyze their e-fulfillment capabilities in more detail.

Significantly reduce the issues in 2000 and beyond. The Toys R Us.com failure really was a wake up call to the rest
of the industry.

Outsourcing of fulfillment to Amazon.com.

7- Hershleys Halloween Nightmare 1999

Order Management & warehouse implementation issues caused Hershey to miss critical
Halloween shipments..
More than $100m spent on transforming the companys IT
infrastructure and supply chain.
New order management.
Supply chain planning

Technology

CRM

Hershey Foods planned to go live will all the systems in

parallel.
Whole project was delayed from April to the Summer.
Major issues were faced implementing these systems
Products were ready, but due to non working transactions,
they couldnt be shipped.
Inventory would not be visible for allocation
Supply chain and logistics executives had to be trotted regularly
to Wall Street analysts for assurance of no more glitches.
Intra system communication was also changed EDI messaging.

New order management and shipping systems dont start right, as Hershey cant fulfill critical Halloween
orders.

The Company lost at least $150m in revenue, stock dropped from 57 to 38 and profit went down by 19%.

08- Ciscos 2001 Inventory Disaster

Lacking adequate demand and inventory visibility, Cisco was caught with piles of
inventory due to the slowing demand.

Along with other companies, Cisco too rode the

technology wave in 1990 and grew immensely.
The networking industry had no experience with a
downturn and thus Cisco responded to high order
patterns with higher build rates and substantial
inventory accumulation.
Cisco was unable to see the slowing demand and
continued high production.

Cisco was thus left unprepared when the tech

bubble burst and there were piles of inventory left.
Thus the Cisco bubble burst and the company
was heavily criticized in the business press along
with huge losses to stocks.
Company forced to take a $2.2 billion inventory write-down and drop in stock by 50%.

09- Nikes 2001 Planning System Perplexity

Trouble with new planning system caused Nike Inventory and order problems.

Nikes newly implemented supply chain planning

system in 2001 invited a myriad of issues.
Software bugs.
Integration Problems.
Complexity, change for planners, lack of training.
Citing Software problems, the CEO, Phil Knight said that
the supply problems had created significant inventory
abnormalities and were the cause for a %100m revenue
shortfall.
Prices had to be slashed to get rid of the additional
inventory causing immense pressures on profit margins.
This is also a result of the Big-bang approach rather
than a phased implementation approach.
Inventory issues led to a $100 million shortfall in revenues and 20% drop in Nikes stock.

10- Aris Isotoners Sourcing Calamity in 1994

Aris Isotoner decides to move from Manila to even lower cost locations but this decision
proves to be disasterous as the quality plummets and costs rise instead of falling.
Aris Isotoner was one of the most well known brands
in gloves and slippers in the US with $220m sales, 15%
net profit and a high growth.

Production plant in Manila produced gloves at a

very low cost, even cheaper than the Chinese units
and had highly skilled workers.
The decision to move out of the Phillipines proved to
be costlier.
Production costs increased by 10-20%.
Quality plummeted along with the production quality.
Sales declined by 50% and operating losses totaled $120m.
Additional amount of $100m also had to be invested to keep
the company afloat.

Due to relocation of the production unit, Aris Isotoners profit making business turned to a loss
making one and had to be sold to Totes Inc., a unit of Bain Capital.

11- Apple Misses Power Mac Demand 1995

At one point, Apple had an order backlog of $1 billion.
A conservative forecasting strategy led Apple to be incapable of meeting the demand for Power
Macs.

Apple planned to introduce its Power Mac PCs in

the Christmas season in 1995.
It had a previous experience of excess inventories
and production capacity for a similar product.
Thus, Apples forecast for Power Mac was highly
pessimistic and totally off the mark.
There were certain delivery issues with some parts
suppliers also.
At one point, Apply had as much as $1billion in
unfilled orders.
Stock price was cut in half, CEO fired, lawsuits by
shareholders and a permanent hit to Apples
position as a market leader.
Apple lost the position of the leader in market share and could never recover from that point.

Summary and Lessons Learnt

Thanks For Slept Patience