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  January 26, 2006 - SupplyChainDigest Newsletter
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First Thoughts by Dan Gilmore, Editor

The Greatest Supply Chain Disasters

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. The latest (see News and Views story nearby) is Canadian grocer Loblaw, which for the second consecutive quarter blamed a problematic network redesign for higher costs and lower sales. That follows the Body Shop last week blaming poor inventory planning for lower North American Christmas sales, ConAgra recently referencing higher than expected distribution costs, etc.


No guts, no glory.


All of which got me 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 Contributing Editor Mark Fralick and I did a lot of research to find out – and I hate to say it was actually kind of entertaining to find and recount those stories.


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


So, our summary list is presented below, in order from worst to not quite as worse. A more detailed version can be found in our new report on the topic, downloadable by clicking here. You can also download a table of this “Top 11” (weird number, I know, but we just couldn’t find one to cut). Click on the button in the graphic to size right for your screen (gif file).

  •  Foxmeyer’s 1996 Distribution Disaster: New order management and warehouse automation systems lead to inability to ship product and failure to achieve expected savings; bankruptcy and sale of the company follow
  • GM’s Robot Mania: CEO Robert Smith spends $40 billion in the 1980s on robots that mostly don’t work, while Toyota focuses on “lean” and cleans up
  • The WebVan Story: $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
  • adidas 1996 Warehouse Meltdown: Not well known story, adidas can’t get a first and then second warehouse system and also its DC automation to work. Inability to ship leads to market share losses that persist for a long time
  • Denver Airport Baggage Handling System: New airport opens late in 1995 due to failure of highly automated, hugely expensive system, which never really works and is completely shuttered
  • Toys R Us.com Christmas 1999: On-line retail division can’t make Christmas delivery commitments to thousands; infamous “We’re sorry” emails on Dec. 23; eventually, Amazon takes over fulfillment
  • Hershey’s Halloween Nightmare 1999: New order management and shipping systems don’t start right, as Hershey can’t fulfill critical Halloween orders; $150 million in revenue lost as stock drops 30%
  • Cisco’s 2001 Inventory Disaster: Lack of demand and inventory visibility as market slows leads to $2.2 billion inventory write-off and stock price cut in half
  • Nike’s 2001 Planning System Perplexity: New planning system causes inventory and order woes, blamed for $100 revenue miss as stock loses 20%
  • Aris Isotoner’s Sourcing Calamity in 1994: Then a division of Sara Lee, Isotoner decides to shut successful Manila glove/slipper plant to chase even lower costs elsewhere; costs rise, quality plummets, revenue cut by 50%; soon sold to Totes Inc.
  • Apple Misses Power Mac Demand: In 1995, Apple plays conservative with commitments and capacity and can’t deliver on demand for new PCs. Market share takes permanent hit.


We’re out of space for much more comment, but obviously we have nothing later than 2001 on our list. While many companies have had supply chain issues, it appears these lessons have at least led companies to avoid the biggest failures. You’ll enjoy our full report, where we also list a few foibles that almost made it.


I figured it was unlikely we would get a sponsor for the report (LOL). Full report here.


What would you add or detract from our list? Any additional comments? Does it seem companies have reduced the level of disasters of late?

Let us know your thoughts.

Dan Gilmore

New SCDigest Research Report:

High Volume, Multi-Modal Shipping - What Executives Need to Know

An increasing number of companies must ship across multiple modes, including growing parcel volumes.

We provide insight into how to reduce costs and improve performance.

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Report made possible in part by:Irista - An HK Systems Company


Barriers to Effective Demand Forecasting

Guest Speaker:
Dr. Mark A. Moon - Director, University of Tennessee College of Business Administration

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Coming soon in SCDigest:
Defining a Demand-Driven Supply Chain
What Happened to the Supply Chain Planning Market?
RealRFID Newsletter
Task Interleaving Report

January 26, 2006
Loblaw, Targeting Wal-Mart Like Efficiency, Still Battling Supply Chain Re-Design Woes

Too much, too soon?

January 23, 2006
Supply Chain/Warehouse Management Industry Continues Consolidation as RedPrairie Announces the Acquisition of MARC Global

SCDigest table of recent transactions shows the trend; protecting yourself in vendor selection

January 23, 2006
Manufacturing News: Supply Chain and Manufacturing Issues Loom Large in U.S. Automaker Woes – and Recovery

Lack of manufacturing agility, and ability to gain bottom line results from productivity improvements, loom large



Speaking of Webvan, who was its first – and prominent – CEO?

A. Click to find the answer below

Interlog 2006   Softeon - www.softeon.com

Feedback is coming in at a rate greater than we can publish it - thanks for your response.


Ok, it's official - we've received more letters on our review of the University of Arkansas study on the impact of RFID on out-of-stocks at Wal-Mart than any topic in our two-plus year history. We're trying to get through most all of them, because the dialog is so interesting. If you've written lately on other topics, be patient - we'll get to them soon.

Our feedback of the week is from David Schneider, an avid SCDigest reader and erstwhile frequent responder whose SCDigest got lost for awhile in the corporate fire wall. Welcome back! You’ll find anumber of others as well. We still have a few to go.


Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the week - on the Wal-Mart out-of-stock study:

One of the things that I see more and more retailers get fired up about in
this arena is fill rate from supplier. I know that fill-rate is a sore
subject with us in our application specific high cost and tight inventory
world where the customer will go to another retailer if we don't have the
part on the shelf. Yes, my store could be messed up and have 1 unit in the
system and none on the shelf. Yes, my DC could be messed up (not likely)
and show quantity in the system and none on the shelf. But, what is RFID
going to do to the 75% overall unit fill rate that I see from our vendors

Please, someone tell me, what will RFID do in improving the fill rate from
a supplier?

I saw a demonstration of the item level RFID pilot project that IBM is
doing with Best Buy where as the item is pulled off the shelf at retail all
sorts of actions are triggered. But riddle me this: If I have a solid POS
driven PIR system, and I have the right practices in inventory receipt and
inventory control (like accurate and timely cycle counts) what is Item
Level RFID going to tell me? Just that the item left the shelf, and when,
and perhaps which cash register is processed through and when.

Again, not to "rain on the parade" but where is my payback?


David K Schneider
Director – Logistics

Pep Boys

n Mowery


Nestlé Purina PetCare Company

More on the Wal-Mart out-of-stock study:

I am in complete agreement that RFID was not a requirement to get a system-driven restocking program.  If the study you referenced concluded a significant out-of-stock reduction was directly due to RFID implementation, but was using a paper-driven system as a baseline for comparison (at the low end of the technology spectrum), there are cheaper, more traditional methods (midlle of the tech spectrum) to achieve the system-driven restocking.  Assuming either would by definition require WMS programming for system-driven restocking, any standard barcode and data collection equipment would logically produce the similar results.

Michael Warren

The RFID hype has definitely created high expectations.  I've been working with a pharmaceutical client that has looked at, and tested RFID on a small scale, with poor results.  The pharma industry perceives the cost of many improvements (manufacturing, distribution, or IT) as a minor cost when compared to their profit margins.  The decision to not pursue RFID was not based upon the cost of implementation.   RFID is just too unreliable (at this time) for tracking drugs in a highly regulated (DEA / FDA) environment. 


You met your goal of stimulating some thinking.


Mark Hamburg

Lockwood Greene

You said it – the Hawthorne effect is certainly at work. In addition to it being common knowledge that the store is being monitored, how obvious is it that certain SKUs are as well, with the EPC label displayed prominently???

Paul Pocialik

Chief Technology Officer



Q. Speaking of Webvan, who was it’s first – and prominent – CEO?

A. George Shaheen, the ex-CEO of Accenture. He should have stayed.

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