CASE STUDY: Nokia-Ericsson
On the evening of March 17, 2000, a fire started as the result of lightning striking into the energy and electrical system of a factory of semiconductors in Albuquerque belonging to Philips Electronics N.V. At that time, Philips was the main supplier of micro-chips for mobile phones to main European producers, including Ericsson (the only supplier) and Nokia.
The fire was not dangerous – it ended after 10 minutes without the Fire Department’s involvement, and the direct damages were minor (only eight containers with several thousand products were affected). As it appeared after some time, more serious damages occurred in neighboring rooms as anti-fire system started the sprinkler system, and the resulting smoke damaged millions of elements in those rooms. Also, some assemblies were damaged. The production was re-started after 3 weeks, however after 6 months, the production level decreased by 50% from the level before the fire.
The logistics department of Nokia not only noticed the problem, but also properly assessed the problem before it was announced by the supplier (thanks to good supply monitoring) – it was March 20 when officials at Nokia were first informed about the fire. Nokia did not fully rely on the information from Philips, so they sent their engineers to Albuquerque to assess the situation for themselves. The delegation was not well-received, however, and after assessing the situation, it gave an overview that it would take months,– not weeks –for the factory to recover.
Immediately, specific action steps were undertaken. Firstly the monitoring of supplies was intensified – Instead of weekly checks or inspections, quality control checks were implemented, on a daily basis. Secondly, on the highest level Philips was forced to ensure the quantities of deliveries and to ensure that any shortage in deliveries would be completed by the products from other factories of Phillips. Thirdly, official representatives of Nokia, were sent to suppliers in The USA and Japan (Nokia avoided single sourcing) to press for higher deliveries from them. Finally, steps were taken to replace the chips used at the time, with alternative ones so that they could be purchased from other sources.
Ericsson did not monitor and control their deliveries in a strict or precise manner, and due to their lack of close monitoring, they found out about the accident after a long time from the producer in a very low-key notice (which ensured that the delay would take one week which should not cause any problems). Ericson did not follow-up or verify the information and did not undertake any activities until April. After this time all of the reserves belonged to Nokia. 
- After reading the case study and the paper, determine the kinds of risk that occurred in the case study described above?
- Classify the events/decisions and assign them into the stages of risk management
- What helped Nokia to identify the problem?
- Describe the actions of Nokia and compare them to the procedures/actions of Ericson; discuss their results
- Provide the solutions for the situation in Ericson in the context of ineffective reaction to risk, and propose something to Ericson to ensure the supply/production chain was not disrupted – compare your proposals/solutions with what they eventually did (cooperation with Sony)