Supply chains are a fact of life for firms. International firms tend to have long supply chains that reach to many locations around the planet. Managers have always known the risks of supply chains with a focus on disruption to the supply chain as a key risk. Losing access to a key resource or component can be disastrous. Consider the story of Nokia, the Finnish telecommunications company. A lighting strike in 2000 in New Mexico sparked a fire that seriously damaged the manufacturing facility of the supplier of the chip (Philips) used in Nokia and Ericsson phones. Nokia acted quickly to bridge the gap in chips. Its rival Ericsson waited to take action. The initial indication was this would be a minor disruption but two weeks later it was clear the disruption was major. By the end, Philips took nine months to restore production. By then, Nokia had captured the alternatives for get the chips leaving Ericsson with a chip shortage and an inability to manufacture its phones. Dr. John Tantillo reported the decision cost Ericsson $400 million in annual earnings and a loss in market share while Nokia profits rose 42% that year and they increased market share. In the end, Noki1 increased market share from 27 to 30% while Ericsson dropped from 12 to 9%.
Takata made and hope to continue making airbags. Major automobile manufacturers have been using them as a supplier for years. The problem is that for years, Takata airbags could be dangerous. Some airbags are too explosive and create metal shrapnel. People have been injured and killed by these airbags. This week Takata filed for bankruptcy protect in the U.S. (where the defective airbags were manufactured) and Japan. Takata has already agreed to pay $1 billion in penalties for its role in concealing the problem. Once again, we have evidence of the damages created when a firm conceals a crisis rather than engaging in stealing thunder. Takata has paid another billion dollars to people injured and the automobile manufacturers. But there are further legal liabilities of around $9 billion.
Honda, Nissan, and Toyota have all been paying the recall costs. None of the firms believe they will recover the money for these recalls. I own a Honda that was part of the recall. Over a period of two years airbags on the driver and the passenger side were replaced with no cost to me. Firms have recall insurance but that does not cover all the costs of a recall. Honda, Nissan, and Toyota are all feeling the effects of crisis by a supplier in the supply chain. Each has suffered some reputational damage as well from the crisis. That is due in part to the manufacturers not helping to reveal the problem and concerns buyers have about faulty airbags. Takata issued an apology and admitted employees knew of the defect since the early 2000s. the initial apology is below. But the automobile manufacturers must consider how they will respond to this crisis. Supply chains can create various risks for crisis managers.
“I would like to sincerely apologize on behalf of Takata. The actions of certain Takata employees to undermine the integrity of the company’s testing data and reporting to customers were deeply inappropriate.”
Questions to Consider
1. How viable is a scapegoat response for the automobile manufacturers in this case? Why might it help or hurt?
2. Why does the late apology and admission of guilt by Takata considered too little too late?
3. What does the chip fire case reveal about the importance of crisis scanning and early action?