The encyclopedia · Strategy & Leadership · Strategic decision · 2000
A 2000 chip fire showed Nokia's flexible supply beating Ericsson's single source
A March 2000 fire at Philips' chip plant: Nokia switched suppliers fast and barely slowed; single-sourced Ericsson lost months and $400M.
Nokia · Ericsson · Royal Philips Electronics
The solution
On March 17, 2000, lightning struck a power line in Albuquerque, New Mexico; the surge started a fire at a Royal Philips chip plant that served the mobile-phone industry. The blaze itself was brief, but smoke contaminated wafers at nearly every stage, destroying millions of chips in minutes.
Nokia, the plant's biggest customer, moved immediately: it shifted chip orders to other Philips plants and to Japanese and American suppliers, and its production suffered little. The speed mattered because Philips could not replace the lost capacity — whoever asked first got what remained.
Ericsson, which had bet on a single source, treated Philips' first calls as 'one technician talking to another' and did not escalate. By the time executives understood the scale of the loss, Nokia had taken the available capacity; Ericsson's production was disrupted for months and it ultimately lost $400 million in sales.
Why it worked
- Nokia kept multiple suppliers and could switch overnight
- Early detection let Nokia act before capacity vanished
- Ericsson's single-sourcing left it no alternative
- Slow escalation inside Ericsson turned a delay into a crisis
What can be applied
Resilience is built before the shock: the company that keeps a supplier replaceable recovers in days, while the one that bets everything on a single source pays for months.
Aftermath
The fire became the standard case study in supply-chain risk management: Ericsson rebuilt its risk processes afterward, and Nokia's response was taught in operations courses for two decades as the template for handling a disrupted supplier.
Sources
- Managing Risk to Avoid Supply-Chain Breakdown
- How Do Supply Chain Risks Occur? A Managerial Framework
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