The Boeing Dreamliner was delivered three years late © PA Images
The Boeing Dreamliner was delivered three years late © PA Images

Five lessons from procurement disasters

4 May 2018

Sometimes in procurement, disaster can be more instructive than success. “Nobody wants to fail, but you can’t let a good crisis go to waste,” Henry Petroski, author of Success Through Failure, once told the NewYork Times. “Failure can be great source of knowledge and humbling, too – sometimes that’s necessary.”

These five procurement disasters all prove Petroski’s point.

1. The Hitler diaries, 1981
There was nothing subtle about the forging of the Hitler diaries. Many entries had been copied verbatim from an anthology of the Fuhrer’s speeches. To make the pages look suitably old, forger Konrad Kujau sprinkled tea over them. Even the lettering imprinted on the cover of the first diary was wrong – instead of AH, the initials were FH.

Despite such glaring anomalies, two magazines – Stern in Germany and Newsweek in the US – plus the Sunday Times  acquired the diaries. The British broadsheet did try to ascertain if they were authentic. Unfortunately their expert, renowned historian Hugh Trevor-Roper, was fooled too.

Stern’s initial purchase is an object lesson in how not to do procurement. The contract was negotiated in a hurry and amid such secrecy that Stern’s editors did not even know who their supplier was. They were paying a middleman, Gerd Heidemann, one of the magazine’s best journalistic sleuths, albeit one who was unhealthily fixated on the Nazi era. Stern did not attempt to verify the diaries – as editor-in-chief Felix Schmidt put it: “Who wants to blow a deal like this?” – so no scientific tests were conducted. (The simplest test would have shown that neither the ink nor the paper stock were available in Hitler’s lifetime.)

The key lesson here was that the buyers became so emotionally invested in the scoop they didn’t do basic due diligence and forgot the first law of procurement – if something looks too good to be true it probably is. The inglorious episode is also an extreme example of groupthink, a phenomenon that befuddles many organisations.

2. The Tacoma Narrows Bridge collapse, 1940

Even today, the footage of this bridge twisting, breaking and falling into Puget Sound, in Washington State, can induce nausea. The Tacoma Narrows Bridge took a year to build and was blown away roughly four months after it opened, in 7 November 1940. The destructive winds weren’t that strong – 40mph (64kmh) – but the bridge’s propensity for moving up and down whenever the wind got up had led construction workers to nickname it Galloping Gertie.

The collapse was primarily caused, Petroski says, by overconfidence. Engineers had begun competing with themselves to push the envelope by building longer suspension bridges – the George Washington Bridge (1931) had a central span of 1,067metres and the middle span of the Golden Gate Bridge (1937) stretched to 1,280metres. The Tacoma bridge was shorter – its central span was just 853metres – but, in the quest for a more aesthetically pleasing, slender look, it was designed with a two-lane central roadway and a shallow surface. In layman’s terms, the bridge was too light and too slim to withstand the wind which, amazingly, had not been factored into the design by architects and engineers. The catastrophe’s only fatality – a black cocker spaniel called Tubby – did not die in vain. The Tacoma Narrows Bridge revolutionised the design and build of suspension bridges. Engineers would never ignore the wind again.

3. The Airbus A380 delay, 2006

Launching a new megajet, the A380, was a complex task for Airbus that largely failed because of one simple flaw: incompatible software.

The A380 fell two years behind schedule because the state of the art Dassault Systèmes CAD software used at the group’s main assembly plant in Toulouse could not talk to the 1980s version of the same software used in the Hamburg factory where the cabin wiring was made. Designs could not be freely shared within Airbus’s supply chain so the cabin wiring was the wrong size and had to be redesigned at a cost of $3.5bn.

Many local factory managers had balked at upgrading their CAD software, worried about the time and cost involved in retraining staff – and, remarkably, senior managers had not insisted. To make matters worse, the supply chain for the A380 was inordinately complex, partly due to the political need to share the work between the European Union’s national aerospace industries. A dysfunctional corporate culture didn’t help – middle managers began discussing the wiring problems in the autumn of 2004, but didn’t inform senior managers for six months.

The lesson Airbus learned, at such cost, was that something as basic as ensuring that all plants involved in the project were using the same software could have prevented the problem – and saved tens of billions of dollars. The delay also highlighted the fact that complexity in itself was a risk and that, all things being equal, simpler supply chains were safer.

4. The Boeing Dreamliner’s launch flight, 2009

Ironically, the perils of complexity forced Boeing, Airbus’s greatest rival, to delay the test flight of its Dreamliner aircraft from September 2007 to December 2009. The first aircraft was finally delivered, three years late, to All Nippon Airways in September 2011. In the next 18 months, 20 separate incidents and investigations – from fuel leaks to on-board fires and fuselage repairs – bedevilled the new airliner.

Jim Albaugh, the then CEO and president of Boeing, admitted: “Some of the technology was not as mature as it should have been and we put a global supply chain together without thinking through some of the consequences. When you put immature technology in your supply chain and don’t have adequate oversight, you have issues.”

5. Land of Leather’s ‘toxic’ sofas, 2007

The original business proposition for retailer Land of Leather was to bring the luxury feel of leather furniture to the masses. What the company actually bought to the masses, in the autumn of 2007, were sofas that gave at least 4,500 people skin rashes.

The sofas, made in China by Linkwise, contained sachets of dimethyl fumarate (DMF), a mould-inhibiting chemical which, even in low concentrations, can cause bad cases of eczema.

Other retailers had also sold the sofas but Land of Leather bore the brunt of the blame. The ‘toxic’ sofas had been the company’s core product and, although it did stop selling them, it didn’t warn existing sofa owners about the danger. Within weeks, the media was running stories about the sofas being made in “back street factories” by “exploited workers” in China.

In February 2008, the Land of Leather finally negotiated a $900,000 credit from Linkwise – but only in return for a pledge to order goods worth $20m in the next 12 months and a promise not to make any further claims against the supplier. This last concession was especially disastrous because, only three months before, the retailer had agreed to make no such commitments without consulting its insurer Zurich. With the global economy lurching into recession – and credit insurance in increasingly short supply – Land of Leather went into administration in January 2009. 

There was nothing wrong with the leather retailer’s strategy – but it failed to monitor and manage the risks to quality and safety that inevitably come with selling large volumes of cheap products. Equally, there was nothing wrong with sourcing the sofas from China – as long as the relationship with the supplier was managed carefully and based on clear, detailed agreements that were understood by both parties. Both these failings made Land of Leather’s demise all but inevitable.

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