July 19, 2017

Much More than Money Can Go Up in Smoke When Industrial Fires Blaze

Matt Mills & Barry Hochfelder

This is the second of a multi-part series on factory fire risk in the supply chain. In these articles, we will examine the causes, costs (dollars and human), consequences and potential mitigation and response strategies when a fire impacts a node of the global supply network.


When disaster strikes, it can be easy to worry about money and the cost of the damage to the business, but let’s not forget about the devastating cost beyond physical property damage. Fires have severe up- and downstream impacts to suppliers, customers and employees.

 As we noted in the first of this series above, fires that affect the supply chain can occur in any industry—there are no exceptions, no exemptions. Be it manufacturing, agriculture, defense and aerospace, energy production, mining, laboratory, comm center, farm or more, even the most careful adherents of risk management are susceptible. And the damage can be inflected anywhere along the value chain.

 Even a Small, Quickly Contained Fire ‘Spreads’ Through the Supply Chain

Sometimes a single case can be more jarring, instructive and memorable than a long litany of mind-numbing examples. Here’s a textbook example of what can happen—even when it seems insignificant at the time.

In 2000, cell phone manufacturers Nokia and Ericsson were battling for market supremacy. Both bought semiconductor chips from Phillips Electronics, which had a fabrication plant in Albuquerque, NM. During a thunderstorm, lightning caused a small, fire that Phillips employees quickly doused. When the fire department arrived shortly thereafter, they checked and ensured that everything was fine.

Except, it wasn’t, chips are manufactured in “clean rooms.” A speck of dust, a stray hair, a minuscule fleck of lint, anything larger than a half-micron can be disastrous to the production yield of that facility.

In this case, in the fabricator area where the fire flared, eight trays of 8-inch wafers (the material chips are cut from) were contaminated. Each wafer provides hundreds of chips, so thousands of were destroyed and, in turn, production of thousands of cellphones ceased.



Not such a “fab” outcome

Unfortunately, the damage wasn’t confined to just that “fab” room. Smoke had spread throughout the plant, and firefighters and staff members had tracked dirt and mud throughout the facility, where chips were in various stages of production. In the end, contamination ruined chips that were destined for millions of cell phones.

 Phillips executives expected that production would be down for about a week, damaging enough, but not fatal. However, it was discovered that it would take months to get the clean rooms back in order.

 Nokia was proactive, lining up additional suppliers and suffered minimal pain. Ericsson, on the other hand, decided to “wait out the week.” The Swedish company lost $400 million due to its lack of detection and response, but the second order impacts and reputational standing lost were even more devastating. A year later, Ericsson relinquished its phone business in a joint venture with Sony.

 Don’t Forget the Human Impact

Certainly the business losses of fires are profound. Some businesses never recover and close their doors. Even if no one died or was injured in the fire, the lives of those who worked there are severely impacted. New jobs aren’t always easy to come by and even if production continues, productivity can be impacted. If an employee was seriously injured, requiring long-term care savings (if there were any) will quickly evaporate.

Two fairly recent incidents stress the profound human toll of industrial files.

1988: Piper Alpha was an oil production platform in the North Sea about 120 miles from Aberdeen, Scotland, was operated by Occidental Petroleum (Caledonia) Ltd. An explosion and resulting oil and gas fires destroyed it, killing 167 people, including two crewmen of a rescue vessel; 30 bodies were never recovered. The total insured loss was about $3.4 billion, making it one of the costliest manmade catastrophes ever.

 1993: Kader Toy Factory fire. A fire started in a poorly built factory in Thailand. Exit doors were locked and the stairwell collapsed. 188 workers were killed, mostly young women.




Drive Accountability Internally and Down Your Supply Chain

Given their frequency and devastating second-order impacts it is important that every company put fires and explosions at the center of its risk mitigation and response planning. This focus should extend from its own facilities down to its suppliers.

 In addition to those suggested in the first edition of this series above, some best practices to consider when building a program:

--Human life and safety should be the first concern in any business continuity or response plans. Often, companies skip right to mitigating the business impacts and do not make proper plans to assure the well-being of its employees. Be sure your plans state this explicitly and it is a key point of emphasis in every exercise. Include questions about health and safety issues in your business continuity assessments. Also, consider adding or requiring post-crisis employee support to you plans and supplier requirements.

 --Assure your facilities and supplier facilities have a crisis communication plan that includes customers. Customers do not need to be the first stakeholders altered (those should be first responders), but they need to be in the plan such that they are notified once the situation is stabilized, but not necessarily after the total supply impact is finalized. Even a notification that an event has occurred and a “standby” for the detailed impact will allow customers to secure additional supply and can preserve a supplier’s reputation as a partner in the supply chain.

 --Early detection is key. Companies cannot trust their suppliers for prompt notification of a fire or explosion. Whether the supplier is trying to preserve its reputation and/or dealing with the first-order impacts of the incident, they will rarely notify their customers immediately. Employing a tool like Resilinc EventWatch or even dedicating resources to monitoring your supplier sites internally will go a long way to ensure that you are the Nokia and not the Ericsson in the situation.