April 2, 2019

A Short History of Supply Chain Management

Supply chain management forms the backbone of most economies and successful multinational companies today. From humble beginnings to global standards, its relatively short history is summarized in this article.

Supply chain management

While the term ‘supply chain’ is attributed to newspaper ‘The Independent’ in 1905, the concept of a network of suppliers, producers/manufacturers and consumers had been around for a long time prior to that. ‘Supply chain management’ wasn’t coined until the 1980s, so the field is still young compared to related areas such as procurement, logistics, and manufacturing, which all play a role in supply chain management.

Supply chain management generally refers to the management and optimization of systems and processes involved in getting a product from its raw material state to an end point, the consumer. According to the Council of Supply Chain Management Professionals, its aim is to ‘maximize customer value’ while allowing a company to run profitably.

The early stages

The first example of production with a ‘truly global supply network’ was most likely rum. The supply chain in this case started with slaves who were moved from Africa to the Caribbean to grow the sugarcane, which came from India, and it ended in distilleries in the US.

Of course, if we think about the early stages of supply chain-related areas such as logistics, we have to go back far earlier. Ancient empires across the world from Peru to Rome left their mark on the development of logistics as a field in its own right, introducing roads, organized labor, transport and armies. All of these required a massive organization effort, considering the land, human resources, food supplies, and property.

From these ancient times up until the 18th century, all parts of a supply chain were kept mostly local due to the lack of larger transport options and the high cost of moving goods around the world. Once shipping capabilities expanded, the quantities of goods that could be transported along any part of the supply chain grew exponentially.

Seismic shifts

In the late 1920s, the introduction of mass production along assembly lines laid the foundations for supply chain management. First successfully implemented by Ford, the idea of producing consistent products on a large scale with increased efficiency changed trade and supply chains irreversibly.

Mass production and the concept of interchangeable parts originated in the late 18th century with weaponry in America and ship pulley production in England, but had not previously been combined with division of labor, continuous workflow and specialization.

Containerization, or container shipping, not only increased the quantity of available space for goods, but also increased the speed of the freight movement while decreasing the cost. The speed increase came from more effective warehousing processes as well as transport terminal efficiency. The improvement of this transport process including loading and unloading goods—also known as transshipment—heralded a new era of globalized trade.

Barcoding was another gamechanger for the industry, finally being used in a commercial context in in the 1970s despite being patented more than twenty years before. Its adoption was spurred forward by a standard requiring an identifying number from the US National Association of Food Chains and subsequent research showing large increases in profit from ‘point scale scanning’. Once the barcode was adapted to become an internationally used standard, it could be used from for ‘monitoring of the supply chain both globally and internationally’.

Technological advances

The innovation of the personal computer in the 1980s was the catalyst for more new tech that impacted supply chain management immensely, such as spreadsheets, optimization models and algorithms that could predict logistics issues for a supply chain. These solved problems with planning, resource management and forecasting, as well as making oversight of the entire supply chain easier to visualize, save, and share.

Faster and stronger computers were closely followed by the development of systems such as Enterprise Resource Planning systems, or ERPs, which were an extension of the Electronic Data Interchange (EDI) systems introduced decades earlier. ERPs enabled businesses to use software to manage all its activities, which included automating business functions, centralizing information, managing finances and tracking performance. Before ERPs, it was common for businesses to face issues such as being unable to access information from different departments, which prevented businesses from scaling, limited their productivity and missed errors.  

In the last 15 years, the uptake of social media and big data have shone a light on poor practices along parts of the supply chain that had been previously hidden to the world. Because of global pressure to have sustainable, ethical supply chains and the ongoing pursuit of increased efficiency, analytics now play an even more vital role in supply chain management.

The development and widespread adoption of analytics has introduced another layer to supply chain management—monitoring. As product life cycles have shortened and efficiency has increased, supply chain management has had to utilize technology to meet the needs of stakeholders. This includes the push for real-time monitoring, particularly as public pressure to remain sustainable and socially responsible has grown.

All parts of a supply chain can now fall under the scrutiny of the public or the law, so the scope of its management has grown to include dealing with big data and having access to real-time visibility.

To the future!

In future, we are likely to see technology dramatically alter how supply chain management works. The Internet of Things (IoT) will enable businesses to create and implement new systems while production occurs. This will force companies to consider the needs of future product life cycles alongside their distribution of existing products.

The integration of technologies like the blockchain is another area where supply chain management might see a significant change in both operational requirements and each process along the supply chain. Consumer demand for transparency and the worldwide demand for secure and reliable transactions can both be met by the use of blockchain and smart contracts.

There are already some use cases of these emerging trends. Examples of these are in Hong Kong, where a shipping company has been successfully using smart contracts and cryptocurrency to combat unreliable deliveries, and with Walmart, who used blockchain to trace the Chinese pork supply chain.

Did you enjoy the article? Take a look at our posts Four Ways Technology Will Boost Warehouse Efficiency, Logistics: the Invisible Industry and How Lean Supply Chains Improve Businesses.