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Supply Chain Management: The Boring Sounding Idea that Changed Your World

Written by Collin Fifer

https://flic.kr/p/25n4Kj1

Superstores are a historical miracle. Until recently, to have access to the amount of goods held in places like Costco or Walmart, explorers would have to risk life and fortune to travel around the world in search of  exotic treasures. 

Nowadays, any ordinary family can buy food, a PlayStation, and Nike shoes all within a twenty-minute grocery trip. 

But how do companies bring you products from all over the world? If you unravel the puzzle of how they do it, you will enter a world of business, transport, strategy, and technology. This is the world of supply chain management. 

Companies dedicate a sizable chunk of their resources to planning the flow of their goods and services. The impact this complex process has had on the world cannot be overstated. It has bolstered the boom of economies, changed the course of history, and kept supermarket shelves stocked with just about any product imaginable. 

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History

The modern economy has no precedent. Never before in human history have so many people interacted so frequently on such a global scale. Ancient empires from the Mayans to the Chinese made headway, expanding their economic influence and the scope of their trade. But compared to the economic scale of today, the chains they set up were tiny and inefficient. 

The typical pre-Industrial Revolution economy was like this: a farmer would cultivate wheat in his field. After harvesting, he would sell it to the local baker, who would use it to bake his bread. The baker would then sell his bread to the local merchant, who would take it to the market. A villager would buy it and consume it soon after. And thus was the pre-1900s economy: goods and services mostly stayed local. 

It wasn’t until railroads came around that goods could spread over longer distances regularly. The assembly line also helped expand supply chains by making products of consistent quality available on a large scale with high efficiency. Now those local markets were selling goods from neighboring states and countries. It wasn’t quite Costco, yet, but it was enough to give that local villager a more varied choice of food. 

The pallet and the shipping container made a tremendous impact by allowing companies to use storage space better. These two simple inventions forever changed how shipping and storage operate. Companies could store goods efficiently and safely during any leg of a journey—truck, train, or boat—and not take up a disproportionate amount of space in the warehouse. Talk about out-of-the-box thinking. 

In the ‘60s, most land transport made the transition from rail to truck. New technology led to more efficient practices. Now, time-sensitive, raw materials could be transported over longer distances. The era of globalization was off the rails and trucking along.

The increase in goods being shipped and received made inventory a painstakingly laborious process. Imagine tallying all the products in a Walmart warehouse by hand. But that changed with IBM’s computerized inventory management system. IBM’s software streamlined a tedious part of logistics and relieved warehouse managers around the world of  carpal tunnel. 

Further digital developments continued to replace the error-prone parts of supply chains. This allowed businesses to focus more time and resources on developing profitable business strategies. And we all know that when corporations have too much time to think, they only come up with completely legal business strategies, right? 

Corporate scandals brushed under the rug, businesses continued to use supply chain management to grow. Local markets evolved into grocery stores shelving an ever-growing supply of products. The average consumer could now buy a world of foods to have with their Wonder Bread. 

The 1980s rolled around and, besides neon clothes, fanny packs, and bushy, permed hairdos, it brought the spread of personal computers. These allowed companies to use spreadsheets to track every aspect of their supply chain and to optimize their systems using risk management algorithms. After all, late shipments of perm kits would spell disaster for prom. 

Supply chain management stayed forever young even as the trends it supplied faded and changed with the decades. Enterprise Resource Planning (ERP) became the fresh prince of the business world in the 90s. These advanced systems allowed businesses to centralize information and improve communication between separate departments. 

Walmart was one of the first companies to capitalize on ERP. Their centralized planning and efficient supplying of their nationwide network of stores helped launch them into the ranks of the world’s richest companies while simultaneously gifting the world with countless ‘Merica memes. 

In 1995, Amazon opened and Microsoft released Internet 1.0, ushering in the era of internet commerce. Shortly after, the manufacturing boom in Asia bolstered online shopping and introduced the world to a vast (and weird) array of consumer goods. With the click of a mouse, you could buy anything from food and clothes, to Bop Its, Moon Shoes, and Tamagotchis. 

Nowadays, Internet 4.0 allows for even more complex but efficient supply chain strategies. The internet of things—physical objects with chips that communicate with other computers with no human involvement—allows companies to track individual products and predict consumer demand with mind-boggling efficiency. But I’m sure we’ll prove Terminator wrong. I mean, no machine uprising will come from computers talking behind our backs, right? 

But, even today, companies are still developing new strategies to supply us consumers with their products. Amazon Dash buttons saved us the inconvenience of going online to order stuff. Smart watches give us the internet on our wrist and track our daily activities, giving us targeted ads for products we didn’t even know we wanted. At this point, only the most imaginative thinker can predict what the future holds. Let’s just hope that the thinker isn’t James Cameron. 

https://commons.wikimedia.org/wiki/File:Supply_and_demand-stacked4.png

How It Works

Boiled down to its basics, supply chain management is the centralized management of the flow of goods and services from origin to consumption. It’s how superstores can make food, PlayStations, and Nike shoes available to you so easily. 

Before the Industrial Revolution, supply chains mainly stayed within local boundaries. But for WalMart to stay stocked requires a level of planning and execution only a global corporation could manage. Just tracking the path of one of their products is exhausting. 

Modern-day supply chain management looks something like this: a board of logistics professionals meet to plan out the quarterly need for their company’s product, let’s say toilet paper. They lay out the groundwork for supplying stores with enough product to meet customer demand. They find suppliers of materials they need to make said toilet paper who send said materials to their factories for production. The finished toilet paper is packaged and shipped to stores. COVID-19 hits and people panic buy the whole stock. The logistics professionals meet again to adjust their algorithms and  re-plan how to meet the new demand. Rinse and repeat.. 

Each step of the process holds many systems that organize information and materials and, an array of ever-developing technologies to make those systems practical. Each item you see in your supermarket is a product of the successful operation of these systems. . 

Sony needs to plan how to get enough PlayStations in stores for the holiday season. Nike needs to maintain relationships with the suppliers and factories that make their shoes. And supermarkets need to manage the recall and disposal of expired food to avoid contamination and lawsuits

Even though it’s often a single company’s name on the product, the production process has many steps along the way involving dozens of other companies. There is a lot of work and logistics behind those stocked shelves.

But, as convenient as these systems of supply chain management are, they bring with them effects that prove both beneficial and detrimental.

https://commons.wikimedia.org/wiki/File:Walmart_Wenatchee.jpgWalmart Wenatchee 2

Impact

In addition to the global availability of goods, these processes also lead to better customer service. Consumers can get what they want, when they want it, without having to wait long. For companies, they lead to lower costs. Increased efficiency means less wasted time, product, and money. Thus, higher profits.

Well-executed supply chain management strategies can also cut down on waste and help the environment. Since wasted time or product means lost money, it is in companies’ best interest to ensure their strategy involves only as many resources as they need. 

Supply chain management strategies can be used for more than just consumer business. History-changing military missions and life-saving medical procedures run smoothly because of said logistical strategies. Sounds like a win for everyone involved, right? 

But the same development of technology that led to the expansion of supply chain networks has also shed light on their negative effects. Logistical practices that harm or infringe on the rights of people, wildlife, or the environment in the name of increasing profit are harder to hide nowadays. 

https://commons.wikimedia.org/wiki/File:Customer_Satisfaction.png

Nike’s mishandling of the exposure of poor working conditions in their factories, ranging from poverty wages to child labor, spurred a global boycott of their goods. For a company named after the goddess of victory, that doesn’t sound like winning to me.

The growth of global supply chains has also led to widespread dependence on what some would call a fragile system. Disruptions to any part of a supply chain can have detrimental effects on all the others.

In 2004, an oil tanker ran aground in the Suez Canal, holding up the flow of international trade. A container ship holding a large stock of PlayStation 2’s destined for Europe was part of the backup. This was weeks before the holiday season and the hot gift that year was, you guessed it, a PlayStation. Sony chartered Russian cargo planes to ‌get the consoles in stores on time, but the damage was already done. Santa could not give Europe enough PS2s. I don’t think I’ve ever given enough thought to how much of a relief it is that nothing like that has happened since. 

Supply chain management is now met with the challenge of developing strategies that take ethics and societal values into account, as well as financial margins. For example, supermarkets have a practice of disposing food that is close to expiration. This move may protect them from pricey lawsuits, but it also accounts for around 16 billion pounds of food waste per year in the U.S. alone, or 30% of their food stock on average. Some people decry this practice, saying these leftovers should be donated to feed the hungry.

But the enormous benefits global supply chains bring when they run smoothly has made many parties want in on the action. Like it or not, supply chain management is a key component of today’s global economy. And, odds are, you probably take part in this process without even realizing it. It’s hard to come by a good or service that wasn’t a product of global supply chains.

These strategies and technologies have changed business practices, economics, history, and the world more than we can fathom. They have made the present day worlds different from the past. And the way things look now, it’s highly unlikely that the growth of supply chain management will stop. We can only hope that it brings with it as many solutions to the global problems we face as it does the products and services we have grown to love.

Sources

https://www.masterclass.com/articles/introduction-to-economic-specialization#:~:text=Paul%20Krugman’s%20MasterClass-,What%20Is%20Economic%20Specialization%3F,focusing%20on%20a%20specific%20job.

https://www.nationmaster.com/country-info/stats/Geography/Land-area/Square-miles

https://www.indiatoday.in/education-today/gk-current-affairs/story/explorers-263573-2015-09-18

https://www.supplychain247.com/article/supply_chain_disruption_the_bad_the_ugly_the_future

https://cscmp.org/CSCMP/Develop/Starting_Your_Career/Importance_of_Supply_Chain_Management.aspx

https://internetofthingsagenda.techtarget.com/definition/Internet-of-Things-IoT

https://www.globaltranz.com/history-of-supply-chain-management/

https://supplychaindigital.com/supply-chain-risk-management/history-supply-chain-management

https://www.logmore.com/post/history-of-supply-chain-management

https://www.ibm.com/topics/supply-chain-management

https://www.investopedia.com/terms/s/scm.asp#:~:text=Supply%20chain%20management%20is%20the,competitive%20advantage%20in%20the%20marketplace.

https://www.techtarget.com/searcherp/infographic/15-examples-of-supply-chain-disruptions-throughout-history

https://www.rts.com/resources/guides/food-waste-america/#:~:text=Grocery%20Store%20Food%20Waste%20About,of%20food%20waste%20every%20year.

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