You need to have been on this earth for more than 60 years to remember a time before Supply Chain Management (SCM). So, in this 3-part blog series, we will look at the evolution of supply chains, from the profound changes in business organisation and technology in the 1970s. To where we are today on the cusp of yet another evolution which will prove even more significant.
In the Beginning
Textbook manufacturing structure was quite ‘flat’. Manufacturers either made their own parts or bought them in from a single level of suppliers. They would then ship products either to wholesalers, their own dealers, or direct to major customers. Meaning, in- and out-bound supply ‘chains’ were often only one link long.
Physically, firms used their own vehicles and warehouses, or contracted transport companies. In case you are wondering, these were 1PL and 2PL, that came before today’s 3PL (Third party logistics) providers.
Communication was by either letter or phone, making it difficult to change plans quickly. Finally output was mass production of a few standard products to long-term sales forecasts with little sight of real demand. For these reasons, the supply base was as local as possible.
Manufacturers realised that making their own basic parts and assemblies wasn’t the most productive use of shareholder funds. It was time to ‘focus on core competences’.
They found they could reduce their own costs and investment by buying-in complete assemblies from ‘Tier 1’ suppliers. They in turn bought sub-assemblies from Tier 2, who bought parts from Tier 3, etc. Resulting in supply chains gaining multiple links.
The same thinking applied to logistics – hence the rise of the 3PL to own and manage trucks and warehouses that hitherto had been run by manufacturers, suppliers, or distributors.
At the same time, sourcing basic parts and assemblies from low labour cost countries became feasible. The key enablers were the Fax machine and the shipping container. Making it possible to both instruct a distant supplier in hours rather than weeks and receive goods back in merchantable condition.
A wider and deeper supply base, and simplification of in-house manufacturing operations, meant that firms could begin to offer what the customer wanted rather than what was convenient to produce.
This led to demand ‘pull’ rather than supply ‘push’. Which implied shorter planning horizons across a much greater product variance.
But supply chains were now much more complex, with far greater risk carried outside the business. The need to co-ordinate and control these new structures gave rise to theories of Supply Chain Management.
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