Evolution of Operations & Supply Chain

How convenient is it for new car customers to be able to purchase a brand new corvette online in the exact color and accessory package they desire? What consumers don’t realize is that these types of purchasing options are a relatively new advancement in the production and sales of cars! In the early 20th century, Henry Ford provided his customers any cars they wanted – as long as they were black!

In this lesson, we will examine other advancements that have occurred during the history of operations and supply chain management. We’ll explore the history of how different companies have developed new technologies that have forwarded operations and supply management systems.

Early 20th Century

The evolution of operations and supply chain management begins with Henry Ford and the assembly-line building of Model T automobiles in 1910. The assembly line was the beginning of the structured use of operations and supply chain management in business. The line allowed fast, efficient manufacturing of automobiles and other products by having workers manipulate identical parts or repetitive tasks through the production process. Operationally, the assembly line increased production and eliminated errors. It also created the specialization of labor, and the companies viewed this method as a way of producing products that the company deemed appropriate for making profit and not what the consumer necessarily wanted to purchase.

Then, in the 1950s, Malcolm McLean developed ocean shipping containers, which are standardized transportation containers that are used for international shipment of products. His invention allowed international trade to flourish and provided companies the ability to move operations overseas.

The 1960s & 1970s

The introduction of EDI or Electronic Data Interchange in the 1960s ushered in the use of computer technology in the operations and supply chain field. EDI is dependent upon computers transferring business data to other computers for better operations. Companies that share data this way are considered trading partners. For example, many large retailers link their cash register terminals directly to their production partners so that when a size 16 white blouse is sold, the factory automatically knows how to make additional ones in that style and size. EDI has revolutionized operations and supply chains because it has virtually eliminated the need for inventory and the costs associated with it.

Then, the UPC or Universal Product Code appeared in the 1970s. It also aided in the operations and supply of products. The code allows the specific identification of a particular product for tracking and production reasons. For example, when you purchase a bag of Hershey chocolate kisses, the UPC identifies the size, flavor and other details for the product to the manufacturer and seller. This allows stores and manufacturing companies to know what products are selling, and, in addition, works in tandem with EDI.

The 1980s

The 1980s ushered in a plentiful amount of new developments in the operations and supply chain area. In 1984, Dell Computers was one of the first companies to partake in new direct order supply chain operations setup. The company’s new ordering system was built on customers’ phone orders being linked directly to production. Every consumer’s computer was custom built and shipped directly to their home in a short delivery window. Now, a consumer could order even a pink laptop with their choice of memory and accessories and get it delivered without ever going to a store. This type of technology allowed Dell to minimize inventory and save money. They also did not have to invest in supporting brick-and-mortar stores.

In 1985, Fed Ex’s new tracking system created a way to monitor real time tracking of their shipments. This allowed efficient management of their deliveries and use of their transportation vehicles. It also allowed companies to track their own shipments to consumers and become more efficient with lost products.

Finally, Wal-Mart was responsible for the introduction of the cross-docking system, which allowed communication between stores to better track their products. The system consists of tractor trailers unloading their goods at a facility where they would be sorted and reloaded directly on new tractor trailers for delivery to stores, eliminating the need for storage costs. This method helps streamline the supply chain, reduces inventory and labor costs. It also allows the products to reach stores faster, which, in turn, is better for the company and consumers.

The 1990s

Toyota’s lean manufacturing system created a successful method of supply chain management in the 1990s. This system eliminates production waste and inefficiency and is built upon keeping a low inventory. It also focuses on continuous improvement and a respect for people as the foundation of the system.

The growing popularity of PCs and the introduction of the Internet created additional areas of development in operations and supply chain management. The formation and success of Amazon is a prime example of a company only using the Internet platform as a way of selling their products. Amazon was able to streamline inventory, warehousing and delivery. The company is constantly looking for ways to cut inventory and deliver products faster. Their Prime delivery service has been extremely successful and they have launched two hour delivery in a select number of markets. The company is eyeing drone deliveries in the next few years as well.

2000 & Beyond

RFID or Radio-Frequency Identification is a recent advancement that allows improved tracking of products. RFID uses wireless electromagnetic fields to transfer data automatically to computer terminals. For example, RFID labels can be used in supermarkets so that the consumer can walk past a reader and their cart automatically tallies. It will produce instantaneous results to further create an efficient operational and supply chain environment to retailers, distributors and manufacturers.

Lesson Summary

Henry Ford and the assembly line building of Model T automobiles in 1910 ushered in the development of operations and supply chain management. The line allowed fast, efficient manufacturing of automobiles and other products by having workers manipulate identical parts or repetitive tasks through the production process. Other major steps in the evolution of operations and supply chain include:

• In the 1950s, Malcolm McLean developed ocean shipping containers, which are standardized transportation containers that are used for international shipment of products.
• The introduction of EDI or Electronic Data Interchange in the 1960s ushered in the use of computer technology in the operations and supply chain field. EDI is dependent upon computers transferring business data to other computers for better operations.
• The UPC or Universal Product Code, which appeared in the 1970s, also aided in operations and the supply of products. The code allows the specific identification of a particular product for tracking and production reasons.
• In 1984, Dell Computers was one of the first companies to partake in new direct order supply chain operations setup. The company’s new ordering system was built on customers’ phone orders being linked directly to production.
• In 1985, Fed Ex’s new tracking system created a way to monitor real-time tracking of shipments.
• Also in the 1980s, Wal-Mart was responsible for the introduction of the cross-docking system, which consists of tractor trailers unloading their goods at a facility where they would be sorted and reloaded directly on new tractor trailers for delivery to stores, eliminating the need for storage costs.
• Toyota’s lean manufacturing system created a successful method of supply chain management in the 1990s. This system eliminates production waste and inefficiency, and is built upon keeping a low inventory.
• The introduction of PCs and the Internet created additional areas of development in the operations and supply chain management. The formation and success of Amazon is a prime example.
• RFID or Radio-Frequency Identification is a recent advancement that allows improved tracking of products. RFID uses wireless electromagnetic fields to transfer data automatically.

Learning Outcomes

When you are finished, you should be able to:

• Explain the importance of Ford’s assembly line and McLean’s shipping containers for production and supply chain operations
• Discuss the effect of EDI and the UPC on inventory and businesses
• Name the supply chain systems developed during the 1980s
• Describe the impact of wireless data and computers on operations and supply chain management