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Taking stock: a history of supply chain innovations

Published 8 April 2022 in Technology • 7 min read

From a focus on manufacturing to broader responsibility for the entire supply chain, Tetra Pak’s former head of Supply Chain Operations Eric Baudier discusses the highs and lows of supply chain management.

 

The disruption of production from smartphones to furniture wrought by the COVID-19 pandemic has brought home the importance of global supply chains to almost every consumer. But what have been the fundamental shifts and advancements in supply chain management over the past two decades? Pressure to cut costs and increase efficiencies has unleashed a range of new production processes and technologies that have turned the job requirements of warehouse managers and supply chain executives on their heads. At the same time, a desire to slash time to market and keep inventory to a minimum has left companies vulnerable to production risks. Here we discuss the highs and lows of the past 20 years. 

The highs 

The broad adoption of Total Productive Maintenance 

First developed in Japan in the 1970s, Total Productive Maintenance (TPM) aimed to make production more reliable and was centred around anchoring a culture of continuous improvement known as “Kaizen” in Japanese. Once the idea was exported to the West, carmakers were early adopters, and it really took off in the mid-1990s when companies such as Unilever, Pirelli, Tetra Pack, Volvo, Nestlé and Heineken started implementing it. In 1995, former General Electric CEO Jack Welch praised Six Sigma quality controls, which seek to streamline and improve manufacturing by identifying and eliminating defects, for boosting the company’s profits. But there have been many false starts. For TPM to succeed it needs to be instilled into the company’s culture. Many companies instead forgot that huge change management is required and ended up resetting their factories every few years. For example, US motorcycle manufacturer Harley-Davidson implemented TPM into their factories nine times before it finally succeeded. Those firms that have succeeded, have seen huge reductions in waste and production stoppages, as well as an overall continuous improvement in productivity.  

 

Putting the pieces of the supply chain together 

Twenty years ago, the focus was on keeping the machinery in factories humming. Other parts of the supply chain were scattered across functions; the purchasing of parts and materials was the remit of the finance department, while delivering finished goods was part of sales. Consumer goods group Unilever was one of the first companies to create the role of a Chief Supply Chain Officer, recognizing the need for broader oversight beyond just the factory floor to ensure that production runs smoothly. While not all companies have followed suit, there has been a broad recognition of the need to manage processes beyond manufacturing.

TetrapackTetra Pak has introduced cutting edge digital technologies to increase efficiency and speed up production and delivery

New simulation and operation tools 

As supply chain executives came under increasing pressure to cut costs and deliver goods to customers even faster, a whole host of optimization and digital simulation tools emerged to help them do their jobs. While it used to take five experts one week to simulate three scenarios, nowadays advanced technologies, such as AI with machine learning, can simulate hundreds of different outcomes overnight. It is not uncommon to walk into a company and see a control tower – a dashboard of data and key business metrics that monitor events across a supply chain. One of Tetra Pak’s suppliers in Brazil has a huge 20 square-metre wall tracking every single truck transporting wood across its forests. From order processing to warehouse management and demand forecasting, there is a digital tool for every step of the supply chain to reduce errors and costs and increase speed. 

The impact of technology on supply chain jobs 

Once the neglected part of the business degree, logistics has grown in popularity with more and more people completing master’s programs in supply chain management. Companies like Amazon and Ocado are deploying cutting-edge technologies in their logistical operations, putting tech-based skills in demand.  An expert in managing a warehouse ten years ago would need a completely different skillset today as everything is automated. The use of new technologies, such as Microsoft’s HoloLens smart glasses to maintain and repair machines, has also changed the way people do their jobs. While it used to take a supplier over a week to send an engineer to fix a machine in a far-flung factory, the problem can now often be solved virtually. 

The birth of the industrialization phase

Another quest for companies has been to smooth out the process between innovation and production to avoid costly fixes, such as being forced to reprogram factories or iron out problems too far down the track. One solution has been to introduce a step between the prototype stage and series production – the so-called industrialization phase – where firms test how to manufacture their product. Some companies have made good progress, but it has not yet been 100% successful.

The climate emergency has underscored the need for sustainability to be the starting point of supply chains

The lows 

Time to market pressure  

With the emergence of newer and nimbler competitors, the pressure to cut the length of time from the conception of a product to when it is launched has grown as firms rush to be first to market. Yet this has often led to compromises in the development processes, leading to costly problems to remedy further down the line. Many companies still underestimate the costs of non-quality.

‘Just in time’ versus ‘just in case’ 

The COVID-19 pandemic has exposed the fallacy of trying to optimize inventory too much. ‘Just in time’ supply chains emphasized keeping stocks to a minimum and using short-term flexible contracts that could be adjusted quickly to changes in demand. But this has stretched the supply chain too far and made it unable to respond to large-scale disruption such as the production stoppages and shipping backlogs brought about by the pandemic. With the cost of capital still low, there is a growing acceptance of the need to increase the amount of stock firms keep on hand. Firms should move from just-in-time to just-in-case.

Structural dependencies and hidden weaknesses 

When the Ever Given megaship got jammed and halted traffic in the Suez Canal for almost a week in March 2021, it was a clear signal to the world of the interconnectedness and structural dependencies of global supply chains. After a big snowstorm hit Texas in early 2021 and closed factories, customers using additive polymer realized half the world’s supply relied on one backstream supplier in the state. Firms that have outsourced some manufacturing are discovering they are vulnerable to the concentration of production in certain places. Carmakers Volkswagen and Renault have temporarily halted production at some European plants following Russia’s invasion of Ukraine due to shortage of electric cable sets. Managers should audit supply chains to uncover hidden weakness and rethink their outsourcing strategy, bringing the production of the core elements of their products back in house to help retain some elements of control. 

A reactive approach to sustainability 

The climate emergency has underscored the need for sustainability to be the starting point of supply chains. Too often in the past, companies have taken a reactive approach, only addressing issues such as the safety of workers, or the environmental impact of sourcing certain materials when they were raised by non-governmental organizations. Executives instead have used the excuse that the supply chain’s purpose is to deliver profit, and sustainability took a back seat. As we shift towards a low-carbon circular economy, supply chain managers will need to incorporate sustainable sourcing policies into their production processes.

Issue 5

Current Issue

Inventory of change

The disruption of production from smartphones to furniture wrought by the COVID-19 pandemic has brought home the importance of global supply chains to every customer. But what have been the fundamental shifts and advancements in supply chain management over the period? Inflation, e-commerce and geopolitcal conflict are all driving change. In Issue V of I by IMD, we explore what is next for supply.

Explore issue VMore about Supply chain

Authors

Supply chain

Carlos Cordon

Professor of Strategy and Supply Chain Management

Carlos Cordon is a Professor of Strategy and Supply Chain Management. Professor Cordon’s areas of interest are digital value chains, supply and demand chain management, digital lean, and process management.

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