Yesterday’s Startups: 150 years of supply chain innovation
SUPPLY CHAIN STARTUPS: 150 YEARS OF INNOVATION
We were recently featured in a list of supply chain, logistic and shipping startup companies that stand to revolutionize the way freight is bought and sold. We felt like now might be a great time to look back at some of the other startup ideas that have logistics. Strap on your seatbelt as we travel back 150 years and walk you through the nine biggest ideas that have changed logistics:
- Internal Combustion Engine (1854)
- Ford Assembly Line (1913)
- Toyoda Production System (1936)
- Drop-Shipping (1950s)
- Container (1955)
- EDI (1960s)
- UPC (1974)
- Direct-to-order (1984)
- ERP (1990s)
Keep on reading for a summary of each of these landmark ideas!
1854: The Internal Combustion Engine
Without a way to move the products of the Industrial Revolution, we would still be stuck at square one. There are literally hundreds of people who played a significant role in creating the internal combustion engine that drives everything from mile-long trains to gigantic oil carriers. Today, two Italian inventors, Eugenio Barsanti and Felice Matteucci, are credited with the first effective engine, patented in London, 1854. You can read Wikipedia’s full list of the inventors credited with involvement, from 3 AD to today, right here. The idea is relatively simple; a fire generated by fuel and an oxidizer generates force that pushes another component of the engine (usually a piston or blade).
Want to know how far we’ve come? The Emma Maersk’s engine is 90 feet long and soars 44 feet into the air. It produces 7780 horsepower and burns through a whopping 1,660 gallons of fuel every hour.
1913: The Ford Assembly Line
What do you do when it takes you over 12 hours to build a car, your employee turnover is through the roof and you’re struggling to penetrate a new market with a revolutionary product that is out of most people’s price range? You buy a piece of chain. That’s what Henry Ford did over 100 years ago. Ford needed to drop manufacturing prices and used every possible advantage, going as far as growing wool near his assembly line so that he wouldn’t have to ship it in. Ford’s stroke of genius came into play in December 1913, when he installed a chain that would drag his Model T chassis past 84 assembly stations. Within three months, he upgraded the system to include a motor that would pull the chain along at six feet per minute.
The end result? The average car construction time dropped from 12 hours to 2.5 hours. Ford paid his workers more (which helped them, among other things, buy their own Model T), dropped working hours and laughed as he sped past competition, six feet a minute.
1936: The Toyoda Production System
It’s hard not to follow the the Ford Assembly line with the Toyota Production System, the predecessor for lean manufacturing. Developed by the founder of Toyota, Sakichi Toyoda, his son, Kiichiro Toyoda, and an engineer, Taiichi Ohno, TPS aims to iron out waste, overburdening of the system and inconsistency in organizations, creating a process that is flexible but not wasteful. It stands to reason that the same minds would come up with Just-In-Time delivery, making sure that suppliers provided exactly what was necessary, exactly when it was necessary.
If you’re on the hunt for a killer example of lean thinking, head over to the Lean Thinker. You should also check out how Toyota explains lean manufacturing, while breaking down core concepts like Jidoka (automation) and Kaizen (continuous improvement)
1950s: Drop Shipping (Mail Order Magazines)
One of the main revenue-drivers for Amazon was the deal they struck with Seattle-based book dealers. “Let us sell your books online”, Amazon CEO Bezos essentially said, “and you can ship them out from your shop.” At the end of the day, Bezos was taking a cut of the profits from reselling without dealing with inventory, warehouse management or shipping. As Amazon expanded, they increased their foothold in maintaining their own warehouses but have not given up on the idea of drop shipping completely; they co-locate Eddie Bauer and Target inventory, dropshipping it straight from the retailors.
This practice may have seen a revival because of ecommerce but it is far from new. Mail order magazines in the early 1950s already made use of the practice, offering their wares in print magazines and shipping directly from retailers instead.
1955: The Container
On April 26, 1956, 58 containers were loaded onto a fitted tanker ship, the SS Ideal X, to sail from Newark to Houston. Until then, the shipping industry was plagued by high costs and inefficiency, all which changed, with costs dropping by a factor of about 100. The standardized container was patented and then passed on to the industry by Malcom McLean. McLean’s company, SeaLand, was purchased by Maersk, who killed the brand but announced in early 2014 that they would bring it back. Since 1956, the container has changed the world. About 10.5 million TEUs are exported every month and container shipping remains the most efficient way to ship, providing intermodal functionality that allows transfers from ships to trains to trucks.
You can read more about McLean’s amazing efforts to change freight as we know it at the Harvard Business School website.
1960s: Electronic Data Interchange
EDI is a standard in order to facilitate data transfer between different computers. While it may sound boring, the changes EDI heralds are profound. Before EDI, a cargo manifest delineating every type of cargo on board would be provided to the captain of a ship and to the port of destination. Each document was essentially a table of contents for a ship. When technology improved, the shippers could convey the contents over phone or email, forcing the receiving end to manually input their own data and leaving too much room for manual error. With EDI, computers on both sides could communicate instantly, reducing the time wasted on paperwork and minimizing inaccuracies. There are multiple industry EDI standards, including 204/211 Bill of Lading, 210 Invoices, 212 Delivery Manifest, 217 Loading and Route Guide and more.
EDI is a huge driver in increasing B2B connectivity, playing a role in over 55% of order transactions. While many in the freight world see the standards as a thing of the past, no dominant method to replace EDI has emerged to date.
1974: Universal Product Codes
At 8:01 AM on June 26, 1974, Clyde Dawson bought a pack of Wrigley’s Juicy Fruit and bought it to the cashier at a supermarket in Ohio. The cashier scanned the code, which popped up as 67 cents on her register. Just like that, the first UPC purchase ever was completed. The UPC has become a fixture, used by retailers to track product movement or loyalty cards, by airlines for your luggage or by NASA to track pieces. While there are some who claim that it is the mark of the beast, product tracking plays a key role in supply chain efficiency. While they may be slowly making their way for RFID tags, they are not going anywhere fast.
1984: Direct to Order
Michael Dell, a freshman living in Room 2713 of the Dobie Center at the University of Texas, started selling upgrades for personal computers in 1983. Quickly realizing the potential in selling directly to clients, instead of paying overhead for a store, Dell dropped out of school, rented a condo and banked in on tens of thousands of dollars in his first year. By 1992, at the age of 27, he was the CEO of a Fortune 500 company. In 1996, Dell leveraged the explosive growth of the internet to sell customized computers online, directly to consumers, bringing in over $1 million dollars per sale every single day.
The idea of cutting out middleman and selling directly to consumers is the polar opposite of Amazon’s dropshipping. That said, both Bezos and Dell managed to cut out steps in the middle, charging less for more products, maintaining less inventory and ensuring that their sales were generated by demand, rather than by excess supply.
1990s: Enterprise Resource Planning
While initially created by the Gartner Group to address manufacturing and material requirement planning (MRP), ERP use has expanded from its 1990 definition to include nearly every core enterprise function, beginning with back office cooperation (financial accounting, human resources, supply chain management, project management and more) and later extending to customer relations management and more. Many companies run ERPs on both regional or subsidiary levels as well as on a global level.
ERP is an incredibly inclusive name that can assist medium or large companies improve their performance. The key selling point that ERPs bring to the table is connectivity. While they once focused on limited communication within an organization, ERPs can now facilitate communication with internet platforms, forklifts on warehouse floors, manufacturing lines and offices. ERP software plays a critical role in enabling Just-In-Time manufacturing as well.
That’s our list. Innovation never stops and as the freight world continues to move forward, you can bet that Freightos will be spearheading change.