Description of the video:
Hello. I'm Kyle Cattani, a professor of supply chain management at the Kelley School of Business. In this video, I provide an historical context to the question of, what is supply chain management or where is my stuff? Every company provides goods and or services to customers. Finance makes sure the company has the money it needs. Marketing strives to convince customers to buy the product, but operations is the function that makes sure the product is available to the customer. It is perhaps the most practical of the business functions as it deals with the reality that a business cannot exist if it cannot provide a product. Operations management, thus, is about how firms organize resources to provide these goods and/or services.
Supply chains are the network of players who work together to get the product to the customer, and supply chain management is about the management of the flows of materials, information, and money through the chain. Supply chains have been around for a long, long time. For thousands of years, the Egyptians have used the Nile River as a major transportation mechanism. The Nile runs from south to north up towards the Mediterranean Sea. Conveniently, the wind goes the opposite direction from north to south. If you want to ship a product northward, you put it on a boat and let it drift downstream. If you want to go upstream, you put up a sail, and the wind carries you upstream. Now, this is a green supply chain.
Many supply chain innovations and practices come from the military. The Romans, with their military and their armies were very good at supply chain management. They had roads all over their empire that could be used to get armies and supplies where needed. Note that even with their roads, it would take a few days for a victory at the end of the empire to be known in Rome.
The Pacific Ocean is huge. Surprisingly, humans have traveled and traded across the Pacific for thousands of years. I'm not sure I want to travel on the boats they used, but apparently the payoffs were worth it. Between Africa and the Indian subcontinent, the winds have an annual cycle. An intrepid business person could take a business trip to deliver goods in one direction, and then return goods to the other direction, a one-year business trip. Along the Pacific coast of South America, extensive trade routes were developed that traded goods between the shores and the mountains and along the entire length of the Andes.
The Silk Road has been around for thousands of years with trade between Europe and Asia. It was effective, but fairly inefficient. Traders would take their product to the next city in the supply chain or across the Silk Road, and they found the roads to be very dangerous and not very well traveled. They were there, but it was pretty inefficient. The traders would get their goods to the next city, hand it off to another trader who would probably mark it up significantly, who would then try to figure out how to get it to the next city, also facing the same dangerous road.
Early 1200s, the founder of the Mongol Empire, Jengas Khan came into the scene, and Genghis Khan led his people to create the largest empire that perhaps ever existed. The Mongols were very good at two things, riding horses and shooting bows and arrows. And importantly, they were good at shooting bows and arrows while riding on the horses, and they used these capabilities to capture city after city. The plunder provided them a good source of wealth. They had eventually the largest contiguous empire in history. But I would argue that perhaps their greatest source of wealth was not from the plunder, which was a one-time deal, but rather in the fact that they now had a great supply chain and that they were able to manage the supply chain in a very effective way. Now, instead of having all of these connected line segments that went from one town to the other, they could create kind of a super highway where they would send a team of camels and go all the way across, and it was much more safe and secure.
Modern supply chains have capabilities that are not available to the ancients. For example, computing power has exploded. Over the last few decades, we have computer power that is mind boggling and has gone up dramatically. As a result, information flows instantaneously across the globe, and with these computers, we are able to process this information, interpret it, and make decisions based on it.
Meanwhile, supply chains are moving a lot of stuff in very big quantities. The scale of a supertanker is actually unbelievable. Supply chains are now what we call multimodal. You can send your product via plane, via truck, via train, via boat, or some combination of these to get the product across the globe. The supply chains are indeed global, and the supply networks go everywhere you might imagine. A big change from what we saw with the ancient supply chains, and very much an opportunity for us to look at supply chains in a new way. Meanwhile, supply chains still have a lot of challenges, and we saw some of that with the adventures we had with COVID, where supply chains were stressed in ways that we had not seen before. For example, prior to COVID, nearly a third of all the food in the United States was consumed in restaurants. And in March of 2020 when the world shut down, including these restaurants, all the food needed to be purchased through grocery stores rather than through the restaurants, and the grocery stores quickly ran out of food. It wasn't that we ate more during COVID, well, actually, some of us did, but not significantly enough that would affect the supply chain, but all the food that was going to the restaurants needed to be diverted and actually repackaged and sent to stores. This was not trivial. For example, consider ketchup. Restaurants get ketchup perhaps in gallon or five gallon containers that aren't exactly what consumers are looking for in stores, and so the supply chains had to be redirected, the ketchup put in the smaller bottles that we use and then sent to the stores. It took a while for these supply chains to adjust and for the stores to get replenished.
In 2020, as the world shut down, demand evaporated for many goods. Some goods saw an explosion of demand, for example, cleaning supplies and masks, but for most goods, like cars or travel or eating out or shopping, demand evaporated. Consumers were staying home. In 2021, especially as vaccines became more available, the demand returned, and it returned with a vengeance. Consumers, at least those who had kept their jobs, had saved a lot of money. They didn't spend anything during COVID, and then the government gave them some more. So they did the American thing. They went shopping. And supply chains saw, as you see in this graph, a large spike in demand, and they had a very difficult time keeping up.
So why did the supply chains, why were they so stressed during COVID? Partly, it's for historical reasons over the last few decades, supply chains have focused on becoming very lean. They've tried to avoid excess capacity. They've tried to avoid excess inventory, and supply chains have also become very extended, and so outsourcing and offshoring to all over the globe made them more vulnerable to something that happened with COVID. Also, when COVID hit, it affected a lot of the manufacturing. You had illness and absent workers, and then you have the mix issues, such as I described with ketchup in the food industry. The logistics, the moving of products through the supply chains also was affected by illness and absent workers, and then there became bottlenecks and key transportation nodes such as the ports where the ships were going.
As COVID abated, my wife ordered a custom piece of furniture in our local store, and they promised her delivery in three months. She was very excited to get this piece of furniture. After three months, it's still not arrived, so she called them, and they said, Oh, well, it'll take another three months. Finally, after eight months exasperated, she asked them, "Where's my stuff?" And the response was, well, you know, it's the supply chain. My wife said it was like they were saying, you know, it's the weather. We can't do anything about it. Well, my message to you is that we actually can do something about it. Supply chains are not like the weather, and supply chain experts can help. So my encouragement to you is to major in supply chain management, and then you can be the ones who can help.
Please reach out to me, my department, and/or your academic advisor, if you have any questions about the majors. Thank you.
