Remember when sneaker companies made their own sneakers?
Or, when facial tissue companies owned and managed every aspect of their business, from pine plantations to warehouses?
If you’re a Millennial, you probably don’t remember. But parents of Culverhouse students might recall what some termed vertical manufacturing. Decades ago, companies often owned everything in their supply chain, from raw materials to delivery systems.
Culverhouse professors Glenn Richey, Ph.D. and Alex Ellinger, Ph.D. remember those trends.
They worked in industry for a decade or more before becoming international experts on supply chain management. (To learn more about Richey and Ellinger’s worthy work, read blogs one and two.
Now these researchers explain how businesses in almost every sector are competing more effectively by focusing on “core competency,” or whatever each firm does best. They then develop relationships with other businesses whose core competency is in other specialties.
For example, Nike’s core competency is marketing. So this firm engages suppliers to produce their sneakers or sweat bands, or whatever they license. Nike merely markets the swoosh.
Kimberly-Clark no longer owns paper mills. They let others grow the trees and produce the paper pulp that becomes Kleenex.
This shift to a core competency focus means entire industries have evolved to help these companies outsource everything they don’t do themselves, says Richey. If your company’s strength is made-to-order personal computers (Dell), then you outsource your delivery system (Fed Ex/UPS/DHL) instead of employing a fleet of trucks and drivers.
That’s great news for consumers. It means you probably pay less for tissue or sneakers or computers, because each firm is focusing on its core competency and seeking the most efficient, least expensive partners of goods and services. But it also represents a big shift for workers. Those who were once truck drivers, or assembly line workers, or even executives may no longer be working for the same firms, since their companies have outsourced their specialties. This trend might also help explain why your hometown mill or plant closed a decade or two ago, as the owners outsourced those services to a core competency provider.
“Third-party outsourcing is one of the most prolific growth industries,” says Ellinger, who with Richey co-edits the International Journal of Physical Distribution and Logistics Management. Why is supply chain management growing so quickly? One reason is that all companies now have immediate access to world class capabilities. Today’s technology allows parts to be manufactured in one country, then assembled in another. Specific products – automobile dashboard parts, for example – can be manufactured in east Asia, then sent to the U.S., where a supplier situated near a major auto plant assembles those parts into a dashboard before sending the completed component to the auto plant for installation.
Another reason supply chain management is now possible, says Ellinger, is automated processes have honed such a production timetable to four or six weeks. Neither the suppliers nor the plant has money tied up in long-term inventories. Supply quickly follows demand.
That’s why Richey says outsourcing is such an important part of supply chain management. Outsourcing has become a strategy of its own in today’s worldwide economy.
Some call this evolving science distribution and logistics. Some call it supply chain management. Whatever the terminology, Richey and Ellinger’s research illuminates what is happening in worldwide commerce, and why everyone should care -- from decision makers allocating their
company’s resources, to students preparing for those careers, to consumers of products and services, and maybe most especially, to workers adjusting to marketplace change.