Brief history of ICT in supply chains (1980s)

JOS VAN HILLEGERSBERG: More milestones in the ICT space we saw in the 1980s. The PC architecture was introduced. The e-mail network started to appear. Storage, there was a huge development in compact discs, and later also in memory storage. Mainframe computers became affordable, also, to smaller enterprises. And because this hardware became available, we witnessed the start of enterprise systems, that were usually, at that time, developed in-house by the larger companies. These were big efforts to automate financial processes production, processes, transport processes within the company.

For example, UPS is famous for developing a global network at that time called COMPASS that would plan and money to operations around the world, and that could facilitate them in handling processes in checking of goods and optimising certain parts of their network. SAP, at that time, also continued to develop and grow fast. As they were getting more customers, they would also start to expend into other business functions. They would continue to support other processes like the material requirements planning process that we covered earlier. Other companies started to enter this space– the space we call enterprise resource planning software.

And today, you’ll see that there are many, many, many choices in these kind of software solutions, with a lot of variety in the market they focus on, the national background they have, and the detailed functionality that they offer. You may have heard of company names in this space like Navision, which was later acquired by Microsoft, Oracle, the Dutch company Baan that is now changing to Infor, XACT, and many, many, many others. For companies, this started to become an interesting question whether to buy one of these big software packages or whether to start and continue to develop them themselves. This we call the make or buy debate.

And for the ones that decided to buy one of these solutions, it became a big question which one to buy, as the choice was growing rapidly and they really had so much different functionalities that they had to select. It was also more and more recognized that ICT was really needed to run supply chain processes, and that it was also a competitive weapon. If you would do it right, if you would get the right ICT in place, you would really have much more management capabilities. And you can manage your supply chain much better. Also in the 1980s many researchers pioneered in putting the mathematical algorithms that were already known, sometimes for decades, like shortest path planning, into software.

These algorithms were there. But they were simply too much work and too labor-intensive for small companies to use in their processes. But as they were implemented in software products that came within the reach of smaller companies. Think of algorithms that deal with forecasting– forecasting of product demands– think of the advanced algorithms to plan your resources based on your forecast. Think of algorithms that do route planning– so that help you to deliver your products in an efficient and effective way. Think of algorithms that help you to optimise your network, so help you in decisions like where to put your warehouses, where to put your production facilities around the globe in order to have an effective and sustainable network.

These mathematical algorithms were known. But now, they started to really be used by the companies, embedded in software systems. A very important developments in this space is also that maps that used to be only available in paper form became available in a digital form. So geographical maps with route information, with information about ports, waterways, rail tracks, information about congestion, information about facilities– warehouse facilities– for example, became digitised. And they became part of the software solutions. Today, these are very important, very central elements of supply chain management software.

The 1980s were also the period that companies realised that ICT is not just a tool to improve your internal processes, but it’s really powerful to connect organisations to make together a more efficient supply chain process. The early 1980s had some really exciting experiments in using EDI– Electronic Data Interchange– to connect companies like terminals to forwarders to make more efficient processes so that they could, instead of having these paper documents flowing between the companies, have electronic messages, and really quickly have their computers communicate about, for example, loading a train or planning production or settling invoices and so on. Electronic EDI became a really important tool to do this.

And as an example, in 1983, the Port of Hamburg connected the terminal to a forwarder and tried to compete with the truck transport, the road transport, by getting more goods on rail. Today, you see that EDI is still growing. More and more companies join the space of replacing paper flow of communication by electronic messaging. Shippers connecting their suppliers to their logistics service providers using EDI. Retailers connect to their logistics suppliers, and use these electronic messages to coordinate the flows, and also to improve efficiency and reduce paperwork. The introduction of EDI meant that standards were needed, as you can send an electronic file from one computer to the next one, but you have to also understand the content of that file.

What does it mean, an order number? What does it mean, a product code? All this information inside the files. And also, the type of messaging had to be standardised. And at that time, global bodies like the United Nations started to interfere and to help in these processes. And still a very important standard– today, there are many, many more standards– is the UN-EDIFACT standards. It’s a classic. It was already started in 1980s. But it’s still used a lot. Another example, mainly in the industry in electronics and telecommunications– RosettaNet. It also contains a lot of standard messages to help electronic business. Today, there are many, many others. And we will cover this later in another session in somewhat more detail.

Today, they have also become more flexible and easier to use by using extendable markup languages, internet-based standards, to make these standards more adaptable and expandable. The 1980s also saw the rise of the first electronic marketplaces. Markets basically use computers and connect them to suppliers and the parties that have demand. And then, matching can take place– matching of supply and the amount. A European example that started in the 1980s was Teleroute. It’s still active today. It’s become a really large European network. What Teleroute does is basically allowing transport companies to find cargo, pick up cargo, and allow shippers to find transport companies. It’s really useful, as transport companies often drive somewhere with their trucks, and then have to return empty.

And when they know they will return empty, they can search for cargo along the route on that marketplace and take it along. It’s a win-win for both the transport companies and the shippers. And it’s a really successful example on how computers can facilitate in making a match between supply and demand. Today, many of such markets are active, as the internet makes it possible to connect parties globally and let them find each other where they can and force the effectiveness of the supply chain. We’ll look into some of these examples later in more detail.