The Box - Marc Levinson [145]
Supply chains like Barbie’s are a direct result of the changes wrought by the rise of container shipping. They were unheard-of back in 1956, when Malcom McLean placed his first containers on board the Ideal-X, and in 1976, when high oil prices brought sky-high freight costs that stifled the flow of world trade. Until then, vertical integration was the norm in manufacturing: a company would obtain raw materials, sometimes from its own mines or oil wells; move them to its factories, sometimes with its own trucks or ships or railroad; and put them through a series of processes to turn them into finished products. As freight costs plummeted starting in the late 1970s and as the rapid exchange of cargo from one transportation carrier to another became routine, manufacturers discovered that they no longer needed to do everything themselves. They could contract with other companies for raw materials and components, locking in supplies, and then sign transportation contracts to assure that their inputs would arrive when needed. Integrated production yielded to disintegrated production. Each supplier, specializing in a narrow range of products, could take advantage of the latest technological developments in its industry and gain economies of scale in its particular product lines. Low transport costs helped make it economically sensible for a factory in China to produce Barbie dolls with Japanese hair, Taiwanese plastics, and American colorants, and ship them off to eager girls all over the world.
These possibilities first drew notice in the early 1980s, when the world discovered just-in-time manufacturing. Just-in-time, a concept originated by Toyota Motor Company in Japan, involves raising quality and efficiency by eliminating large inventories. Rather than making most of its own components, as competitors did, Toyota signed long-term contracts with outside suppliers. The suppliers were intimately involved with Toyota, helping design its products and knowing the details of its production plans. They were required to adopt strict quality standards, with very low rates of error, so that Toyota would not need to test the components before using them. The suppliers agreed to make their goods in small batches, as required for Toyota’s assembly lines, and to deliver them within very narrow time windows for immediate use—hence the name, just-in-time. Keeping inventory to a minimum brought discipline to the entire manufacturing process. With few components in stock, there was little margin for error, forcing every firm in the supply chain to perform as required.2
The wonders of just-in-time were unmentioned outside Japan before 1981. In 1984, as Toyota agreed to assemble cars at a General Motors plant in California, U.S. business publications ran thirty-four articles on just-in-time. In 1986, there were eighty-one, and companies around the world were seeking to emulate Toyota’s high-profile success. In the United States, two-fifths of the Fortune 500 manufacturers had started just-in-time programs by 1987. Overwhelmingly, these companies found that just-in-time required them to deal with transportation in a very different way. No more would manufacturers offer a load or two to some truck line’s hungry salesman. Now, they wanted large-scale relationships with a much smaller number of carriers able to meet stringent requirements for on-time delivery. Customers demanded written contracts that imposed penalties for delays.