1.3 Modern Operations Management: A Brief History

Contrary to popular opinion, Henry Ford didn't invent the assembly line. As early as the 15th century, Venetian shipbuilders used a large-scale assembly line and labor specialization to equip their fighting galleys. By towing the galleys through a water channel between warehouses, the Venetians could completely outfit a ship every 36 minutes.1 These same Venetians also employed parts standardization, making rudders on warships interchangeable.2 A quick change of a battle-damaged rudder gave the Venetians a hard-earned combative advantage. What should you take away from this very brief history lesson? Answer: People have been using great operations practices since the dawn of civilization (e.g., think the great pyramids of Egypt or the Great Wall of China).

Following the Industrial Revolution—when machine power substituted for human power, enabling huge improvements in productivity—operations practice advanced dramatically. Each step forward has raised living standards for the people of the world. Consider the following.

• Consumer Society and Scale Economies. The productivity gains of the Industrial Revolution increased prosperity, giving birth to our modern consumer society. Consumers began to buy in large enough quantities to create economies of scale. They also demanded efficient operations to produce a greater variety of affordable products.

• The Scientific Method. Frederick Taylor brought an early form of continuous improvement to the factory floor. His approach of observing, training, monitoring, and improving led to standardized operations practices.3

• The Computer Revolution. Computational power transformed operations from an art to a science. Computers made it possible for complex algorithms to be applied routinely in situations where judgment and guessing previously prevailed. Computers also made smart machines a reality. Robots took over many mundane and hazardous jobs.

• Lean Six Sigma. Toyota energized a paradigm shift, demonstrating that if you build the right manufacturing environment, your people can come up with the ideas needed to continuously find and eliminate waste. Lean Six Sigma made it possible to produce high-quality products at low costs, quashing the belief that a tradeoff always exists between quality and costs.

• The Service Economy. Since the 1980s, services have dominated economic activity in developed economies. Services now account for 80% of gross domestic product (GDP) and employment in the U.S. By contrast, employment in U.S. manufacturing has decreased from nearly 18 million in 1990 to 12.8 million today.4 To drive growth—and living standards—service operations had to become more innovative and productive.

• Sustainability. From the 1980s to the early 2000s, the earning power of consumers increased dramatically (see Figure 1.2). Higher earnings meant more disposable income. As the percent of earnings spent on food decreases, consumers can prioritize other things, including a lifestyle focused on health and sustainability.5 Thus, sustainable operations became a corporate priority. However, twice in the past 20 years—the Great Recession and the COVID pandemic—consumer wealth declined. What happened? Each time, momentum for sustainability stalled. Consider this Wall Street Journal headline: "Sustainability Was Corporate America’s Buzzword. This Crisis Changes That." The article noted, "From Unilever to Starbucks to GM, corporations pause some social-responsibility programs or put them on the back burner."6 The bottom line: Our sustainable future depends on operating innovations that enhance consumer wealth.

• Globalization. The 1980s ushered in a new era of economic globalization. Now, companies worldwide depend on global resource and consumer markets for growth and profits. Consider, for example, that 95% of the potential consumers for American companies live outside the U.S. Global manufacturing and supply networks make it possible to reach these customers. The result: Sales of U.S. foreign affiliates of multinational enterprises (MNEs) plus goods and services exports exceed $9.1 trillion—that's 56% of total MNE sales and 50% of the U.S. GDP (see Figure 1.3).

• eCommerce. The Internet made eCommerce a reality. Today, you can go to a store to check out the new TV (or whatever else) you're shopping for and then do all of your comparison shopping online. The convenience of shopping at your leisure and having products delivered to your door has led to dramatic growth in eCommerce (see Figure 1.4). However, retailers, including Amazon, are still trying to figure out how to manage eCommerce operations profitably. The big question: Will changes in shopping behavior that drove huge growth in eCommerce during the 2020 COVID pandemic persist? Or, will consumers long to return to a more social in-store experience?

• The Internet of Things (IoT). The Internet is also making smart devices—from phones and thermostats to cars and factory equipment—possible. You can already set your home's thermostat or check in on your factory's assembly line from anywhere in the world (as long as you have Internet access). As IoT evolves, the Factory of the Future, where the factory runs itself with minimal human intervention, is coming closer to reality.

The bottom line: New ideas and new practices are always emerging. A value-added revolution driven by artificial intelligence, additive manufacturing, autonomous vehicles, and robotics appears to be on the horizon. As an operations manager, you will have the opportunity to define how they, and other innovations, will change operations practice.

Now, a warning: No matter how good you are, you can't afford to become complacent. And, you can't afford to forget Darwin's law, "Only the adaptable survive." The global market is constantly changing; for example, new rivals and new technologies emerge. And customer expectations are always evolving. The only way to keep your operations competitive is to constantly scan the environment, identify change drivers, and adopt (or develop) best practices. A career in OSCM promises to be dynamic and challenging.