Today's organizations are striving to move to a more effective demand-driven supply chain. Not only must it be more resilient and cost-effective but, also be able to respond directly to continually shifting customer needs, and be able to reduce lead times. HP has been able to take a considerable step toward this by moving from a vertical manufacturing model to an outsourced manufacturing model. This has created the world's largest IT Supply Chain, which manages 64 percent of HP's annual revenue ($51 billion of $80 billion in 2004).
Although we may perceive the concept of a demand-driven supply chain as relatively modern, history presents a lesson in how one was established back in May 1940, far earlier than envisaged, to respond to the demands of a nation in crisis. A look at Britain's armed forces, under the direction of Prime Minister Winston Churchill, demonstrates how, within an incredibly short time frame, the concepts of Supply Chain agility, Just-In-Time (JIT) Manufacturing, and Zero Inventories, were introduced to offset a pending disaster.
A Supply Chain in Trouble
In the last 2 weeks of May 1940 the Royal Air Force (RAF) sustained massive losses of close to 500 operational fighters in the air battle over Flanders and France. Winston Churchill was now facing the prospects of an imminent invasion. With 620 operational fighters the RAF was well below its set target (in 1939) of 1,200 fighters, thought to be the minimum number to win an air battle over the United Kingdom (U.K.). The fighters were outnumbered by a ratio of 2:1, and the RAF was about 50 percent under strength with very little time to increase manufacturing output. The fighter production rate was still struggling to meet targets of 200 fighters per month. Even a new Spitfire fighter factory had failed to produce anything in six months, plagued by the complexity of the Spitfire's elliptical wings.
Churchill had to respond to the invasion threat and jump start fighter production immediately. The problem was the U.K. economy was, in spite of everything, on a civilian footing: Household goods and new automobiles were still being built and diverting critical manufacturing resources and raw materials. Churchill had to prioritize fighter production over everything, even bomber production, which the Air Ministry had been prioritizing.
So how did Churchill address this situation? He wrestled fighter production out of the control of the Air Ministry by creating the Ministry of Aircraft production and appointing Canadian Lord Beaverbrook as its minister. Churchill gave him a clear mandate to transform fighter production. Beaverbrook, a Canadian newspaper magnate, was a no-nonsense man who could cut through the red tape. Beaverbrook's goal was to accelerate production, improve the supply chain and lock-step it to the daily demands of RAF Fighter Command.
Steps to Efficiency
Beaverbrook introduced the concepts of supply chain agility: standardization, simplification, modularity and integration to improve the efficiency of the supply chain. The supply chain was revamped to improve agility and speed up delivery output. Production of fighters was limited from five to two proven types, the Hurricane and Spitfire, which were already in quantity production. Also, fewer aircraft types left in production eliminated some business processes.
Standardization provided everything needed for the production of the Hurricane and Spitfire aircrafts so that it could be immediately stepped up. Standardization also safeguarded the supply of materials and equipment already allocated for these planes and made it possible to divert from other types the necessary parts, stocks of materials and components, and reserves of production capacity for immediate use. Aircraft parts were sourced from hundreds of large and small suppliers to ensure availability, avoid bottlenecks and a continuous flow.
Business processes were mapped out and infrastructure components for fighter production were connected. This better understanding of the production process allowed the production line to be broken out from large-scale factories to much smaller facilities, like garages, that could be dispersed across geographic locations, creating a network of integrated manufacturing. This was useful as all fighter production facilities were top priority targets for Germany's Air Force, the Luftwaffe. In addition, new processes were introduced that eliminated the elliptical wing production problems.
With raw materials scarce and expensive, a Civilian Repair Organization (CRO) was established to recover downed pilots and aircraft. Using small civilian workshops and garages, recovered aircraft were either immediately repaired or cannibalized for spare parts. In such a lean operation, even enemy planes were salvaged and thrown into smelters to provide raw materials for new fighters.
Fighter production was simplified by reducing the number of small and disparate components by concentrating on completed subassemblies (fuselage frames, undercarriages, instrument panels, engines) shipped straight from suppliers. This reduced complexity from business process execution.
Further, Beaverbrook had good relationships with industrialists in the United States and leveraged these to secure supplies of precious raw materials and key parts and subassemblies.
Expertise and best practices were brought in from the automobile manufacturing industry to speed up fighter production. Modularity was introduced where reusable parts and subassemblies could be redeployed from bomber production. These could be switched back with changing needs after the air battle. Thus the parts and subassemblies were decoupled from physical linkages to the business processes.
The Supply Chain in the Clutch
By the end of May, fighter production hit 325 fighters in one month as Beaverbrook's changes began to bite. By mid-June a spare parts inventory secretly run by the Air Ministry was brought to Beaverbrook's attention. Following an internal battle Beaverbrook ordered its immediate seizure, and the parts put back into fighter production, as he mandated zero inventories. The whole supply chain held absolute minimum inventory to maximize the number of fighters available.
By July, with good visibility across the supply chain, Beaverbrook closely aligned supply to RAF Fighter Command demand as the RAF was engaged in the Battle of Britain, which took place between the July 10 and October 31, 1940. The RAF entered the fight with 640 fighters, but the Luftwaffe had 2,600 bombers and fighters, so numbers were crucial to the success of the British. Beaverbrook was in contact with RAF Fighter Command's leader, Air Marshall Hugh Dowding, every evening throughout the battle. As Dowding reported his daily fighter losses, Beaverbrook introduced the concepts of JIT Manufacturing to build to demand and deliver specifically to depleted squadrons on a daily basis.
By the end of August, fighter production hit an astounding figure of 496 per month. When the Battle of Britain ended, Beaverbrook's supply chain was a significant factor in the story of the conflict.
In today's world, what can we take away from this lesson from history? Churchill had a very clear view of the situation he faced and therefore was able to prioritize his objectives and shut down non-essential war production. He was able to narrow in on fighter production and make it a priority, assigning a leader that could turn it around. Beaverbrook, an outsider, took a very different approach to the supply chain, and introduced the basic concept of agility, mandated zero inventories to maximize the output, and stuck to his principles, exceeding all expectations.
Beaverbrook's approach was needed in the summer of 1940, but it distorted the supply system of the war economy. After the battle it was replaced by a quota system, where each supply ministry was allocated a quota of raw materials imports based on their priority in the war effort.