Tuesday, May 9, 2000

The Impact of Logistics Innovations on Project Management

A project is a “temporary endeavor undertaken to create a unique product or service” (Project Management Institute, 1996). Projects include building a structure, developing a product, and executing a contract. Logistics “plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption” (Council of Logistics Management, 2000). Logistics is usually thought of in connection with military or manufacturing operations. However, there can be projects involved in logistics (eg. building a bridge to move troops) and logistics involved in projects (eg. supplying material to a construction site). It is not surprising, then, that these two disciplines interact and learn from each other. In this paper, great events in logistics are examined to uncover their impact on project management.

Great Logistics Feats of Antiquity
In May of 218 BC, 29 year Hannibal led about 40,000 troops, thousands of horses, and 38 elephants over the Pyrenees and Alps from Spain to Italy, a feat which had been considered impossible. During this 15 day ‘project’, his troops built jetties and rafts for the elephants to cross the Rhone River, raided towns for provisions, and struggled through avalanche-blocked mountain passes while under attack. Many of the troops and most of the elephants were lost, but even in this weakened conditioned, Hannibal defeated the Roman army that awaited his arrival. (Encyclopedia Britannica: Hannibal)

Hannibal has been singled out as a forerunner of grand strategy in military campaigns. His superb logistics while crossing the Alps is a precursor of military logistics today, a discipline in which the US military is considered the world leader. The routine logistics of military operations are interspersed with unique, temporary ‘projects’, of which Hannibal’s crossing is a prime example. The project management challenges of crossing the Alps included fixed resources, limited time, physical obstacles and troops with mixed allegiances who were ill-suited to the task. The techniques Hannibal used to meet these challenges (planning, field engineering, rapid movement, periodic re-supply, and attentiveness to troops and animals) are standard military practice today. (Encyclopedia Britannica: Strategy)

There are other great feats of antiquity which are forerunners of today’s project management practices. Building the pyramids comes immediately to mind. The Great Pyramid in Egypt was built around 2500 BC. It took about two decades and somewhere between 20,000 and 100,000 laborers to erect. Stone was cut with crude hand tools, transported without wheeled vehicles, and put into place without lifting machinery. This “masterpiece of technical skill and engineering ability” remains “perhaps the most colossal single building ever erected on the planet”. No taller building was built until the 19th century. (Encyclopedia Britannica: Giza, Pyramids of; Building Construction)

Construction projects today are not significantly different than those which built the pyramids. An architect designed the building, materials were obtained from quarries and transported to the site, experts in various ‘trades’ prepared the materials and constructed the pyramid. Built to a fixed plan, time and resources were more or less unlimited for the pyramids (unlike today).

There is another impressive feat that has been executed from the most ancient of times and continues to this day: The Event. Perhaps it is a wedding or a funeral or a coming-of-age ceremony – just about any large gathering has always required serving a lot of food to a lot of people in a very short time. Perhaps several clans gathered once a year, and there was a woman who was particularly good at organizing such events. Planning, gathering food, attending to living quarters, cooking, serving, might be a tradition or a ritual, but the event always came off best if someone behind the scenes was coordinating it all. In some sense, the most seasoned project managers throughout various cultures and times might be the event organizers who really knew how to throw a good party on a inflexible schedule with limited resources.

From Logistics to Project Management
All of the knowledge areas of project management were are developed in these three examples of logistics from antiquity: staging a celebration, managing construction, and executing a military movement. A celebration required excellent procurement, scheduling, quality and resource management. Construction projects required superior planning, managing a fixed scope over a long time, procurement and human resource management. Military movements needed excellent execution, careful management of fixed resources, precise timing, superior human resource management and continual risk assessment.

Viewed from a different perspective, advances in logistics might be thought of as starting with project management. For instance, military logistics may start with unique projects, like ferrying elephants over a river, but once the technique is developed, it can be reused to ferry other large items over a river. Feeding a large number of relatives may be a project the first time it is done, but feeding hundreds of people a sit-down dinner in fifteen minutes is routine logistics at conventions held every day. Even the pyramids were more or less standard burial structures for a period of over 500 years. (Encyclopedia Britannica: Pyramid)

The disciplines of logistics and project management overlap in such a way that it is not always possible, or even necessary to tell them apart. Projects that are repeated and standardized may become exercises in logistics, while the first implementation of a logistical solution might be considered a project. Since both disciplines often address similar problems, there is likely to be a significant transfer of ideas from one discipline to the other.

Traditionally, logistics has been the focus of much study and innovation. Since logistics is usually applied to on-going operations, improvements in logistics usually result in increasing benefits over time. If, for example, the cost of a single car can be reduced by a dollar, then in a factory making 250,000 cars annually, a quarter million dollars will be saved each year.

The author has observed that major advances in logistics usually make their way into project management in ten or fifteen years, since the same forces that spurred the paradigm shifts in logistics are usually at work in the broader economy. Below are two examples of logistics innovations moving from manufacturing to construction in one or two decades.

Standardized Parts
Two hundred years ago, the US military wished to procure 40,000 rifles. At the time, rifles were made by skilled workers who fashioned one rifle at a time. Each rifle was different from the next, so maintenance required individually fashioned parts. Unfortunately, there were not enough skilled workers in the country to make the necessary rifles, let alone maintain them.

In 1798, Eli Whitney, the inventor of the cotton gin, proposed that he could make an incredible 10,000 rifles in two years by designing machinery (templates and fixtures) to make standardized, interchangeable parts. This was a major paradigm shift for manufacturing. It took Whitney over ten years to perfect his manufacturing system, which is regarded as the birth of the tool and die industry. Ultimately the system was successful, and the rifles in the war of 1812 were produced much faster, had higher quality, could be more easily maintained, and cost a great deal less than previous rifles. (Encyclopedia Britannica: Eli Whitney; Tool and Die Making) (Taylor, 1990)

In the 1820’s, US sawmills began producing standard dimension lumber in quantity, and in the 1830’s cheap machine-made nails became available. The first ‘balloon’ frame building is thought to be a warehouse in Chicago built in 1832. Standard construction techniques rapidly evolved: 2x4 studs placed 16 inches on center, 2x10 joists spanning up to 20 feet, stability provided by ¾” sheathing through which windows and doors were cut. Machine-made nails were easily driven into the soft wood and a building could be rapidly assembled from manufactured materials by (relatively) unskilled workers. Houses are still built this way, almost two centuries later. (Encyclopedia Britannica: Building Construction)

It’s easy to visualize how standardized, interchangeable manufacturing parts influenced the development of standardized, interchangeable building parts. The entire direction of the construction industry was heavily influenced by Eli Whitney’s rifles. Although a construction project was still a unique and temporary event, it took on many of the features of standardized manufacturing.

Mass Production
In 1908, Henry Ford introduced the Model T Ford. It was so successful that Ford had to continually invent faster, cheaper ways to manufacture the car. Over the two decades of the Model T’s life, Ford perfected the assembly process, introducing the first moving assembly line in 1913. In 1927, the River Rouge plant received just enough iron ore each morning to make a day’s worth of cars; 28 hours later the ore had become the steel in a finished car. In two decades, Ford produced almost 17 million Model T’s, displacing many horses in the process. The Model T precipitated one of the most rapid and pervasive changes of the lifestyle of common people in history. (Encyclopedia Britannica: Henry Ford)

The steel coming into Ford’s plant also moved into the building industry. During the 1920’s between World War I and the Depression, steel framed high-rise buildings came to the cities of America. As these buildings went up, specialized trades became more important, since framing, sheathing, plumbing, heating, elevators, etc. each required full time specialists. (Encyclopedia Britannica: Building Construction) The various trades required someone to sequence their activities, supply materials, assure safety standards were met, and generally manage the project. Thus the construction project manager emerged to coordinate a complex series of specialized but interrelated construction tasks, each of which contributed to the completion of the building. A well-managed construction project bears quite a few similarities to an assembly line.

Just In Time
Henry Ford’s River Rouge plant was an excellent example of Just-in-Time manufacturing, but his ideas on inventory were not widely held. After World War II, operations research developed theories on inventory management which determined optimized lot sizes, reorder points, and distribution stocking levels. In the 1970’s, a radically different theory was developed in Japan, spearheaded by Toyota Motor Corporation. (Shingo, 1981) The concept that inventory should be kept at a minimum, lots should be very small, and products should be built ‘on demand’ rather than stocked, ran contrary to the current manufacturing ‘wisdom’ in the US. However, Just-in-Time models proved to have significant advantages in capital reduction, plant throughput, quality assurance and market responsiveness.

The benefits of Japanese manufacturing techniques began to dawn on the US manufacturing community in the 1980’s. Eliyahu Goldratt’s 1984 novel, The Goal, popularized Just-In-Time concepts and introduced the ‘Theory of Constraints’. (Goldratt, 1984) This theory suggested that finding and ‘feeding’ the bottleneck workstation in a manufacturing plant would allow all other processes to hold to a steady and predictable pace. Pacing manufacturing with the ‘constraint’ workstation required the manufacturing logistics community to abandon many long-held beliefs about inventory management. But the new logistics paradigm worked so well that it rapidly became standard practice in manufacturing and distribution logistics.

If the author’s thesis that logistics innovations make their way into project management in about a decade is true, then Just-In-Time concepts or their derivatives should have impacted project management in the mid 1990’s. Sure enough, in 1997, Goldratt published Critical Chain, a novel in which he applies the Theory of Constraints to Project Management. (Goldratt, 1997)

The Theory of Constraints is useful in project management when multiple projects are competing for the same resources. Similar to its application in manufacturing, Theory of Constraints project management finds and ‘feeds’ critical path tasks and bottleneck resources. Most of the ‘common wisdom’ embodied in project scheduling techniques must be re-thought for this to work in the project environment. For instance, task durations are planned at 50% probability of completion. Thus it is expected that half of the time, tasks will be late. Indeed, it has proven to be difficult to abandon the perception that it is ‘good’ for all tasks to be completed within their estimated time.

Just-In-Time and Theory of Constraints focus on optimizing the entire flow of material or work, instead of sub-optimizing individual areas. The organizational structure and reward system in the US is often set up to reward individual effort, without much regard to (or understanding of) the impact of that effort on the ‘big picture’. Since World War II, the US economy has became increasingly globalized, and countries with different cultures and reward systems are selling products in the US. Unconstrained by ‘standard practice’, these countries consider and optimize manufacturing from a different, often broader perspective. This globalization of the economy has played a large role in bringing Just-In-Time and the Theory of Constraints to logistics.

Globalization has influenced project management also. In the electronics industry, very rapid time-to-market with ‘cast-in-stone’ release dates are required for new products, and Theory of Constraints project management is being widely applied to meet these challenges.

Lessons for the Information Industry
One of the fundamental driving forces behind paradigm shifts in logistics is an overwhelming need for lower cost and less specialized labor, which leads to standardization. This is often followed by an opposing force, the desire for customization.

In 1800, the lack of enough skilled workers to make rifles in the face of an impending war was an unacceptable situation that demanded the invention of standardized, interchangeable parts. In the early 1900’s, the demand for inexpensive transportation that allowed ordinary people to travel great distances was a key forcing function in the emergence of mass production.

It’s easy to see this drive for standardized, interchangeable parts at work in the information industry. In 1983, the IBM PC took the world by force, rapidly becoming the standard of the industry and soon outstripping IBM’s ability to maintain control. (One can imagine that Henry Ford had to invent the assembly line to avoid the same fate as IBM.)

Standardized Internet access, embodied in standard web browser capability, has driven the on-line revolution that is sweeping the country. A single cell phone frequency in Europe has spurred European cell phone use to a far greater level than in the US, which has multiple cell phone frequencies. In the face of a huge demand for a standardized document format, Microsoft jeopardized its position by releasing incompatible versions of Microsoft® Word, while Adobe® Acrobat® filled the vacuum with a standardized ‘Portable Document Format’ (PDF).

Standardization is driven by an insatiable need which cannot be satisfied at an acceptable price by the available techniques or skilled people. Today the software industry has an enormous gap between the need for programming and the available programmers. It should be obvious to students of economic history and that the software development environment is ripe for a massive switch to standardized, interchangeable, mass-produced components.

Mass Customization
As brilliant as Henry Ford was, he missed out on a major trend that overtook the success of his Model T. After two decades, people began to get tired of black (the only color of the Model T). Copying Ford’s methods, other manufacturers figured out how to make inexpensive cars, and they started adding new features. Ford’s failure to recognize the shift in customer desires caused his company to loose its overwhelmingly dominant position in the industry. (Encyclopedia Britannica: Henry Ford) In the 1970’s the same thing happened to the US car makers – their failure to respond rapidly to the huge demand for fuel economy and high quality allowed Japanese car-makers to gain a large market share.

It is not surprising that one of the latest logistics innovations is mass customization, enabled by the information revolution. Dell Computer builds computers only after receiving an order, and ships the customized computer within days. Anderson Windows custom-builds windows to fit individual residential houses. Mass customization, a key advance in new product development and logistics, requires modular architectures and standardized components that are not assembled until individual customers place orders. Sophisticated information system support, especially in order management, is necessary for successful mass customization. (Gooley, 1998)

Products are not the only things that can be customized; the Internet has abundant examples of customized marketing, customer service, and information delivery. ASPs (Application Service Providers) are rapidly positioning themselves to ‘rent’ applications through the web. ASPs sell common applications that can be rapidly configured to meet individual customer requirements. In fact, the appearance of ASPs is probably a direct result of the pressure to produce ‘standard’ software in the face of a severe programmer shortage. ASPs success will depend on how they manage to retain the advantages of standardization while moving toward mass customization.

Software project management is also being influenced by mass customization. Instead of finalizing system requirements at the beginning of a project, it is considered good practice these days to allow users and customers to modify the requirements on-going basis as the software is being developed. The concept of continuing user feedback during software development started with the spiral life cycle, originally proposed in 1988 (Boehm, 1988), and evolved to The Unified Software Development Process (Jacobson, 1999). Common wisdom today holds that IT projects should iterate toward an increasingly competent set of capabilities through incremental builds which allow continued customization of the software during its development lifecycle.

Summary and Conclusion
Logistics innovations are not accidents. They are driven by economic forces which demand a paradigm shift to keep an undesirable situation from overwhelming the economy. Once the paradigm shift occurs, the forces that caused it continue to exert pressure on other areas. Over time, the new paradigm will make its way into project management practice.

Often the economic driving force behind innovation is an overwhelming need for something in far greater quantities at far cheaper prices than current practices allow. This drives innovation in the direction of standardization. However, once standardization becomes the common paradigm, a shift in expectations usually occurs. Customers begin to expect tailored products, without increasing the cost, of course. This drives innovation in the direction of mass customization.

Another driving force behind innovation is globalization, which brings unique perspectives to logistics and project management. A fresh look at a problem by someone who doesn’t know the ‘right’ answer can lead to out-of-the-box thinking and new approaches.

By looking for trends in economic driving forces and noting innovations in logistics, project managers can predict the forces which will drive project management practices in the future.
Barry W. Boehm, “A Spiral Model of Software Development and Enhancement”, IEEE Computer, Volume 21, Number 5, May, 1988, Pages 61-72

Council of Logistics Management, “Definition of Logistics”, retrieved March 29, 2000 from http://www.clm1.org/

Goldratt, Eliyahu, Critical Chain, North River Press, 1997

Goldratt, Eliyahu, The Goal, North River Press, 1984

Gooley, Toby B., “Mass Customization: How logistics makes it happen”, Logistics Management and Distribution Report, April, 1998, retrieved on March 29, 2000, from ‘Logistics Online’

Jacobson, Ivar, Booch, Grady and Rumbaugh, James; The Unified Software Development Process, Addison-Wesley, 1999

Project Management Institute, Guide to the Project Management Body of Knowledge, 1996, The definition of ‘Project’ is in Section 1.2, Page 4.

Shingo, Shigeo, Study of ‘Toyota’ Production System form Industrial Engineering Viewpoint, Japan Management Association, 1981

Taylor, David, Object-Oriented Technology, A Manager’s Guide, Addison-Wesley, 1990, Reference to Eli Whitney, Pages 85-87

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