A brief history of material flow …

Material and its flow determine whether novelty of thought can take shape as novelty of deed, whether an innovative idea is actually pulled through to a tangible reality. Even more than energy does (see energy for innovation). So it’s time to talk about the third flow in systems theory (apart from information and energy): What is the role of material flow and its influence on innovation?

Two components

I’ll describe a material flow that has two components – production and transportation. The production of goods is characterised by the combination and transformation of raw material, while the transportation of raw material and produced goods is the role of trade and commerce. Those two components took different paths of evolution, so that the pattern of their interrelations morphed over time.

Transportation became globalised fairly early. Just think about the Silk Road, which was in fact already a network of travel routes that spanned most of Asia and toward Europe even BC. Or consider the Hanseatic League, a confederation of merchants that dominated trade and for some time even politics around the Baltic Sea between the 13th to 17th century, reaching the peak of its power before the Industrial Revolution.

Initially, even though the trade networks covered large distances, the volume of transported material was limited in scale. Transport had to rely on renewable energy sources like horse and oxen on land, or the wind to sail the sea, and muscle to row the rivers. But over time, that scale increased as merchants eagerly adopted the latest technologies, like canals, rails, or steam ships.

Production remained local for longer than transportation. Production remained very focused on the immediately visible and tangible, on the local customers and their direct needs.  Apart from that limited customer base, the limited available skill base was another factor, and that had a double effect. On the energy side, production was quite labour-intensive; it had to rely on the available workforce and could not be scaled up quickly to respond to short-term needs. On the knowledge side, production was constrained to known products for a known market. In such a setting, new product ideas came about only rarely, they dispersed very slowly, and corresponding new skills weren’t developed easily. For many centuries before the Industrial Revolution, the main change was a slow increase in population, with a parallel increase in customer demand and in workforce. So there was simply no external force or incentive to change the archaic local production pattern.

Two separate mindsets …

Those two components of material flow are reflected in two fundamentally different, two almost opposing mindsets –  the merchant mindset and the craftsman mindset. For long periods of human history, merchants were the entrepreneurs of their time.  They were more adventurous than most of their contemporaries, developing a business mindset comparable to ours today: they invested their money in the goods they expected to sell with a profit in a distant location; they weighed their risk against the expected profit; and they used their network to gain the necessary information on market needs. Soaring on the wings of their imagination, merchants focused on what could be in demand, or where that demand would be. In the overall pattern of material flow, a merchant played the role of multiple connections in the network.

In direct comparison, craftsmen were relatively risk averse. As their business had firm roots in the directly visible market, the immediate demand, the neighbourhood, craftsmen were literally focused on the here and now. In the overall pattern of material flow, a craftsman acted a single node in the network.

… morphing into one

Those two mindsets co-existed for many centuries without taking too much notice of each other. Merchants mainly dealt with finished products, and craftsmen essentially used local supplies; there was hardly any connection between those two worlds, let alone interdependency. Only the Industrial Revolution generated sufficient momentum to force those two mindsets to co-evolve into a novel pattern of material flow that we can easily describe with today’s terminology: supply chain management and global logistics, i.e., production logistics to get the raw material to the production site, and consumer logistics to get the products to the market. This change paved the way for a more holistic understanding of material flow, in which nodes (craftsmen) and connections (merchants) became fully aware of the network, their roles within the network, and opportunities it provides to them.

Of course this evolution towards a novel logistics mindset didn’t occur in isolation. Rather, it was supported and promoted by the other “workstrands” of the Industrial Revolution. The general improvement of living conditions supported growing consumer demand per capita, incentivising the increase in production and the diversification of products. In parallel, advances in communication technology allowed for a faster and denser exchange of market-relevant information (Who needs what? When? Where?). At the same time, the increasing energy supply enabled novel production technologies that were less dependent on workforce, and were more easily scaled up to meet shorter-term demand peaks.

On top of all these developments, novel technologies took transportation to a new era by expanding the existing transportation networks (like roads and canals) and offering novel modes transportation (the railroad). The benefits in terms of larger volume, increased speed, farther reach, and superior reliability of transport were eagerly embraced. Yet those desired benefits came together with significant changes of the business environment: where previously the merchants directly invested only in the goods they traded, those new technologies all required a new kind of investment. All these technologies used some kind of dedicated infrastructure, and building that infrastructure, laying the tracks, paving the roads, digging the canals, all that required substantial capital investment upfront.

This was terra incognita for the businessmen involved, it was new in every dimension: investment volume, investment risk, time horizon, and even the business models for building, maintaining, using such infrastructure. Nobody had experience with such scale and complexity, but in the end it was worth taking those risks. Over the course of several decades, novel business practices emerged, including the railroad business itself (i.e., owning and operating a part of the transportation network), the trading of commodities (i.e., hauling large quantities of raw material over long distances) or the dedicated production for distant markets. Eventually, the supply chains for almost any product gradually evolved to the complex global interdependencies we observe today.

So what for innovation?

As one important outcome of the Industrial Revolution, mankind finally established networks that facilitated the flow of all resources essential to innovation: while the flow of information propels the novelty of thought, the flows of energy and material both are indispensible for the novelty of deed. Given that material is the least fluid of those three essential resources, it’s no surprise that the network of material flow was the last to take shape. Based on these considerations, I’ll dare a projection of the future of material flow and how that might impact our future innovation capacity. That’ll be the subject of the upcoming post.