The era of easy oil is over and a growing body of experts is telling us that it’s not going to return. A concept known as Peak Oil – the point at which we reach a peak in the rate at which we can pump oil out of the ground – is being touted as the main cause of this spiralling growth in fuel prices. Regardless of the number of oil reserves left in the world and how we manage to access them in the future, businesses must rethink supply chain strategies now.
Firstly, we have to look at fuel in a new light. Instead of just writing it away as a business expense, we must instead embrace it as a financial instrument. By using it in the same way that banks and financial institutions use interest and exchange rates, strategies can be developed to share price volatility among trading partners.
In order to do this, fuel consumption must become more transparent. This will require strategies to accurately monitor consumption across the supply chain. An important first step in this process is to separate non-fuel overheads from costs. This will allow a more accurate measure of efficiency of the fleet and the direct costs of rising oil prices.
Once a greater awareness the effect of fuel to the bottom line is understood, businesses must look at strategies for optimizing the distribution network. Fuel is a standard operating cost for any distribution network, and like most key variables, one that the network is very sensitive toward.
Networks must be reappraised. Not just once, but frequently and adjusted in the light of new information. Would increasing the spread of distribution points decrease your consumption? How about restocking? Would taking more infrequent deliveries of a larger quantity allow a move to a less costly system? Questions like these should be identified and answered.
Thirdly, in the face of rising fuel costs, how will that affect your sourcing decisions? The cost of shipping goods from overseas may offset the saving made in labour and production. Would looking for goods closer to home prove less costly in the long run? Again, these issues should be identified sooner rather than later.
Finally, businesses should take an active part in shaping transport policy for the next generation. Many active groups are lobbying for an increase in fuel efficient rail shipping. Tomorrow’s supply chains will certainly depend on such networks.
Businesses certainly need to be more aware of the direct costs of fuel to the supply chain. Future survival through turbulent times will depend on companies’ ability to adapt to the inevitability of rising costs.
Businesses should begin modelling these changes into their networks now and begin designing strategies which will allow them to mitigate the worst of the effects.
