“Before oil prices skyrocket further, small businesses should redesign their supply-chain networks for maximum fuel efficiency – in short, minimize expense and risk.”
From the Desk of the Editor | 8-PAC
Small businesses usually wait until they enter into a new contract opportunity or venture with other businesses to analyze the oil consumption of their distribution networks.
That’s a mistake.
Optimizing your supply-chain network should be a continuous effort. Growth-phase shops should be adjusting distribution -center locations according to developing demand, while mature firms need to find facilities where lease agreements can be terminated.
To sustain oil reduction campaigns, small business executives in the supply-chain vector must obtain data on product specific and network-wide costs. And they have to be aware of the effect of oil-consumption reduction strategies system wide. Even as warehouses lower transportation costs, for example, inventory carrying costs rise due to the safety stock each facility must have on hand.
Then, there is the issue of white-boarding and what-if analysis…
Is your supply-chain network designed for what’s coming in five years, or even three? Small business execs must become aware not just what their direct and indirect petroleum spend is, but how their distribution system works and what the impact would be of oil shortages or $10-a-gallon fuel; this is a real and eminent possibility in today’s global commodity marketplace.
If these concerns take you too far out of your operational core competency, you might consider outsourcing this analysis. Supply-Chain management shops like ALJUCAR LLC www.aljucar.com can help mange the impact of increases in fuel costs through negotiation of agreements with key logistics providers.
For example, before prices went up to the point they are now, we developed a deal structure for Continental Airlines that set forth the following: if the price of jet fuel fluctuates outside a set band of 10 percent from an index price, only then would they pay a surcharge or receive a discount. After that, the index price would reset. Based on current analysis of this structure, Continental Airlines logistics costs would be down ~47 percent since 2005; contributing 28% to Gross Profits.