Energy resources impact supply chain

The one thing that you can be sure of is that in the supply chain there is never a dull moment, never a steady state or time to take a breather.

The whole principle of centralisation is that it is cheaper and more efficient to manufacture very large quantities at central plants and ship them to the market, if the shipping costs outweigh those benefits then the reverse logic is to make as close to the market as possible.

Now it is likely that neither extreme is correct and certainly swinging from one to the other is not a sensible strategy. What is important is that companies can understand what the costs are within their total supply chain and work to minimising these.

This sounds a very simple and logical statement; however, less than 20% of companies in Europe actually measure their supply chain costs and fewer than that measure them in a way that enables them to monitor them accurately and to truly understand the right strategy especially when the ground rules are changing this fast.

Redressing the balance

I have no doubt that, given time, new energy sources, more efficient engines etc will be developed which will start to redress the balance but who can forecast how quickly this will happen and how cheap or efficient they will be? The speed of change is increasing exponentially and companies need to be in a position to be able to know, not guess or have a rough idea, of their costs and how they can control these. The ability to understand the trade off of volume for distance, stock for transport and space for frequency of delivery will become more and more an essential part of the supply chain directors' armoury.

The consumer revolution may also have to take a step back in time. The expectations of customers that they can buy seasonal fruit all year round may have to change. We have all become used to being able to buy strawberries all year; however, if the cost of bringing them in from Spain in the winter months takes the price to £10 per punnet, will we still want to buy them?

Clothing retailers have largely abandoned local suppliers in favour of cheaper manufacturing in the Far East or eastern block of Europe. If energy costs spiral as predicted, then would this be a sustainable strategy? The fact that the manufacturing capacity in the local market has largely disappeared and would take time to rebuild is another issue completely.

Already stretched resources

The growth of China and India as economic powers will have an increasing demand on already stretched energy resources and it is ironic that it may be their growth, driven by demand from the West, that ultimately destroys our ability to continue to source from these countries.

The difficulty for the UK is the loss of its manufacturing capability; if the trend continues and sourcing retrenches to local supply there could be along hard road ahead for the British consumer. Clearly there is no need to panic and the change may take longer than that shining white knight carrying water driven engines and cheap energy; however, given the current trend in energy and fuel, it is a brave executive that does not make sure that the company is capable of responding and also knowing when that time to change is going to come.

With the dangers of silo cost models greater than ever, there is a greater need to truly understand the whole supply chain costs within your business and monitor these very carefully.

The buying department who can increase there margins by buying from the Far East may well be doing so to the detriment of the company profits; the manufacturing director who centralises production in Poland may put the business at risk; and the belief that a company's competitive edge is driven by a good supply chain could become more important than ever.