Rising fuel costs…how will it affect the supply chain business and you as a consumer?

December 9th, 2013

Given today’s volatile economy, what are the downstream impacts from rising fuel prices for the supply chain business?

Today’s post is by Dennis Nicoletti, Manager, SafeSourcing, Inc.

While I’m not trying to reinvent the wheel here, I did want to share this information as we approach a new calendar year. Isn’t it time that we all became better stewards of the environment in whatever way we can? Let’s stop and think about how rising fuel costs impact you personally. When fuel prices soar upward you begin to consciously and subconsciously scale back; making fewer trips to the stores, fewer road trips, “stay-cations” instead of “vacations”, buy lesser octane fuel or just simply buying less of what you had become accustom to as price of goods increase. Those that are lucky enough are able to purchase more fuel efficient vehicles, either selling their “gas-guzzler”, driving them less often or simply stop driving them. It’s simple – as consumable prices begin to rise, you buy/get less. These are just a few things that quickly come to mind. Supply chain is no different. Let’s look into how rising fuel cost impacts supply chain and the downstream impacts for all of us.

Business – Rising oil prices are forcing companies to rethink many business strategies that have been implemented in the last two decades. The days of static supply chain strategies are over. With increasing costs and changing markets, companies must monitor and re-evaluate their network and supply chain strategies on a continuous basis. Hence a switch to a more flexible supply chain strategy.*

The environment – As oil prices increase, environmentally friendly supply chain strategies coincide with economically effective business strategies. Increasing cube utilization, reducing deadhead distances, and decreasing fuel consumption improve the transportation bottom line and help to reduce the carbon footprint. Similarly, strategies that directly focus on reducing carbon emissions typically improve transportation efficiency.*

Emerging technologies – The search is on for technologies that help industry reduce energy consumption and energy costs, including technologies that can reduce transportation costs. These include onboard global positioning systems with centralized information that allows for real-time monitoring of vehicle operations, aerodynamic tractor-trailers, kite-assisted ocean freight, automatic tire-inflation systems, and singlewide tires (replacing the traditional two-tire systems). Investing in emerging clean technologies or implementing operational improvements and innovation to reduce carbon footprint are all part of corporate social responsibility—an area of focus for a growing number of firms.*

Consumers With oil prices rising, business must consider whether to transfer the increased costs to consumers or to absorb the increase internally and face smaller profit margins. In some industries (such as tires and plastics), oil is such an important ingredient in the production processes that they typically are more willing to transfer costs to consumers according to an article by David Simchi-Levi titled Operations Rules: Delivering Customer Value through Flexible Operations, published by The MIT Press.

SafeSourcing can assist you and your company to reduce costs; from fuel, to tires, to trucks, to goods not for resale as well as goods for resale…if you’re buying it today, we’ll source it for less. For more information on how SafeSourcing can assist you on our “Risk Free” trial program, please contact a SafeSourcing Customer Service Representative. We have an entire customer services team waiting to assist you today.

As always, we look forward to your comments.

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