World Trade - February 2009 - (Page 36)

STRATEGY THE FUEL VOLATILE Agility in an era of dramatic changes requires monitoring critical levers. BY MICHAEL DEERING AND BOB FORBES F or some, the weakening global economy has pushed the high cost of fuel from top priority and relegated it to the back burner. Doing so, however, can be a big mistake. It is true that in October, crude oil retreated 40% from its July 11 high of $147.27 per barrel, which seems to indicate the threat of the $200 a barrel has disappeared. Whether fuel will return to its triple digit figures or remain at sub-$100 per barrel levels is a matter of speculation. But one thing is certain: your preparedness in dealing with the impact on supply chain of increasing or ﬂuctuating fuel costs and increasing macroeconomic volatility can make or break your organization. Fuel costs can no longer be considered static or less signiﬁcant than other supply chain costs such as inventory, labor or raw materials. Knowing the full impact of current fuel costs on your supply chain and having a perspective on how those costs affect your suppliers as well as your customers will allow enable you to respond with all the levers at your disposal. Among these levers are changes in sourcing location, transportation mode, distribution/manufacturing network design, inventory levels, order frequency and even pricing. Supply chain practitioners will have to re-evaluate these levers frequently to deal with global macroeco2009 nomic volatility. Only through insightful analysis will they be fully aware of the optimum decisions for their supply chain in multiple macroeconomic scenarios. Only then can they create the ﬂexibility in their supply chain to quickly align with this optimum design. This article identiﬁes and deﬁnes those levers and offers questions that practitioners should be asking in relation to their own set of circumstances. Exchange rates and geography The ﬁrst important lever for the supply chain decision maker that is profoundly linked with fuel costs is choice of sourcing location and exchange rates. Low cost country sourcing (LCCS) has become increasingly prevalent. But if fuel costs climb above $150, sourcing from within the U.S. or from Mexico will become attractive in categories where savings from LCCS were in the low-to-medium range. When fuel was $30 a barrel, most companies obtained an 18% to 25% cost savings from China sourcing. They enjoyed those savings in return for increased complexity, longer lead times, and poor on-time delivery (e.g., 3 x lead times and 9% On-Time-Delivery on electronic components from China compared to 81% OTD from near-shore sourcing). 36 WORLD TRADE FEBRUARY

Table of Contents Feed for the Digital Edition of World Trade - February 2009

World Trade - February 2009 Contents Taking Stock in America Confronting Corruption in Latin America Supply Chain Watch Tradewinds Where's the Goods? Where's the Money? Hope on the Horizon Managing Fleets in Turbulent Times The Impact of China's Economic Slowdown on U.S. Supply Chains The Fuel Volatile Supply Chain Getting the Most from On-the-Fly Transactions Managing Supply Chain Risk by Managing China Sourcing Capacity OECD Global Economic Outlook for 2009 'Natural' Agricultural Monopolies No More

World Trade - February 2009

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