Just-a-waste-of-oil?
May 1st 2011 Initiatives such as just-in-time have become industry dogma but while they streamline manufacturing and warehouse processes,how well do they sit with rapidly rising oil prices, asks Geoff Dossetter.
Conflict, revolution and political turmoil in North Africa and the Middle East have resulted in the price of oil increasing to around $130 a barrel. By the time you read this it may be much more as those nervous boys in the world’s stock exchanges and financial markets juggle with their options in order to either increase their profits or, at the very least, minimise their losses. All a little ironic as there is really no supply problem at present – just a price problem for all users, especially those who spend their time delivering the goods which make the whole world go round.
Nevertheless, the increasing price of fuel, and its ultimate expiration, means that some very serious management decisions have to be made in order to juggle – and hopefully balance – future transport and logistics operations with customer demands and expectations.
Take the just-in-time philosophy so popular in recent years. JIT requires the right products or components, to be at the right location, at the right time and in the right quantity. By organising the supply and movement of these goods or components the supplier, or the customer, sometimes the same operation, strips out expensive inventory holdings and warehouse space with the consequential benefit of lowering costs. It is clearly heavily dependent on an efficient, and reasonably economic, transport operation.
But what if the price of the movement of those goods, fuelled by diesel, becomes so expensive that the delivery and restocking costs actually exceed the savings achieved by the ‘lean’ process? JIT would become no longer financially viable. It’s not impossible. Fuel already accounts for over one third of the costs of many transport operations – one third fuel, one third driver, one third everything else. And it is only going one way in the future. A sharp rise over a short period really could result in the need for some fundamental rethinking and perhaps a return to more traditional, but slower processes.
Critics have accused the transport industry of excessive empty running since the beginning of time. However, the need to fill lorries to the maximum – on both outward bound and homeward bound journeys - is obvious and has always been appreciated.Moving around fresh air is expensive and time consuming and a quick route to failure.
But for many operations achieving maximum levels of vehicle utilisation is easier said than done. For instance, there are the old cliché examples of the petrol tanker going out full and coming back empty, or the dustcart which goes out empty and comes back full. Difficult to make dramatic improvements there. However, fuel cost increases that change the whole balance of operating costs mean that empty running must be absolutely minimised.
Recent years have seen a big growth in collaboration schemes, frequently involving suppliers of rival products, resulting in a reduction in journeys and mileage.Word is that we’ve really seen nothing yet – as distribution costs accelerate then manufacturers and suppliers will automatically be forced into taking strategic delivery decisions that inevitably involve not just their own product and operation but those of their competitors. Instead of novelty this will become the norm much sooner than later.
The location of depots or distribution centres will also need some futuristic thinking. Have you noticed just how much of what we buy bears the label ‘Made in China’? Increased imports from Asia and the Far East suggest the need for consideration of ‘port-centric’ warehouse locations in order to cut internal supply chain costs. The smart importers are already establishing locations closer to the points of import.
And perhaps we should reduce customer expectations regarding speed of delivery on the one hand, and the cost to the consumer on the other. After all, somebody has to pay the price for more expensive oil!
But what is really needed is for those of us within the transport sector itself to display an appreciation of the longer term future and to create a strategic plan to deal with it. Hopefully the change will be gradual and soft. But, as the politics have demonstrated in recent months, that cannot be relied on.Who knows, we may see the $200 barrel much sooner than we anticipate. The smart guys are those that are planning for it here and now. And planning for using as little of the stuff as possible. More articles from Handling & Storage Solutions: | 
