CSCMP's Supply Chain Quarterly
October 21, 2018

Supply chain redesigns: not just about the oil

Companies that revised their supply chains in 2008 may be reluctant to do so now because they assume the price of oil will fall again. But oil prices shouldn't be the only factor involved in the decision to redesign.

Recently a supply chain consultant shared an interesting observation about his clients with me. Even though oil prices are rising, he said, many are holding back on restructuring their supply chains. The reason: when the price of a barrel of crude spiked back in 2008, those companies made drastic changes—and then petroleum costs fell back to more manageable levels. Hence, many are reluctant to undertake another costly redesign today.

Now, I believe that the price of oil will remain at about $100 a barrel at least for the rest of the year due to speculation, turmoil in the Middle East, and a resuscitated global economy. But I also believe that regardless of how oil prices behave—whether they're high, low, or in between—they should not be the sole trigger for a supply chain redesign. In today's global economy, there's another factor that's just as important: the time it takes to bring a product to market.

Customers around the globe want their orders filled right away. How long it takes to make and deliver a product could become the deal-breaker when you're trying to make a sale, and if you do make the sale, it could prevent you from earning a high margin on it. Elongated supply chains, moreover, inhibit response time to customer demand and to disruption.

That's why everyone should give some thought to the current locations of their factories and distribution centers. Some forward-thinking companies have already done so and are establishing regional supply theaters, including setting up low-cost factory operations near major consuming markets. For example, products for Western Europe can be manufactured and supplied from plants and distribution centers in Eastern Europe. In the United States, companies can investigate siting factories in Canada, Central America, and South America.

If you haven't already taken a hard look at your "time to market," then you should do so now. And if oil prices continue to rise? Well, if you've structured your network wisely, then you'll be in a good position to mitigate your transportation costs. If oil prices drop, then there'll be more profit for your bottom line.

James A. Cooke is a supply chain software analyst. He was previously the editor of CSCMP's Supply Chain Quarterly and a staff writer for DC Velocity.

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