Monthly Archives: August 2009
Oil Prices Will Soar Again
And it will happen sooner than you think. Are you ready?
A recent piece in Supply Chain Digest states that oil prices (are) set to soar according to Dr. Fatih Birol, the chief economist at the International Energy Agency, and Dr. Birol is right. About every decade we get a new peak, and the last two decades have seen faster boom and bust cycles. Plus, now that international shipping is now consuming 20% of all oil production, we’re not only draining reserves faster than expected, but getting close to the point where we will be consuming oil at full production capacity. There are only so many fields and so many rigs and we can only pump it so fast.
Now, I don’t think the “oil crunch” will start as early as 2010, primarily due to the fact that this recession is going to linger a little longer, but I do think we could see it as early as 2012, which, of course, will make the new age conspiracy theorists (or is that the true believers) squeal with delight, especially if it peaks at the end of the Mesoamerican (Maya) Long Count Calendar on December 20, 2012.
It’s not that unlikely, given that IEA’s recent assessment of over 800 major oil fields, that cover three quarters of the global reserves, found that most have already seen production peaks and that the rate of oil production decline is now running at nearly twice the pace that was calculated a mere two years aga. These are unsustainable levels, and with the lack of new exploration and development by the major oil companies, it is extremely likely we could see oil prices skyrocket within two years.
So, are you ready?
Do You Know Where Your Cargo Is?
Recent articles on cargo theft from eSide Supply Management and S&DC Executive highlighted a 2008 study from LoJack Supply Chain Integrity that uncovered 299 cargo thefts in 2008 (in the US) at truck stops, parking lots (including drop yards), facilities, warehouses, store locations, vehicles parked on the street, airports, casinos, ports and hotels across less than 600 organizations who belong to SC-ISAC. In other words, over 50% of organizations surveyed experienced cargo theft in 2008.
What does this mean? Simply put, if you move goods — you’re a target.
What can you do? First, identify your areas of highest risk. According to the study:
- 65% (194/299) of incidents occurred at truck stops, in parking lots, (parked) on the street, and in store lots
- 56% (168/299) of incidents occurred on the weekend
- 52% (155/299) of incidents occurred in Texas, Georgia, Tennessee, and Florida
This says that:
- your trucks are more likely to be targeted when they are in public areas which are less secure
- your trucks are more likely to be targeted on the weekend when traffic and workforces are low / non-existent
- your trucks are much more likely to be targeted in certain states, indicating the likely presence of organized crime rings
This says that you should:
- avoid parking in un-secured public ares and, if you must, insure the trucks are monitored constantly
(either through the use of a second driver who stays with the vehicle or real-time locator technology and software that immediately triggers an alert if the truck is moved without a clearance) - insure sufficient, if not extra, security is present on weekends
on weekdays, you’ll have staff around who would notice a missing truck - minimize routes / stops through trouble zone
and only use trucks that are well-secured and monitored in real-time
And follow the advice of LoJack Supply Chain Integrity which noted you should:
- Arm yourself with information
What methods are criminals using to access the trucks, where are they most active, and what products are they targeting? The higher your risk, the more security you’ll need. - Have a plan in place
Be sure you’ve covered your supply chain end-to-end and that you:- review high-value shipper security requirements
- developer corporate supply chain security guidelines
- contact your insurance carrier about resources at your disposal
- regularly evaluate and audit your transportation partners
- establish contractual security requirements for partners
- Use deterrents
Make sure your trucks have immobilization devices such as wheel locks, fuel shut-offs, air cuff locks, ignition locks, battery-disconnect switches, covert cargo-tracking, monitoring, and vehicle recovery systems.
Supercalifragilisticexpialidocious … At Least One User Understands Decision Optimization!
CAPS Research recently released their focus study on the role of optimization in strategic sourcing (summary) by Larry Giumipero and Philip Carter. I’ll dig into it in future posts (in the fall; I’ll let you enjoy what’s left of the summer before I get into the heavy stuff), but for now I’d like to say that I was thrilled to see this quote in chapter 9 on the future of optimization:
The vision is to push optimization to all buyers. The eventual goal is to run every item we buy through the system.
For those of you who are Christian, I urge you to shout Hallelujah from the rooftops! This is how it’s supposed to be. Every sourcing professional is supposed to be using decision optimization on every sourcing event … even if all they do is run an unconstrained scenario to understand what the lowest cost option is and how their preferred award stacks up. (While it’s okay to spend 10% more for 20% more value, unwittingly spending 20% more for 10% more value is not a smart move. Ever.)
I was also very pleased to see that at least one user thought that optimization could be used to optimize the entire supply chain (as it can) and that
We are always looking for international sources and new suppliers to run optimization.
Supply Chain Process: Art or Science?
While browsing through a recent edition of the Harvard Business Review, I stumbled upon an article asking When Should a Process Be Art, Not Science? Naturally, this caused me to contemplate supply chain processes and ask if they should be art or science because it’s a good question.
The article notes that there are some processes that naturally resist definition and standardization — that are more art then science and that the idea that some processes should be allowed to vary flies in the face of the century-old movement toward standardization because process standardization is taught to MBAs, embedded in Six Sigma programs, and practiced by managers and consultants worldwide.
But maybe process standardization has been pushed too far, with little regard for where it does and does not make sense. Because sometimes it is output variation that creates customer value. For example, it is the job of the master winemaker to make the most of the distinctive qualities of each year’s harvest and not try to re-create last year’s vintage to a tee, when it may not even be possible.
Now, each supply chain process should be relatively standardized at a high level, as this allows it to be measured and repeated if it is successful, and we want our supply chains to be as lean and six-sigma compliant as possible, which leads us towards science, but is that the whole picture? For example, while a 15-point checklist, such as WalMart’s sustainability checklist, might be a necessary starting point in supplier selection — as you want suppliers who are financially stable, capable of meeting your demands in a timely fashion, responsible, and focussed on sustainability — it should not be the end point as well. After all, part of your job is to identify suppliers that add value and that bring more to the table than just cookie cutter contract manufacturing because that’s how you get an advantage over your competition. How they do that will be an art, and how you measure that will be an art.
So, supply chain processes are really a bit of both — science at the high level (and in the analysis of the details when you are doing a spend analysis or strategic sourcing decision optimization), and art in the middle … where you use your best judgement to find the best product and partner. Where you collaboratively work with your supplier to come up with a better and cheaper design and delivery system for both parties. Where you create value when none existed before. Science in management and art in the execution.
How do you manage the art?
You start with the three-step process outlined in the article.
- Identify what should and shouldn’t be art.
What shouldn’t should be “by the book”. - Develop an infrastructure to support art.
Make sure your supply chain artists have the freedom to practice their art and create customer value. - Periodically re-evaluate the division between art and science.
When your team strikes on something great that is repeatable, standardize it. When a process stops achieving the results it once did, put it out there to be re-created.