I was pleased to see this recent article in Fortune on why gas costs more — and is more profitable — out West because it hammers home three points.
- Gas prices are not uniform across North America, and, thus, it’s not all about the price of oil.
- If gas is cheaper, it’s not just because transportation costs or taxes are less, it’s because it’s dirty.
And as badly as we may want cheap gas, we should want clean air more. We need agreement on a Kyoto protocol that will mandate consistent EPA requirements across North America. Not only will our lungs thank us, but so will our CFOs — because, then, for once, we’ll have consistent fuel prices across the board and planning will be easier, and cheaper. We will be able to locate DCs at a point that minimizes the total distance across all lanes, because we won’t have to account for fluctuations in fuel prices due to local EPA laws.
Right now, because of so many fuel price variations above and beyond carrier rate variations, an average company requires the most advanced and expensive optimization solution on the market to even attempt to optimize a distribution network. This advanced software is still well beyond the budgets of smaller mid-sized companies. But if the model simplifies, the software requirements for basic network analysis decrease, and lower-cost solutions become sufficient — solutions that are within the budget of the average mid-sized company. And now its clear why cheap gas not only damages the environment, but your supply chain.