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Restock the Supply Chain Playbook
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| Written by Mel Duvall |
A few months ago, as oil prices were climbing to dizzying new heights, I wrote a blog about having a supply chain playbook ready in case key price thresholds were breached.
The argument of the blog at the time was that should oil climb to $125, $130 or even $150 per barrel, companies may need to make tough decisions on where they source many of their products and parts. While it may have made sense to import a car part or electronic component for a computer from China when oil was at $100 per barrel, importing that same part may no longer make sense if oil climbed to $150 per barrel.
So what has happened since that time? Oil did, in fact, climb to $125 per barrel, then $130, and on July 11 it came within a breath of reaching the $150 mark when it closed at an all-time high of $147.27.
The economic effects of this dramatic rise were far-reaching. Consumers began curtailing their driving, they had less money for discretionary spending, and when combined with troubles in the housing and banking sectors, the world was thrown into an economic downturn (which may yet prove to be a recession).
Now, instead of continuing to soar towards $200 per barrel, as some analysts had predicted, oil has taken a tumble. As I write this blog, the price of oil is sitting at about $98 per barrel.
My original blog talked about the importance of having supply chain playbooks ready in case oil continued its upwards spiral, but the reverse is also true. As oil now reverses its direction, companies need to be thinking about what makes more sense in terms of sourcing parts, shipping goods, and shifting production capacity.
Most importantly, companies should be capturing what lessons they’ve learned as they’ve tried to ride out this economic roller coaster. As Pallab Chatterjee, chief executive of supply chain software specialist i2 Technologies, noted, companies that can call a play, and have systems, people and processes in place to respond to that play, will be best positioned to survive and thrive in tumultuous times.
“As you learn what plays work, you can keep adding plays to your playbook like a football coach would add successful plays to his playbook,” says Chatterjee.
It’s difficult to tell where the price of oil is headed, but if it does once again make a climb towards the $150 per barrel mark, it will be interesting to see how many companies learned from oil’s last surge and have plans in place to respond quickly and make the effects less painful.
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