Sucking It Up

With prices gushing past $100 per barrel, companies are trying to consume less oil.

Similarly, Wisconsin-based consumer-goods company S.C. Johnson saved $1.6 million, cut fuel use by 168,000 gallons, and used 2,098 fewer trucks in 2007 through a “truckload utilization project.” The project changed the company’s habit of packing Windex glass cleaner and Ziploc bag products in separate loads, because it found it could utilize the vehicle’s maximum load weight by mixing them. The company also used more “day cabs” (trucks with no sleeping compartments) because they are 3,000 pounds lighter and can hold more product.

Many companies have been asking, “Why do we have an extra two inches of air space in our container design?” Genco’s Greve says. “The impact of design on the cost of transportation is on the radar screen of marketing departments and designers.”

For 2008, Kimberly-Clark is also working on packaging. To outfit items such as Depend undergarments with end-of-aisle displays, the company used to ship the finished product to a co-packer that assembled the displays and returned them to Kimberly-Clark docks. Now the company is putting the co-packers into its own distribution centers to assemble the displays, so that the products make only one outbound trip. “This one is a slam dunk,” Jamison says. “We’ll start saving money the minute we start.”

Rethink JIT

Other supply-chain management strategies that developed in the era of cheap oil will almost certainly have to be rethought. Example: just-in-time delivery to keep inventory costs down.

In Europe, with gasoline and diesel representing 20 to 30 percent of total transport costs, companies shipping or receiving low-value-density products like food or commodities are seeking a new balance between working capital and the cost-to-transport, says S&V’s Serneels. In doing so, they are making JIT less of a priority. Some customers are becoming content with fewer shipments to avoid less-than-full truckloads, he says, accepting slight increases in working capital to reduce transportation costs.

A European organization called ELUPEG (European Logistics Users, Providers and Enablers Group) is even helping competitors team up for fuel reduction. For example, a distribution center in Holland serves two independent manufacturers (Lever Faberge and Kimberly-Clark) with consolidated deliveries to retailer sites. Benefits include increased delivery frequency, lower inventory, fewer out-of-stock situations, and improved on-time performance, according to Alan Waller, vice president of supply-chain innovation at Solving International, a UK consultancy.

Aligning the interests of supply-chain partners and competitors in the United States may be more difficult. Over time, service-level agreements with suppliers will develop to include clauses requiring the partner to disclose its oil footprint, “but it will be a relatively slow adoption and evolution,” predicts John Fontanella, vice president of research at AMR Research.

Looking Down the Road

Expensive as oil is at present, it could get worse in a hurry. A disruption of the thousands of barrels flowing into U.S. ports per day is certainly a possibility, given that the politically volatile countries of Venezuela, Nigeria, Angola, and Iraq were among the top 10 oil suppliers to the United States last year. But Taylor of Awake Consulting contends that, in general, companies are not concerned yet about making a supply chain more resilient in the face of possible oil shortages.

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