Today hit the oil price 142 dollars and the stock exchanges react as predicted: they were going down. (It did not even help to stabilize the oil price, that 30.000 brand-new Volkswagen were destroyed by a hail storm) . The background stories, on how companies are going to react, are however missing.
More Companies localize their production
Vertically integrated production called it underwear producer American Apparel. Already in May Jason Bush was blogging about the localization of Wal-Mart. One of the main aspects in this post was that this is good marketing. As a marketing person I agree, it is, indeed. And I think that this will also pay off on the long term by reducing costs. It is pretty obvious, what possibilities purchasing functions have short- and mid-term, to react on the given challenges:
- - Shorten Supply Chains
- - Localize Production
- - Localize Supplier Base
- - Review “oil contribution” to the main products
Central purchasing will become hard, central led the standard, especially with qualified local purchasers. I dare to predict, that Franchise concepts will be on the rise. Delivery and production standards are defined centrally; as well as the specifications from purchasing, production will be done locally. (Of course it will help if you have a sophisticated e-Sourcing solution in place, to guarantee still global standards on quality)
Personally, I am more afraid of small products, which will have major impact and which are hard to foresee, similar as the donkey story in the very beginning of this series. An open ear for supplier innovations will be in the next years a deciding factor to succeed. Perhaps the style of Germany’s leading retail discounter Aldi could be there a role model: rumor has it, that every interested supplier has just to drive to the headquarter and he will get, without arranging an appointment, at least 5 minutes with a purchaser to present his product.
An Urban Legend
Originally I wanted to end with another story: End of the 60ies, during the race to the moon, the Americans realized, that their pens do not work in outer space because of the missing gravity. They invested 11 million Dollar to invent the so called space pen, which works under water, in the vacuum and in zero-gravity. And what did the Russians do? They took pencils. Unfortunately this is an urban legend. (Read the real story here) But the true story gives me even more hope to cope with peak oil. Ordinary capitalism found the right answer to the zero-gravity problem. Paul Fisher succeeded with his company to develop the right writing instrument, and as a true capitalist he sold them to both: Russians and Americans. Anyway: The right mixture of capitalism, inventive talent, reasonable politics and smart purchasers will hopefully lead to a good answer to the peak oil problem.
July 1, 2008 at 3:50 pm
I’ve enjoyed reading all four of your posts regarding the looming energy crisis and the subsequent impacts on supply chain sourcing and distribution strategies. We sometimes forget that many of the past product sourcing and distribution strategies were developed in an era of relatively cheap energy. All of that is about to change dramatically, including as you pointed out, the price of donkeys. I envision a huge market in the U.S. for European and Asian motor scooters.
My final comment relates to your statement regarding the need for the right mix of capitalism, innovative talent and reasonable politics. As a resident in the U.S., my concerns are most focused on reasonable politics, since I do not observe either U.S. politicians or the proposed U.S. presidential candidates fully grasping the magnitude of this structural shift that is occuring.
Bob Ferrari