Supply Chain Management Review

Frank Quinn

The $100 Tipping Point
January 3, 2008

We knew that the day of the $100 a barrel oil price would come.  And, sure enough, it happened on Jan. 2. 2008.  What a way to welcome in the New Year!

Whether the price of oil keeps escalating or hovers around the $100/barrel mark is anybody’s guess. But on thing seems certain: It’s not going to drop much any time soon.

The impacts of record-high oil prices are pervasive and immediate—as close as your last visit to the gas station. It’s hitting home, in my case almost literally. I was surprised two weeks ago when the repairman who came to fix my garage door added a $7.50 fuel surcharge to the bill.  He only had to drive 15 miles, but I guess it all adds up.

Looking at the bigger supply chain impacts of $100/barrel-plus oil, you can spot some potential seismic shifts on the horizon. For instance, for North American importers and consumers of China-made goods (and is there anyone out there who does not fit in that category?), the question becomes, What’s the tipping point?  When does the transportation component on the total landed cost—or cost paid by the consumer at the retail outlet—become so great that you need to reassess your LCCS sourcing strategy?

I believe we’re getting closer and closer to that tipping point. For supply chain people, the message is that it’s time to reassess existing sourcing strategies and locations. Does that mean summarily pulling out of far-away places like China?  Not at all. But having alternatives identified before costs get out of control is the prudent course of action. 

Maybe there’s an opportunity hidden in that $100 barrel. The rising cost of oil may be the biggest boost to the Mexican and Central America economy that we’ve seen in years.  And where is it written that the Untied States has permanently foreclosed on its right to be a premier manufacturer? The days of Henry Ford’s famed River Rouge plant may be over. But the latter day Model T’s from the likes of Toyota, Honda, and BMW demonstrate that with the right approach and the right product, you can make it in America.

Posted by Frank Quinn on January 3, 2008 | Comments (0)