Spotlight: SCMMS Knowledge @ RBS
Featured Faculty Member
Lei Lei, NJ BIZ article
| |
 | "The Logistics of Business and Academia" Supply-chain management can tie together
companies from across the globe,
according to Lei Lei, director of the Rutgers
Center for Supply Chain Management.
Read the full article here. |
Lei is the Department Chair and Professor of Supply Chain Management and Marketing Sciences. She is also the Director of the Rutgers Center for Supply Chain Managment. Her expertise is in operations scheduling, project resource allocation models, logistics performance optimization, and distribution network designs.Operations scheduling, project resource allocation models, logistics performance optimization, and distribution network designs. Visit her faculty page here.
RBS Supply Chain Leaders' Challenge
SUPPLY CHAIN LEADERS' FORUM "Cost of Oil in our Supply Chain"
In 1999, the price of oil hovered around $16 a barrel. By 2008, it had crossed the $100 a barrel mark. Later in 2008 the price rose to almost $150/bbl. The reasons for the surge ranged from the relentless growth of the economies of China and India to widespread instability in oil-producing regions, including Iraq and Nigeria's delta region. The price has recently softened somewhat, but it is clear that the price of oil is not returning to $16 a barrel anytime soon.
Question: As Supply Chain and Procurement Leaders, what to you need to do differently in the future?
Supply Chain Leaders Answer: As many companies are looking at next years budget, we as leaders need to think seriously at what we need to do differently in the future. We will have to make our forecast of our materials and freight costs, much like we do every year. However based on this recent volatility, we need to see more supply chain leaders add a dimension of "sensitivity analysis" to their budgeting, forecasting and decision making models. In this way they can balance the risk – benefits of their sourcing practices around the cost of oil in the range of $75 a barrel to $200 a barrel. Working closely with their Finance partners, they can model and understand the impact of the market dynamics against profitability models.
Going forward we need to update our network optimization programs with the higher cost of oil and the higher cost of freight. Does that mean more local vs.off-shore manufacturing plants? Do we need more warehouses, now closer to our customer base? We also need to accelerate our energy conservation programs-both in our plants and offices. Longer term, we need to improve our energy contingency plans for our plants, for our materials and for suppliers. What would happen if we had a major disruption of supply of oil, gas, or even our feedstock for our materials.
We also need to think differently on how we buy our materials and services. For our Procurement/Sourcing professionals it will now become another negotiation point when sending out RFP's and also another item to be included in contracts going forward similar to KPI's and price increase benchmarks such as the CPI. For example, all contracts that are impacted by the price of oil such as resins or significant transportation costs should have pre-negotiated indices tied to the commodity price. This would allow better variance modeling and more importantly - prices that not only go up, but a reference for managing the downward fluctuations. A robust process approach will establish a strong foundation for the next 3- 5 years.
While certainly these are challenging times, supply chain leaders need to take a leadership role in changing how we manage this ever changing landscape of energy and oil prices. It is our job to set the strategy and communicate it through the business.
