December 2011 | Commentary | IT Matters

Safeguarding Your Supply Chain Against Rising Fuel Prices

Tags: Supply Chain Management

Lorcan Sheehan is Senior Vice President of Marketing, ModusLink Global Solutions, 781-663-5000

Rising fuel prices have affected most supply chains through fuel surcharges or increased component and operating costs. By planning ahead and evaluating where your supply chain activities are performed, as well as your current processes, you can face these challenges head-on and reduce the impact on your operations and the bottom line.

Prepare your supply chain for rapid fluctuations by addressing these factors:

  1. Flexible infrastructure. Supply chains have undergone dramatic changes in recent years in response to shifting product needs, labor costs, taxes, and environmental considerations. Being flexible enough to employ multiple routes to market is an important risk mitigation strategy, but it also provides the capability you need to rebalance product flows in response to changing input costs.
  2. Network optimization. As oil prices increase, you may be forced to evaluate where distribution centers are located in relation to areas of high demand. The combination of higher logistics costs and added inventory requirements has prompted many companies to move supply chain operations closer to key markets. A network optimization analysis may result in opening or closing distribution centers, or even moving facilities to more optimal locations. Frequent evaluations are necessary to ensure your supply chain model matches current conditions.
  3. Postponement strategies. A postponement strategy based on your network optimization analysis can help increase the density of product coming from remote manufacturing locations. By sending unfinished or unpackaged goods into regions that are closer to the end consumer for final assembly, you can maintain inventory at a flexible level and reduce fuel costs.
  4. Shipping practices. Changing your shipping practices can dramatically impact your bottom line. This can be as simple as establishing specific delivery dates with key customers, which will enable you to consolidate shipments. You can also partner with a company that is not a competitor but ships product to the same retail locations. Consolidating shipments between multiple brand owners can reduce costs and increase shipment density.
  5. Environmental responsibility. Adopting sustainable supply chain practices can help reduce costs and support corporate environmental initiatives. Consider using alternative fuel sources for trucks and other vehicles to avoid fluctuating oil prices and the complexities they cause. The Environmental Protection Agency's SmartWay Program aims to reduce environmental pollutants caused by traditional fuel sources by providing companies with cleaner alternatives, including ethanol, E85, biodiesel, and natural gas and propane.

Also evaluate product packaging for opportunities to go green. Bulky product packaging made from synthetic materials and plastics is not friendly to your operations, shipping costs, or the environment. Redesigning packaging to be more compact and incorporate recyclable materials with little or no plastic can increase pallet density, which reduces shipping costs and carbon footprint.

To manage rising fuel costs, gain a firm understanding of your supply chain, then implement strategies that add flexibility to your infrastructure and benefit your operations.