Have you begun to notice how quickly the price of oil has been rising of late?  Here in the U.S., the price of gasoline and diesel has been on a rapid climb for the past four to six weeks.

Do you think it’s a positive sign of pending recovery in the global economy?  Not so fast!

An article penned by Time and featured in Yahoo News (Oil Is Plentiful, Demand Weak: Why are Gas prices Going Up?) leads us to the potential root cause- speculation.  Yes, OPEC and those gosh darn investment speculators are at it again.

This article points out that demand for oil in the so-called rich countries is at its lowest level since 1981, and interesting enough, U.S. oil inventories (stored surplus) has also reached its highest level since the 1980′s.  But alas, 2.6 million barrels of this surplus is being stored in idle floating tankers around the world.  In the classic supply and demand equation, supply is inaccessible, so price goes up. And then we have the statistic that financial investors have once again plowed billions into oil futures, betting on the timing of a world recovery.

The overall message is clear.  Oil markets are not driven by normal demand and supply forces.  We should all take note.  We cannot waiver from collective commitments toward alternative energy and sustainability initiatives. The U.S. Energy Information Administration predicts that oil prices will rise to $110 a barrel by 2015.  That’s about double of what it is today in the U.S.

The world economy has been fortunate to have a hiatus in cheaper oil during this damaging recession. Unless someone brings those ships ashore, our respite of cheap energy is a past memory.

 Bob Ferrari

My former employer, AMR Research, is wrapping up its supply chain executive conference in Phoenix this week.  One of the highlights of this conference is the annual announcement of AMR’s Top 25 Supply Chains.  Consultants and industry bloggers are precluded from the voting, so penning this entry is my way of weighing in.

Well-known and respected IT blogger Vinnie Mirchandani offered his observations of this year’s listing on his Deal Architect blog, and I must admit that I, too was scratching my head when I read of some of the 2009 selections.

First, I echo Vinnie’s observation that AMR has made a name for itself with consistently good supply chain research.  Much of this began with some of the original and gifted analysts such as my former mentor, Dr. Larry Lapide, along with the late John Fontanella, and others.  But having been in the industry analyst world for five years, I sometimes understand how research methodologies can go astray.

Vinnie’s observations note that not a single Chinese company, e-tailor, or utility have appeared on the list.  Perhaps the reason lies in the overall selection methodology, which tends to eliminate these companies from ever entering the selection process. 

AMR appropriately places higher weighting criteria on consistent financial performance metrics, one of which is a three year moving average of Return-On-Assets. In my view, high ROA can be a bias toward companies that have outsourced major supply chain inventory and operations, or reside in less asset intensive industries. Case in point, IBM is rated number 4, but has outsourced a vast majority of its manufacturing, including laptop production to Lenovo, and is quickly transforming itself to a services company. 

We further don’t see the presence of major contract manufacturers like Foxcon, probably because these companies have to monetize global manufacturing assets for their OEM customers.  Companies like Dow Chemical, BASF, or even TSMC are also hindered because of their asset intensity. Yet these same companies are constantly required to be more agile and responsive to their upstream customers, many appearing on the Top 25 list. Does this preclude organizations that reside downstream in the value-chain from ever being considered?

How can Dell move from the number three position last year, to number two this year, ahead of rival HP in the number 17 position?  What’s up with that! I’ve posted a number of commentaries, the latest being Reflection on Dell’s Latest Reorganization, that pointed to Dell’s decision to move from a previous centralized supply chain structure, to one of de-centralized supply chain functions residing within global business units, which is how HP currently manages supply chain.  Dell’s recent announcement of 63% drop in profits, continued flat demand, and restructuring charges doesn’t seem to fit with a number two rating.  AMR’s Supply Chain Reaction blog praises HP for building a more distinctive brand operational excellence and comprehensive risk management.

On a slightly more positive note, I was however really pleased to see Intel finally appear on the Top 25 after so many years of non-appearance.  AMR points to Intel’s efforts of being more demand-driven, moving beyond its former notions of technology push.  Unmentioned, but probably contributing to this recognition is a movement toward a more centralized supply chain management structure, corporate-wide efforts toward standardization on SAP ERP and supply chain applications, as well as leveraged use of some best-of-breed supply chain analytics, visibility and intelligence tools.

It seems that win at all costs is becoming our new form of competitive culture.  Television programs like American Idol, Dancing with the Stars and others play upon the influence of viewers who have the ultimate power to influence the final vote.  I sincerely hope that recognition of the Top 25 Supply Chains does not adopt this model.

What’s your reaction to this year’s Top 25?

 Bob Ferrari