In early June, I utilized Supply Chain Matters to pose a question, namely that with the sustained high prices of energy, have we reached an inflection point in the energy vs. global product sourcing equation.  (See Energy Prices- Have We Reached That Inflection Point for Global Supply Chain Strategies?).  I offered my view that we have reached a point where the unabated higher costs of crude oil, diesel and aviation fuels will result in structural change in the interrelationships and flow of goods across global supply chains.

Over on Spend Matters (no affiliation), Jason Busch recently made reference to my post and added the following advice to his readers: “While I don’t think that we’ll ever go back to a Spend Management environment focused just on local sourcing, I do believe we’re about to enter a new era where global price equations don’t necessarily make sense-that is, unless the impact of rising global prices is simply inflated away…” 

And in the blog Purchasing Transformation, a European site sponsored by IBX, author Andreas Bernhard in his last post on this subject made the following observation: “The right mixture of capitalism, inventive talent, reasonable politics and smart purchasers will hopefully lead to a good answer to the peak oil problem.”

 To add further specific corporate evidence, I ran across a Financial Times article last week (Oil costs force P&G to rethink supply network) which outlines that fact that consumer goods leader Procter and Gamble has already launched a comprehensive review of the existing design of its entire supply chain in response to rising energy costs. The vice president of global supply chain, Keith Harrison made the following observation: “I could say that the supply chain design is now upside down.  The environment has changed.  Transportation costs are going to create an even more distributed sourcing network than we would have otherwise”.  The study is reported to include the assessment of trends for sustainability and packaging, regional consumer demand patterns, and expected changes in the global operating environment under various scenarios of energy costs.

Summer brings certain vacation and down time to reflect on the year thus far and to ponder strategy for the second half of the year.  If your organization has not already done so, I urge you to influence the “C-suite” to sponsor a new evaluation of global supply chain network and sourcing strategies that were developed in previous times of cheaper energy.  Scenario planning and response management may well be one of the keys to surviving unprecedented times. The “tipping point” for global distribution has arrived, and organizations need to be prepared.

Bob Ferrari