We all know conceptually that rising fuel costs will impact supply chain network design, but now we have real evidence. As we reported in a recent First Thoughts column, Dr. David Simchi-Levi of the Massachusetts Institute of Technology and ILOG used data from a real company in the consumer packaged goods industry company to estimate the impact.

The full story is available here: Oil Prices and Supply Chain Network Design.

Below is one graphic from the slides summarizing the analysis. It shows how an optimal network design changes with oil at $75 per barrel and $200 per barrel, a level some experts predict will be reached soon.

Changes in Optimal Manufacturing Sourcing Decisions with Rising Oil Prices

Real CPG Industry Manufacturer Scenario Analysis

Source: Dr. David Simchi-Levi

In this real scenario analysis performed exclusively for Supply Chain Digest, at lower fuel prices, a potential sourcing location in Omaha doesn't make the cut. But as oil prices rise, the lower manufacturing costs in Juarez, Mexico are trumped for some customers by rising transportation costs.

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