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-July 29, 2010 - |
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Past Decade one of Only Three Major Periods of Spiking Oil Prices; Even at $70 per Barrel, Cost is Still Very High in Historical Terms |
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The price of oil and hence the cost for fuel such as diesel is one of the largest - and most variable - drivers today of total supply chain costs. Not only does the price of oil directly affecttransportation costs, but oil is the base source for a variety of products used to manufacture goods (plastic being the most obvious example).
In its annual review of world energy, BP as always included a wealth of facts and figures (See
Summary of the Annual BP Statistical Review of World Energy). In that report was the following figure, which shows the price of oil from its first use about 140 years ago to 2009, both in actual dollars per barrel as well as constant dollars, using 2009 as the base.
Source: BP Statistical Review of World Energy
As can be seen, there have been three main periods of a relative spiking of oil prices. At the very start of the oil era in the 1860s, during the first and then second "oil crises" of the 1970s, and then again starting in 2003.
While oil prices have fallen back by more than half from their 2008 peaks, through the lens of history even at $70-80 dollars a barrel, where oil has been trading lately, it is still very expensive.
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2008-10-03
Oct. 3, 2008
There are valid reasons for both the DC and DSD distribution models, but neither should determine the store assortment, which depends on the consumer.
The Distribution Center model makes sense when you have many prepackaged products which are continuously replenished and require little in-store servicing. With the facility justified, you can also add seasonal and holiday 'in and out' products which can share the distribution network.
The key is to manage the time supply of inventory in the warehouse and distribute it efficiently.
The Direct Store Delivery model can be implemented purely as a distribution method or also allow the manufacturer to manage some of the in-store merchandizing.
I do not see any advantage of using DSD simply to deliver merchandise. Although it may help the 'mom and pops' that are on the same route as a large retailer, the DSD model must be more expensive. Once the big drops are removed, it will become more costly to reach the independent retailers but the larger retailer must benefit.
If DSD is used to support in-store merchandising, then you have a different story. The manufacturer's representative can give their products the individual attention that increases their sales. The bad thing is that they can also load up the store with inventory if no one is watching.
Bill Bittner
President
BWH Consulting
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