Womble Carlyle Supply Chain Management Blog

Following legal issues related to supply chain management.

Friday, April 13, 2012

Supply Chains and Oil Supply: Are We Headed for "Another Oil Shock?"

With the United States in the throes of our every-four-year political wrestling match, the topic of energy, and specifically oil, is near the top of the list (as if it ever were very far from the top). Global supply and demand of petroleum, instability in oil producing countries, and prices at the pump in the U.S. have heightened attention to world oil supply.

So what does all this mean for supply chains? McKinsey & Company just released an analysis in the McKinsey Quarterly titled “Another Oil Shock?” which assesses the likelihood of oil supply and demand on prices, impact on supply chains, and reactions. They look at several scenarios – both “gentle” and “violent” collisions of supply and demand.

While it is very hard to predict how this could unfold, I was intrigued by their observation of how the impact could be received:

If the shock scenario outlined above unfolded, sustained high oil prices would challenge the top and bottom lines of many companies. However, high prices also could create opportunities for companies to differentiate themselves from competitors whose cost structures and operating approaches were ill suited to the new environment. And for companies on the front lines of the resource productivity revolution, a prolonged oil price increase would be beneficial. Providers of a range of new technologies—from car batteries for electric vehicles, to horizontal drilling and other tools for unconventional oil extraction, to biofuel production techniques, to electricity cogeneration equipment for manufacturers—would see their businesses grow, faster, than they would in a world of lower oil prices.

Companies would do well to assess the impact of sustained, high oil prices on their supply chains and being, now, to evaluate how they would deal with such events to maintain a stable, profitable supply chain.

- Greg Chabon