The concept of “peak oil” has been around for decades and is breaking out of the science community to reach those who are not necessarily scientists, but have a strong interest in understanding the issues that impact our world and our future. Many supply chain management professionals are beginning to take an interest in the topic, but we still have many challenges getting our profession to address how rising energy prices will have profound implications for the design of supply chain networks. Many of our supply chains have been developed with the assumption of low energy prices that will remain low relative to labor costs.

One difficulty in reaching a call to action for our profession is the barrage of misinformation from some players in the oil industry that talk about change while working behind the scenes to maintain the status quo. Furthermore, the continual misinformation from advertizing, including industry supported documentaries and articles, has provided non-scientifically oriented individuals with an inaccurate view of our energy future.

The good news is that a wealth of sound and accurate information is available. One example is a movie called “A Crude Awakening” which does an excellent job explaining the concept of peak oil.

During my research on peak oil, I ran across some presentations and articles from Mike Loughrin, who is one of the few supply chain management professionals focused on the topic. I contacted Mike and asked him a few questions as to how the understanding of peak oil is playing out among other supply chain management professionals.

Q&A

Shaun Snapp Question 1:

The concept of peak oil has become quite strong in many areas outside of supply chain management. This includes a number of books, public meetings, and DVDs. Even though supply chain activities consume a great deal of oil, the topic seems absent from our professional publications and other educational programs. Why is this?

Mike Loughrin Answer 1:

While there is a growing awareness of peak oil among SCM professionals, you are correct in terms of our field being behind the curve in terms of debate and discussion in our publications and educational programs. I believe there are four major reasons for this situation:

• Many SCM professionals, that have a job, are working way too many hours just getting the daily grind accomplished. This leaves little time for fully recognizing the huge impact that peak oil will have on our supply chains. While individuals may see the need to buy more fuel efficient cars and insulate the house, the impact of a relentless decline in the supply of oil will drive many changes in our supply chains. The coming challenges are on the horizon, but today’s work hours are focused on today’s problems.
• Our field has many people with enormous faith in the ability of technology to rescue us from any problem. While the impact of peak oil will be mitigated by technology and new forms of energy, the complex relationships of our oil based economy requires us to listen to geologists and other scientists and not rely on the comforting thought that technology will solve the problem. People in our field rub elbows with software salespeople far more often than with petroleum engineers.
• Many of our so called SCM experts have been pushing outsourcing and the creation of complex supply chains that rely upon cheap transportation. Peak oil suggests that cheap transportation has been a relatively short and soon to end aspect of our global economy. However, our publications and educational materials, including our certification exams, are full of advice and purported facts that you should configure your supply chain to chase low labor dollars in far away locations and then ship thousands of miles to your customers.
• The leadership for many organizations is focused on meeting the numbers for the current quarter. Many of those with a “long term” plan are chasing low labor costs and underestimating the future cost of transportation. Those who challenge the assumptions concerning the wisdom of low labor and high transportation supply chains are viewed as crazy or out of touch.

Shaun Snapp Question 2:

As you mentioned, many SCM professionals seem unconcerned about future energy costs because they believe technology will deliver a magic solution to replace oil and allow us to maintain our present systems. How likely does this appear?

Mike Loughrin Answer 2:

Many forms of alternative energy will be developed, improved, and required for the transition from an overreliance on oil. Reduced consumption of oil through efficiency and conservation will also be required. Unfortunately, there will be no magic solution and we will probably see the additional impact of demand destruction that will be needed to keep demand and supply in balance. Most experts acknowledge that we will have many challenges adapting to the relentless decline in supply that will occur after we reach peak oil.

In terms of maintaining our present systems – there will be very few supply chains that will not be greatly impacted. The silver lining in this dark cloud is that SCM professionals will have a tremendous opportunity to understand the dynamics and help organizations transition to a world that will be significantly different than we have today.

Shaun Snapp Question 3:

What effect have you seen in SCM professionals when awareness of the scope and complexity of peak oil first takes hold?

Mike Loughrin Answer 3:

I have seen many very positive reactions from SCM professionals after they first begin to grasp the coming impact of peak oil. Examples include:

My APICS Northern Colorado chapter brought in an expert to share his insights on peak oil. One individual who has been active with various APICS chapters for many years told me: “This was the best APICS event I have ever attended. The presentation covered very important material that is relevant to my organization and my career. I did not realize this is happening.”

Another individual that attended a presentation I gave at a large conference got back to me and reported: “I bought and read some of the books you recommended and have also found a wealth of information on the internet. I cannot believe how much information is available and how it was all passing me by. This knowledge has changed my life.”

Shaun Snapp Question 4:

In your article on “Demand Destruction”, you describe the need to craft a lean supply chain. What does it take to accomplish this?

Mike Loughrin Answer 4:

A lean supply chain starts with getting your house in order and creating a lean enterprise. This is not just a few random lean projects in manufacturing. It is an across the board focus to improve and integrate all areas of your organization. A lean transformation needs to include Accounting, IT, HR, Marketing, Sales, Manufacturing, Customer Service, Logistics, and all other areas.

While improving your internal organization, you also leverage many of the supplier relationship management (SRM) and customer relationship management (CRM) techniques that are part of most supply chain management certification programs. Successful lean supply chains will collaborate with both customers and suppliers. For example, many suppliers to the major retailers are getting the daily sales and inventory for every store. This is then used to drive replenishments that are based on customer demand.

The last element of a lean supply chain is to pull everything together with supply chain management as a core competency. You cannot develop and maintain a lean supply chain if you are not committed to supply chain management. Things change and there needs to be continuous improvement and adjustments. While giving presentations, I often ask how many attendees work for a company that views SCM as a core competency. The percentage is still under 20%, but it is growing. These are the companies that have the best chance to compete and win when rising oil prices require frequent changes to all supply chain networks.

Closing

My discussions with Mike have provided glimmers of hope, but have reinforced my view that SCM professionals are by and large missing the importance and impending impact of peal oil. The lack of focus leaves supply chains very vulnerable to energy price spikes and supply disruptions.

While SCM professionals may be busy fighting today’s alligators, the essence of a “professional” requires looking over the horizon. Peak oil has or will soon arrive. We must begin listening to the scientists and the scientifically oriented non-scientists who are discussing and debating the reality and implications of peak oil. We must also be vigilant in spotting those with immense resources that are dedicated to presenting non-science in this area in order to obtain short term profits.

More Information

Please contact Shaun Snapp at contact.snapp@gmail.com to learn more about his investigation into peak oil on behalf of all supply chain management professionals.

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