For the past 20 years supply chains have been heavily focussed on reducing inventory and capital through the centralisation of stock. This model ensures highly effective distribution networks and excellent customer service, however, it was developed at a time when the cost of capital was relatively high and the cost of fuel was comparatively low.
In light of the dramatic and sustained increases in the price of fuel, businesses should be asking themselves if this strategy remains viable. In an era of sustainability and increasing transport costs, is centralised inventory management still an effective business model?
Changing Practices and Looking Ahead
4C recently carried out a number of network analyses, modelling various inventory locations and transport options against a scale of fuel costs rising to £2 per litre. Going through the various scenarios relating to fuel price increases, the balance of central versus local inventories begins to shift due to the impact on transport costs.
Given that these network and property related decisions are often made on a five-10 year basis, and sometimes longer, it is essential to analyse these scenarios before any major network decisions are taken.
Due to on-going consolidation in the retail, logistics and parcels sectors, numerous networks are currently under review. Businesses need to ensure that any solution they decide to implement is based on fuel prices in five years’ time and not just today.