08 January 2009

Viewpoint : The Blog

All change

Published:: 21 October 2008
Article Type:: Viewpoint
Byline:: Nick Allen

How quickly things change. Just a few short months ago the price of oil was $140 a barrel, with alarming predictions that that figure could rocket to $200. Inflation too, was thought of as a key concern.

Now after a major global banking crisis and growing expectations of a world recession, the cost of oil has halved to less than $70 a barrel and inflation is no longer seen as the big threat.

Earlier in the year, many large companies, Procter & Gamble being one, were looking closely at their supply networks and assessing the impact that such sky-high oil prices might have on their manufacturing and distribution strategy. P&G’s current model of large, single-category regional production sites with long supply chains was based on cheap oil, but the way things were going the cost of transport was starting to change that perception, raising the possibility of building new capacity.

I wonder where this thinking is now following the recent return of oil prices to $70 a barrel? Will things stay the same, or will the long-term possibility of a $200 barrel of oil, or perhaps even, the carbon cost of a supply chain geared to cheap oil, lead to a supply chain re-design? The long-term view would seem the most prudent.

Another interesting recent development at P&G has been the company’s testing of its ability to sell its products directly to US consumers via the internet. The company is supporting a website, theEssentials.com, that is exclusively selling its branded goods; although the website is run by a third party which owns the inventory.

Just where this leaves its partnership with leading retailers is an interesting question. But the move could be a good counter to competition from retailers’ low-price, private label brands.

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