Gas Pains

This winter, supply chain managers and other executives at many manufacturing companies are breaking out the antacid to combat more than just a holiday hangover. They’re suffering from a more serious condition: gas pains. That’s gas, as in both gasoline and natural gas.

A survey conducted last fall by market research group Industry Directions Inc. (Newburyport, MA) indicated that supply chain managers were already under the gun to rethink strategies to combat increasing energy costs. The study was conducted Oct. 10-14, hard on the heels of Hurricanes Katrina and Rita, both of which seriously impacted the U.S. petroleum supply and refining industries. (No doubt you remember gas at $3+ per gallon in the immediate wake of Katrina.)

According to the survey of 61 executives at small, medium and large manufacturers, spiking gasoline prices had already impacted their business by mid-October. In fact, an overwhelming 98% reported that to be the case. More than three-fourths (77%) of respondents said they spent more time focusing on supply chain design, including undertaking strategic redesign, as a result.

The impacts of this supply-chain scrutiny are many and varied. Most survey respondents realize they have a limited ability to pass along increased fuel prices and are looking to trim transportation costs.

Some of the ways companies are considering to reduce transportation costs may be surprising. “For example, nearly half of all survey respondents said they are reconsidering whether and how to implement offshore manufacturing, once seen as a panacea for controlling costs,” says Industry Directions Principal William Brandel. “While we do not expect to see a mass exodus from low-cost countries, there could be shifts, particularly for products with high transportation costs.”

As of this writing, gasoline prices in many areas of the United States are back to near $2 per gallon. Still, the rising cost of fuel is a problem that manufacturers of all sizes and stripes will be wrestling with for some time to come.

Unstable diesel and gasoline prices are tough enough to swallow but an even more bitter pill for some finishers as we head into the depths of winter may be natural gas prices and supplies. The U.S. Department of Energy projects that gas will cost 40% percent more this January than a year ago. As a result, the United States now has the highest natural gas prices of any industrial country. Even worse, officials are warning businesses in some states that they face possible disruptions in the natural gas supply this winter.

There are multiple ways to reduce natural gas consumption in your plant. This issue’s article on vanadate conversion coatings (pg. 54), which offer a lower-temperature alternative to phosphating in many applications, provides one example of how finishers can trim energy costs by changing their processes. Convincing customers to accept such a switch, however, can be a tough row to hoe. In the meantime, many finishers will just have to cross their fingers, grin and bear rising natural gas costs and hope for a mild winter.