Excerpt from: China Supply Chain and Logistics Strategy
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| January 03, 2007 | | Impact of oil prices on the cost-to-serve | Issue #1: Impact of Oil Prices
Oil price increases will affect the cost-to-serve customers, thus negatively influencing the performance of your China supply chain. A rise in oil prices may ignite higher energy input costs for manufacturing and fuel costs for transportation.
This is a strategic issue both for companies selling in China as well as those sourcing for export.
According to ChinaDaily.com, transportation costs have witnessed a remarkable rise due to energy price hikes and domestic logistics expenses have increased 13.7 percent from the same period last year.
It is critical for companies with supply chains in China to remain aware of changes taking place in their markets in response to oil price hikes. In order to avoid, or at least delay a rise in your cost-to-serve, companies are advised to closely watch for changes in the buying behaviors of their customer segments and adjust their supply chains accordingly.
For companies distributing in China, consolidation of orders and shipments will become more of a necessity. Warehouse receiving practices of customers will need to be adapted towards larger, less frequent deliveries. Companies operating a Just-In-Time manufacturing and distribution model may be required to add more DCs to their network, improve inventory management, and carry more inventory.
For companies sourcing in China, higher transportation costs may offset gains from lower labor costs in China.
Recommendations:
- Measure transportation costs at every step in the supply chain
- Assess methods for improving service levels and reducing costs
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