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Mark Sinclair's blog: 14 October 2010 - Just-in-time risks
Date: 14 October 2010
Lloyd's, the insurance giant, recently published a white paper warning businesses that they run an increasing risk of "vulnerability to reputational damage and potential profit losses resulting from the inability to deliver products and services in the event of an energy crisis".
For once, Lloyd's are not trying to sell insurance - even for your reputation. Their report, produced in association with the Royal Institute of International Affairs (better known as Chatham House), deals with energy risks to business models such as 'just in time' delivery.
It produces convincing evidence that we'll experience a renewed energy crisis at some point in the next decade. In fact, Chatham House reckons that the only way the world as a whole will avoid one is to bring three Saudi Arabia's-worth of new annual oil production on stream over the next ten years. That is, to say the least, unlikely to happen.
But it got me thinking about the 'just in time' aspects of running a fleet. Take a minute to think about how you procure the basic ingredients of your mix: your fuel, finance and cars. Is there any redundancy at all built into your arrangements? Probably not.
But why would you need it? In today's smoothly-functioning world it makes no sense to hold expensive stocks of unused fuel, cash and vehicles against the unlikely possibility of a supply disruption.
After all, when was the last time petrol stations ran out of fuel'? In the finance arena, some funders have left the marketplace since the credit crunch began, and lead times on new cars are a little longer these days but if either of these issues really created difficulties, you could simply order hire cars to tide you over.
Nevertheless, nearly everything you need to run a fleet - apart from drivers, of course - comes to you at the end of a long and complex supply chain. Your fleet is then, in turn, a vital part of your own business's chain of operations.
That is a risk, and the Lloyd's report is uncompromising about it. Its authors say: "The current system is increasingly vulnerable to disruption, given the trends outlined in this report. All businesses, not just the energy sector, need to consider how they, their suppliers and their customers will be affected by energy supplies which are less reliable and more expensive."
So what can fleets do? First, in order to manage their supply risks, they need to understand their dependencies. They also need to be confident that their suppliers understand their own dependencies.
If key suppliers, such as their leasing company, also appreciate why Chatham House is warning of energy and carbon-related risks, so much the better. They can then help you to design and implement appropriate strategies to mitigate any medium-term risks from 'just in time' procurement of cars, fuel and funding.
I don't want to overdo the immediate concerns over energy, though, especially when most fleets and businesses are currently busy rebuilding after the recession. Indeed, oil prices are more likely to fall than to rise over the next few months. However, if Lloyd's are right, this downward trend is likely to be part of the expected pattern leading to a spectacular reversal and price crunch in a few years' time.
A recent article by the consulting firm, McKinsey, suggested: "Over the next five to 15 years, the way a company manages its carbon exposure could create or destroy its shareholder value". Your fleet is likely to play a major role in that equation.
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