2Sustain

This month’s edition of McKinsey Quarterly has a fascinating interactive report that explores a variety of strategies for increasing the energy efficiency of supply chains.

According to the study, the transportation of goods now consumes some 15 million barrels of oil each day—that’s roughly equivalent to one-fifth of total production.

Tobias Meyer, the author of the report, sums it up nicely. “Supply chains are hooked on oil,” he says. ” There’s no industry in which so few substitutes to oil are available.”

Of course, dependence like this will prove increasingly problematic as oil prices climb and, as the Financial Times predicts, we approach peak oil, a “high-risk, high consequence issue.”

To help businesses address these challenges and begin mitigating their risk, Meyer groups the opportunities to reduce the amount of oil used in transporting goods into six broad levers –three for supply chain set-up, and three for transport assets.

Levers for supply chain set-up:

• increase value density
• reduce average transportation distance
• change the mix of transportation modes

Levers for transport assets:

• address asset technology
• assess usage of individual assets
• assess usage of collective assets

He defines each lever and examines each potential benefit under three possible scenarios –oil price at $40 a barrel, oil price of $100 a barrel, and oil price at $250 a barrel.

I highly recommend that you spend a few minutes with this careful analysis. After all, as Meyer concludes, “The downside of remaining energy inefficient in a high oil price scenario is substantial. The downside of being too efficient is rather limited.”

For additional insights, also see this blog post, which adds elements from the “Majority World” into the discussion about energy and supply chains.