The current and projected price of diesel fuel is of critical concern to supply chain executives. The high volatility of prices has made it difficult to plan for the future. Although hedging can be used to lock in price for the near term, we still want to have good forecasts of fuel prices over the next few years so we can see the potential impact on our total distribution cost.

On one level, we simply want to be prepared for the possibility that our costs might significantly increase or decrease. This could lead to the need to change our pricing, or alter profitability projections. But just as importantly, if fuel prices are expected to rise further (or drop dramatically) then this might mean that we need to reevaluate the structure of our supply chain. Perhaps we should change the network - for example, by using more distribution hubs. Or maybe we should change transportation modes, or introduce new types of equipment. Or perhaps we should change some of our sourcing locations.

Given these challenges, it is important for the supply chain executive to have a good understanding of how diesel prices behave, to see how well they can be forecast, and to have some practical approaches for making planning decisions in the face of high price volatility.

Source: Read Full Article