By Rich Weissman
I had heard this expression when describing the crash of oil prices recently. As the price of crude began to plunge, the price we pay for fuel was falling at a significantly lesser rate. We know from experience that any shock in the fuel supply chain gains an immediate increase but decreases somehow take forever to come to market.
But that dynamic has changed recently. An understanding of the economics driving the oil process is becoming well understood and lower oil prices, and related petroleum costs, are falling at a faster rate. Prices look to be low for quite some time, along with occasional spikes and drops. Even my local heating oil supplier has reduced his rate by more than seventy-five cents a gallon. If they are dropping their price, everyone should.
But before we jack up the heat in the house and buy that new SUV, let’s take a lesson from the airlines. A huge percentage of their costs are fuel related. Yet, they have yet to pass on the fuel savings to their customers. Profits are up and they seemingly have no desire or need to pass those savings on. I’ll reserve comments about the power of an oligopolistic market for another time. But, they certainly are taking advantage of low fuel process and planes filled to capacity.
Please take the airline lesson to heart. How many of your suppliers are still adding a fuel surcharge to your invoices? How about the latest price increase justified due to $115 per barrel of oil? The cost basis for your orders has changed dramatically in the past couple of months. How many of your suppliers have passed those savings on? I’m betting not many.
The first of the year is often the time for those flimsy calendars and even more flimsy excuses for price increases. This year you have a basis for discussion. Please exercise it.
Endicott College Assistant Professor Rich Weissman teaches management courses for the School of Business and the Van Loan Graduate School. He is also the director of corporate education, which includes the Center for Leadership, Endicott’s management development institute. He is vice chair of the planning committee and also serves on the technology committee and the Institution Review Board. A practitioner turned educator, Weissman has more than 25 years of experience in all facets of procurement and supply chain management. He has held positions with large business units of Fortune 500 companies, medium-sized contract manufacturing companies, small venture-backed Internet startup firms, and third-party procurement, consulting and strategic sourcing firms.
Rich holds an M.S. in Management from Lesley University and a B.A. in Economics from Rutgers University. He is past president of the Purchasing Management Association of Boston and a recipient of the Harry J. Graham Memorial Award, the highest honor bestowed by the association.
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