DC Velocity - June 2011

cally shrink its use of LTL. Both he and Livingstone stressed, however, that the company would always rely on LTL to some degree, given the requirements of its supply chain.

tion to escalating oil prices. The
recent run-up, he said, “is catching
many off guard.”
Taylor, who has long preached
that the supply chain must adjust to
permanently elevated oil prices, said
he has “heard nothing about any
new or innovative approaches” to
counteract rising energy costs. “It
seems to be a stunned acceptance of
higher fuel prices followed by
the usual beat-the-carrier-
down approach,” he said.
Starbucks Coffee Co. is
trying to take an orderly
approach to the prob-
lem. For the past year,
the Seattle-based giant,
which each year con-
sumes about 7 million
gallons of fuel mov-
ing product from its
DCs to its thousands
of retail stores, has
been modeling vari-

AN ORDERLY APPROACH

Some shipping executives may be loath to re-engineer their networks in response to the current fuel pressures, perhaps not feeling any real sense of urgency after recalling how the 2008 spike was followed by an equally violent price downdraft after the economy collapsed.

Chuck Taylor, whose firm consults with companies on the interconnections between energy and the supply chain, said shippers and carriers were so focused on surviving the recession and riding the recovery that they paid scant atten-

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ous supply chain scenarios and responses with oil at different price points, according to Gregory Javor, Starbucks’ senior vice president, supply chain operations, global logistics.

Javor told the conference that with diesel fuel prices at current levels, the company is “ready for a refresh” of its transport network requirements. It is considering expanding its current DC capabilities, and adding to its network of five regional facilities to bring inventory closer to its customers, Javor said. Starbucks has tripled its use of more cost-effective intermodal service on inbound consignments into its DCs and will use more intermodal if necessary, Javor said.

In the past 12 months, Starbucks has cut fuel usage 3. 6 percent by reducing delivery frequencies, reconfiguring the location of what it terms its “last-mile facilities,” and integrating more energy-efficient vehicles into its fleet, Javor said. The company will continue to drill deep into its transportation system to uncover cost-saving opportunities, he added. “Transportation connects all the dots,” Javor said in an interview following his presentation.

Brian P. Clancy, managing director and co-founder of Logistics Capital & Strategy LLC, an Arlington, Va.-based consultancy, said higher fuel prices will force many businesses to shrink the length of haul from DC to retailer, and to ship in large quantities to achieve economies of scale. “To accomplish this, additional and larger warehouses will be needed, which implies more stock and higher inventory levels and costs,” he told the group.

Clancy said the big winner in all of this could be Mexico, a country where cumbersome regulations, primitive infrastructure, a reputation for corruption, and language barriers have kept many producers away. With fuel and transport costs on the rise, however, producing closer to the U.S. market is starting to look more attractive than manufacturing in Asia and shipping across the Pacific. In a recent survey by his firm of 250 U.S., European, and Asian manufacturers with a presence in Mexico, 200 said they plan to either maintain or expand operations there.