Wednesday, 7 March 2012

Just in time versus resilience

Our society runs on cheap energy, and in particular cheap oil. Oil, in the form of petrol and diesel, is by far the best fuel for cars, buses, lorries, planes and ships. It has the best energy density, and it is easy to store and easy to move from place to place. The only transportation mode that doesn't need oil is trains, but trains are not a complete end-end solution for deliveries. We rely on oil.

This requirement is so critical that when  Coryton oil refinery filed for bankruptcy in January, the government was called in to help calm fears, avoiding a crisis (see 'Petroplus bankruptcy: Government 'confident' no petrol shortage as refinery stops sales'). Coryton supplies 10% of the UK's transport fuel. There were fears of empty petrol pumps, long queues and massive disruption, as I remember from the oil crisis in the '70s when we nearly ended up with rationing. Fortunately, production at Coryton resumed after negotiations allowed a cargo of oil to be paid for and delivered (Coryton receives enough crude for 'a number of days') and it looks like there is now a future for the plant: (Petroplus's founder throws lifeline to Coryton refinery).

Oil supplies are not as secure as we would like. UK oil production is down by a half from its peak in 1999 and we import more than we export. Europe as a whole, excluding Russia and the 'stans', produces 5% of the world's oil and consumes 18%. China and the US are also net importers.  Russia and the Middle East, two politically interesting regions, between them produce 47% of the world's oil [1]. Oil production is barely keeping up with demand and there is hardly any slack in the system.

I have been thinking about quite why it is that we have become so dependent on transportation for the running of the economy. We need transportation to get to work, to get to markets to buy stuff, and to get the goods to market so we can buy stuff. Very few of us walk or cycle to work (though more here in Cambridge than most places), and very little of what we buy is made locally, even food, except for some goods in local farm shops and veg box schemes.

Our society is now so complex it would be impossible to produce locally everything we buy. Arguably we don't need quite so much imported stuff though it is very nice to have. Manufacturing facilities for high tech goods such as computer equipment are so expensive it doesn't make sense to build them except in very large factories. This is why the flooding in Thailand knocked out 40-45% of the world's production of computer hard disks [2]. At the other end of the scale, we could produce most of our food locally - but we don't. Eating local is possible but is isn't easy as these experiences from Cambridge Carbon Footprint testify.

This wouldn't matter, except that when there is a breakdown in transport, we run out of food very quickly. We don't keep stocks at home and the supermarkets don't either - it all comes from regional depots which collect supplies from a large area and deliver several times a day to retail outlets. It is the triumph of 'Just-in-time' scheduling. The same applies to other goods.

Just in time scheduling means:
  • Less capital tied up in stocks
  • Less insurance and overheads for managing stocks
  • Expensive retail space can be devoted to selling - while stocks are kept in cheaper warehouses
  • Fast response to customer requests - if you haven't got it in stock now you can get it quickly
But just in time scheduling is brittle:
  • It relies on a reliable, responsive supply chain
  • It relies on reliable, fast transport
The only way to improve our resilience is to diversify the local economy so that we can muddle through temporary shortages. You have to balance conflicting requirements for efficiency and capacity. 

[1] BP Statistical Review of World Energy 
[2] IDC Lowers Outlook for Hard Disk Drive and PC Shipments Based On Disruptions Due To Flooding In Thailand

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