Power Relations Effect Different Actors in A Supply Chain of Oil Industry - Essay Example

Power Relations Effect Different Actors in A Supply Chain of Oil Industry Introduction Oil is a special kind of product, due to its relation to political power. Oil is the major source of energy and it plays a major role in any economy. Economies that have access to oil are much able to have political power while those that do not are at risk of losing their political power. Because of this relation to power, the supply chain for oil is influenced mostly by political power, as opposed to laws of efficiency. The various agents in the supply chain for oil are powered by political power. This issue has been addressed by Henderson (1999) who argued that power and influence affects the value chain. In his article, he considers Michael Porter’s concept and argues that this model, while it may seem when considered from a business manager point of view, seems to work but fails in terms of wider economics because in real economic structures, other factors such as power play and influent has an effect on the value chain (Henderson, 1999). Oil supply has had a history of power play as seen in the example of the seven sisters who were a consortium of seven companies based in the Middle East and who dominated the oil industry for over thirty years since the 1940s. Countries have vested interest in oil supply chain as a way to make sure that they can be able to sustain their economies (Bridge & Le, 2013). According to oil and energy experts, over ten calories of oil energy are used for the production of just one calorie of food energy. The energy in form of fertilizers, energy for farm equipment, chemicals packaging for farm pesticides etc also add up to over ten calories of energy to produce just one calorie of food. The same oil is also needed to power other areas of the economy, such as transportation and communication equipment. In most countries, the defense department depends on oil for over 70% of its operations. This leads to the concept of energy security. Energy security refers to the security related to the availability, or lack thereof, of oil energy. This brings in a lot of power play in the supply chain. The role of political power in the oil supply chain is much that there is even speculation that the reason why the United States has continually attacked the Middle East is for the purse of getting the oil reserves in this region. The same theory has been applied in the attack and killing of leader of Libya, Muamar Gadaffi. Whether these conspiracy theories are valid or not, the truth remains that political power play is a major factor in oil supply chains. Lengthy supply chains As has already been discussed, the oil supply chain hardly follow he convention in supply chain management. Instead of the oil supply chain evolving towards perfection where most economic efficiency is achieved, it evolves towards achieving political efficiency where the most political efficiency is achieved. Because of this power influenced by the political elite, the oil industry supply chain uses an unnecessarily lengthy supply chain, to accommodate al the power players in the supply chains Cheaper alternatives Rationale for the influence of supply chain Henderson (1999) argued that there is a need for modern economic systems to be viewed in the context of globalization instead of the state confined economic development. In his argument, the modern economist must be able to understand that modern economic growth this no bound within the geographical boundaries of a single organization but that it goes way beyond. Yet, the oil industry seems to defy the models of efficiency as described by Henderson (1999). Stadtler & Kilger (2008) pointed out that effective supply chain is used as a major source of competitive advantage. This seems to not apply in the oil industry supply chain. The founding of the Organization of the Petroleum Exporting Countries, commonly known as OPEC, was with the main purpose of addressing these issues and trying to stabilize the oil market as the power play in the oil market was threatening o destabilize oil production and oil supply chain. In today’s world, power play is still seen in Arabia, one of the largest producers of oil in the world and which still has the biggest oil reserves. Managing prices for oil In the oil industry, the prices of crude oil and natural gas are perhaps the closely watched product prices across the global market. The supply chain involved in the oil industry is, however, controlled by the main actor, who in this case is the government (Inkpen & Moffett, 2011). Although many landlords and communities might be the owners of the land where oil is located, the government is the custodian of the oil. This changes the whole supply chain management since the government controls the oil prices. In light of this, critical review of the supply chain is required by organizations that have to thrive in a highly competitive market. In the production networks, different organizations find it difficult to have effective supply chains since the government plays a critical role in the production of oil. Determining prices is solely dependent on the supplier. Since oil is a crucial commodity that acts as the drive of the economy, market forces plays little role in dictating the prices. Government control to some greater extent determines the kind of supply chain organizations have to adapt. Nevertheless, Henderson et al (2002) argued that regardless of the challenges involved in logistics, supply chain mangers have a role of ensuring perfection and delivering value to customer. With recognition that all players in supply chain are stakeholders helps managers to come up with ways of balancing costs involved and maximizing on the value to customer. In oil industry, working with suppliers in order to create a lean logistics is indispensable in that it helps in avoiding extra costs involved in seeking alternative ways of obtaining oil. As the price for oil continues to increase, different players in the industry have been involved in mobilizing sympathizers in support of policies that would allow competitiveness of strong players and elimination of weak players (Frynas & Mellahi, 2003). This is in regard to adoption of policies that would cut down taxes and maximization of profits with easy manipulation of prices without the control of the government. For instance, the recent attempts to control the oil industry have witnessed sharp criticism from different actors. Players in the industry engaged in the funding of the studies on the economic effects of Kyoto Protocol where by the outcome of the studies indicated that the policies associated with the protocol would have dire economic outcomes. In this regard, it is apparent that the powerful players in the oil industry carry the day through the use of their power in controlling how the business is conducted. Stadtler & Kilger (2008) argued that a good supply chain should be sustainable in nature. This translates to sustainability of producers and the sustainability of the consumer. In regard to the issue of environmental sustainability, the forces of the powerful players undermine the effort of ensuring that the oil industry is sustainable. This also involves dictation of prices that are highly dependent on the policies enacted and which are highly dependent on the powerful players. Powerful organizations have the ability to enter into global bargaining dimensions and influence other actors on the positions to adopt in regard to logistics in the oil industry. Both formal and informal strategies are used to register their views with governments. Since oil industry is considered as one of the powerful industries globally, powerful players form global industry coalitions aimed at pursuing specific interests across the industry. Effects of power relations on different actors It has been noted that customers do not like buying products, rather they like buying what the benefits accrued from the product. In this regard, the influence of major players in the oil industry ends up dictating the value the customer gets from the product they buy. Essentially, when major players tend to forgo the required policies aimed at looking into the issue of climate change, the customer does not get the value of the oil product they buy since the environment is affected by production of the same product. On the other hand, distributors of oil products might be affected by the influence of power relations among different actors in the industry. Due to heavy taxation involved or imposed by governments, distributors have no option other than increasing transport costs in order to meet the high costs involved in taxation. The same is reciprocated to the customer. However, organizations that experience supply chain challenges can use superior customer service which is used a means of differentiation and which puts organizations at the top of the market. Additionally, organizations with distinct supply chain gains brand reputation that goes beyond what customers buy (Elms, World Trade Organization & Temasek Foundation, 2013). For instance, oil spills that have been reported in the past have greatly affected the brand names of the organizations involved. It is a sign of failure by the organization to manage its supply chain accordingly. Such misfortunes are viewed as the failure by the organization to have efficient supply chain. In light of this, Henderson et al. (2002) noted that there is a need for organizations to deliberate on ways of ensuring that their brand name is protected by a way of having an effective supply chain management that would help in preventing such misfortunes from happening. Henderson (1999) noted that even with different challenges in the supply chain, organisations can focus on strategies aimed at developing and maintaining competitive advantage. For instance, even when prices offered by suppliers tend to be high, organisations can use other different ways of adding value to their products in order to satisfy their customers. For instance, ensuring that customers get their products in good time can be used as a way of making them become loyal. Thus, even with the power relations issue in the oil industry, proficient supply chain managers would try and thrive in the market through the use of different strategic plans that aims at adding value to customer as well as reducing supply costs. Conclusion It is evident that the political power has a lot of influence on the supply chain for oil and petroleum energy. It is also clear hat this power influence leads to more economic inefficiencies in the oil industry supply chain as political efficiency is preferred over the economic efficiency. According to Henderson (1999), the state has a very important role in the development of the economy. In this regard, it might be necessary for the nations to be able to come up with better ways to manage the supply chain, even as they continue to manage their energy-related security issues. The need for an effective management of oil supply chain is imminent, especially now that the oil reserves seem to be depleting off. The cost of oil has been seen to shoot up, and by removing the political element from it the cost of oil could probably be diminished by up to half the current prices. Organizations such as OPEC also need to be able to come up with better ways to manage the oil supply chain. It is evident that oil energy plays a very important role in any company and therefore the fact that the supply for oil is so highly politicized is an indication that the world economy is suffering a lot from the political power play. While this political power play may help a few nations such as Saudi Arabia and a few companies such as BP, it is evident that it has a fundamental negative impact on the global economy. It is necessary for counties like Saudi Arabia to understand that in the context of global economy, how they affect the economies in the other countries also affects them in return. Reference list: Top of Form Top of Form Top of Form Top of Form Bridge, G., & Le, B. P. (2013). Oil. Cambridge, UK ; Malden, MA : Polity Press. Cox, A. (1999). Power, value and supply chain management, Supply Chain Management: An International Journal, 4 (4), 167 – 175. Elms, D. K., Low, P., World Trade Organization., & Temasek Foundation. (2013). Global value chains in a changing world. Frynas, J. G & Mellahi, K. (2003). Political Risks as Firm-Specific (Dis)Advantages: Evidence on Transnational Oil Firms in Nigeria. Thunderbird International Business Review, 45(5), 541–565. Henderson, J. et al. (2002). Global production networks and the analysis of economic development. Review of International Political Economy, 9 (3), 436–464. Inkpen, A. C., & Moffett, M. H. (2011). The global oil & gas industry: Management, strategy & finance. Tulsa, Okla: PennWell. Stadtler, H., & Kilger, C. (2008). Supply chain management and advanced planning: Concepts, models, software, and case studies. Berlin: Springer. Bottom of Form Bottom of Form Bottom of Form Bottom of Form Read More