Supply Chain of Oil Industry - Essay Example

How power relations shape and effect different actors in a supply chain of Oil industry Introduction It is apparent that logistics and supply chain has been very instrumental in success of many businesses across the globe. Most of the historic wars and other projects have been successful or have failed in regard to success of failure of supply chain. The strongest supply chain has been in the past been denoted as indispensable in determining the success of a business or any other undertaking. The defeat of the British army by the American counterparts was linked to the powerful supplies of weapons and troops to the American side. In the oil industry, supply chain is considered critical in that it determines effectiveness of the industry right from transportation to consumption of the oil related products. Rationale for the influence of supply chain Cox (1999) argued that supply chain is a wider concept that should be viewed as a complex management that determines competitive advantage of any given organisation. Supply chain creates a single plan that denotes the flow of products in a business. The coordination of different actors use a defined framework designed to achieve as specific goal of linking suppliers to customers and the organisation involved in the supply chain management. A well managed supply chain helps in reducing costs and adding value to customers. Stadtler & Kilger (2008) pointed out that effective supply chain is used as a major source of competitive advantage. To remain at the top of competition, customer preferences have to be put into consideration as well as articulate on what the competitors offer so that a better supply chain can be devised. The ability by organisations to differentiate themselves from others is dependent on the competence of their managers to focus on customers and competitors, and manage to operate at a lower cost. In fact, Cox (1999) argued that successful companies have either cost advantage or have value advantage or even a combination of the two. In this regard, it is indispensable to argue that a good managed supply chain should be able to have either of the two concepts or a combination of the two. 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 organisations that have to thrive in a highly competitive market. In the production networks, different organisations 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 organisations 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 maximising 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. The power issue It is evident that organisations have different channels that they can use to influence other players in the oil industry to have effective supply chain. Nevertheless, large organisations have an added advantage of influencing lobbying groups that would be used to deliberate common positions that fit the organisations (Frynas & Mellahi, 2003). In issues that involve government operations, large organisations have the capacity of inviting government delegation that would enable them gain access to government deliberations and use such opportunities so that their proposals can be favoured. For instance, the close relationship between oil exporting countries and the global oil industry denotes how the use of power is used control the oil industry. The issue of climate change negotiations saw the NGO’s being banned from entering the negotiations and only the major players were allowed. 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. 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 organisations 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. Such deliberations have a lot to do with the determination of the kind of supply chains organisations have to adopt in order to stay relevant in the market. Organisations that fail to have effective supply chain find themselves in difficult times trying to compete with those that have strategic supply chain. For instance, in satiations where the cost of getting oil from suppliers is high, organisations might find it indispensable to adopt value chain that would ensure that the customer gets the best quality in the market. This entails improving customer service and ensuring that the whole process involved in the supply chain is effective and efficient to avoid delays that would lead to losses. However, in situations where the cost of obtaining oil from suppliers is low, it translates to high competition as customers look for organisations with tenets that denote customer value. In light of this, organisations would want to reduce costs involved in the supply chain in order to maximise profits and add customer value. 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. Although different organisations may think of improving customer value in different ways, lack of sustainability right from the producer brings in climatic problems that outdo the benefits accrued from the use of the product. In another dimension, the whole supply chain process becomes inefficient because of added costs involved when the governments impose some taxes that aimed at curbing environmental problems emanating as a result of production of the oil (Bridge & Le, 2013). This ends up affecting the price of the product, something that lenders to less customer value as organisations tends to cut down costs that may be incurred in the bid to add customer value. Inefficiency of the supply chain may also be witnessed as a result of failure by organisations to have proficient supply chain managers as they try to cut down costs. 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, organisations that experience supply chain challenges can use superior customer service which is used a means of differentiation and which puts organisations at the top of the market. Additionally, organisations 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 organisations involved. It is a sign of failure by the organisation to manage its supply chain accordingly. When oil spills, it leads to different problems not only to the organisation but also to the customers, the environment and the society at large. For instance, when spills occur, customers may get unsteady supply of the oil products. This translates to low volume of sales by the organisation. The environment is equally destroyed by the spills since they affect both flora and fauna. People have in the past been displaced by oil spills. This has economic implications attached to it. Such misfortunes are viewed as the failure by the organisation to have efficient supply chain. In light of this, Henderson et al. (2002) noted that there is a need for organisations 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. Cox (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 With many deliberations on the effects of power relations on different actors in supply chain of oil industry, it is apparent that the focal point is the ability by organisations to differentiate themselves from others is dependent on the competence of their managers to focus on customers and competitors, and manage to operate at a lower cost. The supply chain involved in the oil industry is, however, controlled by the main actor, who in this case is the government. Nevertheless, large organisations have an added advantage of influencing lobbying groups that would be used to deliberate common positions that fit the organisations. Thus, 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. The end result of such problems is that the whole supply chain process becomes inefficient because of added costs involved when the governments impose some taxes that aimed at curbing environmental problems emanating as a result of production of the oil. 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