TaxPersonal TaxOn the fuel shortage

On the fuel shortage

It was a remark heard hourly throughout the country during the fuel crisis: why did the petrol run out so quickly? One day the filling stations were operating normally and 48 hours later the entire country was running dry.

How was it that schools closed and hospitals performed emergency operations only? The National Health Service was on red alert within seven days of a protest by a loose confederation of hauliers, farmers and fishermen.

Part of the reason – paradoxically enough – was efficiency management.

The Just In Time (JIT) school of management reached its zenith. Throughout the UK, companies operate JIT.

As the name suggests, JIT means having supplies only when needed and not stockpiling parts or commodities. Traditionally, big companies had warehouses and held huge inventories of stock. Management of components became a big and costly business issue.

JIT was designed to end this. Big companies put the onus for stock management on suppliers. They were required to provide a particular quantity to the assembly line at a precise moment.

Typically, a big company would say to its supplier: ‘We need 450 items manufactured to these specifications at the third gate on the assembly line at 11AM on Tuesday 26 September.’ The supplier is trained by the customer in its systems. There is often a close customer-supplier partnership.

But, if the supplier fails to meet the deadline, there is a real likelihood the contract will be terminated.

The savings in terms of land, buildings, personnel and insurance costs have been large. The emphasis now is on finding suitable suppliers, training them to appropriate standards and ensuring they deliver on time. JIT has emerged as a key component in the logistical strategy of most companies.

So too is JIT a major weapon in the armoury of the oil companies and their principal customers. Fuel was not available because it is not dumped in silos or depots but rather than it goes out straight by tankers when it is needed.

In any re-assessment of the arrangements for fuel provision, the government should consider the creation of depots which exist purely as back-up in an emergency. In the wider sense, the JIT philosophy, which has considerable merits, might need some revision.

  • John Davies is ACCA’s Head of Business Law.

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