Blog #33: Are You Looking at the Right Crisis?

On 20 April, MBIE said there’s no indication of fuel supply disruption. Fuel continues to flow normally into New Zealand.

One day later, the government signed a $21.6 million contract to recommission emergency diesel storage at Marsden Point.

Both statements are true. They’re just at different ends of the supply chain.

The first is what consumers see. The second is what capital allocators are doing several tiers upstream. If your IBP or S&OP is building its assumptions register from the first one, you’re looking at the wrong thing.

The five whys, but pointed the other way

Most of us know the five whys. Toyota’s diagnostic discipline - when something has gone wrong, ask why five times until you find the cause that actually explains it. Backward-looking. A tool for after a problem has happened.

What I’m suggesting is forward-looking. You take a signal that’s currently in front of you - a price, a headline, a customer complaint - and you walk it upstream. Each tier is a leading indicator of the one below. Stop at the first and you’re reading what has already happened. Keep walking and you might find what is about to.

Walk it upstream. Far upstream.

The fuel example, walked

Tier 1 - petrol pump price. What consumers see. Lagging by months.

Tier 2 - fuel company wholesale margins and refinery spreads. What distributors see. Lagging by weeks.

Tier 3 - freight rates and shipping insurance premiums. What the shipping markets see. Real-time, but reactive.

Tier 4 - storage commitments and strategic reserves. What capital allocators are doing right now. Forward-looking by months. Your $21.6m signal lives here.

Tier 5 - production and processing facility integrity. The physical infrastructure that turns crude into product. Years of capacity at stake.

It’s easy for an IBP/S&OP team to stop at tier 1 or 2 because that’s where the mainstream media lives. That’s also where most of your exec team are getting their read. The $21.6m signal is tier 4. The real driver is tier 5 - and tier 5 only registers with the teams who’ve actually done the work.

Prior to the current ‘Straits of Hormuz’ crisis, do you remember Abqaiq, September 2019? One drone strike on Saudi Aramco’s processing hub took 5 percent of global oil supply offline overnight. While production was restored in weeks, the shock to prices and confidence was immediate. Refineries are not interchangeable. You can re-route a tanker. You can’t replace a processing facility on demand. What’s happening in the Middle East right now is far more profound and long-lasting than Abgaig ever was.

The IBP failure mode

Your demand review reads the consumer signal. Your supply review reads the OEM signal. Your assumptions register reads the news.

None of them are reading the actual supply chain.

By the time the tier 1 signal moves, the event happened months ago at tier 4 or 5. You’re not planning. You’re catching up.

On Monday

Pick one critical input - fuel, semiconductors, packaging, energy, whatever stress-tests your operation. Map the tiers. How far upstream are you actually reading?

If jet fuel is a key resource, it’s not in-country supply or days-on-the-water that matters - that’s what’s in the news. Go further back. Much further back. US and South American refineries are upping supply, but their feedstock is different to Middle East crude and the throughput on diesel and jet fuel grades is significantly lower. That’s a tier 5 reality the headlines don’t carry.

If you sell signage products, your acrylic supply is impacted by MMA feedstock - and MMA isn’t just oil-constrained from the Middle East. There have been recent MMA plant closures in China that nobody outside the chemicals trade is talking about. Same input, two upstream paths, neither of them obvious.

Look back. Look wide.

A signal at the surface tells you what has already happened. A signal at the source tells you what is coming.

Walk it upstream. Far upstream.

So - what is the most important input to your business right now, and how far upstream are you reading? Yours, your suppliers’, your customers’. And what would change if you walked one tier further?

I don’t write these to chase work. I write them because too many planning processes run on autopilot and nobody says anything. If this sparked a thought, that’s enough. If you want to talk about it, find me at planninglab.co.nz/blogs.

#IBP #S&OP