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The Pump and the Plan

o Sandra Gittlen
28.02.2012 kl 23:36 | CFOworld (US)

For nearly a month now, gas prices have been on a steady trajectory to $4 a gallon. CNN Money, for just one, reports that the rise has come "on the back of soaring oil prices, which have surged 10% over the past month amid fears that tensions with Iran will lead to an all-out war that causes a disruption in oil supplies."

 

For nearly a month now, gas prices have been on a steady trajectory to $4 a gallon. CNN Money, for just one, reports that the rise has come "on the back of soaring oil prices, which have surged 10% over the past month amid fears that tensions with Iran will lead to an all-out war that causes a disruption in oil supplies."

Some other media outlets, including bloggers on MSNBC, predict $5 gas is in our not-too-distant future.

Now is the time finance chiefs are drumming their what-if scenarios, and figuring how various gas-price alternatives will impact the business.

Don't forget your technology.

If it is not plugged into your analytics software or services already, you'll need to integrate historical data. Identify past years when gas has spiked sharply, especially as spring and summer approached, and pour that information into the database.

High gas prices will affect a broad spectrum of your business, of course, from corporate travel to distribution to manufacturing. Even something as seemingly unrelated as recruiting might have to be scaled back due to increased transportation costs.

Suggestion: Draft a Tiger Team focused on how the organization will react in the short and long term to gas price shifts. The team should be cross-functional, and have ties to your sourcing community.

The ripple effect of this crisis will extend out pretty far. For instance, delivery companies might add surcharges during this period. Car services, vendors and others could be forced to do likewise. All of these changes would have a direct impact on your bottom line. It's imperative that you study what your suppliers and sourcing companies have done in previous gas crises. If you don't have that information in databases yet, or if you're working with new partners, call them and ask outright how they plan to make up the difference between your contract and the actual cost of gas.

Getting out in front of this situation is your best defense. If you can rejigger shipping schedules to a lower cost option or to come in before the summer, there could be major savings. If you change your policy -- interviewing early-round job candidates by phone, or web conference, for example -- could also produce hefty benefits. Other savings could come from reviewing contracts to ensure suppliers and sourcing companies can't raise costs on-the-fly.

Even if you can't change contracts, you can at least prepare for the added costs by halting new projects or trimming budgets.

Analysts have provided enough warning and logic about this summer squeeze that there is no excuse for CFOs not to have a plan in place. And that plan should not be based solely on forecasts, but also actual past experience. Together, this data must provide a clear roadmap for navigating the next few months -- and possibly beyond.

Keywords: Industry Verticals  
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