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Crude Thoughts and Business Decisions
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I drive a 2003 Subaru. It gets good gas mileage (about 22 mpg average), but less than I would like and less than I would have expected the auto industry to be delivering at the time I bought it.

The first time I filled the tank of the Subaru (November 2003) I paid USD 1.34 a gallon. A year later, I paid USD 1.76. By November 2005, a spike to USD 3.00 from Hurricane Katrina was wearing off and gas had dipped to roughly USD 2.00. This past week, I paid more than USD 3.00 per gallon of gas.

Recently, crude oil topped USD 100 a barrel, in part because there is more demand for oil worldwide.

In India this past week, Tata motor company unveiled its “Nano.” The no-frills, super low-priced automobile is intended to be the next step up for millions of motor-scooter riders in the economically advancing countries of India, China, and other parts of the evolving “Third World.” The basic car is priced around USD 2500 and averages better than 50 mpg.

As those economies evolve further, those who started out walking, and then rode bicycles, and then rode scooters, and then buy Nanos, will want to drive larger automobiles, and, heaven help us, SUVs.

All of this is particularly relevant to the forest products – and plastics – industries in that it ultimately affects the price and availability of petroleum, costs of manufacturing and distribution, corporate planning and business decisions, and priorities given to various research avenues.

As costs for transporting raw materials to mills and finished goods from mills increase, for example, they may start to alter recent ideas about economies of scale (bigger is better, or is it?).

What’s the tipping point where potential (future) costs of transportation outweigh efficiencies of large-scale operations?

Perhaps it’s a good time to re-evaluate the concept of mini-mills, or at least moderate size regional/local mills.

Perhaps it’s also a good time to reconsider various competing theories of business and manufacturing.
• Does it still make sense for large corporations to shed profitable subsidiaries in an effort to focus on their "core" business?
• Does it make sense to stay reasonably diversified to better weather downturns in any particular sector?
• Does that also expose companies to greater variability, costs of management, etc. (Is it easier to control one ball than to juggle half a dozen?)
• Does it make sense for companies to sell off their source of raw materials (timber lands)? Is it better to maintain ownership of fiber sources and transport systems, or ultimately too costly?

For some companies, the answers to those questions may be the same as they were a decade ago. For others, current and anticipated economic factors may have altered the logic that drove past decisions.

As the world’s appetite for petroleum increases, more and more emphasis is being placed on developing alternate fuels and energy sources. Researchers are investigating methods to more efficiently transform cellulosic fibers into fuel and to further tailor wood and nonwood plants to more easily and effectively yield their store of energy. Likewise, engineers and architects are more and more guided by the need for energy efficiency.

And those advances will further influence corporate decisions a decade from now (as well as my choice of car), perhaps even leading some boards of directors to reverse decisions that make perfect sense under current conditions.















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