Oil prices will rise eventually

From the January-February 2017 edition of Supply Chain Management Review.

January-February 2017

Transformation is a topic that comes up in almost every conversation I have with supply chain managers these days. Executives from companies as diverse as J&J Vision Care, the division of Johnson & Johnson…

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This column represents my annual update on oil and the supply chain. I am dedicating it to the memory of Jay W. Forrester who passed away in November. Some managers will know who he was and what he accomplished regarding supply chain management. For others, they should think of the educational “beer game” that they have most likely played. It simulates how a lack of downstream and upstream information causes excess and volatile inventories to be held by trading partners all along a supply chain. Second, regarding oil he was the father of System Dynamics that dealt with using simulation to understand big systems, such as the impact of CO2 emissions on the global environment.

The passing of a thought leader According to Wikipedia, Forrester was a “pioneering American computer engineer and systems scientist. He was a professor at the MIT Sloan School of Management. Forrester is known as the founder of system dynamics, which deals with the simulation of interactions between objects in dynamic systems.” In 1961, “arising from a project with General Electric, he wrote about the expanding effects down the supply chains due to fluctuations in demand, thenceforth known as the ‘Forrester effect' or bullwhip effect.” This is the effect that many of us first learned about by playing the “beer game.”

Forrester expanded his purview to urban issues and in 1969 wrote a book, “Urban Dynamics,” which sparked an ongoing debate on the feasibility of modeling broader social problems. He later met with the Club of Rome to discuss issues surrounding global sustainability and published “World Dynamics,” which “took on modeling the complex interactions of the world economy, population and ecology, which was controversial.” This book, published in 1971, along with “Limits to Growth,” which was published the following year by Club members, portended a few scary future scenarios involving limited resources to support an unlimited growth in the world's population. Both started the field of global modeling and led to the models we read about today simulating climate changes and supporting the need to limit CO2 emissions by reducing the use of carbon-based energy. Hence, Forrester's relevance to this oil update.

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