Phone: (413) 727-8897 email:

Monday, July 31, 2006

Reuse Paper Clips

Energy prices have a significant impact on the economy. High gas prices are like a tax on the citizens each tank. Budgets need to allow for high gas prices and their impact on our industry.

In the mid-1980s, the price of a barrel of oil plunged to $5. Our clientele were put under enormous cost constraints as construction and oil exploration came to a halt. The chief operating officer in our company made a tour of the globe carrying copies of an internal memo from the largest industrial contractor. The short memo stressed cost containment at all levels and made many specific instructions including the reuse of paper clips.

We immediately changed our corporate travel and entertainment policy, created a request system for office supplies and called all contractors to renegotiate service levels. Our clients requested meetings with our contract team and we worked on change orders which guaranteed coverage of fixed costs and reduced the number of onsite managers required by contract.

Our parent company was moving away from a reliance on remote site feeding through acquisition. We started looking for acquisition targets with contracts in urban areas. During this period, I studied zero based budgeting and constructed decision packages for each department and for each acquisition target.

We were able to grow sales and profits by milking the remote site feeding cash cow and investing in less volatile urban companies.

Today, the level of activity in oil exploration is back near the peak and the Edmonton Oilers were in the 2006 Stanley Cup series. I heard a Fort McMurray Today broadcast on public radio and the person being interviewed mentioned a mean salary of $90,000 for the city. I'm sure there are articles about Edmonton's population doubling in the next five years as there were back in 1982.

Back in 1975, my college friends and I went on spring break to Florida. We needed to sit all night in Savannah to get gas since the stations had no gas until the morning delivery. It took about ten years to go from the gas embargoes to the huge drop in oil prices. During this period, oil production began on Prudhoe Bay, Colorado oil shale mines were developed in Parachute, major offshore drilling took place in Alaska, Scotland, Norway and Newfoundland.

The current run in oil prices began during the final year of the Clinton presidency and has now entered the seventh year. In 1982, there were predictions of $100 per barrel oil (vs. $35) and today we hear many dire predictions. Meantime, China is developing strict policies on energy use and America is promoting ethanol usage. Hopefully, in three more years (or less) we'll have more memos floating around demanding reuse of paper clips at the major construction companies.

No comments:

Restaurant Data Pros

web counter