Has gasoline become the new toilet paper? In 2020, there was a rush to hoard toilet paper amid claims of shortages. The COVID-19 pandemic created both real and perceived shortages for a lot of items, including toilet paper, ketchup, hand sanitizer and ammunition. That led to hoarding and a sharp spike in prices.
Now, a recent gas shortage along the East Coast brought back many of last year’s memories and concerns as drivers rushed to fill their tanks and additional containers. How did this happen and what can be done to prevent a repeat of 2020?
Colonial Pipeline and the Ransomware Attack
To start, it’s important to understand the facts. A May 7 ransomware attack on the Colonial Pipeline spurred a temporary shutdown of gasoline distribution and a gas shortage in multiple states; it was called the most significant ransomware attack on U.S. critical infrastructure.
Using cryptocurrency, Colonial reportedly paid $5 million in ransom to hackers to regain control of its operations. While the shutdown proved temporary, reports of the presumed Russian cyberattack were fueled by social media, print and television reports. That led to gas station pumps being shut down and a widespread panic. In order to understand what went wrong and what went right, it’s important to understand the methodology on which gas distribution and delivery is based.
How Gas Moves from Oil Field to Gas Station
The United States is the world’s largest consumer of gasoline, and the gasoline production and delivery process includes several steps. First, gasoline originates as oil, which is pumped from an oil field. Second, refineries then turn the oil into products like gasoline, diesel fuel and heating oil.
Third, most of the oil refineries are located along the Gulf Coast or are shipped in from refineries in the Caribbean to ports along the Gulf Coast and Eastern Seaboard. And last but not least, the gasoline is then held in huge storage tanks at the ports until tanker trucks deliver it to gas stations throughout the U.S.
Just-in-Time Concept Controls Distribution System
The American gas distribution system runs on the Just-In-Time (JIT) concept, a logistics workflow methodology aimed at reducing flow times and costs within production systems and the distribution of materials. JIT operates on a stable, predictable schedule, so last-minute supply and demand disruptions – as happened due to the ransomware attack and subsequent gas shortage – can have a ripple effect throughout the entire supply chain.
JIT has its origins in Japan and was originally named the Toyota Production System. As a result, companies using JIT no longer need to maintain huge warehouse space to store their inventory. Also, they no longer need to spend large sums of money on raw materials for production because they only order exactly what they need. That frees up cash flow for other uses. In other words, you order what you need when you need it.
Truck Drivers Are Essential for Delivering Goods
The JIT methodology for the gasoline industry depends on a reliable network of truckers to deliver goods at regularly scheduled times. The JIT methodology also relies on “lean and agile means” to provide a product on time and within budget. According to the Chartered Institute of Procurement and Supply (CIPS):
- Lean means developing a value stream to eliminate all waste, including time, and to enable a level schedule. Waste is defined as any activity that does not add value, but becomes integral to the production. This is an example of supply chain cooperation in action.
- Agility means using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place, and the focus is on customer responsiveness and time-based competition.
JIT Has Its Limitations
Over the past year, American consumption of gasoline steadily declined as more Americans stayed indoors to adhere to state- and CDC-imposed social distancing rules. As a result, gasoline demand was at its lowest in more than a year.
Coupled with the upcoming 2021 vacation season and numerous states having lifted mask and social distancing rules, many Americans are venturing out and traveling more. Many businesses that allowed their employees to work from home are calling them back to the office. The result? More demand and less supply have caused an imbalance in the gasoline system, exacerbated by the Colonial Pipeline ransomware attack.
According to the Corporate Finance Institute, most companies create and hold inventory in excess, meaning they create goods in anticipation of other orders. By contrast, the JIT method involves creating, storing and keeping track of only enough supply to meet the actual company demand for the products. So one hiccup in the supply and demand balance creates chaos.
Connecting the Classroom to the Real World
The Colonial Pipeline case is a great example of how our online program in transportation and logistics management shows how the intersectionality of economics, finance, global air components, maritime transportation, radio-frequency identification (RFID) technology, reverse logistics, and ground transportation systems all work together to support the global supply chain. As a transportation and logistics management professor, I connect the research and theories to the real world by analyzing actual events in real time to highlight practical applications to everyday practice.
Accredited by the Accreditation Council for Business Schools and Programs (ACBSP), the transportation and logistics management program fosters interaction through group case studies to enhance logistics collaboration and teamwork through four key objectives:
- Individually analyze transportation, logistics, and supply chain management and identify the components of each from an operational perspective
- Examine political, regulatory, and legal issues impacting the transportation industry
- Explain the strengths and weaknesses of various forms of international transportation
- Understand how transportation affects the economy, public systems, national and local infrastructure, and the environment
Turning a Real-Life Gas Shortage Event into a Case Study
Students at both the undergraduate and graduate levels take a deep dive into transportation and logistics policies, trends, and issues, and get to the heart of the global supply chain. So a few questions that can be asked in this gas shortage scenario include:
- What role did social media play in this event?
- What are the ethical considerations for hoarding consumable goods, such as gasoline?
- What other logistics tactics and strategies could be used as an alternative to JIT?
- In this case, did the benefits of JIT outweigh the drawbacks?
- What supply and demand imbalances could be recalibrated to prevent future shortages?
Such analysis of real-life events leads to greater understanding, and greater understanding leads to preventative, proactive measures. It’s important to create an interactive online student experience, which includes highlighting students’ responses based on experience, perspective and their understanding of underlying principles. Hopefully, this type of logistics education is one way to prevent any future gas shortage.