How could application of the theory of constraints help alleviate the effects of material shortages…

(Lean manufacturing; TOC; ethics; writing) Recent years have been characterized by high, and volatile, energy prices. Some critics of the energy industry suggest that the oil companies’ use of JIT inventory management has contributed to the volatility in prices and the supply constraints. Further, oil and natural gas products are crucial inputs to other industrial products such as chemicals and plastics. These industries also have been rocked by both the volatility in energy prices and the availability of the oil- and gas-derived inputs to their products. To illustrate one of the negative outcomes of the supply volatility, Citigroup cut its stock rating of Lear Corp. in late 2005 because of fears of adverse effects on profits from shortages of materials and higher prices of materials derived from inputs produced by the oil and gas industry.

a. Is JIT management of inventories an ethical practice by the oil industry if it is true that JIT practices increase the volatility in energy prices for energy consumers?

b. How could application of the theory of constraints help alleviate the effects of material shortages experienced by firms that consume products derived from the oil and gas industry?

c. What actions could firms that are dependent on inputs from the oil and gas industry take to reduce supply chain risks?

d. In the United States, both federal and state governments increase the price of energy (particularly automotive fuels) to the consumer by assessing taxes on energy sold at the consumer level. Do governments have an ethical responsibility to reduce taxes on energy when prices spike upward? Discuss.

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