15 Oct 2007
First Oil Vulnerability Audits in Totnes Report Back.
In talks I give and in other places, such as this website, I often enthuse about **Oil Vulnerability Auditing**, the tool developed by Simon Snowden at Liverpool University, but haven’t yet written much about it. I thought you might find it interesting to read the following short report by **Fiona Ward** of Transition Town Totnes who co-ordinated the OVA work in Totnes. Two pilots have so far been done, and in the report, Fiona reflects on the process and on what emerged from them.
The team has now completed the first stage of the pilot OVAs for two Totnes businesses: Rumour Wine Bar & Bistro in the High Street; and Coloursworks Print & Design Ltd on the Industrial Estate. This work has seen Simon, Fiona & team work closely with the companies to (1) understand the business (2) identify its activities and business processes (3) establish the resources used in each activity including staff, consumables, raw materials, utilities, overheads etc and (4) calculate the costs of each resource.
The resources, and their associated costs, are then tagged as being ‘oil vulnerable’ if they fall into one of the following categories: direct use of energy (for power or heat); liquid fuel (for transport); are made directly from petrochemicals (such as chemicals); are man-made (nylon, plastics etc.); or if they are a finished good or component that includes products from previous categories (e.g. rubber gloves, or plastic window frames). Then within an activity, the % of those costs that are tagged as vulnerable indicate the Oil Vulnerability Ratio of an activity or a business process.
With each business, we focused on a certain part of the operations in order to make the scope manageable. For Rumour we looked at their A la Carte food operation (i.e. not pizza or drinks) and for Colourworks we looked at all the business activities required to deliver the needs of their largest customer. Within Rumour the key findings were that (unsurprisingly) the ingredients and Preparation/Cooking process was their largest risk area given the quantity of oil that goes to food production (fertilizers, production and farm processes) and distribution – with 45% of A la Carte costs vulnerable to oil price changes. It was also found that 70% of ingredients came from overseas although all were bought locally. For Colourworks the main area of vulnerability by far was with paper, and the Print process – with 35% of costs for this one customer being oil price vulnerable.
For both, the next largest area of vulnerability was their staff, particularly skilled employees such as Print Minders. This increased the cost vulnerability by around 30% for Colourworks and 10% for Rumour As transport costs rise this directly impacts each employee’s living costs (not just petrol/travel but also energy costs, price of food etc.) and puts increasing pressure on salaries. The issues of local, affordable housing and food, and having appropriate skills within an affordable commute will increasingly play a role in business resilience.
We then explored the impact of cost increases in these key resources on profit margins, and also how far prices to customers may need to increase to compensate for these rising costs. Interestingly, energy (gas and electricity) was not a highly significant risk for either as it was a small part of the overall costs for both at <3%. However energy efficiency is still essential in order to minimize exposure to price rises, especially as this is where oil price increases are felt the quickest. Our presentation of the initial findings to the business owners was very well received. Our next stage is to explore further the links between these key resources and the oil price to establish the level of connection and interaction. The link between oil price and price of other energy sources, including renewables, will be researched to establish level of market integration, i.e. as the oil price goes up, will the prices of non-oil energies track with similar increases (some just because they can)? If so, then switching to green energy may not give the expected protection against cost increases (but of course is essential for carbon emission reductions and the compelling fact that it is the only feasible long-term solution). We aim to complete this research stage by the end of the year. We are continuing our work to involve the business community further in TTT projects in order to understand better the interactions between jobs, employees, suppliers, customers, housing, skills, food and transport. Only by working as an integrated community can we build the resilience we need to withstand the economic, social and environmental impacts of post-peak oil and climate change, and to achieve a way of life potentially better and more rewarding than that of today. More detailed case studies will be available shortly. For more information on OVA or other business related TTT projects, please contact FionaWardttt@googlemail.com