“The concept of the physical supply chain hasn’t changed in 100 years,” observed Houston-based petroleum industry consultant Gary Bevers, president of Bevers & Co. “But what’s become more difficult to manage is the paper trail of distribution.”
Moreover, rising fuel prices also make it costly not to keep close tabs on product. “Compared to the old days when fuel storage didn’t cost as much,” Bevers explained, “your price risk today makes inventory management and near-time delivery vital. Because the market is so volatile, electronic tank monitoring is crucial in order to make money. The distribution and price of fuel are a lot more complex. So buying at the right time is a critical need.”
Automation does not eliminate human interaction, but merely automates some of the more routine and in some cases more complex processes and calculations allowing the human component to concentrate on more strategic issues. In general, these solutions enable best practices – whatever those might be for specific operations – including just-in-time delivery; choosing among multiple suppliers every day from a “best buy” perspective or the early detection of theft. It also adds efficiency and accuracy to the accounting requirements.
“These types of tools were developed out of necessity with a focus on efficiency,” said Dan Warren, SMARTLogix’s vice president of marketing and product development.
SMARTLogix, headquartered in Ft. Mill, S.C., offers a suite of real-time petroleum management solutions that includes inventory replenishment, dispatch optimization, GPS forensic resource tracking, and bill of lading to delivery reconciliation. The system can be integrated with most back-office applications. SMARTruck digitally captures transactions to verify loads, deliveries, pump-outs, flushes, transfers and corresponding GPS events so that users can optimize loads and routes, centralize dispatching, and manage driver activity.
“We started in the business with tank monitoring we came out with a wireless tank monitor and the be-all end-all goal of that was to tell us when the tank was at the lowest point so that you could drop the amount of gallons in the fewest amount of stops,” he said. “And if you can do that, technically you might be able to do twice as many deliveries per day. And that naturally progressed to dispatching software where you can do forecasting even without a tank monitor.”
Automation also helps reduce some of the common issues with manual data entry among multiple sources of interaction. “Manual processes are prone to error,” said Glenn Turner, president of FireStream World Wide. “If you are doing things on index cards and spreadsheets and chalkboards and whatnot, it's probably not going to be long before you run one of your locations or one of your customer’s locations out of product, which is ultimately what we’re trying to prevent here.”
FireStream, headquartered in St. Louis, offers a fully integrated accounting platform that tracks all transactions in a lubricant, home heat, retail, cardlock or wholesale operation. This includes FireStream's Symbology Mobile Fuel Wizard for metered and non-metered fuel delivery and its Ascend Retail Solution, a convenience store automation system in use at nearly 5,000 convenience stores across the United States.
In the current environment, automating the fuel logistics process can easily move from a luxury to a necessity. For any operation looking for significant growth, particularly in a broader geographic area, it is practically a requirement. And the smaller the operation, the more critical this efficiency becomes.
“What the smaller operators are concerned about is competing with the big boys,” said David Zahn, FuelQuest’s vice president of marketing. “We are seeing demand from both the largest companies and many of the smaller companies. If you want to scale at all in your five stores or 25 stores, you have to look at automation because you're going to get killed at the pump otherwise. A 10- to 20-site type of operation would find it difficult to manage relationships with 10 to 20 different suppliers and a half a dozen to a dozen trucking companies. Our service and our software give them that ability. It also allows them to have secondary supply on hand if they want to provide supply security.”
FuelQuest, headquartered in Houston, provides convenience store chains, grocery retailers, wholesale clubs, and unattended fuel site operators a complete platform to manage their fuel operations. Customers can grow their fuel operations with the largest management network and proven FMS solution used by innovative retailers within the industry.
At a fundamental level, automation addresses some basic but costly concerns. “Look at the biggest problems you have—retains and runouts,” said Zahn. “Those are problems that certainly exist and with automation you are going to reduce your retains and runouts, which have costs associated with them.”
Beyond the basics, automation allows the easy implementation of more advanced fuel management strategies. “Because of the price of oil,” said Brian Reynolds, Pinnacle Corporation’s director of fuel solutions, “operators are keeping inventories lower than in the past. So the same truck will often deliver to several locations or get product at different terminals. How do you keep track?” Pinnacle Corporation, headquartered in Arlington, Texas, helps users automate and streamline operations in six primary segments: c-store, point-of-sale, loyalty, foodservice, retail fuel, and wholesale fuel. Solutions are highly customizable to fit operational needs.
“If you move less than three loads a week,” Reynolds said, “just-in-time inventory is a much better way to run your business. Rather than keep your tanks full, you can save money by maintaining only the level of inventory that ensures you won’t run out.”
Trends, such as just-in-time and split deliveries, have fundamentally changed operations. “But while the rules have changed a lot over the last few years, the processes for dealing with them haven’t always kept up,” said Reynolds. “That’s a real worry because, with prices changing so fast, one bit of misinformation could mean a very bad decision. Multiply that decision by 20 locations, and you could easily make a million-dollar mistake.”
Delivery dispatch, routing and tracking are typically automated. Trucks are routed in the most cost effective and profit generating manner. That would typically include a mix of the product price at a given terminal; an evaluation of the need to fill specific tanks at specific retail sites; and the distance to the terminal and the retail sites and the most effective order for delivery. GPS tracking is often incorporated and the driver typically is provided with a range of tools to improve the delivery process, reporting accuracy and accountability in a real-time manner.
“The driver receives load options for each single loaded request, for example, ‘Go here first,’ based upon the best price, but if the line is really long, it can pull from this alternative terminal that also has a really good price and this shows up on the handheld device in prioritized order,” said Warren.
SMARTLogix does all pre-and post-trip inspections on the hand-held device for DOT compliance. “We also have an in-cab scanner so that the driver can actually scan the physical BOL or delivery sales tickets and have those back in the office real-time. Any document associated with the delivery can be scanned. So I could go four states away and have the confirmation of what the driver punched in with his finger and you have another source which gets you that Sarbanes-Oxley with two different references.”
Because of the ability to remotely and accurately track fuel deliveries and automate the accounting process regardless of the location of the terminal, truck and retail sites, this technology can even open up new ways to do business. “We have companies like Great Lakes Petroleum that drop a truck in every market that they want to go into, and it stays there,” said Warren. “They hire a driver, and they pay some rent to park the truck inside a fenced in repair shop, and they pull from a local terminal. They hire sales reps in that area and they have no office or accounting people because everything is coming back to the central office real-time for billing. There is not the overhead that other people have to buy to set up in the market. They can go to where the money is and not just the next town over.”
A common component of a fuel logistics package is a forecasting model. Basically, the model develops a history of the fuel usage at each site (and even each tank) and helps forecast an expected delivery process. Of course, this forecast is cross checked with live data from the tank gauge to spot any abnormalities.
“Automation gets you predictability and consistency,” said Scott Cilento, FuelQuest’s senior vice president of operations. “Software such as ours has an automated forecasting engine that supplies a set of rules to the unique attributes to the specific fuel and fuel tank. The replenishment order of fuel would be automatically generated and it would always be generated by those rules as opposed to doing it manually where human error and human opinion can enter into the equation. So the net result is a more predictable and ratable and consistent output.”
A core component of automated fuel logistics solutions is the ability to integrate with industry-common back office accounting software. Some solutions are provided as modules from back office accounting and operations software package providers and some are stand-alone solutions that integrate into the common back-office solutions in the industry. The importance of accuracy and efficiency in the basic accounting function cannot be overlooked. “While it’s in vogue for marketers to focus on just-in-time inventory, a big need that’s sometimes overlooked is the ability to catch a bill of lading quickly,” said Pinnacle’s Reynolds.
In today’s industry, it is important for a fuel logistics solution to facilitate the central management of an operation across multiple business units and often with multiple legacy issue. “Fuel marketers’ top three concerns are managing all their business units with one system, ensuring their pricing and margins are accurate, and being alerted to critical issues as they occur,” said Tom Lane, vice president of sales for Vancouver, Wash.-based DM2 Software.
DM2 Software’s Petroleum Insights system handles all core financials along with fuel, lubricant, home heating oil and propane sales, cardlock and c-store management, supply chain automation, business analytics, and customer relationship management. Paperless office and e-business modules can help petroleum marketers further manage and grow their businesses. The latest release, reports includes customer relationship management (CRM) option.
Lane said that a system, such as DM2’s, can be set up to “automatically import pricing, make it easier to keep up with mid-day price changes, enable you to choose the right pricing formulas and auditing tools that ensure your margins are set correctly, and alert you to user-determined conditions such as credit limits being exceeded.”
Based in Monroe, La., AIMS Inc. provides petroleum wholesalers and distributors an accounting system that addresses tank management, dispatching, and fuel logistics. President Robert Canterbury noted, “Rising oil prices can impact not only product costs but transport costs. And with the cost of transporting fuel going up, increased fuel surcharges from contract carriers may soon follow.”
Accurate inventory reconciliation will ensure that fuel retailers and wholesalers not only “know how much fuel they have on hand,” Canterbury explained, “it will help them determine the appropriate amount of fuel to be delivered so they can be assured of maximizing the value from each transport load.”
Retailers are not the only ones who must manage their costs. “As a wholesaler and distributor, it’s even more important now to review the profitability of each customer account,” Canterbury said. “In a rising price scenario, everyone wants to buy only as much product in a 24-hour period as they need and know they can sell. That requires better data gathering and dispatching methods. With constant changes in pricing, the ability to determine your true average cost at any point in time is crucial. The last thing you want to do is buy at a high price, have it decline, and have your weighted average cost dramatically increased.”
Costs & Conversion
For all of the advantages, many operations have yet to get on board with automating their fuel logistics. However, fuel price volatility and extreme prices, along with growing competitive pressures, have promoted a spike in interest in the past few years among operations of all sizes. From a cost perspective, solutions can be found to suit any level of retailer or marketer in the industry. Some solutions promise the smaller operator the same capabilities of the larger operator in reliability, reduced costs.
“From a financial perspective and from a technical perspective, this is not really that huge of a change,” said FireStream’s Turner. “At retail sites almost everybody has electronic tank gauges. And those electronic tank gauges in most cases are accessible remotely and you can get data from these gauges relatively easily and inexpensively. If you or one of your customers happens to not be connected to the Internet at a site, that's obviously a minor investment of broadband connectivity, which is pretty available throughout most of the country for less than $50 per month. If you happen to have an older tank gauge that does not have a card in it that allows you to connect your wireless area network, there is frequently an ability to upgrade for what is not a substantial one-time investment to the efficiency and even increased profit margins that the larger players enjoy.”
In some cases the biggest issue against adoption might be cultural or institutional. “The role that handles (the fuel logistics process) varies dramatically from organization to organization,” said Turner. In some organizations the level of sophistication might be pretty significant. In a lot of organizations, quite frankly, that is not the case and the people might be averse to change by nature especially if they are good at what they do manually. They tend to be suspicious that the technology cannot do it as well as they can. As is the case with any significant change, you have to be willing to change people as well as the way you do things.”