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Rationalising Fuel Distribution Costs and Processes: Theory and Practice TouchStar Technologies 2014

Rationalising Fuel Distribution Costs and


Processes: Theory and Practice
Rationalising Fuel Distribution Costs and Processes: Theory and Practice TouchStar Technologies 2014
Overview - The Fuel Distribution Function
While end user prices across both the USA and EU may vary
the allowance for cost of distributing the last leg to homes and
flling stations, including marketing and advertising, dwarfs both
the cost of raw material (crude), refning costs and tax, and is
only 5 or 6 pence per litre.
When it comes to fnal phase fuel delivery to homes and petrol
stations the only viable transport is, ironically, by gas guzzling
road tanker. Some 40% of delivery cost is made up of vehicle
costs, while approximately 40% of vehicle costs is expended on
fuel. So for every 10% rise in fuel costs an additional 1.6% is
additionally added to the cost of fuel at the pump.
The US petroleum wholesale distribution industry includes
about 5,700 companies with annual revenue of about $750
billion, although the industry is concentrated and the 50 largest
companies producing 70% of the revenue (Hoovers) many long
reach independents haul fuel under standards laid down by the
refnery owners.
In the UK and Europe the distribution market is far more
centralized. For example in the UK DCC GB Oils is the market
leader with a 20% market share (750 tankers), with three others
taking another large leading market share of over 40%. While
most forecourt-dealerships may carry the brand of a major
company, they are mostly independent businesses often using
road transport companies including Wincanton, Hoyer, DHL, BP,
TDG, Sucklings and Turners.
Service Convergence Filling Station to
Supermarket
A good sized flling station would provide some 5 million litres
of fuel per year to members of the general public worth approx
7 mil. These distribution points have found that the margin on
fuel is so slim that they must provide groceries, newspapers and
snack bars to sustain their business models.
The local station with a simple canopy sheltering pumps and
a small cash collection point has all but disappeared and in
its place a one stop convenience store has emerged. These
are now usually owned by large chains serving motorists and
families on the move, commuters rushing to and from work or
busy shoppers.
Destination point supermarkets have harnessed their buying
power to negotiate low fuel prices to entice customers, and
gain a greater share of wallet. In the UK they have grown retail
share from 19% in 1997 to around 40% in 2012 while the overall
consumption has increased by only 1%. (source UKPIA). This
dynamic has forced smaller units to close, forced out by price
competition driven by unmatchable economies of scale.
The fuel price cost breakdown varies from country to country.
Broadly in the US the cost of fuel (at the pump) is 13% taxes,
69% cost of crude, 12% refning, and only 6% marketing and
distribution costs (including retail distribution) source Chevron
Corp. While in the UK the cost of taxes is approximately half of
the at the pump price.
Prices of fuel are broadly aligned across Europe, which is far
more expensive than the US as the green agenda is far stronger
and deters the use of black fuel, while there is a higher
propensity for governments to raise revenue. So the consumer
is far more price fckle, particularly in these austere times, where
just a single 1p difference can make the difference between
winning and losing a customer.
The Home Fuel Market
The Home fuel market services LPG and heating oil demand
in the UK, although in Europe some companies also supply
biomass pellets. Fuel for home use does not incur the swinging
tax regime applied to motorists, but similarly, margins are very
tight.
As a result the UK industry has consolidated over the last 10
years as a plethora of marginal distributors have been absorbed
leaving only a few major companies to dominate the market.
Home fuel distribution has become a marginal business, running
on tight margins, servicing price sensitive consumers where
relatively small changes in exchange rates, refnery costs and
crude oil prices are quickly refected in the retail price, and will
encourage fuel saving and a switch to a greener source of power.
Therefore every penny saved in distribution costs contributes to
gaining a competitive price edge.
Regulations Duty to Protect All Stakeholders
Fuel distributors not only have to comply with industry standard
health and safety, greenhouse gas emission and driver hour
legislation, but also with special environmental, emergency
planning (particularly for COMAH sites) and storage regulations.
These statutory regulations are reinforced with a host of internal
procedures, which are to safeguard stakeholders and avoid
costly fnes by government inspectors.
THE THEORY
Rationalising Fuel Distribution Costs and Processes: Theory and Practice TouchStar Technologies 2014
Keeping Distribution Costs Under Control
http://www.thepriceoffuel.com/howfuelisdelivered/
Distribution costs will vary depending on a number of factors.
The key distribution cost components are broadly:
l Transportation: 35%-45% of which fuel represents 40% of
total transportation costs
l Inventory Carryover: 20-24%
l Storage: 18%-22%
l Customer Service and Back Offce Administration 10%
It is the reduction of vehicle costs, minimising the storage and
inventory carryover costs, and tactics to gain new customers
that is the focus of attention for business managers. Logistically
distributors wish to avoid bad debts and storage costs, yet wish
to buy at the best possible price in a dynamic wholesale fuel
market.
Strategic Planning Main Functions
Therefore at a regional (refnery or major depot) level, strategic
planning models are focused on maximising throughput and
holding minimal stock, therefore being able to assign correct
volume shipments to appropriate distribution centres and
identify the most appropriate depot for allocation is very
important. This model is dynamic and will continually asses the
most economic delivery options to optimise depot resourcing
and transport availability.
Refneries are better able to plan their production runs and
synchronise appropriate deliveries and transportation once
future demand is accurately calculated. Aligned with demand
planning is price planning and inventory planning, in order to
ensure both BtoB and BtoC customers do not walk if supplies
run out, but also to ensure revenues are maximized.
Management will be able to choose the appropriate fuel-mix
formulas to align with depot requirement and seasonal variations,
while balancing refning capacity, throughput and demand.
Accurate demand forecasting methods can drastically lower
the cost of inventory and allow distributors to buying forward
and trade in derivatives (hedging). Transportation can also be
pre-booked at best prices and load consolidating can be pre-
planned.
Long term transport planning will include the analysis of
contractor costs against in house transport resources, the
appropriate selection and management of the transport
services, and identifcation of special equipment and operational
requirements.
Local Domains
Depot management (on receipt of automated or anticipated tank
readings from customers), will action orders taken by phone,
internet, email or automated messaging directly from tank
sensors. They will analyse and report the anticipated demand for
various fuel products, and as accurately as possible, optimise
the level of carryover stock yet minimise the required storage
capacity via just in time deliveries.
Site management will monitor usage planning and particularly
monitor tank levels (observing appropriate tank maintenance and
changeover processes). However the ability to execute a cost-
effective and viable Just in Time inventory plan, which ensures
minimum stocks are available for delivery can be diffcult, and
thwarted by sudden changes in the weather, or signifcant and
unexpected disruption to the supply chain.
Transport planning ensures that appropriate transport resources
are available, and that schedules and deliveries (and collections)
and driver rotas are appropriately prepared. Transport systems
carry driver, vehicle and customer information so that safety
standards, including driver hours, licences, operational checks
and that driver, depot and site safety standards are observed.
Vehicle management systems receive all driver and routing
instructions, including pre-delivery safety checks, and monitor
all aspects of the vehicles operation including driver behaviour,
route, and load status. More advanced systems can also monitor
meters and all operational equipment including valves and
security, and will build all track and trace and routing services
onto a single platform.
Safeguarding Stakeholders - ATEX Approval
Fuel distributors look to deploy ATEX approved devices that
minimise the threat of igniting vapour fumes in potentially
explosive environments. Only these systems provide a
guaranteed safe environment particularly if hardware such
as proof of delivery signature capture devices etc. need to be
taken out of the cab.
New Generation Vehicle Management Systems
Up until now the array of requirements makes it necessary to
currently provide several in-cab devices, (one set of equipment
providing operational information while another delivering route
mapping) as well as printers, often not all available from the same
manufacturer an plumbed-in together using various cables and
interfaces, introducing complex operation, and increasing cost
and likelihood of failure.
New generation VMS devices incorporate all in cab equipment
into a single unit, navigated by an easy to use touch screen.
Yet they maintain there highly ruggedized and ATEX conformant
build quality.
Robust Build
In order to deliver business continuity such units are especially
tooled to withstand extreme vibration and ultra harsh conditions.
Build quality and the continued working of key data interfaces
is of great importance as, simply, the truck is off the road if the
IT component fails. It is for this reason that suppliers should
be able to reference proven low failure rates and provide easy
fx and modular service parts so that faulty units can be easily
repaired within minutes by site maintenance engineers.
Units have to be especially engineered to support both GPS
(Global Positioning Services) for truck positioning via satellite
and GPRS (General Packet Radio Service) to facilitate internet
access, as well as facilitating secure two way data and voice
communication between back offce, and depot control services.
Real time security alerts systems should also be built in, to
highlight unauthorised use and to monitor the possibility of theft.
Rationalising Fuel Distribution Costs and Processes: Theory and Practice TouchStar Technologies 2014
Importance of Real Time Visibility.
New generation units are essentially provide both a highly
sophisticated middleware service and a front end information
processor. The array of communication services will
simultaneously monitor all vehicle activity, driver communication
and operational data so that information provides a true real-
time visibility of all distribution activity, driver behaviour, and
vehicle performance. They provide the driver with an invaluable
information aide, necessary to perform as a multi-disciplined
professional by, not only, displaying route information, and
site safety instructions, but also and alerting the driver to any
malfunctions that may be affecting vehicle safety, operation or
performance.
Cost Rationalisation The Payoffs and Pitfalls
It is, of course, diffcult to estimate effciency gains, as these
can vary case by case. However there are a number of proven
technologies that often show almost immediate results such
as vehicle management systems (typically 3%-10% fuel
cost savings can be expected representing 1.5%-4% of total
distribution costs).
Vehicle management systems do help expose poor driving and
therefore can extend the lifetime of vehicles, and therefore lower
the capital expenditure required to maintain and replace the
feet. Many feets have extended vehicle lifecycles but up to a
year by deploying such devices.
Resource planning systems often quoted savings via reductions
in labour costs, although these can be diffcult to realize in the
short-run. Rather organisations allow natural wastage to occur,
leavers jobs are not to be replaced, and re-training from back
offce to front offce roles may be preferred to costly redundancy.
Contactor costs are easier to reduce, as contractual penalties
may be light or even non existent.
Cost savings from rationalisation of the distribution network by
closing and resiting depots can yield high returns, however the
planning process can be complex and depot re-location could
incur large capital expenditure and a decline in service levels to
some locations.
Part of the revenue optimization process demands that
scheduled vehicles are available when required, and not subject
to systems or mechanical failures. Potential failure of cabin IT
systems pose one such risk and effectively make the vehicle
inoperable.
Importance of Systems Integration
To obtain the maximum value and reduce overall operational
costs, distributors continually review their operations and
recommend process change, coupled with the implementation
of appropriate information technology.
It is typical for disparate systems to have been built up over time
and therefore new IT components have to pass and accept data
to and from each other (in real time) in order to maximize supply
chain effciency, and optimize cost transparency and expose
areas of operational and risk.
While extensive fow diagrams can be shown, the true benefts lie
in the attainment of the strategic objectives of the regional, local,
customer and feld domains. We have therefore simplifed the
explanation to show strategic business imperatives, the base-
line IT systems, and the data parameters that are exchanged in
order to provide an end to end real-time visibility.
The Customer Service
Domain
-Choose Best Cost Touch Points
(Internet Portal, Call Centre, Portable
Device etc).
-Optimise the Customer Relationship
Management & Sales Order Process
-Observe Credit Risk Policies
-Promote Offers & Secure New
Customers

The Regional Planning
Domain
- Project Overall Demand for Products
-Optimise Appropriate Resources and
Stock Allocation to Meet Demand
-Choose Best Cost Distribution
Resource Allocation Options
-Implement Policy & Processes to
Mitigate Business Disruption
Fuel Distribution
Business Imperatives
IT Tools

ERP Systems

Inventory, Demand &
Price Planning

Transport Planning

Compliance Monitoring


IT Tools

Customer Relationship
Management

Sales Order Processing

Web Portal

IT Tools

ERP Systems

Inventory, Control &
Demand Forecasting

Compliance Monitoring

Accounting & Invoicing

Cost Forecasting


Demand Forecasts

Financial Reporting

Compliance Reporting
Revenue Position

Sales Demand
(Trends)

Invoice Details




The Local Planning
Domain


-Ensure Accuracy of Revenue and
Cost Reporting
-Optimise Just in Time Stock
Planning
-Identify Areas of Potential Waste
-Optimise Use of Resources
-Safeguard Against Business
Disruption


The Customer Service
Domain
-Choose Best Cost Touch Points
(Internet Portal, Call Centre, Portable
Device etc).
-Optimise the Customer Relationship
Management & Sales Order Process
-Observe Credit Risk Policies
-Promote Offers & Secure New
Customers

The Regional Planning
Domain
- Project Overall Demand for Products
-Optimise Appropriate Resources and
Stock Allocation to Meet Demand
-Choose Best Cost Distribution
Resource Allocation Options
-Implement Policy & Processes to
Mitigate Business Disruption
IT Tools

ERP Systems

Inventory, Demand &
Price Planning

Transport Planning

Compliance Monitoring


IT Tools

ERP Systems

Inventory, Control &
Demand Forecasting

Compliance Monitoring

Accounting & Invoicing

Cost Forecasting


Demand Forecasts

Financial Reporting

Compliance Reporting
Revenue Position

Sales Demand
(Trends)

Invoice Details




The Local Planning
Domain


-Ensure Accuracy of Revenue and
Cost Reporting
-Optimise Just in Time Stock
Planning
-Identify Areas of Potential Waste
-Optimise Use of Resources
-Safeguard Against Business
Disruption


Fuel Distribution - Business Imperatives
Information Technology Tools and Data Integration Touch Points
IT Tools

Customer Relationship
Management

Sales Order Processing

Customer Web Portal

Vehicle Cost per Drop
Analysis
Job Status
Vehicle Status
Account Status
Delivery Schedules




Job Completion Status

Invoicing Details

All Vehicle Operations

Security Status
IT Tools

Vehicle Resource
Management System


Best Route

Late Orders

Site Safety

Vehicle Checks
Job Status
Vehicle Status
Field Domain

-Ensure vehicle operational integrity
-Fulfill orders at least cost
-Report vehicle operations & running
costs
-Ensure accuracy of delivery and
verification by customer
-Secure vehicle, driver and load
-Ensure all safety policies are
observed


Local Operational Domain

-Ensure adequate resources are
available to fulfil orders & retain
customer
-Streamline vehicle costs
-Secure least cost routing & delivery
options
-Observe regulatory compliance and
corporate risk and safety policies
- Speed cash flow by avoiding error
and reducing cash collection cycle


IT Tools

Scheduling

Vehicle Resource
Management System


Rationalising Fuel Distribution Costs and Processes: Theory and Practice TouchStar Technologies 2014
THE PRACTICE
Background
Total - A global multi-energy provider
With operations in more than 130 countries, Total engages in all
aspects of the petroleum industry, including Upstream operations
(oil and gas exploration, development and production, LNG) and
Downstream operations (refning, marketing and the trading
and shipping of crude oil and petroleum products). Total also
produces base chemicals (petrochemicals and fertilizers) and
specialty chemicals for the industrial and consumer markets
(rubber processing, adhesives, resins and electroplating).
In addition, Total has interests in the coal mining and power
generation sectors. Total is helping to secure the future of energy
through its commitment to developing renewable energies,
such as photovoltaic power and marine energy, and second-
generation biofuels.
Key indicators include;
l Fourth largest publicly-traded integrated international oil and
gas company in the world(1)
l 96,400 employees
l Operations in more than 130 countries
l Exploration and production operations in more than 40
countries
l Producer of oil or gas in 30 countries
l Downstream
One of the leading traders of crude oil and refned products
worldwide
l Refning capacity: approximately 2.6 million barrels per day
l Retail network: nearly 16,500 service stations
l Sales of petroleum products: approximately 3.9 million barrels
per day
l Brands: TOTAL, Elf, Elan, AS 24
TotalGaz is an important downstream marketing subsidiary of the
TotalFinaElf LPG organisation. TotalGaz has grown to become
one the leading companies in France specialising in the refning
and the distribution of LPG gas, Butane and Propane to business
and domestic customers. The fnal distribution of the product
may be done by means of bottles or directly to the customers
tank as bulk product. TotalGaz trades approximately 3000,000
metric tons of LPG-derived product a year.
TotalGaz Fleet Operations
The bulk distribution of TotalGaz LPG is achieved via the use of
a combination of small and 330 large bulk carrier trucks. These
trucks are not owned by the TotalGaz, they are rented to circa 30
contractor organisations throughout France.
Four years ago, TotalGaz identifed the need for a greater level of
automation of key business processes associated with the LPG
distribution vehicles. The main decision to implement a mobile
computing solution was to improve effciency in operations,
specifcally to eliminate paperwork, reduce billing cycles and
to automate stock reconciliation. Secondary benefts were to
be sought via the use of GPS technology, which it was thought
would aid job planning, vehicle scheduling and routing.
Touchstar Technologies is a leading supplier of mobile data
capture systems to the fuel sector and TotalGaz were already well
aware of the organisations reputation for delivering pragmatic
and effective solutions. TotalGaz were particularly interested
in obtaining data directly from the on-board meters and were
impressed by the range of different meter types with which
TouchStar could offer full compatibility. TouchStars equipment is
also ATEX certifed, an important consideration for any company
operating in explosive environments. TouchStar also has in-house
bespoke software development capability and were able to offer
TotalGaz a highly intuitive front-end fuel delivery application,
designed to meet their specifc operational criteria.
The TouchStar On-Board System
TotalGaz ftted its entire articulated feet with the TouchPC
Raven. This in-vehicle computer was backwards-compatible
with the existing Total systems, ensuring that roll-out could be
handled in a staggered fashion. The Raven device has a wide
range of on-board functions and has allowed TotalGaz to further
refne its delivery application. Having GPS, GPRS and Bluetooth
on-board a device with a smaller footprint and having dedicated
truck connectivity on the cradle has meant that the new system
confguration is a far neater solution.
The TouchStar devices have provided a critical feet management
data fow between the driver, vehicle and offce, specifcally;
l The driver received details of his pending route and the
additional associated logistical information related to it.
l Quantity delivered data was sent back to the dispatcher
virtually in real time.
l Location of the truck was available in real time by means of
Case Study - TotalGaz adoption of TouchStar fuel delivery IT solution
Rationalising Fuel Distribution Costs and Processes: Theory and Practice TouchStar Technologies 2014
GPS, which brought safety and security advantages
l Accurate location of TotalGaz customers by means of GPS
navigation.
l Assistance in navigation by means of GPS. This was particularly
useful as the majority of the seasonal drivers were not overly
familiar area with the geographical areas within which they
were operating.
l Printing of unifed documentation, whatever the make of the
meter and the trucks.
l Improved fraud control.
System Benefts
The benefts derived from the availability of critical data included;
l a reduction in the administrative resources needed to establish
the delivery schedule and route information. Previously, the
information fow between the driver and the dispatcher was
handled by fax or telephone.
l Optimization of the time spent during the delivery
l Reduction of the mileage of the truck
Big benefts were also realised in the area of proof of delivery
and customer invoicing. Previously the process relied on
manual delivery notes which were easily mislaid and effort was
duplicated as information had to be manually re-entered into
the back-offce system. The whole process was open to human
error. The TouchStar solution, allows the driver to print delivery
notes on the spot, eliminating the need for a separate in-cab
printer and the sometimes lengthy walks to and from the vehicle
to produce a printout. A customers signature is simply captured
on screen for proof of delivery purposes and the document is
printed there and then. Benefts were seen immediately from
the accuracy of data and time saved in the back offce on data
re-entry. Subsequently, if there are any discrepancies over
what was delivered, an electronic version of the document can
simply be raised on the system and automatically sent to the
customer, whereby in the past, someone had to go and retrieve
the document from the archive. This, in turn, took up valuable
time and additional storage space.
System Evaluation : The TotalGaz Experience
Since the launch of the system, more than 450 different drivers
have used the equipment successfully. TotalGaz have retained
TouchStar as their supplier, through three phases of system
development. Vincent Brouard, Logistics Manager for the LPG
operation at Total-Gaz, explains some of the principle reasons
behind this decision:
The key factor in our choice of hardware was that the core
devices had to be rugged and capable of operating in relatively
extreme environments. The systems are mostly operated during
the cold winter season, with temperatures below zero. However,
the systems remain within the truck for the whole year, so the
units are also exposed to harsh sunlight behind the windshield
during the summer period. It can also become a very dusty
environment. Weve never received any reports of damage
related to these operating conditions.
Aside from the hardware, we were seeking an overall system
solution that ftted perfectly with our business model and which
required minimal development time. We needed a system that
would be intuitive and user-friendly for the drivers and this is one
of the biggest areas of success. At frst drivers were apprehensive
about the new system, but within days they have found it has just
automated the process and eliminated the paperwork coming
out of the cab. Drivers also like the fact that they are guided
sequentially through a series of menus when making deliveries.
It serves as a great aid, particularly when there can be up to 15
deliveries in a shift. The software is intuitive and easy to operate.
So far every participant in the process approves the use of on-
board computer systems. drivers, dispatchers, truck owners
and our valued customers. Maybe the best proof of the effciency
of the system lies in the drivers experience. Weve found that
when drivers are asked to use a replacement truck, in which no
on-board computer is present, they complain!
Based upon its expertise and knowledge of the fuel and gas
business and its reputation for delivering robust systems,
TouchStar claim to be the best in the industry. On the basis of
our experience of working with the company, we are happy to
concur with that opinion.
TouchStar Technologies Ltd has been supplying mobile computing solutions to the fuel industry for over three decades
and provide the hardware, software and expertise for a state-of-the-art turnkey solution. For more information on this
white paper or the TouchStar solutions please call TouchStar Technologies (Fuel Logistics IT) on +44 (0) 161 8745050
or visit our website www.fuel-logistics-it.com.
TouchStar Technologies (Fuel Logistics IT)
7 Commerce Way, Trafford Park,
Manchester
M17 1HW
UK
Phone: +44 (0) 161 8745050
Fax: +44 (0) 161 8745088

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