Systematic Savings - New Technologies and approaches emerge in managing fuel inventory.
By Angel Abecede
With compliance deadlines already a done deal for many marketers, the Environmental Protection Agency (EPA) regulations on underground storage tanks and leak-detection give way to a greater, though more routine need - that of fuel inventory management.
Managing fuel delivery and shrink are an integral part of any petroleum retail business, but understanding efficiencies and achieving cost savings can be elusive to marketers. Many don't realize the potential that new technologies and approaches can offer.
For instance, a Florida marketer who has 125 stores and 10 trucks says he was able to cut his clerical staff in half by installing a fuel inventory and delivery system. By significantly cutting the amount of data entry required, the system saved on his most expensive line item: labor.
New radio-frequency technologies are also increasing the accuracy of tank readings, improving both leak detection capabilities and fuel inventory management.
And new approaches in equipment installation and data gathering have cut system costs dramatically.
The news comes to an industry ready to investigate ways to meet its fuel management requirements. For many, these goals are a matter of hitting the basics. "Our goals are simple," says Art DeBlois III, president of DB Companies, Pawtucket, R.I. "A station can't be out of gasoline and we try, given our contract requirements, to get the best pricing, especially when prices are volatile."
DeBlois says that his company holds a fundamental goal of keeping inventories full when product prices are rising and running them down as prices drop.
Choosing the best way of executing this goal is the issue. Presently, DeBlois' company is integrating a relatively new acquisition into its chain of stores. The company is in the process of evaluating different tank monitoring and statistical inventory reconciliation (SIR) technologies to see which systems will best aid them in achieving their goals.
"It's a process," DeBlois says. "We consider it an ongoing project."
Avoiding Problems
One of the biggest goals of fuel inventory management is to avoid costly problems in the areas of storage, delivery and sale. Of these issues, shrink is a major concern.
Defective dispensers can account for a big part of shrink, says John Knight, vice president of marketing for Simmons in Richardson, Texas. He says that a poorly calibrated system can dispense 1,050 gallons and only report that it dispensed 1,000 gallons.
William Jones, executive vice president of Warren Rogers Associates Inc., in Middletown, R.I., agrees. He says meters may be within tolerances prescribed by weights and measures regulation, but still dispense significantly more product than is recorded or charged for. At high-volume locations, this can involve losses of between $500 to $1,500 per month, Jones says.
In cases of theft, shrink can occur with fuel delivery people unloading product before they reach the retail location. They can forge delivery records to cover the theft.
Other issues that must be considered are temperature, where product can physically get larger or smaller.
"Expert review of trends in inventory records can identify delivery discrepancies, meter mis-calibration, conversion error, shrinkage, procedure errors and record keeping errors, all of which may obscure the appearance of true leaks," says Dan Cook, president of USTMAN Industries Inc., Lakewood, Colo. "And all of which are potentially meaningful to earning a profit."
Of course, the biggest concern is losing product from a leaking tank or piping. When used with volumetric leak detection, inventory reconciliation is an "excellent" way of identifying leaks, says Alan Betts of EBW, Muskegon, Mich.
The proper detection and inventory system can catch problems and identify their sources, says Knight of Simmons. For example, statistical analysis of data can detect theft by identifying a pattern, such as a series of inventory errors occurring only on delivery days. Though the example is simplified, Knight says the math can point to the problem.
In addition, marketers ought to be concerned about preventing fines. Proper record keeping is an EPA requirement, one that may not catch up with a marketer until a bigger problem is identified. Jim Crehan, chairman, Environmental Digital Services Inc. (EDSi), Palm Beach Gardens, Fla., says that no one really gets in trouble for poor reporting, unless found or "singled out" for violation.
Assuming a marketer's measurement devices are not accurate to within an eighth of a gallon, Crehan says that in different states, being off by over 50 gallons for five days in a row can mean shutting down a location. "Nobody ever gets caught for these [inaccuracies] until something else goes wrong," Crehan says. "Then they'll nail you for
everything."
Marketers may consider fuel inventory shrink a small problem, but Knight says, "When marketers are operating on thin margins, this fractional percent is additional profit that can be extracted. Astute operators pay attention to it. They see the value in minimizing the losses and get paid back for that."
Time Management
Some marketers are bypassing the issue of fuel inventory management altogether by outsourcing the responsibility to others. For several years now, Bill Kent, president of Kent Oil Co. in Midland, Texas, has contracted his fuel delivery and management to his common carrier. The decision freed up an office staff person for other tasks, Kent says.
The common carrier created guidelines for Kent Oil employees to follow and gathers the necessary data itself. The process has "worked well," according to Kent. Outsourcing his fuel management has allowed Kent's organization to focus on things the company does well. "An organization is no different than people," Kent says. "There's only so much energy, time and focus."
Others in the industry agree. Many marketers, including many majors, have outsourced their fuel inventory and leak detection tasks, as a ay to focus on what they consider "core" businesses.
In response to the demand for outsourcing, vendors have emerged to provide not only products, but services. One of the companies making this transition is Simmons. As a supplier of SIR technology for the past seven years, providing the service of leak detection and fuel inventory management has moved into the forefront, according to Knight; so much so that Simmons no longer sells equipment, only the service.
Much like a power company that provides the equipment and infrastructure for the service of electricity, Simmons intends to offer a turnkey service - from installation to reporting. The move to service may also account for the company's acquisition by Kansas City Power and Light, which is diversifying its base as electricity moves into deregulation.
Cost Cutting
In addition to transforming itself into a service provider, Simmons has also cut compliance and management costs dramatically, according to Knight. Where traditional tank gauges can cost between 4,000-$14,000 and installation tack on another $2,000-$3,000, Knight says Simmons can install their equipment for $1,000 per site and charges a basic service fee of $30 per month and $15 per tank.
The reason Simmons can offer such prices lies in its newly-developed technology. Part of those developments include a new probe technology. Using what's called "micro-power impulse radar," the probe measures liquid levels. The benefit of the technology is that it has fewer, cheaper parts.
Knight says that where other companies make proprietary pieces of equipment, this probe can be made from parts already mass-produced.
A second technological advance is in Simmons' wireless data transmissions. The technology allows the company to get data from level probes and liquid sensors around the tank without installing wire and conduit in the ground. Removal of that step saves a tremendous amount of contractor time and labor, Knight says.
The wireless transmission capability comes from military technology that has become commercially available and through microchips, which are increasingly affordable. When all the information is gathered, Simmons supplies reports to its customers via e-mail, fax or regular postal deliveries.
"In order to make that kind of dramatic change in cost, we had to attack the problem at the fundamental level," Knight says. "We had to look at the technology used in tank gauges and why they cost so much."
Knight calls its new service an "enormous change in the cost of regulatory compliance. People are just beginning to realize it, and are removing the burden from their personnel."
Asking c-store employees, in an industry with high turnover rates, to handle tank gauges is a definite training issue, Knight points out. "When marketers have to explain to regulators why records have failing or inconclusive tests, it's going to mean a lot of trouble," he says. "Marketers are facing all of this instead of running their businesses."
Radio Frequencies
Radio frequency technology is quickly advancing in the petroleum retail industry. As Fairfax, Va.-based Mobil Oil Corp. and others push transponder technology that identifies customers filling up at the pump, such radio frequency use is occurring on site at the tank monitoring level as well.
EDSi for instance, has a hand-held transmitter that activates the tank monitors. EDSi utilizes tank caps equipped with different technologies, including sonar and radar, to read liquid levels in the tank. With the hand-held transmitter, an employee can stand four feet from the cap and read the tank level. The device can also accept information from the pump meters and the delivery slips.
Increasing accuracy is an integral part of proper fuel inventory management, says Crehan of EDSi. "Our problem was the [measuring] stick," Crehan says. "It was the weakest link in the reporting cycle." Often times, the measurement task is given to part-time employees at the lower end of the pay scale, Crehan says. They have no incentive to take pinpoint accurate readings consistently. By taking the measurement task out of human hands, accuracy is increased, he says.
"The quality and accuracy of reconciliation is only as good as the information gathered," says Pete Cochesfski, product manager with Emco Electronics, a division of Tuthill Corp. in Cary, N.C. He says advancements in leak detection technologies have aided in the accurate collection of tank data.
Cochesfski says Emco Electronics has developed a reconciliation solution that minimizes errors and produces accurate measurements. Using what he calls "magnetostrictive" probe readings of inventory in the tanks, as well as records of fuel dispensed, the system generates a calibration chart for each tank, minimizing errors associated with converting the fuel measurement from the probe to a volume reading, he says.
Managing Fuel
In terms of getting the most out of a fuel management system, marketers must look into what efficiencies can be brought into their operations, says Ed Hawley, president of TeleData, based in Stuart, Fla. "The whole idea is to try to make product inventory meet demand," Hawley says. "We've set up a system to evaluate every store and rank them by who needs product."
Hawley says the TeleData system automatically decides how much product is needed to meet sales trends. If a location can't justify a complete load, the system says to split the delivery. If done properly, the information can be processed all the way through to the general ledger, Hawley says.
Incorporating many departments within an organization is part of a successful fuel management system, say officials with Simsbury, Conn.-based Veeder-Root. Its "Fuel Logistics Services (FLS)" program is designed to organize work processes and increase productivity for personnel at many levels, including site managers, accounting staff, contract carriers, terminal operators and even the consumer of fuel products. The service, which is adaptable to a site's workflow, forecasts an upcoming fuel delivery on a per tank or per-site basis, and send daily electronic reports to the marketer.
"FLS will assist customers in managing their fuel inventory and transportation processes and optimize tank inventory levels throughout their system," says Kel Landers, vice president and general manager for Veeder-Root.
macfadden.com
Regards, Jeff
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