If you were watching fuel prices in recent weeks, you could have seen consumer prices jump 7¢ a gallon over a two-hour period. For shoppers who filled their tanks after they ran errands, rather than before, the delayed purchase probably cost an extra dollar. For retailers who are stocking those pumps, or fueling an entire fleet, inefficient fuel procurement makes a much bigger dent in the budget.
Consider the inventory-management dilemma facing fuel retailers, particularly the grocery chains and discount department stores that have recently installed gas pumps in their parking lots. As difficult as it is to manage replenishment of promotional items, or to maintain in-stock positioning of all your best-selling SKUs, these challenges pale in comparison to managing procurement and replenishment of liquid inventory.
FuelQuest, a Houston-based third-party service provider that automates fuel purchasing, logistics and taxation for companies such as Wal-Mart, 7-Eleven, UPS and FedEx, cites a convenience store operator that has more than 3,000 locations and places orders for as many as 2,000 loads of fuel on any given day. It would be far too time-consuming and inefficient to manually evaluate the replenishment needs for fuel pumps at 3,000 stores, identify the best price/delivery option and place the orders.
“Our systems monitor the retailer’s underground storage tanks in real time, which allows the corporate office to know what is on hand at every store throughout the day,” explained Doug Haugh, COO of FuelQuest. “It evaluates what is needed at a truckload level, then the price-optimization engine determines the best solution available at that given time for each location needing replenishment. The retailer could have contractual commitments with suppliers that limit options, but the system can factor those restrictions into the plan. Also, retailers can always override the recommendations.”
Price optimization is exponentially complex, given the dynamic nature of fuel costs. In addition to the base price of the fuel, Haugh explained, there are some 7,000 tax systems across the 50 states as well as environmental fees. Retail buyers, accustomed to negotiating from a fixed-price structure for most CPGs, have to embrace an entirely different mind-set when it comes to purchasing a commodity with prices that may change throughout the day.
“We’re sometimes looking at half a millio