Are your fuel and lube tankwagon operations as efficient as they should or could be? Part of the answer to that question can be found in this month’s extremely simple, yet revealing test.
The Tankwagon Efficiency Test
Step One – From your regular fuel or lube tankwagon customer list, select out five customers that you deliver to on a regular, year-round basis.
Step Two – Using a spreadsheet program like Excel, or an old-fashioned green accounting ledger sheet if you are not computer-minded, record the following information for each of the five customers:
1) Tank size
2) Date of each delivery
3) Gallons delivered
For each customer, use a separate page or worksheet. If your company operates in a seasonal or cyclical market, record an entire year’s worth of data for each customer. If your company is not seasonal or cyclical, a calendar quarter of information will be sufficient.
Step Three – Compute daily usage. Calculate the number of days there were between deliveries, and then using the gallons delivered, compute the customer’s daily usage. For instance, if you were on a weekly route, and dropped 210 gallons on a particular
load, the customer’s usage would be 210 gallons divided by 7 days or 30 gallons per day.
Step Four – Check the customer’s maximum daily usage over the entire year or quarter’s worth of data. For instance our customer may typically use 30 gallons, but there were a few times when the average was 40 gallons per day.
Step Five – Compute the most efficient delivery schedule using the customer’s maximum daily usage. For instance, if our customer’s maximum usage was 40 gallons per day, and this customer has a 500 gallon tank, our optimum delivery schedule is 500 divided by 40 or every 12.5 days, which we would round down to a 12-day delivery schedule.
Step Six – Compute the cost savings of changing the delivery from the present to the more efficient schedule Right now you deliver 52 times per year to that customer. From your efficiency calculation, you should be making only 31 deliveries per year (365 days in a year divided by 12). This means you would reduce your number of annual deliveries to this customer by 21.
Next, if you know the true single delivery cost, multiply that dollar figure by the number of unnecessary deliveries per year. If true costs are not readily available, most marketers use a minimum $50 per delivery. Using $50 times the 21 excess deliveries, we get a savings of $1,050 on that customer.
Step Seven – Estimate the total potential cost savings to your company if all customers were scheduled this way. Add up the total cost savings for the five random sample customers, then divide by five for the average cost savings. Multiply this savings times the total number of regularly scheduled tankwagon customers.
For instance, if your average savings was $1,000 per customer, and you have one hundred regular tankwagon customers, your annual savings would amount to $100,000! (For large rural fuel or lube oil markets, this number can easily approach the half-million dollar mark.)
So with just this simple test of five customers, you now have a very clear picture of your company’s tankwagon efficiency. If your result was a very small savings, congratulate yourself and give your dispatch and transportation team a firm pat on the back.
On the other hand, if you found huge inefficiencies in your operations, that is cause for celebration as well because you have the potential to add significant dollars to your bottom line. However, since it’s likely no one on your current staff has the time for this project, you’ll want to hire on a high school student (inexpensive labor) to work afternoons analyzing the rest of your customers.
Next, educate your customer service, sales and transportation team about your efficiency project and plans. Customers accustomed to weekly deliveries will need a little hand-holding when you move them to a longer schedule. By educating them about your analysis process, they will become comfortable with the fact that you are not going to let them run out of fuel. And of course, if they get into an abnormally high usage period, they will know to call you and let you know.
The more automated you are, the easier the transition will be. If not already available in your General Ledger system, have your vendor give you the software ability to automatically generate fixed schedule orders (every 10 days, every 12 days, etc.). Automation takes the burden of memory off the dispatcher.
If you can not automate easily, it will fall to customer service to generate these orders using a manual tickler system. Although not ideal, it’s better than losing $100,000 a year to extra deliveries. And just think, you could hire on a $20,000 person to handle this manually and still be way ahead in profits! It may not be easy, but the increase to the bottom-line will make the effort worthwhile.