Written on: August 5, 2024 by Phillip J. Baratz
Sales price pressure from the top and operating expense pressure from the bottom is what Angus Analytics Managing Partner Bob Levins refers to as “the squeeze play.”
Per-gallon profit margins have started to normalize after several seasons of high margins due to extreme volatility. While margins have not gone back to where they were in 2018, they are well below the levels of the past three years. At the same time, we’ve come off of our second consecutive warm winter and are still facing an inflationary environment that is driving up nearly all operating costs. We cannot hide from our realities: expenses must be managed in a way that doesn’t impact the customer experience. This is a difficult challenge and one we work on with our clients every day.
Listening Tour
At Angus Energy, we recently spent a significant amount of time on a “listening tour,” trying to identify “local” challenges in addition to global ones caused by the squeeze play. What we learned was:
• Some companies are misaligned internally, generally without even knowing it. There could be a mandate to make very efficient (aka “large”) deliveries, or another to deliver “x” gallons per month that leads to “pulling gallons early.”
• Other companies recognize the need to manage delivery costs but don’t understand the balancing act of the many moving parts (drivers, trucks, routing, excess capacity, K-factor review automation, etc.) well enough to make changes, so they simply continue as before.
• Then there are the companies in a perpetual state of improvement; this group deserves applause. These improvements can take many forms, such as building a new bulk plant, making an acquisition or moving to a new business operating system. Each initiative can be well planned, yet too often pushes all other needs to the back of the line.
Despite the various approaches of what should be done in the short run, there was a clear consensus that companies must either:
Deliver current gallons—spending less
OR
Deliver more gallons—spending the same
When & How
The only true questions related to that were “When?” and “How?”
For “When,” it should only be when you are willing and able to take on the changes that will be required to accomplish your goals; and yes, you will need to establish a clear set of goals. Simply stating that you need to lower overhead in the next heating season is not a plan—it’s an aspiration. While “When” is very important since later is usually easier than now, “How” is the key to succeeding and it must start with a plan and commitment.
Gaining Delivery Efficiency
While there are numerous variables in our businesses, when it comes to being more efficient in delivering fuel, here are some guiding principles to consider:
1. Pushing deeper into the tank allows for larger deliveries, but also increases the possibility of run-outs. How you dial up delivery sizes (which customers, which Ks, which months, which tank sizes) is not an activity you can rely on instinct to implement. You have the answers already based on the deliveries you’ve already made. One-size-fits-all thinking—i.e., treating all 275-gallon tanks the same way—will severely impede your ability to operate more profitably.
2. Delivery truck utilization is often an unfortunate afterthought. Do you have as many trucks as you need for your busiest delivery day, or do you manage your busiest delivery day to match your fleet size? Making select small deliveries to some tanks can cost your company less money over the course of the year than always targeting your “optimal” delivery size.
3. Every delivery needs to teach you something—and the time to review those deliveries is every day, not just when you have downtime in the Summer. Your back-office system does a spectacular job of telling you what you ask it based upon a finite set of data points (such as, “When will the tank level get down to x?”). When that delivery size does not match the intended size, you need to learn from it. Automating a process will yield incredible benefits.
Marketing, customer support, service departments and the like are all meant to solicit customers, engage customers, keep customers and earn the right to charge customers a fair price. Most companies are good at those things and have adapted over time from mailing postcards and advertising in the Yellow Pages to implementing search engine optimization and TikTok marketing. However, if the delivery operations (generally where you earn all your profits) are still in the age of the Yellow Pages, you have fallen behind. If you recognize that, perhaps you are already catching up. If you don’t recognize it, you have some thinking to do—but avoiding the challenges will not make them go away. ICM
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