The Supply Chain Optimization Unicorn Does Exist
Welcome to week #2 of our blog series in which we cover key points from our recent webinar with PwC on market trends and business challenges for fuel consumers, fuel marketers, and fuel refiners. Today, we will cover how fuel marketers can move from a reactive to a proactive supply chain management model.
What is required for a marketer to accomplish true supply chain optimization?
When looking at the day-to-day fuel marketing operations in a steady state environment, many industry participants are focusing the importance of value chain optimization. The problem many of them are struggling with, however, is how to accomplish this in a way that really moves the needle on business performance.
Supply chain optimization starts with a clear strategy and a clear definition of success. Let’s take a sample fuel marketer profile – we’ll call them ABC Inc. – and walk through the strategic questions they must ask in order to optimize their supply chain management.
Sample company profile:
ABC Inc. is a large fuel marketing company that has retail stores and an in-house trading and supply function. They buy bulk fuel, transport it on pipelines, and maintain inventory in their own terminals or third party terminals. ABC Inc. provides fuel to their own retail stores, but also has the option of buying at third party racks. In addition to the retail fuel storage business, they make unbranded fuel sales at the rack to resellers and market directly to commercial industrial end users.
Now that we have an idea of what the sample fuel marketing portfolio looks like, the following questions should be asked in forming a strategic business plan for supply chain optimization and oil trading software requirements:
- What is the role in the trading supply function? Is it just to supply the retail stores and marketing customers, or is it intended to add value from speculative trading and using the assets to capture market opportunities?
- How should the value added by the supply and trading function be measured? Should it be measured by their own PnL or by their contribution to lowering the cost of supply to market?
- What is the goal of the unbranded wholesale rack sales? Is it a business line of its own or just a flywheel to balance supply and demand in the short term?
- How should third party rack purchases be used versus using the company’s own supply locations to supply their retail stations?
These strategic questions will set the foundation for proactive supply chain management by driving how a company like ABC Inc. plans its business processes, identifies performance measures, and creates performance requirements for its commodity management software.
Technology advancements will aid in margin increases if the supply chain is optimized.
Most of the fuel marketing and refined products trading companies we see are focusing on transformation of their business to build new capabilities in order to optimize the integrated value chain and the overall front to back integrated margin on fuels activity. As technology improvements such as truck sensors and faster real time data on truck movements, real-time info on rack sales and competitor prices becomes more available, there’s an increasing opportunity to improve margins through better business processes and the right refined products trading software.
For example, if ABC Inc. can view real-time information, such as demand picking up in a particular market or competitors running low on inventory, they can react more quickly than competitors in raising rack prices. They can buy from third party racks that are slower to raise their prices, raise their retail street price and tail their own sales to third party resales.
Historically, these decisions have been made manually, but as technology improves, fuel marketers and refined products trading companies can have access to faster, real-time data to improve those decisions, as well as the ability to increasingly automate portfolio management functions. In coming years, we will see more fuel marketers move to better analytics and decision making processes of data captured.
The bottom line: The supply chain optimization unicorn does exist, and it’s not difficult to find.
A proactive supply chain management optimization plan starts with the right plan and tools. Whether you operate retail and/or c-stores, manage and/or own bulk fuel, sell fuels to large commercial end users, supply re-sellers at the rack, or export and resell cargoes, Allegro’s team of experts and comprehensive commodity management software (also known in the industry as ETRM software) is the answer to optimizing your full supply chain and capitalizing on market opportunities.
To learn how Allegro can help you optimize your supply chain, click here to contact us.