Fleet Times hears from Matt Tormollen, executive vice president of Fuel Quest Fuel Management Systems, on how to improve your fleet’s efficiency.

Rapidly increasing fuel prices and price volatility are not short-term economic variations. They are new norms that will affect the fleet industry for years to come. Fuel costs are both a greater percentage of overall operating expense and more difficult to transfer entirely to downstream customers. Likewise, price volatility undermines business predictability from an earnings and investment perspective. In this difficult environment, fuel cost minimisation is a critical factor in business viability for fleets.

Fleet owners should evaluate a comprehensive approach to fuel management that simultaneously provides security of supply and improves the economics of fuel buying and consumption. Five key areas should be examined including:

Spend analysis – determine market-bymarket, site-by-site and route-by-route Benchmarking – baseline and compare to published market metrics and established industry best practices Supply strategy – balance supply security with cost and margins Contracting – coordinate operations, accounting and legal teams to maximize opportunity Execution – automate to ensure rigorous compliance to the fuel program.

The first step in the process of managing fuel costs is documenting and interpreting spending patterns. Fleet owners should fully review purchase volumes, geographic distribution of demand, the fuel system infrastructure, fuel taxation regulation by location, and perform a detailed review of invoice line items for accuracy. Once these details are understood, overall performance can be assessed compared to established industry averages. By establishing this baseline, the financial opportunity relative to improvement can be objectively measured.

Developing accurate and effective baselines is a multi-faceted process. Comparison of detailed fuel costs to published fuel price indices from OPIS and Platts is imperative. The analysis should be by time series and across and within geographies.

This analysis indicates the potential saving opportunity, but not how to capture it. The next step will define the components of the overall supply strategy.

Developing a supply strategy ultimately yields a portfolio of alternatives that is mapped to business need, logistics and geographic infrastructure. How and where one purchases in the overall fuel supply chain can have significant impact on fuel costs. Depending on the size and location of fleet assets, changing business model to acquire bulk storage or becoming a licensed fuel distributor can have significant positive financial impact. Regardless, a rigorous evaluation of retail, wet hose, bulk and hedging strategy is required to create a supply portfolio that can adequately capture the available savings opportunity.

Once supply portfolio options are understood, a coordinated approach to contracting will yield the lowest cost operational result. Ensure that procurement have involved operations, accounting and legal and allow adequate time for the overall contracting process. Centralising contracts with suppliers provides greater negotiating power and performance visibility. In addition, specific mandatory business process requirements can be specified as minimum requirements to suppliers. These requirements can provide the basis for subsequent automation steps and process efficiency gains. For example, electronic exchange of credit, payment and bill of lading information can facilitate business process automation with back office solutions.

Finally, focus on execution once the supply portfolio has been established. Implement technologies and processes to minimise fuel sourcing costs, optimise routes, and ensure billing accuracy. A comprehensive approach to automation will marry solutions at both a strategic and tactical level. Fuel supply optimisation solutions enable sourcing at the lowest cost by geography among suppliers and automate financial reconciliation and tax compliance. Route optimisation solutions minimise mileage and can suggest least cost refuelling options along a route. In developing a overall automation plan, it is important to map the value delivered by a solution back to both the opportunity baseline and supply portfolio options.

In summary, the fleet industry is faced with a new reality of high fuel prices and unprecedented price volatility. However, opportunities do exist to capitalise on the market shift through a comprehensive approach to fuel management. By following a rigorous step-by-step approach to evaluation and implementation, margins can be
gained to provide true competitive advantage in an increasingly difficult environment.