Every day, the most important job everyone in your company does is to make sure your fuel business performs well. Yet as logical as this sounds, it is actually quite difficult to pull off. By their nature, people in any organization drift to a mindset where tasks, deadlines, and routines are more important than their collective success. Offices are buzzing with activity but, far too often, this is focused simply on getting the work done, not getting it done with maximum quality and profits. As Hemingway once said, “Never mistake motion for action.”
Business Performance Management is a way for you to ensure that motion is always leading to constructive action. It is a proven approach that involves and empowers your entire staff, allowing them to fully understand your goals and how you achieve them. Teams quickly become aware that success is not rooted in mundane tasks but in the constant exploration of process improvements. Your company needs informed business people who participate in monitoring and correcting key performance areas, not simply managers, clerks, and drivers.
Adopting this approach requires two critical elements: effective decision-making and timely information. Unfortunately, we are in an industry that suffers from some outdated habits. Most notably, making a lot of silo-oriented decisions with a finger in the wind while relying upon stale information. This needs to change.
Historically, the fuel business has been managed top-down with major decision-making consolidated among a handful of leaders. The rest of the team is simply expected to do the work and then report the outcomes up through the various levels of the organization. There is no context for whether these outcomes were good or bad, thus blurring the line between work getting done and work getting done well. This serves only to disconnect the real goal from the front line “perceived goal.”
Gains and losses are a good example. The corporate goal should be to ensure growth in gallons, in additional services and their resulting effect on revenues and extended gross margin. This begins with retaining what you already have, while at the same time, aligning your sales incentives with the desired ongoing results you expect. Customer gains and losses, along with downstream operational expense, are all connected as we continuously strive for the positive net effect of it all. On average, most dealers are trading high value current customers for low value, unstable new customers and incurring a front-loaded investment of about $800 per gain, plus several quarters of operational inefficiencies for it. Performance can be improved by pointing your team in the direction of new customer quality, retention, volume and profits instead of just customer counts.
Regardless of how decisions get made (admit it, some of you have dart boards), the ongoing adjustments are sent back to the very team who has no idea how or why the changes were enacted. One of the reasons process and operational changes are so hard in our industry is that the people charged with executing those changes had no part in the analysis or corrective decisions.
Consider asset utilization for propane companies. Managers and accountants obsess over the capital cost of buying and owning steel, then perform exhaustive analysis on how to maximize profits from each tank that is set. Switch scenes and look at dispatchers and drivers. Invariably, they feel like they are doing their job well by delivering all the tickets on a given day, but regularly drop much less than desirable gallons into tanks of all sizes, without awareness of the financial impacts. Include them in the decision and management process and the outcome will be very different.
The fuel business is a far cry from the creeping giant it once was. Today’s fast changing industry is under constant threat on numerous fronts and is bookended by price volatility. Thus, your organization needs to be agile, flexible, and responsive at all levels to optimize performance.
How many times have you heard “This is a margin business”? Countless valuable hours are spent managing delivery, service, and HR. Yet more than 90% of revenue typically comes from fuel margins, and in general, these margins are shrinking for both oil and propane. Visibility into the constant expanding and contracting of margins has been an ongoing challenge for dealers. Missing targets for just a few days in January can force you to price above margin target for two weeks or more in April in a futile effort to make up ground while risking potential losses. You and your team should be course-correcting on a daily basis, tactically adjusting purchasing and pricing strategies to achieve margin goals with a zero-tolerance policy for slippage.
The message is to engage your entire staff to participate in decision-making that drives performance. Decide upon beliefs and behaviors (a culture) that allow everyone to have access to goals, see how you are doing, and be encouraged to problem-solve known issues. Mentor your team to be in sync with KPIs (Key Performance Indicators) and monitor what is important more often and more thoroughly. Finally, foster a spirit of communication and collaboration. Companies that are skilled at decision-making are always sharing ideas and concerns among the team. Anyone can ring an alarm bell but it takes cooperation to put out the fire.
Finally, leverage the proper tools to guide decision-making. Business Intelligence software feeds your decision-making machine with the right information in the right format at the right time. It quietly works with your other back-office systems to gather data and put it into centralized easy-to-read dashboards. An endless array of reports and analysis can be prepared in automated fashion allowing your team to all see the same information at the same time. Goals and benchmarks are placed side-by-side with performance metrics to give an instant assessment of variance. The result is the perfect alignment of people, business processes, technology, objectives, scorecards, and the feasibility of corrective action.
Disclaimer: When applicable, advice from Angus Energy may include a discussion about risk mitigation via commodity and/or weather hedging. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. The risk of loss in trading commodity interests can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. In considering whether to trade or to authorize someone else to trade for you, you should be aware that you could lose all or substantially all of your investment and may be liable for amounts well above your initial investment.