The Dilemma of Unpredictable Delivery Sizes

The Dilemma of Unpredictable Delivery Sizes…

Unpredictable delivery sizes are the “silent killer” of profits and have been getting worse year after year. Setting a K-factor to a tank and an ideal drop of 180 gallons is how you were brought up (whether you were achieving that is another question entirely). Unbeknownst to you, you built your profit models around something you were not doing, and around something that could not be achieved without a very concerted, intentional, managed effort.

Work from home, heat pumps, seasonal Ks, and economic conditions make successfully predicting consumption – and, as a result, delivery sizes – harder today than ever before. If it seems that your summer and fall deliveries are smaller than your winter deliveries, it’s because they are. But that’s only half of the story, the other half is that the amount of the “miss” (expected delivery vs. actual delivery) is very wide and unpredictable.

Back-office systems are programmed to focus on a dealer’s top priority, reduced runouts. This singular issue is so prevalent that when the notion of increasing profits is raised, it is often met with the challenge “but will I have more runouts”? Runout fears have become a religion of their own with anyone seeking to improve results being labeled as a heretic.

Over the last few years, there has been a growing number of heretics (generally forward-thinking, younger, scions of successful businesses that got stuck in the mud as the years passed and technological advances were ignored). What makes them different?

  • They review Ks in a structured, formal way, not just “when the dispatcher has time”
  • They don’t have a default K-factor for all new customers and wait far too long for the BOS to adjust to a reasonable forecast-K
  • They don’t look at their customers as one size fits all
  • They don’t believe that a delivery in January is the same as a delivery in September
  • They aren’t scared to have SOME runouts but won’t accept things that should have been foreseen
  • They utilize Technology to support their endeavors
  • They use reporting tools and automate the review process
  • They wave the white flag and point out tanks that will either always be scheduled for disappointingly small deliveries or might be best suited for remote tank monitors

With consumption falling, governmental intervention increasing, and competition becoming wiser and nimbler, it appears the only true lever for a fuel distributor to keep their margins is by increasing prices. However, higher prices don’t help with the silent killer of profits in a world where others are managing those risks. How high will you be able to take prices to offset inefficiencies that are only getting worse? How long will it be till your customers wonder why the competition is cheaper?