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Fall 2017, Vol. 3

WORK LESS, PROFIT MORE

PHIL BARATZ & BOB LEVINS

As dealers plan for the new fiscal year and document their goals as monthly budgets, one of the key numbers carefully constructed to be achieved is the all-elusive extended gross margin. Of course, budgets are supposed to be achievable, confirmed by history and then adjustment for the future. All will be fine, as long as everything goes “right”, implying of course that weather will behave, that the customers will meet our numbers and, lastly, your operations staff will engage in and appreciate the important roles they must play. Not too much to ask for, right? The actual extended gross margin figure to be realized is made up of two very important influencers that participate in every delivery transaction; (1) the unit volume and (2) the unit margin (unit price-unit cost). Although the targeted margins, when watched closely, might seem maintainable as conditions change, achieving the targeted volume remains foundational to achieving your goals. Retaining a sense of month-to-date volume position at all times, responding with purposeful course corrections as needed, makes for a more predictable month-end arrival.

So, how do we know daily if our ship has gone off course? Our industry has adopted a metric known as “gallons/hour”, a company-derived measurement of a delivery department’s hourly performance, calculated down to the individual driver level, resulting in desired vs. actual volume production/hour. What is an acceptable number and how does one arrive at their individual KPI? Three components should be considered, at minimum; (1) Customer/volume demand, (2) Resource capacity, limited by allowable driving hours for safety and (3) your volume goals.

As a simple illustration of how important this metric can be, we will often suggest that a company who has completed their budget reverse engineer their projected period volume back to gals/hour by dividing the budgeted monthly gallons by the number of productive driver payroll hours budgeted for the same period. The hours used should be both straight as well as overtime. Obviously, the use of straight time, while minimizing overtime hours can offer a significant swing in positive profitability, as long as the volume demands are being met. Although significantly varying by marketing area in season, an acceptable benchmark target for heating fuels would be approximately 500 gals/hr. and 400 gals/hr. for propane due to the smaller tanks, variable use and the benefits of step pricing.

As an example, and to keep the numbers simple, if you have budgeted a unit margin for heating fuel at $1.00/gallon and a driver performs at 500 gals/hour, he will produce $500/hour x 8 hours/day x 21 working days for the month or $84,000 this month. If you have five drivers, the total will be $420,000 of extended gross margin. Classes of trade and price agreements might affect this overall number but that too is planned for in the budget segmentation. If this is your goal, you are good, as long as the delivery department’s overall performance is equal to or greater than your targeted 500 gallons/hour. Insuring that your delivery department is adhering to the standards that have been set will reduce risk and increases predictability. Coming out of season, the concentration of deliveries will geographically widen, thus increasing the miles between stops, a primary and often excusable reason for reduction in gals/hour. Holding on to this higher in-season gallons/hour target can be difficult or at times impossible; however, it does not make this metric’s importance any less.

So, now that we have illustrated the simple cause and effect relationship of daily productivity and the achievement of month-end goals, how does one consistently ensure that hourly productivity goals are being met? Assuming that we have resource capacity, supply and weather (demand), there are three primary productivity spoilers in any driver’s day, one of which stands alone in its level of importance:

  • Gallons/stop – achieving ideal drop (or greater) as predicted
  • Stops/hour – pumping product into an acceptable number of tanks/hour
  • Miles/stop – for the marketing area’s geography, acceptable miles between stops

ANGUS EDUCATIONAL SERIES

UPCOMING WEBINAR

TOPIC: BRITE ENHANCEMENTS
DATE: OCTOBER 18, 2017 11:00AM EDT
PRESENTERS: BOB LEVINS
Not unlike BRITE subscribers, Angus Analytics maintains a culture of continuous improvement, for the product itself and our support of it. Over the past several months, our team has responded to numerous enhancement requests suggested by our subscriber community, as well as inserting our own thoughts and features into the mix. In this webinar, Bob Levins will demonstrate many of the newest features; explain why they were implemented and how they can be incorporated into your daily operation. Bob will also share potential upcoming functionality and open the floor to you for enhancements you’d like to see in BRITE’s future.

Click here to register for our upcoming webinar.

NEW CLIENTS –

WELCOME TO ANGUS ENERGY

Connecticut Propane and Petroleum, Marlborough, CT
Hirchman Oil, Reese, MI
Long Energy, Schenectady, NY
Pro-Ag Farmers’ Cooperative, Parkers Prairie, MN
Sweetwater Propane, Ephrata, PA

If you are interested in any of our solutions to make your business run more efficiently, effectively, and profitably contact us today.

*Blue represents the states of our new clients. Green represents the states of our existing clients.

A position that some dealers will take is that that “most” of their customer’s burning rates are accurate and that the desired delivery volumes forecasted do not vary significantly from the results achieved with each delivery. However, it has been statistically proven that the standard deviation for actual delivery results vs. ideal drop falls well outside the acceptable range, mostly inefficiently on the low side, but a good number close to run-outs, as well. They also make the assumption that nothing but weather will have an influence on the next burning interval in play. In addition, we have to then agree that there must be outliers that conflict with our starving desire for normalcy on a daily basis. So, if we wanted to identify them, who might they be? The following three categories scream for attention:

  1. New customers – assignment of a “test” k-factor, always more conservative than it should be so as to avoid run-out. On average, it will take the posting of several deliveries (12-18 months) in order to stabilize an always questionably accurate burning rate for the customer’s tank. New customers (often replacing lost customers) are a larger percentage of your customer base than you might immediately recognize.
  2. Erratic burning customers – existing customers with inconsistent and seemingly uncontrollable burning rates, yielding short drops, run-outs and stress.
  3. Dispatch controlled accounts – typically large commercial customers whose burning rates are either too variable or too fast to allow automated control via the back-office-system, generally handled manually.

The accuracy of forecasting and one’s confidence in same is paramount to making informed resource management and financial decisions on a daily basis. If the objective is to maximum gallons/hour, while reducing risk and increasing predictability then the most obvious tactic to employ would be to find a way to minimize the impact of the outliers mentioned above, as well as assuring yourself of “hitting your volumes” with as many deliveries as possible. As with many of our needs today, technology has and will continue to play a significant role in smoothing the edges and improving our resistant-to-change business processes. Tank monitors and the functionality surrounding them have aggressively risen to a level of acceptance and prominence in our industry, due to technical enhancements made, increasing dealer realization of the need, and the lower price points now being offered. Now is the time to position for the future and add some predictability to your life.

Remember, the most productive time of a driver’s day and the only time they are actually making money for you is when the nozzle is in the tank, pumping product at 65 gals/minute. Everything else is expense. Is gals/stop important? At 65 gals/min……you bet it is!

MEANINGFUL METRICS: GAL$/$TOP-QUICK BUCK$!

Written by: Bob Levins

For decades, achieving maximum gallons/stop has always been one of the highest dealer priorities, fueled by their experience and understanding of its potential impact on a driver’s daily productivity. With the intent of maximizing the return on the effort spent, the driver’s workload per day is generally framed around a selected number of deliveries to be made (printed or downloaded), the assumption that all will be completed…..and at the forecasted volumes. The selection of route sequences and reloading points/timings are also influenced by the assumed achievement of these individual goals. Although a twenty-gallon swing (normally to the low side) might seem insignificant in the scheme of things when delivering short to an individual customer, when this is multiplied by 24 stops/8-day, the light deliveries can significantly add up (24 deliveries x 20 gals = 480 gallons). Achieving or even raising the average gallons/stop metric, ideally assisted with tank monitoring, will:

  • Allow dispatch to shift the delivery workload, potentially reducing overtime
  • Save the overall number of deliveries made to an individual customer over time (avg. $45/delivery)
  • Result in higher gallons/hour driver productivity for a greater return on assets
  • Provide an increase in extended gross margin dollars/day

The following table illustrates the importance of achieving or increasing the average gallons/stop metric within a driver’s day, to be defined as 24 stop/8-hour day. For the purpose of this example, all other metrics remain constant with an anticipated gross margin/gal of $.85:

With the understanding that the only time the driver is making money for you is when the nozzle is in the tank, pumping at 65 gals/minute, it becomes very apparent that an additional minute or so of pumping time can yield a significant increase in a driver’s productivity resulting in a positive impact on the extended gross margin/hour metric, which is our overall objective. All other activity, although important and necessary, remains as an expense. Using the example of Driver 2 and Driver 3, it is painful to witness what can potentially be the unrealized revenue per hour between an average drop of 140/stop for the day vs. an industry-accepted ideal drop average of 185 in a 275 tank, both of which could also include deliveries to larger tanks. The math clearly illustrates a lost opportunity of $115 gross margin/hour or $920 for the day……per driver. Ouch!

There is no better example than this of being able to do more with the same. This is why, whether it be through process change, implementation of new technology or both, our desire for constant improvement should always defeat the easier road previously taken of “good enough”.

TECHNICAL ENHANCEMENTS

BRITE®:

  • Month and Year column now available in selected widgets
  • Weather service now offers a 14-day forecast
  • An “MPH” column was added to the driver performance widget

 

 

 

GREMLIN® Tank Monitors

  • Dealer logos now appear on the “Gauge View” of the Consumer app
  • “Push” Notifications have been added to the Gremlin Consumer app allowing the system to notify consumers when their tanks are low
  • The GREMLIN Installer app now performs more validation to ensure that the tank monitor is installed correctly and is providing a real-time reading post-installation
  • Real-time tank level computations now allow the tank level to be displayed minutes after the 1st raw reading is reported by the Tank Monitor

WHAT OUR CUSTOMERS
ARE SAYING

Marty Romanelli, Burt’s Reliable, Southold, NY shares the following benefits GREMLIN® Tank Monitors has brought to his company*:

“The Gremlins are an absolute game changer. I’m seeing that already in terms of increasing gallons per delivery. Customers love the app and have greater confidence. Our CSR’s, techs and drivers have all come on board with it. It is amazing what it feels like to take the guesswork out of deliveries.”

Please share your feedback, questions, comments, suggestions by emailing us at solutions@angusenergy.com

CONTACT US

Phone: 800.440.0472
Email: solutions@angusenergy.com

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.

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TESTIMONIALS


I was able to come out of our meeting with George with a better understanding of how the price programs work in theory and more importantly, how it can benefit our customers and us.
–Jeff Godfrey, Reggie’s Oil Co., Inc.

* Testimonials may not be representative of the experience of other clients, and they are not guarantees of future performance or success. The testimonials provided herein are unpaid.

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