The K-factor theme song…

With all due respect to REO Speedwagon, the band’s 1981 #1 hit “Keep On Loving You” pops into my head every time I hear a client tell me about the time and effort they spend adjusting (just a few) Ks (K-factors, the calculations that show how quickly a home is consuming the fuel it uses to produce heat). We have all faced times where the Ks just don’t look right, and in many cases, we just don’t want to wait for the back office system’s (BOS) correct formula to catch up with the actual heating degree day (HDD) vs. consumption calculation.

 

What if the calculation wasn’t the problem?
Allow me to paint a picture for you with two examples based on weather and associated consumption for two sets of your customers:

Scenario #1: You have customers at 1 Main Street, 2 Main Street and 3 Main Street

You fill all three customers’ tanks on Feb. 1 and again on Feb. 22, each fill is 201 gallons. During this time period there were 806 HDDs.

On Mar. 27, each of the three customers receives another delivery (of different amounts).
• 1 Main Street: 202 gallons
• 2 Main Street: 135 gallons
• 3 Main Street: 98 gallons

During this time period (Feb. 23–Mar. 27), there were 809 HDDs.

Scenario #2: You have additional customers at 4 Main Street, 5 Main Street and 6 Main Street

You fill all three customers’ tanks on Jul. 1 and again on Dec. 22, each fill is 200 gallons.

During this time period (Jul. 1–Dec. 22), there were 1,596 HDDs.

On Jan. 17, each of the three customers receives another delivery (of different amounts).
• 4 Main Street: 99 gallons
• 5 Main Street: 132 gallons
• 6 Main Street: 198 gallons

During this time period (Dec. 23–Jan. 17), there were 791 HDDs

What happened & what changes would you make?
The problem with K-factor accounting (or consumption) is not that the homeowners are misbehaving. It is not that they suddenly expanded their houses or went to Florida for a few months. It is not that the BOS doesn’t know how to do math.

The problem (and it seems to apply to most customers) is that the notion “x HDDs = y gallons of consumption” is only true in the middle of the winter. If the heating system is on for the entire period in between deliveries, then a “true K” can be calculated. However, once you peek outside of the middle of the winter and include additional days in your calculations, all bets are off.

Let’s shed light on the “mysteries” above. Scenario #1 looks like three houses with four Ks, 806 HDDs and 200 gallons of consumption—this is pretty straightforward. What happened after the next 800 HDDs? Shouldn’t there have been ~200 more gallons of consumption? Maybe the customers didn’t really consume a gallon for every four HDDs? The answer is that, indeed, these customers do consume one gallon each time there are four HDDs. They have a (usage) K of four. However, while Customer #1 kept the heat “on” all the way through the delivery date of Mar. 27, Customer #2 shut the heat off on Mar. 14 (the first warm day of early Spring) and the HDDs from Mar. 14–27 didn’t cause any fuel consumption. Furthermore, Customer #3 followed the path of Customer #2, but took a vacation starting Mar. 7 and only consumed fuel until that date, resulting in consumption that was limited to ~100 gallons.

The issue was not the K, it was whether the heating system was on
Scenario #2 appears to any outsider as a customer with a very high K. It took 1,596 HDDs to consume
~200 gallons. Lacking any other information, this looks like a K-factor of eight. Why then did the next delivery to the three customers look so different from each other? Is the K of these neighbors really an “8”?

The answer is almost the polar opposite (pun intended) of Scenario #1. Customer #4 had the heat on during the entire period from Jul.1–Dec. 22 and consumed 200 gallons. From Dec. 23–Jan. 17, the 791 HDDs caused consumption of 99 gallons, due to their K of eight. Customer #5 has a K of six but didn’t turn the heating system on for the winter until Oct. 31, consuming 200 gallons from then until Dec. 22. From Dec. 23 through Jan. 17, Customer# 5’s K of six resulted in consumption of 132 gallons. Customer #6 put on the heat around Thanksgiving (Nov. 24) and has a K of four, resulting in a 200-gallon delivery on Dec. 22 and a great Jan. 17 delivery of 198 gallons.

While hindsight is 20/20, we need a way to forecast tank levels, not a way to backtrack and figure out why things didn’t turn out as expected. Each time a delivery is made, the BOS uses its rearview mirror and adjusts. The adjustments are logical, and they are conservative—as they should be. If consumption exceeded expectations, the K will drop (by a formulaic amount). If consumption was less than expected, which is a much more frequent occurrence, the K will rise, but disproportionately from the lowering of the K (to avoid the increased likelihood of a future runout).

If you, as an owner or a dispatcher, are not pleased with the tempo of the “formulaic changes of the K,” you would join the club of “K changers” (you know who you are!) and would manually make some changes—almost always more aggressively than the BOS formula, and often an overreaction. For those interested in the psychology of manual changes vs. formulaic changes, look up the term “Recency Bias”—it will explain a lot about human nature!

Are remote monitors the only solution?
Simply put, each day a monitor will report how much fuel is in the tank. Armed with that information, and the proper delivery planning, you should avoid delivery surprises. Take note that not every 200-gallon delivery is optimal. There is a lot more to “optimal” than simply the size of individual deliveries, but we will leave that discussion for another time. The purpose of the monitor is to know the size of the delivery you will be making.

However, monitors cost money. In most cases there is an ongoing monitoring fee (ADEPT alert: we have a program that waives 100% of monitoring fees). Monitors take time to install and not every monitor reports every single day. If monitors, installation and monitoring were free, you would have them on 100% of your tanks; if they cost thousands of dollars for a residential tank, you would have them on 0% of your tanks. Cost effectiveness is directly related to the benefits that can be achieved—not only the “knowing,” but the value of knowing. Better put, monitors should be on the tanks where the delivery size is unknown. For tanks where you do know the delivery size, and there are many of them, you may be better off without a monitor.

How do you know which is which? As always, the answer is in your data. Analyzing your deliveries can be a manual process or an automated process (like many other things). It can be based on averages, histograms, standard deviations, etc. We prefer to point out extremes after we analyze data. We start at opposite ends of the spectrum (I was reluctant to use the term “polar opposites” again). We would tell you which tanks need monitors the most and which need them the least. Working from both ends towards the middle has the effect of driving your “average predictability” up in an accelerated manner. If you find your biggest outliers (formulaically), each tank to which you add a monitor will provide a bigger benefit than the one that follows.

Summary of key points:
• Everyone hates run-outs
• Homeowners turn their heating systems “on” and “off” in unpredictable ways
• Deliveries are generally smaller than anticipated
• Ks adjust conservatively by their formulaic nature
• Manual adjustments are often overreactions
• Monitors are not needed on all tanks
• Selection of which tanks benefit the most from monitors can be automated. ICM

As we enter 2022, the No. 1 answer to the question—What would make you sleep better at night?—is almost always—More drivers!

Driving a truck went from a decent way to earn a living to a job that is highly compensated, yet few have an interest in pursuing. The existing workforce is aging out and is being replaced by a new generation whose top request is: Can I work remotely? This puts a career of driving a truck way down on their list of career choices, regardless of compensation.

This question has captivated the country as we emerge from the COVID-19 pandemic and are faced with multiple supply-chain issues. Even if we can find what we need, how do we get it from “there to here?”
The answer is simply more drivers, right? Maybe not. What if you already have more drivers (and trucks) than you need? Now you can sleep better at night, right?

As an industry, we have generally solved process problems by hiring more people:
• We need to make more deliveries. Hire more drivers.
• We need to do more cleanings. Hire more service techs.
• We need to send out more bills. Hire more clerical workers.

We have become so used to solving current challenges with solutions of the past that we don’t even consider our own goals. The goal of an oil company is (typically) to deliver fuel to customers at a competitive price that will generate sufficient profits. To achieve this, operations must run smoothly, efficiently and optimally.

We want to define “optimal” in our industry as: Using required resources, including equipment and people, in the most efficient manner to deliver all required gallons with an acceptably low risk of run- outs.

Though it is hard to argue with that definition (those readers who disagree can skip the rest of this article and go directly to the ads for testing kits and fuel additives), a reasonable disagreement can arise as to how to accomplish that optimization.

Bottom-up or top-down?
If you know your average delivery size, then you know how many deliveries you need to make over the course of the year. If you know how many stops you make in a typical day, you know how many dispatched trucks you need to have over the course of the year. If you know what your peak needs are (January), and you know your average delivery size, then you know how many trucks and drivers you need in January.

Once all that is known, you have set the number of trucks you must own and can spend the rest of the year juggling how many full-time drivers you need and how many part-time drivers you can get away with. That is bottom-up planning—starting with average delivery size and the peak demand, and then letting the rest fall into place. Top-down planning starts with the bigger picture:
• How many gallons can you get out of a truck?
• How many gallons per stop can you average?
• How many stops can you make in a typical day?

Instead of letting history dictate what you can and cannot do, we prefer to rely on data to inform us of what we should do.


• The data says your average deliveries are well smaller than your optimal (targeted) delivery size, and your deliveries in the Summer, despite a far lower concern of run-outs, are well smaller than those in the Winter. The reasons can be complex, but the data shows the reality and shows how to increase those towards your optimal.

• The data shows >95% of your tanks (of the same size) have the same reserve level every day of the year regardless of the tank-owner’s consumption. You set up your reserves to protect against run-outs in the winter, but have no mechanism to target larger deliveries in the Spring, Summer and Fall.

• The data shows your delivery trucks operate at ~40% efficiency (on the road only 100 out of 250 workdays per year), with a subset only being used for a couple of weeks per year. Expanding deliveries into shoulder months (when temperatures outside sit comfortably between 45–65°F)—especially before the season—can increase the number of days on the road, increase the annual volume per truck and create excess capacity in the winter by flattening the peak.

You could use an adding machine, but you choose to use a spreadsheet. You could use a walkie-talkie, but you choose to use a cell phone. You can try to keep your profits where you want them by constantly raising your prices to offset your increased operating expenses—or you can realize that data and processing power can combine to lower your delivery costs in a substantial way.

You don’t earn your profits per delivery; you earn them per gallon. Doesn’t it make sense to use the information you already have to lower your operating costs per gallon?

You don’t need more drivers, a.k.a. higher expenses. You need to make the most of what you have—and the most is a lot more than you think! ICM

The heating oil industry isn’t the same as it was a generation ago. The heating oil industry is the same as it was a generation ago. This simple, yet confusing, dichotomy is at the heart of all changes that can be considered.
Technology continues to forge forward, bringing better, cheaper and smarter ways to communicate with customers, plan deliveries and manage expenses. However, as our industry is still a hands-on customer-centric one, we need to continue to differentiate in an era where differentiation has become quite difficult.
If you ask 10 dealers the top reasons for customer attrition (and customer growth, for that matter), somewhere in the top three will always be a mention of “price.”  Yes, customers like prompt service. They like budget plans, and having a tank monitor and an app is always a plus. However, if you really want to cut down on attrition, you need to be sure that the price you charge is not too high. You don’t have to be the low-price leader, but even the biggest and best-run companies have come to the stark realization that “heating oil is heating oil,” and that their customers will only pay so much for a “premium brand.”
Pricing programs
Although pricing programs have been around since the early 1990s, they remain a steadfast part of the value proposition for many dealers, and one that customers rely on each year for a measurement of certainty. At the beginning of January of this year, we had missile attacks by the U.S. on an Iranian leader, followed by Iran firing missiles in the general direction of U.S. military facilities in Iraq, with the world ebbing closer to a possible war in the heart of the world’s major oil-producing region. “World War III” was trending on Twitter and the U.S. Selective Service website crashed from too much traffic.
How high did oil prices spike? Don’t you mean how much did they fall? Yes, oil prices fell during that week of extreme tensions!
Did they fall because the temperature in New York hit 65°F in early January?  Did they fall because tensions with the Iranians (temporarily) eased? Did they fall because Organization of the Petroleum Exporting Countries (OPEC+) plans to stick to their quotas this time? Who knows, and does it really matter? The simple truth is that oil prices are as hard to predict as they ever have been, and considering that rising prices cause customers to shop around, addressing price increases is, has been, and always will be a part of a dealer’s life—if the dealer wants to keep customers from shopping around.
Now that we are in a new decade, we can look back at the past one and have 20/20 hindsight. In the first half of the previous decade, heating oil futures regularly traded above $3.00 per gallon (with retail prices often above $4.00 per gallon). At the beginning of the second half of the decade (early 2016), heating oil prices fell to under $1.00 per gallon, just to triple in the next 33 months. Seeing prices move by 25¢, 50¢ or 75¢ per gallon over the course of a year is something that we pretty much take in stride; however, with the ability to shop around being greater than ever, how do we keep our customers happy?
 
How customers shop
With all the sophistication that comes into play regarding offering pricing programs, and hedging the risk to assure the earning of a reasonable margin, there are pretty much only three ways that customers buy oil. Each has benefits and drawbacks, both on the margin side of the ledger and on the customer retention side.

  1. Customers can buy at a variable price—simply put as “rack-plus.” That approach benefits customers when prices fall and costs customers when prices rise. It also leads to a big jump in shopping around after prices rise, as customers seem to feel betrayed with each price increase. Margins should be fairly steady, and have an ability to increase in a market with falling prices.
  2. A second way to buy oil is on a fixed-price basis: Here is the price; that is what you will pay. Fixed prices are wonderful when prices increase, but seemingly (to the customer) quite expensive in a falling market, when everyone else seems to be paying less. Although the fixed price (if hedged properly) does allow for predictable profit margins for the dealer, it often “leaves a lot on the table” when prices fall.
  3. Price caps are the third standard option, and one that historically seems to bridge the benefits of the variable (lower pricing when oil prices fall), along with the benefits of a fixed-price (not rising when oil prices rise), without the offsetting risks. Since there is no free lunch, there is a clear cost to the price cap offering, and that is the premium for the price protection. A dealer can hedge the associated risks to offer a price cap a number of ways, and there are several companies—including Angus—that can talk you thorough the hedging process.

Regardless of your preferred method to hedge the risk of a price cap, knowing that regardless of where prices are heading next month, next year and for the rest of the new decade, you will be able to keep your price-related attrition under control, and might be the best way to keep your business thriving. The time to start planning for a price cap offering is generally in the spring.
Your best customers will be on a budget plan, with a service contract and a remote tank monitor. Don’t lose that most valuable asset (the customer) over something like a severe swing in prices when you can protect yourself and your customers by offering a cap. ICM

As insurance rates keep going through the roof (if you can even find someone willing to write a policy for you), the notion of having “those extra trucks” is facing more scrutiny than ever before. The theory that the older, “paid for” trucks were good to have around is flying in the face of the questions over the real costs to have some extra trucks for deliveries that just might (or might not) be needed. At a cost of $150,000 for a new truck, it is well understood that new truck purchases (leases, etc.) need to be carefully thought through, but we don’t see the same sharpening of the pencil when it comes to the size of the delivery fleet. The notion that “more is better” needs some investigation.
Of course you need enough trucks to handle all of your deliveries. You also have to consider the number of trucks that will be needed for your peak delivery days in the middle of the winter. But what is the right number? Is it “X trucks” per customer? Per gallon? Per heating degree day (HDD)?
We asked a number of owners and dispatchers a simple question: How many gallons does a truck deliver per year? Interestingly, many of those asked seemingly heard, How many gallons can a truck deliver per year? To that question, we often got responses of about a million gallons. So, that was our starting point—a truck can deliver a million gallons. Does it make sense? It definitely does. If you figure that a truck delivers about 4,000 gallons on a regular/busy day, and then consider that there are roughly 250 delivery days per year, the math is pretty simple:
4,000 x 250 = 1,000,000
However, not all trucks are delivering every day. Actually, most trucks are not even used every day. We surveyed a group of our clients and tracked the usage of 780 trucks over the course of the year. We looked at the number of days they were used, the number of stops, the number of gallons and the number of miles.
On average, a truck is delivering fewer than 500,000 gallons annually—not the million gallons that they can deliver. The average truck is on the road fewer than 800 hours per year, or about 40% of the time. It does make sense when you consider that for about half of the year, say May–September, almost all of your trucks are sitting around not doing anything.

What is the best way to maintain a fleet – get rid of old vehicles or
keep extra ones on-hand? Author Phil Baratz has suggestions.


 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trucks galore
This historical logic was pretty straight-forward: You need a lot of trucks in the winter, and if you need them in the winter, you will have them in the summer. However, as the costs of owning these trucks continue to rise, not to mention the challenge in finding drivers (let alone seasonal drivers), the size and the usage of the fleet need to be reconsidered.
There are many approaches to lowering the number of trucks that are needed in the fleet. They range from simply making bigger deliveries, to delivering a little more every day from the trucks that are on the road, to finding more logical ways to make deliveries to customers with different K-factors and at different times of the year.
The age-old, three-step process (determining a tank’s reserve, determining when that reserve level will be reached and then delivering on or around that date) is a logical approach. However, there are other approaches to determine all three—reserve, reserve date and delivery date—that you might want to consider as well.
Before anyone looks to improve things, companies need to acknowledge that there is a problem. If having your trucks on the road less than half of the time, making deliveries while tanks are still half full and then having your trucks return each day with more than 1,000 undelivered gallons does not bother you, and if skyrocketing insurance rates are just a cost of doing business, then maybe there isn’t anything that you should be doing.
If you realize that there are tools out there—including some that Angus Energy has developed—to better plan your deliveries, schedules and routes, and if you think that it is worth your time to learn about them, now is the time to start that journey.
If you want to increase your profitability, you do not need to take on big risks or hire a team of analysts and computer programmers. What you do need is to be open to the notion that there might be a better way to run your fleet and plan deliveries than the ways that were invented a half-century ago. Feel free to contact us if you know that you need to start to change your thinking, but need some direction. ICM

As I walked through Boston’s Logan Airport last month, I noticed a quote on one of the rotating advertising screens at my gate: Data is out. Answers are in. Though I cannot take credit for the line, I was sure that it succinctly said everything we’ve been preaching for the past year—and I embraced it!
Data is everywhere. It is in our back-office accounting systems (BOS). It is in our business intelligence reporting tools. It is in our tank-monitoring data and it is in the reporting we get from our “Big Brother” driver analytics. There is a notion that data is the true commodity and will lead to profits and success—while partially true, it is also partially false. Just having access to information does not, by itself, lead to better decisions and greater profits.

Data is only valuable if it can be used.


 
 
 
 
 
 
 
 
 
 
Purveyors of Business Intelligence (BI), ourselves included, have had a somewhat misguided belief that the job of BI (and all) reporting was to hand over “actionable information” to our clients or to internal constituents. However, what ended up happening was that there were now more reports than ever before, offering even more data points, and leading to much of the same response—nothing. Actionable information is only of value if acted upon. If not, why bother having the information?
Changing behavior is hard
Study after study, from the Harvard Business Review to industry-specific journals, point out that often the biggest challenge to beneficial change in an organization is simply behavior. Resistance to change is a typical human reaction, often a defensive response, but it is very common. While change does come over time (horse and buggy to car, land lines to cell phones, wired alarm systems to wireless and “let’s look at the map” to routing software), the transition is usually long, tough and scary. The notion of, What we have isn’t broken, so why change, all too often really means I have to learn something new, and I am scared that it might cost me my job.
We just developed a new software platform (released to only a few beta clients for this winter) that we’ve been working on for more than a year (although I would claim to really have been working on it for the better part of my 30 years in this industry!). The platform, as intended, will totally revamp the way that deliveries are planned, scheduled and routed. It works in partnership with our clients, their BOS, any tank monitors and routing packages that are in use.
While working through the final steps—those that include customer service representatives (CSRs), dispatchers and drivers—we struggled with the potential “traps” that would require behavioral changes. Suggesting changes in deliveries such that you can run a leaner fleet or require fewer drivers is great, until those changes have to be handled by a person, especially if that person has been doing his or her job the same way for the past 20 or 30 years.

Amidst change, changing behavior can be more difficult than altering business operations.


The “aha” moment—moving from data to answers—occurred when we incorporated into the platform a set of dealer-approved rules, ranging from which accounts are eligible for consideration to the number of days of fuel that need to be in reserve for certain types of customers. That led to “answers” already integrated in the current processes. In most cases, it occurred by updating/overriding delivery dates in the BOS. This automation led one of our clients to say, So, if my dispatcher didn’t know we were running this platform…he wouldn’t know we were running the platform!
 
 
The complex math behind it wasn’t the problem that needed to be overcome, it was the behavioral changes. To overcome that challenge, we simply focused on the outcome and “answer.”
People don’t want data. They don’t want reports. Although the data and the reports are very interesting to some, what they really want is to know what to do with all of it. They simply want answers, and now we’ve got them! ICM

It seems that technological changes are coming at us at the speed of, well, technology—from an app to deliver food to your door within minutes of your order, to the latest innovation that keeps your car in its lane while also keeping it a safe distance from the car in front of you. In ICM’s world, technology includes onboard computers, remote tank monitors and parts inventory management systems. In all cases, the technology was way out in front of the behavior, but eventually those who would benefit from the technology adapted to it and reaped the benefits.
We sometimes like to be nostalgic and think about the “simpler times” in our industry, when a handshake was a contract, attrition only happened when a home was sold and you didn’t have to compete against an online discount marketer. The truth is that, for the past 50 years, the most successful companies took advantage of an innovative technology very soon after it became available.
Many of us are starting to see around the bend as to the power of technology, and we—willingly or begrudgingly—are starting to accept that things are going to be different in three, five and 10 years from now. However, most of what will be “usual and customary” in five years is actually available now—if only we could change the way we act. Changes to behavior are hard to accept—and even harder to force others to implement.
Stocking the shelves
Due to the resistance to change, many in the technology world surpass the roadblocks to simply go out and get the job done. The largest retailers used to have inventory sheets on clipboards to track when replacement inventory needed to be ordered. Then there was an automated system that tracked sales at the checkout register and presented a report to the purchasing manager. That was better, but took time to adopt. Now, the purchasing manager—to his or her benefit—is totally skipped over, as automated inventory systems also act as automated inventory replenishment systems linked directly to suppliers. That is how Wal-Mart, Target and Starbucks keep supplied.
Fuel distributors, a.k.a oil dealers, are starting to look at their delivery businesses as inventory management systems. In this case, inventory is the oil in your customers’ tanks, and effective management is ensuring those tanks don’t run out. That is the way we have operated for decades. However, thanks to technology, we can start to bypass some of the human systems (changes in behavior) and realize tremendous savings from operating more efficiently.
The back-office accounting systems (BOS) that are used in our industry are excellent at what they do with regards to setting up deliveries according to the needs of the individual customer. The relationship between the BOS and the experienced dispatcher create the unique DNA that makes our ecosystem work. With the advent and adoption of remote monitoring and routing software, dispatchers are starting to look better—and be better.

Fuel oil managers are starting to look at supply and demand as an inventory system.


However, the industry will continue to face these challenges:
• Inventory: knowing when to fill a tank and how to best utilize your fleet;
• Staffing: finding drivers and, even harder, finding dispatchers and;
• Cost: the expenses of maintaining and insuring a fleet increase each year.
We see a time in the very near future when these challenges will be met by an optimized system that works seamlessly with the BOS and dispatchers, in the same way that Wal-Mart gets the next shipment of X-Men pajamas (spoken like the grandfather of a 4-year-old) shipped to the right location at the right time, fully automatically.
“Actionable Behavior” is all-too-often not acted upon. That is not a flaw in human nature, it is human nature. That is why true optimization and automation take that factor into account and allow you to run your business without getting in your own way. ICM

Fuel oil dealers are used to dealing with challenging situations:
• How do I find enough drivers?
• If I drug-test everyone, will I have enough staff?
• How can I make enough money if I keep hearing from my customers that my prices are too high?
• How do I compete with “the big guys?”
These and many more questions are often very logical but nearly impossible to answer. In order to compete, you need to level the playing field; in order to win, you need to tilt the odds in your favor.
Making the change
Over the past few months, we have been focusing on different methods to improve aspects of your business including remote monitors as well as route optimization processes and software. In all cases, there are costs associated with achieving benefits, and there is also a good deal of uncertainty. Questions such as these can arise:
• Can I really change my Optimal Delivery?
• Will my technicians actually install monitors?
• Will I get the return on investment that I hope for?

It is always easier not to change things, especially if the amount of work required to achieve the results might not get done. How many times have you heard, Sure, that’s a great idea but I’m not sure when I‘ll have time to do it?
We all want better results, and even more so, we want them to happen without us having to put in a lot of effort or dramatically changing the way we operate. The old adage good things come to those who wait doesn’t hold water in our ever-changing, technology-charged world. It’s more like if you snooze, you lose. Increased profits will not happen by waiting around and it certainly won’t happen if you don’t modify your (and, by extension, your staff’s) behavior.
Without rehashing all the moving pieces, you should soon be in a position to decide whether you: like the size of your business and want to make just a little more money operating it, or would like to make a lot more money using the same assets and resources that you currently have.
Evolution
Change is scary, and not changing can be even scarier.
• 40 years ago, as your company (if it was around) was transitioning from the “file room” to a back-office accounting system, you got a lot of push-back. Really, who wanted to type on a keyboard when all a person had to do was to scribble a note on a piece of paper and put it the file (after photocopying the check that just showed up in the mail!)?
• 30 years ago, you didn’t offer anything but “a fair price and good service.” There weren’t any pricing programs that have now become the industry’s biggest retention tool.
• 20 years ago, the thought of a customer going online to make a payment—without interacting with anyone in your company—would have made your bookkeeper scream.
And 10 years ago, how opposed were your drivers and dispatchers to the notion of on-board computers?
Industries do change, even ours, perhaps slowly. Every industry evolves or they cease to exist. In the not-too-distant future there will be technology “haves” and “have nots” in our industry regarding the best method to make deliveries (while not allowing for run-outs).
In the future, deliveries will be fewer and bigger. Summer deliveries will be a different size than the winter deliveries. High-K factor customers will be treated differently than others and your fleet will not spend nearly as much of the year sitting idly waiting for that “cold week in January.” Most importantly, it will all happen with the push of a button.
Old School customer care, employee training and “soft skills” are as important today as ever. However, companies who take those to the extreme, who say the way they operated 20 years ago was the perfect way and believe there is no need to take advantage of today’s technology, might find themselves searching for their old Hall & Oates mixed tape to comfort themselves when the competition heats up.
Panic? Absolutely not. Plan? Absolutely. ICM
 

Over the past few years, as Angus Energy has expanded its legacy hedging-based business into the broader approach of What can we do to help our clients run more efficient and profitable businesses, the company has spent a lot of time focusing on business intelligence and remote monitoring offerings. The base premise is the more you know about every aspect of your business, the fewer surprises you will have and the better positioned you would be to use that information to make better decisions.
If you look at the expense pie that consists of customer acquisition costs, selling, general and administrative expenses (SG&A) and delivery costs, the biggest expense for any fuel oil retailer is the cost to make deliveries. It requires many vehicles—most of which sit idly for most of the calendar year.
It requires one of the hardest-to-acquire commodities (truck drivers), especially those who are not actually driving for the full year. It also requires a lot of fuel, fleet maintenance, unscheduled repairs, insurance premiums, tire replacements, dispatchers, on-board computers, routing expertise, etc. Although this is widely known, the industry hasn’t done much to make deliveries more efficient over the past few decades, but that is starting to change.

Remote monitoring and routing software help to create the most optimized schedule for your drivers.


Remote monitoring/routing software
The importance of remote monitoring and routing software cannot be overstated. The only thing that might be worse for an oil dealer than a money-losing 40 gallon delivery into a 275 gallon tank is allowing that tank to run out of oil. Just be thankful that you don’t have hundreds of “0 gallon deliveries” like many propane dealers have!
Remote monitoring should go a long way towards eliminating deliveries that are either too small or too large. However, I want to focus on another part of the delivery, dispatch and routing triumvirate: when deliveries are scheduled in the first place (not the size of the delivery).
As it stands right now, you have a good deal of specific information on your customers that assist you in planning when to make your next delivery (in this case, we are referring to auto-delivery customers, not to “will-call”). Each customer’s tank has a tank size, a K-factor, an optimal delivery and a “reserve” (the latter two being the inverse of one another). The math—using either K-factor or tank monitors—is actually pretty simple. If you determine the amount of fuel in the tank, and you project consumption over the next week to 10 days, you should be able to accurately predict when the tank will have room in it for optimal delivery.
So, (intentionally simplistic), each day we look at the sum total of all of the tanks that have room for an optimal delivery (or a different size delivery if you are “pulling ahead of heating degree days [HDDs]”). Once we add up all the “needed” deliveries, we figure out how many trucks and drivers are required to make those needed deliveries, given constraints such as truck capacity, available drivers, rack locations, driver hours and overtime, etc. Basically, we divide the total deliveries needed by the number of deliveries normally made by a truck, and we arrive at our truck and driver scheduling.
Predictable outcomes
This tried and true practice leads to some very predictable outcomes, some of which Angus believes should be challenged:
• Since consumption follows the Heat Curve, deliveries also match that same curve.
• Reserves are generally set by tank size not by customer K-factor.
• Reserve levels are rarely considered or changed, leading to the same size delivery in January as in July, despite the fact that the reserve factors are much higher consumption in January (fewer days till a run out).
• The percentage of deliveries with very high K-factors is pretty much the same regardless of the season.
• The attitude of being conservative with delivery sizes tends to get worse each time there is a run out (this one makes perfect sense).
The one outcome that is most frustrating to us is the fact that, based on a study of over 400,000 customers, about 15% of all deliveries in the month of January are to customers with K-factors that are over 10! In a normal January in the Northeast, this group of customers would consume fewer than 100 gallons for the entire month, yet 15% of the stops are to fill up their tanks. In addition, why is their reserve the same size as a customer with a K of five? If January is your busiest month, why not fill the high-K’s before January and then not deliver to those customers for the entire month?
Optimized scheduling
That was a very basic example of “scheduling optimization” but one worth thinking about as we move towards trying to manage delivery expenses without adding to the risk of run outs. In our world, we are always “peeking into the tank” to see if there is room for a delivery. However, by looking only at the next delivery, we end up losing the forest for the trees. We can’t optimize a year if we aren’t looking ahead at the entire year.
The scheduling model for the future uses every bit of data you have, and still works hand-in-hand with your back-office accounting system. However, it also includes a formulaic approach to manage the expense side of the ledger. If you can shift around some deliveries over the course of the year, and structure them so that a few trucks are not needed during the peak season—all without increasing run-outs—how would that impact your bottom line? The future, which is not that far away, will have you managing the scheduling process proactively, not just waiting for the tank to say, Okay, I am ready for a delivery.
Combining the power of scheduling optimization, with routing expertise and remote monitoring puts the notion of efficiency maximization back into your hands. ICM

There is more technology at our fingertips than decades before, making it easier to calculate and predict customer needs.

To accomplish anything in the business world, you need a mixture of know-how, foresight and tools. The battle between know-how (sometimes referred to as “experience,” other times referred to as being “old school”), and forward-thinking (sometimes referred to as “next generation thinking,” sometimes as “these kids don’t know anything”), is challenging. The choice presumes that you need to be either completely retrospective (why innovate when everything seems to be working?) or completely prospective (look at all the new technology that is available, to heck with the old school thinking).
I prefer to have the conversation start with the notion of being introspective. In our digital world, choices are usually presented as either/or rather than as a balance of perspectives. Simply because something is “old school” doesn’t mean it is bad or even outdated, it may well have become common practice because it was and still is the best way to do things. On the other hand, just because something looks futuristic but may not be guaranteed to succeed doesn’t mean it is not worth exploring.
The best tools
Over time, all industries use the best tools that are available to them at that time. Toll collectors were replaced by EZ-Pass systems, on-site server rooms were replaced by “in the cloud” services and beepers were replaced with Smart phones. While your parents or grandparents may have struggled with moving from file folders and index cards for customer accounts and K-factor deliveries, they eventually moved to a back-office accounting system. That change didn’t mean that index cards were ever bad, but over time, they simply were not the best tool.
Every time there is an improvement in the available tools, lengthy discussions ensue as to their benefits and value of changing “the way we’ve always done it.” Never lose sight of the fact that change is not easy for many people or for companies. All change, as simple and logical as it may seem, will raise challenges. It is almost always easier not to change, yet it is also almost always a mistake to push off beneficial changes.
Although we take pride in the fact that our industry is very hands-on and customer-facing, not nameless, faceless and algorithmic, we have always embraced change—from back-office systems to on-board computers, from email communication to on-line customer enrollments, and so on.
Did your grandfather ever imagine his customers would receive a “push notification” alerting him that there was a service tech arriving in the next 30 minutes? Yes, we take our time, we wait for other industries to lead the way, but the windows of adoption are shrinking. For those who embrace new tools, the competitive advantage and positive impact are growing more quickly than ever before.
Finding the right balance
When quality drivers are hard to find, you can either spend more money to retain and attract them (while likely lowering your standards) or you can find a way to deliver the same number of gallons with fewer drivers. If the price of gasoline and diesel fuel for your fleet is both expensive and unpredictable, you can just “pay whatever it costs” or you can look to hedge your fuel costs and do a better job of routing than just letting the driver decide on the order of deliveries.
Your biggest delivery expense is the cost of a truck—whether used all year long or just for a few routes in the winter. However, the argument that you needed to buy those three trucks otherwise the acquisition wouldn’t have gone through is not an excuse to keep those trucks in your fleet if they are no longer needed.
Delivering 150 gallons in January to customers whether they have a K-factor of three or 13 is going to require more trucks, drivers and wages than if you pushed or pulled back the “13” into a shoulder month. Also, if 150 gallons is the right delivery size in January, is the same true in May?
Technological changes
The biggest changes in technology are not changes in philosophy. There was always a desire to make the biggest deliveries with the fewest trucks, lowest wage costs and least amount of fuel—all with the absolute requirement of have little or no run-outs. None of that is new. What has changed is that the tools to accomplish that have become far better and more affordable.
If you knew what was in a tank, your deliveries would be far more predictable. If you knew the best route, you would make more stops per hour at a lower cost per delivery. If you knew the best times to make deliveries to customers—not based on when there was enough room in the tank, but based on using the data you already have to spend the least amount of money, while not increasing the run-out risk—would you change the way you operate?
It is already happening and it will happen to your company. The question is whether you will “lead” and look to do it or “follow” because you must. Bridging the past and future requires introspection. Introspection requires the ability to identify the benefits of having a better, more profitable, more valuable business, not the excuses of why you should just keep waiting. ICM

If you ask a heating oil dealer for the one thing they would wish for in December and January, my guess is that nine out of 10 would hope for frigid temperatures. The 10th might be someone like me, holding out some misguided belief that his or her team could beat the Patriots in an important late-season game!
Last winter those wishes came true, and along with it was heard the common phrase: Be careful what you wish for. Cold weather is great. Cold weather is welcome. Cold weather is necessary. However, too much cold weather, especially without a break, can tax the delivery systems of companies despite the best forms of planning.
Always Up for a Challenge?
The late-December through mid-January cold snap in the Northeast in 2017 led to a series of challenges. Although most were predictable, they ended up being problematic for dealers. In some cases there were run-outs, in many cases there were fears of run-outs. We saw a lot of homes that simply couldn’t get or stay warm (insulation issues?) and equipment failures that were more common than anyone would have liked.
When it came to the frustrations of run-outs, a lot of people simply pointed to the growing use of remote monitors as a way to know which deliveries were needed, and (of equal importance) which deliveries were not needed. I fervently echo those sentiments and believe that remote monitoring of tank levels would have gone a long way to impact and lower the number of run-outs.
However, I wanted to look at this from a different, perhaps supplementary, angle. I had many conversations last winter about the impact of those few weeks, and how, despite the high number of heating degree days (HDDs), the “damage” it caused really impacted the entire years’ profits and losses. Very often within those conversations, there would be a comment along the lines of: Of course, we knew that there would be run-outs, but I had my guys working 14 hour days, seven days a week. There was simply no way to keep up with the demand. Sure, tank monitors would have helped, but the trucks were out all day long, and we simply couldn’t get to everyone. In other words, the need simply outweighed the ability to deliver.
Supply and Demand
The logic is there. Just too much demand. Really, what could have been done differently? Without the ability to use Uber to request a delivery truck, how do you meet the needs of your delivery tickets when it has been cold for so long?
We have been thinking about deliveries for a long time and wondering why the process of planning hasn’t really changed that much over the years—while all other technologies and efficiencies seem to have improved.

The low temperatures of late 2017 and early 2018 caused major industry supply problems.

The low temperatures of late 2017 and early 2018 caused major industry supply problems.


When we started to dig down into the run-outs (the “understandable” run-outs), we looked at the scheduling of deliveries and found that the routing made sense (software, by hand or a combination), and that the business operating system (BOS) was properly generating the deliveries based upon the questions that were asked (basically: Who needs a delivery?), etc. Then we wondered a little more broadly, and came up with a question: Why were there deliveries to customers with high K-Factors in the month of January?
The simple answer is that they needed oil. So, someone with a K-Factor of four and someone with a K-Factor of 10 might both need a delivery of, say, 150 gallons, in January. That is why the deliveries were scheduled. However, the bigger question is, the one we want to ask now, why does a customer with a K-Factor of 10 (and annual consumption of about 400 gallons) ever get a delivery in January? Shouldn’t his or her tank be filled up in the fall with the oil lasting until the spring?
Delivery Efficiency
Delivery efficiency is the heart and soul of an oil company. Delivery costs are the No. 1 expense for a dealer and also the biggest opportunity to turn more of your gross margin into net margin. We need to start changing our thinking and we need to start changing our questions. The answers we get from the BOS and the routing software are perfectly accurate—but are the questions answered?
Tank monitors are needed. Routing software is needed. Smart Scheduling is needed. Your grandfathers didn’t have access to any of these when they started the business, but you do.  ICM