Retailing and marketing are key links in the oil & gas supply chain process that aims deliver products to individual consumers in an efficient way. Oil retail management, which is also known as a secondary distribution process, is driven by multiple dynamics.
Push and Pull Factors
Increasing governmental regulations such as Sarbanes Oxley, Hedging Laws, etc., affect the operations of retail outlets in a significant way. Pull factors on the demand side include niche customizable products such as green gasoline, increasing competition, consolidation of distribution channels and complex channel management impact retail outlet operations.
Push factors from the supply side, such as supplier rationalization, reduced brand differentiation and price volatility have a great impact on retail operations.
Apart from these external factors, internal pressures such as the necessity to improve retail operations and disruptive technologies such as RFID (radio frequency identification device) and mobile applications combine to make retail management a daunting endeavor.
Retail Management Focus Areas
The following are the four focus areas that usually come under the gambit of secondary distribution of oil and gas products to end consumers:
- Terminal management
- Fuel distribution management
- Retail network management
- Price management
Let us look into each of these areas to gain a better insight of oil retail management.
Secondary distribution terminals, also known as feeder terminals, form an important part of receiving, storing and distributing fuel products in the downstream segment. Products are moved to retail terminals either from refineries or from a bulk tank farm attached to the refining facilities. From these stock points, additives, if needed, are introduced per the market requirements. The final value-added products are then transported to gas stations by tanker trucks.
Most of these terminals have a terminal automation system through which large parts of the terminal operations (e.g., truck gate entry, rack filling, stock management, etc.) are handled. Asset management, environment, and health and safety also form an integral part of the terminal operations management. To achieve a quick turnaround to optimize the cost of operations without compromising on safety aspects, the terminal management is faced with two main challenges from a supply chain perspective: the full visibility of the stock positions and efficiently routing trucks.
Modern terminals have a high degree of automation and advanced technology that provides seamless integration to third-party or customer information systems. This ensures that no paper documentation is needed to manage truck entries at the gate.
For example, a dispatch advice containing full details about the truck, such as the truck number, capacity, compartment details, driver’s name, insurance documents, details of the driver's safety training certificate, and public liability insurance may be created in the customer’s sales order system and be electronically communicated to the terminal automation system. When the truck arrives at the gate, it is allowed automatic entry into the terminal based on the sensors positioned there. These sensors are linked to the terminal automation system, which provides details of the truck scheduled for the day. Truck filling is automated at the gantry and drivers are provided with digital smartcards that store details about the delivery. The driver is required to swipe the card at the stipulated gantry rack for filling of the required product. After the truck is filled, an invoice for the delivery is automatically created and sent to the customer’s sales information system.
Mobile technology plays a critical role in these supply chain operations, and an electronic invoice is sent to the driver’s smartphone, which is convenient for route check post clearances. (For more on this topic, see Mobile Tools: A Disruptive Technology for Oil & Gas Operations.)
Fuel Distribution Management
The primary objective of retail distribution is to ensure that no gas station shuts down due to a lack of supply. Achieving this requires efficient supply chain planning with a robust replenishment program. This segment of retailing strives for distribution excellence and customer satisfaction through streamlined forecasting based on real-time stock management at the gas stations. This forecasting information is vital for sequential transportation planning and scheduling, and deft truck routing based on immediate stock out points that optimize truck cycle times. The fuel distribution activities of retail management are the most demanding ones in the value chain because they have a direct impact on customer satisfaction.
Retail Network Management
This segment relates to the gas station level management of both wet products (fuels) and dry products (convenience goods). Point of sale (POS) management plays a key role to ensure the customer's visit is rewarding. Also, fuel card and promotion management help to increase the sales turnover. In recent times, geofencing technology has been deployed, which sends automated information to consumer's cellphones when they are within the gas station's boundaries. This impromptu information includes information such as the due date for refueling their vehicles and sales promotion coupons.
The following business models are typical for the retail network fuels business:
- Company owned/Company operated (COCO): The retail site is operated by company staff, usually by a subsidiary company of the oil company.
- Company owned/Dealer operated (CODO): The concept of consignment stock is followed here. The dealer operates the site for fuels but does not own the fuels, which still belong to the oil company.
- Company owned/Dealer operated (CODO) non-consignment stock: The dealer operating the site buys the fuels from the oil company at the time of delivery.
- Dealer owned/Dealer operated (DODO): This is similar to the above model, but the ownership of the site rests with the dealer.
The retail market is hyperactive because daily rack price changes can result in 40 to 50 percent swings in the street margin. Hence it is imperative that gas stations are competitive and profitable at every single location.
As companies move from regulated to emerging, mature and competitive markets, they need to adopt price management capabilities and processes that are less relevant in regulated environments. In a regulated market with rare price changes, management of basic price data is enough to run the business. On the other hand, a competitive market environment has many more requirements, so companies must have an efficient pricing process to handle multiple price changes per day. Therefore, the pricing solution must support quick reaction times to maximize profit.