Retailing & Marketing are key links in the Oil & Gas supply chain process that aims at reaching oil products to individual consumers in an efficient way. Oil retail management which is also known as secondary distribution process is driven by multiple dynamics. 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 which include niche customizable products like green gasoline, increasing competition, consolidation of distribution channels, complex channel management, etc., impact retail outlet operations.
Push factors from supply side such as supplier rationalization, reduced brand differentiation, price volatility, etc., have a great impact on the retail operations. Apart from these external factors, internal necessity for improving retail operation efficiency to manage high cost of operations, and disruptive technologies such as RIFD (Radio Frequency Identification Device), Mobile applications, etc., make retail management a daunting task.
Retail Management: Focus areas
In general, the following are the four focus areas that usually come under the ambit of secondary distribution of Oil & Gas products to end consumers:
- Terminal Management
- Distribution Management
- Retail Network Management
- Pricing Management
Let us look into each of these areas briefly so as to get better insight of oil retail management.
Terminals – receive, store and distribute
Secondary distribution terminals, also known as feeder terminals, form an important part of receiving, storing and distribution of fuel products in the downstream segment. Products are directly moved to retail terminals either from refineries or bulk tank farm attached to the refining facilities. From these stock points, additives, if needed, are added as per the market requirements and the final value-added products are moved to gas stations mainly through tanker trucks.
Most of these terminals have Terminal Automation System through which large part of the terminal operations such as truck gate entry, rack filling (truck), stock management, etc., are handled. Asset management, environment, health & safety also form an integral part of the terminal operations management. In order to achieve a quick turnaround to optimize cost of operations without compromising on safety aspects, the terminal management is faced with two main challenges from supply chain perspective, i.e., the full visibility of the stock positions and efficient routing of trucks.
Modern terminals have a high degree of automation and advanced technology backup which provides seamless integration to third party or customer information systems. This ensures that no paper documentation is needed for managing truck entries at the gate. For instance, a dispatch advice with full details of the truck such as truck number, capacity, compartment details, driver’s name, insurance validity, details of safety training certificate of the driver, public liability insurance validity, etc., may be created in the customer’s sales order system and be electronically communicated to terminal automation system through an interface. 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 where details of the delivery such as product, quantity and compartment details are stored. The driver is required to swipe the card at the stipulated gantry rack for filling of the required product. Once, the truck is filled, invoice for the delivery is automatically created and sent to customer’s sales information system. Mobility plays a critical role in these supply chain operations and an electronic copy of invoice is sent to the driver’s smartphone which comes handy for route check posts clearances.
Fuel Distribution – crux of retail management
The primary objective of retail distribution is to ensure that no gas station shuts down due to want of product supplies. This requires efficient supply chain planning with a robust replenishment program. This segment of retailing strives to achieve distribution excellence and customer satisfaction through streamlined forecasting based on real-time stock management at the gas stations. This piece of information is vital for sequential transportation planning & scheduling, and deft truck routing based on immediate stock out points to optimize truck cycle times. Fuel distribution activities of retail management are the most demanding in the value chain that has direct impact on customer satisfaction.
Retail Network Management
This segment relates to gas station level management of both wet products (fuels) and dry products (convenience goods). Point of Sale (POS) management plays a key role in ensuring improved customer visit basket for the retail stations. Also, fuel card and promotion management help to increase the sales turnover. In recent times, the concept of geo-fencing deployed by gas stations uses mobility technology to send auto information to consumers when they are within a gas station location. This impromptu information to their mobile reminds them key information like due date for refueling their vehicles, sales promotion coupons, etc.
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, that is, the dealer operating the site buys the fuels at time of delivery from the oil company.
- Dealer owned/Dealer operated (DODO) is similar to the one above but the ownership of the site rests with the dealer.
Retail market is hyper active where daily rack price changes can result in 40 to 50 percent swings in 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 hyper-competitive markets, they need to adapt to certain price management capabilities and processes that are less relevant in regulated environments. In a regulated market with rare price changes, basic price data management is enough to run the business. On the other hand, a hyper-competitive market environment has many requirements so as to have an efficient pricing process and companies need to survive in a competitive environment with multiple price changes per day. Therefore, a pricing solution needs to support quick reaction times and maximize volumes & profit.