Fleet Management

Fueling the Waste Industry

Outsourcing strategies for procuring, managing and accounting for fuel.

Ryan Mossman

Fuel is a significant cost factor in the waste industry, accounting for billions of dollars a year in fact, and its price volatility lead to less predictable operating expenses and margins. The fuel supply chain complexity combined with erratic price cycles caused by market and weather issues causes concern for CFOs and purchasing executives when attempting to minimize expenses. Fleet managers in the industry that are charged with overseeing supply portfolios and maintaining adequate stock levels, often at multiple sites, should consider a centralized approach to their fuel management. In addition, the demand for fuel-efficient and hybrid trucks, the expanding array of waste and recycled products, and the availability of different types of fuels, continue to make a fleet managers role challenging and key to a company’s overall strategy. This is why many waste management professionals are centralizing fuel management to:

• Mitigate the impact of price volatility

• Manage price predictability

• Optimize the deployment of working capital

• Gain competitive advantage by better managing fuel price volatility and the timing of fuel purchases

• Reduce costs

Outsourcing

One way to centralize the fuel management process is to consider outsourcing to a trusted provider. Using outsourced solutions fleet managers can access sophisticated data in order to better manage operational budgets and centralize control—yielding levels of visibility across the organization. Centralized outsourcing can achieve an average savings of 4 to 6 cents per gallon and provide waste executives a viable long-term option that combines the knowledge of industry experts, best practices used by some of the world’s preeminent fleet companies, and the strength of proven fuel management automation systems. With additional levels of automation and rigor around forecasting, procurement, management and financial reconciliation, outsourcing fuel management also allows staff to focus on their core areas of expertise—logistics, customer service and operational excellence.

The outsourcing process begins with an in-depth spend analysis that takes into account the entire fuel lifecycle. The analysis should take into account spending trends, supplier arrangements, market dynamics and other business processes to recommend opportunities for gaining efficiencies. This establishes a best practices baseline from which the program will be measured and compares current operations to industry standard pricing and performance. Having the right strategy and identifying goals for a fuel program are imperative to purchasing fuel at the best price. Armed with the data from the spend analysis, the outsourced fuel management team assimilates the intelligence to proactively balance security of supply, desired cost and margins. Aggregating volumes and centralizing control creates forecasting, sourcing, inventory management and reconciliation synergies and strengthens negotiating powerwith suppliers.

With an effective outsourced arrangement, the impact of supply shortages can also be diminished to ensure the fleet has the fuel it needs at the right time at a competitive price. Expert teams can provide a strategic procurement plan that will enable fleet managers to gain strategic consulting on supply portfolios and negotiate long-term supply contracts that are either fixed price or index-based, using industry information services like OPIS, Argus and Platts (see Industry Information Services sidebar). The use of index-based contracts which float with the daily markets helps ensure supply security and that you can lock in the ability to buy better than your competitors on a daily basis throughout the year. To handle long-term price volatility, fleet managers can use fixed price contracts to lock in a price for a period of time. This practice can help operators meet their budget objectives and create predictability.

A Centralized Fuel Team

What about the short-term? Having a mix of long-term contracts combined with opportunities to buy spot fuel when prices are low can yield results. With a centralized fuel team the fleet can take advantage of their outsourced partner’s short-term tactical buying power. Strategies like load shifting (moving a load scheduled for today until tomorrow if market prices are falling) that will significantly reduce annual costs can be employed. Another short-term strategy to reduce the impact of price volatility is locational arbitrage, or changing the sourcing location to a different one based on price advantage—this can be particularly advantageous for locations midway between two markets.

Financial Settlement

Once supply and transport options are vetted and inventories optimized, the final link in the supply chain is financial settlement. An outsourced fuel management solution can compare and verify accuracy of quoted price, bill of lading, invoices, delivered gallons and freight and taxes—all essential factors to increasing operational transparency and controlling fuel costs. Automating financial reconciliation and ensuring tax compliance increases operational transparency and rapidly resolves billing and invoice discrepancies via financial matching. This means the fleet manager can control and manage fuel costs in a centralized, end-to-end manner from procurement to management and financial reconciliation.

Making a Significant Impact

Fleet managers choosing to outsource fuel management gain the operational predictability that comes with supply security and lower overall fuel costs. Supported by a team of fuel experts, they can now manage any level of fuel volumes in an economical and sophisticated way without the need for additional overhead costs. By reducing financial exposure to volatile markets, waste management executives can create a competitive edge, secure in the knowledge they are obtaining fuel required to power their fleets at a cost-effective price and make a significant impact on the organization’s overall strategy.

Ryan Mossman is vice president and general manager of FuelQuest’s Fuel Services. He leads both of FuelQuest’s outsourced fuel services divisions: Fuel Center and Alarm Management Systems. Ryan’s FuelQuest experience includes leading large-scale supply chain optimization, technology and business process implementations at large fleet and energy companies including UPS, U.S. Freightway, and Chevron. He can be reached at [email protected].

FuelQuest’s Fuel Center provides an outsourced fuel management solution for clients who wish to counter high motor better managing the complexity in the fuel supply chain. Outsourcing to the FuelQuest Fuel Center team provides lower administrative costs while allowing customers to focus on their core business. By not owning trucks, fuel or other assets, Fuel Center’s interests align perfectly with those of customers. They act as an extension of your team and manage your fuel in the same manner as many of the world’s most successful fleets and retailers. For more information, visit www.fuelquest.com.

Sidebar

Industry Information Services

Platts is a provider of energy and metals information and a source of benchmark price assessments in the physical energy markets: www.platts.com

Argus Research is a forward-thinking, long-standing independent investment research firm that offers forecasts and ratings on the U.S. economy, interest rates and hundreds of leading blue chip companies: www.argusresearch.com

Oil Price Information Service (OPIS) is the world’s most comprehensive source for petroleum pricing and news information. OPIS began covering petroleum news in 1977 with the launch of the award-winning Oil Express Newsletter. In 1980, OPIS pioneered “rack” price discovery for thousands of wholesalers, and now maintains the world’s most comprehensive database of U.S. wholesale petroleum prices, receiving more than 70,000 rack prices each day: www.opisnet.com

Sidebar

Veolia Gains a Competitive Advantage

Headquartered in Paris, France, Veolia Environnement employs 313,000 people in 74 countries and generated almost $50 billion in annual revenues in 2009. Veolia Environmental Services established itself in North America in 1984 and is a leader in the solid waste, industrial cleaning, hazardous waste and integrated waste services categories.

For a company with a North American truck fleet the size Veolia Environmental Services’, fuel is a considerable expense. A “keep it full” philosophy coupled with a limited range of local suppliers was limiting Veolia’s ability to reduce fuel costs. The company identified the need to adopt best practices in fuel management across its vast network of locations. An effective outsourcing arrangement would equip Veolia’s site managers with third party expertise to oversee all operational, purchasing, pricing and financial reconciliation activities and information. Outsourcing these services would allow for increased visibility into fuel costs and inventory supply.

FuelQuest developed a benchmark study for Veolia and found several opportunities to increase efficiencies and save thousands of dollars, providing validation and the return on investment necessary to move forward with an outsourced solution. A key strategy for savings would also include a close examination of Veolia’s supply portfolio. Prior to engaging with an outsourced fuel management team, the company relied upon only a handful of spot market quotes from local suppliers. In order to mitigate volatility, outsourcing would now provide Veolia with the right supply and carrier mix to fit their distinct business model, all while taking advantage of both index (primarily OPIS and Platt’s) and fixed price models to generate savings wherever possible, including purchases from Freight On Board (FOB) rack, major oil companies and distributors.

The right outsourcing solution combined best practices and advanced technology solutions to better manage the fuel supply chain. With this new fuel management strategy in place, Veolia Environmental Services has gained a distinct competitive advantage by realizing cents per gallon savings along with the appropriate fuel inventories to drive their business.