News
ORTEC delivers Fuel Inventory Optimization to ease Cash Flow Pinch for Petroleum MarketersJuly 21, 2008
ORTEC, global provider of distribution and inventory solutions to Petroleum Marketers, announces the capability to optimize the amount of inventory and safety margins required to keep a retail operation stocked with fuel. The result is a significant reduction in the total fuel inventory carried by ORTEC customers, accompanied by a real increase in available cash flow.
In the past, petroleum marketers could be content with making sure that their retail sites never ran out of fuel. It was easy to have a carrier mentality and always err on the side of extreme caution by filling a tank as soon as it would hold a load. Nowadays, many marketers also use their retail tanks as a price hedge. They will rush fuel to market when prices are dropping and wait as long as possible when they are rising. While this makes sense in many ways, it tends to ignore the value of inventory in the ground. In most companies, it is the largest investment that they have at any given moment.
“Let’s take an extreme example to prove the point” says Bill Mathews, Director of Oil, Gas, and Chemical operations for ORTEC. “Many companies take the term ‘keep fill’ a little too literally. They will deliver fuel as soon as it will fit into the tank. Let’s use a 20,000 gallon tank for our example. If fuel is delivered to a 20,000 gallon tank as soon as it will hold a load, then the average daily inventory in that tank is going to be in the neighborhood of 15,000 gallons. Suppose we set a safety stock on the tank at 2,000 gallons and only delivered fuel when the tank is forecasted to reach this level. We would lower the daily average inventory from 15,000 gallons to 6,500 gallons or a difference of 8,500 gallons (about a full load of fuel). The daily value of that inventory, in just one tank at $4 per gallon, is $34,000 dollars. Again, this is an extreme example, but it is valuable in showing the concept which holds true even if the tank gets restocked 2 or 3 times a day,” adds Mathews.
Inventory optimization is made possible through the use of ORTEC’s next generation demand planning and order generation system Orion. Orion is used by companies who recognize that they have to do more than just react to tank level readings in order to be efficient. As one of ORTEC’s customers has said, “The ability to plan for demand instead of being captive to a tank monitor or waiting for customer input is huge. We have control over our inventory costs; control we never had before”.