Rethinking Old Habits
There is no doubt about it: collaboration and consolidation programs require a new mindset.
“Getting customers to the point of using these services is truly a journey in helping them recognize the advantages of changing their buying habits and their delivery methods,” notes Kane. “It requires compromise and some give-and-take from all supply chain participants.”
The new role for 3PLs, continues Kane, will be to act as warehousing and freight matchmakers. Retailers must think about how to consolidate all their orders intelligently, which requires that each department can no longer order separately. Furthermore, manufacturers have to rethink logistics operations, requiring their goods to be consolidated into full truckloads with other manufacturer’s goods going to the same final destinations. “Changing entrenched practices won’t be easy, but the rewards are substantial,” says Kane.
Fueling Food Transport—OUTSOURCING STRATEGIES
Food manufacturers practically invented supply chain fundamentals. As industry costs increased, profit margins tightened, and FDA regulations intensified, food executives assessed every part of the production and logistics process to streamline operations. Reengineering was the buzzword of the ’90s and as the first decade of the 21st century begins to wind down, the industry continues to search for ways to deliver products efficiently without sacrificing quality or profits.
Fleet managers for food manufacturers and foodservice distributors also continue to evaluate their departments' operating margins by taking a hard look at how they procure, manage and account for fuel. Though it is only one part of getting goods to market, a long-term fuel management strategy is an important consideration in an industry where every penny counts.
Fuel is a significant cost factor in food transportation and its price volatility has directly correlated to less predictable operating expenses and margins. Fleet managers charged with managing supply portfolios and maintaining adequate stock levels—often at multiple sites—should consider a centralized approach to their fuel management.
The fuel supply chain complexity combined with erratic price cycles caused by the market and weather issues causes concern for CFOs when attempting to minimize expenses. This is why many food manufacturers and food service distributors are outsourcing fuel management to:
- Centralize the fuel management process;
- Mitigate the impact of price volatility;
- Manage price predictability;
- Optimize the deployment of working capital; and
- Gain competitive advantage by better managing fuel price volatility and the timing of fuel purchases.
Utilizing 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. Outsourcing can achieve an average savings of 4 to 6 cents per gallon and provide food manufacturers and distributors 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.
John Fershtand, director of fleet operations and energy management for Ben E. Keith Foods, Fort Worth, TX says, “We’re in the food business not the fuel business. By outsourcing our fuel management, we are able to focus on what we do best.”
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 is 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 pro-actively balance security of supply, desired cost and margins. Aggregating volumes and centralizing control creates forecasting, sourcing, inventory management and reconciliation synergies and strengthens negotiating power with 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 utilizing industry information services like OPIS, Argus and Platts.
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. They can take advantage of their outsourced partners short-term tactical buying power and load shifting strategies that will significantly reduce yearly costs.
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.
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, food manufacturers and food service distributors 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, fleet managers can create a competitive edge, secure in the knowledge they are obtaining the fuel required to power their fleets at the most optimized level and make a significant impact on the organization's overall supply chain strategy.
—Ryan Mossman is vice president and general manager of FuelQuest’s Fuel Services, Houston.