Fuel Supplier Uses Optistream’s Cost Optimization Software to Lower Supply Cost
The Challenge
This fuel supplier identified scenarios where alternate sourcing of fuel at a lower fuel supply cost and higher freight cost would offset and generate a lower overall delivered cost.
The Result
This fuel supplier’s dispatch team was able to analyze all supply options and all freight carrier options (3rd party and internal) to find the lowest delivered price consistently on every load delivered to wholesale and retail customer locations.
Steps to Analyze
In this case study, our fuel supplier recognized the natural tendency of dispatchers to select the “closest” supply points to minimize freight costs. This dispatch model is also the most realistic model of supplying customer needs given the workload of the dispatcher and the inordinate task of evaluating every single supply cost and every single freight rate on each load.
Our fuel supplier also recognized that opportunity existed in alternate supply points that would not be natural. Using these supply points would enable the supplier to take advantage of price differentials between supply points where the price differential exceeded the freight difference. This methodology also enabled the supplier to make the wisest decisions on when to fulfill a fixed volume contract obligation given the most advantageous market conditions for pulling fixed price versus index price.
Optistream’s C3 software maintains a real time source of all fixed price pricing, external price indexes, and contract formulas. Additionally, C3 maintains all point to point freight rates and all current freight surcharges. The culmination of this data enables C3 to quickly provide a dispatcher with a sorted list of supply options in ascending order by delivered price. This list does not sort in “natural tendency” order for both geographic distance and for carrier.
Having these options available quickly shows dispatchers where opportunities exist to leverage an alternate supply point and also leverage an alternate freight carrier than the dispatcher is naturally inclined to select.
Through this analysis, the fuel supplier can implement a lower supply cost on select deliveries. The fuel supplier also identified how this analysis plays a more significant role in a volatile market or during a supply disruption. These scenarios equipped the dispatcher with invaluable decision-making options for continuing to provide the lowest cost fuel even through disruptive circumstances.
Key Takeaways
Through this optimization process, fuel suppliers can quickly identify supply cost reductions and alternate sourcing opportunities that have just not been traditionally feasible to calculate and explore.
Fuel suppliers are also able to monitor fixed price contracts with firm volume commitments and make quick decisions about the most beneficial time to pull fixed price versus pulling index price.
Last, fuel suppliers can analyze freight rates and freight surcharges to find the best carrier based on a combination of freight rate and surcharge to deliver a particular load of fuel.
Combined, this matrix delivers industry leading abilities to reduce overall supply cost and add quantifiable margin to the business through a simple process of cost optimization.
About Optistream
Optistream is a provider of SaaS based software solutions focused on the midstream wholesale and retail fuel sector. Our mission is leverage cutting edge technology to bring quantifiable solutions that maximize profit and minimize risk.
We bring 25+ years of experience in midstream fuel supply with a deep knowledge of commodity marketing, trading, and position management. We also bring a broad understanding of back office processes and ERP systems.