Freight As A Profit Center Becomes a Reality With Optistream and C3
The Challenge
Many fuel suppliers dream of transitioning to having freight as a profit center in the supply business. These suppliers are in the segment who own and operate an internal transportation division. This division is responsible for transporting some or all of the fuel supply that the business ultimately delivers to customers.
The Result
When freight is transitioned to a profit center, the business is able to manage supply cost margins and transportation margins separately. While this brings discomfort to some, the ultimate result is greater profitability, increased accountability, and a greater ability to improve operations. It goes with the old saying. That which can be measured can be improved.
The customer is ultimately invoiced a delivered price which comprises a product price and a freight price. Product price is measured against product cost to generate a product margin. Freight price is measured against total operating costs for the transportation division to generate a freight margin.
The Freight As A Profit Center Journey
Transitioning to operating with freight as a profit center first requires the transportation division to establish an internal freight rate between each supply point and each customer location. These freight rates are structured just as if the transportation division was operating as a common carrier.
Hang on Sally – Are we really insinuating that our internal trucks will have rates assigned just as a common carrier. Yes we are. Not only that, freight rates must be competitive against common carriers. Optistream has even worked with fuel suppliers that went so far as to enable dispatchers to choose between internal freight and a common carrier based on the least expensive rate available for the selected route on a given load.
Once established, Optistream and C3 will leverage a new methodology which enables dispatchers to begin optimizing the best supply options. The dispatcher is able to make smarter decisions where a distant supply point with an advantageous price differential may be leveraged with a higher freight rate resulting in a lower overall delivered cost.
This removes distance as the primary variable when selecting a supply point for a customer delivery. Overall supply cost including product cost and freight cost will drive dispatching decisions.
Key Takeaways
Freight profitability is an area that most fuel suppliers with transportation divisions have long dreamed of measuring. Considerable investment is directed into trucking between equipment, personnel, fuel and maintenance. It is difficult to quantify decisions on further investment without an ability to accurately measure profits.
Product profitability is completely separated from freight profitability. This enables further measurement and accountability on how well the supply team is managing supply contracts and how well the dispatching team is making the best decisions to procure product at the lowest cost.
Depending on the geographic area and available supply points, this transition can sharply change freight operations with longer routes and more complexity. It also adds competition and measurement enabling improvement in profitability and operations. We are back to the old saying. That which can be measured can be improved.
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.