How a Centralized Data Hub Can Reduce Costs and Increase Purchasing and Distribution Efficiency for All Trading Partners

Author: Gary D. Bevers, President, Bevers & Co. - Downstream Petroleum Solutions

The case for an independent, third-party, web-based data aggregator for management and optimization of the downstream supply chain begins by taking a closer look at the needs not just of the Major Oil companies but of all trading partners in this fragmented value chain. The challenges and “points of pain” experienced by independent marketer/jobbers, terminals, common carriers and large retail and commercial/industrial end users are actually leading the development specifications for an industry-wide eSupply Chain Management (eSCM) solution.

All trading partners in the downstream petroleum supply chain need accurate, timely, electronic marketing, financial, inventory and transactional data. Without these data points, automation of the fuel procurement and distribution process will remain elusive if not impossible. Lack of automation in both procurement and processing orders causes great inefficiencies that in turn slow the purchase-to-pay cycle ― a critical process for a cash-driven industry. Marketers, the man in the middle of the supply chain, need electronic data files more than ever if they are to cut operations costs and remain competitive. To date, the sources and delivery methods for this information remain proprietary and highly fragmented. As a result, gathering even part of the data files is difficult, time consuming and inefficient. Though API/PIDX EDI standards have been around for decades, they have proved too costly to implement for most trading partners outside of Major Oil companies. The new, web-based XML data standards by API/PIDX and NACS/PCATS can be utilized by anyone with a web browser ― but so far they have only been adopted by a few of the Majors so data access is limited.

Examining the Existing Distribution Channel

The crucial issue in the petroleum supply chain is the growing dependence by Major Oil and merchant refiners on an independent distribution channel made up of trading partners who are, for the most part, burdened with thin margins, rising costs and a lack of standardized electronic data needed to automate their operations. Most simply can’t afford the typical supplier EDI solutions to get the critical electronic data they need and many of the large marketers are “multi-branded” or “unbranded.” Therefore, a single supplier’s web-based eCommerce initiative will not solve the problem, but instead complicate their downstream transactions and data integration issues. The terminals, common carriers and large commercial and industrial customers also deal with multiple suppliers nationwide and thus have the same multiple connectivity and data integration issues ― which in turn require additional administrative support costs to meet the needs of all their trading partner relationships.

Taking a closer look at the needs not just of the Major Oil companies but of all trading partners in this complex, fragmented distribution system reveals the importance of establishing an independent, centralized, web-based Data Hub for the downstream supply chain. Factor in over 300 suppliers, 8,500 marketer/jobbers, 1,400 terminals, 800 common carriers, 180,000 convenience stores and retail fuel dealers and millions of commercial/industrial end users and you can begin to see the thousands of connections needed to manage the millions of data transactions that take place every day. Complicating the problem is the sheer scale of the downstream supply chain that is supported by hundreds of incompatible applications and user-built spreadsheets in use today.

Common sense and studies conducted by suppliers, technology providers and independent consultants have reached two related conclusions:

  1. Most independent marketer/jobbers are not going to add to their costs by manually logging onto multiple websites to conduct business online.
  2. Therefore, an independent, centralized, automated solution must be built, managed and hosted by a third-party data aggregator who reduces costs for all stakeholders.

The Centralized Data Hub Solution

The centralized Data Hub will have to be an open-access, moderately priced, independent marketer-oriented, web-based solution for cost-effective access by all trading partners. While aggregating industry-wide data into a fully scalable, secure-enterprise platform, the Data Hub also needs to allow multiple parties to connect simultaneously and share proprietary, password-protected supply chain information. However, it is only by integrating seamlessly with a host of third-party applications and all downstream supply chain stakeholders that the goal of a fully automated petroleum supply chain will be realized.

Though data aggregators currently exist in the downstream space, there is no transaction reconciliation clearing house. Passing electronic data between two trading partners is a good start ― but only a start. Data Hubs and financial transaction clearing houses in other industries provide an automated, electronic collaborative environment where transaction validation and financial reconciliation save time and money for all stakeholders. They accomplish this by reducing their dependency on manual paper matching processes and shortening their order-to-pay cycle times. After all, the goal in automating the fuel order-to-pay process is to put electronic transactional data directly into the fuel buyer’s accounting system as quickly as possible. This begins the financial and inventory reconciliation process that in turn accelerates accounts payables, saving both fuel buyer’s and fuel seller’s money.

Today’s data solution needs to go much further than simply distributing daily “Rack” pricing and text messages to an independent distributor channel. It has to provide for near real-time order/dispatch management, inventory “position” management and multiple data transaction reconciliations. It must ultimately deliver a cost-effective, collaborative solution for financial settlement between each of the five critical trading partners ― all off of one “Rack” lifting and fuel delivery.

In order to accomplish this, the Data Hub must enable two-way, near real-time communication of data-rich electronic files, including: posted “Rack” price; customer specific and spot pricing; invoicing; EFTs; credit card data; structured text messages; eBOLs; terminal, product, customer and trading partner allocations; and terminal lifting reservations. These data communication files must be available in both standardized and “normalized” data formats for easy integration into a wide array of marketers’ back office and third-party applications. Further, the solution must address distribution through email, FTP, EDI, WAP and PDA support, as well as import/export to spreadsheets, multiple databases and all common file types in order to meet the requirements and deliver the cost-saving, value-added solutions needed by the complex downstream distribution channel.

What Can You Do Today?

Even without an industry wide Data Hub solution, there are steps you can take today to increase efficiency in your company’s fuel operations.

Start with computerizing and automating your operational processes, such as price analysis tools for both competitive street price and wholesale “Rack” prices. This will give you an accurate, objective benchmark to aim for, as well as help you to track your results and show improvements. Most back office providers have Fuel Management and Best Buy modules that should include freight and tax tables to show a true “delivered” or “laid-in” price. There are also a few standalone applications on the market, as well as consultants who can build customized applications or spreadsheets for managing the supplier, terminal and product price offerings.

For access to electronic data, contact your suppliers to see if they can send you XML, CSV, or other standardized price file types or for a recommendation for third-party data sourcing. Contact your back office provider to see what file types they support and what import/data automation modules or applications they have available. Marketers who are ahead of the curve have written their own import data applications and most back office providers are able to recommend their own staff or a list of consultants available for custom projects.

Finally, get involved in your trade association’s Technology and Best Practices committees to see what is available on the market and to find out what other marketers and retailers are doing to improve and automate their fuel management process today.

The Bottom Line

To put it simply, the opportunity to improve the data supply chain in the downstream is significant. The level of friction (or inefficiency) that exists in transactions that involve multiple supplier to the marketer to the commercial and retail customer transactions will continue to put tremendous pressure on the whole downstream petroleum distribution system until all trading partners are fully inside the collaborative data circle.

When you factor in the total number of trading partner and stakeholder relationships involved in ensuring efficient delivery to the entire geographic petroleum market, the task seems daunting — but the long-term cost reduction/revenue enhancement opportunities justify the efforts to integrate the downstream supply chain. It will take more than just Major Oil companies and marketers to accomplish the end game. Total industry supply chain efficiency at the oil company level is only one piece of the picture.

It will take integrating supply chain process efficiencies beyond an oil company’s internal processes and primary trading partners down through all their trading partners. In the end, extending the collaborative data communications through their critical independent marketer channel to the fuel-buying customer will be the ultimate “Holy Grail” of supply chain optimization.