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04 jun 2019

Challenges in Downstream Oil & Gas Distribution

And how innovative technology can help you address them

Lasse Jiborn - Commercial Director of Intelligent Optimisation

Route- en bedrijfsoptimalisatie Technologie

When talking about the oil & gas industry, one typically distinguishes between the following three segments: upstream, midstream and downstream. The different segments refer to the different stages that the resource goes through, from being excavated underground to the delivery for the end consumer. Downstream is the last of the three stages, in which the crude oil is processed into the end products and in turn distributed for retail or commercial purposes, and even for home deliveries in some instances.

With the transportation of the downstream segment accounting for 65% of the global consumption of oil, there is ample opportunity to optimise this part of the oil & gas industry. In addition, the industry often falls victim to global market trends that results in fluctuating oil prices, costs, margins and demand. Optimising your business and safeguarding it against these uncertainties is vital.

An added bonus; Even though distributing oil & gas will never be a green business, by implementing innovative software and technology, the industry can optimise their processes and reduce their own carbon footprint. Something that in and of itself sounds incredibly ironic when dealing with this particular industry. Regardless, it’s something that should be on top of everyone’s mind.

So how can technology help?
Being able to forecast expected consumption at customer sites is key. By using complex algorithms for planning delivery schedules, you are able to safeguard against dry runs – but equally as important, you will also be able to avoid binding too much capital in tanks with lower consumption frequency. You may think it’s better to fill your customers’ tanks to the max with petrol, because that will save you money, extra trips, driven kilometres, which in turn would mean reduced CO2 emissions. This is a common misconception however. While you might think that it’s the best approach for the environment, it may not be the best approach for your bottom line.

But shouldn’t the environment take precedence over a company’s bottom line in 2019? Well, yes, in an ideal world, it should. Be that as it may, it is not yet the way most businesses seem to think (one can hope for the future though, right?). However, what if I told you that you could optimise your downstream oil distribution, save on costs AND reduce your CO2 emissions while doing it? Who could say no to that.

If you fill every fuel station or customer site to the absolute max level, you will most likely be leaving product, and capital, behind, which won’t all be realized right away. If said fuel station was frequently visited by consumers and the tank was rapidly emptied, perhaps it is the best approach, but perhaps not. Because what about the fuel station 5 km away, which sees less frequent usage? And the next fuel station 15 km away? The most optimised route might mean visiting all three locations in the same drive, but not all customer sites have the same consumption frequency, nor would every single site have the same stock and binding capital level.

Using complex forecasting and route planning software, you can estimate how often you should visit site 1, 2, 3, etc. and to what degree you should fill up their oil tanks. Perhaps you visit number 1 twice a week, number 2 once a week and number 3 once every 10 days, but all in the same trip, thereby saving you driven kilometres, reduce the binding capital and your CO2 emission.

What about your complex, intricate requirements and restrictions?
The right software solution can take these items into account too. The algorithms will calculate the expected forecasting consumption based on historical data, dip readings and whatever other data, requirements and restrictions you feed the system with.

The requirements can include anything you want it to. Perhaps you have trucks with multiple different compartments, transporting different types of products all at ones, some of which are prohibited from being placed in adjoining compartments due to safety issues. Perhaps you have on-load vs. off-load and weight concerns that are ultimately also connected to safety; if you empty one compartment before another, it could result in the truck being unstable during driving.

By choosing an innovative route and distribution planning tool, all these challenges become a thing of the past. With the right software provider, it’s only a matter of mapping out the process flows of your business and gathering data for the forecasting algorithms. If on top of that, you choose a supplier with proven experience and expertise within the oil & gas industry, you’re already half way there, as they have most likely seen similar challenges in the past.

Is it possible to avoid dry runs altogether?
Even the most effective system cannot safeguard against outside changes 100%, but an excellent system can ensure that if a dry run should occur, it won’t create headaches for any staff members, especially the driver or the planner. If a customer does end up experiencing an unusual high level of consumption, the system will handle it automatically.

For oil distribution, the order pool is constantly changing and with it the just-in-time delivery demands. Adding urgent ad hoc-orders for these dry runs is no longer something to fret, as the order can be sent directly to a driver returning to a depo for a new lift on a mobile device. In addition, the planner will have a fully real-time overview of all of his/her trucks, with status updates on all orders, including the ones delivered in time, the ones delayed and any new orders.

What are the proven business values?
Choosing the right software solution for your oil distribution can bring you superior customer satisfaction unlike any you’ve ever seen before. This you can achieve with seamless digital engagement and customer self-service, not to mention visit accuracy, the very key to this type of “just-in-time” deliveries. With the right system, you will also accomplish shorter response times on customer requests and a proactive solution to any service issues. As previously mentioned, just-in-time tank replenishment can be fully automated, and the system can send real-time ETA updates to your customers.

Customer satisfaction is very important, but if you want to have hardcore-bottom-line numbers, you can expect to reduce your CO2 emissions, mileage and driving time between 10-20%, while having 5-15% fewer vehicles on the road. As for your back-end office, expect to reduce your time spent on planning and admin work with at least 25%, but as much as 75%! That alone should be enough to get your CFO’s attention.

Does such a solution even exist?
Yes, it does – and you’ve come to the right place. If you’ve made it all the way to the end of this blog, I would recommend you get in touch with us to see how we can help you prepare your business for the future in a challenging oil & gas industry under heavy pressure.