Four Ways Automation Helps Manage Inventory
The downstream energy industry used to be rhythmic and punctuated. Prices were posted, the market responded, then everyone waited for the next posting. It isn’t like that anymore. Now credit, allocations, lifting, and billing data are all in instant demand. When the market can move in minutes, manual processes for tracking this data create disadvantages.
Instead, automation can help businesses complete tasks faster and more efficiently with the highest possible accuracy, allowing staff to move on to other tasks without worry.
A solution that doesn’t cause problems
While manual processes are slow and invite errors, business leaders must be confident that automation doesn’t just supplant one set of problems for another. After all, it’s not a net benefit to the operation to make mistakes faster than they did before.
In our survey of downstream leaders, 72% said digitization is a top priority, but 43% said they had yet to even begin their digital modernization initiatives. While caution may be justified, there are clear benefits to embracing automation.
1. Fewer fire sales
When inventory doesn’t account for in-transit product, terminals can end up oversupplied, necessitating large discounts to free up tank space, which takes big bites out of already-small margins.
Let’s say you’ve undersold 120,000 gallons that should go for $2.4319 at the rack, but you have to dump it at $2.3910. That’s a loss of almost $5,000! An automated inventory system prevents those losses by giving you total visibility across all your storage and lifting locations, allowing you to make more profitable trades — on your own terms and schedule.
Under-selling 120,000 gallons by just $0.0409 can lead to a $4,908 loss.
A related concern is the RVP changeover coming up quickly. If you still have high-pressure gas in your tanks, you need to get rid of it — fast. If it’s still there after the blend-down deadline, those tanks will lock for the season; it cannot be sold to anyone at any price. While rare, letting a 60,000bbl (or more) tank sit idle for an entire summer is a loss of revenue too staggering to contemplate. With up-to-the-minute inventory information, you can move your high-pressure product in time and at a reasonable price.
2. Improve forecasting
With automated data, the time previously spent performing manual error correction and tracking down information can be put to better use. For example, you can analyze lifting orders and requests for credit to see if there’s a pattern. If so, you can better forecast inventory and allocation needs.
Overselling product by 60,000 gallons can cost you $12,000 based on $0.20 a gallon in missed margins.
This avoids costly runouts. If a supplier sells 900,000 gallons of a product, but there only were 840,000 gallons available at the rack, that means trucks got dead-headed. If there was a $0.20 margin on the gallon, that could mean over $12,000 in missed margins, and that’s just at one terminal. Less quantifiable — but maybe more valuable — is the damage to that seller’s reputation. Turn away enough customers enough times, and they’ll take their business somewhere else.
With improved forecasting, you not only prevent such losses but can also anticipate arbitrage opportunities with time to execute profitable transactions immediately.
3. Avoid penalties
Automated data flows track product lifts without manual labor and flag missing eBOLs for an immediate response. This can save you thousands.
When a bill of lading goes missing, there’s a risk you could violate the 30-day tax reporting period requirement. Let’s say 10 transaction records of 10,000 gallons at $2.40 each are nowhere to be found at the end of the month. You could be looking at a fine of over $289,000.
Instead, with instant notification of a missing eBOL, staff can immediately track it down well ahead of the reporting deadline, easing the pressure of end-of-month accounting.
In fact, there’s no reason to wait until the end of the month to initiate the reconciliation process. With automation, your employees can perform accounting processes when it is convenient.
4. Enable employees to do more
In addition to the beneficial impact on profitability, there are other positives to modernizing and automating inventory management.
Some suppliers have all the employees they need to manage their supply, scheduling, pricing, and accounting needs. Majors, for example, can have over 10,000 employees. Most downstream players must make do with significantly fewer resources, often combining job roles into a single employee. After all, with the continued post-pandemic labor market crunch, hiring more people can be challenging.
With automatic supply and accounting processes, it becomes easier for smaller teams to stay on top of their market and improve the customer experience.
Gain an advantage
The downstream industry (and the world in general) is not slowing down, nor will it be less complex. Automation will become less of a nice to have and more of a need for companies to remain profitable in a low-margin business.
See more benefits of automating your business — explore DTN TIMS® today.