Bring Agility to Your Supply Chain with Fuel Management
ByJenny Vander Zanden
August 11, 2021
Developing an effective supply chain strategy is an increasingly complex task. From new technologies and changing regulations to the volatile fuel market and other seemingly unpredictable elements, shippers have numerous factors to consider.
That’s why many organizations have adopted agile supply chain principles. Whereas a lean supply chain concept focuses mostly on removing inefficiencies to reduce costs, agility includes the ability to be flexible and adapt to change as challenges present themselves—and the pandemic has presented a compelling case for it.
But when you think about agile supply chains, many immediately think about manufacturing operations, transportation networks, and crisis plans. And while these are certainly important considerations, a truly resilient strategy looks at all of this, in addition to lesser-known threats, to ensure they are navigating efficiently.
Managing a Previously Untouchable Cost with Agility
Breakthrough has long championed market-based fuel reimbursements because we believe that using a surcharge to manage one of the most volatile costs in your supply chain is not an industry best practice.
Using daily fueling station data from across North America, Breakthrough brings accuracy and transparency to an otherwise distorted practice that historically exposed shippers’ supply chains to unnecessary costs.
But how does a market-based approach to fuel management, like Fuel Recovery, make your strategy and planning more agile? Three key elements emerge when shippers make the switch:
Faster Response Time by Staying Proactive
Flexibility in the Face of Disruption
Cost Efficiency Enabled by Real-Time Accuracy
Staying Proactive and Anticipating Changes Lead to Faster Response Time
An agile supply chain must be able to respond quickly, adjusting to disruptions and fluctuations in supply and demand as fast as they occur. While some organizations primarily react to changes in the market, truly agile shippers are often expecting that change and already have a strategy in place to address it.
Geopolitical events, natural disasters, policy, and overarching market economics can impact fuel prices with little warning. This makes prices volatile, and traditional fuel management practices make it almost impossible to respond to rapid changes quickly. Most traditional fuel surcharge calculations only update their index-based pricing information weekly, and when changes happen faster than their data does, shippers end up paying inaccurately for six out of seven days.
What better way to improve speed than to stay ahead of the game? Beyond transitioning to market-based fuel reimbursements—which update daily as the market ebbs and flows—going beyond fuel calculations becomes crucial. Seeking unbiased market analyses and trustworthy forecasting becomes paramount to preparing your team and operations for anything that comes their way.
Better Data and Nimble Operations Provide Flexibility in the Face of Disruption
The entire transportation industry is organized around creating robust plans that attempt to encapsulate the intricacies of a shipper’s network for the year ahead. But we all know, and have experienced first-hand through the pandemic, that the transportation industry is incredibly complex and can change at a moment’s notice.
When massive disruption strikes your network and plans are sent into disarray, transportation teams are set in motion to adjust. As your team performs a network triage, several things rise to the top as high priorities—getting your goods to market, communicating with internal stakeholders, and addressing changes in cost or budgeting.
But Fuel Recovery is designed to be agile at the outset, giving shippers confidence that their costs will adjust automatically, relieving a shipper’s transportation team to focus on other, more pressing tasks. This eliminates rework with your carriers and TMS to adjust pricing after major price swings–like when the price of crude oil dipped below zero early in the pandemic–and your conversations can remain more critical and strategic.
Real-Time Accuracy Creates Cost Efficiency
An agile fuel management strategy will free up strategic time and energy to address other challenges, and it will also decrease response times. But one of Fuel Recovery’s most notable benefits is cost aversion. With traditional fuel reimbursements, there will always be a “winner and loser” when markets move quickly. Fuel Recovery eliminates this dynamic because shippers and carriers align around precise fuel costs on every shipment, every day.
On average, the discrepancy between actual fuel costs and reimbursed amounts is around 30 cents per gallon. Over millions of miles and thousands of gallons, those costs add up and create inaccurate baseline accounting and consumption information that is difficult to measure, manage, and improve upon.
As shippers move from an index-based program into market-based fuel management, their initial goals are to gain transparency and align the true cost of fuel with their transportation budgets. But that’s only the first part of how a Fuel Recovery program benefits shippers. Shippers can use this clean and accurate data feed, brought to life in the FELIX platform, to identify advantageous mode conversions, emissions reductions initiatives, and to identify best-fit carrier matches on every lane.
Since overall fuel costs tend to make up 20-30 percent of the cost of moving goods to market, the ability to better manage fuel expenditures will make a significant difference for both your bottom line and your ongoing strategy. Agility relates to every aspect of a successful supply chain, including even the most difficult to manage and volatile line items in your control.