In 1985 a wind of change started to blow when Amoco decided to outsource its mainline delivery operations to haulage contractor Wincanton. Since then, the outsourcing of road delivery operations has become the norm in the oil products’ supply chain, based on the rationale that it is not considered to be a core competency in an oil company’s downstream business.
Logic dictated that logistics was a task best left to those specialising in owning and operating truck fleets i.e. haulage contractors. In addition to the physical delivery operation, contractors typically provide three key supporting activities – order taking, scheduling and routing. In many instances they also provide stock reconciliations and replenishment planning/management. Taking this a stage further, contractors have deployed unbranded or white tankers to facilitate their various delivery activities, providing scope for enhanced efficiencies and cost savings.
For the domestic heating oil customer segment, the delivery service and the extent to which it can be promoted and made bespoke are intrinsic features and in effect an extension of the sales proposition. There are also confidentiality issues around customer portfolio details, access to pricing and other sensitive data. With these considerations in mind, it is hardly surprising that distributors have not entertained the possibilities of sharing deliveries with others covering similar areas, despite the tangible opportunities for cost savings and efficiency improvements.
On the other hand, the emergence and growth of group/community buying schemes demonstrates that there is a customer awareness of the benefits of sharing.
Are distributors ready to reassess their delivery operations?
Looking at other sectors serviced by distributors such as commercial, industrial and agricultural, the features that characterise the domestic heating oil market are much less pronounced. By and large, these markets have become commoditised and between them they comprise total requirements which are approximately five times larger than the domestic heating oil market. So, is there not potential here for distributors to entertain a measure of collaboration to reap efficiencies and cost saving benefits?
Surely the challenges of operating in a mature market which is experiencing structural decline, coupled with the inevitability of ongoing cost and margin pressures, warrants serious consideration of the scope/opportunities for sharing deliveries – across all market sectors.
It remains to be seen if these forces will be sufficient for distributors to reassess their delivery operations and herald a departure from established practice as Amoco’s move did back in 1985.