October 9, 2009
• Glen Sokolis, Sokolis Group • Bookmark +
Many companies large and small have no idea how to negotiate fleet fuel prices and discounts.
Those that do may or may not do a very good job with those negotiations, not realizing the amount of detail needed to make smart decisions and the need to follow up on those negotiations.
Take bulk fleet fuel, for instance. Many will have daily pricing faxed or e-mailed to them from one or more suppliers daily. But they have little or no knowledge of what makes up the price, and purchase from the vendor with the lowest price that day. Or a company may have gotten set up with one vendor years ago to supply a tank at the company's location and still fuel that vendor-owned tank based solely on the fact he offered the lowest price years earlier. Or they may have negotiated a set margin over a benchmark such as OPIS or DTN if they were smart -- but more often than not, they haven't.
They will negotiate a margin set to the vendor's "cost plus" or "rack plus" and feel that they have gotten a great deal. What exactly is cost plus or rack plus? I'm a fleet fuel consultant, and I couldn't tell you if either was a good deal. What is cost? What rack? Cost could include anything. Is your vendor's wife's Mercedes lease payment part of the cost? How could you possibly track it? How could you track it if you are a fleet manager of a large decentralized company even if you negotiated the margin to a benchmark such as OPIS? How would you have the time?
During a recent fleet fuel audit for a potential client, I came across an invoice on which the local branch manager had proudly made the notation, "renegotiated pricing to 8 cents over rack," and sent the invoice off to corporate for payment. Our data analysts ran all of the month's transactions through our database. I looked at the real numbers for that particular transaction, and the subsequent transactions after this local manager's expert renegotiation of the margin to 8 cents over rack. The margin prior to his talks with his vendor were 8 cents. After employing his expert negotiating skills the actual margin jumped to 23 cents. They couldn't know that unless they tracked and checked it daily and compared it to a visible benchmark.
Effective fleet fuel management is not "set it and forget It" like a programmable thermostat. It is something that requires commitment, resources, expertise and diligence daily. Who's watching your bottom line?
Glen Sokolis is president of Sokolis Group, a nationwide fuel management and fuel consulting company, www.FuelManagementSokolisGroup.com. You can reach him at gsokolis@sokolisgroup.com or (267) 482-6160.
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