Management: Fuel Practices

We all want to operate more efficiently. Fuel, electricity, everything is becoming more expensive. Reviewing the oil prices as they flash by on CNBC must strike fear into the heart of any fleet manager. Only a few companies can increase the price we charge in transportation services to keep pace with the explosion in oil costs and the inevitable diesel price rises to follow.

To make the situation more surreal, companies holding fuel inventory have a strange situation. This was also a problem in the last price explosion. If the price of diesel jumps $.15 then the 80,000 gallons in the ground is now worth more. The service station (or private fleet) has a profit of $12,000 from the commodity price change. The problem is that when they go to replace the inventory the price might have gone up an additional nickel. Now they need $4,000 more cash just to replace the inventory. Companies were making profit off of the stored oil and then running out of cash.

The only way to deal with this problem is to hedge the diesel. To hedge, you go to a commodity exchange and buy a future that entitles you to a certain amount of oil for delivery on a specific day in the future. Large users of fuel, such as airlines and big trucking companies, hedge the fuel costs to know what their costs will be for the rest of the year. Of course it costs money to buy the contract. If the price of the diesel goes up you make money on the commodity option to cover the money lost when you buy the actual commodity. If the price of diesel goes down you make money off the diesel and lose money on the option. Pretty neat. That is one approach that companies should look at.

There is another approach. Lower your reliance on fuel! We are impacted less if our fleet average is seven MPG than if our fleet average is five MPG. In Lean Maintenance I discuss the approaches to this problem.

It turns out there are three levels to Lean Maintenance. Each level includes the levels lower than it. Each level expresses a higher level of knowledge, investment and commitment.


Level One—Looks lean superficially: Lean Maintenance efforts start with ‘Looks Lean’ projects. It is likely that there are easy savings to be found, or what is called ‘Low-Hanging Fruit.’ You could just reach out and grab the savings. In fuel, we can start a tire inflation program to insure all trucks rolling out the door have proper inflation. This is a well known and understood way to save fuel, and does not require much study. Other savings (non-fuel) of this type include relamping your office area with compact florescent lamps, or plugging compressed air leaks. There are great, quick and low cost actions that can be taken in this domain. Many organizations are satisfied to operate in level one and never go to the higher levels.

Level Two—Studies to make lean: Once the ‘Low hanging Fruit’ is picked you will have to conduct studies and do some research into Lean practices and products. The effort and knowledge required for success is higher.

Savings here might include high efficiency motors, more efficient starters or more slippery lubricants. This would involve doing some research or running tests. Let’s say we wanted to check the new lubricants. To properly do this we would have to run some tests and do some research. Also improved inspection technology such as infrared cameras, special listening devices, or more sophisticated engine scanners might fit in here.

Level Three—Lean potential limit given existing technology: At the top of the totem pole is the investigation and adoption of new, different and more efficient components, manufacturing processes or technologies. These processes might offer better yields, higher quality, increased up time, lower energy usage, and less maintenance intensive processes. Included would be maintenance process re-engineering, GPS routing, integrating technologies so all systems work together and major changes to new technologies for efficiency and improvement. Perhaps hybrids or electrics fit here, or other radical solutions to the fuel problem.

We are facing a crisis. Sometimes when facing a crisis it is time to pull out all the stops and look at new ideas and approaches. Of course if anyone has any spare cow magnets they migf5-p26_management


ht be popular items on E-bay (for the young-timers cow magnets were marketed during the 1979 oil embargo to improve gas mileage, just put them near your fuel line and all the molecules would line up and the fuel would burn more efficiently).