Inventory Challenges

By Joel Hershey

Since the beginning of retail gasoline facilities in the United States, petroleum marketers have struggled to keep close tabs on all aspects of their petroleum inventory—not only what is in their tanks, but also what is at the racks, what is being transported and delivered, and ultimately what gets dispensed or sold to the consumer. So why is inventory so difficult to track? One would think it's just simple math, but it's not that easy. There are several challenges to obtaining good inventory information. Helping your customer understand and overcome them will make you a valued partner.

Stick Reading
Beginning with data acquisition, many marketers determine how much product they have in their current inventory by sticking or gauging their tanks. This typically is done by the store clerk who “sticks” the tank daily with a dipstick and hopes the readings are accurate because he or she is using a good stick and is consistently reading to within one-eighth of an inch for recording purposes. If the stick is slightly bent from one reading to the other, a discrepancy will occur. Factor in the possibility of different store personnel performing this task, inclement weather (Have you ever tried to stick a tank when it's raining out?) or the possible use of the wrong tank charts, and the store owner is left with the start of a problem that contributes to the slippery slope of inaccurate inventory measurement.

Automatic Tank Gauge
Other marketers may be using an existing automatic tank gauge (ATG) for determining inventory levels which may “fix” some of the problems associated with tank sticking. However, it is possible that accuracy of inventory readings may be impacted by tank tilt or poor programming of the gauge. In many cases, the ATG on the wall is the most poorly utilized investment on site. Most marketers use it to record minimal data but primarily rely on the store clerk who is left to interface with, record, analyze and then transmit valuable data to a central office. The challenge of collecting this data from various locations and then transmitting this data is often cumbersome, time-consuming, inefficient and, at times, not accurate. Most operators currently rely on the store clerk to reconcile the inventory, and they only do it because it is part of the regulatory requirement for release detection.

Reconciliation
Even with all the challenges just cited, the concept “it's just simple math” has a place in the process. Teach your customers how to record the opening inventory, deliveries, sales or throughput of product, and then how to identify the closing inventory reading. Complete the reconciliation process of comparing “book” inventory to “actual” inventory. It appears to be simple, but more than likely if you were to visit 100 stores, you may find that many of them would have incomplete and inaccurate reconciled reports exceeding the state allowable variance for inventory reconciliation. In some states, the threshold is as low as one-half of one percent of throughput per recording time period. In fact, one state requires this reconciliation every seven days.

There usually isn't just one reason as to why reconciliation is not matching. Below are a few of the reasons:

1. A surprising number of store managers and clerks don't really know how to do it.
2. Some of the store staff are complacent and just don't do it (infrequently find some never doing it).
3. Poor math skills.
4. Staff uses a bad stick.
5. Staff uses the wrong tank chart.
6. Deliveries are recorded incorrectly.
7. Inventory data are not being read (closing readings and throughput) at the same time of day. This is very important for correct reconciliation.
8. Confusion using Gross delivery vs. Net delivery.
9. Staff uses incorrect forms. (In the U.S., recon-ciliation may be required weekly, every 10 days or monthly.)
10. Blended systems with manifolded tanks skew the data.
11. Some clerks are unsure of the allowable variance thresholds.
12. Reports are lost and cannot be found.
13. On many occasions, the reports just sit in the store. They are typically not reviewed by management authorized to make meaningful business decisions.

Irreconcilable Differences
Assume gasoline is priced at around $3.00, and diesel is selling for around $3.50 per gallon. In some cases, a gas station may be holding as much as $100,000 of petroleum inventory. The staff has done the math and reconciled the data, but the inventory is still showing a variance exceeding the state allowable. From a financial perspective, this is costly. Some states allow one percent gross plus 130 gallons. If a store's throughput is 150,000 gallons a month, an unaccounted-for variance of 1,630 gallons is “allowed.” In economic terms, that equates to $4,890 per month. That would cover the salaries of two clerks at the site.

By way of another example, consider that your customer is operating in a tightly regulated state and the allowable variance on inventory is one-half of one percent. “Regular” gasoline is showing a 442-gallon shortage, and there is an allowance for a variance of 119 gallons. The inventory is missing 323 gallons. To reconcile, the clerk checks the math and determines if everything adds up correctly. The clerk looks at the delivery ticket and normally uses the gross gallonage for delivery. However, this time the clerk sees that the Net delivery is actually 326 gallons less. By using the Net numbers, the problem has now disappeared.

Human nature is that most people want to make problems go away. Finding the numbers through a process that can “make it work” is a shortcut that can lead to real problems.

So What Really Happened?
There could be many reasons for shortages, and any of the following are suspect:

• Bad calibration (meter drift) of the dispenser meters (in essence giving away 200 to 300 gallons of gasoline to the motoring public). Dispenser calibration is usually performed by Weights & Measures, and the standards are established by regulators for meters to be within plus or minus six cubic inches per gallon dispensed. There are 231 cubic inches of volume in a gallon of gasoline. Given the tolerance resolution mandated by government and meeting certification, a station selling 100,000 gallons per month could be giving away over 500 gallons of gasoline and still be in tolerance. This happens more often than people realize.
• Bad stick readings
• Inaccurately captured sales data from the POS or totalizers
• Use of wrong chart numbers from another tank
• Sloppiness
• Wrong tank chart
• Leaking UST system
• Distraction with other duties
• Theft.

What really happened in the second example above was that the delivery tanker planned to drop 6,700 gallons of product, but realized he couldn't force any more into the tank. He was then told to bring the extra 211 gallons to another store, but no one else was aware of that. If the central office or if someone ordering and scheduling deliveries had accurate, up-to-date site inventory and delivery information, this probably would not have happened. In this case, the product was incorrectly delivered to another site.

Having the right information to make good decisions is critical to maintaining profitability and regulatory compliance. There are systems and services currently available to provide real-time data collection, aggregation and reconciliation. The key to successful inventory control is accuracy, consistency and utilizing the power of available technology.

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The PEI Journal • First Quarter 2009 • Volume 3, No. 1 • Contents are Copyright © Data Key Communications, Inc.
All rights reserved. • Nothing may be reproduced in whole or part without written permission of the publisher.