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Oil Inventory Optimization & Management

Oil Inventory Optimization & Management

Oil Inventory

Article Author: Bob Johnson (Business Development Manager- Automotive)

Ensuring you have what you need when you need it!

Servicing today’s cars can be complex and challenging.  OEM specific oil formulations like GM dexos 1 and the proliferation of engine oil viscosities and specifications have made it difficult to have the right oil on hand.    

Here are some key tips to ensure you have what you need when you need it:

  1. Rationalize SKUs

Normally, the larger the package size the lower the cost per gallon.  This has led many operators to move many products into a bulk tank.  From a cost perspective, this makes sense.  However, the inventory cost and operational challenges this creates must be considered.  Is there adequate space for bulk tanks?  How fast are you turning the inventory?  How many products can your oil distributor deliver at a time?

Analyzing product usage and identifying the “right” package size will save you money and help make your team more efficient.  For example, convert the ATF bulk tank to an engine oil that is higher volume.  Another example is to discontinue stocking high mileage engine oils in your bulk tank and use a high mileage additive to convert your conventional, synthetic blend or full synthetic engine oil to a high mileage product.   Further, you can move bulk or drum packaging to bag in the box- in some cases the cost per gallon may be closer to the larger packaging than you think.

2. Implement and Utilize an ERP System with Inventory Management Capability

There are many highly capable ERP / back office systems for a quick lube operator to take advantage of.  One of the key components of a good system is a robust inventory management tool.  In addition to knowing what you have on hand, you can view historical sales data and take a proactive approach to ensure you have what you need when you need it.

3. Utilize Digital Remote Tank Monitoring

Technology can make us more efficient and that is certainly the case with digital remote tank monitoring.  Utilizing digital tank monitoring can help you:

  • Manage bulk inventory more accurately and reduce shrinkage
  • Provide electronic monitoring in real time to provide your supplier insight into your tank levels to prevent runouts
  • Help your supplier improve efficiencies by allowing deliveries through optimal logistics and timing while maximizing delivery economics
  • Provides software to help manage, monitor, report and alert.  Most systems offer mobile app as well.

Utilizing digital remote tank monitoring can be especially important if you operate multiple sites.

4. Establish a Bulk Oil “Keep Fill” Program

While tapping into technology in the form of digital tank monitors is a great way to manage inventory, utilizing a “keep fill” program can also be a very effective approach.  Working with your oil supplier to establish product usage based on historical data will help you maintain the correct amount of inventory and prevent costly runouts or having too much inventory on hand.  This should be reviewed on a quarterly basis to ensure necessary adjustments are made to address changing trends.  Also, if you foresee a short-term change in usage this should be communicated to your supplier.  An example could be a promotion you are going to run that could spike usage.

5. Oil Supplier Efficiency & Collaboration

Helping your oil distributor be more operationally efficient is probably not something you have been concerned about in the past.  Efficient oil distribution is your supplier’s concern and rightly so.  However, collaborating with your supply partner can offer benefits to your business in the form of potentially lower pricing as a result of increased operational efficiency of your supplier and reducing the number of deliveries.  Here are some examples:

  • Based on inventory usage and needs, allow your distributor to make fewer but larger deliveries.  An example could be that you are normally receiving weekly deliveries but not filling your bulk tank.  By filling your tank you would have fewer deliveries and as a result, fewer invoices, fewer disruptions and more efficiency.
  • As previously mentioned, optimizing and rationalizing bulk oil tanks is very important to your operation.  It is also a very important aspect of supplier operational efficiency.  For example, most bulk delivery trucks have 5-7 compartments.  If you order more bulk products than can be delivered it will require additional trucks / deliveries that lead to disruptions of your operation. 
  • Work with your supplier to identify best days and times for deliveries.  What are your busiest days?  Can orders be delivered before or after normal business hours?

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