The Price Point Crusader

If there was ever a prize for Most Convoluted Supply Chain, the oil industry would probably win first place. But Kristen Irvin, founder of TeamFuel, is not interested in the complexity; rather, she's interested in the victim of the complexity: the end...


[From iSource Business, September 2001] The situation is typical: High gasoline prices across the United States make the Organization of Petroleum Exporting Countries (OPEC) an easy target for consumer and political ire. Oil and gas analysts suggest that high prices at the pump are a combination of growing demand, tight refining capacity and, of course, current oil prices. And despite the most recent respite from those exorbitant fuel prices in the last few weeks, oil and gas prices still constitute a significant concern for retail and wholesale consumers alike. But it's ultimately in the prices where room for savings exists, and that drives Irvin to take on a crusader-like approach to the business.


Up until 1992 Kristen Irvin worked for her father, who ran an independent fuel wholesaler. But, Irvin couldn't help noticing a troubling phenomenon: The oil companies seemed to be getting very wealthy in a downturn or upturn at the expense of customers. Suppliers, she saw, were able to hide price information from end users and, as a result, force them to buy at whatever seemed to be the going rate.


So Irvin decided to start a business to help vehicle fleets, utility power plants, railroads and airlines get better prices. Her company, Kristen Schaffner Petroleum, worked with a handful of companies. Then, in 1998 she changed the company's name to TeamFuel; hired a CEO; and, using a highly sophisticated suite of Web-enabled technology, she turned the company into one that was able to optimize the entire fuel procurement process for clients, from monitoring prices to payment. Her customer base, currently 65 strong, includes Arizona Public Service, Frito-Lay and the Walt Disney Co.


iSource Business talked with Irvin about the analysis of her industry's supply chain and the ways in which technology has helped her and her company assist others.


iSource: Let's start by talking prices. Why do oil and gas prices get so high, and who's responsible? Is it OPEC?


Irvin: I can talk more specifically to my space, which is the supply chain for wholesale refined products. Plus, I'm not an economist. And, I have to add that there are many different opinions on why prices can become so high. With that said, I think OPEC is just one factor. For example, although OPEC has been very stable in price, we've seen some of the highest retail and wholesale prices ever.


The real reason comes down to basic supply and demand. Supply is low and demand is high. Despite this, opportunity exists for price-savings optimization.


iSource: Why is that?


Irvin: Crude inventory at the refinery levels are down because oil companies realize that it doesn't make sense to invest capital in inventories. They used to work with three months worth of inventory, which made prices for refined products, like gasoline and diesel, less volatile. Now, they're holding down capital inventories on crude to three or four weeks. Shorter inventory creates more volatility in the market. Remember: It's a big investment in capital for refineries to have three months worth of product. It's better for their bottom line not to tie up their capital.


iSource: What other factors are at work?


Irvin: There are a lot of other factors shaping oil prices along the chain. One of the biggest is the speculative market for refined products, which is fickle and very influential. Another factor is that there are fewer players out there because of mergers. That's important since, particularly for refined products, reformulated fuels that are environmentally acceptable require tight specs to decrease pollution. With fewer players, there are fewer people with the ability to produce this product.


All of these things are affecting supply and demand.


iSource: But don't the oil companies take a more active role?


Irvin: They play economic games to get prices up, like cutting back production, for example. If one product, like gasoline, is high in price, refineries stop producing diesel and produce a lot of gas because they'll make a lot of money. That creates a glut of gas, however, which then goes down while diesel goes up.

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