4 tips to save on bulk fuel purchases

Buying fuel for your business can be a cumbersome process. Whether you use 10,000 or 10,000,000 gallons of fuel, the traditional process can be slow, complex and difficult to manage. To make sure that you are finding the best deal for your business you must:
  • Identify and contact local fuel suppliers. This is even more complicated if you are managing multiple locations.
  • Monitor prices using a combination of fax, email and phone. Because prices are changing throughout the day it is almost impossible to be sure that you have every supplier's most current price.
  • Provide the supplier with the most recent delivery instructions and make sure that any special conditions have been factored into the suppliers' bids.
  • Coordinate contracts, payables and recordkeeping.

Optimize your purchasing process

The first step to reducing your fuel costs is to reduce your internal costs by streamlining your purchasing process. In an optimal process, one person should be able to easily manage all of the different suppliers, contracts, terms and bids across all your locations. Online systems are a tremendous help with this. You should look for a system that includes:
  • An organized process to publish requests for bids to multiple suppliers across many locations and fuel types.
  • Ability to store information that you use repeatedly such as your locations or commonly used files like fuel specifications or insurance requirements .
  • Access to all your historic information including bids received.

Encourage supplier competition

Large companies have seen significant savings by using online systems for their bidding and procurement. These systems can now be used by smaller companies who benefit from the competition that leads to lower prices.

Online systems allow buyers to request bids from multiple suppliers quickly and easily instead of calling suppliers one by one. You benefit by having suppliers simultaneously compete for your business.

The competition is created via a number of mechanisms. One of the most successful approaches in markets that have an abundance of supply is a live auction. In a live auction suppliers submit lower and lower bids to win your business.

In situations where there is less competition such as areas far from pipelines or for small quantities, suppliers might not have the resources to participate in a live auction so using a traditional sealed bid auction process may get you the greatest savings.

Make purchases for the entire company

Fuel acts like most purchases; the larger the quantity the lower the price. If you have multiple locations, consider combining the total fuel usage at all locations into one purchase. National suppliers will bid on the entire amount and can offer better pricing due to the higher quantities. This also helps increase your efficiency since you are dealing with just one supplier.

Move to longer term purchase agreements

For suppliers, a long-term relationship with a buyer is an ideal scenario and they are willing to bid aggressively to win that business. Governments and other large fuel buyers have used long-term contracts for years and have developed index based pricing to ensure that a supplier doesn't take advantage of them once they are locked into a contract.

With index pricing, a supplier commits to providing fuel at a price that is a specified amount above or below a known index. Usually the index is one published by a third-party such as Platts or OPIS. You define which index you want to use - for example, the price from the fuel rack nearest to your location.

Not only does a long term contract save you money, it also saves time and simplifies your purchasing process.