Understanding propane industry technologies

January 1, 2006 By    

Technically speaking, technology is a technological nightmare. Computer systems, software, hardware and e-whatevers can be difficult to learn, implement and use. On the other hand, they can be godsends – saving companies time and money while improving efficiency and productivity like never before.

Traditionally, the propane industry has lagged behind in the realm of technology. For whatever reasons – perhaps apprehensiveness or stubbornness – propane retailers and marketers often overlook technological advances. The general feeling that: “We’ve done it this way for years with no problems, so why should we change now?” is prevalent in the industry.

“The industry is primarily made up of small independent companies serving a small base of customers in relatively close proximity, and the majority of the businesses are family-owned and generally handed down from one generation to the next,” observes Gabriela Barlow, implementation services manager for World Telemetry Inc., a Tulsa, Okla.-based company that develops, manufactures and sells wireless tank monitoring systems and Web-based data management services.

“The majority of company managers are comprised of an older generation that did not grow up with the technology available today. Therefore, they are generally somewhat hesitant to integrate new technology into their operations.”

Besides that, it’s costly and difficult.

“Investment in new information technology is a big and gutsy decision for both the large and small propane marketer alike,” says Randy Doyle, a 20-year industry veteran whose consulting company provides financial, operational and acquisition/divestiture consulting services to the retail propane industry.

“First, it’s a lot of money. For example, it costs about $8,000 to outfit one bobtail truck with mobile computing alone,” Doyle continues.

“Second, picking a weak technology provider or botching the implementation and transition to the new way of doing things will alienate customers, discourage employees and disrupt your business operations.

“Finally, it’s tough for the non-technical person – as most owners are – to make an informed decision on technical issues. To make matters more difficult, the independent marketer is alone in the decision without the benefit of having an information technology person on his or her staff. Therefore, the ambivalence of the propane marketer to implement information technology is understandable.”

In a 2005 LP Gas Magazine benchmarking survey to propane marketers nationwide, 331 of 350 retailers said they plan to purchase new equipment or services in 2005. Just 51 of those respondents (15 percent) said they would purchase field technology equipment, however.

Other survey responses about individual products and technologies currently in use and planned for use in 2005 included:

Fleet-routing software – 57 percent didn’t have it in use and only 15 percent planned to use it.

Tank monitoring software – 69 percent did not have it in use and just 13 percent planned to use it.

Degree-days software – 40 percent don’t have it in use and 10 percent plan to use.

Global positioning systems – 80 percent didn’t use and 11 percent planned to use.

Online or Web access – 45 percent don’t use and 8 percent plan to use.

Another problem with switching to new technology is that it can be a lengthy and arduous conversion.

“The incredible rate at which new technology changes must be a great concern,” says Carlton Revere of Revere Gas and Appliance in Virginia. Revere chairs the National Propane Gas Association’s Technology and Standards Committee.

“In other words, a marketer may make an investment this year and it takes 12 months for a reasonable return on investment. However, the new technology will be replaced in 18 months. How does one grapple with this dilemma? The technology must have a longer shelf life.”

A tie-in with cost is the fact that many won’t implement technology unless they absolutely have too.

“If technology is developed to improve the performance of the business, it will be utilized under a cost vs. benefits comparison,” says Bruce Swiecicki, senior technical advisor for NPGA.

“Unless the technology is mandated through a code, standard or regulation, a business is going to take a hard look at the total cost of not only buying the product, but also implementing the new technology in the company and compare that cost to the benefits realized.”

Another factor is company size.

“A small company may not have the resources to implement technology, so they won’t,” adds Greg Kerr, director of research and development for the Propane Education & Research Council. “On the other hand, a large company that seemingly has all the resources may shy away because it’s too expensive to implement throughout the company.”

Why should any propane retailer change the way he does business? Are the headaches that often accompany technology really worth an upward spike in the bottom line? Or should we not bother fixing what ain’t broke?

“There are some areas where the industry has not sought technological solutions,” says Swiecicki.

“For example, it’s true that as far as electronics and communications go, the industry is not at the forefront of implementation. The most obvious reason for that is because most propane marketers are small and very local operations. There has been no real need for these companies to hop on board the communications technology train because the marketer has a personal relationship with just about all of his customers. Remember, a propane marketer’s most important asset is the field service people whom deliver the gas and address the customer face-to-face.”

Barlow agrees.

“Some companies believe that making frequent stops to customers is a matter of good customer service, or that the systems they have in place have served them well,” she adds.

Changing times

Technology is growing – and has been growing – at an ever-accelerating rate. Just 10 years ago, few people even knew what e-mail was. Now, you’d be hard pressed to find someone who doesn’t have an e-mail account (or two). There was also a time when nothing could beat a good, well-organized file cabinet. Today, paperless offices are becoming the norm, and file cabinets are being thrown out with the trash.

“We live in a dynamic world. It has been barely 10 years since the Internet started to attract wide use by the public, but in that decade it gone from a novelty to being essential to modern business,” says PERC President Roy Willis.

“That same dynamic change is evident within our own industry, with business consolidation, high fuel prices and intensifying competition from electricity and other fuels. The leading companies are getting more competitive and need an edge to succeed. A company that is open to new technologies will likely gain that edge.”

Yet the growth has been very slow in the propane industry.

“At Pinnacle in 2005, just 15 percent of marketers reported using on-board computing and less than 10 percent reported using logistics,” says Doyle. “Even fewer were using remote tank sensors. Yet, 100 percent of those who said they used technology said they’d make the investment again.”

Tech watch

The 2005 LP Gas State of the Industry report shows that 64 percent of retailers responding to the survey have computerized accounting systems. Only 7 percent report using in-truck computer systems, while 23 percent use fleet routing software.

Yet, just 27 percent say they plan to add more technology in the coming year. Of those, 11 percent will add computerized accounting systems, 14 percent fleet routing systems, 8 percent online supply price monitoring, 19 percent tank monitoring, 25 percent GPS for delivery trucks and 23 percent computers in bobtails and other vehicles.

Despite the slow growth, many in the industry are starting to see the technological light.

“Automation of processes needs to be the key focus of managers and technology developers,” says Barlow. “Real-time information will be used to schedule delivery, forecast demand and manage inventory. Paperwork will be reduced or eliminated entirely when more companies use hand-held computers to provide the customer with an invoice at time of fuel delivery and begin accepting on-line bill payments.

Competition with other energy sources, such as natural gas and electricity, can be boosted by utilizing technology to offer monthly usage-based billing to customers rather than a per-gallon cost at the time of delivery.”

Doyle concurs, and sees a bright future for technology in the propane industry.

“We will see a significant increase in technology in the next five years because costs are down, the new generation is more comfortable with using it, greater competition will require more efficiency, plus, it’s not new anymore, so you’re not the guinea pig and it makes great financial sense,” he says.

Besides companies becoming more comfortable with technology, customers need to adapt as well.

“Many more marketers are utilizing the Internet for internal communications and external sales,” says Revere. “As their customer base becomes more comfortable with this technology, marketers are willing to invest in on-line bill payment and ordering systems.”

Making the switch

Surely, some sales rep extolling the virtues of the latest office management program or vehicle tracking system has broached most every retailer or marketer in the country. Despite flawless presentations with documentation about the time, effort and money that can be saved by technology, propane companies often won’t pull the trigger. Why?

“As these companies already make a profit, there is little incentive to make improvements or reduce expenses,” explains Barlow. “There is also loyalty to the employees within the company and fear that technology will require them to eliminate current positions. Others are just simply threatened by the technology.”

There also is legitimate concern that technology vendors can go bankrupt, provide terrible after-sales service and allow their product to become outdated.

“But, I believe the Number One reason the propane industry is lagging in the use of information technology is because the competitive environment does not demand it. Customers do not demand it and profitability is sufficient to not demand its use,” Doyle says.

Fear is another reason propane lags behind in the technology race. Many people fear change, particularly when it comes to their livelihoods.

“Managing the changes in how people do their jobs is tough work,” says Doyle. “Plus, most of today’s decision makers are from the generation that grew up without technology for their education, work and entertainment. The fear factor about computers and the unique problems they can create is real.”

Many people – particularly older ones who were in business when all this technology wasn’t – just aren’t open to change. These folks deal only with bank tellers, not ATMs; refuse to try e-mail, cellular phones or any other electronic devices; and prefer to make service calls than monitor tanks, trucks or fuel levels via computer or satellite systems.

“Embracing a new technology can only come with training and gaining experience with it,” says Revere. “You only need to convince someone to give it an honest try and support him as he learns how to use it.”

This technology apprehension is not restricted to age. There is an affliction called technophobia: a fear or intense dislike of technology. It invokes a range of negative emotions, like anxiety, incompetence, fear, stress and nervousness. Two common symptoms are pleading that “The old way is the best way,” and convincing colleagues that “I have made it this far without technology. Why change now?”

It’s this kind of thinking that many want to see changed in the propane industry.

“Implementing new technologies can lead to more efficiently run businesses and therefore, more competitive businesses,” says Swiecicki. “We must keep our operating costs at minimum, especially in light of the current petroleum market, to remain competitive with other energy sources. Technology can certainly go a long way towards helping a businessperson achieve his goals.”

It’s not just the propane companies who have fears and doubts; technology often is not marketed to the industry.

“Propane is a relatively small industry with a minimal growth rate in comparison to other fuels,” says Barlow. “As a result, many technology-developing companies are hesitant to make the investment in a market that they feel may not offer significant profits.”

“Worldwide, propane is barely 2 percent of the energy market; here in the United States it’s about twice that, but still a small share of the market,” adds Willis. “That size is not generally attractive to big technology companies or appliance manufacturers. Similarly, the government research programs have long ignored propane.”

But that is changing. As the years roll on and technology becomes more advanced, the industry is slowly looking to technology to increase operating profits, reduce distribution costs, increase customer reliability and expand customer service.

“With industry consolidation and competition from other fuels, new technologies can give companies the edge they need,” says Kerr. “According to the Market Metrics Initiative, propane advertising is working, but sales aren’t expected to change much. New products and technologies will help get that growth going.”

Still, even those marketers who are receptive to change may not do so because they don’t understand the true cost of implementing the technology

“The only reason for someone to fear technology would be the insecurity that may go with having to learn how to use it,” says Swiecicki.

“Perhaps the greater fear for a businessman would be knowing that a competitor was using technology to get a jump on the competition and improve his bottom line.”

“The marketplace is still the most persuasive force,” notes Willis. “If companies see that technology will make a difference in their business – whether it’s more efficient operations, expanding into new markets or making their operations safer – I’m confident that our industry won’t need convincing.”

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