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Sharp focus makes business effective

August 1, 2005 By    

In my 20-plus years of experience in the retail propane industry, working with one major and many independent marketers, I have seen many different ways to operate a propane company. So, what distinguishes the better operators that produce superior financial results and organic market growth from the laggards?

 Randy Doyle
Randy Doyle

It comes down to the leader’s sharp focus on what is most important and a clear understanding of the effective practices within each aspect of the business.

Running a propane business has become more complex and demanding over the last 10 years. There’s little debate about this. Consider the tougher competition, additional legal liability, greater price volatility, a different minded employee, and increased capital requirements that demand more attention to detail and to new management and business practices.

At a training seminar held at the Spring Convention in Wisconsin Dells, we discussed seven areas that management needs to focus on for success. Upon further refection, I’ve expanded it to nine.

Each area is distinctly unique while creating an integrated circuit that defines the capability of your company. Each is critical, they are not listed in priority order. They are:

Customer Base Management – The best-managed propane marketers manage each customer individually. They know whether the profit generated from the customer is sufficient to pay for the investment in tanks and trucks needed to service the customer’s needs.

The smart manager places a premium on the financially sound customer that gives the freedom to deliver gas at the optimum time and quantity. Most will call customers are seen with scorn and are either converted to become a part of the predictive demand schedule or else are cut loose. They fire customers that are the highest at risk, create the greatest problems, and are not loyal.

The ‘yellow’ customers – chicken farms, school buses and corn drying – are avoided because of their low margin, high capital requirement and high risk.

The best managers understand that a customer base comprised primarily of company owned tanks on the predictive demand system significantly improves bobtail efficiency and minimizes operational problems.

Bobtail Operations – The best managers understand that the single greatest cost activity is the operation of bobtail trucks and that a slight improvement in this area can have a significant impact on the bottom line of the business.

They understand that efficient bobtail operations begin with a well-planned route delivery each day. They monitor the performance each day by measuring performance (gallons/mile, gallons/drop and stops/hour). They have internal benchmarks to identify the poorly planned route, the inefficient driver and errors in predicting customer demand.

Create a Strong Organizational Culture and Capability – The combined talents and attitudes of your people are the major factors that differentiate you from your competitors. The buzzword “culture,” while vague and ambiguous to most, is as real as the trucks and tanks you employ in your business.

The important questions to ask are:

Do your people understand how their job impacts the bottom line?

Do they care about the company’s performance?

Is there open communication throughout the company?

Do you see your employees as a resource or as a cost that is cut during tough financial times?

Do you have an effective employee compensation program that creates a sense of ownership in their individual and company performance?

Do you identify and develop your best employees to leverage their talent into growth and increased profitability, and to ensure a smooth management succession?

Right Capital Structure – Today, the capital requirements to be in the propane business are increasing because of high energy and steel prices. The question of how to properly fund the business is more critical than ever. In an environment of increasing interest rates and higher debt, it’s important that the manager work with his CPA or banker to arrange the right capital structure that minimizes capital costs while ensuring proper funding.

Safety and Risk Management – The increase in legal liability and the drastic increase in insurance costs adds additional emphasis in an area that has always been highly important to a successful propane company.

The best companies ensure that employees are properly trained, regular employee meetings discuss practices, safety practices are documented and consumer education is timely and complete. Also, proactive risk mitigation actions such as gas checks are well planned and executed.

Develops Opportunities for Growth and Business Improvement – The most successful companies recognize new business potential in their markets and will ensure that sufficient resources (through direct sales) are assigned to capture that new customer. They also keep their eyes out for potential competitors that would be a good candidate for acquisition.

Finally, the best managers are constantly looking for new ways to make business more efficient and customer service more effective. Leading companies in the industry know how to innovate and utilize information technology to create significant efficiency in bobtail operations and improved customer service.

Competitively Market with a Strong Customer Focus – The best-managed propane marketer understands how to set a price that optimizes margin while retaining the customer. In a well-managed company, all employees understand how their jobs influence customer satisfaction and that the culture of customer focus becomes dominant in how all activities are performed.

Effectively Manage Consumer-sized Tanks – Since consumer-sized tanks are the single largest investment in assets in a typical propane business, the better managers pay attention to each tank to ensure proper size for each customer, so that sufficient profit is earned to justify the investment, so that each tank is accounted for, and each is properly maintained.

Propane Supply – This area is one of the toughest, yet most important, for the manager today because of price volatility and supply shortages.

The competence needed to do this well is outside the typical skill set of the propane marketer. The better manager knows how much storage is needed to ensure ample supply during critical times, has retained the advice of proven market experts to help anticipate and respond to the current markets and has business relationships with the number of reliable suppliers to ensure a continuous supply through the most critical winter periods.

The first step in taking your business to the next level is to answer the following:

How do I know if my business measures up to the best?

What is my role as the leader in my business in creating the environment for success?

Do my employees think we do a good job in these areas?

Randy Doyle is a Houston-based consultant to the propane industry. He has worked in the propane industry since 1981 with Mapco/Thermogas and as a consultant to the independent propane marketer. He is active in the NPGA’s Marketer’s Management Forum, which he helped form 10 years ago, and is a frequent speaker at propane industry conferences.

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