MFA Oil Company

Oiling the wheelsOriginally purely a farmersÔÇÖ cooperative, MFA Oil Company has expanded its markets and is investing in technology to drive operating costs down, Ruari McCallion learns from Jerry Taylor, company president and CEO. As the tumult and upheaval of the 1920s reached its pre-Wall Street Crash peak in 1929, a group of farmers in Missouri saw the need for a reliable source of fuel for their machines of the futureÔÇögas- and diesel-powered tractors and harvesters.  Despite the privations of the Great Depression, the cooperative they established on June 20, 1929, managed to maintain earnings and steadily grew in volume and membership through the 1930s and ÔÇÖ40s, focusing on supplying its membership with kerosene for chicken brooders, home lighting and cooking stoves; axle grease for farm machinery; and gasoline at competitive prices. Today, MFA Oil Company, headquartered in Columbia, Missouri, has sales revenues of over $1 billion a year, and its activities have expanded to include nearly 200 bulk fuel and propane plants, 76 Break Time convenience stores, 11 Jiffy Lube, 12 Big O Tires franchises, 50 transport trucks and 166 Petro-Card 24 unattended fueling stations. Membership has grown to include the neighboring states of Arkansas, Tennessee, Iowa, Oklahoma and Kansas. It has over 40,000 farmer-members and is one of the ten leading suppliers of liquefied propane gas (LPG) in the US, which it supplies to co-op members and to individual consumers for heating private homes. ÔÇ£Over the past 80 years, MFA Oil has faced three distinct crossroads,ÔÇØ says Jerry Taylor, who has been with the company for 27 years and became president and CEO in 2003. ÔÇ£During World War II, concerns about supply led us to get into the refining business. In the 1980s, the conservation practice of crop set-aside led to arable land in the area we serve decreasing from 13 million tillable acres to 9 million. Also, no-till farming halved the amount of diesel needed to plant and harvest. We saw our traditional market declining. We had to expand our customer base to non-members. Our convenience stores, quick-lube, and tire and auto operations have helped us tremendously. Those activities represent 70 percent of our total sales and have contributed greatly to retained earnings.ÔÇØ MFA Oil is right in the middle of its third crossroads today. Its challenge is to bear down on its operating costs and offer competitive prices, while maintaining reliability and efficiency. It isnÔÇÖt easy, but technology developments are making it achievable.ÔÇ£We have around 500 delivery trucks taking our products to our customers, so itÔÇÖs a pretty labor-intensive business; around half our expenses are on personnel,ÔÇØ says Taylor. Productivity is a huge issue, and, until recently, MFA Oil could only look at companies like UPS and FedEx with envy: the route planning and scheduling technology they employed was far beyond its reach. But time moves on, and the rate of change in our world is accelerating. ÔÇ£The kind of route optimization systems that big dispatch organizations developed have now come into our reach. Our goal is to drive 20 percent of costs out through technology. ItÔÇÖs a long-haul effort, as we have had to upgrade our accounting and financial reporting software in order to establish a better base on which to build other systems in the area of distribution and logistics. Getting that up to speed has made us more and more aware of the opportunities available, both in efficient delivery and in our enterprise software. WeÔÇÖre now working with SmartLogix, which has developed a lot of the software available for integrating forecasting with route optimization systems, load planning and supply chain optimization.ÔÇØ MFA Oil is determined to improve productivity and service at the same time.ÔÇ£The ÔÇÿandÔÇÖ is importantÔÇöproductivity and service, not one over the other,ÔÇØ he says. ÔÇ£In order to achieve both, we need information from our customers, and if we can demonstrate that theyÔÇÖre getting the improved service, it mitigates any impression of being intrusive.ÔÇØ The total package includes the ability to predict temperature, which aids forecasting of demand for home heating propane. The farmers also stand to gain from more accurate forecasting and delivery of the right amount, rather than too little or, more important, too much. ÔÇ£With diesel at $4.50 a gallon, inventory control becomes critical. They want the product when they need it; we have to be competitive price-wise. We have to manage just-in-time deliveries, security and the whole supply chain. Our business becomes more of a JIT operation, driven by the economics of holding inventory. Transparency in the supply chain, linked to improved forecasting and predictability, is critical to managing the business profitably.ÔÇØ The technology represents an investment of around $7 million. MFA Oil hasnÔÇÖt taken a ÔÇ£big bangÔÇØ approach; it has spent two years developing and testing the system first.ÔÇ£WeÔÇÖre getting ready to go into the field and beta-test, with five or ten trucks equipped with the new hardware, which the software works alongside,ÔÇØ says Jim Belcher, senior vice president of administration. ÔÇ£Handheld computers will be used by the drivers to make deliveries, record sales transactions, and transmit that data to home office computers. The onboard truck computer, which is fixed-mount and GPS-equipped, will communicate with the handhelds in order to control the meters that record the gallons of fuel being pumped, and it also enables receipt/invoice printing for the driver. We expect to be field-testing for two months, to make sure everything works properly, then undertaking a limited, controlled rollout in September/October, prior to beginning a full 500-truck rollout sometime in the November/December 2008 timeframe. ÔÇ£WeÔÇÖre continually evaluating what tweaks will be needed,ÔÇØ Belcher continues, ÔÇ£how the software is working, and any issues there may be with the hardware as we proceed through the field pilot test. WeÔÇÖre now beginning to see all our field-test transactions flowing through our home office reporting systems, with data being placed in the right places. But we wonÔÇÖt begin a full rollout until all components work near-perfect and the reliability of the hardware and software is proven, which is the objective of a field pilot test using just a few trucks.ÔÇØÔÇ£The drivers and customer service reps take great ownership, and itÔÇÖs difficult for them to imagine driving by a farm without putting 80ÔÇô100 gallons in the tank. But weÔÇÖre able to prove weÔÇÖll be better off if they do drive by and deliver only to those who actually need it,ÔÇØ says Taylor. ÔÇ£WeÔÇÖll cut our costs, recover our investment within two years, help our customersÔÇÖ inventory managementÔÇöand therefore, working capitalÔÇöand deliver better service.ÔÇØ┬á