Fuel Distribution System Dynamic Pricing
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Solution Overview
Problem
Fuel distribution systems in consolidated quick turn-around (QTA) facilities face high carrying costs and risk due to unpredictable fuel price fluctuations, which are not efficiently managed in existing systems, particularly affecting rental car agencies and other high-volume customers.
Innovation Solution
A fuel distribution system with underground or above-ground storage tanks, connected to dispensing pumps and a site management system that tracks transactions, calculates a weighted average fuel price based on current and delivered fuel costs, and automatically adjusts pricing to minimize risk and pass savings to customers, while ensuring prompt payment and reducing administrative burdens.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Reliability
If fuel is stored in tanks at consolidated QTA facilities, then fuel availability for high-volume customers is improved, but carrying costs and price fluctuation risk increase
Solution Approach 1:
The system dynamically adjusts fuel pricing based on current market prices and the weighted average cost of fuel in storage tanks. This allows the facility to pass savings to customers when prices drop while protecting against price increases, thereby reducing the economic impact of carrying stored fuel without compromising availability.
Solution Approach 2:
The pricing model changes from fixed or contract-based pricing to a dynamic pricing structure that reflects real-time market conditions and actual fuel costs. This parameter change enables the system to manage the trade-off between storage costs and customer benefits by adjusting prices based on the weighted average cost methodology.
2Reliability
If fuel prices are adjusted frequently to reflect market changes, then revenue protection is improved, but customer trust and stability worsen
Solution Approach 1:
The system applies partial price adjustments by using a weighted average cost methodology that smooths out short-term price fluctuations. Instead of reacting to every market change, the system only adjusts prices when the weighted average cost changes significantly, providing both revenue protection and price stability.
Solution Approach 2:
The system pre-calculates the weighted average fuel cost and establishes pricing thresholds before market fluctuations occur. This preliminary action allows for controlled, predictable price adjustments that protect revenue while maintaining customer confidence through transparency and stability.
3Device complexity
If manual tracking and allocation of fuel costs is used, then system complexity is reduced, but administrative burden and accuracy worsen
Solution Approach 1:
The system automatically tracks fuel deliveries, calculates the weighted average cost, and determines customer allocations without manual intervention. Each fuel delivery is recorded with its cost and volume, and the system self-updates the weighted average cost and customer accounts, eliminating administrative burden while maintaining accuracy.
Solution Approach 2:
The system continuously monitors fuel inventory levels, delivery costs, and customer usage patterns, providing real-time feedback that automatically updates pricing and allocation. This feedback loop eliminates the need for manual tracking while ensuring accurate cost allocation and transparent pricing.
Data Source
AI summary
A system and method for distributing fuel, managing fuel transactions, and determining fuel pricing. The system includes a fuel tank and dispensing systems connected thereto for serving customers. The dispensing systems include a meter measuring a volume of dispensed fuel and a data subsystem that transmits transaction data for fueling transactions completed during a first period. A tank gauge measures an ending volume of fuel at the end of the first period. A management system uses the transaction data to generate a usage report and invoice for the customers based on fuel usage during the first period. The management system further monitors the gauge and determines a price for the ending volume of fuel and a variance based on the measured ending volume of fuel and an expected volume. The variance is used to determine a second price for fueling transactions completed during a second period following the first period.