Delivery Management

Technology & Services

for

Retail Petroleum
Propane, Fuel Oil Delivery

The Value Proposition

Driving your Bottom Line
This document describes how Vertraxs current customers
are realizing the real value of SmartDrops and actually
recognizing true return on their investment
No

Value Proposition: Driving your Bottom

Line
March 2006

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Table of Content

1.
2.
3.
4.
5.
6.
7.

Vertrax............................................................................................................................... 3
1.1 Our Focused Industry: Retail Petroleum..........................................................................3
1.2 The Benefits We Offer...................................................................................................3
An Industry in Change..........................................................................................................5
Driving the Bottom Line........................................................................................................6
Increased Profits through Improved Delivery Efficiencies............................................................7
4.1 Reduction in Delivery Costs due to Reduced Miles and Reduced Driving Time........................7
4.2 Increased Gross Margin from Increased Gallons Delivered to the Same Account Base............7
Increased Profits through Improved Operations........................................................................9
5.1 Increased Gross Margin due to Increased Gallons Delivered to an Expanded Account Base.... .9
5.2 Reduced Delivery Costs due to Delivering to the Account Base with a Reduced Fleet............10
Incremental Value Driven by Other Benefits...........................................................................11
Case Study........................................................................................................................12
7.1 Summary..................................................................................................................12
7.2 Reduction in Delivery Costs due to Reduced Miles and Reduced Driving Time......................13
7.3 Increased Gross Margin from Increased Gallons delivered to the same account base............14

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1.

Vertrax
Vertrax, headquartered in New Haven, CT, is the leading provider of unique
Delivery Management solutions to the Retail Petroleum industry
(marketers of propane & home heating oil). Vertraxs customers report
significant incremental bottom line profits ($5,000 to $10,000+ per delivery
vehicle per year) as a result of reducing the costs per delivery by more than
30%. This customer proven and compelling Value Proposition is derived by:
1

Operational savings largely from less miles driven (reduced gas/diesel,

maintenance & repair) and reduced driver hours (reducing regular and
overtime hourly pay); and

2.
Increasing the number of deliveries and their volume (driving increased
gross profit).
Delivery Management is the logistical planning, intelligent sequencing, optimal
routing, scheduling and monitoring of propane and heating oil residential
deliveries. SmartDrops is our flagship product for propane and heating oil
residential delivery, and soon for service technicians. Orders are automatically
downloaded from the back office ERP system and visually displayed on digital
maps. These maps allow the end-user to manipulate the views by order
characteristics (volume, urgency, delivery date, type, etc) and geography
(street level, certain locations, zoom, etc). SmartDrops automatically creates
optimized, editable routes for a set of drivers, providing printed manifests and
interfaces to cab-based computers.
Integrated Live Tracking provides
SmartDrops users with location based services and up-to-minute analysis of
actual location providing planned versus actual route analysis. At a macrolevel, Vertraxs efforts are directed toward the short haul or "last mile" of the
logistics supply chain, where delivery and pick-up routes are dynamic, urgencydriven and contain many stops.

1.1 Our Focused Industry: Retail Petroleum

Vertrax focuses exclusively on U.S-based Retail Petroleum marketers who
deliver home heating oil and propane to homes and businesses. This group has
been behind in logistical and fleet productivity applications due to the expense
of installing and operating these systems and the specialized requirements of
the Retail Petroleum delivery fleets. Without Vertraxs Delivery Management
products, current methods of resource planning, dispatching, sequencing of
deliveries and route development are manual and paper based, with decision
making on deliveries left to the branch dispatcher and drivers. The resulting
delivery schedules and routes are rarely optimal and accountability of delivery
management is low. Bottom line profitability is left at the mercy of branch
delivery personnel!
Because our unique industry-specific Delivery Management solutions integrate
into back office general ledger system and low up front systems costs, Retail
Petroleum marketers have begun to embrace Vertraxs technology. Industry
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dynamics such as volatile commodity prices (e.g. heating oil and propane)
causing variable margins, higher delivery costs (vehicle fuel, etc) and rising
insurance and health care costs are also driving strong interest in Vertraxs
products.

1.2 The Benefits We Offer

Vertraxs customers find a variety of compelling benefits: 1) fewer miles driven
resulting in reduced maintenance and repair, decreased fuel costs and
decreased driver overtime; 2) increased gallons delivered and incremental
gross profit with zero additional delivery costs; 3) improved efficiency of
operations through paperless process and internal communications and 4)
improved responsiveness and service to their own customers.
Vertrax's
Delivery Management solutions allow our customers, who normally operate on
relatively thin margins and suffer from inefficiencies in managing their mobile
delivery resources, to dramatically decrease their Costs per Delivery,
increase their Gallons Delivered per Mile driven and improve their
bottom line profits.
Vertrax has successfully launched a Value Sharing business model further
illustrating our proven commitment to the industry and to the success of our
customers. Value Sharing comprises Vertrax receiving up to 1/3rd of the
proven uplift in profits directly resulting from the deployment of Vertraxs
products.
In addition to recurring product license fees, one-time
implementation and training fees are also charged at $1,200 per vehicle. We
sell directly to major national and regional Retail Petroleum fleets and directly
or through reseller partners to smaller regional fleets.
Expansion into Commercial Petroleum is targeted for the end of 2006.
The illustration below describes the major drivers behind SmartDrops Value
Proposition.

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2.

An Industry in Change
The retail propane and oil industry is undergoing considerable change due to
volatile commodity pricing leading to unpredictable gross margin and
increased complexities in running the business. These new challenges are
coupled with the historical issues that have plagued the industry for many
years, namely low productivity and efficiency and escalating delivery costs.
The general lack of technology to improve efficiency has caused an
unfavorable environment in which:
Far too many assets are used to complete daily work resulting in
very low ROAE (Return on Assets Employed). Due to inefficiencies,
most companies are forced to over-forecast their vehicle capacity to
deal with seasonal worst case scenarios, thereby over building
fixed expenses against variable revenues.
It is difficult
productivity.

to

hold

specific

employees

accountable

for

Measuring performance benchmarks on assets or employees is

nonexistent.
Vehicles drive far too many miles in the context of actual
deliveries.
There is an overabundance of paper being pushed by clerical
staffers and an overabundance of back office work being done to
migrate field data to the host ERP system.
Communication between the vehicles and the dispatcher is
unreliable.
There is no real time monitoring or control of delivery and
service vehicles.

Theft of time is a major concern.

This remainder of this document describes how Vertraxs current customers are
realizing the real value of SmartDrops and actually recognizing true return on
their investment

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3.

Driving the Bottom Line

The Value Proposition of Vertraxs Delivery Management products is derived in
two primary ways, namely:
1. Increased Profits through Improved Delivery
Efficiencies, namely:
Reduction in Delivery Costs due to reduced miles and driving
time, driven by reduced Truck Costs such as diesel, gas, maintenance
& repair and reduced Driver Costs with reduced overtime hours.
Increased Gross Margin from increased gallons delivered to the
same account base; realizing increased delivery capacity closer to
the maximum capacity within the existing account base.
AND
2. Increased Profits through Improved Operations,
through:
EITHER
Increased Gross Margin due to increased gallons delivered to an
expanded account base.
AND/OR
Reduced Delivery Costs due to delivering to the account base with
a reduced fleet.

In industry generally accepted performance measurements, Vertraxs Value

Proposition translates to:
Delivery Cost (Truck + Driver) per Drop will decrease by
more than 20%.
Gallons Delivered per Mile Driven will increase by more
than 7%.
These savings flow directly to the bottom line, boosting bottom line profits
(EBITDA) significantly.

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4.

Increased Profits through Improved Delivery

Efficiencies
4.1 Reduction in Delivery Costs due to Reduced Miles and
Reduced Driving Time
Logically by driving tighter routes, drivers should drive less miles and, all
being equal, will spend less time behind the wheel. Drivers will also
spend less time (approximately 30 minutes a day) by being provided
pre-built SmartDrops routes rather than spending time building their
own route from a non-sequenced set of tickets simply pulled from the
back office / degree day system and divided into driver ticket piles by
the dispatcher. In this case, the cost of delivery would decrease since
there is less fuel & diesel truck costs and less maintenance & repair
costs, and less driver hours cost, etc.
Clearly, the industry accepted productivity metric of Gallons per Mile
will increase and the industry accepted cost metrics of Cost per
Drop, Cost per Gallon Delivered or Cost per Mile Driven will
decrease.
The actual reporting of the mileage and hours driven numbers may not
show an overall decrease if as a result of more time, drivers are being
asked to do extra drops per day meaning additional gallons are being
delivered. In fact this is more likely a scenario and the benefit of this is
detailed below. Another way of saying it is that depending on what
management does with reduced driving time will actually dictate actual
reported miles and driver hours. If incremental drops are given to the
drivers, miles and hours driven many increase, but these costs would be
more than offset by the margin on the additional gallons delivered.

4.2 Increased Gross Margin from Increased Gallons Delivered to

the Same Account Base
SmartDrops can greatly improve Deliveries per Day by providing more
efficient and intelligent routing. As described above, this leads to less
windshield time and less miles driven. By logical extension, more
deliveries can be made in the same time interval. The more deliveries
that are made per mile, the lower the relative cost per delivery.
By focusing on urgency, geography, truck inventory, and
mapping/routing logistics, a dispatcher can build significantly more
efficient routes. SmartDrops uses street level mapping which optimizes
the driving time between delivery stops, eliminates vehicles crossing
paths during the delivery day, and breaks down the imaginary
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boundaries imposed by zone routing. All of this leads to improved
stops per hour, a recognized productivity benchmark in the petroleum
industry. Ultimately this leads to significantly reduced delivery costs.
With SmartDrops being used correctly, drivers will be able to do several
more deliveries a day, with an increase in gallons delivered per mile and
a decrease in cost per gallon delivered or overall cost per drop. Drivers
should be able to spend more time delivering gallons, increasing the
daily gallons delivered.
This increased delivery capacity can be
absorbed by the existing account base by better meeting 100% of the
demand throughout the account base.
In any given period of time, with or without SmartDrops, the demand
from the existing account base is constant largely driven by weather
conditions. In many cases SmartDrops, by enabling extra deliveries per
day, will help the fleet deliver closer to this 100% demand than
otherwise possible. This will be the case where the branch is unable to
meet the demand from the existing account base or can only get closer
to full demand by increasing miles and overtime hours. In those that feel
as though they are already meeting 100% of the demand without
SmartDrops, then they must either reduce the hourly time of the drivers
and/or reduce the fleet to see real pay back (see below).
SmartDrops may increases the Average Drop Size since a company now
has the ability to perform true on-time fuel delivery. Historically, most
companies attempted to alleviate the impact of poor delivery
productivity and efficiency by pulling orders ahead of the degree day
clock. Simply put, these companies force the system to order a
customers fuel prior to the day that an optimal drop could be made.
This increases the number of times that a company delivers to a
particular customer in a given year and reduces the size of the drop.
Both of these negative impacts drive up delivery costs and reduce
profitability. The efficiency improvements brought about by utilizing
SmartDrops (including visual display of delivery information, k-factors,
tank sizes, gallons to be delivered, etc) free up assets and time therefore
allowing a dispatcher to make more confident delivery timing decisions
and stick closer to the clock. The end result of a larger drop size
maximizes delivery capacity and drives down overall costs. One of our
clients told us that a 10 gallon per drop improvement yields $1MM in
annual profit. Vertrax has seen an average of 8 gallons per drop
increase.
High percentage will call fleets may be able to satisfy more will calls if
there is more time to make deliveries, therefore possibly raising overall
volume delivered.

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Reducing run outs is also a factor, if there is more time to make
deliveries, again possibly raising overall volume delivered.

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5.

Increased Profits through Improved Operations

5.1 Increased Gross Margin due to Increased Gallons Delivered
to an Expanded Account Base
The Value Proposition model shows that the average customer deploying
Vertraxs Delivery Management products will increase delivery capacity
(i.e. volume of product delivered) by at least 3%. This expectation is
based on the historical experience of our customer base related to
emergency calls, will-call management, targeted marketing, and
customer service.
Retail Propane and Heating Oil distributors seek to grow by 3% to 5% per
year. This is accomplished through marketing to new customers and
servicing new customer prospects that are converted to long-term
customers. The primary barriers to this strategy are usually through a
retailer distributors inability to stretch their existing capacity to
accommodate incremental customers and their inability to provide a
level of customer service that mitigates account attrition. Aside from the
problems resulting from integrating new customers, retailers have
historically suffered significant customer attrition during the peak
season due to inept handling of run-outs, early/late deliveries, and
emergency service calls. Approximately 70% of this attrition results from
poor service quality. At a customer acquisition cost of $400, retailers
strive to find ways to keep their customers.
Vertraxs Delivery Management products enable our customers to grow
their business and retain customers as follows:
Smart Marketing: Using SmartDrops, focused marketing plans
based on geo-coded routes enable retailers to target households and
commercial establishments that can be easily integrated into existing
routes. This means that new customers can be serviced efficiently
without diluting overall service quality. The net result is that a retailer
can avoid the attrition that results when the expanded customer
base, while not stretching capacity, still causes inefficient routing and
reduced service quality. Additionally, increasing customer density
within a routes drives down the delivery cost of a companys current
business by increasing the overall stops per mile.

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Will-Call Management: During the peak season, retailers receive

calls that require immediate deliveries or emergency service.
Because capacity is already stretched and the retailer lacks the tools
to handle will-call situations on a dynamic basis during the day, any
changes in routing can have a significant cascading effect on the
existing customer base. Since retailers are operating defensively
during the peak season to service and retain existing customers, they
often turn down call-in customers that could otherwise be converted

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into long-term customers. Deploying SmartDrops allows retailers to
respond more quickly to these situations without impacting overall
quality of service.

Improved Service Quality: During the peak season when delivery

resources are stretched, retailers typically experience run-outs and
emergency service calls they cannot handle, resulting in customer
attrition. Through the deployment of SmartDrops and SmartTrax more
efficient routes and the ability to handle dynamic routing during the
day for both product delivery and service calls, these red alert
situations can be handled pro-actively or substantially eliminated.
Additionally, SmartDrops and SmartTrax can be networked to all
members of a clients Customer Service team thereby enabling them
to more precisely predict arrival times for customers waiting for
delivery or service.

Based on industry experience, Vertrax management believes that each

one of these benefits alone can help our customers realize the 3%
volume growth indicated in the ROI analysis. On a conservative basis, it
is expected that customers will realize the following customer gains:
Smart Marketing
Will-Call Management
Improved Service Quality
Total

Incremental growth of 1% per year

Incremental growth of 1% per year
Reduction in customer attrition by 1%
per year
3% per year volume increase

This additional volume translates to approximately $35 per truck per day
gross profit (assuming 100 gallons day (or 4 gallons per drop) extra at
gross profit of $0.35 per gallon).

5.2 Reduced Delivery Costs due to Delivering to the Account

Base with a Reduced Fleet
Each truck that is removed from a given fleet represents an annual
savings of approximately $60K (debt service plus operational costs).
These reductions of assets employed are the result of improved
efficiency and productivity.
The same logic that applies to the delivery side can be applied to the
service side as well. Better efficiencies allow for reduced assets
employed.
This leads to a better leverage of assets by having less vehicles on the
road or the re-allocation of assets to other revenue producing efforts.

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6.

Incremental Value Driven by Other Benefits

From an overall operational perspective, additional ROI can be realized by:

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Reduced customer churn. As previously mentioned, SmartDrops can

have a significant impact on overall customer satisfaction and employee
morale. Attrition is a major issue at all retail petroleum companies and
some can experience an amazing 30% customer churn on an annual
basis. Much of this churn can be attributed to missed/wrong deliveries,
run-outs, inability to grow based on stretched capacity, inability to
respond in a timely fashion, etc. Additionally, happy employees lead to
happy customers and no one has more customer contact than a fuel
driver. If he is content with the organization of his workload, then that
will translate into improved customer relationships.

Reduced overtime expense.

Ability to grow business. SmartDrops can also be used as a critical

mapping tool for more effective management and analysis of Merger
and Acquisition initiatives. Many companies purchase competitors only
to find out that the dispersion of customers and/or branches does not fit
into their existing infrastructure.
This reduces or eliminates any
economies of scales that were anticipated.

Ensuring that marketing dollars are not wasted. Often, companies spend
enormous amounts of money to attract new business only to find that
the operations side of the business cannot handle it.

Branch consolidation through a centralized business model. The final

piece of the current operating model dictates that a multi-branch
company must use a dispatcher in each location. SmartDrops allows for
centralized dispatch. This results in significant economies of scale and
reduced delivery expense.

Reduction in theft of time by employees.

Reduced shrinkage through more effective parts and fuel management.

Reduced aggregate insurance costs due to less vehicles, less miles

driven, and more effective fleet control and accountability.

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7.

Case Study
7.1 Summary

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7.2 Reduction in Delivery Costs due to Reduced Miles and
Reduced Driving Time

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7.3 Increased Gross Margin from Increased Gallons delivered to
the same account base

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