Deloitte: Timing Matters in a Downstream 'Internet of Things' Strategy

Deloitte: Timing Matters in a Downstream 'Internet of Things' Strategy
The Internet of Things can build customer loyalty, optimize processes and add revenue streams, but deploying it in the downstream demands good timing and more.

Fuel retailing is a low-margin business. According to the National Association of Convenience Stores (NACS), a U.S. fuel retailer will typically make just 3 cents in profit for every gallon of fuel that it sells. As a result, retailers frequently sell non-fuel products such as fast food, soft drinks, beer, snacks and other items to boost the bottom line. In fact, NACS has stated that convenience stores (c-stores) have transitioned "from gas stations that happen to sell food to food retailers that happen to sell gas."

The large majority of c-stores are independently owned businesses, and building customer loyalty is a key to gaining market share in this highly competitive sector. Differentiation is a means of attracting – and keeping – new customers, and Andrew Slaughter suggests a novel way of doing just that. Specifically, retailers could provide continually updated fuel prices, volumes of various fuel grades, specials on non-fuel products and other information directly to consumers via smart phone and other mobile device apps, noted Slaughter, energy and resources executive director with the Deloitte Center for Energy Solutions. Moreover, such technology might enable consumers to set various personal preferences in an app – such as desired fuel brand and price parameters – and receive alerts when they are near a c-station that meets these criteria,

"You have really an untapped potential for engaging with the consumer," said Slaughter. "You can really build a customer interface there – if you're ahead of the game. Customer loyalty is really fickle in the downstream business. This really builds customer relationships."

'Entirely New Types of Information'

The scenario that Slaughter describes is just one illustration of how the "Internet of Things" (IoT) can change the downstream oil and gas industry. The IoT uses sensors, communication protocols, data collection and analysis and even artificial intelligence to create entirely new types of information about a business, explained Slaughter.

"The IoT touches anything where you can gather data about a stage or operation," said Slaughter. "The human isn't always at the center of the calculus, but it's really about taking as much process as possible and automating it to do it predictably and reliably on an ongoing basis."

In a recent article, Slaughter and Deloitte colleagues Gregory Bean and Anshu Mittal argue that downstream players such as oil refiners and petroleum products retailers should deploy the IoT more deeply into the hydrocarbon supply chain. They state that the following key drivers support the spread of the IoT:

  • dramatically cheaper sensors (a unit cost of approximately 40 cents today versus $2.00 in 2006)
  • more widespread advanced wireless networks
  • more powerful computers with the bandwidth to quickly collect and process data

Using the IoT to automate processes and connect with consumers digitally via social media and other marketing channels would help to improve reliability, optimize operations and create new revenue streams, the Deloitte authors maintain. Aspects of the IoT are taking hold in the downstream, but on a largely intermittent basis, said Slaughter.

"Where I've seen this in the downstream is allowing optimizing in the supply chain in refineries to optimize crude qualities, taking into account chemical characteristics of feedstocks and economic characteristics," Slaughter noted. He explained that a refiner can deploy sensors to collect data measuring how running certain crude oil slates affect various plant units. After analyzing the sensor data, the refiner can tailor its bids for future crude cargoes based on which slates will likely minimize additional operating and maintenance expenses, he said.

In another case, Phillips 66 used wireless temperature and flow-measurement sensors at one of its refineries to gauge the health of heat exchangers within its crude distillation unit, Slaughter said. Matching the data collected by these sensors with production and environmental data, refinery personnel were able to hone in on problem heat exchangers and clean them accordingly, he explained. Because personnel were able to focus only on exchangers that actually needed attention, the IoT deployment saved Phillips 66 approximately $55,000 annually in maintenance costs per exchanger, he explained.

"Not only does that allow better optimization of maintenance schedules and predicting state of that equipment, it also allows operators to optimize future configurations ahead of time due to save money and operate more efficiently," Slaughter said. "A lot of the time, refineries' equipment failures are managed very piecemeal. If you can integrate more information with different factors around it, you can be a lot smarter with increasing uptime."

Refiners, c-stores and other downstream players seeking to capitalize on the IoT should integrate early adoption and a broad-based view into their rollout strategy, Slaughter advised.

"If they do it right and they do it ahead of the game, they become more efficient, smarter, more aligned to market conditions and more able to optimize across their assets and activities," he concluded. "Ultimately that leads to a more efficient and more value-creating business. The end game is to drive that to the bottom line and become more competitive. Innovation has to drive to business efficiency, profitability and value-creation."

Operating in a World of $50 Oil
 

 

 



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