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VARs Say High Oil Prices Impacting Business
Kevin Hanratty, CEO of Houston-based IT services consultancy Astoundry, says his clients, many of whom are oil dependent, are looking for new ways to maximize efficiency. They're moving other priorities for modernization further down the list as the price and demand of oil continues to rise.
"I was talking with one of my close friends, an oil industry investor, about this today," he says. "For all these oil service companies, there are three costs: raw materials and the cost of labor, which keep going up, and efficiency of services." Technology, he says, is how these companies are increasing their efficiency—in essence, doing more with what they have.
"Here in Houston the reason they're spending money is because they've got to get efficient," he says. "All these service companies that support the oil rigs and provide services -- those are companies that are realizing they have to be more efficient."
For the companies in Astountry's logistics portfolio, the impact of oil prices is large because only so much added cost can be passed on to the client. He pointed to a tracking company client who hired Astoundry to build a more efficient trucking system. "If they go 10 miles out of their way, that's costing them a lot of money," he says.
Another client, an oil rig service company, needed a more efficient way to get their ships into the repair shop and back out into the water. "We've actually proposed a couple of things to clients they didn't know about," he says, including building a computer system that increases the efficiency of repairs and tracks crew schedules. "The repair system is something no one had ever thought of, and they said, 'Go for it,'" Hanratty says.
The price of oil has climbed so high, he says, that companies want their assets to be worth as much as possible. This means squeezing extra value out of assets that might otherwise be unavailable. "If we get them an extra two days a year out of the ship, that's real money, and they see that," he says. "It's made us look at new ways of solving problems with technology."
While the rising cost of oil can provide new and innovative opportunities for some solution providers, it acts as a burden for others. "Over the past five years the amount of compensation for mileage has doubled," says Steve Tadevich, director of marketing for Granger, Ind.-based Network Solutions Incorporated.
Company CFO Tim Shindeldecker says the rising price of oil is impacting everything from client orders to facility heating costs. "One of the things that's come up recently is we had a clients ask us, before they wrote a purchase order, to guarantee what the shipping freight costs would be," he says. "What's happening is customers are anticipating an increase in that price and they don't want to get caught."
Shindeldecker says he received a notification from UPS this morning about a 6.6 percent increase in shipping rates, a bit higher than he was expecting. "I'm sure it's a result of the increased cost of fuel," he says. As Tadevich mentioned, the rising cost of fuel also impacts the company's mileage compensation costs. "Last year we paid for 250,000 miles for our engineers and sales people," Shindelecker says. "So if gas is going to jump as high as $4.00 a gallon, that increase times 250,000 miles is a huge for us in terms of the cost of getting my guys where they need to be."
The rising cost of oil also affects those working from the company's offices in Granger and Indianapolis. "We've talked about for the heating of the facilities, putting controls in place," he says. "We talked about dialing it down to 68 degrees from 70 degrees." In the end, he admits, it's another belt-tightening strategy spurred by rising oil prices. "In the end, the cost of fuel gets pushed all the way through the system," he says.
Technology Specialists, a Fort Wayne, Ind.-based solution provider, is also finding ways of dealing with mileage compensation costs. They've raised its mileage reimbursement to 51 cents per mile, its second increase from 32 cents in less than two years. "That's a killer. We're trying to reduce the mileage as much as we can," said Jay Tipton, vice president of business solutions at Technology Specialists.
The solution provider is also pushing more clients to get on managed services, where remote support can save both the solution provider and client costs in terms of fuel and resources. Tipton, like many people, is unsure how rising fuel costs will play out in the overall economic market. "It affects more than just IT. I was just looking at my costs this year to send people for training. That's more expense," he said. "I don't know if it will delay any [IT purchases] or make it become that the customer will want to do more things remotely."
He's also waiting to hear if carriers will add fuel surcharges or increase their shipping rates for products. "I know there's been talks about passing along those costs and of course, we'll have to pass those along as well. It's a downhill spiral."