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# A Tutorial On Petroleum Inventory Reconciliation

February 16, 2010 (comments: 0)

If you work at or for a gas station you may know and most likely dread inventory reconciliation. This tutorial is designed to help guide you, refresh your memory, or remind you of the important factors of this significant inventory, after all, this is the main product you are selling therefore you want to keep a close eye.

Just as other retail stores inventory their items, gas stations must inventory their stock, which happens to be thousands of gallons of petroleum that are stored below your feet. Since our product is underground, we can’t simply walk down the aisles and count all the cereal boxes as someone accounting for items in a grocery store might do. Nope, our inventory takes a little more imagination and maybe a little more math as well, so grab yourself a calculator!

Below is a typical data collection table for someone needing to inventory their petroleum. Let’s assume it’s the beginning of the first shift of the day, let’s fill out the data together.

Day/Date | Open Phys(Gallons) | Delivery(Gallons) | Close Phys(Gallons) | Phys Sales(Gallons) | Meter Sales(Gallons) | Daily Change |

It starts off easy, Day/Date: simple enough, figure out what day it is and write it in the box. Column one is done! On to column two, Open physical (gallons): This is when we walk over to the Automatic Tank Gauge (from here on called an ATG) and ask it to tell us how many gallons of product are currently in the tank, write this in column two. OK good! Now you can carry on with your day and we’ll meet back just before you leave.

* * *

Well hello, it must almost be time for you to leave- but not yet, we have important data to collect! As you can see, column three is Delivery: Did you receive a delivery today? If not, cross out this box, if so, write in the number of gallons that were supposedly added to the tank. It must be noted that this is one point of potential error. Since we can’t see the tank we can only assume that the delivery person delivered the amount he claimed he did. If he delivered less, our calculation will be off, if he delivered more, guess what- our calculation will still be off (More on this later).

Time for column number four- get ready to run, **Close physical (gallons)**, this is again going to the ATG and recording the amount of gallons that are now in the tank, but before you do this, get ready to read the point of sale for today. Why did I tell you to run? Well, because in order to get an accurate representation of the inventory, you need to record the amount of gallons in the tank at the same time you record the amount of gallons you sold taken from the point of sale. This will be written in column six Meter Sales (gallons). If time passes in between the two readings then it’s likely that your calculations will be off- (potential point of error #2). If customers are pumping gas in the time it takes you to walk from the ATG to getting around to checking the point of sale, then the gallons those customers removed from the tank will only be recorded in your notes as the point of sale, and not accounted for in the ATG volume data you recorded before they started pumping. It will seem like you sold more gallons than the number of gallons you recorded as missing from the tank, therefore… run! And on your way back, grab a calculator.

Now its time to do some math (potential point of error #3); column five, Physical sales (gallons) means you are going to calculate how many gallons you sold instead of reading what the point of sales said you sold. To do this, take column one, the amount of gallons you started with, and subtract column three, the amount of gallons you ended with. This will give you the amount of gallons that are missing. If you took a delivery this day, add that amount, column two, to this number. Once you are done carefully crunching numbers on your calculator, write the answer in column five.

Now let’s step back and look at the table, in a perfect world, column six (Meter Sales) and column five (Physical Sales) would be the same number because you should have sold the same number of gallons that are now missing from the tank. Not the case? Don’t worry-That’s why we have column seven! Because of all the potential errors embedded into our tricky inventory and because gasoline is temperature sensitive, it is assumed that the calculation will be a little off.

Column seven is **Daily Change**. For this we need to do more math (sorry). Subtract column five from column six and write the difference whether it’s positive or negative, in column seven. This last column shows us the difference between the amount of gallons sold, and the amount of gallons that are actually missing from the tank. A positive number means you technically sold more gallons than the amount that is missing, a negative number means you didn’t get paid for every gallon of gas that is missing from the tank. Hmm, not good.

Though both a negative and a positive number is not a good sign of accurate inventory, having a negative number (not accounting for missing gallons) may mean you have bigger problems, such as a leaking tank, a dishonest delivery, un-calibrated dispensers, or petroleum theft. These problems can’t be determined through one day’s reading, which is why you must do this fun calculation everyday!

**Potential Sources of Reconciliation Variance:**

Inaccurate Delivery

Not Recording Close physical and Meter sales at the same time

Inaccurate Math calculations

Theft

Leak

Dispenser drift

UST test taking that day

Depending on what state you live in, after 7, 10, or 30 days you need to add up (reconcile) your column sevens and determine the percent variance from either the tank’s gallon capacity, or the total amount of gallons the point of sale recorded (adding all column sixes : Meter sales). No matter what state you are in, there is not much room for error.

To help you avoid this confusion and to give you a clearer view of how many gallons are really in your tank and how many gallons are sold or truly lost, you can pass this analysis on to a device that was designed specifically to do this. What is it you ask? It’s called AIR, Automated inventory reconciliation. The “Automated” part, soon to be your favorite, takes the human element out of equation, and analyses and automatically collects the data for you. Where can you find such a beautiful thing? Right here: AIR.

Let us save you from your headache!

Class dismissed.

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