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Fluid Management Programs May Bring New Opportunities to Independents

— By Alyce Lomax As printed in the November 1999 issue of Lubricants World
Fluid management programs are increasingly touted as cost-cutting tactics. Corporations can streamline operations and save money and resources as they outsource many of the burdensome details of day-to-day operations to a "fluid manager." Firms offering fluid management services possess the resources and expertise to deftly manage the workflow in chemical-heavy businesses, assessing where costs can be slashed and efficiency increased.

In addition to their cost-cutting role, fluid managers fulfill other functions. They provide information management, in-depth familiarity with products, and assistance with regulatory compliance. These benefits and more are provided in a single-supplier relationship, cutting reams of paperwork and red tape.

However, some small independent lube manufacturers see the fluid management trend as a threat to economic viability, whittling away at the market. Fluid management supporters believe otherwise, contending that these programs provide an important economic service to companies, and also present independents with a unique opportunity to supply the fluid management set and open up new sources of revenue. Compoundings examined the views of fluid management proponents in an attempt to throw some light on what could be a controversial subject among ILMA members.

From Cost-Cutting Tactic to Strategic Move
At ILMA's Mid-Year Meeting, Thaddeus Fortin, president of Haas Corporation, addressed the Industrial Lubricants Session as a provider of fluid management services, justifying its premise to his audience of independents.

Outsourcing, Fortin noted, has become a popular practice in the last decade. He described it as "the most widely talked about and implemented management tool of the nineties." He said that over ninety percent of U.S. companies spend a total of over $100 billion dollars annually to outsource functions inherent to their businesses.

At first glance, fluid management may seem solely an exercise in cost-cutting, but Fortin described it as a strategic, public relations-savvy move as well. It can serve to boost corporate image with the world outside the industry (for example, the Wall Street investor), because a company's ability to outsource implies that it has implemented "good management practices." According to Fortin, investors interpret such a program as a standard they can understand, a way to gauge the sound management practices of a company.

Fortin also said that at a recent meeting he attended, when the audience was asked to indicate whether they felt fluid management was just a fad, only one hand was raised -- implying that fluid management has become an accepted practice, and is here to stay, for better or for worse.

Less is More
"Chemical management strengthens corporate basics, not corporate bureaucracy," Fortin said. A fluid or chemical management program's emphasis on leanness and efficiency creates a domino effect, providing other important byproducts, such as pollution prevention and conservation of resources. With a reduced number of suppliers and a chemical service provided solely by the manager, less pollution is created, and chemical consumption is decreased along with the types of chemicals utilized. In addition, the manufacturing of products creates less waste and requires less energy usage overall.

There is also a quantifiable reduction in regulatory reporting needs and environmental exposure, again translating into savings. A fluid manager can provide improved information management for a company's compliance needs, a reduction of health and safety risks and liability, as well as a standardization of specifications, systems and procedures. Furthermore, a fluid manager can have a beneficial impact on all environmental systems including waste treatment, and can implement improved coordination between production, material selection, and waste treatment functions. A fluid manager can also help companies take advantage of technological improvements that they could not implement on their own.

The fluid manager provides its clients with the important innovation of "shared risk" -- the relationship between a company and its fluid manager is designed to bring in a professional ally, an instant expert to help deal with problematic issues. Also, Fortin pointed out that a fluid manager actually helps focus businesses because "operational details," which can blur corporate missions, are assumed by an outside expert.

Less waste, less usage, less in-house research and less paperwork -- all adding up to more savings to the client.

Small Independents Stand to Gain
Compoundings spoke to Greg Julian, president of Advanced Lubrication Specialties and Chair of ILMA's Industrial Lubricants Committee. Julian is another individual who believes the fluid management model could bring opportunities to the industry. He asserted that these programs and the relationships they create do not threaten members, but rather, members of varying sizes and types stand to gain from this strategy.

When asked about the possible impact of programs such as these on small lubricant manufacturers, Julian responded, "It is our opinion that [fluid management] is actually a plus and could probably grow our business. As the fluid management supplier goes into a plant, his main focus is to cut cost. One of the ways to cut cost is to reduce inventory, and go into a more adjusted-time situation."

There are two kinds of companies within the fluid management framework. The first kind, Tier I suppliers, actually go to the plants and implement the programs, while Tier II companies (independents) in turn supply the Tier I companies with much-needed products and services.

The Tier I manager "needs a blender close by that may be able to tweak or fine-tune a product, and when you look at those service-oriented aspects, the major oil companies have no way of addressing those types of situations," Julian said.

With this comment, Julian highlighted the capabilities which have always given the small, independent compounder its competitive edge: the ability to customize quality products for customers quickly and efficiently.

"It's my opinion that fluid management will be good for the independent lube manufacturer," Julian said. He then described a scenario in which a Tier I fluid manager seeks a Tier II supplier, with requirements including that the supplier be a local player able to provide quick turnaround and delivery of a customized product. The Tier II supplier must also be able to take an existing product and fine-tune it to specifications, for example, providing an additive to improve its function even more.

Competition Is Not a Negative
Competing product lines may exist between Tier I and Tier II suppliers, but Julian believes the issue does not cause a problem in the reality of these relationships.

He explained that although a Tier I and a Tier II supplier may both make metal working fluids, if the Tier I company found a need for industrial lubes, it would not begin producing these itself, but instead would seek out a Tier II supplier for a quality product. Although they would then sustain a customer-vendor relationship for one product, their other products would indeed compete in the overall marketplace. However, it would not change the fact that the Tier I supplier had voiced a need and the Tier II supplier would generate revenue for the service it provided, despite the fact that the two companies both produced similar products in a different business segment.

Although competitive products do exist in these relationships, "it's not a negative," Julian said, explaining that the competent Tier I supplier enters its client's plant, assesses its existing products, and then determines how best to manage its chemical services, organize the inventory to its advantage, and reduce cost. This outcome does not automatically mean the Tier I supplier is going to suggest its own products only. According to Julian, "... if the Tier I provider would go [into the plant] and say replace all your products with my products, he would not be doing the end-user a good service, because he might not be making the best products, he might not be able to make the best economically, he may not be able to service them the best."

In short, in a customer service vein, a quality Tier I supplier is well-versed in the needs of its clients, and dedicated to providing the most fitting service for its clients, regardless of its own brand and products.

Using expertise and awareness, a fluid manager can change the way a company does business for the better, while opening up new revenue channels for other suppliers. In today's business climate of increased competition, arrangements like this, while unconventional, may be key in providing the best service possible while increased functionality and operating efficiencies are essential to success.

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