Alyce Lomax As printed in the November 1999 issue of Lubricants
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.
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
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.
"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.
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
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
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
"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
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