Need to Know
The pandemic and various other calamities from the past few years have resulted in a cascade of events that many say has driven a profound shift in the mindsets of lubricant buyers. While buyers used to be interested in talking to lubricant marketers about extended drain intervals, fuel economy and other technical issues, today they are more inclined to speak about solutions to problems of product availability, supply line reliability and resiliency. Rather than listening to explanations about problems—which they know exist in today’s environment—they want to hear about solutions.
This shift in mindset was precipitated by the supply shortages that began in 2020. Supply was long for a short period of time when COVID first hit, and demand dropped due to the sudden closure of businesses and subsequent slowdown of economic activity. But it didn’t take long for demand to bounce back and significantly outpace supply. The supply shock was entangled in reduced production capacities of raw materials, extraordinarily long delays in core transportation systems, labor shortages and other issues occurring on a global scale.
With few exceptions, every major, independent blender and lubricant distributor says they are struggling with supply shortages.
Although these factors impacted availability of nearly all raw materials used in the manufacturing, packaging and shipping of lubricants, lubricant additives became the primary bottleneck in lubricant production. While there were several reasons for the exceedingly tight supply of additives—including tight supply of antioxidants and disruptions at several additive and chemical plants—the impact was serious and persistent. Deep allocations of PCMO, HDEO, driveline lubricants and other products were put in place, and some majors were out of stock on their marquee engine oils and other product types. When that sort of disruption occurs, lubricant distributors need to find solutions. And they did.
Importantly, when the well runs dry a distributor’s only option is to switch customers to other products. In some cases, this means moving them to an alternative product offered by the major the distributor is aligned with. In many instances during the past two years, however, this was not an option due to allocation, and the switch meant moving the customer to another brand. The alternative brand of choice for many distributors is their own private label product or a brand produced by an independent lubricant manufacturer. While you can be sure the major that a distributor is aligned with is troubled when this occurs, the alternative of seeing its distributor put another major’s competing brand on the table is much less palatable.
In the process of switching brands, a customer’s trust shifts from the brand names they had been using to their distributor to provide alternatives they can rely on. Counting on the alternative product embodies the product’s performance as well as its competitive pricing and consistent, reliable and timely supply.
Distributors say this dynamic has shifted the lubricants business from a product-oriented sell to one focused on both the product and logistics, with the latter receiving a higher degree of attention than ever before. When customers found that distributors had alternative brands available in the volumes needed and these products met the same standards as the majors, caused no harm and could often be obtained at lower prices, logistics stepped front and center as the key point of differentiation among suppliers.
That is not to say that all brands are equal in terms of performance and product support, because they are not. Instead, the past two years of very tight supply, complicated logistics and competitive resilience have ushered in a more impactful and valued point of differentiation than some of the less visible differences related to product performance between brands. While claims about oxidation stability, low-temperature fluidity, resistance to high-temperature breakdown and other performance-related attributes are important, they are meaningless when a customer cannot get the product they need.
Distributors say logistics is about suppliers getting customers what they need, when they need it and in the most cost-effective and efficient way possible. If certain products are not available or supply is unstable, the customer is quickly made aware of it and acceptable alternatives are offered and supplied without interruptions.
But as we have seen with the supply line disruptions since the start of the pandemic, this is much easier said than done. It requires a strong and reliable network of resilient suppliers; end-to-end data-driven technology to manage and coordinate purchasing, order processing, routing, warehousing, tank monitoring and other business activities; and AI software to proactively anticipate and respond to real-time needs, customer behavior and purchasing patterns. It also calls on distributors to have contingency plans and strategic redundancies in place and to be nimble and creative in finding solutions when sudden, unexpected disruptions in the supply chain occur.
While significant investments are needed to get there, the past two years have proven that logistics, resiliency and the ability to quickly identify and communicate challenges to customers and offer solutions provides suppliers with meaningful, measurable, highly visible and valued points of differentiation. Further, a deficit of these attributes by way of inflexibility, lack of resourcefulness and poor communication can be very costly.
As many have found since the start of the pandemic, customers understand that problems can arise and unforeseen events do occur, but they have little time for suppliers that do not quickly bring these issues to their attention and those that cannot offer solutions. Stopping business or putting assets at risk due to a supplier’s inability to deliver lubricants when they’re needed is not an option.
Tom Glenn is president of the consulting firm Petroleum Trends International, the Petroleum Quality Institute of America, and Jobbers World newsletter. Phone: (732) 494-0405. Email: tom_glenn@petroleumtrends.com