Road to Recovery: Oronite Strives to Regain Customer Confidence


Editor’s note: Over the past year, the U.S. lubricant industry was buffeted by an unprecedented series of disruptions to supplies of raw materials. In the second of our three-part series,Lube Report this week looks at Chevron Oronite’s rebuilding program following a series of setbacks.

Even in a year when serious disruptions beset much of the lubricant industry, Chevron Oronite suffered more than its share of problems. An explosion hampered production at one of its main facilities for weeks. A hurricane later closed down a second. In between, the company found itself unable to meet contractual obligations, a predicament it blamed on outside market forces.

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The lubricant additive maker spent months digging out from under those trials, and not until May was it once again delivering contracted volumes on all products.

Now it is back on track, but Oronite has taken the position that back to normal is not good enough. The company has vowed to become a more reliable supplier and has begun taking a number of steps toward that end – increasing inventories, establishing supply-chain redundancies and keeping open a plant that was scheduled to be shut.

Its all part of a campaign to regain customer confidence and, apparently, to win new business.

Oronites problems began in March 2005 when an explosion occurred at its plant in Singapore. The incident occurred as workers unloaded a tote bin of phosphorus pentasulfide, a volatile compound used in production of zinc dithiophosphate, a lubricant additive that inhibits corrosion and wear. One worker was killed and another injured, and operations throughout the plant were reduced for several weeks. The cutbacks had a significant impact on the company because the facility is the largest lube additive plant in Asia and one of three primary Oronite factories around the world.

In August, the company issued a global force majeure declaration, formally notifying customers that it could not meet contractual obligations on lube additives other than viscosity index improvers. Although they have been commonplace in the lubricants industry lately, force majeure declarations are generally rare and typically issued in the wake of accidents, weather damage or other acts of God.

Some observers assumed Oronites declaration stemmed from the Singapore accident, but the company maintained it did not. Instead, it attributed the action to increased demand for lubricant additives and tight supply of raw materials.

The Houston-based company, a subsidiary of energy giant Chevron Corp., is one of the worlds four biggest additive suppliers, so its declaration reverberated in the lubricant industry. Several blenders subsequently made their own force majeure declarations or imposed sales allocations.

As bad as it was, the situation worsened considerably at the end of August when Hurricane Katrina steamrolled past New Orleans. Oronites Oak Point manufacturing facility in nearby Belle Chasse, La. – its main factory in North America – was forced to close, partly because of on-site damage but more due to devastation to the areas power and transportation infrastructures.

Although Oak Point resumed normal production in October, it took another seven months for the company to fully recover. It started lifting allocations around the start of the year, and after maintenance turnarounds at all primary factories, Oronites position improved to the point that it lifted force majeure on its final remaining products last month.

But officials say Oronite is determined to go beyond restoring manufacturing levels. The company talks a lot these days about committing itself to becoming a more dependable supplier. Representatives have visited customers in recent weeks to make presentations about its efforts. Among the steps discussed, customers say, is a decision to continue operating a plant in Maua, Brazil. At the end of 2004 the company decided to close the facility – a secondary factory – in order to trim fixed costs. When the company started having difficulty meeting targets, it reconsidered and decided to keep the plant open for the flexibility and extra capacity it provided.

In its presentations, Oronite is also telling customers it will maintain higher inventories and lockin additional sources of key materials so it can be better prepared for unexpected disruptions.

The company also has undertaken a major advertising campaign to convey the reliability message. In January, it began running a series of ads presented as open letters from company vice presidents and a process improvement leader. In one, Process Improvement Leader Toan Nguyen describes the development of a remotely operated wrench that allows workers to unload phosphorous pentasulfide bins without being in the same room. The ad does not mention the March 2005 accident, but states that the company is committed to improving safety, both to protect employees and to reduce the likelihood of manufacturing disruptions.

In another ad, Vice President of Sales Andy Tugendhat says the company is being careful not to overextend itself. We want to be sure that we only commit to what we can deliver, because we understand that your business depends on us, Tugendhat says.

A few of the ads seem to border on being apologetic, leaving themselves open to interpretations thataspects of thecompanys performance fell short in the past. When questioned, officials cast a different light on the issue.

Oronite is always looking for ways to improve its products and service, and we will continue to do so, Global Marketing Communications Manager Susan B. Boyle said. The events and changing dynamics of the additives market over the last 18 months have provided new insight into many aspects of our business, including how we access and manage the available raw material supply.

Americas Manufacturing Manager Mike Burnside discussed the companys efforts in an interview with Lube Report two weeks ago. The company is still in the middle of building inventories, he said, and has taken some of the steps it plans to line up backup sources of raw materials.

He also acknowledged that actions such as those and continuing to operate the Maua plant run somewhat counter to principles of efficiency. But he added that management is now convinced they are worth the associated costs.

Its a philosophical decision that we reached because we realized that the costs of not being a reliable supplier are huge – both to ourselves and our customers, Burnside said. If you have a single incident, or a series of incidents, you can easily get into the tens of millions of dollars.

Customers may not have liked everything Oronite did in handling last years problems. Some, for example, still question how market forces could push it into force majeure but not competitors. (Oronite officials declined to respond to this point for this article.)

But customers generally give it high marks for its efforts to recover and move ahead. Those interviewed for this article said they particularly appreciate Oronites increased emphasis on communication – both its openness about its own operations and a greater effort to understand their needs.

Theyre much more proactive in asking us on a regular basis how our demand is going to change, confided an official with one lubricant manufacturer who spoke on condition of anonymity. They also say things like, Well this is how were getting product to you now, but would it work if we tried this instead? Theyre clearly trying to understand their customers a lot better, and Im all for that.

Lubricant blenders say Oronite seems noticeably more aggressive in its pursuit of new business. The company declined to say whether sales volumes are down since the start of 2005. Boyle said it continues to seek opportunities, but will balance them with its capabilities.

Burnside said the companys dedication to reliability is not a passing fancy but a long-term commitment.

You dont become a world-class reliable supplier by snapping your fingers, he said. It takes years of work and commitment. I think there is a hump to get over. If we do that and we get to the point where were world-class in terms of reliability, then maybe well be able to ease up on some measures the company is taking.

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