The industrial lubricants market has seen only modest growth in the past five years, but pockets of higher value and product-related opportunities exist within some segments, said Yana Wilkinson, director of U.S. Kline & Co.s energy practice. In a presentation given at the ICIS & ELGI Industrial Lubricants Conference in Vienna last November, Wilkinson advised suppliers to focus on long-term prospects and outlined the steps needed to define and capture those opportunities.

Global industrial lubricant demand accounts for about 46 percent of the total lubricant market, Wilkinson said. Process oils, hydraulic fluids, industrial engine oils and metalworking fluids are the largest segments.

Kline estimates that between 2016 and 2021, the compound annual growth rate for these lubricants will be less than 1 percent in the top 13 lubricants countries. However, space for high-value growth exists within niches, Wilkinson reported. For example, synthetics, biolubricants and specialty greases offer potential for growth. In particular, she noted, biolubricants comprise only 1 percent of the total industrial market but are expected to grow at a compound annual growth rate of 5 percent.

Value-driven opportunities vary by country due to local economic conditions, the impact of broader societal and technological trends, underlying industrial demand, regulatory and compliance pressures and available formulation options.

It is important to consider the demand for each product category within each end use, as well as the cost and requirements to serve that market, she explained. Many needs originate from the customers customers. Does your insight reach that far? she asked.

Wilkinson cautioned that many suppliers underestimate the fact that high-value segments may also require a more service-heavy business model, which can increase the cost to serve. Therefore, it is important to develop the right model and the proper resources. Also, scale and differentiation are often hard to align because some low-volume, high-margin markets may require specialty products.

Another issue is that fewer options are available to buy capabilities through acquisition, because the pool of potential acquisition candidates is shrinking. This makes it harder to extract value. As a result, alignment between ambitions and capabilities is key.

While a wide range of known factors influence industrial lubricants markets, Wilkinson said, we must also consider known unknowns and reflect on possible impact scenarios. Known unknowns, meaning identified risks, have a high potential impact on the market, she explained; however, the outcomes or timing of the impact is highly uncertain. Wilkinson cited the impact of the mobility evolution/revolution, additive manufacturing issues and digitization.

Tracking the broader view of the value chain allows suppliers to spot disruptions and longer-term influences, she noted, enabling a company to shift from reactive to proactive planning.

The evolution of personal transport through ride sharing, electrification and autonomous vehicles will have multiple impacts on lubricant demand, according to Wilkinson. It encompasses shifts in both the value chain and manufacturing processes.

These shifts include new market influencers, different distribution channels, changing original equipment manufacturers and supplier locations, new customers and different routes to market. Process changes comprise alterations in production volumes and components, materials, machining and production methods, tools, lubrication methods and lubricant products.

The digital transformation has many interconnected facets and affects lubricant marketing, applications and the supply chain. For example, Wilkinson said, suppliers will have to adopt what she termed engagement marketing. Here, sales teams engage buyers while they are still researching product design options. This approach requires close alignment between sales and marketing departments. It helps connect research and development, communications, processes and sales to help build tangible evidence for why a customer should choose a particular supplier, she added.

For lubricant applications, digitization aids the process of predictive maintenance because it utilizes real-time condition monitoring. This requires suppliers to interface with new stakeholders such as sensor, software and systems providers. Doing this effectively will require new skills to make personnel comfortable with technology and analytics, both in the plant and in the cloud.

Finally, digitization greatly affects the industrial lubricant supply chain. It will engender changes to decision-making processes, stakeholders and system configuration. Powerful early adopters are promoting change up and down the value chain, Wilkinson pointed out.

She concluded by listing key takeaways to help guide a companys strategic planning. First, think beyond the medium term and beyond our industrys boundaries to evaluate the nature of disruption and opportunities. New stakeholders lead to a potentially new value chain, as well as new processes.

Technology is both an enabler and a disruptor, she said, and encouraged lubricant suppliers to make the disruptions their own and translate the megatrends into the context of their own businesses. Questions to ask include:

What is my business going to be about? Lubrication, fluid management or something broader such as reliability?

How will my customers, suppliers and influencers be impacted?

How will my business model be impacted?

Will my competitive advantage still be relevant? Can I clearly articulate it?

Finally, Wilkinson advised lubricant suppliers to translate these insights into readiness through short-, medium- and longer-term actions. Focus on high-impact scenarios to inform the investment of time and resources. Assess the required capabilities to grow and steps to change or transform. Choose when to react and when to be proactive, she said.