It takes great determination and a sense of purpose to follow a strategy in the lubricants market that leads from a regional niche supplier to a global player, but LUKOIL has followed that path with great success.
Starting as a local lubricants supplier 12 years ago (and even then, as a business less than 15 years old), LUKOIL has become the largest supplier of first- fill engine oils to Russian-based plants of international car manufacturers. And it has gained 10 percent of the global marine lubricants market. In 2016, the company signed new contracts with Ford-Sollers and Volkswagen and continued its partnerships with Renault-Nissan, GM, MAN, GAZ, KAMAZ and other companies. In 2017, LUKOIL announced factory or service-fill contracts for Palfinger, Liebherr and Toyota Material Handling.
LUKOIL is no longer seen as only a quality supplier for Russias domestic market. Demanding European OEMs now approve LUKOIL as a key player in the west. For example, LUKOIL recently signed a first-fill deal with a major German OEM that will add significant volume to the output from the companys most recently acquisition, the former OMV blending plant at Lobau, Austria.
How did LUKOIL get there?
From the formation of LUKOIL Lubricants in 2005, the strategic focus was to seek OEM endorsements. That business model has evolved in the following 12 years. We are primarily focused on a complex of actions known as security of supply chain, explains Maxim Donde, General Director of LUKOIL Lubricants Co. Security of supply chain encapsulates rules and actions ensuring distinct product quality, brand protection, comprehensive logistic infrastructure and minimum lead-time.
He continued, We also foster strong personal relationships with OEM customers by our skilled team of OEM managers performing a unified desk service for them. Product development and procurement activities are aligned with the OEMs strategy to ensure that the customer gets what they want, where and when they want it.
Getting Close to OEMs
Central to the OEM approach was demonstrating supply chain excellence from the beginning. Donde, explains: At the very beginning of LUKOIL lubricants business, we were targeted at the local OEMs to build the reputation of reliable supplier in initial and service fill business. Successful seamless supplies served as a basis for expanding our business with international OEMs that have local assembly plants and car distribution networks in Russia. Building strong relationships with OEMs allowed LUKOIL to work with their headquarters and branches in other regions: CIS, Europe and Asia. Possibly the most telling measure of the success of this approach is when companies with whom they have had no previous contact approach LUKOIL Lubricants about partnerships.
Our offer to OEMs is not limited to existing solutions for general markets; our business is much deeper. It involves a strategic partnership in terms of joint development of unique, tailor-made products for current and future needs of automotive and industrial OEMs, notes Donde.
All activities related to product development and testing are managed by the R&D team at LUKOILs Moscow headquarters. Product samples are prepared in research laboratories in Russia, Finland or Romania and then sent to independent laboratories or OEM research centers for engine and transmission oils, explains Andrey Sterkhov, the companys R&D Director, The exact location of sample preparation and testing depends on what OEM we are working with. Typically, it is more preferable to perform tests for American OEMs at American research institutes; for European OEMs, we work with European laboratories.
The R&D staff are co-located in Moscow with the technical service teams and together support local relationship managers responsible for B2B and B2C liaison. It is important to speak the same language as our customers, in all countries, says Donde.
Beyond Automotive Lubricants
Building its strong product development base, LUKOIL developed about 50 new oils and reformulated over 50 products in both 2015 and 2016, eventually boosting its product range to over 2,500 SKUs. The company is keen to enter promising new sectors by using its R&D potential. This year has seen the launch of its first metalworking fluid and a new line of H1 lubricants and greases for incidental food contact.
The industrial lubricants portfolio carries a host of approvals from western OEMs such as Siemens, Denison, Eaton Vickers, Sulzer, Joy, Bosch Rexroth, Flender, Montanari and GE Jenbacher. LUKOIL performs field tests for many of these products in the OEMs equipment at its own refineries or exploration and production sites. Product development for greases is conducted by INTESMO, a joint venture between LUKOIL and Russian Railways. The partners established the INTESMO plant in Volgograd in 2014. Its capacity is 30,000 tonnes/year, and the product mix features more than 100 products, including innovative greases in the FLEX series for diverse industries and transportation.
In-House Additives and Strategic Partnerships
Coincident with the 2005 strategy, LUKOIL Lubricants invested in a 50:50 joint venture with Naftan of Belarus to create a new additives supplier. LLK Naftan is the source of the additives behind the LUKOIL NAVIGO product line, which has propelled LUKOIL Lubricants into the top five marine lubricants suppliers in the world.
However, LUKOIL is also cognisant of the technical expertise in the big four additive companies and worked with them to develop a package in LUKOILs own Group III+ base oil that resulted in the LUKOIL GENESIS line. For example, LUKOIL GENESIS SPECIAL MC 0W-20 motor oil which carries MB 229.71 approval from Mercedes-Benz for use in its most advanced diesel engines. Today LUKOIL is one of only two global lubricant producers, whose products are officially approved for use in the new Mercedes-Benz engine.
LUKOIL Lubricants own base oils can add a technical edge. We have API Group III+ very-high viscosity index base oil at our disposal, says Donde. It allows production of tailor-made lubricants for the most intricate modern OEM specifications.
Recruiting and Developing People
LUKOIL Lubricants recruitment and development has been a mix of in-house staff development, university recruitment and hires from inside and outside the lubricants industry.
One of the experienced, non-Russian hires during the growth period was Stefan Clausen, LUKOIL Marines Technical and Marketing Director. Clausen, who joined the company in 2009, recognized that cold corrosion would be an issue in marine engines due to slow steaming. He spearheaded the development of a higher base number (BN) marine cylinder lubricant, in contrast to the rest of the industry, which believed in a lower BN. By 2013, LUKOILs field trial data persuaded MAN, among others, that high BN was the way forward, and LUKOIL established itself as technology leader in this important market. Thus, the Company supplies the newest and largest container ships built for United Arab Shipping Company and Mediterranean Shipping Company.
LUKOIL Lubricants also develops its own people in what it calls the Perspective Project. One of strategic tasks for any company is to create an environment that encourages its employees to expand their area of competence and grow as specialists, says Donde. Many of these young specialists [involved in Perspective] are already at medium- and top-management positions. The availability of this opportunity has helped the company attract high-quality university graduates and in 2017 was extended to nontechnical disciplines.
Well-Set for the Future
The benefits of the 2005 strategy have clearly been demonstrated in recent years. In 2016, LUKOIL retained its position as Russias lubricants market leader and boosted overall production by 11 percent to 1.035 million tons, with premium products accounting for a half of this volume. In March, Adam Smith Conferences, organizer of the Russian Automotive Forum, named LUKOIL the Best Supplier in 2016 for its contribution to the Russian motor lubricants industry. The award was voted for by automotive companies, who selected LUKOIL above many local suppliers of spare parts and consumables.
The companys plants in Austria, Finland and Russia are certified under ISO/TS 16949 international automotive standard, and the Austrian factory is certified according to the VDA 6.3 standard of the German Association of the Automotive Industry.
Today, LUKOIL can take full advantage of its Group III+ base oils to produce premium motor oils. Within three years, it will also be able to offer a wide range of products based on its own Group II+ base oils.
Business expansion already announced includes a new 100,000 t/y blending plant in Kazakhstan in 2018. In April 2017, LUKOIL Lubricants (China) Co., Ltd. received its operating license. Later in 2017, LUKOIL Lubricants Mexico S. R.L. de C.V is expected start operations. LUKOIL is already supplying marine lubricants to nine major international ports in Mexico
Donde summarised, LUKOIL is one of the youngest players in this market and we want to carry on vigorous growth. We will continue to look for new opportunities, enter new markets and develop new products. This is a part of LUKOILs Always Moving Forward philosophy.