Finished Lubricants

Secrets of Top-tier Lube Plants


World champion blending and packaging plants arent necessarily newer or bigger than the competition. Its better management that makes them more efficient, more productive and more profitable, says Annie Hanafin of Malik Pims.

Hanafin, global lubricants benchmarking manager with Malik Pims in London, described how the worlds top 15 lubricant blending plants differ from their peers at the ICIS Pan-American Base Oils & Lubricants Conference in Jersey City, N.J., in December.

Malik Pims benchmarks over 200 lubricant blending plants, including 67 in Europe, 66 in Asia, 34 in North America, 20 in Latin America and 16 in Africa. Each participating plant is scrutinized for its level of automation, labor costs and overall efficiency, the number of products blended, run sizes, packaging capabilities and more. Participating plants are not evaluated on raw material costs – which of course are outside their control –

but on metrics for each productive step, from raw material receipt to dispatching finished lubricants from the warehouse.

Hanafin defined champions as the most efficient, lowest cost and highest productivity plants, and she separated the 15 winners by size into nine large plants (making over 85,000 metric tons per year, or about 25 million gallons) and six smaller champions making less than that amount. The Americas, Europe and Asia are each home to three of the large champions, while just one of the small champs calls Europe home, two are in the Americas and three are in Asia.

Large Champs

The world champion large plants, said Hanafin, are actually a little smaller than the other participating plants at the upper end of the scale. They produce on average 161,000 tons/year of lubricants, compared to an average of 188,000 t/y for the rest. (Maybe this shows that you actually can get too big, she commented wryly.) Surprisingly, the champs also have significantly smaller batch sizes, averaging just 36 tons per product run, compared to 49 tons per run for the others.

Large champs also have smaller filling runs, and ship out more of their overall product in bulk or large size containers. Currently, the champs in North America ship 63 percent of their product as bulk, which greatly streamlines their operations and leaves fewer gallons to be packed into tote bins, drums, quarts and jugs. Their runs average 10.3 tons for large packs and 15.1 tons on the small-pack side, while their peers are busy packaging roughly twice those volumes at each go.

All told, large champs are significantly more complex than their competitors, said Hanafin. They have more grades, shorter runs and batches, and more pack sizes than the others. And managing this complexity is a continual challenge. They also have significantly more SKUs than same-sized non-champs.

Looking at other metrics, Hanafin noted that these champs are better at stock level management and blend corrections. They tend to get product out the door faster too, keeping just 12 days worth of packaged, finished lubricants in their warehouse; their rivals hold onto packaged products for an average of nearly 54 days.

Their first-time blends are correct, too, and their reject/reblend rate is much lower, Hanafin added. Blend corrections for large champions are needed with only 2.6 percent of lube runs; the others find themselves doing blend corrections 4.7 percent of the time. Energy efficiency is another place where champs are in better control. Champs are twice as energy efficient, and use but half the energy the others need to make a ton of lubes.

Large world champion plants are over $14 per ton cheaper than the rest, despite paying their people more. Their people are over 35 percent more productive, said Hanafin. Champs require just 0.66 people per thousand ton of lubricants produced, compared to the rest who need 0.9 people. The champs people cost $65,600 per head, compared to $53,600 per head for the rest. Yet the champs total production cost per ton is an impressive $86.90/ton, compared to $101.50/ton for the rest.

Personnel costs aside, other cash costs for plant operations and maintenance amount to $4.6 million a year for the champions – and over $6 million for the non-champions. All told, this gives large champions an annual cash cost advantage of over $2 million, said Hanafin. The main areas of difference are warehousing and loading, and bulk material receipt and filling. They are better managed.

Small Champs

Unlike the large champs, smaller champions lower their costs by having large filling run sizes, and they are less complex, with fewer SKUs to manage than their non-champion peers. Small champs produced 64,100 t/y on average, compared with 42,300 t/y for others in this group. Their batch sizes are bigger too: Tons per run averaged 26 at the champs, compared to 21 tons per run at the rest.

Zooming in on packaging operations, Hanafin pointed out that the small champs pack more drums and pails than their non-champ rivals; they also fill more quart containers. Small champions on average packed just 208 lube SKUs, while the non-champion blenders averaged 360 SKUs. Theyve learned to save money by having bigger batch sizes, longer runs and less complexity, Hanafin said.

Like their larger fellow champs, the small champs have better inventory management, better quality control, and better on-time delivery rates for orders. For example, they keep an average of 22 days of raw materials like base oil and additives in stock, versus 43 days for other blenders of this size. Empty packs waiting to be filled are stocked for a week or less, while others keep empties on hand for an average 18.5 days. And they have much better first-time quality on batches, Hanafin added, with blend corrections needed on only 0.5 percent of their lube runs; others have to correct their batches 4.6 percent of the time.

Small champs have a $53/ton operating expense advantage over their non-champion peers, said Hanafin, with more savings on losses and on allocated headquarters costs. Small champs need 0.91 people per ton of lubricants produced, compared to 1.43 people for the rest of the small blenders, and their people cost $43,600 per head, compared to $41,500 for the rest. Yet the small champs total production costs amount to only $68.60/ton, compared to $121.60/ton for the rest.

This translates to an annual advantage of $2.5 million over the competition, Hanafin said. One of the lessons from this, she continued, is to ask what you can control most. Maybe its a small fraction of the operation, but its significant to the bottom line.

New plants and new equipment dont assure efficiencies, she emphasized. World champion plants are older than the rest. By contrast, some non-champ plants have spent a lot of time and resources in order to get new equipment working properly, yet have not been able to attain champion status.

Champions get to the top and stay at the top mainly by being better managed, she continued. New equipment does not guarantee low operational costs. Champions continuously but modestly invest; they set a limited number of realistic goals and achieve them; they have great inventory management; they take responsibility and train their people to solve problems.

Its not magic, its professionalism, Hanafin concluded. Its a road open to all, even the most cash-strapped, volume-deficient, complexity-ridden, ill-equipped plants.

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