Major oil and fluid providers are developing life-cycle services for their products

Major players in oil and fluid chemical trade are increasingly developing Life-Cycle Services to meet the need for even more customer oriented business approach. The Life-Cycle management has different commercial titles but the concept remains all the same.

The Life-Cycle management is designed to hold the customer tightly connected throughout the customers systems’ lifecycle. All comprehensive programs include some audition or system analysis, help at the beginning with education and training services, laboratory services and especially flushing and refill services with used oil purchasing possibility. Currently most of the services are available only in United States of America but more services are becoming available also in Europe and in Finland.

The Life-Cycle management should not be mixed with traditional on-line trending and follow-up services. On-line asset tracking solutions has been available for years but the difference is in the organisational model. The major difference is the division of responsibilities and costs, to parties or in the time-frame.

The difference of present situation and new approach

The difference compared to previous business model is huge. In the previous business model, the product or service providers maximized their cash-flow and profits by maximizing their units sold. However, from the point of view of purchaser the concept led to situation where sub-optimization occurred or purchasing department required excessive amount of know-how and human resource in general.

In situation where customer was owner of use of oils or fluids leads to situation where all responsibilities were taken by purchaser. Responsibility requires that all relevant information is collected for the decision making and cost-benefit calculations are made carefully. However, each projects participant’s interests are colliding and project’s present costs and life-cycle cost differ. For example simple budget solutions may have implications for the entire systems that cause extra cost’s at another part of the system. Also in tight price competition, one service or product provider’s, for example oil and fluid provider’s, have little or no interests or qualifications to ensure the compatibility of complex system and their product. Instead, each have their internal organizations goal’s to reach (sales and operational target’s, which may be such simple as to survive).

If competing providers make their profit by maximizing the consumption of their products, they will have aim to arrange their sales to support steady and if possible growing number of sold units or more expensive units. Very often different products or services are substitutes for other and the selection of operational model how things are taken care will become winner-takes-it-all -game. In the trade of oil or fluids, the life-cycle length plays the crucial role of the game, length and durability is in no-doubt an advantage but it is also methodical enemy of maintenance contractor or maintenance equipment provider.

New approach combines the interests

New approach is referred usually chemical leasing or resource management where certain chemical is sold as life-cycle resource service. Oil or Fluids used to provide lubrication, hydraulics, thermal transfer or insulation, are suited well for life-cycle management and to be traded as service.

Most important advantage is the common alingment of the interests when the cash-flow or profits are not maximized by units sold but rather different by time used or by saved resources. Many different examples confirms that model provides not only huge cost advantages but also unforeseen operational advantages when sub-optimization is reduced together with total maintenance costs

When oil or fluid is provided as resource, the provider has interest to minimize the consumption of oil or fluid, also provider have interest to select most cost effective method to maintain oil’s or fluid’s good service capability by correct maintenance actions. Even more important is to follow the good service capability and thus guarantee the steady cash-flow and profits.

For purchaser the concept provides possibility to secure their operational reliability, open the costs of reliability and gain environmental benefits. However, the customer still have major problem to secure their the process conditions beyond the control of the oil of fluid provider.

The advanced organization may used the improved information of costs that failures generate as incentives to improve their processes and to prevent catastrophic failures. Catastrophic failures will have always short term costs but even more severe long term impact if failure in process affect third parties assets which are constantly monitored. The recourse based costs will make comprehensive costs of failures transparent for purchaser and open the possibility for strategic maintenance development.

Usually the oil or fluid resource manager will have improved understanding of the implications of failures to their assets and they have also aligned interest to make sure no such failures occur. Incentive is clear for both parties and they benefit most with co-operation to prevent the problems which turn into failure.

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Benefits of new approach

1. The Economic dimension

Cost are predictable fixed monthly expenses
Costs are lower than present situation
Capital is released to be allocated more productive investments

2. The Safety dimension

Oil leaks will decrease in long run
Oil handling and related risks are diminished
Oil quality optimization reduce the risks of catastrophic failures

3. The Environmental dimension

Oil Life-Cycle is optimized which usually means longevity
Oil consumption is radically reduced
Oil dependence will decrease – risks are diminished

4. The reliability and usability

Process control know-how and expertise accumulates with expanding statistical knowledge base
Human resources are released to core business development
Division of responsibilities turns transparent between organisation
Aligned interests helps all parties eager to determine causalities and thus reduce failures

Transformation of Oil and Fluid Trade