In our continuing series entitled “Supply Chain Issues & The Heat Treatment Industry” we are asking industry suppliers what they are seeing these days and how they are reacting. Today we have comments from Mr. Carlos Torres, President of furnace builder “Mattsa” and Mr. Greg Steiger, Segment  Manager Quench Products, Industrial Lubricants, Idemitsu Lubricants America Corp.

From Mattsa Furnace Company we have these comments;

“Gord – I can share that right now the market is very strange, there are very substantial reductions in production volumes but companies still need to purchase components. It all comes down to the law of supply and demand which means available items are very expensive which makes them profitable to the supplier, many companies have no choice but to pay a premium for available items rather than wait on an unrealistic delivery schedule. 

What the lean manufacturing theory claims is that just in time production is the best way to save money by not having a large inventory, however the companies that had inventory previous to covid and the chip shortage are the ones that are making money right now. Raw materials like steel, alloy and even electronics have been very volatile over the past years but it is not market price but availability that is dictating  the market right now so companies have to get out of their confront zone as far as their supply chain goes;

• Use a different brand of components that can be functional to the application
• Rebuild or repair Critical Items that have unrealistic delivery time
• Develop different suppliers from other areas or similar industries/applications
• Use components from equipment that is currently not utilized nowadays and re order (make sure you place orders for restocking of components ) 

I don’t see the market stabilizing in the short term so this will be the STATUS QUO for the next few years, companies that are flexible and can adapt and improvise by taking calculated risks will be the ones that will succeed, companies that will only sit and wait will loose this battle.” Carlos Torres, President, Mattsa Furnace Company

From Idemitsu Lubricants America Corp., we have these thoughts; 

“As a supplier of oil and polymer based quenchants along with alkane cleaners and rust preventatives, Idemitsu is not immune to many of the issues facing commercial and captive heat treaters.  As everyone has seen the price of oil increase over the last several months.  These increases are simply a factor of supply and demand.   During the pandemic peak, oil refiners were not producing as much fuel as before the pandemic.  This meant that the amount of finished base oils and finished lubes also dropped as the refining of base oils is proportional to fuel production.  With the slow increase of the economy the demand for fuel didn’t increase substantially.   However, the demand for finished lubricants and oil related products such as quench oils remained steady.  This demand coupled with a lower supply initially drove prices of base oils higher.  Now coupled with unprecedented winter storms and maintenance outages at various refineries, the cost of base oils has increased 6 times in 2021 alone.  It is not only base oil price increases that lubricant companies such as Idemitsu are seeing.  Many of the additives used in both water-based chemistries and oil-based chemistries are a byproduct of oil refining and the limited supply we are seeing.  Idemitsu is also seeing the same increase in other costs that all manufacturing companies are seeing.  The increasing cost of steel has increased the price of new drums.  The reduced availability of plastic for totes has increased the cost of obtaining totes.   Idemitsu is also not immune to increasing freight costs.  As a blender of heat treatment products, we pay for the inbound freight of our raw materials and we face these increases as well. 

To help offset many of these increases, Idemitsu has taken numerous steps to help diffuse our increased costs .  We are using economies of scale by increasing our average batch size and purchasing many critical raw materials in larger volumes..  To help our customer base of commercial and captive heat treaters we are encouraging our customers to increase their purchase quantities.  For instance, the cost to ship one drum on a pallet is not that much different than to ship a full pallet with 4 drums.  We are asking our customers to switch from a 265 gallon tote to a 330 gallon tote.  This will lower their annual freight costs as well.  Because supply chains are lengthening for imported materials, Idemitsu took the initiative several years ago to reduce the amount, of products we imported from our Japanese operations.   Today in our heat treatment product line we can proudly state we do not import any finished products from Japan.  To help combat the lengthening of domestic supply chains, Idemitsu has been very upfront with our customers regarding the ability of common carriers to deliver products in a reasonable amount of time.  While our standard lead time of 5 business day has not changed, we have recently notified our customers of the additional transit days now required for most LTL shipments. 

Overall, Idemitsu is doing everything possible to work with our heat treating customers, our vendors and our preferred shipping companies, to provide our products to our customers to ensure there is no disruption in their manufacturing process.  We are doing this whilst striving to maintain a competitive cost with the shortest lead time possible.” Greg Steiger, Segment  Manager Quench Products, Industrial Lubricants, Idemitsu Lubricants America Corp.

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