COST-CONTROLLING MEASURES HEAD BUSY YEAR FOR THE AMSOIL OPERATIONS DEPARTMENT
Variables as diverse as raw materials procurement, product blending, packaging, distribution and more directly affect every AMSOIL product used by every Dealer and customer each day. Much of the responsibility for ensuring only competitively priced, premium products reach endusers falls under the banner of the AMSOIL Operations Department. Vice President of Operations Scott Davis spoke with AMSOIL Magazine about cost control, new projects and more.
One of the primary tasks of the Operations Department is the procurement of raw materials. With the recent volatility in the oil market, how difficult has it been to maintain costs on raw materials?
To say raw materials procurement is a challenge in this environment is an accurate statement. With the disruptions of raw material supplies in recent years, procurement has taken on a whole new level of importance in our business success. Because AMSOIL is an independent manufacturer, we can compare pricing from multiple suppliers and purchase from the supplier that delivers the quality we demand at the lowest price. So we shop around. Additionally, with our investment in the bulk storage facility at the AMSOIL Center, we are able to soften short-term raw material increases by managing inventory levels appropriately.
What else does AMSOIL do to control costs?
AMSOIL has a great relationship with industry suppliers, and that more than anything has helped us weather the storms effectively. However, since AMSOIL is a blender and not a refiner of its own raw materials, our costs fiuctuate with market conditions. AMSOIL makes every effort to ensure an uninterrupted supply of raw materials while controlling costs as much as possible. Although challenging, we do everything we can to keep AMSOIL products competitively priced.
AMSOIL is involved in green initiatives that not only benefit the environment, but contribute to reduced prices on lubricants, literature items and more. Can you explain?
AMSOIL is a certified “Count Me Green” manufacturing company. This is the result of a third party evaluating our energy efficiency, recycling programs and employee awareness as it relates to sustainable manufacturing processes. We have a robust recycling program that results in only one dumpster of waste generated every six weeks for our entire 400,000-square-foot facility, and two semi loads per week of recyclables. AMSOIL recycling initiatives include everything from corrugated liner board to batteries, light bulbs and oil filters.
It results in positive revenue for waste disposal every year, which helps reduce operating costs.
Turning to manufacturing, how do AMSOIL manufacturing processes compare to others in the industry?
I am convinced that AMSOIL manufacturing technology is well beyond the lubricants industry as a whole. This was an obvious step for the company, as we recognized that the best lubricants cannot remain the best with traditional blending technologies.
In 2007, AMSOIL invested heavily in a bulk blending and packaging upgrade that established a foundation of industry-leading technology for blending lubricants. This technology provides AMSOIL products a level of consistency recognized by our competition and valued by our customers. Our facilities not only ensure we meet growing product demand, but also provide the tools necessary to improve our already great synthetic lubricants.
What is AMSOIL doing to maintain its status as the industry leader in manufacturing technology?
We continue to invest in processcontrol and process-monitoring technologies. Recent examples include the addition of in-line weigh scales on the quart packaging lines, providing increased accuracy and, ultimately, cost control. We also visually inspect for accurate cap colors and case quantities, improving efficiency. Updated lab equipment adds to the capability and effectiveness of the laboratory staff. Recent additions to the lab equipment ensure we remain the industry leader in product formulation and product offerings.
AMSOIL Operation’s stated mission is to provide customers “what you want, when you want it, with a service level that meets or exceeds your expectations the first time and every time.” What does it take to accomplish this mission?
Obviously it starts with premium products that perform up to our customers’ expectations. It continues with shipping orders in 24-48 hours, which happens 98 percent of the time when backorders do not interfere. It means we do our best to listen to customers and implement their feedback, which drives many of our investments in process controls and monitoring. For example, a single quality concern stood out recently during a comprehensive review of customer feedback. In this situation, AMSOIL had received a total of nine complaints over the course of a year for a packaging-related concern. Nine complaints out of millions of packages would not make most companies’ lists of things that needed to be fixed. However, AMSOIL considers anything less than perfect not good enough. A process monitoring technology was installed to ensure our customers could depend on our product leaving the AMSOIL Center undamaged 100 percent of the time because that is what we strive for in this company.
Many customers are concerned about rising shipping costs. What is AMSOIL doing to control those prices?
Ninety-two percent of AMSOIL products are shipped at least one time, and 85 percent are shipped twice, making shipping costs an important factor for all Dealers and customers. Freight costs continue increasing in lock step with the price of oil, including base shipping costs, fuel surcharges and other accessory surcharges. In fact, since AMSOIL last implemented a shipping rate increase in 2008, our costs have increased 10.8 percent for parcel deliveries and 7-11 percent for base truckload deliveries. In addition, LTL rates have fluctuated.
To absorb those cost increases, we have negotiated new contracts with UPS and have increased use of USPS Priority Mail Packages. We also have taken advantage of what’s called “spot quotes,” programs some trucking companies offer that identify trucks in their fieets with available trailer space already heading in the direction AMSOIL wishes to ship an order. They receive added b
usiness to fill their truck while AMSOIL receives a reduced rate, benefiting everybody.
What new improvements are planned for AMSOIL Distribution Centers?
AMSOIL is stronger than ever and continues to demonstrate vigorous growth. To meet current demands and prepare for future growth, major expansions are complete at our Columbus, Lancaster and Las Vegas Distribution Centers. All three DCs received more square footage and upgrades to their show rooms, including new fioors, paint and displays. Additional distribution center growth is planned in 2011 for Edmonton, Toronto, Richmond, Dallas and Chicago.
Are any projects underway at the AMSOIL Center?
Yes. Packaging operations are progressing through the addition of two packaging lines that will provide the ability to respond to changing market demands. This will allow AMSOIL to remain responsive to our customers’ needs as our product line continues to expand and add package sizes.
Finally, in true AMSOIL fashion, projects related to our facility that will ensure a strong future and reduce our operating costs are also in progress. These projects include infrastructure repairs, including roof repairs, back-up power systems and utility upgrades. All of this work has considered the future of the company, with a focus on providing substantial energy savings and sustainability for years to come. The future looks amazing, so it is important to take care of things as we go.