Untold Tales of Industrial Energy Management
This article is fiction in the truest sense. "Keenan Plastics," and the characters involved are all imaginary; any similarity to real companies and persons is coincidental. But while the "fabric" is fiction, the "threads" come from true stories-anecdotes shared at conferences, workshops and plant visits. The intent is to illustrate the stop-and-start nature that characterizes so many energy management efforts, ultimately resulting in business impacts that fall far short of their potential.
On the first Monday of the month, the general manager (GM) for Keenan Plastics’ Riverdale facility conducted a site managers’ briefing. The GM reviewed the preliminary results for the fiscal year ending January 31. Combined income statements for all eight Keenan manufacturing facilities showed that healthcare and energy costs were both escalating rapidly, eroding per-unit profit margins. While corporate headquarters issued the directive to improve cost performance, each facility at the GM’s discretion would determine the means for doing so. Keenan’s corporate management style conferred a high degree of autonomy to the general managers at each facility.
Jason Chandler, GM of the Riverdale facility, was a rising star at Keenan Plastics at age 38. Chandler had an MBA in finance, and his reputation to date was predicated on his logistics acumen. Many believed that Chandler’s stint as a facility GM was a station on the fast track to a corporate position. If the management rotation worked as expected, Chandler’s tenure at Riverdale would last another two years. Accordingly, any strategic decisions about plant performance were tempered by this time horizon. He did not want a poor performance record to derail his ascent to the top. While he was comfortable with product development, marketing and finance, Chandler deferred most engineering decisions to technical staff.
Keenan’s business was viable because its marketing strategy successfully identified and grew customer segments. Keenan’s business culture was revenue-oriented. Executives that came to power did so as the result of their outstanding contributions to growth. Keenan’s capital investment strategy built sales capacity as opposed to improving operating efficiencies. Until recently, profit volume allowed management to ignore the fact that certain costs like energy and healthcare were eroding profits on a per-unit basis.
Chandler devised a straightforward response to these cost challenges. He perceived healthcare and energy problems as price-driven issues. He declared that each issue was a "project" and picked a capable person to handle it. Janet Ray, the director of administration, was tasked with finding a lower-cost employee health program that sacrificed as little as possible as far as service.
Chad Sweeney, a senior engineer at age 28, was given the task of energy cost reduction. Chad was well-versed with fuel handling and combustion issues, but he’d have to catch up on energy procurement and pricing. With a mechanical engineering degree from the state college and almost five years with Keenan, Chad was developing a reputation as a problem solver. By tapping Chad for the energy problem, Chandler chose a "technical" guy to handle a "technical" issue.
Riverdale was one of the three original Keenan Plastics manufacturing facilities that dated back to the late 1940s. Keenan expanded to eight plants during the 1990s through merger and leveraged acquisition. Lenders looked favorably at Keenan’s cost-cutting experience, achieved primarily through labor reductions. Keenan Plastics’ ratio of staff per ton of product beat the industry average by 15 percent, although this downsizing sent some long-time operations managers–and their institutional knowledge–into early retirement.
The newly acquired plants were purchased when various competitors exited the industry. These plants were highly varied in layout, engineering and staff culture. Keenan continued to struggle with assimilation of the new plants, as evidenced in uneven per-unit cost performance comparisons. There were, in fact, whispers of overcapacity and the threat of closing one or two plants.
The powerhouse superintendent at Riverdale was "Boss" Buehler, a cigar-chomping, former Marine gunnery sergeant and 23-year veteran of the company. The Riverdale powerhouse was Buehler’s turf, and that was fine with Chandler, who in fact had never stepped foot inside that building. As long as utilities were supplied as needed, Buehler’s activity went virtually unnoticed by the GM. This was largely true for the other two original facilities’ powerhouses. The other five, however, were a mixed bag. Some were very folksy, with second- and third-generation workers on the payroll. But with that charm came an insidious patronage system that defied more objective criteria for performance evaluation and staff development. Turnover at these plants was high. Scrap rates and on-time performance of the stamping facilities were generally poor.
Chad began his project with an Internet search for relevant information. He found a wealth of technical how-to guides published by state and federal energy offices. Of particular interest was a California State Energy Commission paper on energy procurement. While Keenan had no California operations, Chad could pick up general concepts from this document. As for consumption issues, he discovered the U.S. Department of Energy’s BestPractices resources, which included system survey guides, tip sheets, diagnostic software and training curricula. This material covered plant utilities that were common to most industries, such as steam, compressed air, process heating and motor drive systems. Keenan plants had all of these systems. The sheer volume of the BestPractices material was at once its strength and its weakness. How could Keenan begin to apply this material? The BestPractices program’s mechanical recommendations ranged from simple operations and maintenance procedures to large-scale asset changes. Many energy-saving opportunities required capital investment. Other solutions called for data-intensive procedures, which seemed like a tall order for the pencil-and-clipboard culture that prevailed in Keenan powerhouses.
Chad immediately dismissed capital projects as an option. He had already witnessed Tina Roth, the Riverdale controller, at work in the annual capital budgeting process. Proposals were categorized either as "revenue makers" or "cost cutters," and energy-related projects always fell into the latter category. She was jaded by earlier cost-cutter proposals that did not pan out. In her opinion, half of such proposals were likely to fail. She managed investment risk by lopping 50 percent off the savings estimate that any cost-cutting proposal promised. Only after such adjustment were cost-cutters ranked for consideration. On top of this, Chandler’s time horizon dictated that the only acceptable projects were those with a 12-month payback or less.
Energy management was another option. The literature presented this as a day-to-day discipline that merged energy practices with regular operations and maintenance procedures. This required benchmarking, monitoring and remediation protocol based on any fluctuation in the stream of energy use data that this strategy demanded. When considering the thinned out, time-pressed facilities staff, Chad suspected that "bean counter" assignments would be poorly received and executed. The hurdles to such activity were tremendous. Staff time was lacking. On-staff technical expertise was spread thin, with one chief engineer to serve all eight facilities. The largest hurdle was the simple lack of incentive: Compensation for facility staff was driven by on-time performance. Not only were energy management duties perceived as a distraction, there was no reward for saving energy.
Chad’s task started out smoothly. He summarized his findings regarding energy commodity procurement–the "price" side of the expense equation–for Jim Koslowski, Riverdale’s procurement director. Jim saw merit in scoping the deregulated fuel market to secure lowest-priced commodities. This activity resonated with Jim, who had a clear mandate for low-cost procurement practices. Still, there was much to learn about fuel spot markets, fixed contracts and hedging instruments.
The other cost variable–consumption–begged some resolution. Capital projects were virtually impossible. Day-to-day energy management was clearly a management-by-numbers discipline that was too much for most facility staff to tolerate. Process benchmarking was best pursued in a multi-plant environment, like Keenan’s. However, the threat of plant closure put GMs on edge; suspicion preempted the sort of cross-facility cooperation that benchmarking demanded.
That left a softer approach: Do quick, easy, one-time projects that cost little if anything to perform. The Department of Energy’s BestPractices resources included innumerable one-page tip sheets that covered such opportunities.
At the next monthly managers’ briefing, this time with Boss Buehler in attendance, Chad had five minutes to present his recommendations. He introduced the BestPractices tip sheets to the audience. In his brief presentation, Chad unwittingly made the one key statement that secured success for his assignment. Chad held up a tip sheet about optimizing air-fuel ratios for combustion. "This," Chad proclaimed, "is a page straight from Boss Buehler’s approach to running a boiler room." Feeling validated before the GM, Boss Buehler became an instant fan of the DOE tip sheets and immediately urged the powerhouse staff to review the entire collection. Buehler’s staff snatched time during the weeks that ensued to act on many of these tips. The crew categorically ignored any improvement that required capital investment. But there were plenty of one-time, low-cost measures such as cleaning combustion chambers, repairing loose seals and compression fittings, and tending to loose- or ill-fitting insulation.
This burst of quick, easy fixes had an immediate impact on energy consumption at the Riverdale powerhouse. Over the next few months, energy expenses declined on a per-unit basis, and management priorities shifted elsewhere.
In the next year, management rotations continued. Thanks to his success with the energy project and other pursuits, Chad Sweeney was promoted to director of outsourcing. Janet Ray enjoyed a large bonus for her successful resolution of the healthcare cost challenge. Jason Chandler landed a corporate position, due in large part to the outstanding performance of the Riverdale facility under his stewardship. A new GM was assigned to the Riverdale plant: Peter Singh was another MBA who came of age with the dot-com industry.
Time also had its impact on the Riverdale plant’s energy performance. Constantly operating machinery was subject to vibration that loosened fittings and couplings. Debris built up in heat exchangers. Soot built up in combustion chambers. Insulation was pulled aside to repair pipe fittings, but not properly replaced. Steam traps failed, and compressed air systems sustained new and larger leaks. Eventually, plant utilities had to run longer and at higher tolerances to deliver the power demanded of them. Energy costs per unit began to creep upward.
Singh placed the energy cost problem at the top of the agenda for a monthly site managers’ meeting. The GM perceived energy as a "technical" issue; so he sought a "technical" person to find solutions. He declared energy cost control to be a "project ?"
Control of energy costs is a function of price as well as consumption.
Consumption management involves: 1) little one-time, no-cost projects; 2) big capital projects; and 3) energy-smart activities that are integrated with daily operations and maintenance procedures. These need to be pursued not all at once, but in a strategic sequence–allowing incremental victories to pave the way for larger ones.
Energy management is an ongoing practice, not episodic and "as needed."
Top management awareness of energy problems, and demand for their resolution are certainly helpful. However, CEO awareness and demand are not sufficient by themselves to improve energy cost performance.
Energy management may be good for the company as a whole, but it requires many individuals to work beyond the confines of their traditional job descriptions.
Strictly defined job descriptions and performance incentives often become a barrier to doing much more than the little quick, low-cost energy "projects."
Companies can and do overcome functional barriers to energy management. See the Alliance’s online Corporate Energy Management case study series at www.ase.org/section/topic/industry/corporate/. The series includes companies from a variety of industries, and of differing scales of operation.
Your questions and comments are welcome. Please reply with your energy management question, concern or story. I’ll respond to each, and publish the more provocative discussions in this column. E-mail email@example.com, and please include your phone number.