Energy Management Pathfinding
Manufacturers are scrambling for relief from today’s energy expenses and price volatility. Most industry decision-makers seek solutions in the form of the lowest available energy prices. Too often, managers fail to grasp the opportunities offered by energy management, which focuses on both consumption and prices. Industry is often resistant to energy management for a variety of reasons. Simply put, energy management has no traditional place in the typical manufacturer’s chart of organization, job descriptions and performance accountabilities.
While technology is fundamental to energy efficiency, it is people who make it work in an organizational context. DuPont, Frito-Lay, Unilever and Kimberly Clark are a few of the forward-thinking companies that have found ways to build energy management into their daily operations to positive effect. The Alliance to Save Energy is documenting these companies’ experiences in a series of case studies that reflect the organizational and behavioral aspects of corporate-wide energy management. Case studies show that energy management motives and approaches are somewhat varied. The Alliance offers a typology of industrial energy management strategies to illustrate the range of opportunities available to industry. Ultimately, it is a manufacturer’s organizational character that determines its ability to manage energy consumption.
Energy Efficiency, Energy Management and Business Impacts
From the manufacturer’s perspective, fuel and power are merely packages that provide heat. Heat is a catalyst that refines raw materials into finished products. Heat optimization is the real value proposition behind energy efficiency. For manufacturers, energy efficiency is achieved simultaneously with control over thermal resources. With control comes reliability of operations. With reliability comes the ability to fill orders faster, at less expense, and with reduced risk of interruption. Faster order turn-around means more orders can be filled, bringing in more revenue. This is energy efficiency’s contribution to productivity.
As an organizational process, "energy management" contributes to the outcome of improved business performance. "Energy efficiency" refers to practices and standards, orchestrated by an energy management plan, that use energy resources in ways that maximize business value. Energy efficiency contributes to expense reduction, revenue creation and operating risk containment.
Unchecked energy expenditures are like a tax burden imposed cumulatively with each stage of production. Energy management is an ideal opportunity to improve competitiveness through productivity improvement. Plants of all types, sizes and locations use energy; so the potential for energy-driven productivity gains is everywhere. The benefits only begin with reduced energy bills. Other impacts include greater capacity utilization, reduced scrap rates, more effective emissions and safety compliance, and enhanced risk management.
Efficiency should not be confused with conservation. As opposed to conservation (sacrifice), energy efficiency is an indispensable component of any effort to improve productivity. Ultimately, energy efficiency contributes to wealth.
American industry continues to waste energy. No one knows that better than Frito-Lay, Unilever, DuPont, 3M, Kimberly Clark and other manufacturers that have implemented the most aggressive energy management programs. This is more than a "hippies, beads and flowers" issue. At stake is the viability of manufacturing facilities that employ people and sustain local communities. For this reason, the U.S. Department of Energy sponsors the development of the Alliance to Save Energy’s Corporate Energy Management case study series. The intent of this series is to encourage industry observers to learn from their peers.
Many efficiency proponents believe that if you show the projected dollar savings or payback for energy improvements, top managers will accept these proposals. That’s not always true. The Alliance’s case study research reveals the role of organizational size and complexity in defeating efficiency opportunities. Manufacturing enterprises have organizational structures, accountabilities and incentives that are designed to make products and get them out the door. Waste persists because staff bears little or no accountability for waste minimization. Energy management requires cross-functional authority and communications that don’t exist in most facilities. Given this reality, energy waste will continue no matter how attractive a project’s return on investment looks on paper.
A fully developed industrial energy management program is a work plan for continuous improvement. This plan will engage human, technical and financial resources, and its progress will be monitored to meet certain goals. Criteria for action will reflect input from engineering, maintenance, financial and utility staff. Staff will be held accountable for outcomes. The only energy improvements undertaken are those that provide business value to the organization.
A Sample of Energy Management Leaders
Manufacturers throughout industry practice energy management to varying degrees. No one industry dominates the practice. While it is easier to identify energy management leaders among Fortune 500 companies, there are also small, privately held companies that excel at stewardship of energy and other resources.
The Alliance to Save Energy has compiled seven corporate energy management case studies to date. An overview of these companies’ accomplishments is as follows (for full text on these case studies, go to: www.ase.org/section/topic/industry/corporate/cemcases).
C&A Floorcoverings. Based in Georgia, this privately held, five-plant company demonstrates successful energy management by a mid-sized manufacturer. MSE 2000, a certified national management standard for energy developed by Georgia Tech, became a template for an in-house energy management program. In 2004, C&A is close to becoming the first organization to be fully certified per the MSE 2000 standard. As such, C&A has implemented a management system for matching energy efficiency initiatives with business goals. After two years, C&A achieved 10 percent savings on an annual natural gas expenditure of $824,500.
DuPont. With more than 100 plants in 70 countries, energy management practices at DuPont are supported by two, top-level strategies. The first is designating energy conservation as a high- priority corporate issue. The other is applying "Six Sigma" methodology to the energy management process. Through 2002, DuPont merged these strategies to identify and implement more than 75 energy improvement projects across its global operations. The average DuPont Six Sigma energy project nets in excess of $250,000 in annual savings.
Frito-Lay. This leading snack food manufacturer’s energy management features aggressive energy reduction goals with a focus on results. This demands a high degree of monitoring, measurement and communications. Frito-Lay organized the needed engineering talent as its Resource Conservation Group. While surpassing intermediate targets on the way to even larger savings, Frito-Lay’s efficiency initiatives have returned higher than 30 percent on investment.
Kimberly Clark Corporation (KCC). This personal care products manufacturer has a broad mandate for environmental stewardship. KCC’s global portfolio of 165-plus plants practices energy conservation, air emissions abatement, wastewater treatment upgrades, process water use reduction, packaging reduction, landfill elimination, toxic chemical elimination and environmental management system implementation. Five-year plans help coordinate benchmarking efforts across a global facility network. KCC’s energy conservation efforts are currently in the middle of a second, five-year plan, which seeks to expand on the success of the first plan (1995-2000). The first plan led to a corporate-wide, 11.7 percent reduction in energy use per ton of product.
Merck & Co. Inc. This pharmaceutical products and services corporation seeks to build productivity of existing assets while reducing energy expenses. A corporate energy program is mobilized by goals that hold site managers accountable for annual performance targets. Energy costs at manufacturing sites are on a growth-adjusted pace to be cut 22 percent between 2001 and 2005. This equates to at least 250,000 tons of avoided carbon emissions and 11.5 percent energy expenditure savings.
3M. This diversified manufacturer seeks to reduce energy consumed (Btus) per pound of product by 20 percent during the 2000-2005 time frame. This goal will require 3M’s tier 1 plants (52 facilities worldwide) to achieve 3M’s own "world class" energy management label. 3M has already surpassed that target and uses its energy performance in its product marketing. Superior energy cost control reduces the embedded energy cost that customers would normally absorb. Support for energy management at 3M begins at the corporate level. 3M’s executive management believes that resource stewardship makes good business sense. As a result, the principles of energy management are an integral part of corporate culture.
Unilever HPC. Unilever’s health and person care division’s energy management program coordinates 12 facilities by combining energy-use targets with an energy service outsourcing strategy. A simple budget-to-actual spreadsheet compares energy performance at 14 facilities. Because its use resulted in a saving of $4 million on energy and another $4 million in avoided costs, the spreadsheet has captured the attention of individual facility managers and Unilever’s board of directors as well.
As Table 1 indicates, these seven corporations approach energy management as a "process," as opposed to a "project." Accordingly, corporate energy management efforts almost universally feature goals, performance metrics and accountabilities embodied in a lead energy manager or management team.
Motivations for pursuing energy management are surprisingly varied. Perhaps the most obvious reason is to "control energy expenditures," although this is far from being the only reason. Some companies put a premium on resource stewardship, for both public relations and risk management purposes. Other companies wish to sustain and replicate operational improvements that would be otherwise lost in the complexity of multi-facility environments. Table 2 summarizes the motivations for undertaking energy management, as expressed by the seven companies in the case study series.
The summary of motivations in Table 2 clearly reflect the multi-purpose nature of energy management:
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Energy expense control and management of energy price volatility;
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Non-energy expense control, such as avoided capital expenditure;
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Increased revenue potential through replication of capacity improvements;
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Improved product marketing through visible resource stewardship;
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Risk mitigation related to environmental liabilities and perational reliability.
Many companies are frankly intimidated by the prospect of implementing process-oriented energy management schemes. After all, competitive pressures have stripped manufacturers to the point where surviving staff are overtasked to simply "keep the car on the road" as opposed to finding time to monitor and adjust performance.
Theory: Corporate Receptiveness to Energy Management
The purpose of this section is to propose a typology of corporate "aptitudes" for energy management. This discussion is based on Alliance observation and research. Until these theories can be properly tested, readers are asked merely to consider this persuasive argument.
Human, technical and financial criteria all contribute to a robust energy management program. Collectively, these attributes constitute a "culture" and receptiveness, not only to energy management, but also to operational efficiency in general. The following is a listing of organizational attributes that enable energy management. Manufacturers will enjoy a wider range of energy management options (moving up on a continuum from "do nothing" to sustained, daily energy management) by adopting as many of these attributes as possible.
How can the presence of these organizational attributes be determined? The appendix at the end of this article offers a checklist of considerations for this purpose.
Fundamental business viability. Companies that are subject to merger or acquisition, labor disputes, bankruptcy or severe retrenchment may have fundamental distractions that will interfere with the attention that energy management deserves. A preponderance of such conditions indicates management turmoil that makes energy management impractical.
Replication capacity. Logical attributes for replication include: 1. a multi-plant organization; and 2. general consistency in process activities and products across plants. Staff’s ability to cooperate across sites and functional boundaries is crucial. Organizations must simultaneously engage many different professional disciplines and accountabilities to maximize their energy management potential.
Energy leadership (or "champion"). Successful energy improvements are usually led by an "energy champion," a manager that: 1. understands both engineering and financial principles; 2. communicates effectively both on the plant floor and in the boardroom; and 3. is empowered to give direction and monitor results.
Energy market capability. This dimension is straightforward: Does the corporation wish to purchase energy through ongoing market activity? If so, the corporation should be prepared to maintain sophisticated search and verification procedures to support its contracting activities. Purchasing decisions should reflect the collaboration of procurement, production and plant utilities personnel.
Leadership intensity. Quality of operations should be demanded, facilitated and recognized by top officers of the corporation. Adoption of professional and industry standards are crucial to attaining this attribute. Energy-smart operations will hold employees accountable for adherence to energy management goals and other quality standards.
Pride intensity. Energy efficiency is as much dependent on behavior as it is on technology. A positive, can-do attitude on the part of staff is helpful in attaining potential energy savings. A spirit of competition within and between facilities can be harnessed to good effect.
Fiscal protocol. The finance question is not always how much. Are purchase decisions made on first cost or life-cycle costs? Who in the organization pays, and who claims the savings? Do savings count for only fuel bill impacts, or include the value of waste minimization and greater capacity utilization? What criteria determine adequate payback?
Engineering protocol. Successful energy management depends on an ability to understand energy consumption. This requires benchmarking, documenting, comparing, remediating and duplicating success stories. Internal skills, procedures and information services are engaged. The likelihood of building value through energy efficiency varies directly with the depth of these technical capabilities.
In the absence of an energy management process, energy expense control is reduced to one-dimensional efforts. Many manufacturers (either wittingly or not) settle for something less than process-oriented energy management improvements due to a lack of time, interest or understanding. The approach taken by individual manufacturers is very much a function of their organizational attributes and business culture.
Energy Management Strategies
The aim of this section is to present the range of energy management options available to industry. Every manufacturer employs some energy management strategy, even if the choice is to do nothing about energy consumption. Accordingly, every manufacturing organization adopts one or more of these strategies:
1. Do Nothing. Ignore energy improvement. Just pay the bill on time. Operations are business-as-usual or "that’s the way we’ve always done it." There will be limited ability to deal with fuel market turmoil, changing emissions criteria, or spotting the opportunities provided by new technology.
Who Does This? Companies that do not understand that energy management is a strategy for boosting productivity and creating value. Or, companies that are subject to merger, buy-out, bankruptcy, union disputes, relocation or potential closure. Or, companies that are extremely profitable and don’t consider energy costs to be a problem.
Pros: No behavior change is required, nor is the investment of time or money into energy management.
Cons: There is no saving. Income is increasingly lost to uncontrolled waste.
2. Price Shopping. Switch fuels, shop for lowest fuel prices. No effort to upgrade or improve equipment. No effort to add energy-smart behavior to daily operation and management (O&M) procedures.
Who Does This? Companies that "don’t have time" or "don’t have the money" to pursue improvement projects. Or, companies that truly believe fuel price is the only variable in controlling energy expense.
Pros: No need to bother plant staff with behavioral changes, or create any more work in the form of data collection and analysis.
Cons: Lack of energy consumption knowledge exposes a company to a variety of energy market risks. There is no knowledge of where waste occurs, nor can opportunities be identified to boost savings and productivity. The company is also exposed to energy market volatility and emissions and safety compliance risks.
3. Occasional O&M Projects. Make a one-time effort to tune-up current equipment, fix leaks, clean heat exchangers, etc. Unable/unwilling to make capital investments. Revert to business-as-usual O&M behavior after one-time projects are completed.
Who Does This? Companies that are insufficiently organized to initiate procedural changes or make non-process asset investments. They cannot assign roles and accountabilities for pursuing strategic opportunities.
Pros: Very little money is spent when just pursuing quick, easy projects.
Cons: Savings are modest and temporary because procedures are not developed for sustaining and replicating improvements. Familiar energy problems begin to reappear. Energy bills begin to creep back up.
4. Capital Projects. Acquire big-ticket assets that bring strategic cost savings. But beyond that, day-to-day O&M procedures and behavior are business-as-usual.
Who Does This? Companies that lack the ability to perform energy monitoring, benchmarking, remediation and replication as a part of day-to-day work. However, they have the fiscal flexibility to acquire strategic assets that boost productivity and energy savings.
Pros: Obtain fair to good savings without having to change behavior or organize a lot of people.
Cons: Forfeit savings attributable to sustained procedural and behavioral efforts. Also, savings from the new assets may be at risk if adequate maintenance is not applied.
5. Sustained Energy Management. Merge energy management with day-to-day O&M discipline. Diagnose improvement opportunities, and pursue these in stages. Procedures and performance metrics drive improvement cycles over time.
Who Does This? Companies with corporate commitment to: 1. quality control and continual improvement; 2. well-established engineering and internal communications protocol; and 3. staff engagement through roles and accountabilities.
Pros: Maximize savings and capacity utilization. Increased knowledge of in-plant energy use is a hedge against operating risks. Greater use of operating metrics will also improve productivity and scrap rates while reducing idle resource costs.
Cons: A lot of in-house talent, cooperation and a capable energy "champion" are needed in order to do this.
It is beyond the scope of this article to comment on which strategies are predominantly encountered in industry. Anecdotal evidence suggests that all industrial energy management strategies can be categorized per one of these five selections. It is also possible for firms to practice multiple strategies simultaneously, for example price shopping for low-priced fuel commodities in concert with a capital projects focus.
It should be noted that all seven of the experiences documented in the Alliance’s case study series can be categorized as sustained energy management. As such, these companies integrate energy management with day-to-day procedures and accountabilities.
Matching Strategies With Corporate Attributes
I want to build on the theory of corporate receptiveness to energy management, as presented above. The energy management strategies available to a manufacturer are a function of its organizational attributes, as summarized in Table 3 (see page 20). Note that this is currently presented as theory.
This typology presumes that energy management for multi-site organizations is more demanding than for single-site companies. Accordingly, adoption of a certain strategy by a multi-site organization requires all the organizational attributes that a single-site organization would be expected to muster, plus the capacity to replicate.
Managers that are contemplating improved energy management are encouraged to consider the case study results and theory presented in this article. To act on this information, the steps are:
1. Refer to the appendix on page 24, "Determination of Organizational Attributes." Note which organizational attributes have been substantially attained by the subject company.
2. Compare the attained attributes to the information in Table 3. The presence (or absence) of certain attributes determines which energy management strategies are available to the subject company.
3. Use these findings to understand what the subject organization can or cannot achieve in terms of energy management.
Keep in mind that this exercise indicates what a manufacturer, given its current organizational attributes and "culture," can expect from energy management. There may be a desire to evolve to a higher level of energy management than what the current organization allows. What if a manager wants to advance energy management in his or her organization? There are windows of opportunity. An obvious example is when energy market turmoil brings top management’s attention to fuel costs. Also, take advantage of annual planning sessions or strategic reorganizations to propose the kind of organizational processes needed to practice sustained energy management. Remember that energy cost control is as much dependent on people as it is on technology. Learn from the case studies shared here.
Conclusion
Volatile energy markets are here to stay. So are competitive and regulatory pressures. Energy price movements will put some manufacturers out of business, while others will decide to move offshore. Surviving manufacturers will not only provide superior products and service, they will maximize value through operating efficiencies. Energy efficiency is an indispensable component of wealth creation.
Energy procurement strategies such as shopping for low energy prices and supply contracts are only partial solutions to soaring energy expenses. Management of consumption is an underappreciated opportunity. While technology is the foundation for managing consumption, it is the human dimension that makes technology work. Organizational procedures, priorities and accountabilities are crucial to energy management.
A few forward-thinking companies have allowed their energy management experience to be documented for industry’s wider benefit. Frito-Lay, DuPont and Kimberly Clark are among these companies. The "best of the best" companies approach energy management as a "process," as opposed to occasional "projects." The most effective corporate energy management programs feature performance goals and metrics, staff accountabilities and procedures that are integrated into daily operations.
A manufacturer’s ability to manage energy consumption is ultimately a function of organizational attributes and corporate culture. This article advances "energy management pathfinding" concepts. The appendix at the end of this article presents the criteria that define seven distinct organizational attributes needed for energy management. While sustained, day-to-day energy management is recommended for providing the greatest and most durable value, it is also the most demanding in terms of operational character. Many companies will find that they are suited for strategies that are less challenging, but also provide less value. The same management diagnostic presented in this article serves as a pathfinder for matching organizational characteristics with appropriate energy management strategies.