Cindy Jutras: Energy costs have consumers and manufacturers looking twice at location

Unless you happen to be a city dweller that long ago traded in your car in favor of public transportation, you are faced with the rising cost of energy every time you pull up to a gas pump. It's a painful reminder that hits you where it hurts: in the wallet. For those of us who use a personal vehicle for work and leisure activities, it's simply a fact of life.

09/01/2008



Unless you happen to be a city dweller that long ago traded in your car in favor of public transportation, you are faced with the rising cost of energy every time you pull up to a gas pump. It's a painful reminder that hits you where it hurts: in the wallet. For those of us who use a personal vehicle for work and leisure activities, it's simply a fact of life.



As the price per gallon started creeping up, few of us made any significant lifestyle adjustments. But now that the price of oil has driven the average price per gallon of regular gas beyond $4 in most areas, we're seeing changes everywhere. In particular, many of us plan errands more carefully and think twice about hopping in the car for something that could wait until the next time we're out. I even try to work from home one or two days a week.

But are we seeing some not-so-subtle changes in manufacturing? Absolutely. We begin each Aberdeen survey by investigating the top pressures surrounding whatever topic we are benchmarking. A dominant theme throughout manufacturing this year has been a focus on minimizing costs and maximizing returns. In January we studied Manufacturing Operations Management: The Next Generation of Manufacturing Systems . We found the top pressure to be the need to reduce manufacturing costs (63 percent).

More recently our study of Enterprise Asset Management: Asset Utilization and Real Time Interoperability (June 2008) found the need to maximize Return-on-Assets (RoA) as the No. 1 driver (65 percent). And as far as ERP in Manufacturing (June 2008) is concerned, pressures to reduce costs edged out the perennial favorites: growth and customer service.

At the same time, manufacturers are finding it harder to reduce costs. In 2007, our Best-in-Class were able to reduce inventory, manufacturing operational costs, and administrative costs by 24 percent, 18 percent, and 18 percent respectively. This year Best-in-Class were still able to reduce costs, but at more modest rates–about 17 percent less than last year. Reductions in manufacturing operational costs took the hardest hit at 22 percent less than last year.

For the past decade or more we've seen an uptake in offshoring of manufacturing operations and sourcing of materials from low-cost countries. Today much of these savings are eaten up by rising transportation costs. This is causing manufacturers to rethink sourcing strategies for both materials and manufacturing. I don't anticipate any decline in globalization because there's simply too much opportunity for companies in emerging economies.

But we may see a shift toward making products and providing services from locations closer to the customer. This might mean products to be sold in China are sourced and manufactured locally in China, but it could also mean products to be sold in North America are sourced and manufactured in North America.

Could manufacturing jobs be returning to the United States? Will offshoring be replaced with near-shoring?

It took many months of rising fuel costs to get the average citizen to modify habits. How long will it take for U.S. manufacturing companies to adjust to rising energy costs? We might try to limit fuel consumption by driving less because we can't ignore how these rising costs influence our lifestyles. Manufacturers won't be able to ignore it for long either. Are they ready for change?








Author Information

Cindy Jutras, who oversees research and client development related to manufacturing at Boston-based AberdeenGroup, has more than 30 years worth of ERP and supply chain-related experience. Cindy, a former director for a prominent enterprise vendor, has authored numerous white papers as well as a book titled ERP Optimization.




No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2013 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
The true cost of lubrication: Three keys to consider when evaluating oils; Plant Engineering Lubrication Guide; 11 ways to protect bearing assets; Is lubrication part of your KPIs?
Contract maintenance: 5 ways to keep things humming while keeping an eye on costs; Pneumatic systems; Energy monitoring; The sixth 'S' is safety
Transport your data: Supply chain information critical to operational excellence; High-voltage faults; Portable cooling; Safety automation isn't automatic
Case Study Database

Case Study Database

Get more exposure for your case study by uploading it to the Plant Engineering case study database, where end-users can identify relevant solutions and explore what the experts are doing to effectively implement a variety of technology and productivity related projects.

These case studies provide examples of how knowledgeable solution providers have used technology, processes and people to create effective and successful implementations in real-world situations. Case studies can be completed by filling out a simple online form where you can outline the project title, abstract, and full story in 1500 words or less; upload photos, videos and a logo.

Click here to visit the Case Study Database and upload your case study.

Maintaining low data center PUE; Using eco mode in UPS systems; Commissioning electrical and power systems; Exploring dc power distribution alternatives
Synchronizing industrial Ethernet networks; Selecting protocol conversion gateways; Integrating HMIs with PLCs and PACs
Why manufacturers need to see energy in a different light: Current approaches to energy management yield quick savings, but leave plant managers searching for ways of improving on those early gains.

Annual Salary Survey

Participate in the 2013 Salary Survey

In a year when manufacturing continued to lead the economic rebound, it makes sense that plant manager bonuses rebounded. Plant Engineering’s annual Salary Survey shows both wages and bonuses rose in 2012 after a retreat the year before.

Average salary across all job titles for plant floor management rose 3.5% to $95,446, and bonus compensation jumped to $15,162, a 4.2% increase from the 2010 level and double the 2011 total, which showed a sharp drop in bonus.

2012 Salary Survey Analysis

2012 Salary Survey Results

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.