The business case for compressed air systems
Do you operate a compressed air system as a business, understanding the financial consequences of your actions or as a misunderstood necessity? Do you carefully consider additions and changes as you would with electricity or water? Is the current book value, depreciation life and trendable cost part of the formula for making normal operating decisions? If the answers to these questions are no, ...
Do you operate a compressed air system as a business, understanding the financial consequences of your actions or as a misunderstood necessity? Do you carefully consider additions and changes as you would with electricity or water? Is the current book value, depreciation life and trendable cost part of the formula for making normal operating decisions? If the answers to these questions are no, it may be difficult to understand why management seems to place this critical asset so low on their priority list.
How much of the compressed air produced is being used productively to generate revenue for the plant? Is it possible to reduce unnecessary waste such as leaks, drainage, dryer purge and compressor bypass? How much air can be replaced with low-pressure blowers at a fraction of the operating cost? Can the waste in your system be reduced to handle an expansion in production and lower the cost of compressed air simultaneously?
Quantify these issues to determine the opportunities available. Any reduction will reflect a dollar for dollar improvement on the pretax profit line.
Dollars and sense
How much production revenue do you have to produce to avoid dealing with these potential opportunities? It certainly isn't proportional. If the plant produces 10% pretax profit, it will have to generate ten times as much revenue to do nothing about the opportunity expense. In accounting terms, this is called evaluating the return on structured risk.
It should come as no surprise that the typical simple return on investment in a compressed air system's retrofit is around one year and seldom over two years. Less than 2% of system operators ever analyze the compressed air system for opportunities, which almost always exist.
Most management and production departments force utilities and maintenance to assume responsibility at the supply end of the system for poorly defined point-of-use issues. The traditional approach is to turn on more compressors and dryers in an attempt to correct the symptoms. This will even happen when there is no apparent problem or change in the status quo in the compressor room.
When all the supply equipment is on line and there is no more back up equipment off line, a discretionary capital request is put in to add more compressors and dryers. This can only happen when actions are rationalized in the absence of knowledge of how to define underlying problems.
The structure of most organizations encourages this situation. The production or process side of the system is the purpose for having a utility such as compressed air. The operation of this utility is subordinate to the operation of the process or production.
In many organizations, an internal customer-supplier relationship is established. Management sees one as revenue generating, while the other is considered an expense center. Here are some of the things that are uniquely different about this compressed air utility as compared to electricity or water.
Unlike water or electricity, compressed air is an internally generated utility.
The operating philosophy is typically "keep it running." It is not the intent to fulfill this philosophy at any cost, but when you don't know what the cost is, that is what happens.
Neither the producer nor user of the utility has any formal or informal training in the science of compressed air. Most training is either passed on by prior operating personnel or by suppliers who have also learned by experience. Most learn from bad experience, "I'll never do that again." An engineering degree does not include a single hour on compressed air.
Less than 2% of all plants with compressed air have any idea how much they actually require in order to satisfy production or process requirements. After a thorough analysis, it is typically found that less than half of the air produced is useful to revenue generating production or process needs.
Neither the supplier nor the user track true costs. Even when the cost is tracked, it is frequently underestimated by 50% or more. Most accounting systems have no provisions for coding of complex, non-revenue generating cost centers. Typically, outside maintenance charges, which typically account for only 8% to 11% of the total cost, are the only costs tracked.
With electricity, production depends on accuracy such as variable amperage at constant voltage. Without this, control systems don't work and electric drive systems don't hold up over time. With compressed air, everyone works on minimum acceptable results, minus nothing plus anything. Edward Demming described this as off-quality at the highest possible cost.
For air-consuming equipment, there is rarely information about the installation requirements based on performance. Even when it is available, if anyone asks for it, the original equipment manufacturer of the equipment does not know how to determine the requirement, express it correctly, or establish the requirement based on a test condition versus the capabilities of the plant in which the equipment is installed.
Time is a critical factor in the application of compressed air, yet it is ignored. Cycle time, on-time verses off-time, or diversity must be established to determine the actual impact on the system. The result is that considerably more supply energy is installed than is needed. This results in higher than necessary pressures, resulting in higher volumetric usage.
Would you install a 575-V motor in a 460-V system and then modify the supply for the higher voltage motor? Yet it is not unusual to install a 100-psig air user in a system where the supply is a maximum of 100-psig and then install a new 125-psig compressor to solve the insufficient pressure issue created by the new user.
Process performance will degrade on an exponential scale as a result of changes in the system such as cycle rate of the air using equipment, dirt loading on filter elements, and leaks down stream of the point of use components.
Typically in the unspoken assignment of responsibility, production has the authority to demand compressed air response with no responsibility for their additions or changes to demand. Compressor room management has no authority over applications on the user side, but is held responsible for the results thereof. No management professional would consider this a reasonable approach towards staffing responsibility, yet in the world of compressed air, this is quite normal.
The results of the above issues are off-quality, inconsistent production and operating costs that can easily be double what is necessary. You wouldn't operate an electric utility in this manner and you shouldn't do it with compressed air. It is irrational to hold supply (compressor room) responsible for all undefined problems at the point of use while anyone in production (demand) can do anything they want with compressed air without discussion.
Invest in compressed air
The travesty of the use of this utility continues with the manner in which investments are made. Despite the fact that utilities are a critical factor in production capacity, capital is seldom set aside to improve the compressed air system unless there is an anticipated expansion or replacement of existing equipment.
Since compressed air is considered a non-revenue generating cost center, it's capital projects carry relatively low priorities. They are seldom approved until production problems become perceived as intolerable.
Despite this, discretionary projects that treat the symptoms seem to be easier to get approved than remediation of the problem that reduces operating cost and improves productivity simultaneously. This type of project typically requires a return on investment and one would think that this would be a much more attractive approach.
A thorough analysis of the compressed air system, consisting of supply, distribution and demand, will identify the actual system requirements and costs. A system retrofit can be designed to minimize operating cost, eliminate risk of interruption and improve compressed air quality. For most systems, the reduction in operating cost will provide funding for the retrofit with an attractive return on investment.
Questions about auditing and improving compressed air systems should be directed to the author. Mr. Laine can be reached at 706-288-8900 or firstname.lastname@example.org . More information can be obtained at the web site compressedairauditing.com . Article edited by Joseph L. Foszcz, Senior Editor, 630-288-8776, email@example.com .
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Annual Salary Survey
Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.
There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.
But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.
Read more: 2015 Salary Survey