Finding the power to change
Energy has never been a problem for James Knott Sr. He built Riverdale Mills Corporation, a Massachusetts manufacturer of steel-welded wire mesh for everything from security fences to lobster traps, by devoting his energy to finding better ways to use energy in the manufacturing process.
When Knott bought an abandoned mill on the Blackstone River, he restored an equally abandoned 1901 hydropower turbine and now saves $100,000 a year in electricity costs. His use of the river’s power and natural gas fired generators not only allows him to make electricity at half the cost of purchasing it, but the residual heat from the generators also allows him to heat the building.
A new addition at Riverdale Mills is another example of the attention to energy efficiency. “We’re using concrete block, and filling that with insulation,” said Knott. “We’re also having double-insulated skylights installed, and that provides lighting on sunny days. Plus, I think it improves the ambiance of the building.”
All of this helps Riverdale Mills and its 100 employees stay competitive in a market with foreign challenges. “We ship 25% of our product out of the country,” Knott said. “By doing this, we’re able to stay competitive. We’re in a global economy now. Our only materials are steel, zinc and plastic. We’re competing with the Chinese. They have low labor costs; we have a highly-automated system.”
The idea of energy efficiency has long been in the back of most manufacturers’ minds. Today, the issue is front and center, as the future of energy costs looks bleak, and certainly more expensive.
Gasoline prices have shot past $2 a gallon. Heating oil costs have risen 34% this year. Natural gas prices, while still the least expensive form of fuel, climbed almost 17% between August and December 2004. The cost of electricity is estimated at $22.64 per 1 million BTUs — more than double the cost of heating oil.
Comparative numbers are almost pointless, though. Regardless of whether you plug it in, burn it up or internally combust it, energy costs are through the roof this summer — and profits and productivity could pour out at the same time.
Higher prices alone are the reason so many companies are scrambling for an answer. “The energy problem for industrial energy consumers is not so much price levels — it’s price volatility,” said Christopher Russell, director of the industrial sector for the Alliance to Save Energy. “If fuel prices were high but stable, companies would make some one-time adjustments to their technology-to-staff mix and their procurement procedures. They would adjust their product prices and their profit targets to accommodate high but stable energy prices.
“But price volatility upsets a company’s whole financial picture, and it forces on-going decision-making to deal with it. A company may respond to a spike in energy prices by making cuts else-where, like maintenance. Then if a decline in prices provides an unexpected boost to earnings, their guard goes down and they are vulnerable to the next energy price spike.”
Russell offered a simple warning. “Any manufacturer without an energy management strategy — one that includes both procurement and consumption management — is essentially driving down a twisting, turning road with a blindfold on.”
That’s how companies such as Riverdale Mills have fought back — with quick thinking, comprehensive planning and innovative techniques. After people, energy is a plant’s most precious commodity. Manufacturers can survive, and even thrive, in the face of soaring, spiking costs by understanding and improving the way they use, reuse and maximize energy.
Information, action needed
That’s the message of two major publications introduced at the annual National Manufacturing Week events in Chicago in March. The National Association of Manufacturers published “Energy Efficiency, Water and Waste-Reduction Guidebook for Manufacturers” in association with The Manufacturing Institute and Milwaukee-based Johnson Controls.
The Alliance to Save Energy, a non-profit Washington-based government and business coalition, put out its “Energy Management Pathfinding” book. Both publications offer not just broad strategies for identifying and implementing energy cost savings in the manufacturing process, but also have on-the-ground case studies from companies as diverse as Ford Motor Company and Mercury Marine, Kimberly-Clark and Vermeer Manufacturing Company, DuPont and Knoll Inc. The message from the two books is clear — size doesn’t matter. All that is required to change the energy profile of your business is action.
“Rather than being a top priority, energy decisions really should be part of standard operating procedure,” said Russell. “The top priority should be to make money, and people need to understand how energy efficiency supports that goal.
“Here’s what I mean: The very activities that provide energy efficiency also provide better control over plant assets and inputs. Control provides reliability. Greater reliability means less down time. Less downtime means orders are filled faster, which allows the facility to complete more orders over the course of a year — thus making more revenue. Energy efficiency isn’t just about reducing utility bills. It’s also about boosting revenue through greater productivity.”
And here’s some ways the return on that investment is measured:
3M created a sustainable energy management program that brought in the best ideas from its plants around the world into an energy database. Each plant with more than $1 million in annual energy expenditures was required to have an energy management team, and the process included walk-through audits and plant self-assessment. In the last five years, 3M reduced energy intensity by 27% — a fact they make public as a market tool to show clients their commitment to keeping product costs low.
OK, you’re not as big as 3M. How about Collins & Aikman Floorcoverings, a Dalton, GA-based carpeting manufacturer. Its total energy bill in 2001 was $1.7 million, and it was estimated to climb to $2 million in 2004 — an 18% increase. To cut costs, they created a management system that tied energy efficiency to business goals. C&A cut natural gas expenditures 10% by reducing temperatures in many of its processes. For example, a $10,000 investment in reducing its regenerative thermal oxidizer from 1,525F to 1,200F cut energy costs by $9,500 a year — without increasing emission liabilities.
Kimberly-Clark’s energy efficiency program has reduced intensity by 11.7% over the last five years, and cut carbon emissions by 23% since 1990.
Merck’s energy cost performance savings have averaged $7 million a year since 2001.
Mercury Marine installed a central compressed air system in 2004, saving up to 10 million kWh annually — and they save another $50,000 by ducting the heat recovery from those compressors back into the plant during cold weather.
Unilever has reduced its energy consumption by 16% since 2000.
A culture of efficiency
These companies didn’t react to a spike in prices — they built a culture that was oblivious to such spikes. “K-C has had ongoing cost control programs for many years and specific energy management programs for 20-plus years,” said Ken Strassner, Vice President — Environment, Energy, Safety, Quality and Consumer Services for Kimberly-Clark Corporation, Roswell, GA. “It’s all part of a corporate culture that seeks to operate efficiently and drive costs out of our operations. It’s the old adage, ‘What gets measured, gets managed’.”
Part of that process is finding the right measurement. “We use a metric based on energy use per ton of product (or standard unit) produced. We have set energy efficiency benchmarks for each of the major production processes we have based on best-in-class performance within K-C and elsewhere, and we compare actual energy use to these target usage levels,” Strassner said. “We do efficiency studies at all of our major mills on a three-to-four year cycle.”
Strassner said the company continues to look at innovative ways to stretch the energy dollar. “One new issue is integrating carbon emissions management into our energy management work, particularly in Europe. With the new requirements to pay for carbon emissions in the EU countries, this becomes another factor we need to consider in prioritizing energy efficiency improvement projects.”
For some companies, energy efficiency is a new concept. Others have been practicing it for decades, but very often for the same reasons. “Initially, when the program was begun in 1973, it was driven by energy shortages and rapidly increasing energy costs,” said Steven C. Schultz, Energy Program Manager for 3M Energy Management. “As time has evolved, the motivation was internally driven based on corporate values, which include respecting our social and physical environment and sound business practices.
Schultz said one area of recognition for 3M’s efforts came when it was named one of eight organizations honored by the United States EPA’s ENERGY STAR program for Sustained Excellence in Leadership in Energy Management. ENERGY STAR encourages energy efficiency with a management strategy designed around measuring current energy performance, setting goals, tracking savings, and rewarding improvements.
3M has also been among the leaders in talking about this issue to other companies. Schultz said manufacturing leaders have to champion energy efficiency. “The success here at 3M is due to the support and commitment of 3M’s upper management who have set the tone for continuous improvement, goal setting and accountability.”
That top-down approach is used at other companies as well. “Some companies like Merck & Co. build energy cost control into general managers’ performance appraisals,” said Russell. “Their GMs are rated on a 100-point scale, which covers a wide range of accountabilities. Energy management might be three to five of those points, but that margin is enough to determine whether or not the GM gets a bonus. Are the GMs obligated to manage energy? No, but if they want those points, they take advantage of Merck’s in-house energy management assistance team.”
While Russell understands this latest manufacturing challenge comes after a string of tough years — layoffs, declining profits and stiff overseas competition — he suggests the need to act is because of those issues, not in spite of them. “We all know how manufacturing payrolls have been cut to the bone,” he said. “Still, the plant manager’s first priority is to make product and get it out the door, not save energy. You can’t save dimes if you don’t make dollars in the first place.
“Industry surveys indicate that the average plant can reduce its energy consumption by 10 to 20%, and a lot of that is from procedural and behavioral changes. The O&M cost in sustaining an energy management program (excluding capital investments) is around one to two percent of total energy expenditures. So right off the bat, that suggests a return of 10 to 20 times the investment.”
He noted Georgia-based Shaw Industries, a division of Berkshire Hathaway, which makes carpet and laminate flooring, developed an energy management program in the middle of 2004. “They have a corporate team of six individuals that provide energy procurement, bill reconciliation, energy audit, and technical support for 53 facilities,” said Russell. “All the energy benchmarking and technical assistance they provide to their plants is ‘free.’ During each month over the latter half of 2004, they found on average about $1 million in annual savings opportunities.”
Reaching into the private sector — to government, schools and private consultants — is another effective way to get help. At C&A Floorcoverings, for example, they went to nearby Georgia Tech for guidance on how to begin managing their energy program.
“They are one of the first companies to adopt Georgia Tech’s Management Standard for Energy (MSE) 2005, an ANSI-approved standard along the lines of ISO 9000. This protocol established roles and accountabilities for operations, maintenance, engineering, finance, and corporate leadership to collectively tackle energy cost management,” said Russell. “This multi-disciplined team identifies, prioritizes, and implements energy projects and procedures that provide net value. This is a great mechanism for overcoming the silos that so often let dollars slip away.”
In a larger organization like Unilever Home and Personal Care NA, the process is both enlightening and competitive. “Success is measured on a cost and consumption basis,” said Jim Pease, energy & environmental manager for Unilever HPC. He said the company got serious about its energy consumption during the energy price volatility in 2001. “Early in the program, before systems were even set up, we began benchmarking energy cost and consumption rates. These Key Performance Indicators were distributed to plant and engineering managers. Facilities with unfavorable trends were encouraged to take action. The result of this effort was outstanding. By merely publishing a simple spreadsheet, one Unilever division was able to reduce demand by more than 5%.”
Now Unilever has turned its attention to the plant workers. “The next big idea is to bring energy awareness down to the workers on the shop floor. We’ve done this by creating a high visibility energy campaign,” said Pease. “This program is aligned with the plant’s Safety, Health & Environmental Initiative and consists of posters, stickers, one-point lessons and entertaining infomercials to be played in lunch and break rooms. By making energy conservation personal, we can change behaviors and create a conservation-conscious workforce.”
How’d we get here, and how do we get out?
The 2003 ASE report, Strategic Industrial Energy Efficiency: Reduce Expenses, Build Revenues, and Control Risk summarized many of the problems manufacturers faced in identifying and solving fundamental energy efficiency issues within their organizations:
“Efficiency advocates have historically promoted energy efficiency to industrial audiences that, for the most part, neither seek it nor fully understand its significance. Accordingly, the full potential of industrial energy efficiency has yet to be realized. Efforts to promote industrial energy efficiency will certainly be more successful if the outreach presents meaningful solutions to current business priorities.
“Energy-efficiency impacts not only begin with fuel bills. Applied energy efficiency is a by-product of energy flow monitoring, measurement, and verification. Flow data reveals anomalies that may be a detriment to operating costs as well as plant safety, reliability, and productivity. An underappreciated fact is the same efficiency efforts assist in growing revenues by recapturing plant capacity that otherwise would be forfeited to lapses in operating integrity.
“The promotion and adoption of energy efficiency may involve communication more than technology. The technical means already exist and are well-documented, as exemplified by the U.S. Department of Energy’s Best Practices program. Efficiency advocates must be ready to formulate a series of overtures that are at least industry-specific. Messages tailored for individual companies and even key stakeholders within companies are preferable.
“The industry audience will include chief executive officers, finance professionals, plant managers, and perhaps other staff. Each will bring to the dialog unique perspectives that must be anticipated. This implies the need for energy efficiency outreach to be carried out by a series of industry sector specialists. Each specialist needs to understand industry needs and convincingly address these with energy-based solutions.”
Nine ways to cut energy consumption
The National Association of Manufacturers summarized nine ways manufacturers can address the issues of energy efficiency and water and waste reduction throughout an organization:
Increase Energy Efficiency . Objective: Raise energy efficiency to above-average levels in the areas of motors and pumps, compressed air, steam, process heating or other building systems, and develop cost savings and reduced emissions associated with energy efficiency.
Finance Energy Efficiency Upgrades . Objective: Identify innovative funding approaches to energy efficiency upgrades.
Increase Water Efficiency . Objective: Employ systems and operational practices that minimize potable water consumption and deliver cost savings associated with water efficiency.
Improve Waste Management (Waste Reduction, Reuse, Sale and Donation). Objective: Implement practices and equipment that reduce waste generation through material source reduction, reuse, sale and donations.
Improve Waste Management (Recycling). Objective: Apply practices that divert generated waste from the disposal process through the recycling of materials.
Improve Indoor Environmental Quality To Increase Productivity. Objective: Install systems and implement practices that maximize indoor environmental quality and provide an optimal work environment, thus enhancing the well-being and productivity of building occupants.
Reduce Transportation Impacts . Objective: Reduce the environmental and economic costs of transporting goods and people to and from facilities.
Reduce Environmental Impacts and Potential Business Liabilities. Objective: Adopt policies and enhance building systems to actively mitigate the environmental impacts of a facility, thus improving relations within the community, providing marketing opportunities and decreasing liability risks.
Identify Marketing Opportunities Presented By Increased Environmental Procurement Standards. Objective: Minimize environmental impacts and position your company to meet expanding quality and environmental standards such as ISO 9001 and ISO 14001.
Different ideas, with one goal: Energy efficient manufacturing
Here’s how 10 companies, identified in the Alliance to Save Energy’s Energy Management Pathfinding book, achieved significant energy cost reductions:
3M : A corporate culture that emphasizes efficiency and waste minimization drives a 20% reduction in Btu per pound of product over a five-year period.
C&A : Floorcoverings: A small, privately-held manufacturer adopts the MSE 2005 energy management system, and achieves a 10% savings in natural gas along the way.
Continental Tire : Like most manufacturers that seek to control energy costs, Continental Tire’s Mt. Vernon, IL facility pondered a fundamental choice—partner with an energy consultant or use in-house staff and resources. Continental eventually did both, and to good effect—a 31% per tire energy-cost reduction.
DuPont : Six Sigma methodologies applied to repetitive tasks becomes a yardstick for energy optimization — and for identifying over 75 improvement projects, each saving an average of $250,000 per year.
Frito-Lay : An enormous task requires enormous goals. The food processing giant tackles the task of fuel, power, and water reduction at 44 plants and over 200 distribution centers. Energy initiatives in aggregate return over 30% return on investment.
Kimberly-Clark : How do you achieve an 11.7% reduction in energy consumed per ton of product across 165 to 170 plants? By building energy efficiency as a core pillar in the organization.
Merck & Co. : The pharmaceutical giant embraces energy efficiency as a way to generate more production from existing capacity. An additional reward is a 25% growth-adjusted reduction in energy expenses over a five-year period.
Mercury Marine : Two powerful features provide Mercury Marine with excellent energy management results to date: consolidation of energy management under the authority of a Central Facilities Manager (CFM), and a power monitoring system that permits electricity costs to be tracked and billed to individual cost centers.
Shaw Industries : Shaw Industries spent the latter half of 2004 developing basic energy efficiency solutions for its 53 manufacturing facilities. Using the U.S. Department of Energy Best Practices tools and resources, the Shaw corporate energy team systematically documented potential conservations savings to the tune of $1 million per month through the latter half of 2004.
Unilever : A simple spreadsheet for setting goals and tracking progress get staff on the same page for energy management at eight manufacturing facilities and other ancillary sites. Coordination saves $4 million over three years from a $26 million annual energy budget.
The one big tip: Do an energy audit
ASE’s Christopher Russell has five smart energy decisions every manufacturer should use. If there’s one place Russell would start with, however, it is learning where you stand. That can happen at little or no cost.
“The one thing every manufacturer should do is to get a plant-wide audit of their energy consumption. They need to know how much energy they consume,” Russell said. “Audits are often free through utilities, state energy offices, and university-based industrial assistance programs.”
Russell said the if manufacturers know you’re their consumption patterns, then:
You have a lot more leverage with marketers who buy your fuel commodities. Don’t give the marketer a blank check.
You can quantify the before-and-after impacts of your energy improvements. You can’t claim victory if you don’t know the baseline from where you started.
You can prioritize your improvement opportunities by targeting the prime movers that consume the most fuel.
You are better able to assess the value and impact of new technologies as they become available.
You can also inventory your emissions sources and prioritize opportunities to reduce risk of non-compliance with emissions thresholds.