How a manufacturing company is turning its energy consumption into a strategic advantage that can't be denied

After years of writing this column, there’s always the fear that everything that can be said about the value of effective energy management has already been said. Then, each month, something happens that proves this to be far from the case. Recently, I was reminded of how the most basic principles of energy management can produce significant results.

The manufacturing industry, in general, has become more sensitized to the values and risks surrounding energy. The reasons range from competitive cost pressures and possible climate change legislation to supply quality. The manufacturing industry made the most progress in energy efficiency compared to most other commercial businesses, not least because of exposure to global manufacturing pressures on a daily basis.

It’s easy to forget that industry is a relatively efficient energy user, representing less than one-third of the country’s energy use. On the other hand, commercial buildings collectively use about 20% of U.S. energy, at levels with much larger energy productivity potential.

I had the pleasure to work with a well-respected regional company that operates a number of professional buildings and a fleet of dedicated vehicles including aircraft. While highly competitive in its core business, the company only recently raised the question of the possibility of energy efficiency as a potential source of competitive advantage in the face of poorly understood risks.

The company faces growing uncertainty from market and policy changes, which triggered the company’s growing interest in detailed assessments of all its costs and risks, including energy. There’s also no question that growing public debate over clean and renewable alternative energy, climate change and supply security had an influence in putting this on the senior management agenda.

It was rewarding to see the discovery process unwind. A few weeks of professional detailed energy assessment unearthed a familiar picture. Data was inconsistent between locations, and there was no clear overview, exacerbated by the lack of normalization. The cost picture was fragmented. As a result, management’s overall attention to energy had become predominantly operational, rather than being viewed as a business opportunity. In situations like this, energy costs come to be viewed as an inevitability to be managed.

Within a few weeks, we sorted energy use by site, and normalized it in units relevant to the business. These have been benchmarked against industry norms and U.S. and global best practices. In a similar way, we consolidated and analyzed energy costs by site and by business productivity.

This combination of basic cost analysis and energy consumption benchmarking has already highlighted millions of dollars of immediate efficiency potential.

Having a complete picture eases the way to discussing a company-wide approach to energy management. This reduces the risk of doing a few projects around low-hanging fruit and failing to change the company’s energy culture enough to capture long-term competitive advantage. More importantly, a complete picture focuses senior management on opportunity’s overall scale.

While we assembled the energy picture, we developed the associated carbon footprint for the business as a whole and for every site. This picture opens up the conversation of risks associated with possible climate change legislation or regulation, irrespective of individual views on climate change. As always happens in a region with reliance on coal-based generation, the carbon footprint highlights the potential costs and regulatory risks associated with electricity usage.

This particular company places a high premium on energy supply security. As outlined in a recent column, underinvestment in the U.S. grid is causing power outages more frequently than in Japan or Europe. Viewing this security risk with the potential carbon risk around electricity is a short step away from the business considering a company-wide risk mitigation strategy.

In less than a couple of months, this company set the stage for a completely new conversation around managing energy. Senior management is paying attention and increasingly believing in the potential to capture millions of dollars of cost reduction in a few years. The risks around carbon reduction legislation are better understood and are separated from the emotions of the public debate on climate change. The idea that energy supply security is a growing risk that needs to be addressed is on the table. The linkages between managing current energy costs, future energy cost risks, environmental effects, supply quality and security have become clearer.

The effect, both positive and negative, that energy can have on the business is clearer. Most importantly, there’s a growing sense that these effects can be managed proactively, like any other business aspect. This isn’t rocket science. Senior management commitment combined with the holistic understanding of good energy data is a prerequisite for a world-class energy management program. It’s rewarding to be reminded of this from time to time.

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at [email protected].