Each year, Quad/Graphics runs hundreds of billions of pages of magazines and catalogs off its printing presses, from the latest seasonal catalogs of L.L. Bean, to the most recent issues of Sports Illustrated, Playboy and Time. But it recently found a way to generate even greater profits requiring only a modest investment.
Quad/Graphics uses more than a dozen air compressors in each of its plants. It costs $425,000 a year to power just one 1,000-horsepower compressor, and by the estimate of the Department of Energy, manufacturers waste nearly a fifth of those costs on various leaks.
Quad/Graphics purchased a few sets of ultrasonic equipment and patched holes in each compressor throughout its facilities. Each one saved, on average, $85,000 a year. But multiply that number by the hundreds of compressors spread across Quad/Graphics' 11 plants in North America, and the savings grow more significant.
Opportunities like this abound throughout the industrial sector. U.S. industry accounts for more than a third of the nation's energy consumption, but it also represents a wealth of energy-efficiency opportunities. According to a recent McKinsey report, various industrial processes, such as more efficient operating equipment, could save a combined $447 billion through present-value investments of $113 billion, the majority of which would require paybacks of fewer than two and a half years.
But few companies are doing an effective job of managing their energy, experts say.
“CEOs today can tell you exactly what they're spending on IT, how much they're spending on healthcare and where those costs are going and what the trend is,” says Jeff Drees, president of the building automation business unit of Schneider Electric. “But ask them about energy, and they have no idea. Yet energy is just as controllable.”
Understanding the Cost
So, why haven't more companies instituted aggressive energy management programs? There are several significant barriers, starting with substantial upfront investments and the fact that energy management isn't necessarily a top priority for many companies.
However, a number of companies say the most significant initial barrier to controlling energy costs is simply understanding how to measure them.
“That's where a lot of projects get off to a rocky start,” says Mike Harris, vice president and general manager for energy and sustainability services at Johnson Controls. “A lot of times, an organization will throw out arbitrary goals, saying they're going to cut consumption by 20%. But they're not basing that on any analysis or data as to whether that's a feasible goal.”
When Greif Inc., an industrial packaging products manufacturer, began its energy management initiative five years ago, it required the breakdown of data for 70 different locations in North America alone.
“It was just a huge, huge undertaking,” says Myron Gramelspacher, vice president of global sourcing at Greif. “We had no database of our contracts or any information on consumption.”
Gramelspacher says the first step Greif took was partnering with energy management firm Summit Energy to create a Web-based platform that tracks high-level consumption for each facility. Next, each facility was audited on where that energy was being consumed and on what.
Schneider Electric's Drees compares those first reports to shining a flashlight into an attic — you'd be surprised at what you find. But he adds that companies need to understand not just where that energy is going, but break it down to how much consumption it takes to manufacture and distribute products.
“When you can articulate energy spend down to the cost of product, you're going to get the appeal, not just of facilities management, but the CFO and CEO,” says Drees. “Too often, the energy budget is paid for by facilities. It doesn't necessarily get recognized as part of the production system.”
Support From the Top
In 2008, Dow Chemical's total energy bill was a staggering $27 billion, accounting for the single largest component of production costs, and swallowing up nearly half of the company's total revenues. But since 1994, Dow has reduced its energy intensity by 22% through a structured program targeting process improvements, with some of that a result of investing in new technologies.
Dow's emphasis on energy management comes directly from its CEO, Andrew Liveris, who has been outspoken on the issue. Without that executive support, many programs either fall far short of their intended goals or are ultimately derailed due to lack of participation.
“If management from the top is not committed to the role energy management plays in the company's future, the program is going to really struggle,” says Doug May, vice president of energy and climate change at Dow.
Compared to the chemical industry, the amount of energy Quad/Graphics consumes to keep its printing presses running is meager. Still, CEO Joel Quadracci has signed off on a series of ambitious long-term investments, such as creating a visual energy reporting system that can identify the minute-to-minute consumption rates of any major piece of equipment in any of its operations. Another project saw the printer institute automation technologies into its print-production platform.
Even with the support of top executives, the effects of the global economic recession on the industrial sector mean tighter budgets and a demand for quicker return on investment.
One of the problems chemical manufacturer Huntsman found when instituting its energy management initiative was that so many of the projects suggested by consultants and the Department of Energy require investments that stretch into 2013.
“These were great projects, with some calling for two- or three-year paybacks,” says Steve Barre, director of energy optimization at Huntsman. “But in this economic environment, a two- or three-year payback project just isn't going to fly. We were looking at a payback period more like months than years.”
A McKinsey study notes that 73% of users will disregard energy-efficient investments with a payback time longer than two years.
Greif found success even within that reduced timeframe. The company ran a series of energy management workshops in its North American facilities, which led to several innovations.
“One day, one of our workers asked why we have our furnaces running over the weekend when production is shut down,” says Greif's Gramelspacher. “We'd been doing it because it took so long to get those furnaces heated up on Monday morning. But he suggested, why not just have one person come in early Monday and start it up? We're not talking big bucks here, but when you account for dozens of facilities, it really starts to add up.”
When companies undertake comprehensive energy management initiatives, one of the areas most intensely focused on, especially among manufacturers, is installing more efficient motors.
Forest City Gear, a manufacturer of precision gears, would seem to be a model example of this. The company has invested heavily in updating all of its 55 motors running throughout its facility. But the company quickly learned that, just because it purchased an array of energy-efficient equipment, doesn't mean that equipment is going to run efficiently.
When an energy management consultancy firm, Total Energy Concepts, ran a reading on how effectively one of Forest City Gear's filtration systems was running, it found the motor pulling at 65% capacity. The motor was only two years old.
“One of the assumptions I always had was this is a state-of-the-art facility,” says Larry Cass, Forest City Gear's plant operations engineer at the plant in Roscoe, Ill. “None of the equipment here is more than five years old. But what we found was we weren't running any of our motors efficiently.”
According to Doug Overvold, president of Total Energy Concepts, motors are often purchased with greater horsepower than the application generally requires. If a motor is running below 80% capacity, it's pulling more amperage throughout the facility and ultimately putting more wear on the motor and the company's circuits.
Forest City Gear had each of its motors measured to find out the reactive power necessary to run at optimum speed using a Power Factor Correction capacitor.
“The capacitor is able to take that waste, so you're able to pick up those line loss savings and reduce the amperage on the circuit,” says Overvold. “It's as if the motor doesn't have to work as hard to get the electricity to itself.”
In many ways, energy management is still in its infancy when it comes to benchmarking. Companies might be able to measure how they've reduced their consumption from previous years, but the deeper, more revealing perspective would be to compare their consumption with their competitors.
Obviously, proprietary information makes this a touchy subject. But according to Schneider Electric's Drees, that missing dimension will be felt more strongly in the coming year if Congress or the EPA passes regulations on greenhouse gas emissions.
“You need to be able to compare how you're running BTUs per square foot,” says Drees. “And, you're going to want to be able to compare what your consumption has been to produce a product. If someone across the street from you is running at 30% fewer emissions, even if you think you have a good plan in place, you're going to get taxed.”
When the oil shock of two summers ago sent the cost for energy soaring, many companies responded by implementing their first energy management initiatives. Some were successful, but many others, says Johnson Controls' Harris, were reactive by nature and not sustained.
“That's often the hardest part,” says Harris. “A lot of companies spring into action when energy rates go up all of a sudden. But that doesn't mean it's energy management. Energy management is long term.”
Instituting these programs is not for the faint of heart. Dow Chemical's May compares it to running a marathon, requiring more focus, momentum and discipline than most companies anticipate. But when implemented correctly, and when incorporated into a company's DNA, the value goes beyond dollars and cents.
“Maybe it's hard for a lot of executives to understand, but energy management isn't sexy,” says May. “It takes commitment and believing that, through a series of small, concerted efforts, it can add up to significant savings.”
Contributing editor Peter Alpern is associate editor of MHM's sister publication, IndustryWeek. This article originally appeared in IndustryWeek's April 2010 issue.