Energy most important asset

ENERGYYour Most Important Asset

“Energy management is serious business. However, the enclosed comics can help you take a fresh perspective on typical energy management challenges. We trust these will provide added awareness and insight into your most important invisible asset: Energy.”

mpi sustainability insight #1 © 2012 mpi group inc. www.mpi-group.net

The last few years have challenged manufacturers, forcing them to improve efficiency and lower costs. Yet many executives and managers have missed obvious opportunities to do both by reducing energy consumption. Approximately 87% of plants reported that annual utility/fuel costs had increased, and 21% of plants reported that costs had increased by more than 10%, according to the MPI Manufacturing Study.1

Energy-supply volatility also wreaks havoc on manufacturing profits. One catastrophic event — a hurricane, overloading of the power grid, or similar unexpected interruption of supply — can dramatically increase energy costs beyond even the most careful projections. For example, although in January 2010 the Energy Information Administration (EIA) predicted a 2011 average price for regular-grade gasoline of $2.96 per gallon, prices hit $4 during the year and could still move significantly higher in 2012 and beyond. At this point, the only certainty about energy prices is continued volatility, which will continue to damage bottom lines — until manufacturers track and manage energy costs like any other production input.

Are you ready to take control of energy costs?

12011 MPI Manufacturing Study, survey of U.S. and international plants, The MPI Group, 2011.

Energy Awareness — Feeling the Pain

MPI Sustainability Insight

Utility/fuel cost (per unit basis) annual change

% of plants

Decreased more than 10% 0.7%

Decreased 6–10% 0.7%

Decreased 1–5% 2.7%

No change 7.5%

Increased 1–5% 32.8%

Increased 6–10% 34.5%

Increased more than 10% 21.2%

Source: 2011 MPI Manufacturing Study


Most executives understand the role that energy — and, at a higher level, sustainability — will have on

their operations. In fact, only 12% of manufacturing-plant executives do not recognize the importance of

sustainability to their success over the next five years. Approximately 61% believe sustainability is impor-

tant: “highly important” (10% of plants), “important” (24%), and “somewhat important” (27%).1

Recognizing the importance of sustainability — and realizing that energy and emissions can be managed

— goes a long way in achieving cost-saving performances related to sustainability. For example, 78%

of manufacturers who rate sustainability as highly important or important have an energy-management

program in place, compared to 65% of plants where sustainability is somewhat important and just 31% of

plants where sustainability is of minor importance or not important.

Even more compelling is evidence of the cost savings possible via sustainability:

• Plants that rate sustainability as highly important or important report a 4% one-year reduction

in energy per unit of output (median).

• Plants that rate sustainability as somewhat important report a 2% one-year reduction in energy

per unit of output (median).

• Plants that rate sustainability as minor importance or not important report a 0% one-year reduction

in energy per unit of output (median).

What would a 4% cost reduction mean to your plant?

Energy Awakening — Can Consumption Be Managed?


All plants

Sustainability — minor importance or not important

Sustainability — somewhat important

Sustainability — Highly important

or important

Energy management 56.6% 31.3% 65.1% 77.7%

Use of renewable energies 11.3% 2.6% 9.6% 21.4%

Formal green corporate program 12.9% 3.5% 8.4% 27.2%

Recycling/reuse program 76.2% 68.7% 79.5% 81.6%

Carbon footprinting 11.3% 0.9% 9.6% 24.3%




Many manufacturers don’t comprehend just how variable energy costs can be — or how to manage those

costs strategically. Why? Usually because energy costs aren’t tracked to specific manufacturing lines,

equipment, or products (e.g., which line consumes more energy, and why?). The result is few manufactur-

ers have made significant reductions to their energy usage.

Four out of five manufacturers (81%) report annual energy reductions of less than 10%. Yet manufacturers

near or at world-class status in sustainability are far more likely to have reduced energy by 10% or more —

35% of these top performers vs. just 13% of those furthest from world-class status.1

How did the world–class manufacturers succeed? It probably has something to with the fact that these

firms also are more likely to have:

• A sustainability strategy,

• Talent to drive sustainability efforts, and

• State-of-the-art business systems and equipment to support sustainability initiatives.

How close to world-class sustainability is your firm?

Energy Visibility — Getting the Bigger Picture




Annual reduction in energy per unit of product output

All manufacturers Furthest fromworld-class

sustainability

18.8%12.6%

81.2% 87.4%

<10% 10% or more

Near or atworld-class

sustainability

35.1%

64.9%


As manufacturers gain visibility into their energy usage, they learn more about where and why energy is

consumed. But that knowledge doesn’t come by watching plant meters on the wall; it’s earned by closely

monitoring how energy is used at specific locations within a facility, and understanding why that energy

is used there (i.e., what is the energy draw related to specific products?). Measurements also help to

understand how energy-improvement efforts are impacting consumption by product, line, or machine.

Unfortunately, few organizations have measurement systems in place to assess return from their overall

sustainability efforts (within which energy consumption is critical). In fact, only 17% of manufacturers have

advanced measuring systems and capabilities: “regular monitoring and review of company-specific metrics

by CEO and senior staff” or “regular monitoring and review of company-specific metrics by CEO and senior

staff and transparency and clarity throughout the organization.” More than one-third of manufacturers (37%)

have no measurement systems or reviews.1

Paper manufacturing (40% of companies) and primary metal manufacturing (24% of companies) were

most likely to have advanced measurements systems and reviews. Computer and electronic product

manufacturers (10% of companies) and chemical manufacturers (11% of companies) were least likely to

have advanced monitoring systems.2

How good is your system for measuring (and improving) energy consumption?

Energy Visibility — Getting Granular


12011 MPI Manufacturing Study, survey of U.S. and international plants, The MPI Group, 2011. 12011 MPI Manufacturing Study, survey of

220 or more companies responding in the industry.

What best describes your measurement system for reviewing return from sustainability efforts?

No measurement system per se or reviews 37.0%

Ad hoc monitoring of basic measures and ad hoc reviews 30.3%

Company-specific metrics monitored regularly by operations staff 15.5%

Regular monitoring and review of company-specific metrics by CEO and senior staff 11.7%

Regular monitoring and review of company-specific metrics by CEO and senior staff and transparency and clarity throughout the organization

5.6%



It’s a major step forward for a manufacturer to understand plant-level energy consumption, and how

changing combinations of products, lines, and machines can boost plant performance and profitability.

Yet most manufacturers don’t take the next step, and miss the opportunity to optimize energy use across

all facilities, products, and assets. A dedicated energy strategy can drive an organization to achieve

aggressive targets — and deliver meaningful bottom-line results.

Twenty-five percent (25%) of manufacturers don’t have a sustainability strategy, while another 28%

describe their strategies as “generic strategy with little or no functional involvement and buy-in.”

A “company-specific strategy” is in place at roughly half of manufacturers, with only 12% reporting

“full functional involvement and buy-in.” Even among large manufacturers (more than $100 million in

revenues), an energy strategy is missing at 21% of firms.1

Does an energy-strategy strategy make a difference?

• 42% of manufacturers with a company-specific sustainability strategy and full functional involvement

and buy-in report annual energy reductions (per unit of product) of 10% or more;

• 29% of manufacturers with a company-specific sustainability strategy and some functional

involvement and buy-in report reductions of 10% or more;

• Just 9% of manufacturers with a generic sustainability strategy and little or no functional involvement

and buy-in report reductions of 10% or more; and

• Only 6% of manufacturers with no sustainability strategy report reductions of 10% or more.

Is energy data driving strategy and change at your company?

Energy Visibility Leads to Informed Decisions


Sustainability Strategy

% of companies

No strategy 24.5%

Generic strategy with little or no functional involvement and buy-in 28.3%

Company-specific strategy with some functional involvement and buy-in 35.3%

Company-specific strategy with full functional involvement and buy-in 11.9%

Source: 2011 Next Generation Manufacturing Study

12011 Next Generation Manufacturing Study, The MPI Group, 2011.


Energy information is a new kind of business intelligence — one that that can impact not just energy consumption, but improvement of operations and asset management as well. Unfortunately, many manu-facturers still lack business systems that adequately support their energy-intelligence needs.

Twenty-two percent (22%) of manufacturers don’t have business systems and equipment to support world-class sustainability, and another 22% report that their business systems and equipment are “inadequate for current requirements.” Just 8% of firms describe their business systems and equipment as “state-of-the-art and able to provide long-term support” for sustainability efforts.1

The ability to share, analyze, and act on sustainability information correlates with world-class performance in sustainability, as well as overall operational excellence:

• 72% of manufacturers with state-of-the-art business systems and equipment supporting sustainability report that their companies are near or at world-class sustainability, vs. just 2% of manufacturers with no sustainability systems and equipment.

• 33% of manufacturers with state-of-the-art business systems and equipment report value-add per employee of more than $125,000, vs. just 20% of manufacturers with no sustainability systems and equipment.

Are your business systems leveraging sustainability intelligence for operational gains?

Energy Management and Operational Excellence


Systems and Equipment to Support World-Class Sustainability

% of companies

None 21.8%

Inadequate for current requirements 21.7%

Adequate but limited to current requirements 35.3%

State-of-the-art and able to provide long-term support 7.6%

Source: Next Generation Manufacturing Study



Managing manufacturing assets – facilities and equipment – is a priority for every manufacturer, especially those hoping to efficiently produce high-quality goods. Well-managed assets reduce operating costs, improve the life of capital investments, and drive overall manufacturing improvement. Yet just 24% of manufacturing plants have effective asset management applications and/or programs in place, according to the MPI Manufacturing Study.1

Better plants — i.e., those reporting significant progress toward or fully achieving world-class status — are more likely to have effective asset management: 31% have effective asset management applications and/or systems vs. 18% of manufacturers with only some or no progress toward world-class status.

Findings on sustainability shine an even harsher light. At plants near or at world-class status and where sustainability is important, 43% have effective asset management applications and/or systems in place.

How well are you managing plant assets?

Asset Management and Energy Management Go Hand in Hand


Furthest from world-class and sustainability

is at best only somewhat

important

Furthest from world-class and sustainability

is important or highly important

Near or at world-class and sustainability

is at best only somewhat

important

Near or at world-class and sustainability

is important or highly important

Effective asset management in place

16.8% 22.4% 22.4% 43.1%

Effective asset manage-ment not in place

83.2% 77.6% 77.6% 56.9%


12011 MPI Manufacturing Study, The MPI Group, 2011.

World-Class Manufacturing, Sustainability, and Asset Management (% of plants)


Manufacturing demand is growing for many industries and in many parts of the world. This good news

means that manufacturing executives now face strategic decisions of where to place production of new

orders within their plant networks.

Some order-allocation decisions are easy, with proximity to customer markets often trumping other

attributes. For other decisions, executives will evaluate capacity (plant room to make more product)

and capability (plant performance). A plant’s energy efficiency also should be a component of that

decision-making. Some 19% of U.S. plants report annual energy decreases per unit of product of more

than 5%, while 44% of plants report no change or an increase in energy consumption. Not surprisingly,

plants with the largest energy reductions are also more likely to report better operational performances:1

Where does energy rank on your order-allocation priority list?

Energy Information Contributes to Manufacturing Strategy


Annual Change Energy Consumption Per Unit of Product



% of plants

43.3%

38.1%

18.7%

Decreased consumption more than 5%

Decrease consumption 0.1% to 5%

No change in consumption or an increase


Just a few years ago, sustainable business practices used to be considered “nice” things to do — admirable,

but not business necessities. Yet sustainability is now seen as a path to profitability — helping organizations

to differentiate themselves from competitors and generate real savings (energy costs, material costs, and

regulatory fees and fines).

The 2011 Sustainability and Innovation Global Executive Study, conducted by the Massachusetts Institute

of Technology Sloan Management Review and Boston Consulting Group (BCG), found that “a substantial

portion of companies are now seeing the need for sustainable business practices and are deriving financial

benefits from these activities.” Based on 2,874 responses from commercial enterprises, the study found

that 31% of companies have developed a business case or proven value proposition for addressing sustain-

ability, and 31% are already “Harvesters” — i.e., their companies are profiting from sustainability activities.1

These findings shouldn’t surprise executives, especially since many “green” initiatives reflect traditional

cost-awareness activities. Best practices for sustainability, identified by participants in the 2011 Next

Generation Manufacturing, include:

• “Company regularly focuses on waste reduction and cost reduction through product redesigns

and construction simplification, i.e., manufacturing using fewer parts through design modification

and commonality of parts strategies.”

• “Continue to focus on reducing the consumption of electricity through new technology.”

• “Product design that incorporates product reuse and recyclable components.”

• “Regular reviews of energy and utility usage, and developed plans for reductions.”

• “We use recycled and recyclable materials as much as possible and have programs in place

(including goals with associated metrics) to reduce not only our material and labor costs, but also

our energy consumption and total waste per unit of production.”2

More than half of manufacturers participating in the NGM Study (59%) said that sustainability was highly

important or important3 to their success over the next five years, up from 35% of manufacturers in 2009.

Building a Business Case for Broader Sustainability


1Sustainability & Innovation Global Executive Study, Massachusetts Institute of Technology Sloan Management Review and the Boston Consulting Group, January 2012.


3Rated 4 or 5 on a scale of 1-5 where 5 equals “highly important” and 1 equals “not important.”


Increasingly, customers of all kinds — business-to-business or business-to-consumer — want to know

how their suppliers are making and delivering goods. Are the products sustainable? How much energy

was consumed during production? How much of the product’s content is recycled material? What is the

product’s carbon footprint, from supplier to delivery? Unfortunately, many manufacturers aren’t prepared

to answer these questions.

Almost three-quarters of industrial plants have none of their products documented with carbon footprints,

according to the 2011 MPI Manufacturing Study. Yet some manufacturers are documenting their products’

carbon footprints, and the percentage of plants documenting such data has risen over the last three

years. It’s clear that some organizations see market opportunities in documenting footprints — while

others are being forced to move in that direction.1

For example in the UK, the Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is a mandatory

cap and trade scheme proposed to cut carbon emissions by 1.2 million tonnes of carbon per year by 2020.

The CRC targets large public and private sector organizations, in aggregate responsible for around 10%

of UK emissions. These large organizations — electricity use of more than 6,000 MWh per year in 2008 —

will be required to measure the emissions from energy supplies for which they are responsible. Approxi-

mately 3,000 organizations with an energy spend greater than £500,000 are taking part in the program,

which began a three-year introductory phase in 2010.2

How well-documented are your products’ carbon footprints?

Getting in Front of the Competition



2Carbon Footprint Ltd. and the Department of Energy & Climate Change, UK.

Average Median

Percentage of plant products with documented carbon footprint — current year 11.2% 0.0%

Percentage of plant products with documented carbon footprint — three years ago 8.3% 0.0%


Products with Carbon Footprints


Are customers aware of your organization’s sustainability practices? If so, does that awareness impact

their buying decisions — i.e., are customers willing to spend more for more sustainable products and

processes?

Communicating your company’s sustainability successes — such as energy-management improvements —

can be a powerful tool in building stronger relationships with “green” customers. But to be credible,

sustainability success must be quantifiable, with documented energy-management improvements. Savvy

customers are eager to find out more about your company’s journey toward greener, more sustainable

processes, in part for altruistic reasons, and in part to learn how their operations or lives can become

sustainable. Sharing details of your energy-management program can create a win-win situation for all.

Many industrial facilities are just beginning their journeys toward more sustainable processes. According

to the 2011 Manufacturing Study, plants have reduced energy per unit of product output by just 1% (median)

and 3.7% (average) in the past year. But a few facilities are ahead of the sustainability curve — almost

one-quarter of plants have reduced energy consumption by 10% or more.1 How does energy management

in your operations compare to others in your industry? And do your customers know?

Marketing Energy-Management Success



2Industries for which 15 or more plants reported.

Industry2 Average Median

All industries -3.7% -1.0%

Chemical Manufacturing -7.5% -5.0%

Plastics and Rubber Products Manufacturing -5.2% -2.4%

Primary Metal Manufacturing -0.4% 0.0%

Fabricated Metal Product Manufacturing -2.4% -0.3%

Machinery Manufacturing -2.3% 0.0%

Computer and Electronic Product Manufacturing -3.9% 0.0%

Electrical Equipment, Appliance, and Component Manufacturing -6.4% -2.0%

Transportation Equipment Manufacturing -4.9% -4.5%

Miscellaneous Manufacturing -4.0% -2.0%Source: 2011 MPI Manufacturing Study

Change in Energy Consumption per Unit of Product Output

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