Posted by: Paul Foster
If you ask many manufacturing companies how much energy they need to produce a widget, only a few will be able to give you a definitive answer.
Yet in many manufacturing sectors margins are extremely tight and therefore energy cost management is critical to their financial performance and results. Despite this, most manufacturers allocate energy costs on a product by product based on overall overhead costs. By using such high level cost approximation they never get to understand their real energy costs and how to reduce them. If you can’t measure it, you can’t manage it and you are not in control of what is one of your major overhead costs.
The amount of energy needed to produce a widget deserves the same or arguably greater level of scrutiny as any other raw material, yet in many situations, this is not the case. Energy consumption should be included in the processes of planning, procurement and financial statements in the same ways as any other items required for production. The amount of energy required for different types of equipment and output should be considered when reviewing manufacturing plant and you should always be looking for greater energy efficiency in the production process.
With a strategy and a plan in place, companies could manage energy use in the same way they do any other raw material. Negotiating better energy supply agreements would have a major impact on their overall profitability.
During final accounting, knowing how much energy is required for your widget production is crucial for the calculation of actual product costs. Having this kind of information can affect your strategy to make or buy in certain products.
The analysis of energy consumption can open up the opportunity for all sorts of efficiency gains.
Not only can you measure the efficiency of manufacturing equipment, but this also opens up the door to analysis and evaluation on the efficiency of those materials used in the manufacture of your widgets; it can allow for comparison of materials purchased by some suppliers versus others, which may trigger further savings and improved efficiency.
So there are numerous reasons why energy deserves to be considered a raw material like any other other raw material and handled with the same care and attention and with the right appropriate level of expertise.
An appropriate energy management plan today should be considered essential for any manufacturing company planning for a sustainable future.