Category Archives: Energy

Remember, Energy Efficiency is the First Step in Energy Conservation!

If you’re a buyer of computers, electronics, machinery, automobiles, buildings, or anything else that requires power, the first thing that should still be on your mind these days, with petroleum and oil prices about to go through the roof again, is energy. It now costs more to power an average desktop workstation for its expected life-span than it does to buy it, just as it does to power and cool your average server. Getting 40% off MSRP on a pick-up truck that only gets 15 mpg isn’t a great deal anymore if it’s going to be driven 30,000 miles per year, because, at current fuel costs, you’ll be spending 45,000+ in fuel costs over 5 years … over two times what you’ll be paying for the truck!

That’s why it needs to be said again that energy-efficiency technologies can reduce energy consumption by 25% or more, as per the results of a McKinsey study from 2008 that also found that improved energy efficiency can cut energy requirements by 25% in many developed countries, as I noted in my post on Cutting Carbon Footprints on the Country Level.

And remember the 2008 The Industry Week article on Growing the Energy Efficiency Market that focussed on a 2008 ACEEE (American Council for an Energy-Efficient Economy) report on The Size of the U.S. Energy Efficiency Market: Generating a More Complete Picture. The report, which was supported by the Civil Society Institute, the Kendall Foundation, and the North American Insulation Manufacturer’s Association, found that:

  • The U.S. has the potential to reduce energy consumption by an additional 25% to 30% through strategic use of energy efficient technologies
  • Energy-Efficiency has met about three-fourths of the demand of new energy related services since 1970, proving that it works
  • Investments in more energy-efficient technologies could result in an efficiency market worth more than 700 Billion by 2030

So do what you can to drive for energy efficiency. The operating cost reductions to your Supply Management organization that will follow will be well worth it.

Editor’s Note: This is an edited reposting of a 2008 SI blog post on how Energy Efficiency is the First Step in Energy Conservation. It’s a good message to remember at this time of year when many people put up those energy-inefficient holiday lights and displays from ten and twenty years ago without thinking that can, when overdone, create quite a strain on the grid.

What Determines Best in Class in Energy Management?

Energy prices are going up. Energy consumables (oil, natural gas, and coal) are going down. Electric vehicles are still not an option for major forms of supply chain transportation (plane, train, and tractor trailer). And they need to be charged from a grid that is probably not set up to handle large quantities of renewable energy, as production is not constant (as winds come and go, tides ebb, and clouds mess with direct sunlight) and grids require constant power levels (or they overload and blow — and even though the sky lights up a beautiful shade of blue when it happens at night, it’s a pretty sight you really don’t want to see).

As a result, energy conservation, which starts with energy management, is becoming more important by the day — especially when supply management needs to keep costs down (which are starting to skyrocket in manufacturing plants and data centers), be socially and environmentally responsible, and deal with (impending) carbon legislation. For some organizations, that’s easier said than done and they need a roadmap from an external expert. The goal of this post is not to provide that, but to define what best-in-class in energy management is and key capabilities required to get there.

According to a recent Aberdeen study on Energy Intelligence, best-in-in class is defined by:

  • High Operating Equipment Effectiveness (91%+)
  • Aggressive, continual, reduction in energy consumption
  • Aggressive, continual, improvement in operating margins

And, in particular, best-in-class organizations exceed their energy consumption and operating margin goals by 20% or more.

To this I’d add:

  • aggressive, continual, movement to renewable sources
  • continual shift to low-energy technologies and process

Let’s face it. High OEEE is good, but if the equipment being used is an energy hog, 90% efficiency is still bad if there is an alternative piece of equipment that only uses half the electricity at 88% efficiency. And energy reduction is good, but moving to renewable sources is better. No coal is better than less coal.

So what are they key capabilities you require to become best-in-class in energy management?

According to the Aberdeen report,

  • accessible real-time and historical energy data,
  • standardized energy management processes across the enterprise, and
  • metrics to benchmark the performance of the energy program across different plants.

This is a good start, but your energy management expert in supply management also needs

  • a solid data analysis tool to analyze the cost and usage data,
  • a strategic-sourcing decision optimization solution that can handle energy models in all their complexity to allow the analyst to optimize the buy in a manner that balances cost with sustainability and risk management goals and provides the most value to the organization, and
  • a supply chain visibility solution that allows an analyst to monitor the energy usage across different plants in near-real time to find usage patterns that are problematic or appropriate for optimization.

If an analyst had all these capabilities, there’s a good chance the organization would be on its way to becoming a best-in-class energy manager. Unless you think these capabilities are not sufficient and they also need a few SCRAPS. Thoughts?

Why Are Fuel Prices So Volatile?

This recent article over on the Supply & Demand Chain Executive Site by Barry Hochfelder on a volatile problem does a great job of sketching out the fuel supply chain and explaining why prices will sometimes change five to ten times a day!

At a high level, this is how a fuel supply chain works.

  1. The refiner receives oil and produces gas, diesel, and petroleum fuel products.
  2. Traders then buy and sell the fuel.
  3. Fuel is moved via pipelines, barges, and tankers to supplier storage tanks.
  4. Distributors transport the fuel to retailers or consumers.

So where’s the volatility?

  1. There are buyers, sellers and intermediaries between the pipelines.
    Furthermore, there are many suppliers at different terminals in the geographic locations where pipelines terminate into bulk storage. These suppliers advertise prices at their terminals. If they see a change, they will often move prices to their advantage.
  2. Then there are contracts.
    Buyers will procure fuel based on midday close and other complex calculations.
  3. And suppliers offer multiple price feeds to try and win contracts.
    With prices that change based on time of day, contracting terms, and calculation methodologies.
  4. Taxes are constantly changing.
    There have been over 1,800 changes in tax rates at the local, state, and federal levels.

And this volatility is not going away. Time to start preparing.

Energy Buying Is Definitely Not For Those Looking for a Quiet — or Easy — Life

A recent article over on the CPO Agenda on how energy buying is not for those looking for a quiet life made some great points. As the article notes:

  • there is continuing political unrest in many oil-producing nations (and 20%+ of available oil goes to international shipping alone [Source])
  • the recent Japanese disaster has cause a renewed apprehension to nuclear energy production (and Germany is going to decommission its nuclear plants that supply 25% of the country’s electricity)
  • in most countries, renewable sources still account for less than 5% of electricity production
  • demand for fossil fuels is still rising, and the rapid rise of China and India which, combined, hold over 1/3 of the planet’s population combined, isn’t helping


  • significantly increasing energy production from renewable sources, while now a technical feasibility, will cost many (many) Trillions of dollars which have to come from somewhere (as a side note, 2010 saw a record level of investment of over 240 Billion — but we probably need at least 10 times that for a rapid increase in the production of renewable power)
  • deregulated energy markets, which will soon account for a majority of state markets in the US, allow money grubbing financial types to play hedge games (and we know what eventually happens to hedge markets when Wall Street types get involved)


  • energy cost models can be complex: costs of generation, transmission, storage, distribution over third party networks, and taxation, each with their own cost models, need to be taken into account

All-in-all, you are dealing with a very complex, and very volatile, commodity whose price performance can be almost impossible to predict even in the short term. And even if you manage to lock in a mid-term contract at great rates, what happens if prices spike and your provider goes bankrupt because it predicted downward performance and signed too many deals at the start of what was actually an upward trend? Or if you decide to generate your own electricity and your fuel supplier all of a sudden stops delivering? There will be sleepless nights. Unless you thrive on them, beware of energy buying. It’s not for the faint of heart.

Comprehensive Energy Management: Taking Energy Management to the Next Level

Today’s guest post is from Robert A. Rudzki, President of Greybeard Advisors LLC, who has (co-) authored a number of acclaimed business books, including Beat the Odds: Avoid Corporate Death and Build a Resilient Enterprise, On-Demand Supply Management, and the just published text on Next Level Supply Management Excellence that is a follow up to the now-classic Straight to the Bottom Line.

Even the largest and most sophisticated companies tend to look at energy costs in a piecemeal way — plant by plant, facility by facility. One reason for this is the inherent complexity of the energy marketplace. Another is the need for local facilities to ensure adequate supplies.

Yet, by adopting a comprehensive approach to energy management, many companies discover significant opportunities to add value and reduce risk.

As the chart below illustrates, energy management embraces a variety of activities that are cost focused, such as establishing commodity prices, mission critical such as ensuring adequate supplies, and even policy- or community-focused such as green initiatives.

Comprehensive energy management is the process of systematically analyzing all the aspects that influenced total energy cost, with the goal of arriving at an optimal energy cost.

Chapter 10 of the just-released book Next Level Supply Management Excellence (Rudzki, Trent), is devoted entirely to the subject of comprehensive energy management. You can also obtain additional information by downloading the linked two-page PDF.

Thanks, Bob.