Category Archives: Energy

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

Plus:

  • 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)

And:

  • 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.

BioPlastics – Another Easy Way to Conserve Petroleum Supply

There are two easy ways to conserve petroleum supply by over 10% annually in the US (and higher still in countries where petroleum is used as a major energy source for electricity production). The first is to stop burning oil for electricity. There is just no need to be using petroleum (products) for electricity production given the plethora of alternate options available, including natural gas, (clean) coal, nuclear, wind, hydro, and waste. If we didn’t burn oil for electricity production, oil refinement, process heat, and heat for industrial buildings, a good 13% of annual usage could be conserved.

The second way is a full-out switch to bioplastics. Right now, plastics consume at least 1 of every 10 barrels of oil in the US every day. That’s a lot. And considering that we can now produce a 100% plant-based PET product made from fully renewable sources that has a molecular structure identical to petroleum-based PET products, there is no reason not to switch to bioplastics. The only reason they are currently more expensive than petroleum based plastics is economy of scale. If everyone started investing in them, the costs would come down as the resulting investment would fuel R&D which would, in turn, create better materials that can be synthesized quicker, easier, and more cost effectively.

But it’s not going to happen until, as the author of this recent article in Environmental Leader on turning plants into plastics hints at, one of two things happen:

  • Supply Chain Sustainability Catches On in a Big Way
    And the leaders decide to move to bioplastics en-masse before oil-based plastics become prohibitively expensive. Or
  • Government Mandates the Move to BioPlastics
    The tax credits suggested by the author won’t be enough. The government has to mandate it, because, unless the tax credits make bioplastics significantly cheaper, the average organization will hold off on the switch.

Personally, I’d like to see the government ban non-bioplastics for all common uses in industry and retail. Just like I’d like to see them ban the use of oil for electricity production. Reserving oil for transportation (where electricity still isn’t an option most of the time), agricultural and construction machinery, and (family) home heating, where it would cost too much to retrofit millions of homes, would decrease petroleum need by about 25%. That’s 1 in 4 barrels saved for future use. This would not only extend the life-span of our oil supply, but keep costs down as well.