Green/CSR Meet the Bottom Line — Savings Tips From ICG Commerce and Neuwing Energy (Part 1)

Earlier this week, ICG Commerce acquired Neuwing Energy Ventures for an undisclosed sum. The small transaction is meaningful from more than a numbers standpoint, however, in highlighting the opportunity for energy savings that far too many companies are leaving on the table (and that procurement should take the lead in pursuing). Investing in the right set of capital projects can not only reduce energy consumption and drive relatively near- to mid-term ROI payoff in manufacturing environments. Companies can also take advantage of government incentives that can up the savings potential even more, while accelerating the payback timeline. In this two-part post, I'll highlight three ways that companies can ride the sustainable energy wave to drive procurement and operational savings. Many of the ideas contained below come courtesy of ICG Commerce and Neuwing.

The first cost-reduction/savings acceleration idea that companies should pursue is to identify the types of incentives and credits that are available from Federal, state, NGO and utility funding sources to invest in sustainable energy programs. In this case, a program could be as simple as replacing an old piece of capital equipment with a new consumption reducing variant. Or it could be as complicated as building an entirely new facility using sustainable design elements. Regardless, capital equipment and construction sourcing professionals should familiarize themselves with strategies to systematically and proactively identify and negotiate various incentives. This should take place prior to and during the CAPEX approval process, when an organization is evaluating projects for investments when there is an energy component (e.g., manufacturing line retrofit). Any time there is a potential energy savings component, this type of search should become standard operating procedure.

Neuwing suggests that many CAPEX expenditures not meeting a typical 3 year hurdle rate/payback period can often be pushed over the edge with the some $7.5 billion in credits and incentives available in 2011 alone. In other words, because of government, NGO, and private sector incentives, it's possible to get projects funded that would otherwise sit because of longer payback periods. And procurement can claim project savings not just from hammering suppliers over the head and/or calculating reduced operating expenditures, but by looking to third parties to help their efforts. However, Neuwing suggests that the "most forward-thinking companies" aren't simply using these incentives and credits to fund individual projects. Rather, "they're creating a pool of funds to get further incentives around energy sustainability and efficiency" embedded in their business as a core operational and investment philosophy.

The second area where procurement and operations organizations can team up to drive savings is active energy management. Neuwing suggests that most mid-tier manufacturers under $10 billion in revenue "don't have a good grip on current spend and consumption" and can't explain why bills might be high in one location, but lower in another. Often times, there are also more basic savings (i.e., low-hanging sustainable energy fruit) to be claimed from looking at such areas as interior lighting, including energy efficient light-bulbs, power systems that monitor area usage, high-efficiency motors used in production, lean operations, etc. Moreover, just as employees often reduce indirect purchases when they're being monitored through a P2P system, they often adopt more energy efficient habits when they're aware of monitoring and audit in this area as well (Neuwing suggests this percentage reduction is often 2-3%).

It's often possible to identify even larger savings opportunities from looking at variation in production between facilities. For example, one company Neuwing observed used a "very antiquated" piece of machinery using compressed air as part of the production process whereas another facility in the organization might have a more modern piece of equipment that accomplishes the same production step, yet consumes 50% (or less) energy in the process. In situations like this, it's often possible to identify areas where a simple retrofit/standardization across facilities can drive returns in less than a year -- not to mention the added benefit of consolidating spend with a single supplier.

Stay tuned as we investigate perhaps the most important area where companies can drive savings through paying greater attention to energy usage and consumption.

Jason Busch

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