Why investment with zero return is a top priority at many plants?

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Why investment with zero return is a top priority at many plants?

Would your company hire 2nd plant manager with a 12-month annual vacation contract? Simple, eh? What about – Will your company invest into energy project with zero return?

When company decides to delay an energy cost reduction project … Wait, nobody makes such decisions. Sophisticated managers of 21st century decide that “energy cost reduction project is a low priority for us at the moment.” So top priority projects are implemented.

Top priority project at many companies is to pay for energy that creates no value.

Paying for energy that does not add value to final product effectively is an investment with zero return. “Energy cost reduction is a low priority” effectively means “wasting energy is a top priority.” When it’s done year after year, it must be a top priority.

Let’s consider a mid-size manufacturing plant with $1mln electricity budget. Plant is busy every day, like any manufacturing operation – production plans, safety, sanitation, stoppages, scrap, maintenance, audits, new products, new machines, costs, budgets, … well, you know the drill. The last thing plant manager needs is new projects. Hence, “energy projects are low priority.”

In manufacturing only about 60% of procured energy ends up in the final product. The rest is wasted one way or another. Half of this energy waste can be eliminated through projects with profitability higher than that of the core business. With no action, this plant effectively invests $200K a year is into creating no value.

Alternatively such plant can outsource “energy work” and realize value through lower cost, higher quality and employee engagement.

Pay for energy cost reduction or keep paying for using more energy – same result this year’s P&L. But not on the next year’s: when money invested in cost reduction will generate return, while money spent on wasted energy will create … still nothing of value.

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  1. […] I wrote about this earlier from a different angle – here. […]

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