Take Action to Avoid Skyrocketing Energy Unit Costs
It happens everywhere – the energy component of conversion costs skyrockets when production is scaled back. The cause is clear and avoidable. You can avoid this pitfall by taking immediate action with a focus on rigorous energy cost reduction.
Consider this recent example: a large Chicago area manufacturing facility significantly reduced production schedules. This 24/7 operation scaled back to just five full shifts per week with limited activity on five additional shifts. It was essentially a 65% reduction in output.
The following month, however, the company's electric and gas bills reflected only a 10% reduction in energy usage. Just 10%. That small reduction in energy, paired with a 65% reduction in production, resulted in an increase of 257% in energy per unit of production! Figure 1 below illustrates this relationship between production and the energy cost component.
An analysis determined that 69% of the energy consumed in October was used during plant-idle periods. That means that only 31% of the purchased energy was used during production. Imagine the financial result if 69% of the facility’s labor and materials were consumed while producing nothing.
The culprit is fixed energy cost, or the energy that is consumed even when the facility is not producing. Direct labor and material costs are closely related to production. Proportional reductions in labor and materials are realized when shifts are eliminated. However, in the case of energy, a large fixed component causes much higher energy usage than anticipated when production is reduced. The operators of that Chicago area facility were convinced there was a mistake in the utility meters. Energy usage was high enough to cast doubt on the accuracy of the bill. Unfortunately, the meters were verified to be correct. They were left holding bills for energy that they did not need.
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