Many factories are scaling back production and experiencing remarkable increases in the energy component of conversion cost. The cause is clear and preventable. You can avoid this pitfall by taking immediate action to reduce the fixed component of your energy consumption. This is a common opportunity (and problem).

Failing to take action caused a dramatic increase in energy per unit of production at a large Chicago-based operation last fall. Within that production facility, a 65% reduction in output resulted in only a 10% reduction in energy usage; just 10%! That small reduction in energy, paired with the large reduction in production, resulted in a 257% increase in energy per unit of production.

Figure 1: Energy Component Cost Skyrockets During Production Cut

An analysis determined that 69% of the energy consumed in October 2008 was used during plant-idle periods. So only 31% of the purchased energy was used during production. Imagine the financial result if 69% of labor and material costs were incurred while producing nothing.

The culprit is fixed energy cost. Proportional reductions in labor and materials are realized when shifts are eliminated. However, a large fixed energy component causes much higher usage (per unit of production) than anticipated as production is reduced. The operators of that Chicago area company questioned the utility meter accuracy; usage was high enough to cast doubt on the validity of the bill. Unfortunately, the meters were correct. They were left holding bills for energy they did not need.

Energy Usage and Production

Figure 2: Energy vs. Production with Large Fixed Energy Usage

Factories are often designed for 24/7 operation. Designers normally focus on maximum utility requirements and not the controls necessary to scale back usage when the lines are idle. The result is an energy usage profile like Figure 2. Note the significant energy requirement at zero production -- that represents the fixed cost.

Labor, material and energy usage must all show a relationship to production. Labor and material costs often do correlate; energy is the opportunity.

Some facilities require energy for refrigeration or freezers that will not correlate to production; in these cases, a fixed component as high as 50% may be acceptable. However, many facilities can make significant improvements, as shown in Figure 3.

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