The growing sustainability trend: Aberdeen Group
By Nuris Ismail and Reid Paquin
By Nuris Ismail and Reid Paquin
At the highest level, many manufacturing executives believe in the intangible values of green and sustainability initiatives. However, few have been able to quantify this value in real dollar terms and even fewer understand the relationship between productivity and sustainability.
Indeed, the fluctuating cost of energy has challenged manufactures to find a way to get the most out of their plants while minimizing energy consumption. However, in comparison to Aberdeen’s 2011 study, “Energy Intelligence: Driving Optimization with Visibility,” the pressure of cost dropped from 72 per cent (in 2011) to 63 per cent.
This comes as no surprise because over the past three years, within our research, Aberdeen has seen the trend that ensuring compliance is increasingly becoming more important. Aberdeen’s July 2012 “Energy and Carbon Management: A Roadmap for Sustainable Production” focuses on how sustainability has changed from a ‘nice to have’ initiative, to one that is becoming a core of the organization. Sustainable success in manufacturing operations requires an all-encompassing and integrated concept. The study uncovers how leading companies are able to address these pressures.
To better understand how the most successful companies are implementing a comprehensive energy and carbon management strategy, Aberdeen used four key performance criteria to distinguish the leader and follower organizations. The criteria were: Reduction in energy consumption (measured as the year-over-year change in energy consumption); Reduction in emissions (measured as the year-over-year change in emissions); Energy consumption goals (measured as energy consumption performance realized relative to the corporate goals established); and operating margin vs. corporate plan: measured as the percentage difference between last year’s actual operating margin and bugeted operating margin.
Respondents were divided into two categories based on their aggregate performances in these four metrics, Leaders (top 35 per cent) and Followers (remaining 65 per cent):
Table 1: Maturity class performance
Leaders (top 35% of aggregate performance scorers)
• 7% reduction in energy consumption year-over-year
• 8% reduction in emissions year-over-year
• +13% performance vs. energy goals
• +14% operating margin vs. corporate plan
Followers (remaining 65% of aggregate performance scorers)
• 3% increase in energy consumption year-over-year
• 2% increase in emissions year-over-year
• -10% performance vs. energy goals
• -2% operating margin vs. corporate plan
Source: Aberdeen Group, May 2012
The Leaders are able to directly impact the cost of manufacturing operations by reducing energy consumption by 7 per cent. The Leaders have also established processes to reduce emissions by 8 per cent. These metrics not only provide a basis for measuring internal operations, but also serve to ensure that manufacturing operations are optimized while satisfying energy, environmental and business needs. In addition, the Leaders are exceeding corporate performance targets by over-achieving operating margin by 14 per cent, while their peers in contrast experienced a -2 per cent rate. In short, these industry Leaders are able to reduce their consumption, outperform their energy and & emission goals, and as a result enjoy positive operating margins to what is planned.
Leader capabilities and technology enablers
Leader companies are more likely to increase visibility and control over energy and carbon usage. In addition, the Leaders are likely to automatically collect energy and carbon data and store it in a central location. However the real challenge is collecting the information in a consistent manner. With all the different kinds of data that can be collected (such as energy cost, Scope 1, 2, and 3 emissions, energy consumption at a plant level, energy consumption at the asset level) automating data collection for manufacturing operations can be an intimidating task. To enable strategic decision-making, it is important that the data is collected a granular manner. It is important to gather information as close as possible to the asset.
Aberdeen’s “Energy and Carbon Management: A Roadmap for Sustainable Production” uncovered that Leaders are gathering this energy and carbon information through multiple avenues, from their plant automation (DCs,PLCs, SCADAs), sub-meters, sensors and a dedicated energy management system to get this drill-down visibility. With the recent inclusion of energy data over Ethernet/IP, ODVA have enabled their partners to create their products to enable seamless transfer of energy data from plant automation systems to an enterprise system. This is allowing manufactures to contextualize real-time events to minimize production, improve energy efficiency and minimize emissions. On top of that, over the years, technology advances in sustainability-orientated equipment allow manufactures to have efficiency ‘built in’ to their assets. This helps to prolong the life and improve the performance of these valuable resources.
An important fact to note is that when it comes to collecting information, there isn’t one best method. Manufacturers are collecting the information in multiple ways. Each facility is different, and manufacturers need to take the time to access their plant needs and select a data collection methodology that works with their current asset base. Sometimes that means leveraging outside resources, such as third party consultants, to provide a third party view on how to successfully automate data collection. When it comes to implementing an energy and carbon management strategy, this part of the process is critical, therefore organizations shouldn’t rush or find the cheapest solution. Rather, spend the time and resources to figure out the best approach to automate data collection and provide a ‘single version of the truth’ to the key decision makers.
Even in a challenging economy, leading manufacturers are committed to their sustainability agenda. Aberdeen’s research has seen companies use an array of methods to manage energy and carbon efficiently across their facilities. Leaders have truly taken a holistic approach towards energy and carbon management by establishing the right strategy and effectively executing the strategy through changes in business processes, organizational structure, knowledge and performance management. To achieve the performance benefits of the Leaders, organizations need to view energy and carbon management as more than just a cost cutting and compliance exercise but instead find the ability to take the organization to the next step of improved productivity and financial benefits. To find out more about how the Leaders are successfully implementing an integrated safety system, read Aberdeen’s “Energy and Carbon Management: A Roadmap for Sustainable Production.”
Nuris Ismail is a research analyst with the Aberdeen Group. She can be reached at firstname.lastname@example.org. Reid Paquin is a research associate with the Aberdeen Group. He can be reached at email@example.com.