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The Lean and Energy Toolkit
Chapter 1: Introduction
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Benefits of Coordinating Lean and Energy Management
Energy is a vital (and often costly) input to most production processes and value streams. By thinking explicitly about unnecessary energy use as another “deadly waste,” Lean implementers can significantly reduce costs and enhance competitiveness, while also achieving environmental performance goals.
Benefits of Coordinating Lean & Energy Management (Box 1)
- Reduce operating and maintenance costs
- Reduce vulnerability to energy and fuel price increases
- Meet customer expectations
- Enhance productivity
- Improve safety
- Improve employee morale and commitment
- Improve environmental quality
- Reduce greenhouse gas emissions
- Remain below air permitting emission thresholds
- Increase overall profit
Many organizations can find it difficult to get senior managers to focus attention on energy use. Energy use is often viewed as a necessary support cost of doing business, and energy-efficiency efforts can sometimes have difficulty competing for organizational attention with other core operational needs. By linking energy management to Lean activities, energy-reduction efforts can be tied more directly to process improvement efforts that are regarded by senior managers as being vital to business success. In effect, energy improvements can ride the coattails of Lean activity while bringing significant benefits to the organization.
Many organizations can find it difficult to get senior managers to focus attention on energy use. Energy use is often viewed as a necessary support cost of doing business, and energy-efficiency efforts can sometimes have difficulty competing for organizational attention with other core operational needs. By linking energy management to Lean activities, energy-reduction efforts can be tied more directly to process improvement efforts that are regarded by senior managers as being vital to business success. In effect, energy improvements can ride the coattails of Lean activity while bringing significant benefits to the organization.
Cost Savings
Share of Energy Consumed by Major Sectors of the U.S. Economy, 2005 (Figure 1)
Source: U.S. Energy Information Administration, Annual Energy
Review 2005, Washington, DC, July 2006. www.eia.doe.gov.
Energy costs can have a significant impact on the financial performance of businesses. A September 2005 poll taken by the National Association of Manufacturers (NAM) revealed that 93 percent of directors from small and medium-sized manufacturing companies believe that higher energy prices are having a negative impact on their bottom line (1).
Substantial opportunities exist to reduce energy waste in the industrial and manufacturing sectors. No segment of the U.S. economy has as much to gain from energy-use reduction as the manufacturing sector, as Figure 1 illustrates. Manufacturers are affected directly by the energy cost of making products (manufacturing), maintaining office operations (commercial), and receiving raw materials and delivering finished goods (transportation).
Energy use and cost information is, however, often decentralized
and hidden from view in overhead or facilities accounts. Explicitly considering
energy use in Lean implementation can reveal these hidden cost-reduction
opportunities. And
these opportunities have proven to be worth uncovering, as many companies
have achieved significant cost savings as a result of energy reductions
from Lean implementation. Reducing energy use and increasing energy efficiency
is a proven strategy for cutting and controlling costs.
Climate Change and Environmental Risk Reduction
The environmental and climate impacts of energy use are rapidly becoming a major issue facing industry and society. Carbon dioxide (CO2), a major greenhouse gas, is emitted to the atmosphere directly when fuels are combusted on-site and indirectly when electricity is consumed (particularly when fossil fuels are used to generate the electricity). Identifying and eliminating energy waste during Lean offers a smart, efficient way to reduce greenhouse gas emissions. As pressures increase for limits on greenhouse gases, documented early action by businesses can reduce business risk and contribute to reduction targets. In the meantime, publicly held businesses are finding that failure to proactively reduce climate risk can result in shareholder resolutions to force action (2).
Lean and Energy Use Reduction: Company Cost Savings Experience (Box 2)
- Eastman Kodak Company (New York) conducted energy kaizen events that significantly reduced energy use and resulted in overall savings of $15 million between 1999 and 2006.
- General Electric (Ohio) achieved cost savings of over $1 million at one facility due to fuel use reductions realized through Lean implementation.
- Howard Plating (Michigan) reduced energy use by 25 percent through a Lean implementation effort.
- Lasco Bathware (Washington) eliminated the need for a shrink-wrap oven when planning for a Lean event, reducing natural gas consumption by 12.6 million cubic feet and saving about $99,000.
- Naugatuck Glass Company (Connecticut) used Lean to cut product lead time and improve quality, while also reducing energy use by 19 percent.
- Steelcase Inc. (California) used Lean to improve operations, reducing fixed utility costs (including energy) by about 90 percent.
Energy use can have significant environmental impacts and risks in addition to climate change. On-site combustion of fuels in boilers, ovens, vehicles, and equipment can emit a variety of regulated pollutants, including carbon monoxide (CO), sulfur dioxide (SO2), nitrogen oxide (NOx), particulate matter (PM), volatile organic compounds (VOCs), and a variety of air toxics. Combustion pollutant emissions can affect worker health, and trigger the need for costly permitting, monitoring, and emission controls. More broadly, reducing air emissions from combustion activities can help protect neighboring communities and public health. Storage and handling of fuels also pose a variety of worker health, safety, and environmental costs and risks, even in the absence of spills. Lean efforts can directly target and mitigate these impacts and risks.
Competitive Advantage
Identifying and eliminating energy waste through Lean can improve a company’s ability to compete in several ways. First, reducing the energy intensity of production activities and support processes directly lowers recurring operating costs with direct bottom line and competitiveness impacts. A recent study by the NAM and the Manufacturers Alliance (MAPI) found that U.S. companies have a 22 percent unit-cost disadvantage compared with overseas competitors in a number of process support cost areas, including energy (3).
Second, eliminating
energy waste and the associated environmental impacts through Lean can
foster competitive advantage for some businesses. Customers and employees
may view proactive environmental improvement efforts as an important attribute,
affecting customer loyalty and the ability to attract and retain employees.
Participation in climate partnership programs, such as EPA’s Climate
Leaders or local climate initiatives, can also provide businesses with public
recognition for their energy use reduction achievements. For businesses that
manufacture appliances, electronics, and other products that consume energy,
Lean design methods can be used to lower the lifetime energy use of products.
It is not surprising that most of the major companies that have received awards
from the EPA and Department of Energy’s ENERGY
STAR Program—companies such as 3M, Eastman Kodak, and Toyota—are
also leaders in implementing Lean and Six Sigma. Energy waste is clearly
on the radar of leading Lean companies. In addition, ENERGY STAR certification
for energy-efficient products is an increasingly important factor in
consumer-purchase decisions. For more information on ENERGY STAR, see www.energystar.gov .
Lean and Energy at Toyota (Box 3)
- Toyota, the model for “Lean” production systems at companies worldwide, is also a leader in energy and environmental performance (4).
- Since 2000, Toyota Motor Manufacturing North America has reduced the average facility energy consumption per vehicle produced by 30 percent, resulting in a corresponding reduction in the CO2 emissions of its facilities.
- In fiscal year 2006, Toyota’s North American facilities reduced energy use per vehicle by 7 percent while increasing production by 4 percent.
- Toyota used methods such as energy treasure hunts and kaizen events to achieve these results (Chapter 3 has more information on these methods).
Lean and Energy: A Powerful Opportunity
This toolkit discusses how Lean can play a powerful role in reducing energy use and costs. In many cases, energy efficiency improvements ride the coattails of Lean. For example, right-sized equipment typically consumes less energy, and inventory reductions reduce demand for floor space that requires lighting, heating, ventilation, and air conditioning. By explicitly considering energy use in Lean efforts, organizations can often identify additional opportunities to save energy.
While the U.S. economy has made substantial improvements in energy efficiency in recent decades, there are significant opportunities for businesses to further improve energy efficiency. From 1975 to 2005, U.S. energy intensity (defined as the primary energy consumption per dollar of real gross domestic product, or GDP) dropped by 46 percent. Several recent studies, however, suggest that energy use could be reduced in the manufacturing and industrial sector by 75 percent at little cost using currently available technologies. Lean can help to identify and address these opportunities.
Strategic Lean and Energy Management
Creating a Roadmap for Lean and Energy Efforts
For a variety
of reasons, your facility may wish to pro-actively manage and reduce
its energy use, while also achieving Lean goals such as improved quality,
reduced waste, and increased customer responsiveness. Energy
management is
a systematic framework for understanding and identifying energy-related improvement
opportunities. Energy management systems can be tailored to suit your
facility’s needs,
business opportunities, market risks, and specific goals and targets.
If you are interested in gaining outside assistance, the ENERGY STAR program
is a resource for manufacturers interested in developing energy management
programs.
An energy management framework can help you coordinate your company’s energy reduction efforts with its Lean efforts. Strategically and systematically integrating energy and Lean improvement efforts will enhance their effectiveness and the value they bring to your company.
Why Be Strategic About Energy Management? (Box 4)
- Find new opportunities to reduce wastes, energy, and costs
- Reduce risks associated with an unreliable supply of energy, variable energy prices, and potential future climate change regulations
- Position your company to be a leader in energy and environmental performance
- Ensure that energy efficiency efforts support other organizational objectives and improvement processes, such as Lean and Six Sigma
Even if your organization decides not to pursue a strategic approach to energy management, there are numerous practical ways to consider energy waste and improvement opportunities during Lean implementation. Chapters 3-5 of this toolkit contain many ideas for doing this.
There are four general steps involved in developing an energy planning and management roadmap appropriate to your organization, as follows (5).
- Initial Assessment: Consider the opportunities, risks, and costs associated with strategic energy management.
- Design Process: Understand your company’s energy needs and how to approach energy management at your company.
- Evaluate Opportunities: Identify and prioritize energy-related improvement opportunities, such as energy-efficiency actions, energy-supply options, and energy-related products and services.
- Implementation: Use a management system such as the ENERGY STAR Guidelines for Energy Management to implement energy opportunities (6).
Each of these steps is important for developing and implementing a strategy for Lean and energy improvements at your organization. Figure 2 presents a roadmap for energy planning and management that identifies potential connections to Lean methods and improvement techniques outlined in this toolkit.
Lean and Energy Management Roadmap (Figure 2)
Source: Adapted from Bennett, Charles J. and Whiting, Meredith Armstrong. Business & Energy in the 21st Century, Navigating Energy Management: A Roadmap for Business. The Conference Board Executive Action Series. No. 160.
Chapters 1 and 2 of this toolkit support steps 1 and 2 of the roadmap, in that they can help your organization understand the relationship of Lean to energy use and the benefits of systematically reducing energy use through Lean. Chapters 3–5 of the toolkit describe how to identify and implement energy savings opportunities in the context of Lean, supporting steps 3 and 4 of the roadmap. These strategies leverage Lean methods such as value stream mapping, kaizen events, total productive maintenance, and standard work to improve energy and operational performance, while also incorporating energy assessment and reduction tools that can enhance Lean implementation.
Lean and energy management can work together to increase profit, enhance productivity, and decrease energy consumption through sustained and continual improvements. This toolkit is designed to help your facility achieve these goals.
To Consider
- How well coordinated are Lean activities and energy-efficiency efforts at your organization?
- Who makes decisions involving energy use at your facility or company?
- How are energy costs allocated at your company? Are costs billed to overhead accounts or are they assigned to individual departments or value streams?
- How could your company benefit from improved Lean and energy management?
Footnotes
1. National Association of Manufacturers (NAM), Energy Efficiency, Water and Waste-Reduction Guidebook for Manufacturers: Proven Ways to Reduce Your Costs and Improve Operations, (viewed September 2007), p. 5.
2. See the Investor Network on Climate Risk (www.incr.com) for current information on investor and shareholder initiatives related to climate change.
3. National Association of Manufacturers (NAM), Energy Efficiency, Water and Waste-Reduction Guidebook for Manufacturers: Proven Ways to Reduce Your Costs and Improve Operations, (viewed September 2007), p. 5.
4. Information in this box is from: Toyota North America, 2006 Environmental Report, November 2006, p. 26, available at www.toyota.com/about/environment/news/enviroreport.html.
5. Bennett, Charles J. and Whiting, Meredith Armstrong. “Business & Energy in the 21st Century, Navigating Energy Management: A Roadmap for Business.” The Conference Board Executive Action Series. No. 160. September 2005.
6. The ENERGY STAR Guidelines for Energy Management are available at: www.energystar.gov/index.cfm?c=guidelines.guidelines_index.
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