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Executive Summary... Section : Mega-Trends Drive the Need for Energy Intelligence... Section : Individual Company Responses... 9 Section : Market Drivers for Energy Management... Section : Challenges with Energy Management... 8 Section : Strategies for a Successful Energy Intelligence Solution... Section : Actionable Recommendations... 8 lnsresearch.com
Executive Summary
Executive Summary PAGE The need for a comprehensive management system for energy has never been greater. While the majority of industrial companies are focused on enabling financial growth, many are faced with the reality that growth can only happen if operations are efficient and harmonized with sustainability initiatives. However, a large percentage of firms are still challenged by a lack of visibility into key performance indicators (KPIs) and a legacy manufacturing IT environment that has a variety of disparate systems and data sources that do not effectively communicate with one another. To address these challenges, companies are beginning to invest in Energy Intelligence software by building upon existing and planned manufacturing operations management (MOM) software and automation investments. These MOM and automation investments typically span the enterprise s physical footprint; found in areas such as utilities, manufacturing, distribution, warehousing, and corporate offices. Unfortunately, these existing investments often do not collect and manage energy data in the context of operations. These existing systems also often fail to cover the last mile; much of the needed data is being collected but the software is not yet in place to help drive better decision making for energy and operations. Leading companies that have deployed Energy Intelligence software are able to understand energy s role in operations across procurement and production. These companies are also better able to make buy/produce decisions for energy and operations as well as for energy efficiency projects. All of these decisions depend on the right energy management processes and leadership capabilities, in conjunction with the right supporting technologies, which LNS Research defines as Energy Intelligence Software: data collection, visualization software, and analytical tools. In today s big data world, companies struggle to find the intelligence needed for making strategic decisions at the speed of business and manufacturing. The data is there in many cases, but its sources are often too distributed and disconnected to provide actionable and consumable information. The lack of a cohesive strategy around key resources prevents the ability for data to reach its full potential. In this ebook, LNS Research will help to provide a roadmap for industrial organizations aiming to turn big data into operational insights with Energy Intelligence Software.
Mega-Trends Drive the Need for Energy Intelligence
World Industrial Sector Energy Consumption PAGE Liquids. 8.8 World Industrial Sector Energy Consumption by fuel, Natural gas Coal.0 008 9. 0 9.8 7. 008 and 0 (quadrillion Btu) Electricity 7.9. Renewables Total.. 9. 88. 0 0 00 0 00 0 00 As the world economy continues to grow and evolve, the enterprise visibility provided by Energy Intelligence Software will become increasingly vital to operational success. According to the U.S. Energy Information Administration s (EIA) latest report, The International Energy Outlook 0, world-wide energy consumption will increase over 0% by 0. To be released in the spring of 0, the updated version of this report is expected to reiterate the same projections. The chart shown visualizes several of these projections for various resources. More information as well as the upcoming report can be found on the EIA s website. 0% Increase in world-wide energy consumption by 0
PAGE 7 Projected World Population Growth to 00 The business case for improved energy management in the industrial space has never been stronger. At the macroeconomic level, the world continues to move toward cleaner and cheaper sources of energy. Correspondingly, the overall consumption of energy in the industrial space is continuing to grow at a rate that business executives cannot ignore. 0 billion people Estimate of world population growth by 00 Much of the growth in energy consumption will be driven by an increase in population and the coinciding GDP expansion. By 00, many estimates of population growth have world population approaching 0 billion people. The industrial sector is projected to grow accordingly. As consequence, these mega-trends around population and energy consumption growth are already being 8.0 7.0.0.0.0.0.0.0 0.0 9.0 8.0 7.0.0.0.0.0.0.0 0.0 accounted for by the world s leading companies on both the production and consumption sides of energy. 9.0 8.0 7.0.0.0.0.0.0.0 0.0 90 90 970 Constant fertility variant High fertility variant Medium fertility variant Instant replacement fertility variant Low fertility variant 980 990 Projected World Population Growth to 00 000 00 Estimated and projected world population according to different variants, 90-00 00 00 00 00 00 070 080 090 00 ExxonMobil s The Outlook for Energy: A view to 00 puts the impact of population growth on the industrial sector into perspective. It says: Energy demand in developing nations (Non-OECD) will rise % by 00 compared to 00, reflecting growing prosperity and expanding economies. Overall, global energy demand will grow %, even with significant efficiency gains, as the world s population expands from about 7 billion people today to nearly 9 billion people by 00, led by growth in Africa and India.
Energy Intensity and Potential for Improvement by Industry PAGE 8 INDUSTRY ENERGY INTENSITY Energy Cost as Percentage of Total Product Cost IMPROVEMENT POTENTIAL OECD Countries IMPROVEMENT POTENTIAL Non-OECD Countries Chemical and Petrol Chemical Petroleum Refining Non-Ferrous Metals Iron and Steel Cement 0%-8% 0%-0% 0%-0% 0%-0% %-0% 9%-% 0%-% %-% 0% 0% %-0% 0%-% %-0% 0% % Glass Pulp and Paper Textile Food and Beverage 7%-0% %-% %-% -0% 0%-% % 0% % 0% 0% 0% 0% Automotive -0% 0%-% %-0% inefficiencies, non-oecd countries generally have more opportunity for energy-related savings. However, in some cases, as we ve seen in the process industries, due to recent infrastructural investments there is actually more opportunity for future energy savings in the developed world. The expected growth in population, GDP, and energy consumption will not impact all regions or industries in the same way. However, as with any change that impacts the competitive environment, it will provide business opportunities for many companies. According to the Global Industrial Energy Efficiency Benchmarking Report published by the United Nations Industrial Development Organization, %-0% Potential improvement in energy based cost savings those industries that are most energy-intensive will have the greatest opportunity for cost savings. Energy-intensive industries that fit this category may include almost all of the process industries, the food and beverages industry, and the automotive industry. Additionally, because of existing
Individual Company Responses
Individual Company Responses PAGE 0 Global population growth, along with the growing demand for businesses to take more accountability with energy-related decisions is prompting leading organizations to publicly and proactively target energy projects. As you will see in the following section, some of the world s largest companies have both boasted past successes in energy performance and highlighted future goals. In the coming years, it is likely that Energy Intelligence Software will be a key component for measuring progress toward these goals. Since 008, our manufacturing eco-efficiency program has Unilever Over 00 million in Costs Avoided used a number of cost-effective investments to reduce our energy, water and waste. Initiatives range from encouraging people to adopt small actions that make a big difference cumulatively, such as ensuring lights are turned off, to larger investments such as biomass boilers. We have reduced our environmental footprint while avoiding cumulative supply chain costs of over 00 million: Water - 7 million Waste disposal - 0 million Energy - 99 million Materials - 8 million Unilever: Over 00 million in costs avoided
General Mills PAGE Committed to 0% Reduction in Energy Consumption by 0 General Mills: 0% reduction in energy consumption by 0 During 0, we used. billion kwh of energy in our wholly owned production facilities, 7.0% less than in 0. During this time, we used kwh per metric ton of product, a decrease of.7% over 0. These decreases were primarily due to a continual focus on energy conservation and developing processes around energy management. Main sources of energy included natural gas (% of the total) and electricity (% of the total). We remain committed to meeting our goal of a 0% reduction by 0, using 00 as our baseline year.
Ford PAGE % Reduction in Energy per Vehicle by 0 We are committed to reduce our facility CO emissions by 0% from 00 to 0 on a per-vehicle basis and average energy consumed per vehicle by % from 0 to 0 globally. Efforts to improve the energy efficiency of Ford s plant operations include: Aggressively curtailing energy use during nonproduction periods Updating facility lighting systems by replacing inefficient high-intensity discharge fixtures with up-to-date fluorescent lights and control systems Installing automated control systems on plant powerhouses and wastewater treatment equipment to increase energy and process efficiency Ford: % reduction in energy per vehicle by 0
GM PAGE Reduce energy intensity from facilities by 0%. Committed to Manufacturing Efficiency We have a strong tradition of environmental stewardship at our facilities around the world. We continually assess the impact of our operations with the goal of continuous improvement, and we are proud of the progress that our facilities have made to date. Earlier this year, we committed to a new set of resource conservation and environmental stewardship initiatives over the next decade. Promote global renewable energy use to utilize MW of renewable energy by 00. Reduce carbon intensity from facilities by 0%. Reduce VOC emissions from assembly painting operations by 0%. Protect water quality and reduce water intensity by %. Reduce total waste from facilities by 0%. Promote landfill-free facilities to achieve 00 landfill-free manufacturing sites and nonmanufacturing sites. Promote and engage community outreach on environmental and energy issues by completing one outreach activity per plant on an annual basis. Improve wildlife habitats by having a Wildlife Habitat Certification (or equivalent) at each GM manufacturing site where feasible by 00. GM: Reduce energy intensity from facilities by 0%
Market Drivers for Energy Management
Research Demographics for Industrial Energy Management Survey PAGE.0% Color by Company Revenue.%.% Large: $BB ++ Medium: $0MM - Small: $0 - $0M 8.%.8%.% Color by Industry Discrete Man F&B / CPG Life Sciences.%.%.% Color by HQ Location Asia Europe Middle East / Africa North America 0.8% Process Man As shown in the previous section, many of the global trends regarding energy consumption and sustainability are reflected in individual companies goals and initiatives. There are, however, in some cases inherent conflicts in current strategies and capabilities that may prevent the execution of these goals. To obtain a better understanding of which areas companies are focusing on and having challenges with, LNS Research recently surveyed over 00 executives. The survey is currently available for executives to take through 0, and can be found here. The pie charts above provide background information on these executives. Each was asked to fill in basic demographic data. As shown, the results depict a diverse set of respondents. Nearly % are from the discrete manufacturing industry, 8% from life sciences, 7% from process manufacturing, and % from F&B. Nearly 80% of the executive surveyed were from the SMB space, with % from companies with revenue greater than $ billion. Geographically, there was a close split between North America and Europe, with % and % of respondents, respectively.
Top Financial Objectives PAGE 8% % % % Expand into global markets Cut costs Improve return on assets Grow operating margins % Grow revenue % of executives state that growing revenue is their top financial objective 0% 0% 0% 0% 0% 0% = Percentage of Respondents The survey asks executives what their most pressing financial objective is for 0. For this question, they are only able to choose one answer. A majority of executives, %, state that growing revenue is their top financial objective. This is clearly impacted by the macroeconomic trends discussed in previous sections. Executive leaders realize that if their company is not growing faster than the market itself, it will lose its competitive edge, which will be a major challenge to regain.
Top Objectives for Sustainability Top Objectives for Energy Management PAGE 7 Reduce the total cost of operations % Reduce the total cost of operations 8% Reduce energy consumption Reduce carbon emissions Improve environment, health, and safety performance Meet consumer demands for sustainable products Better communicate performance to board of directors and financial markets Ensure regulatory compliance 9% 7% 7% % % % = Percentage of Respondents Align energy and operations with corporate sustainability objectives Meet consumer demands for sustainable products Ensure regulatory compliance Reduce carbon emissions Better communicate performance to stakeholders Better manage energy supply risk Reduce water use 7% 7% % % % % % = Percentage of Respondents 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% For this question, executives are asked what their top objective for sustainability is in 0. % of executives say that reducing the total cost of operations is their top sustainability objective for 0, with % choosing reducing energy consumption. Interestingly, when it comes to sustainability and energy management, executives are not necessarily tying these initiatives to financial growth. Rather, companies are moving to align sustainability with either improvements in profitability or reductions in total energy use. When asked specifically about energy management objectives, executives again are most likely to focus resources and attention on improving profitability. 8% say their top 0 energy management objective is reducing the total cost of operations. Less than half but the second-most chosen response, slightly over 0% of companies are also trying to understand how to align what is happening broadly with sustainability to the realm of energy management.
Challenges with Energy Management
Top Energy Management Challenges PAGE 9 Energy metrics are not effectively measured 9% Disparate systems and data sources Lack of culture supporting energy management Lack of visibility into performance No formal process for continuous improvement Lack of executive support Lack of collaboration across different departments No formal process for managing risk Difficulty integrating with the grid % % 7% % % % % 8% = Percentage of Respondents 9% of respondents list energy metrics as top challenge % of respondents list disparate systems and data sources as top challenge 0% % 0% % 0% % 0% % 0% % For many, it may come as a surprise that companies are not more concerned with issues that are traditionally associated with sustainability, such as carbon reductions or water usage reductions. Rather, there is considerable focus and concern on reducing operational costs. As a follow-up to the top objectives question, executives are asked what their top challenges are in achieving those objectives. For this question, respondents are limited to three answers. When it comes to reaching these goals and objectives, companies face a variety of challenges, which can be seen on the Y-axis of the chart. While the response rates for these questions were more diverse than the objectives questions, what stands out are the top two challenges, energy metrics are not effectively measured (9%) and disparate systems and data sources (%). These stand out because they are both technology-related challenges. Most other challenges reported were cultural, leadership, and process-oriented.
Drilling Down on the Challenge of Measuring Energy Metrics PAGE 0 Within a single division or business unit, it is typical for there to be multiple instances and types of purpose-built applications designed for a specific set of functionalities. Because these are often implemented in piecemeal without considering the long-term strategic vision of the enterprise s IT architecture, many companies today have hundreds of these disparate applications across the value chain. This goes hand in hand with the challenges of measuring metrics and having too many disparate systems and data sources. This graphic shows a simplified version of the various nodes of energy consumption and production across the enterprise and energy metrics that may be measured across them. As you can imagine, having hundreds of point solutions from design through service that do not communicate with one another makes it seem nearly impossible to realize measurable improvements toward the strategic objectives previously noted. Unfortunately, many companies have not taken an enterprise approach to technology decisions and are in this situation today. DESIGN MANUFACTURE DELIVER SERVICE PROCURE MAINTAIN SELL Energy Efficiency of Products Supplier Energy Intensity Operations Energy Intensity Supply Chain Energy Intensity Energy Efficiency of Assets Energy Metrics across the Value Chain
Drilling Down on the Challenge of Disparate Systems in Manufacturing PAGE This graphic dives deeper into the manufacturing environment, showing traditional database-centric architectural approaches to manufacturing operations management (MOM). Within this approach to MOM alone, from the industrial automation layer to the enterprise applications layer, there are hundreds of opportunities for solutions to be implemented for specific tasks and processes, such as scheduling, training, purchasing, quality, and reporting. Again, these solutions are commonly and inadvertently implemented without the intention of enabling data sharing between them. Energy Intelligence Software applications fill these traditional gaps in systems and data sources. Rather than implement an entire new portfolio of software solutions, Energy Intelligence software needs to be built on top of existing MOM and automation technologies.
Strategies for a Successful Energy Intelligence Solution
PAGE Industrial Energy Management Software Energy Intelligence software delivers companies the ability to collect energy data as well as production data across the enterprise and deliver this data to role-based decision makers in real time and with analytics. However, to understand where Energy Intelligence software fits within the overall landscape of energy related software, it is important to have an understanding of the entire Industrial Energy Management (IEM) landscape. LNS Research defines three distinct areas of IEM software, each of which is interrelated and can be used in conjunction with one another. These include procurement, use, and reporting. Effective energy management requires that executives and leaders have a grasp of how energy and data flow from billing and procurement through production, which can be facilitated by the IEM software model. When it comes to Energy Intelligence specifically, it requires a strong connection between use, reporting, and other data so people can use drill down analytics that enable the ability to make timely production and energy-related decisions. Energy Intelligence software marries energy and production data, providing people with the capability to view energy use by process or product and even allocate energy costs to the bill of materials. Market leaders have already invested in these capabilities and are rolling them out across the enterprise.
PAGE Leveraging Energy Intelligence software to make measurable improvements in energy and sustainability-related KPIs requires more than simply an investment. It should be an organizational issue that aligns and then optimizes key resources people, processes, and technology in support of the implementation. Without the proper alignment of these key resources, many organizations are often left with a costly investment that never reaches its potential ROI. The following sections intend to discuss the roles of people, processes, and technology more in depth. People Above all, executive backing is required to support and be the foundation of this initiative. All too often, initiatives such as energy management or quality management lose momentum because support from senior leadership is either lacking or tapers off over time. This backing will act as a catalyst for building an energy-focused culture and an effective Energy Intelligence implementation. Those responsible for making energy-related decisions have to understand the consequences as well as benefits of their actions in relation to KPIs. Executive backing is required to support and be the foundation of energy management initiatives Our goal is to create an exciting, viable, profitably growing company for the good of all of us. We re continuing to do that by making a full family of bestin-class vehicles, in terms of quality, and fuel efficiency, and safety and really smart design like SYNC and MyFord and of course the very best value by using our scale worldwide. Alan R. Mulally, Ford President and Chief Executive Officer
Guidelines for Energy Management PAGE Energy Star Guidelines for Energy Management EPA offers a proven strategy for superior energy management with tools and resources to help each step of the way. Based on the successful practices of ENERGY STAR partners, these guidelines for energy management can assist your organization in improving its energy and financial performance while distinguishing your organization as an environmental leader. THE STEPS: STEP : Make Commitment STEP : Assess Performance STEP : Set Goals STEP : Create Action Plan STEP : Implement Action Plan STEP : Evaluate Progress STEP 7: Recognize Achievements Processes Fortunately, a significant amount of progress has already been made in the area of energy management processes and continuous improvement programs. These programs, which include ENERGY STAR, ISO 000, and SEP among others, provide many companies with best practices built on methodologies such as Plan-Do-Check- Act. Such programs have become integral to many operations, delivering a needed set of standards that can be adopted across the enterprise for taking on an energy management initiative. Programs like ENERGY STAR, ISO 000, and SEP provide companies with best practices built on methodologies such as Plan-Do-Check-Act
PAGE Technology The once distant future of manufacturing software is quickly approaching, with a number of vendors heavily investing in modern, services-based software platforms. Highly modular and reducing duplicative functionalities across the MOM application portfolio, these platforms incorporate open standards-based integration and collaboration capabilities at their core. Having a common services approach for all MOM applications to integrate to Enterprise/Business and Industrial Automation applications greatly eases data and workflow integration across all domains in a manufacturing enterprise. Many leading organizations are taking this next generation approach to manufacturing software, using it as a standardized foundation for deploying and leveraging Energy Intelligence solutions. This platform contrasts traditional, monolithic database-centric architectures that are often the source of significant hurdles in delivering consumable energy data to decision makers. Utilizing a common information management system for energy data will be critical to overcoming the two main challenges listed previously, effectively measuring KPIs and disparate data sources. With Energy Intelligence software executives and shop floor decision makers have the ability to utilize role-based KPIs and even drill-down analytics to identify areas for improvement within specific KPIs
PAGE 7 Undoubtedly, there is a disconnect across many enterprises when it comes to the diversity of data sources, energy and MOM applications, and best practices for measuring energy and sustainability KPIs. In many ways, this disconnect is simply a result of the growing complexities of manufacturing and industrial operations. However, advancements in technology around Energy Intelligence are enabling organizations to turn this disconnect into operational insights that will be key for retaining and improving a competitive edge over time. This graphic visualizes the complexities of enterprise data sources and applications from utilities to manufacturing, distribution and warehousing, and corporate offices. Energy Intelligence software standardizes these data sources often with cloud-based technologies, delivering consumable and actionable information to the metrics dashboard. With this solution, executives and decision makers down to the shop floor have the ability to utilize role-based KPIs and even drill-down analytics to identify areas for improvement within those specific KPIs. The use of role-based KPIs and drill-down analytics is a vital component for energy efficiency projects. Without the standardized data delivered by Energy Intelligence software, efforts and even strategies for achieving progress toward energy efficiency projects can be too divided to ever deliver real value. With the use of business intelligence (BI) tools, standardized data can be dissected at a very granular level to not only measure progress toward energy efficiency projects, but to quickly assess and make changes to current strategies at the speed of business and manufacturing.
Actionable Recommendations
PAGE 9 While more environmentally-conscious decisions will be expected by stakeholders over time, the operational and financial benefits of Energy Intelligence software warrant enough evidence to take action now. Tips for aligning people with energy initiatives: Instill a culture of energy management that starts with senior leadership Appoint site-level energy leaders responsible for performance Create an internal marketing program to support the initiative Put energy metrics on meeting agendas for all levels of management Develop cross-functional teams for improvement and education Offer incentives for performance improvements in energy metrics Authors: Matthew Littlefield President and Principal Analyst matthew.littlefield@lnsresearch.com Mike Roberts Research Associate mike.roberts@lnsreseach.com Connect: lnsresearch.com Additional Technology Recommendations Energy Intelligence applications need to build on existing IT and automation investments Leverage existing next generation investments and roadmaps in MOM if available Ensure both energy and production data is collected with sufficient granularity to provide the analytical capabilities for measuring energy intensity of specific products and assets Focus on KPI visibility and the connection between energy consumption and production performance to drive a quick ROI Presented by: LNS Research, 0. All Rights Reserved.