Presentation on theme: "Efficiency Performance Contracting A Market-Based Approach to P2 Thomas J. Bierma, MBA, Ph.D., Illinois State University Illinois State Universitywww.ilstu.edu/~tbierma/sme.htm."— Presentation transcript:
Efficiency Performance Contracting A Market-Based Approach to P2 Thomas J. Bierma, MBA, Ph.D., Illinois State University Illinois State Universitywww.ilstu.edu/~tbierma/sme.htm iSU
Alternate title How to sell your untapped P2 opportunities to your suppliers! Thomas J. Bierma, MBA, Ph.D., Illinois State University Illinois State Universitywww.ilstu.edu/~tbierma/sme.htm iSU
Research since 1995 Overcoming barriers to implementing P2 technologies… through innovative, market-based approaches. Funded by the Illinois Waste Management and Research Center and the U.S. Environmental Protection Agency iSU
Question… iSU In many companies and other organizations, there are opportunities to improve energy and materials efficiency with a payback of under 3 years and an ROI exceeding 25%. Yet these opportunities go untapped year after year… Why?
Examples iSU An office building continues to use inefficient lighting… A manufacturing plant continues to dump its metalworking fluids monthly… An aerospace firm continues to loose 20% of its chemical inventory due to shelf-life…
A Major Cause… iSU Core Competence Core Business “The key skills or knowledge needed to build and maintain a competitive edge.” (Quinn 1994).
A Major Cause… iSU The expertise needed to tap many P2 opportunities is outside the core business of the company.
A Major Cause… iSU Resources needed to develop the P2 expertise must be diverted from core business activities. It just doesn’t get done.
Typical outcomes… iSU lack the time or internal expertise doesn’t help “get product out the door” “important but not critical” can’t get capital funding can’t get management attention
A Second Question… If 25%+ ROI investment opportunities exist, isn’t there a market for these investments somewhere? iSU
A Third Question… Who already has the core competence to take advantage of these investment opportunities? iSU
One answer… Suppliers! iSU
The Problem… Implementing P2 will usually reduce purchases from suppliers, so why would suppliers invest? iSU
One answer… Incentives! Create incentives that share the ROI, so suppliers make more $ from investing in P2 than from ignoring P2. iSU
Can it work? Absolutely! Under the right conditions… iSU
Chemical Management Services (CMS) iSU
Traditional Chemical Supply Sales (revenue) Chemicals Supplied (costs) PROFIT! Increasing Chemical Volume $ iSU
Fixed fee (revenue) Chemicals supplied (costs) PROFIT! $ Increasing Chemical Volume Chemical Management Services (CMS) iSU
Chemical Management Services (CMS) iSU Common features: User no longer "buys" the chemicals. Supplier receives a fixed fee in exchange for chemical performance. Supplier provides on-site chemical management, including comprehensive logistic, EHS/compliance, and chemical application services. One supplier serves as a primary, or “Tier 1," chemical manager, overseeing the supply of chemicals from “Tier 2” suppliers.
Engine production, coolant usage, and coolant waste haulage, Navistar, Plus 93% reduction in engine head and block rework
Coolant Usage, GM-EMD,
Chemical Management Services (CMS) iSU Common benefits: 20-40% reduction in chemical volume and costs in first three years. Improved chemical tracking and management. Improved EHS compliance Reduced downtime Improved product quality
It has worked for large accounts… without a doubt! GM EMD (LaGrange) and D.A. Stuart GM Truck and Bus (Janesville) and BetzDearborn Navistar (Melrose Pk.) and Castrol Ford (Chicago) and PPG/Chemfil Chrysler (Belvidere) and PPG/Chemfil GKN Aerospace (St. Louis) and AVChem Harley Davidson (Milwaukee.) and Henkel United Technologies Corp. and Haas TCM Mercury Marine (Fon du Lac) and Castrol iSU
Energy Savings Performance Contract (EPSC) iSU
ESPC iSU Common features: Energy Service Company (ESCO) pays for energy improvements (HVAC, lighting, boilers, etc.) ESCO receives energy savings for a set period of time. Customer receives energy savings thereafter.
It works for large, non-profit accounts… without a doubt! Federal facilities Federal facilities State and municipal facilities State and municipal facilities Schools Schools Universities Universities Hospitals Hospitals iSU
Washington State Government
Today’s Challenges iSU 1.Can CMS be modified to work in SMEs? 2.Can ESPC be modified to work in manufacturing? 3.Can the success of CMS and ESPC be extended to other types of materials and products?
Efficiency Performance Contracting A generalized approach to “selling” untapped P2 opportunities to your suppliers. iSU
Our Current Research with Dan Marsch of WRMC Efficiency Performance Contracting in SME metalworking facilities in SME metalworking facilities iSU
Alternatives for smaller manufacturing plants Start with the biggest spends: iSU
Typical Spend in Key Non-Core Areas
Tooling Management (“integrated supply”) Tier 1 tooling supplier. Tooling purchases, QC, delivery, inventory, POU distribution. Performance targets for savings, stock outs, product quality, etc. No tool switching without plant sign-off. Savings in price, administration, usage – with most in usage. iSU
HNAI and DCT 40% tooling cost reduction in first two years. Primarily from process improvement. Dramatically improved tool tracking and data analysis. Oversee 40+ tooling suppliers. iSU
Haldex and ETCO Constant $/standard machine hour tooling & MRO in last 5 years despite 16% increase in productivity. Over $200,000 per year savings Most from process improvement. iSU
Next steps Extend tooling management to metalworking fluids. Possibly energy – motors and lighting. iSU
Typical Spend in Key Non-Core Areas
Energy Management? Can a lease-to-own arrangement work? – Example… Replace HID lighting with fluorescent $200k to install, $50k in annual savings Researched, contracted, financed by supplier 5-Yr Lease-to-own at $40k/yr iSU
Energy Management? Integrate opportunities for energy savings into overall package Electricity – lighting, motors, air compressors, HVAC, building shell. Natural Gas – ovens, washers, pretreatment Heat recovery – water heating, distillation, etc. Lease to own – payments less than savings. iSU
Paint Management? Modeled on tooling management Tier 1 tooling supplier. Paint purchases, QC, delivery, inventory – but also paint process improvement. Performance targets for savings, stock outs, product quality, etc. No product switching without plant sign-off. No pilot programs yet. iSU
Typical Spend in Key Non-Core Areas
Growth to chemicals and energy Pretreatment chemicals – help optimize painting process Oven efficiency – heat retention, waste heat recovery, process control. Evolve to other energy opportunities. iSU
Efficiency Performance Contracting Selling untapped P2 investments to your suppliers. We are looking for more pilot projects. Sound interesting? iSU
Contacts Tom Bierma, Illinois State University 309/ Dan Marsch, Illinois WRMC 309/ ext. 202 iSU