Tuesday, May 01, 2007

About Energy Audits: An Open Letter to Procurement Directors

Dear Director:

You, better than anyone else in your organization, know how energy costs have become higher and more volatile. If you are in a jurisdiction with deregulated power utilities, you know the extra burden that comes with choosing energy providers. Most of your peers have adopted portfolio management strategies for buying energy in today’s volatile energy markets.

But after a few years of utility deregulation, your peers are finding that there’s more to energy costs than “price.” Facility managers everywhere are examining the quantity of energy they consume. Many are changing way they use their current energy-using assets. Behavioral and procedural changes are underwriting the cost of new, energy-efficient hardware.

How do they do it? The process starts with an energy audit. Think of an energy audit as a thorough, facility-wide investigation of energy inputs, uses, and losses. At the very least, an energy audit itemizes improvement recommendations by describing the cost, savings, and payback attributable to each. An energy audit is a roadmap to potential savings. You can't manage what you don't measure.

Very often, the task of securing an energy audit falls on the shoulders of procurement directors like yourself. Good procurement directors always negotiate the best possible price for their purchases. You can do this with energy audits, too, if you assume that an energy audit is a commodity… in other words, you must believe that all audits are the same, regardless of the skill and experience of the audit team, the amount of time put into the effort, and the degree that the audit team collaborates with site staff.

So here’s the take-away message about an energy audit: Don’t look at it only as a cost. If you do, you can certainly save money by not securing the audit in the first place. This is a very high risk strategy, because each dollar saved by avoiding an energy audit can cost many more dollars in energy waste.

Is an energy audit crucial to business competitiveness? It depends: you don’t need it if you (1) can always pass all your costs on to your customers, (2) can always boost your sales to make up for smaller profit margins, and (3) are immune to regulatory compliance and scrutiny from shareholders, and employees. Then there’s retailers like Wal-Mart, who that insist that you reduce your production costs. Remember that those retailers have sharp procurement directors, too.



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