Purchasing and Negotiation Training

Robert Menard, Certified Purchasing Professional, Certified Professional Purchasing Consultant

Editor’s note: This is Part II of an eight part series on Sustainability in procurement. It deals with the basics of (electrical) energy consumption and conservation, perhaps the most fundamental of Sustainability topics. 

In concert with the American Purchasing Society, I am developing a green procurement course that will have far more extensive material available in online, print, and portable digital media.  We will update quarterly so companies can build on successes.  We will offer discounts to those who sign up early so send me an email stating your interest and I’ll respond with particulars.

Some electrical energy generating companies promote themselves as green energy alternatives.  Their web sites herald their reduction in fossil fuels, emissions, or use of renewable fuel sources.  In virtually every case, the customer must pay a surcharge on the price for this “green” energy.  If the goal is to feel good about being green by throwing money at the problem, buy your power from these companies.  You will consume the same amount of energy, pay more for it, but contribute to a good citizenship cause.  Nothing is wrong with that approach if your goals do not include saving money.

If on the other hand, you are interested in a much more direct and significant impact on the environment and your bank balance, begin by reducing the amount of energy consumed using some basic and time tested measures. 

Much of energy conservation science is not new but is not well understood.  You don’t need a degree in engineering; just meeting with your energy provider can yield substantial savings.  These measures reached prominence during the energy crisis of the 70s and are as applicable today.  Due to the higher costs of energy today, they save even more money. 

The Lucky 7

 1—–Metering 

Discuss with your energy provider how you are metered and charged.  They can help to find the best alternative for the same consumption.  It is counter intuitive but true that the energy provider wants to reduce your energy consumption.  They can then serve more customers with the same generating capacity and avoid the huge “stranded” costs of new generation facilities. 

2—–Demand 

Demand occurs when usage spikes up such as on very hot days, when homes demand energy in the evening as occupants, or when industry powers up. The surcharge for demand on the grid is intended as a penalty by the producer to discourage usage during peak times.  Develop a plan to shift high demand to off peak hours if possible, such as the case in manufacturing,  

3—–Soft starts

Large electric motors incur usage spikes in (potentially affecting consumption as well as demand) as motors ramp up from a dead cold start.  Since power is the product of voltage and amperage (see below), these devices overcome the inertia of the ‘lock rotor current” and reduce the power drain.  Investigate “soft starts” or frequency inverters to ramp up the start of motors.  You must also be wary of increasing “harmonics” back fed to the grid but the power company should be able to suggest measures to help. 

4—–Lighting 

There are many low cost options to explore.  High voltage fluorescent fixtures (477v/4 conductor) and compact fluorescent fixtures use far less power.  In general, use the highest voltage possible to reduce heat loss.  The waste heat alone from incandescent lighting can raise cooling costs from 15% to 35%.  Furthermore, compact fluorescents last an average of 10 times longer.  A re-lamping program can make a substantial dent in energy consumption and costs savings. 

5—–Heat and waste loss   

Low voltage power, transformers, and lighting drives up consumption and increases cooling costs.  Most power companies provide free or minimal cost consulting to help in these areas of low hanging fruit.  Generally, 1 W of air-conditioning power can be saved for every 3W of lighting energy saved.  Incandescent lighting in particular generates great heat loss. 

6—–Energy audit     

If your facility is more than 30 years old, consider an energy audit, perhaps with a firm that takes a share of the savings.  They will examine everything from insulation, to harmonics in your electric system.  For the engineering types, you might be surprised to see the incredible waste that a one line diagram will reveal just because this process was not managed over so many years. 

7—–Rebates

Rebate programs come and go but the growth in sustainability initiatives bodes well for energy consumers.  Well designed energy savings and reduction programs can earn very substantial rebates from energy companies who prefer to serve more customers with existing capacity than to invest huge amounts in new plant and equipment.

Read about How Green Purchasing is Valuable to the Purchasing Profession

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Click here for online or CD/print media versions of "Green Purchasing" course

Toyota as a shining example

We said in Part 1 that Sustainability comes at purchasing from a variety of angles.  This legendary supply chain coup explained below is the quintessential example of how a cost savings initiative generated spawned green procurement results. 

The world famous example of Toyota and its Just in Time (JIT) concept perfected during the 80s offers a jewel of an example of how green procurement and cost savings work in tandem.  On its face JIT was a novel concept that moved away from storage of production parts in warehouses and distribution centers in favor of a pull inventory strategy with kan bans.   In simplified form, kan bans are two bins collocated on the production floor.  When one bin is emptied, the second bin is pulled forward (called a “pull system”), signaling a reorder to replenish the empty bin.  

Toyota leveraged JIT far beyond its cycle time reduction roots.  It required suppliers to conduct all quality qssurance and inspection so that all goods delivered to the receiving docks were immediately transported to the production line kan bans, bypassing any inspection or testing.   

By propagating this process throughout the supply chain, Toyota was able to eliminate close 2 million square feet of warehouse and distribution space across the globe.  The savings have long been recognized as reductions in construction, maintenance, operations, and labor cost. 

When viewed through the green lens, Toyota also eliminated enormous energy costs and associated carbon foot prints.  The huge energy costs of heating, cooling, and lighting were totally eliminated and these savings have been compounded year over year. 

It is quite clear, therefore, that cost savings equal green, in a figurative as well as literal way.  The procurement profession can annex part of the sustainability philosophy and include them in our costs savings because they are real, whether achieved via any agenda. 

We need not be as far up the curve as Toyota to harvest cost savings.  The moral of the story is that procurement has every reason to and zero reason not to invest in green initiatives.  

Toyota has progressed far up the Green path.  This link leads to their landing page on Sustainability.  Toyota differentiates green procurement for direct spend for manufacturing parts from green purchasing for indirect spend.

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Eliminating the mystery shrouding electrical energy 

We can’t see electricity so we don’t understand it, even though we use it every day.  Here is some basic information that will de-mystify electricity.  The discussion has been simplified but the underlying principles are unaffected. 

Ohm’s Law               E = IR, where E is voltage, I is current, and R is resistance.  

This law is the basis of electricity for engineers and physicists.  To understand it, compare an electrical system to a close equivalent, a water system.  

• Voltage (Electromotive force) is equivalent to the pressure driving the water
• Amperage (current or electron flow) is equivalent to the flow of the water
• Resistance in a water system is provided by pipe size and material versus conductor size and material in an electrical system 

Energy          the product of Power multiplied by Time                thus kilowatt hours (KWh) is a measure of energy and the usual basis of consumption used for billing

 Power            for electricity a common measure is voltage multiplied by amperage with the product expressed as wattage or Watts.  Applying Ohm’s law, a 120 W light bulb attached to a 120 volt (house) circuit draws 1 amp.