Managing the perfect storm
Manufacturers across Canada are publicly expressing concern about the challenges affecting them today. Their ability to remain a vibrant part of Canada’s business community is constantly being tested. Some are struggling, and several have departed. Many are succeeding, but all are facing challenges. Some are working together to find solutions as well.
April 24, 2008 By Rob Colman
The rising cost of energy, along with the record-setting rise in the Canadian dollar and the low cost of manufacturing in China, Asia generally, and Eastern Europe, have compounded to create a perfect storm that manufacturers must weather to survive.
The key is finding the eye of the storm.
Many are not fully aware of the options — and opportunities — that small, medium and large-sized manufacturers have available to them, so they are facing the storm without the necessary economic or industry ‘umbrella.’
In the raging battle between the energy meter, the loonie and the bottom line, there is a group of forward-thinking manufacturers that have embraced a unique approach to improving their businesses. They have engaged a group strategy to help them achieve competitive advantage and remain in the ‘eye.’ The Excellence in Manufacturing Consortium (EMC) is helping these industry players form and implement this strategy.
Founded in the mid-1980s, EMC has grown to become Canada’s largest manufacturing consortium, providing primary expertise and advanced peer-to-peer networking to more than 750 member manufacturers, active in 50 regions and encompassing 185+ communities across Ontario and Atlantic Canada. The consortium brings together manufacturers in an ‘industry only’ environment, which allows them to share best practices, knowledge and expertise within a focused community.
The energy challenge
Energy is a major area of concern for manufacturers, and they express this fact regularly.
Last fall, EMC conducted a survey on the effect that energy issues have on manufacturers. Members expressed a heightened concern about rising energy costs and security of supply. The volatility created by market deregulation has also left many electricity and natural gas business consumers worried about price increases and future supply uncertainty.
The survey also highlighted that energy accounts for anywhere between six and 45 per cent of input costs, yet when it comes to purchasing energy (regardless of location), manufacturers are generally tackling this issue alone. Only 30 per cent of respondents identified having the necessary internal resources to address energy management issues effectively. A significant percentage are not engaged in any energy purchasing strategy and of those who are, the survey highlighted a disparity in prices being paid among manufacturers of similar size and load demands (for both electricity and natural gas) due to the company’s location.
Although the cost of energy is the prevailing concern, the priorities to get there were varied. We asked EMC members to rank their top five energy priorities. These included:
- Security of supply (avoiding disruption of service);
- Energy conservation (reduction of wasted energy);
- Cost savings (more competitive commodity costs, group options etc.);
- Budgetability (cost certainty); and
- Reducing environmental footprint / impact.
EMC’s energy initiative
To help its members engage a more proactive approach to address these issues, EMC recently launched a three-phased energy initiative to address: energy costs and purchasing strategies; energy best practices and management strategies; and energy conservation and technology.
With energy costs forecast to rise significantly over the next few years (as demand is forecast to exceed supply before 2014), tremendous feedback was received from EMC’s members, directing the consortium to facilitate a group approach to purchasing for members to acquire energy more competitively.
As a result, EMC developed a ‘unique-to-market’ best practices approach to purchasing energy. Following a detailed vetting process, EMC is working with one of Canada’s most experienced independent energy organizations — ECNG Energy L.P. — to facilitate a natural gas and electricity group purchasing model.
The group model EMC has embraced will provide each manufacturer with an individual purchasing strategy (customized to their production needs) and then aggregates the group’s volume for a competitive market tender. This eliminates unnecessary costs and higher priced alternatives found in the retail market today.
The initiative itself is member-driven and has been a natural fit for EMC’s manufacturers, who are accustomed to working together. Nearly 20 per cent of members are participating in EMC’s inaugural group purchasing effort and more than 50 per cent of the members have been involved in other parts of the broader energy initiative.
Once the EMC Power Group’s strategies are finalized, the tender process will occur. This will represent a significant energy buy for manufacturing. The anticipated savings to industry will result from a combination of the group’s Lean model, volume direct-from-producer purchasing and custom end-user strategies. The resulting metrics will be tracked and reported to its members.
Over the coming months, EMC will be rolling out the next phases of its 2008 energy initiative, including ENEX08, which is being presented in conjunction with Energy Management magazine. As higher costs of energy and other costs have caused manufacturers to take an enterprise-wide approach to competitive improvements, these initiatives come not a moment too soon.
As many manufacturers have emphasized in the media recently, creating the right climate for manufacturers to succeed in Canada has (and will continue to) require government investment. It must, however, go beyond planes, trains and automobiles. The investment must also occur from the manufacturers themselves — investment in their people, processes and technology.
“Nobody knows the issues manufacturers are facing, better than manufacturers themselves,” says Al Diggins, president of EMC. “EMC members are working together in unique and innovative ways, to help each other get better at what they do.” Government investment alone will not be able to offset the impact of the changes in the value of the Canadian dollar.
Many Canadian manufacturers, large and small, are working hard to weather this perfect storm. Fortunately, there is a terrific network of industry, business, community and government partners that are also working hard to ensure the ‘eye’ of manufacturing’s perfect storm can continue to grow to provide the right climate for manufacturers to succeed.
Scott McNeil-Smith is director of marketing & development for Excellence in Manufacturing Consortium. For more information on EMC and their Energy Initiative, please visit www.emccanada.org.
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