As an automotive manufacturer, you’ve optimized your manufacturing processes throughout your entire supply chain, but have you considered your invisible energy costs?
Nearly 60 million passenger cars were produced globally in 2011 according to the International Organization of Motor Vehicle Manufacturers (OICA). In fact, if auto manufacturing were a country, it would be the sixth largest economy, with global gross revenue of almost $2 trillion.
While the global auto industry is a key sector of the economy for every major industrialized country in the world, the complexities of the industry must be well-managed to generate profit. Auto manufacturers have been outsourcing the production of vehicle components to suppliers for the last 30 years. Sometimes, hundreds of companies are involved in the supply of components for a given vehicle, from pistons to windshield wipers, with each supplier impacting the overall business efficiency of building a car or light truck. The revenue generated by the global automotive component market alone is poised to surpass $1 trillion by 2017, according to a 2011 report by Global Industry Analysts.
With a complex global network of vehicle component and module suppliers, optimizing manufacturing processes at a single manufacturing facility is no longer enough. Today’s automotive manufacturers have become experts in supply-chain optimization. The cost of each part is closely managed, and work-in-process waste is minimized with just-in-time manufacturing and supply. In-house manufacturing is optimized with continuous improvement systems that squeeze cost and waste out of the system. Enterprises are leaner and meaner than ever before. So how can they possibly get any more efficient?
Consider energy. The industrial sector accounts for about a third of all energy consumption in the U.S. For decades, energy was considered overhead—a cost of doing business—not an input to the process.
But this has to change; the world’s energy supply simply cannot sustain it. The United Nations predicts a 40% growth in world population by 2050. At a minimum, energy consumption (including electricity and other sources) will double in the next 40 years. Electricity use alone is projected to double in 18 years. At the same time, climate specialists from the International Energy Agency estimate that we will need to reduce carbon dioxide emissions by half to avoid serious climatic changes. In other terms, the world will need to improve its carbon intensity by a factor of four.
As the demand for energy increases, so do prices, while the reliability of the energy supply drops. Currently, the U.S. is the largest single electricity-consuming country, using almost a quarter of the world’s electricity—while our nation’s residents make up only 5% of the world’s population. In turn, this makes U.S. manufacturers hyper-sensitive to increases in energy prices. Compound this with the cost of just one hour of downtime reaching up to $1.2 million, and the extraordinary need for reliable energy is clear.
What does all of this mean?
Industrialized countries, including the U.S., in Europe, and China, will have to save energy. In some industrial settings, almost 90% of electrical energy is consumed by the processes themselves rather than by the factory buildings that house them. While there are energy managers busy installing efficient lighting and ensuring workers turn off their desktops at night, in many cases they’re only impacting a tiny slice of the pie.
What does this mean for automotive manufacturers, specifically? To remain globally competitive, they will have to reduce the energy consumed by their processes—most importantly, not just at their manufacturing facilities but also at all their suppliers’ facilities.
An extensive and wide-reaching 2010 research report by Argonne National Laboratory, a U.S. Department of Energy lab, details a model that calculates the energy consumption and carbon impact of the part manufacturing and vehicle assembly state of a vehicle’s life cycle. This bottom-up approach has a special focus on energy consumption and CO2 emissions. The model estimates that the cumulative energy consumption and CO2 emissions to build a 1.7 ton vehicle are approximately 34,000 MJ and 2000 kg, respectively. This translates to 9444 kW·h of energy. To better quantify this, if this were all electricity at $0.05/kW·h, it would represent $472 of energy costs to build a vehicle.
The average production of the top 10 automobile companies is 5 million cars per year. Using this figure, a 10% energy saving per vehicle works out to an annual savings of $236 million.
Lifting the invisibility cloak of energy and carbon costs
Energy and carbon dioxide emissions are invisible but have very real impacts to auto manufacturers’ bottom lines. In the past, nonexistent measurement tools, lack of standards, and the complexity of the supply chain made it extremely difficult to measure the sum of energy costs for a car.
Increasing intelligence at all levels of industrial facilities and processes means a lot of energy data points are available. With today’s 21st Century technology and services, and a well-planned and executed supply-chain energy-management strategy, it is possible to discover where in the manufacturing process energy is being used and make the changes needed to reduce it.
Coming next time...
In the next article, we will take a closer look at carbon footprints, current and expected future regulations, and strategies that automotive manufacturers can implement to monitor and reduce the energy used in their entire supply chain.
John Boville and Robb Dussault of Schneider Electric wrote this article for AEI.