CHICAGO — Textile service companies and managers are under increasing pressure to provide greater levels of quality, while reducing environmental impact and energy consumption.
Laundering textiles is a complex process that often results in a variety of inefficiencies. Washers, dryers and ironing equipment can all be energy wasters if laundry work isn’t processed fast enough or if the equipment isn’t operating properly. In order to stay competitive and maintain operations, textile service companies might consider energy management plans to reduce costs and improve quality and throughput.
Among all the factors that pose risk to textile service companies — economy, competition, production problems, supplier issues, etc. — energy is perhaps the one factor that has attracted the most strategic attention recently.
There may be no better evidence that energy is a strategic factor than the energy market over recent years. The prices of oil, natural gas, gasoline and other energy commodities have risen to sustained, unprecedented highs, and the market has experienced equally unprecedented volatility. Energy risk, whether physical, financial or energy quality, can arise from a variety of factors.
Energy risk arises on both the purchasing side of the equation and the consumption side. Mitigating the risk that energy poses means understanding the types and natures of risk and using that information to develop and evaluate strategies to protect your business from the potential consequences. The key is not necessarily any individual instance of risk exposure (or how elementary any one of them may be), but rather assessing your company’s exposure as a whole.
Energy risk can be classified into three categories:Physical Energy Risk — This refers to the process of getting energy from its source, so that it’s available for your use. In the case of either natural gas or electricity, there are several links in the chain that culminate in usable energy at your facility.Financial Energy Risk — Largely due to the natural gas market, financial risk has become the most obvious and persistent risk faced by businesses. However, financial risk isn’t limited to natural gas, and energy markets themselves face influences from other markets and external factors that require attention.Energy Quality Risk — The quality of energy is primarily associated with the delivery and consumption of electricity (such as power quality). Though it may not have consequences of the magnitude that physical or financial risk can pose, if left unaddressed, power quality can lead to intermittent production issues (particularly with sensitive equipment) or utility-assessed charges.MITIGATING ENERGY RISK
Though not an exhaustive list, the following are a few strategies that should be continually evaluated as part of an overall planning process for risk management:1. Professional assistance: For the most part, because you have enough on your plate without also becoming an “energy expert,” it’s often prudent, particularly for multi-site organizations, to engage an energy services company to serve as an extension of the organization. The job of energy services groups is to use their wide base of knowledge, skills and abilities in energy to assist in managing and optimizing your energy portfolio, including any risk that may be embedded in that portfolio.2. Contract management and hedging: When purchasing energy, most notably natural gas, it’s important to ensure that any contract for supply provides options and flexibility for you to obtain some degree of price and/or supply certainty when you need it. Additionally, nonspeculative financial hedging can be an extremely useful tool and can be conducted in complete compliance with current accounting regulations.3. Physical hedging: Incorporating backup power supplies such as standby electric generation, propane-air systems and uninterruptible power supplies should be regularly evaluated as options, especially for 24-7 organizations that can’t afford a disruption in activity. As it relates to power quality, installing power-quality meters at strategic points throughout a facility can provide timely information for early detection and diagnosis of problems.4. Operational planning: Although it isn’t necessarily suggested that energy dictate production schedules, it’s important to leverage any operational flexibility you may have to protect against potential interruptions in energy. This could take the form of shifting energy-intensive activities from day to night or by utilizing available capacity at other, geographically separated plants.5. Conservation: One of the surest ways to reduce your financial risk profile is to reduce the cause of the risk. In other words, reducing the amount of energy you consume also means you reduce the amount you spend on energy. Less energy equals less exposure. Therefore, when evaluating potential energy conservation projects and their paybacks for budget approval, it may also be prudent to include risk management as part of that evaluation.NO ENERGY, NO LAUNDRY
The bottom line is that you can’t operate without energy. It’s essentially and fundamentally the first input for delivering value to your customers. Consequently, it’s an input that should be regularly evaluated and managed. The fact that there are risks associated with the purchase and use of energy only enhances that need. In the course of planning, it’s important to keep several things in mind:
- Any and all facilities should be assessed (at least annually) for their vulnerability to energy risk and you, as an organization, need to determine how tolerant you are of risk.
- Few mitigation strategies come for free. As a result, any strategy should be evaluated in a cost/benefit context looking at both the short and long term.
- Information is key in this process. Attention to local, regional and national factors assists in making better-informed decisions.
- Just because a given strategy is rejected today doesn’t mean that it won’t work at some other time, and vice versa. Therefore, it’s important to keep options on the table in order to deploy, withdraw or change them quickly.
The net objective, and hopefully result, of a well-managed energy portfolio and its inherent risk, is protection of profitability, security of budget plans, and insightful and informed planning for the future.
Have a question or comment? E-mail our editor Matt Poe at [email protected].