Although energy usage is often a company's third or fourth largest cost, it is difficult, if not almost impossible, to get CEOs interested in cost-saving energy programs, according to a new Executive Action report released Thursday by The Conference Board.
The report, Stopping the Profit Drain from Higher Energy Costs, noted that while corporate America can expect little relief from soaring energy prices, CEOs rarely pay attention to their company's energy bills.
CEOs frequently pass responsibility for cost control to other corporate executives, such as plant managers, the head of procurement, or the engineering department, stated the report, which was based on interviews with a dozen energy experts and managers.
The report, part of The Conference Board's Mid-Market series focusing on smaller, mid-sized companies, acknowledged that: "CEOs know the labor costs in the product. They know the cost of material in the product, they know their healthcare costs, their scrap costs. But unless they've looked at their natural gas or electrical bills lately — and been shocked — they very often regard energy costs as insignificant and not worthy of attention as a regular management discipline."
"This new emphasis on efficiency calls not just for strengthening management practices," said Howard Muson, author of the report. "It requires a transformation in the attitudes of company leaders who have long tended to regard fuel and power as insignificant costs – the legacy of an era when energy supplies were cheap and seemingly inexhaustible."
Peter Garforth, an international consultant based in Toledo, Ohio, suggested that the first question CEOs ought to ask is "if my energy productivity increased by 30 percent, would it significantly improve the competitiveness of the business, over the short or long-term?"
Donald Wulfinghoff, author of the Energy Efficiency Manual, argued that "effective management of energy costs cannot occur until the top executive takes personal control of them."
While many firms use futures contracts to hedge their risks, this has become even riskier because of extreme price volatility. "The ability to use financial hedges – long-term contracts – against fluctuations in fuel prices is becoming problematic because energy supply markets are so tight," said R. Neal Elliott of the American Council for an Energy-Efficient Economy.
The report suggested several other alternatives to dealing with high energy costs including:
negotiating with suppliers to get the best rates; changing production schedules to shift energy-intensive operations to low-load usage times; find alternative energy sources, such as landfills; and use computerized systems to monitor production processes for anomalies in energy usage.
Conference Board report finds CEOs not interested in saving energy costs, despite rising prices
Although energy usage is often a company's third or fourth largest cost, it is difficult, if not almost impossible, to get CEOs interested in cost-saving energy programs, according to a new Executive Action report released Thursday by The Conference Board.
The report, Stopping the Profit Drain from Higher Energy Costs, noted that while corporate America can expect little relief from soaring energy prices, CEOs rarely pay attention to their company's energy bills.
CEOs frequently pass responsibility for cost control to other corporate executives, such as plant managers, the head of procurement, or the engineering department, stated the report, which was based on interviews with a dozen energy experts and managers.
The report, part of The Conference Board's Mid-Market series focusing on smaller, mid-sized companies, acknowledged that: "CEOs know the labor costs in the product. They know the cost of material in the product, they know their healthcare costs, their scrap costs. But unless they've looked at their natural gas or electrical bills lately – and been shocked – they very often regard energy costs as insignificant and not worthy of attention as a regular management discipline."
"This new emphasis on efficiency calls not just for strengthening management practices," said Howard Muson, author of the report. "It requires a transformation in the attitudes of company leaders who have long tended to regard fuel and power as insignificant costs – the legacy of an era when energy supplies were cheap and seemingly inexhaustible."
Peter Garforth, an international consultant based in Toledo, Ohio, suggested that the first question CEOs ought to ask is "if my energy productivity increased by 30 percent, would it significantly improve the competitiveness of the business, over the short or long-term?"
Donald Wulfinghoff, author of the Energy Efficiency Manual, argued that "effective management of energy costs cannot occur until the top executive takes personal control of them."
While many firms use futures contracts to hedge their risks, this has become even riskier because of extreme price volatility. "The ability to use financial hedges – long-term contracts – against fluctuations in fuel prices is becoming problematic because energy supply markets are so tight," said R. Neal Elliott of the American Council for an Energy-Efficient Economy.
The report suggested several other alternatives to dealing with high energy costs including:
negotiating with suppliers to get the best rates; changing production schedules to shift energy-intensive operations to low-load usage times; finding alternative energy sources, such as landfills; and using computerized systems to monitor production processes for anomalies in energy usage.