Energy management for improved profitability of small manufacturing enterprises

Abstract

Approximately 75% of small, medium and micro enterprises (SMMEs) created in South Africa (SA) fail in the first year. This is a serious socio-economic problem as SMMEs in South Africa employ over 60% of the workforce and contribute over 50% of gross domestic product (GDP). One reason for SMMEs‟ failure is their incapacity to contain rising production costs. One of the most significant of these rising costs is the energy cost. South Africa has experienced an effective electricity tariff increase of over 170% from 2009. But according to the Multiyear Price Determination (MYPD timelines), electricity prices are still not cost reflective and so will continue to rise. Energy costs across all businesses contribute between 15-25% of total production costs with approximately 5-15% of total energy consumption being baseload in most small manufacturing enterprises. The threat to business profitability of energy costs eroding the profit margins is not proactively being addressed. Energy awareness, energy management and technical skills to manage energy are lacking in SMMEs. The hypothesis of this dissertation is that systematic and effective management of energy as a resource and a production input would improve business profitability. To aid with this research, a small manufacturing enterprise energy management toolbox (SMEnT) was adapted from a publicly available Energy Management Matrix as well as a pre-assessment questionnaire traditionally used for assessing large industrial and commercial energy users. The research methodology included principally two case studies; one that clearly demonstrated a desire to embark on an energy management journey through the adoption of energy management best practice, and another that saw energy management as a business nuisance and disruptive to production. The SMEnT was then applied to both case studies to assist in creating a visual on energy consumption and savings potential. Energy management best practice adoption is identified as a catalyst for energy savings in small manufacturing enterprises. Entrenching a culture within small business of managing energy and creating awareness towards its effective usage is an imperative. The adoption of energy management opportunities resulted in energy performance improvements which translated into improved energy intensities. Reduced energy consumption and costs in turn meant reduced production costs that resulted in improved business profitability. The company in the case study that adopted energy management practices recorded an 8% cost saving from the 2011/12 baseline by merely adopting energy management best practices at no or low cost.