Changing the Dynamics of Resource Management

Nikki Cuban | Oct 16, 2002

Every industry is restructuring to move forward with the digital economy, because the Internet and its enabling technologies reduce transaction costs throughout every operations channel. Nevertheless, no business has currently optimized all transaction costs, because the Internet also creates reasons for change at a much faster rate than ever before. Where realizing the affects of changing dynamics during the industrial revolution took twenty years, today it can take six months or less. As a result, this question will always remain – how long will it take to reach critical mass on solutions that reduce transaction costs in order to change industry dynamics? Certainly, the answer is different for each industry, but for an energy service company, knowing the correct response starts first with knowing the specific terrain.

Even today an energy service company may issue a press release that reads:

“Energy Service Company signs a major energy management contract with a flagship customer that operates more than fifty shopping mall locations. The deal is estimated to reduce costs up to x% over ten years, and the ESCO will share in the savings. And with additional demand-side projects that include lighting retrofits, equipment upgrades, and facility audits, the ESCO can accommodate even bigger savings opportunities so that at the end of those ten years, the customer will benefit from X,Y, and Z.”

On its face, this sounds like an excellent service contract. Yet included inside of that press release is a lengthy sales and negotiation cycle composed of considerable analysis, on-going communication, estimations, and assumptions. All of this activity is required to establish an approximate solution, construction cost estimates, a development plan, and availability of the appropriate team members to fulfill the project. Not to mention a bidding process will take place between ESCOs with similar processes that are all trying to answer the same questions based upon the assumptions of the bidder. For example, the client may include servicing a chiller that they believe has an additional life of ten years. However, when the ESCO finally begins the project and enters the facilities one at a time, they find that this chiller has been cycling thirteen times a day instead of four. Since the chiller is cooling properly, the abnormal cycle times have been overlooked, and as a result, its wear and tear is much worse than expected. Consequently, the assumption of ten additional years on the life of the chiller is actually three years. The ESCO’s estimated project costs in addition to the client’s budgetary goals become moot points. All of this work, and the demand-side team is still one facility down, with forty-nine more to go.

Energy services companies will remain competitive the same way as any other business – by changing industry dynamics. Applying Internet technologies, bilateral communication, and automating certain activities to increase energy expertise on a volume basis will simultaneously change the dynamics of how customers and ESCOs manage their entire operations experience. The solution is real-time monitoring. The results are:

  • Reduced transaction costs;
  • Managed supply-chain;
  • Faster results; and,
  • Objective decisions.

Reduced Transaction Costs: “Bringing the Equipment to the Experts”
The first step to achieving volume reductions in transaction costs is bringing the equipment to the experts rather than sending the experts to the equipment. This is accomplished using real-time monitoring capabilities. For example, the old way of doing business included time-consuming energy audits with demand-side teams that assessed existing operations at the site prior to presenting a solution. With real-time monitoring, local maintenance service organizations are used to install data collection devices on facility equipment so that reporting critical information begins as soon as possible. When the data is received, the equipment status is compared to a library of diagnostic data that defines optimum performance requirements. Set points are established and engineering, electrical, plumbing, and air conditioning experts continue to monitor each site. From the central command center, they can immediately diagnose issues – for example, cycling times, abnormal temperatures, and vibrations. The benefits at this point in the process include:

  • Travel expenditures including flight arrangements, rental car, hotel accommodations, and time have been considerably reduced. (And remember from the example, this client enterprise has more than fifty locations across the country in need of operations improvements).
  • Service begins sooner. With the operations data from all facilities stored over time, learning from them in order to improve the approach to subsequent projects becomes easier, can be acted upon faster, and with more control.
  • Quality increases. By aggregating real-time data in a central control center, knowledge becomes cumulative rather than fragmented among individual experts. In short, the ESCO that relies on knowledge from individual field experts will never be as knowledgeable as the experts in the command center. In addition, customers no longer worry to what extent their facility operators are trained to use a building automation system. Effective training requires time and money, and can get quite expensive since most facilities under one corporate enterprise have disparate systems between locations rather than a single application.
  • Demand-side assessments are identified using accurate data. For monitoring customers, the guesswork required to endure a Request for Proposal is eliminated and decisions can be made based on facts. As a result, preparing for the next demand-side project becomes cheaper over time.
  • Budgetary goals are maintained with support from historical data that is populated in real-time from all facilities under one corporate enterprise. In other words, the “digital divide” between operations managers and CFOs is considerably reduced.

Supply-Chain Management: “Checks and Balances”
Effective supply-chain management is crucial since businesses often employ more than one energy service company to impact facility operations. Moreover, its importance has gained much attention because of developing apprehensions associated with long-term energy contracts and outsourcing. However, with real-time monitoring, customers receive high-quality service from however many vendors they feel comfortable involving within their operations. Effective supply-chain management is realized when the optimum results from one vendor depend upon the workflow of another.

For example, an independent school district composed of six high schools large enough to support more than 4500 students are each supported by three chillers. Two chillers support the water system while the third chiller supplies a thermal storage unit. The agreement between the ESCO and the school district specifies that all three chillers will be monitored in real-time, and that the third chiller will operate at a set point of 28°F in order to make ice. The responsibility of the local maintenance organization is to charge the thermal storage unit during off-peak hours when rates are low and use the ice during peak hours when rates are high – thus, saving the school district money on energy spend and providing a tangible resource at a lower cost. With the data from real-time monitoring, production schedules are logged in order to ensure that the agreement and the equipment are maintained to the expectation level of the school district. When the thermal storage unit is not charged during off-peak hours, immediate notification is sent to the local maintenance group as a reminder. And will continue to remind them until the operation is complete. With real-time monitoring, the workflow between local response teams, site information, and the central command center is documented. As a result of real-time data, new levels of accountability develop with all parties whose activities impact the success of the energy service agreement.

Faster Results with Less Trouble
Preventative Maintenance
Real-time monitoring customers get faster results. Immediate alarming capabilities will eliminate unnecessary latency with maintenance issues such as filter changes, vibrations, and temperature. For example, vibration detection identifies problems with bearings such as overheating or lack of lubrication. Such alarms may be basic, but left unattended can result in catastrophic failure, damage to surrounding systems, and loss of production. Preventative maintenance with or without real-time monitoring is critical to surviving the system health of facilities. But with real-time monitoring it is easier, faster, and certain.

Project Implementation
Using real-time data for preventative maintenance is not the only way to achieve faster results. The data can also be used to speed the process for implementing demand-side projects. Monitoring customers are able to implement demand-side projects faster than non-monitoring customers, because they already have an accumulation of data that isolates specific opportunities. Where non-monitoring customers endure a lengthy RFP process and rely on energy and facilities audits, monitoring customers save this time and move forward with factual decisions to achieve faster results. The ESCO and the customer benefit from a shorter sales cycle and higher-quality service.

Equipment Replacement: Just-In-Time Manufacturing
Finally, in the event of a catastrophic failure, unforeseen equipment replacement, or retrofitting, monitoring customers can receive faster service from OEMs. Because of real-time monitoring, forecasting equipment failure is more certain today than ever, and the resulting “killer app” is “Just-In-Time” manufacturing. Real-time monitoring data enables experts to forecast when equipment is reaching its life end or when it is straining to meet production capacity. OEMs identify new sales opportunities and manufacture for planned orders. Analyzing monitoring data uncovers when facilities are in an optimal situation to install additional equipment to preserve system health relative to production requirements. Thus, the OEM benefits from acute inventory management – no overproduction, no underproduction, increased sales opportunities, and accurate production of specific product lines. And customers receive exactly what they want and when they want it.

Making Decisions “On the Money”
With real-time monitoring and accurate data, plant improvement plans from reorganization and upgrading to new development are factually prepared rather than assumed. Making decisions on the money is easier with accurate information. Moreover, current movements from hardware and networking companies are reducing concerns about equipment obsolescence whether “fear” or “planned.” They heighten awareness of interoperability challenges so that acceptance of disparate protocols will lessen over time. As a result, planning equipment obsolescence as well as manufacturer lock-in will be more challenging in the future. Just as interchangeable parts led to cost reductions in the early 1900s, open protocol systems will have the same affect on heterogeneous data from proprietary equipment. As a result, equipment decisions are made based on price and quality rather than protocol. And plant improvement is decided using accurate data and more choices on how to create the optimum solution.

The New Terrain
The TXU Energy control center is built upon an open architecture that supports legacy and new equipment. The system is currently “interoperable” with more than 1900 protocols that are integrated at the software layer. Real-time monitoring enables superior maintenance including preventative and mission critical response for equipment from most all manufacturers. Resulting from these capabilities, the following benefits have been realized: Projects are implemented easier, faster, certain, and with less resources. The supply-chain is managed in real-time and decisions are based on the facts and verified. As a result, the new energy economy will change business dynamics with real-time data and extreme process improvement in order to forgo a lengthy sales cycle and the circular process of assumptions, forecasting, and quick “ten-year” fixes.

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The meaning is a little too opaque, it sounds like it will impress an Info Technology bureaucrat
more than make much difference on the organization or business. IT is perpetually talking about
things that will be left to others to make real, or usually not.

Great introduction to the concept very similar to a Openview type solution for a computer network,would like to hear more about the data collection that can be passed back via Internet and to what monitoring system.
Dan Morgridge

Excellent overview to the opportunities being identified by data management for facilities. I would like to hear your opinions concerning the current state of the market and its ability to deliver on these promises as well as about the barriers at the customer regarding acceptance of sophisticated planning and management techniques.

Great article. Many good points identifying the potential opportunities in the marketplace. Also, raises interesting questions regarding use of capital and associated costs therefrom.