Competition for capital funds sometimes left energy projects unfunded
Elevating the reporting relationship for Eastman’s energy management program and establishing a capital set aside fund dedicated specifically for energy efficiency projects
Increased implementation of energy efficiency projects
Corporate Support for Funding Capital Improvements
Eastman is a global advanced materials and specialty additives company that produces a broad range of products found in items people use every day. Headquartered in Kingsport, Tennessee, Eastman employs approximately 14,000 people with annual revenues totaling approximately $9 billion. In 2010, Eastman decided to pursue an aspirational goal to inspire radical improvement and reduce its energy intensity by 20 percent by 2020 with a 2008 baseline, through the U.S. Department of Energy’s Better Buildings, Better Plants program.
Eastman’s existing energy management program would not meet the company’s new energy efficiency targets. The program needed significant internal revamping and rebranding to garner the needed support and cooperation.
Eastman formed an Executive Steering Team to direct the new energy reduction effort. The team, which included three Executive Team members, became responsible for implementing the company’s newly devised energy management strategy and principles, and ensuring consistency of the energy management effort across all of Eastman’s plants. Specifically, the Steering Team initiated an annual capital budget of $8 million for energy projects, bringing executive level funding to Eastman’s energy management strategy.
Eastman’s Executive Steering Team developed a specific strategy for company-wide energy reduction made up of five key components:
To enhance the success of the energy strategy, the Steering Team identified three guiding principles:
In 2011, the Worldwide Energy Manager convinced management that there was a clear need for a sizable capital budget for energy projects. The Energy Manager quantified the gap between the forecasted impact of current plans and the company’s energy intensity goal, and presented this information to the Steering Team. She showed that significant capital and expense projects would be required to meet the goal. The Energy Manager also presented a list of energy projects that were ready to execute but lacked funding.
The presence of three executive members on the Steering Team helped quickly establish a dedicated budget for energy projects. The Energy Manager communicated the importance of funding energy projects by converting the benefits of energy efficiency projects to business-related measures. For example, she presented annual cost savings in terms of increase in net income, increase in earnings per share, and equivalent increase in product sales based on profit margin. This helped to make the connection between energy projects and the impact of savings.
Before the revitalization of the energy management program, proposed energy efficiency projects competed with non-energy projects for funding. Under the new energy management program, the Worldwide Energy Manager could easily approve capital energy projects of less than $1 million that have a 20 percent or greater rate of return. Any project over $1 million in costs needs approval from Eastman’s Vice President and General Manager, Worldwide Manufacturing Support and Quality.
The capital budget for energy projects is augmented with a separate expense budget that targets leak repair and insulation. Expense projects tend to focus on repair of existing equipment whereas capital projects are new installations or major modifications.
The Energy Manager maintains a comprehensive list of worthwhile projects. If there is any unallocated portion of the budget, the energy team uses the list to determine the best way to spend the remaining funds.
Eastman maintains a database with records of how the capital energy budget is spent. All projects have up-to-date information such as rate of return, total cost, and implementation status. Eastman uses this information to plan improvements needed to meet their goal.
Executive Steering Team members also challenge the Worldwide Energy Team to quantitatively identify the major variables affecting energy performance, assess the magnitude of each variable, and evaluate progress toward the plant’s overall energy intensity goal.
In 2011, Eastman granted the Worldwide Energy Program an initial budget of $4.2 million. Due to the success of the program and proven strong returns, by 2013 Eastman saw fit to double the budget to $8 million per year. This amount has become a part of the company’s base funding budget projections.
Eastman provides information on the energy program and the availability of a capital budget to process improvement engineers, manufacturing, and engineering. The Worldwide Energy Manager engages all of these groups to encourage them to develop project ideas and request funding. This not only engages a wide group of employees but also helps to grow internal support for the energy management program. The popularity and effectiveness of internal energy surveys, used by plants to identify energy improvements, has also increased due to the increased energy budget. Prior to the new program, surveys were available but implementation of energy reduction efforts was limited due to lack of funding.