Manufacturers See the Light

The electric bill at PCM Image-Tek was pretty high and George Norfleet, the company's chief financial officer, was looking for ways to bring it down.

Published 8/22/2010 in the Valley News

Manufacturers See the Light

By Chris Fleisher, Valley News Business Writer

Springfield, Vt. -- The electric bill at PCM Image-Tek was pretty high and George Norfleet was looking for ways to bring it down.

Norfleet is the Springfield manufacturer's chief financial officer. He always has a close eye on company expenses. But a recession can make you look a little more closely.

PCM spends around $120,000 a year -- less than 1 percent of the overall budget -- to power its 33,000-square-foot plant. Last fall, the company brought in extra help.

“We had some questions about our billing, and (Central Vermont Public Service) came in and did an energy audit for us and started looking at ways we could save money,” Norfleet said.

They looked at the way people worked -- turn off the machines when not in use, keep only the lights on that your need, etc. PCM also consolidated its electrical meters, which helped.

“Then he looked at the lights,” Norfleet said.

This summer, the company completed a $27,000 upgrade to a lighting system that, in some parts of the buildings, hadn't been touched in 50 years. It was old, inefficient and dim. More important, it was costing the company money.

The new system will pay for itself in 2½ years and shave $11,000 a year off the company's electricity costs. The project qualified for a tax credit of 60 cents per square foot. Plus, there were environmental benefits.

The decision to upgrade “was a no brainer,” said CEO Mike Hathaway.

It has become a cliche that, in lean times, companies have an opportunity to make themselves more efficient. And in manufacturing, where efficiency reigns supreme, this recession has forced some Upper Valley companies to look at the way they work and the resources they consume.

But doing so is easier said than done. Often, the solutions to financial problems are to lay off workers, cut benefits and trim perks rather than find creative ways to lower expenses or make long-term investments that will pay for themselves over time.

Now that manufacturing appears to be bouncing back -- last month, the sector grew at the fastest pace in nearly a year, according to the Federal Reserve -- the question remains just how long-term these lessons will be.

“If there's one positive out of the recession, it's given us an opportunity to sharpen our operations and costs,” said Jim Miller, vice president of manufacturing at Hypertherm in Hanover. “The key for us is making sure we continue to do these things in the future.”

Like PCM, Hypertherm spent some money upgrading to high-efficiency lighting. It was a long-term investment that would pay back in a short period of time. It would last for many years, continuing to realize savings for the company long after the recession had passed. But addressing the other inefficiencies -- mostly people's behavior -- are trickier, Miller said.

When the company is struggling, and worker efficiency gets priority attention from corporate leaders, then there's going to be a heightened awareness of what everyone is doing. But when times are good again, it can be easy for people to slip back into old habits.

“Going forward, the key for us is to take that special attention (to cost-saving practices) … and incorporating it into our standard processes,” he said.

Demand for Hypertherm's plasma cutting equipment has slackened the past couple years, and the company has looked everywhere for ways to save money without laying people off.

Beyond the long term cost savings, upgrading the lighting had one immediate benefit -- it would give workers something to do.

Hypertherm, which has a no-layoff policy, plugged some people into other jobs, temporarily, just to keep them employed when times were slow. There were some talented electricians on staff who could install the new lighting, which would save money on the project.

There were less obvious savings elsewhere. For example, Hypertherm buys a lot of copper, which is machined into parts. There's always some excess metal scraps left over. Perhaps it could cut down on the excess waste by buying smaller copper bars.

Hypertherm bought copper bars that were smaller in diameter, a size closer to the objects being turned out. Not only did it save money on material costs, but also it saved on the time needed to make the pieces, Miller said. There was less copper to cut back.

That practice won't change just because demand is picking back up again, Miller said. He's going to continue buying the smaller copper.

“That's really the key for us,” he said. “We've been looking for these tangible cost savings.”

Cutting costs is all well and good. But when it comes to capital investments -- such as lighting or buying new machines -- that won't pay off for many years, it complicates matters, said Patricia Giavara, assistant director at the Vermont Manufacturing Extension Center, which provides support for the state's small and mid-sized manufacturers. Sure, a new piece of equipment might be faster, but will it be enough to justify the upfront expense?

“That's a big concern,” Giavara said. “And right now, we have a lot of companies that have to take a very short-term view because of cash flow.”

“Capital expenditures for a lot of companies were frozen,” added Paul Lambert of Efficiency Vermont, a program that provides technical assistance on energy saving investments to homeowners and businesses. “Not only is there reduced output, but some companies were having layoffs. Investments in energy efficiency were the farthest from their minds.”

That was the case at Costa Precision in Claremont. The 34-person precision machine shop on Plains Road has been looking to cut its energy bill, which accounted for some $100,000 every year.

John Mack, the chief operating officer, said he'd considered installing high-efficiency lighting.

He chose not to go forward, though, because the payback would take too long.

“Small companies right now, cash flow is a big issue,” Mack said. “You can't put up money and expect payback in three or four years.”

Instead, Mack has worked with his existing resources, making sure that people perform efficiently and don't run machines when they don't have to.

Lambert said he sympathized with companies like Costsa, knowing that a 2½-year payback can seem like an eternity for a small business. However, there are ways of financing projects so that the cost is spread over time, Lambert added.

Depending on energy usage, the annual savings from lower electricity expenses could exceed the payments on the system.

“You can actually be cash-flow positive,” Lambert said.

Hathaway said that PCM management was confident in the decision to invest in the lighting upgrade. But managers still did their due diligence beforehand, as they would with any additional expense.

PCM's core business -- circuit board assembly -- was down 40 percent last year, and if not for a big contract to produce label machines, it would have been a very difficult year for the company. The 85-person firm still had to cut some jobs last year, and there was no urgent need to replace lighting.

But it was one area where it found a way to improve. And lest times get worse, the company went ahead and did the project, figuring that it would still be in business a decade down the road, churning out circuit boards beneath high-efficiency lights.

“We're in business for the long run,” Norfleet said.

“To make these changes now, when we had the opportunity and the good balance sheet, it made sense.”

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