China is assuming an increasingly prominent role as a global leader of anti-pollution efforts, and is setting an example with its domestic approach, too. Its 13th Five-Year Plan puts the environment front and center, with targets for 2020 including:
- A commitment to ensure “good” or “excellent” air standards 80% of the time
- A reduction of heavy air particles by 18%
- A 15% reduction in nitrogen oxide and sulphur dioxide emissions
These commitments come with an expanded suite of enforcement powers for regulatory officials. In total, the 13th Five-Year Plan aims to reduce China’s total carbon emissions by 251 million tons of carbon equivalent (tce). However, in a country of nearly 1.4 billion people, and in which regional governments still have considerable autonomy, centralized policy has limited reach. Increasingly, the state needs the help of the private sector to meet environmental targets.
Could a small solution solve a big problem?
Any solution begins with a better understanding of the problem. Unfortunately, many businesses have little visibility into exactly how they are consuming energy, water or raw materials, and what that consumption is costing them. This is unsurprising. Big manufacturing and industrial operations can have tens of thousands of energy-intensive pieces of equipment. How many of them are consuming electricity while idle? How efficiently are they operating? How much energy is being used per unit of productivity?
Answering these questions is difficult but not knowing the answer, and therefore the actual losses, could be significant. For example:
- Heating facilities account for 12% of energy use in manufacturing industries.
- An air compressor left powered on, but not operational, still uses about 70% of its power.
- Faulty door seals can increase the rate at which industrial refrigerator units use power by 11%.
The good news is that with the proliferation of smart technology, today’s managers have an expanding toolset at their disposal to understand how their facilities are operating. This new stream of data can help managers optimize their operations with new technology and digitized processes. Often, that means the installation of energy efficient systems for everything from lighting to a manufacturing assembly line. As business guru Peter Drucker famously said: “What gets measured, gets managed.”
Building a green business supply chain
But there’s a catch. These solutions often require significant expertise and upfront capital to successfully implement. It can cost millions to install energy efficient distribution systems, and these might not start delivering returns on that investment for years. This means that, for many small- to medium-sized enterprises (SMEs), such solutions remain out of reach.
This is certainly true for China’s 11 million small and medium-sized factories, despite the Chinese government’s proactive stance on pollution reduction. These businesses consume 60% of the country’s energy output, and they want to respond to the Chinese Government’s push for greater energy efficiency, while also taking tangible steps to reduce their operational costs and grow their businesses. But they often lack the management experience, technical know-how and access to financing to retrofit energy efficiency initiatives, and get the corresponding benefits.
GE wanted to remedy this. The company works with several thousand suppliers in China, many of whom operate these smaller factories. But rather than phasing out the most energy inefficient suppliers, GE instead asked us to investigate how it could help these SMEs build better supplier chains, thereby improving the GE supply chain, and helping the Chinese government hit its energy reduction targets?