Energy Competitive Advantage
Mo Rousso has written extensively about the concept of eCOGS, or energy cost of goods sold. By moving your energy costs above the gross margin line, you have much more visibility and control over that cost. For today's topic, he writes about energy cost reduction as an energy competitive advantage.
When a business creates and sustains profits greater than its rivals, it possesses an energy competitive advantage. The top three costs for most businesses are labor, raw materials, and energy.
Management guru Michael Porter identified two basic types of competitive advantage:
- Cost advantage and
- Differentiation advantage
A competitive advantage exists when a company is delivers the same benefits from products and services as their competitors. But at a lower cost (cost advantage) or they deliver benefits that exceed those of competitor offerings (differentiation advantage).
A competitive advantage creates additional value for a company’s customers while yielding superior profits.
So, how does energy cost reduction fit in as an energy competitive advantage? First of all, if it's sustainable; meaning that the business has an on-going program for measuring, reducing, and verifying energy cost reduction, then it is a cost advantage.
Secondly, if it enhances sustainability, say through a suite of green initiatives that the market values, then it is a differentiation advantage.
Fortunately you can create an energy competitive advantage through both cost and differentiation simultaneously by employing prudent energy cost reduction measures.
In my opinion, these measures fall into 4 categories:
- Sustainability Initiative – the creation of a plan, implementation of initiatives, inculcation within company culture, and launch of a comprehensive marketing program trumpeting results.
- Distributed Generation – rooftop solar, for example, especially when coupled with a switch to a solar friendly tariff. Many of our clients see significant rates of return on their investment.
- Demand Reduction – through common facility improvement measures, such as lighting and HVAC controls, which also yield high returns on investment.
- Energy Analytics – such as our PredictEnergy™ software to give visibility into energy consumption habits and to create the ability to implement eCOGS on a per SKU basis.
At HelioPower, we are experienced and experts in helping our clients enjoy a competitive advantage through energy cost reduction. Please contact us for a free, no obligation consultation.