Material audits increase profits – seeing is believing

‘Been there done that. You won’t achieve anything without major investments or disturbing product quality.’ This is a commonly held misconception regarding the scope of investment and its effect on end products when discussing the merits of introducing resource savings measures. Pilot audit cases in Finland and a decade of small and medium size enterprise audits in Germany have shown, however, that real and significant savings can be achieved with relatively small investments in material audits. In short, resource efficiency pays, and does so handsomely.

Climate change has focused efficiency optimization efforts on energy savings and in Finland we have over 20 years’ experience in energy auditing. Statistics show, however, that in the manufacturing sector material costs account for around 55 % to 72 % of expenses and energy costs for less than 5 % (see Diagram 1). The potential savings to be gained from material efficiency are thus far greater than those of labour and energy combined. Material costs also account for the majority of costs in the German manufacturing industry, amounting to 45 % of total costs in 2011 (www.resource-germany.com).

This is not to say that we should not focus on reducing energy consumption, we naturally have to, just that it should not be our sole focus.

It should not be forgotten that materials savings have a significant positive environmental impact by reducing the amount of materials transported and waste produced in addition to keeping more cash in the company bank account. It is, in essence, a win-win situation for business and the environment.

Concrete savings have been achieved

The results of the first material audits carried out in Finland have been promising. In the audits, an average of 40–100 concrete savings measures were identified according to Motiva, the Finnish state-owned energy and material efficiency company. The calculated yearly savings potential in the material audits carried out in five medium-sized industrial enterprises was 0.3–1 million euros a year per company, of which an estimated 20–50 % was realized during the first year.

The savings potential of a single material flow is estimated to be as much as 30 %. Germany has a decade’s worth of experience in material auditing. The savings potential of Germany’s material efficiency projects promoted by Demea (Deutsche materialeffizienzagentur) have on average been 2.4 % of company turnover.

Implementing the material audit

In Finland material audits that are carried out within the Motiva material audit programme in line with the national resource efficiency programme published on 2.1.2014 are subsidized by the Ministry of Employment and the Economy.

Motiva’s systematic and subsidized audit method makes use of the enterprise’s own experts and the neutral external viewpoint of a Motiva-certified consultant. If necessary the consultant can be involved in any subsequent actions such as investment planning, feasibility studies and detailed engineering. Experience has shown, however, that many of the savings can be achieved also through operational procedural development or minor layout improvements.

The material flow cost accounting method (MFCA ref. ISO 14051:2011) is used to calculate cost data for material flows in each step of the process, including material, energy, labour and waste management costs. The material and cost flows can be visualized with Sankey diagrams (see Diagram 2) and with value stream mapping procedures.

Based on the material audit it is easy for companies to systematically carry out improvements step by step; starting with operational procedure updates and continuing with the shortest payback time investments.

Material audits should result in specific proposals regarding which measures to take to guarantee savings. This includes an estimate of the benefits, the potential for savings and possible investment needs as well as suggestions for further action.

How long will the audit take?

The auditing process can last from a few months to half a year, depending on the target enterprise’s size and area of operation, as well as the level of initial data and available resources for the job. The consultant’s work on the audit usually requires approximately 2–3 months. The consultant main task is to act as facilitator in the project and be responsible for the work progress and reporting. The consultant also brings to the process his/her specialist experience in material balance calculations and cost accounting; a fresh and objective outsider’s perspective.

A useful way to get started is to complete a simple online test on Motiva’s web pages. The test provides a quick audit of the enterprise’s material efficiency. If necessary, an energy consultant can be brought on board to provide a more comprehensive evaluation of the savings potential.

Practice has clearly shown that materials audits identify concrete savings measures that lead to the optimized use of materials and increased profits. This is no longer debatable. Statistics indicate that there is a much larger savings potential in material related costs in the manufacturing sector than energy related costs. The discussion should shift from whether material audits bring benefits, to how the suggested savings measures can be implemented in the most cost effective and timely manner.