Part 1 of this case history described how Qualtek, a 70-person metal product manufacturing company based in Colorado, made a decision to adopt the principles of sustainable business as a key driver of its corporate strategy.
From the beginning of its journey, Qualtek’s leadership has worked towards the goal of making sustainability a part of what CEO Tony Fagnant calls “the fabric of the business process” and was determined to involve its staff in this effort. A so-called E-team was formed as a focal point for creating and evaluating sustainability ideas. It is kept “fresh” by having one person cycle out and a new member join the team every six months. The company was also adamant about initially addressing the low-hanging fruit areas that would have a significant impact on manufacturing costs.
The company decided to focus first on utilities, which accounted for about 12 percent of total operating expenses. Electricity costs represented nearly $20,000 per month, with water an additional $3,000. Aided by rebates from the local utility, an early initiative was to replace old metal halide lighting in much of the manufacturing area with T-5 fluorescents, which are nearly 40 percent more energy efficient. This change saves the company approximately $2,800 per year, or just over one percent of its total annual electricity expense.
A larger, more impactful change was replacing the traditional air conditioning system with evaporative cooling units from Coolerado which use roughly 50 percent less electricity. Anyway you look at it, this project achieved impressive financial returns. Simple payback on the evaporative cooling units that replaced the old A/C units was in the range of 2–2.5 years. Assuming a life expectancy of 10 years for the new units and constant annual dollar electricity savings (a very conservative assumption given the steadily rising costs of energy), the internal rate of return (IRR) ranged between 32 percent and 50 percent depending on the unit installed, with positive net present values (NPVs) assuming a cost of capital of 12.5-percent (a highly conservative discount rate in today’s cheap money environment).
Another high impact electricity saving initiative has been to reduce the ramp-up speed of the company’s biggest energy hogs, the vacuum furnaces used in the heat treatment department. This slight operational process modification has enabled Qualtek to reduce electricity usage by 46 percent per cycle, or 160KWH, WITHOUT affecting the performance of the furnaces. Collectively, these various initiatives: lighting, evaporative cooling, and vacuum furnace ramp-up timing are saving the company $25-30,000 a year, or 12.5-percent of its overall electricity costs.
A number of water-related initiatives have also been successful money savers. One example was to capture water used for cooling in the heat treatment operation and divert it for reuse in the metal finishing department. This redirection saves 80-100,000 gallons of fresh water annually. At the absurdly low prices we currently pay for water, this isn’t a huge dollar savings, but as Sustainability Leader Chris Fagnant points out, “as water supplies come under more pressure in Colorado, large industrial users are likely to be faced with steeply progressive tariff structures such that every marginal drop saved will represent real money. Besides, it cost the company pocket change to make the diversion.”
Qualtek had already been sending scrap metal off to recyclers and hasn’t so far found other major waste streams that can profitably be reused or recycled. However, as the E-team poked around in this area, it discovered inconsistencies in the company’s trash hauling contract. Working with the hauler to eliminate the inconsistencies enabled it to save several hundred dollars per year. It was a no-brainer that took a few minutes of work and a couple of phone calls.
Qualtek quickly realized it could not be sentimental about how it evaluates potential sustainability initiatives. It uses a combination of simple payback, ROI and IRR calculations depending on the length and complexity of the projects up for review. Sustainability initiatives are treated the same as any other type of project and everyone in the company understands this. However, Qualtek has become adept at making use of rebates, tax credits and grants from the local utility and other sources to “bring a (sustainability) project that would otherwise have an unrealistic ROI back into a reasonable range,” as Chris put it.
One example is the 30 KW solar array installed on the roof of the company’s adjacent office building, which certainly wouldn’t have met the company’s investment criteria if not for the “free money” the company found. This project is performing better than anticipated and is expected to pay back the original investment in about eight years, assuming a conventional view of rising energy costs. While this is less attractive than some of Qualtek’s other energy-related investments, what if the price of electricity goes through the roof at some point as a result of a carbon tax in the U.S.? The system offset electricity costs of $2,335 in the first year.
One area often overlooked in terms of sustainability is RISK. Over 20 years ago, Qualtek stopped using perchloroethylene, formerly a standard – and very effective but highly toxic - degreasing chemical in the metal manufacturing industry that represented an existential risk in terms of the regulatory system. The current based degreasing system, like many early sustainable technologies, while environmentally acceptable, does an inadequate job of cleaning.
Qualtek is testing an alternative degreasing system that will save money while maintaining the company’s determination to avoid a potentially catastrophic risk in the form of a worker’s compensation claim arising from exposure to toxic chemicals. Is this good business thinking? Of course. Would it be going on if the sustainability initiative hadn’t focused everyone’s attention on all things related to negative environmental and social footprints? Perhaps not.
Stay tuned to Triple Pundit for Part 3 of this case history, which will look at the social and human impacts of sustainable business on Qualtek and some of its ambitious plans to drive sustainability to the next level.
Sustainability4SMEs: Graham Russell & Martha Young
Graham Russell brings 25 years of CEO experience in the environmental services industry to his current role as a sustainability professional. He currently teaches sustainable business in the University of Colorado, Denver MBA program and chair’s the School’s Managing for Sustainability Advisory Council. He provides sustainability and cleantech consulting services to SMEs through TrupointAdvisors and is on the board of the International Society of Sustainability Professionals.
Martha Young has been an industry analyst and writer for 20 years. Her expertise is in small and mid-sized businesses, information technology and energy. Young co-authored four books on virtual business processes (cloud computing), and project management for IT. She is on the board of two small Texas-based businesses, and acts in a technical advisory and business strategy capacity for an east coast venture capitalist.