Journal of Manufacturing Systems 28 (2009) 41–45

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Journal of Manufacturing Systems

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Technical note

Factors affecting the implementation rates of energy and productivity

recommendations in small and medium sized companies
Farouq Alhourani a,∗ , Umesh Saxena b,1
a
Information and Technology Management Department, John Sykes College of Business, University of Tampa, 401 W. Kennedy Blvd, Box O, Tampa, FL 33606, United States
b
Department of Industrial and Manufacturing Engineering, College of Engineering and Applied Science, P.O. Box 784, University of Wisconsin-Milwaukee, Milwaukee, WI 53201,
United States

article info abstract

Article history: The Industrial Assessment Center (IAC) at the University of Wisconsin-Milwaukee has worked with
Received 25 October 2008 more than 500 manufacturing companies to identify energy and productivity saving opportunities for
Received in revised form small and medium sized companies. The most common saving recommendations are summarized. The
22 February 2009
implementation rates of the recommendations were only about 40%. The logistic regression analysis
Accepted 14 April 2009
Available online 9 May 2009
is used to investigate the factors that affect the implementation rates of the recommendations in
147 manufacturing plants from seven different types of industries. Six possible factors affecting the
implementation rates of the recommendations are investigated; payback period, sales, number of
employees, plant area, annual working hours, and the industry type. It is determined that each type of
industry deals differently with implementing the recommendations. Furthermore, the recommendation
type (energy or productivity) and payback period are the main factors that affect the implementation
rates. It was also found that the companies which run on full capacity or work more hours are less likely
to implement the recommendations.
Published by Elsevier Ltd on behalf of The Society of Manufacturing Engineers.

1. Introduction principles involved in energy management. Smaller plants are

The manufacturing sector in the United States accounts for
more than 42% of the total energy consumption. The small
and medium sized manufacturing plants (those with fewer
than 500 employees) represent more than 98% of over 375,000
establishments in the United States [1]. It was established that
there is a high potential to save energy, improve productivity, and
reduce waste in the manufacturing industry sector which has not
yet been taken by firms. It is estimated that if the industry exploited
fully the practical conservation energy potential, in three to four
years a savings rate equivalent to 6 million barrels of oil per day
could be achieved [2].
Energy cost in small and medium sized manufacturing plants
is usually a small portion of the total production cost. Thus,
energy cost is receiving relatively little attention from the financial
point of view [3]. The lack of initiative, information availability
and expertise are some of the barriers in introducing energy
management in small and medium sized manufacturing plants.
Another problem is the lack of knowledge about the underlying
∗
Corresponding author. Tel.: +1 813 253 6221 x 3505; fax: +1 813 258 7408.
E-mail addresses: falhourani@ut.edu (F. Alhourani), uksaxena@uwm.edu
(U. Saxena).
1 Tel.: +1 414 229 4052; fax: +1 414 229 6958.
0278-6125/$ – see front matter. Published by Elsevier Ltd on behalf of The Society of Manufacturing Engineers.
doi:10.1016/j.jmsy.2009.04.001
less likely to be able to afford a full- or part-time energy
or productivity manager on site, or conduct a comprehensive
energy and productivity audit to identify and implement saving
opportunities.
The US Department of Energy (DOE) has operated an Industrial
Assessment Center (IAC) program since 1976 to provide informa-
tion to the smaller firms and give them access to the benefits of
energy and productivity audits. The program comprises a network
of 26 university-based centers that provide energy assessments for
small and medium sized manufacturing plants at no cost to compa-
nies. Beginning in 1994, the program was expanded to offer assess-
ments that address productivity assessments in addition to energy
use.
A study by the DOE summarizes the IAC program and the
results through 1994 [4]. It reports that the recommendations
implemented by the participating companies have resulted in $
517 million in savings, at a federal program cost of $ 27 million.
Olszewski, Leach and McElhaney [5] showed that in some cases,
the non-energy benefits identified (e.g., reduced scrap, increased
productivity, and maintenance reduction) have been greater
than the energy savings [5]. Chejne et al. [6] found that about
50% of all savings could be carried out without investment
when the recommended actions included adequate operation of
processes and equipment, satisfactory maintenance practices, and
implementation of new technologies.
42 F. Alhourani, U. Saxena / Journal of Manufacturing Systems 28 (2009) 41–45

Recommendation %
Tonn and Martin [7] conducted a follow-up survey of 42 20
companies; the survey concluded that the program positively 15
influenced the companies’ attitudes about energy efficiency and
10
productivity improvement decision making. They also noticed a
5
significant positive change in the firms’ energy efficiency decision
0
making within a relatively short period of time after receiving

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one of the three IAC benefits; a direct energy assessment, the

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employment of a student alumnus of the IAC Program, or the use

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of energy efficiency information from an IAC website.

Beyene [8] studied the energy consumption data for 300 man-
ufacturing plants from different Standard Industrial Classification
(SIC) codes in Southern California. Beyene found that unless an en-
ergy recommendation represents large saving, industry reaction to
recommendations of payback in more than two years is cautiously
enthusiastic or casual. Beyene [8] also studied the relationship be-
tween the SIC and energy use profile. He found that the indus-
try classification standards do not reflect the energy consumption
and offer little hint to draw pertinent conclusions about the energy
consumption profile for any group of manufacturing plants defined
by the SIC classification codes. This is because energy intensity is
more a function of the process, not the industry type.
The IAC at the University of Wisconsin-Milwaukee has worked
with more than 500 manufacturing companies in Wisconsin and
Illinois states. Data from 147 companies from 7 different SIC codes
are used to summarize the most common energy and productiv-
ity recommendations submitted to companies. This study also ex-
amines the factors that influence a firm’s decision to implement a
recommendation. The factors of interest are payback period, sales,
number of employees, plant area, number of working hours per
year, type of the recommendation, and the industry type based on
the SIC code. Logistic regression is used to develop a model that
estimates the probability of implementing a recommendation.
2. The assessment process
To qualify for an IAC assessment, a manufacturing plant must
meet the following criteria:
• Within Standard Industrial Codes (SIC) 2000–3900.
• Within 150 miles of the host campus.
• Gross annual sales below $ 100 million.
• Fewer than 500 employees at the plant site.
• Annual energy bills more than $ 100,000 and less than $ 2
million.
• No professional in-house staff to perform the assessment.
Each assessment team conducts an extensive data gathering
preassessment and then carries out a one-day site visit to an
industrial plant. Following the site visit, the team prepares a report
for the plant that includes information about several assessment
recommendations. These recommendations are a set of cost saving
opportunities in energy and productivity. Each recommendation
included in the report contains sufficient technical and cost details
including the anticipated savings, implementation cost, and simple
payback period. The average annual savings is about $ 45,000.
After six months to one year of submission of a technical
report outlining the recommendations, each company is contacted
to find out which recommendations were implemented or will
be implemented and which recommendations are not. The
results of this interview, along with the data on the plant and
the original recommendations, are maintained in an available
database. It is found that the average implementation rate of
the recommendations is only about 40%. Thus, the goal is to
increase the implementation rates by investigating the factors that
influence it.
H
Recommendation Type
Fig. 1. Percentage of each type of recommendation.
3. Common energy and productivity recommendations
A database is developed for 147 companies for which recom-
mendation reports were submitted. The total number of recom-
mendations submitted was 1189. A summary of the most common
submitted energy and productivity recommendations is as follows:
3.1. Energy recommendations
• Boilers: The boiler’s efficiency can be improved by simply
adjusting the boiler air–fuel ratio manually or with an
automatic oxygen trim system.
• Heat recovery: Significant amount of heat is lost through the
boiler stack. This heat can be recovered and used by installing
an economizer in the stack. Also, waste heat from hot flue gases
can be used to preheat combustion air.
• Motors: For motors with large horsepower and variable loads,
it is energy efficient to install variable frequency drives.
Also, ordinary V-belts in the motors should be replaced by
synchronous (energy efficient) belts.
• Compressors: As it is easier to compress cold air than hot air,
using a ductwork to bring cooler air from outside to the intake
of the compressor will reduce the energy use. Furthermore, in
many plants, up to 15% of compressed air is wasted due to
leaks in the system. Repairing these leaks also lowers the energy
consumption. Also, reduce the pressure of compressed air to the
minimum required.
• Lighting: Many plants have HID lighting (Metal Halide and
High Pressure Sodium). Replacement with energy efficient (T8)
lamps can save energy. Also, office lighting can be changed to T5
with electronic ballasts. Furthermore, occupancy sensors can be
installed in the low traffic areas.
• Heat, Air Ventilation and Cooling (HAVC): In many plants, doors
are not well protected. Installation of an air curtain (or vinyl
strips) can reduce the heat loss through the doors during hot
seasons. Also, timers or thermostats can be installed to control
the temperature.
• Scheduling: Rescheduling plant operations or reducing the load
can help in avoiding peak times during the day. Also, a shift can
be made from daytime to nighttime operations.
Figs. 1 and 2 show the percentage and the implementation rate
of each type of energy recommendation respectively. The figures
show that the compressor, lights, and HAVC are the most common
recommendations.
3.2. Productivity recommendations
• Automation: Automation can improve productivity by reducing
manufacturing costs through better control of production.
Parts are loaded, fed, and unloaded on machines more
efficiently, machines are used more effectively, and production
is organized more efficiently.
 F. Alhourani, U. Saxena / Journal of Manufacturing Systems 28 (2009) 41–45 43

% Implemented 50 60
40
50
30

% Implemented
20 40
10
30
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Recommendation Type 26 27 30 33 34 35 36
SIC
Fig. 2. Implementation rate for each type of recommendation.
Fig. 3. Implementation rate in each industry.

Table 1
Some important characteristics of the companies studied. 100.00 SIC 26
80.00 SIC 26 SIC 33
Characteristics Mean Std. Deviation
SIC 34 SIC 26
SIC 35 SIC 36
Annual sales ($ Million) 25.7 19.9 60.00 SIC 30
No. of employees 179.3 124.6
40.00
Plant area (1000 ft2 ) 144 120.3
Annual working hours 5512 1649.7 20.00
Energy use (MMBTU) 50,945 93,738
Energy saving (MMBTU) 2610.1 3107 0.00

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Productivity saving ($) 43,639 96,998

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• Work cell and assembly line balancing: Many manufacturing

H
plants suffer a great deal from the problem of bottlenecks
Fig. 4. Highest implementation rates for each recommendation type.
in work cells and assembly lines. This imbalance can create
huge idle times that result in high production cost and longer 50000
throughput times. Thus, all people, cells, and departments need 45000
to be balanced with each other. This can be done by taking some 40000
work away from a busy station and giving it to someone who 35000
does not have enough work or by redesigning the bottleneck
Savings ($)

30000
station to make it more efficient. 25000
• Redesign workplace: Reorganizing the workplace and the 20000
development of proper tools and fixtures can make the station 15000
more efficient and productive and may reduce the number of 10000
operators required to do the job. 5000
• Trash: Installation of a compactor for trash can reduce waste 0
disposal costs. 0 10000 20000 30000 40000 50000 60000
• Evaporators: Installation of an evaporator that will evaporate Implementation Cost ($)
water from non-hazardous liquid waste will reduce the volume
Fig. 5. Total potential annual saving vs. total implementation cost.
and cost of disposal of the coolant used.
• Coolant: Coolant life is increased significantly by filtration.
Portable coolant filtering systems will reduce the cost of implementation rates for HAVC recommendations are the highest
disposal of the coolant used. in SIC 33 industries.
It is found that 64% of the implemented recommendations
have a payback period of 1 year or less. It is also noted that,
4. Data analysis
in general, those recommendations with high implementation
costs also have higher potential savings, but at an ever-declining
A database for 147 companies for which reports were submitted
rate, a manifestation of the law of diminishing marginal returns.
is developed. This includes 21 companies from 7 different SIC
However, as Fig. 5 shows, there are many exceptions.
codes: 26 (paper and allied products), 27 (printing, publishing, and
Let Y be a dichotomous random variable for which the value
allied industries), 30 (rubber and miscellaneous plastic products),
1 represents the implementation of a recommendation and 0 rep-
33 (primary metal industries), 34 (fabricated metal products), 35
resents no implementation. The probability that a recommenda-
(industrial and commercial machinery and computer equipment),
tion in this population is implemented can be estimated by the
and 36 (electronic and other electrical equipment and components
sample proportion (p̂). Thus, the probability for a recommendation
except computers). A complete implementation report is available
can be estimated by:
for each company. Few main characteristics of these companies are
shown in Table 1. 481
The total number of the recommendations (events) submitted p̂ = = 0.4045. (1)
1189
for the 147 companies is 1189 recommendations of which 481
were implemented. Fig. 3 shows the implementation rate in Overall, 40.45% of these recommendations were implemented.
each type of industry. The figure shows that SIC 35 and SIC 26
industries have the highest implementation rates. Fig. 4 shows the 5. Probability model development
highest implementation rate of each type of recommendation in
the industries studied. The implementation rate for compressors The logistic regression statistical technique is used to accurately
and heat recovery recommendations are the highest in SIC 26 determine the significant factors that affect the implementation
industries (about 85% and 70% respectively). Furthermore, the rates of the recommendations. The determined significant factors
44 F. Alhourani, U. Saxena / Journal of Manufacturing Systems 28 (2009) 41–45
with a certain level of significance are used to develop a
probability model to estimate the probability of implementing a
recommendation.
5.1. Logistic regression models
Logistic regression is a statistical technique that uses one or
more independent explanatory variables (factors) to predict the
probability of a categorical response. Logistic regression is well
suited for modeling the probability or likelihood of the occurrence
or non-occurrence of some event [9]. The response or dependent
variable in logistic regression is the logarithm of the odds ratio
p/(1 − p), where p is the probability of a data value being in one
of the categories [10]. The logit transformation converts a variable
constrained between zero and one into a continuous variable that
is linear with respect to the vector of the explanatory variable, X :
Y = Log[p/(1 − p)] = B0 + B1 X1 + · · · Bk Xk
where
Y is the response variable; [p/(1 − p)] is the odds ratio;
B0 is the intercept;
B1 is the slope coefficient for the first explanatory variable X1 ; and
Bk is the slope coefficient for the kth explanatory variable Xk .
Slope coefficients for logistic regression models are fit to the
categorical response variable by using the method of maximum
likelihood, which optimizes the probability that the observed
data will be estimated from the set of slope coefficients [11].
To calculate the predicted value of the response variable (a
probability), the logistic transformation (the inverse of the logit
transformation) is used. The resulting equation has the form:
(exp(B0 + B1 X1 + ..Bk Xk ))
p= . (3)
(1 + (exp(B0 + B1 X1 + · · · Bk Xk )))
The expression on the right, called a logistic function, cannot
yield a value that is either negative or greater than 1 [12]. Slope
coefficients for logistic regression models are fit to the categorical
response variable by using the method of maximum likelihood,
which optimizes the probability that the observed data will be
estimated from the set of slope coefficients [11]. The implied
calculations have all been computerized and many statistical
packages can generate multiple logistic analyses.
The response or logistic regression is used to examine the effect
of variables on implementation rates of the recommendations as
the dependent variables 0 or 1 (0 means unimplemented and 1
means implemented).
5.2. Developed logistic regression model
All potential factors: payback period, sales, number of employ-
ees, number of working hours per year, and the recommendation
type (energy or productivity) are evaluated by using the logistic re-
gression stepwise selection procedure to help determine the best
possible logistic regression equation. In addition to these factors,
the type of industry based on the SIC codes 26, 27, 30, 33, 34, 35,
and 36 is also evaluated. Six dummy variables are used to repre-
sent the seven types of industries used in the analysis. Each type
of industry is represented by one dummy variable with a value of
‘‘1’’ while the other dummy variables have a value of ‘‘0’’. The SIC
34 industry has no dummy variable and is represented by giving a
value of ‘‘0’’ to all the dummy variables. Furthermore, an additional
dummy variable is used to represent the type of the recommenda-
tion. This dummy variable has a value of ‘‘1’’ when the recommen-
dation is an energy recommendation and a value of ‘‘0’’ when the
recommendation is a productivity recommendation.
A statistical significance level of 0.10 for p-values of potential
factors is used for entry or retention in the equation. The stepwise
procedure starts with one variable and then adds in the next
most significant variable. After each step, the remaining potential
variables are tested for their ability to explain the remaining model
error. The variable that explains most of the remaining model error
is the next to be added. Using the stepwise regression technique
helps one to avoid any multicollinearity problem in the regression
model between the independent variables.
The best logistic regression equation determined from the data
in this study that could be used for estimating the probability of a
recommendation to be implemented is given in Box I where:
p is the probability of implementing a recommendation,
exp is approximately 2.7182,
X1 Dummy variable to represent SIC code 26 industry,
X2 Dummy variable to represent SIC code 27 industry,
(2) X3 Dummy variable to represent SIC code 35 industry,
X4 Dummy variable to represent SIC code 36 industry,
X5 Recommendation type (1: if energy recommendation, 2:
if productivity recommendation),
X6 Recommendation’s payback period, and
X7 Number of the working hours in thousands of hours per
year.
The p-values for these factors are: X1 (0.084), X2 (0.089),
X3 (0.066), X4 (0.039), X5 (0.00), X6 (0.001), and X7 (0.000).
The above results show that the payback period, the recom-
mendation type, and the number of working hours per year are
the most important factors that affect the implementation of the
recommendations. A one year increase in the payback period low-
ers the log odds of implementation by 0.174. This indicates that
the companies mainly invest in the recommendations that have a
lower payback period. Also, if the recommendation is an energy
recommendation, it increases the log odds of implementation by
0.611, which indicates that the companies are interested in im-
plementing energy savings recommendations more than the pro-
ductivity recommendations. Furthermore, each 1000 h increase in
the annual working hours in the company lowers the log odds of
implementation by 0.137. This is mainly because companies that
work more hours are busier in their production and have lower pri-
ority to implement recommendations. The differences in log odds
for the variables – number of employees and amount of sales – are
not likely to differ from zero in the population.
The analysis also shows how each type of industry deals
with saving opportunities. The SIC 34 industry has no dummy
variable and is represented by giving all the other dummy variables
that represent the other industry types ‘‘0’’ values. The dummy
variables of the SIC codes 30 and 33 were not significant and did
not enter the model. This means that these types of industries
are also similar to the SIC 34 industry; while in the SIC 26
industry the log odds of implementation increases by 0.324.
This means that SIC 26 industries are more likely to imple-
ment the recommendations than SIC 34 industries. The SIC 27
and 35 industries are also more likely to implement the recomm-
endation than SIC 34; while the SIC 36 industries are less likely
to implement the recommendations than SIC 34 industries as
the log odds of implementation decreases by 0.395. Therefore,
it can be concluded that the SIC 35 industry (industrial and
commercial machinery and computer equipment) has the highest
probability of implementation and the SIC 36 (electronic and other
electrical equipment and components except computers) has the
least probability of implementation.
Goodness-of-fit of the potential logistic regression is evaluated
with the Hosmer and Lemeshow [9] goodness-of-fit test, which
compares the observed to the predicted implementation values.
The classification table in the SPSS software output in Table 2 helps
 F. Alhourani, U. Saxena / Journal of Manufacturing Systems 28 (2009) 41–45
exp(−0.004 + 0.324X1 + 0.321X2 + 0.346X3 − 0.395X4 + 0.611X5 − 0.174X6 − 0.137X7 )
p=
1 + exp(−0.004 + 0.324X1 + 0.321X2 + 0.346X3 − 0.395X4 + 0.611X5 − 0.174X6 − 0.137X7 )
Box I.
Table 2
SPSS classification table.
Observed Predicted
IMP Correct prediction percentage
.00 1.00
Step IMP .00 610 98 86.2
0 mentation of the recommendations by the decision makers in the
1.00 275 206 42.8
Overall 68.6
percentage
in assessing the performance of the model by cross tabulating
the observed response categories with the predicted response
categories. For each case, the predicted response is the category
treated as 1, if that category’s predicted probability is greater
than the specified cutoff of 50%. Cells on the diagonal are correct
predictions. Cells off the diagonal are incorrect predictions. The
overall correct prediction percentage for this model is 68.6%.
6. Conclusions and recommendations for future research
This paper summarizes the most common saving opportunities
submitted to 147 small and medium sized manufacturing plants
from different industries. The average implementation rate for
147 companies for which reports were submitted to in the last
four years is about 40%. The potential factors investigated using
logistic regression are payback period, sales, number of employees,
number of working hours per year, and the recommendation
type which is either an energy or productivity recommendation.
In addition to these factors, the type of industry based on the
SIC codes 26, 27, 30, 33, 34, 35, and 36 is also evaluated. The
results show that each type of industry deals differently with
the recommendations. It is also found that the probability of
implementing a suggested recommendation to a company is
mainly dependent on the recommendation’s payback period as
it is found that 64% of the implemented recommendations have
a payback period of 1 year or less. The companies are also
generally interested in implementing energy recommendations.
Furthermore, if companies operate on their full capacity or work
more hours, they do not generally give priority for implementing
the recommendations.
45
Further research on other potential factors that affect the imple-
mentation rates of the recommendations should be investigated.
A survey of decision makers to shed some light on the manner
in which they treat saving recommendations may lead to higher
implementation rates. Another factor of interest may be the lack
of understanding of the saving potential and the technical imple-
company. A second visit to the company for submitting a detailed
report with a presentation and discussion with the decision mak-
ers in the company about the proposed recommendations may also
increase the implementation rates.
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