On a quest to help Chinese factories cut costs and reduce energy use, an entrepreneur works the assembly line.

Taryn Sullivan has worked every job in a Chinese factory. After years of traveling to China to source and develop products for American companies, the founder and CEO of Efficiency Exchange wanted a deeper understanding of how Chinese factories work.

“That’s why I went and worked at a factory and I worked on the line,” Sullivan says. “I soldered PC boards, I ran the ERP [enterprise resource planning software], I ran incoming quality inspections, and I ran the warehouse.”

Sullivan encountered inefficient practices and antiquated systems that eroded small and medium-sized factories’ already-thin profit margins. “When you go into these factories, everything is chicken scratch on pieces of paper,” she says.

Those visits, along with her experience sourcing and developing products, inspired Sullivan to start a company that would lower costs for and reduce energy use in Chinese factories. Her Washington, DC-area company now builds web-based cost management software specifically for Chinese factories called EEx Charge. Users input information from their electricity bills, and the program provides customized recommendations for cost savings.

Sullivan, a George Washington University graduate who studied Chinese language and literature and Asian studies, put her Mandarin language skills to use, chatting with factory workers and telling jokes. She slept in the workers dorms, ate in the cafeteria, and played basketball with workers after hours.

Managing cost increases

Cost increases have become a fact of life for companies in China. In 2013, cost increases topped the list of concerns for American companies in China, according to the US-China Business Council’s annual membership survey. (USCBC is the publisher of the China Business Review). Ninety-six percent of survey respondents, executives at American multinationals, said that rising costs were a concern for their company’s operations in China.

But multinational corporations are not the only firms worried about increasing costs. Small- and medium-sized factories in China are also being squeezed by demands from workers for higher wages, the strengthening of the renminbi, and the increasing costs of raw materials.

Many small factories have faced a volatile marketplace for years. These factories produce products on an order-by-order basis; very few have regular contracts with large Chinese or multinational firms that consistently purchase their goods. “That paycheck is not even consistent or regular,” Sullivan says. “You’re constantly letting go of people, hiring new people, training new people, and then your suppliers are also feeling that same pressure.” Compounding the problem is that many of the factories Sullivan visited lacked modern systems to properly manage their resources.

The search for reliable data

Before starting Efficiency Exchange, Sullivan sourced products from factories around the world for American companies. At the time, larger companies were cutting out the middlemen—importers and wholesalers—to develop their own private labels and increase their profit margins.

Sullivan oversaw the process of developing products from scratch with a manufacturer—working with engineers and designers, deciding what materials to use, ensuring that the product was designed to be packed and shipped efficiently, and ensuring that the product met quality and price standards.

But the process was never smooth. Sullivan grew frustrated with the ad hoc systems she was using to manage hundreds of products at a time in factories around the world, and noticed that her work was suffering. She loved solving problems like why a product was defective or why the price of one of the inputs was spiking. But all that data was trapped in her head.

“It was really, really inefficient,” she says. “And I started seeing it in dollars.”

In one of her positions with an American wholesale company, Sullivan started to work on a system to organize and sort through the data she was receiving on the products she was managing, but something was missing.

“I had this nagging sense the whole time about it that all this data, where it starts, is at the factory,” Sullivan says. “I can come up with all these concepts and designs, and I can send those to suppliers, but there’s a whole host of information that [is] actually related to how this gets made. If they don’t have good systems to do it [at the factory], whatever data they put into my system is not very reliable.”

But there was one source of data she could rely on: a factory’s electricity bill.

“You had real data because they paid for it. It also had the cost on there, which matters to the business owner,” she says.

Before Sullivan and her team developed EEx Charge, Sullivan decided to learn about the energy industry and how to conduct energy audits. She says that at the time even the factories that could afford energy audits were not implementing recommendations because the options were either too expensive or too complicated.

So instead of collecting dozens of pieces of data as in a traditional energy audit, Sullivan narrowed down the data points to only those she felt would provide useful, actionable information. Simplifying the data not only helped her design a better product, but it also allowed customers to learn the software as they use it, educate themselves about their energy use, and make easy changes to lower their electricity bills, she says.

Efficiency Exchange has signed up more than 100 factories so far, and Sullivan says helping Chinese factories manage their electricity use is just the beginning. Sullivan says the average Charge user saves 10 percent on their monthly electricity bill. The company eventually wants to tackle other energy types, raw material, and labor efficiency in future versions of the software.

But more than just factories could benefit from energy-saving measures. As the world’s largest manufacturer and energy consumer, China is also the world’s largest emitter of carbon dioxide, according to the US Energy Information Administration. As China’s cities face record numbers of hazardous smog days, the central government has announced plans to curb air pollution, including stricter fines on polluters and a fund to reward cities and regions that reduce air pollution. The government’s plans remain vague, but China’s industrial sector, which accounts for roughly three-quarters of the country’s electricity use, could face increasing pressure to use less energy.

Small reductions in energy use at many factories could have a big impact, Sullivan says.  “If we can help every factory save 5 percent, at scale that’s more than any other impact that I’ve seen of any other initiative,” she says. “I believe when you do what’s smart in looking at long-term value for a business, you do what’s good for society and the environment.”

[author] Christina Nelson ([email protected]) is editor of the China Business Review. [/author]

(Photo by Ian Southwell via Flickr)

Posted by Christina Nelson