Why Adidas asked a grad student to help overhaul its energy use

Why Adidas asked a grad student to help overhaul its energy use

adidas Group EDF energy efficiency sustainability
adidas Group/EDF
German consumer products giant adidas Group is focusing on energy efficiency to drive cost reductions and improve global operations.

Eric Shrago didn't know anything about distribution centers — much less the intricacies of how they're powered — when he stepped into adidas Group's sprawling 2 million-square-foot Spartanburg, S.C., distribution center last summer.

And that was exactly the point.

Adidas sustainability executives were looking for an outside perspective to help identify ways to improve the efficiency of all the motors, belts, sensors and controls that keep the facility up and running, allowing the sports apparel and shoe manufacturer to get its goods ready to ship to the retailers hoping to sell them.

Shrago, a former Goldman Sachs analyst turned graduate student at Columbia University serving as a member of the Environmental Defense Fund's Climate Corps (PDF), fit the bill — and he soon learned just how much of an outsider he really was.

"I thought in two hours on Google I'd be able to find an example," Shrago recalled of his initial research on models for distribution center efficiency. "In two weeks on Google I didn’t find an example.”

Elizabeth Turnbull Henry, senior manager for energy and environment at adidas Group, was already familiar with the feeling of parachuting into a large multinational corporation to propose sustainability improvements. She, too, had been a Climate Corps fellow paired with adidas Group.

Fast forward to 2014, and Turnbull Henry was looking to leverage the company's greenENERGY Fund, started in 2012 as a kind of "carbon reduction venture capital" experiment before ramping up to a multimillion-dollar budget by the following year.

Because the fund has a strict 20 percent return on capital target across the portfolio, high-margin projects such as LED lighting and energy offsets already had proven their worth. Distribution centers, however, proved a tougher nut to crack.

“That is pretty sacred equipment," Turnbull Henry said. "These have to run so we can get things out the door on time. Downtime is so expensive."

Diving into distribution

Once Shrago recovered from the initial shock of the scale and complexity of a commercial distribution center, he began glimpsing areas for potential improvement.

As is often the case with new sustainability initiatives, many of his conversations centered around costs and ways to improve existing processes: How did the inefficient motors currently in operation get there in the first place? Should they be retrofitted for more efficient models, or does it make more sense to only replace them once they've died? Better yet, does the company even know the true lifetime costs of the equipment currently in operation?

"What was abundantly clear is lifecycle has got to be considered," Shrago said. "These aren’t small cap ex things that you’re doing."

Because much of the company's material handling equipment is purchased with a 10- to 30-year lifetime expectancy, one early judgment call had to be made on whether it was worth it to retrofit equipment. Based on the city's $.08-per-kWh electricity rate, proactively replacing motors wasn't a wise spend; instead, the company will wait until motors burn out to buy "premium efficiency" models, which should pay for themselves within two years.

Other fixes, however, he found from merely observing.

One automated software process designed to shut down after a 15-minute cycle somehow had started running on a loop. He called for a change in programming. Another example: Instead of running trash belts continuously, Shrago also proposed letting waste accumulate for 15 minutes, then running the belts for 15 minutes — a seemingly simple change that should cut run time in half and cut associated costs by up to one-third.

And then there were Shrago's more nuanced suggestions, such as making workstations interchangeable, which should save $7,000 per lane, per year for every 10 percent reduction in runtime, because unnecessary equipment can be turned off while another type of task is being completed. Adding weight sensors to a belt could cut energy costs for that system by 30 percent to 50 percent, as belts currently run overtime to take away cartons of products before they're even ready to go.

In addition to heeding those suggestions, Turnbull Henry said her team is considering re-training distribution center staff on efficiency, evaluating opportunities to deploy renewable energy and emphasizing to employees around the world that new equipment isn't the be-all, end-all for potential energy savings.

"Virtually every product you touch on a daily basis goes through some sort of conveyor system," Shrago said. "I would encourage anybody and everybody to look at that."

Rethinking design

While Shrago and adidas Group were left with no shortage of potential equipment upgrades or retrofits to consider, much of the company's efficiency challenges really can be traced back a step further to conception and design.

"Material handling equipment is really complicated," Turnbull Henry said. "Most companies are outsourcing big parts of that design."

The problem: Bids are considered almost entirely based on up-front costs, and efficiency simply isn't a market condition that contractors are used to prioritizing.

Both Turnbull Henry and Shrago spent time discussing the lack of sustainability priorities with contractors, who overwhelmingly pointed to demand as the reason for not thoroughly exploring lifetime costs or sustainability implications.

“They’re not getting the market signal from brands like Adidas that this is important," Turnbull Henry said. "If you do nothing else, just say, 'I care about this,' and let the technical experts run with it."