An electric power utility was experiencing flat demand but high margin spikes requiring it to ramp up its generation assets to maximum output and back down again in minutes. In addition, deregulation had created cost pressures that were putting a premium on efficiency. The utility asked McKinsey to help it build frontline capabilities, introduce lean tools and skills, and challenge traditional thinking on performance limits in its assets and operations.
Our initial diagnostic revealed that the utility ran at a loss during low load, back-end controls were outdated, plant operators had fixed views of technology limitations, and the old “baseload” days had left a legacy of complacency. We helped form a cross-functional team that set to work to challenge temperature limits, protocols, and long-held assumptions about the plant’s value to the company.
We conducted a pilot lean program in one of the client’s power plants and engaged more than 80 percent of its staff in a new fact-based process for solving problems and generating ideas. To monitor performance and facilitate daily problem-solving, we worked with the client to create key performance indicators and install 19 performance boards that are updated daily by crew and supervisors and weekly by plant management. By increasing communication between the front line and managers, the boards free up supervisors’ time for coaching and training people in the field, as well as encouraging changes in employees’ mind-sets, behaviors, and capabilities through a renewed focus on individual and organization-wide performance.
After engaging operators in reexamining customary procedures and behaviors, we were able to identify heat losses across all plant equipment, which were remedied through the installation of insulation that significantly reduced auxiliary load. Using lean error-proofing methods, we helped save fuel costs and shorten boiler start-up time by analyzing start-up procedures and correcting valve settings to achieve optimal flame.
To detect waste in plant processes, we began by examining the client’s $13 million annual spending on lime before extending the analysis to other chemicals. Our team helped redefine the scrubbing target, identify chemicals that were no longer needed for compliance or could be switched to bulk purchasing, and redesign operating procedures.
Having found that up to 20 percent of maintenance crew time was spent waiting for permits, we mapped the request process, identified break points, and investigated why time was lost. We then helped the client standardize the process and define metrics and milestones for tracking.
The pilot achieved substantial advances in key performance indicators at the plant. Schedule compliance increased from 75 to 92 percent, backlogs in work orders were reduced by 18 percent, and the proportion of time supervisors spent in the field doubled from 30 to 60 percent.
With our help, the client was able to identify opportunities for impressive financial and operational improvements. For instance, it could save $1.7 million a year by cutting its consumption of specialty chemicals, and a further $400,000 per year by reducing the number of same-day clearances from 70 to 12 percent.
In addition, the pilot plant achieved a 100 British thermal units/kilowatt hour improvement in heat rate with no capital expense, and captured $7.5 million per year in incremental earnings by improving its ability to stay at minimum load but ramp up to capture margin spikes. Eighteen months after our work began, the plant continues to engage the front line to identify the next horizon of operational excellence and pursue a total impact of $16 million per year, or $9.5 million per gigawatt per year.