‘Iron Sharpens Iron’

Ethanol producers talk about the advantages of leveraging benchmarking data for a competitive edge.
By Holly Jessen | May 16, 2014

Progressive ethanol producers know that, to be truly at the top of their game, they can’t operate in a vacuum, without comparing their performance to others.  Companies interested in how their operational and financial data stacks up against the competition have a variety of options available to them. Poet LLC is one example of a company with multiple production plants that uses plant performance data to help the company, as a whole, to reach for new levels of success. Some producers participate in benchmarking programs facilitated by a third party, such as through Ascendant Partners Inc. or Christianson and Associates PLLP.

Whatever the method, producers say participating in a benchmarking program has actual bottom line benefits. Internal company benchmarking is an effective way to continually challenge the 26 Poet plants to improve, says James Moe, president, Poet plant management and Poet design and construction. “Competition promotes creativity in finding new ways to make ethanol production even more efficient,” he says. “Additionally, multiple plants working on the same challenges allow the best solutions to rise to the top. This benefits everyone in the long run.”

Ray Baker, general manager of Adkins Energy LLC, says the company joined the benchmarking program facilitated by Ascendant Partners because it believes that “iron sharpens iron.” Early on, the process can be painful, yes, but as trust develops, the participants help each other improve. For the 50 MMgy Illinois plant, the results speak for themselves. Since joining the program, Adkins Energy has improved its ethanol yield, tightened up its operating procedures and seen efficiency gains.

Connie Chappell, benchmarking business consultant for Christianson and Associates, says in a time of widely fluctuating margins, management teams need to know more than just whether the company is profitable. Zeroing in on the most cost-effective ways to maximize plant efficiency and identifying what new technologies to invest in helps a company stay competitive regionally, nationally and globally.  “A plant’s own historical data is informative, of course. Most management teams review how yield, profitability and other factors stack up against their own performance in previous years,” she says. “But it can be even more enlightening to see how the numbers stack up against other plants over time.” 

Different Strategies
Although all Poet plants strive to be the best, it’s a friendly competition, Moe says. On the one hand, competition can prompt plant improvement. If it’s taken too far, in order to “win,” individual plants may refuse to share helpful information with sister facilities. “I think we’ve struck a healthy balance among the Poet plants and it has enabled us to realize consistent incremental improvements as a whole every year,” he says. The company would definitely lose something, if it wasn’t part of the Poet strategy. “It is easy to become complacent and fall back on doing things ‘The way we’ve always done them,’” he says.

The Ascendant Partners program got its start when the management of a few ethanol plants asked that company to facilitate benchmarking for them. The pilot program started up in early 2010. Today, the four original participating plants have been joined by a few more plants, for a total of six companies and seven ethanol plants. Unlike some benchmarking programs, the data isn’t presented anonymously. Each plant opens up its books, delving into the data of more than 100 variables. “We have a very deep set of financial and operational data,” says Scott McDermott, partner and chief operating officer, adding that, rather than being a traditional benchmarking program, it’s more of a “group push for performance and best practices.”

Delayne Johnson, general manager of Quad County Corn Processors, one of the founding companies, said the group spent 18 months, slowly and painfully working to make certain that the data was truly an apples to apples comparison. Timing, for example, affects the result of certain tests, such as ethanol plant yield. So, they settled on specific testing protocol so the data would be as meaningful as possible, with refinements continuing as needed. McDermott confirms that normalizing data collection methods is an area of emphasis. “That has become a really big deal in interpreting the information,” he says. 

The group meets in person once a quarter, with the location rotating among the plants. Typically, it starts the night before with a dinner, as the social aspect is an important part of the participants getting to know and trust each other, McDermott says. Then, nearly a full day is spent at work. About 40 percent of the meeting involves going through the plant performance variables, line by line. Another aspect of the meeting revolves around discussing a specific focal area, such as maintenance, fermentation, risk management or another topic. The company hosting the meeting also gets about 30 minutes to give a presentation about something that they feel is important. As the plants evaluate or implement new technology, the group is kept apprised. “It allows them to benefit from what their peers are looking at, working on,” McDermott says.

Johnson says he is 100 percent certain the program has meant bottom line improvement for Quad County. Two examples of that are dramatic increases in ethanol yield and decreasing distillation energy per gallon produced. “I give part of that credit to our staff, but I also give part of the credit to the benchmarking meetings that we have,” he says, “because we are able to compare the best practices, if you will, to improve the platform for all of us.”

Over time, the group has developed trusting relationships thanks to the benchmarking program. Beyond management talking during meetings, it is evolved to the point where staff from the various plants are able to call each other up to talk about issues they are encountering. For Johnson, that means he can contact another general manager, while the plant manager and operational staff can call someone in the corresponding position at another plant. “In my mind, we are all sister plants,” he says. “We’re all trying to improve our position as an individual plant but because most of us are in different regions, we aren’t competing for the same corn, for example. We’re not competing for the exact same space, so with that in mind, we’re able to be open and honest about things that work well in our companies and hopefully that is able to help out other facilities that have issues.”

The plants have grown such strong relationships that some even have joint purchasing programs. “Frankly, I see more collaboration in this group of independent companies, than I do within some companies,” McDermott says

From a purely data standpoint, Adkins Energy gets plenty of value in participating in the Ascendant Partners benchmarking program, Baker says. But the relationship component is what makes it really worthwhile. “We see our employees taking ownership in the program, openly sharing, and building trust between our organizations,” he says. “We could consider each other competitors but in the end, if we chose to run our business with selfish ambition rather than working together, I don’t think we would be as successful as we are today.  From an industry prospective I believe our most successful times have come when we decided to work with each other.”

Christianson and Associates’ benchmarking program has more than 60 U.S. and Canadian ethanol plants participating. The company rolled it out in 2003 and now has 11 years of data on the ethanol industry, Chappell says. Using data collected quarterly, the benchmarking program allows producers to see, for example, where they land in a common profitability measure, the grind margin. This correlates ethanol and coproduct netbacks minus a plant’s feedstock and energy costs. The data reveals an overall industry average as well as averages for the leaders in the top 25 percent and the laggards in the bottom 25 percent. “Subscribers can also see, at a glance, exactly where their own plant ranks against the entire group each quarter,” Chappell says.

E Energy Adams LLC has been a Christianson and Associates benchmarking client since the day it started operations, says Jon Cosby, chief financial officer of the Nebraska plant. The program is an essential tool in continuous improvement and has helped the company in its efforts to be a top tier performer, with the goal of being able to make a profit in good and bad times. The main benefit is in helping the company identify areas for improvement. “Benchmarking does not necessarily help a company know why they are underperforming or how to fix it,” he says. “However, knowing the ‘what’ is already a big step in the right direction.”

Patty Greteman, controller at Patriot Renewable Fuels LLC, says the company exports the Christianson and Associates benchmarking data to excel and creates graphs for visual representation. “Our goal is to be in the top 25th quartile in every category,” she says. “Obviously that’s going to be a stretch in some areas, but that’s what we aim for.” Beyond financial and operational benchmarking, the Illinois ethanol plant also takes part in Christianson and Associates’ labor survey, the results of which it uses to gauge whether the companies salary and benefits are in line with what is offered by other companies.

In Kentucky, Mick Henderson, general manager of Commonwealth Agri-Energy has recommended the Christianson and Associates benchmarking program to several other ethanol plant managers, most of whom have signed on. “For our business, the bigger the group the better,” he says. “When there were 20 plants, I wished there were 30. When there were 30, I wished there were 40. So I am going to recommend it because it helps our business directly. But I’m also going to recommend it to someone I consider a friend in the business.”

Author: Holly Jessen
Managing Editor, Ethanol Producer Magazine
[email protected]