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Efficiency helps fight energy costs

By ASSOCIATED PRESS
Published May 5, 2006

Rebecca Boegnik has had to go ahead and raise prices, while Rebecca Herwick is keeping more inventory on hand.

For small-business owners like these, the problems caused by soaring energy prices go far beyond filling gas tanks. Freight costs are continually rising, materials are getting more expensive by the month and travel is becoming too costly. Companies are finding whatever ways they can to cut costs, but many are faced with the prospect of raising prices - a move they fear could hurt their competitiveness.

Two years ago, a barrel of crude was selling for $40, an astronomical sum at the time. Now, it's more than $70, while gasoline, which sold for about $1.80 in early May 2004, costs more than $3 a gallon in many places.

Boegnik said her freight costs, measured as a percentage of sales, went from 3 percent in recent years to their current level of 7 percent, or from $650,000 a year to $1.4-million.

But that's only part of the problem. Her Bryan, Texas, company, Neutral Posture Inc., uses a lot of plastic, made from petroleum products, in its chairs. And it uses steel, which has become more expensive because of the high volume of energy used in its production. Some components are specially manufactured for her.

Like other small-business owners, Boegnik has cut costs where she could, but she was forced to raise her prices two years ago and again recently. That's a nerve-racking step - it makes her worry about being competitive in an industry with several hundred manufacturers. "Because we're a small player, we never take the lead" in raising prices, she said.

Herwick is cutting down on freight costs by getting larger deliveries to her St. Peters, Mo., company, Global Products, which manufactures clothing and collectibles under brands including Harley-Davidson. She reported having to pay freight surcharges of up to 25 percent.

That's saving Herwick some money, but, like many solutions to energy price problems, this creates another difficulty.

"It means a bigger hit on end-of-year tax issues because of my inventory valuation," she said.

There are ways to help mitigate the damage, especially through the use of technology. Perhaps the most common method is using teleconferencing or videoconferencing.

Small businesses can make as few trips as possible, and to schedule errands or deliveries using the most efficient routes. Mapping software - including online services such as Yahoo Maps, Google Maps or MapQuest - can help you find the shortest distance between two stops.

A lot of fuel is wasted idling; employees should turn off the engine when they're not in motion. You can get a sense of whether they're listening by the amount of gas they're using and how it corresponds to the length of the trips they're making.

Businesses can save on heating, cooling and electric bills. Using motion detectors to turn off lights in empty offices, energy-efficient appliances and setback thermostats - which use timers to regulate temperature - will all help. And manufacturers should be sure their equipment is well-maintained.

Joyce Rosenberg writes for the Associated Press.

[Last modified May 5, 2006, 08:42:11]