Cost Reduction Strategies for Manufacturing Plants

In an interaction with Industry Outlook, Arun Awasthy, President & Managing Director of Johnson Controls India, discusses how Indian manufacturers are balancing rising energy costs and sustainability mandates by adopting energy-efficient systems, AI-driven monitoring, retrofitting strategies, and leveraging government incentives like PAT to optimize costs and ensure long-term ROI. A seasoned leader with over three decades of expertise in business growth, strategy, and operations, he excels in technology transfers, OEM relations, and sustainable business transformation across the automotive and telecom sectors.

Rising energy costs and sustainability mandates are pushing Indian manufacturers toward efficiency. How are plants balancing cost reduction with operational demands?

Manufacturers today must strike a balance between optimizing costs and maintaining operational efficiency, particularly in the face of rising energy prices and regulatory mandates. The shift towards energy-efficient infrastructure is being driven by a combination of factors: supply chain pressures, fluctuating energy costs, and stringent sustainability targets.

One way plants are managing this balance is by investing in energy-efficient HVAC systems, automated building controls, and demand-side energy management. For example, intelligent load management strategies, where non-essential processes are scheduled during off-peak hours, can significantly reduce costs without affecting output. Similarly, heat recovery solutions that repurpose waste heat from industrial processes into usable energy are helping improve overall efficiency while also preventing the release of harmful emissions into the atmosphere.

The return on investment (ROI) for such initiatives depends on various factors, including the scale of operations, industry type, and regulatory environment. While the upfront capital expenditure may be on the higher side, this is rationalized in the long run through reduced energy costs, improved operational resilience, and compliance with emerging regulations, justifying the shift toward sustainable manufacturing.

High-efficiency motors and heat recovery systems improve savings but demand high investment. How are Indian auto and steel manufacturers ensuring strong ROI?

While the auto and steel sectors grapple with unique challenges, the fundamental principle of balancing capital investment with ROI applies broadly across manufacturing. Many industries are addressing this by leveraging a mix of government incentives, technology partnerships, and advanced digital solutions to optimize performance.

One emerging trend is the use of AI-driven energy monitoring and predictive maintenance. These technologies allow manufacturers to track performance in real-time and predict failures before they occur, reducing downtime and increasing the lifespan of critical equipment. In sectors where operations run at high capacities, such as HVAC, cold storage, and industrial cooling, integrating intelligent controls with variable-speed drives (VSDs) helps optimize power consumption and ensures a more predictable ROI.

Moreover, lifecycle cost assessments are becoming a standard practice, helping companies justify investments in high-efficiency equipment. Instead of just considering the initial cost, manufacturers are evaluating total ownership costs, including energy use, maintenance, and operational benefits, which provides a clearer picture of long-term financial gains.

Many plants still operate outdated, energy-intensive equipment, increasing costs. How can retrofitting or phased replacements minimize financial and operational risks?

Retrofitting or phased equipment replacement is a practical strategy for manufacturers looking to enhance efficiency without exposing themselves to financial strain or operational disruptions. Instead of a full-scale overhaul, which can be capital-intensive and disruptive, many plants are opting for incremental upgrades to ensure continued operations while gradually reducing energy costs.

A key approach is to begin with low-hanging opportunities, such as integrating variable frequency drives (VFDs) into existing HVAC systems or upgrading to intelligent building controls. These modifications require relatively low investment but can lead to immediate reductions in energy consumption and maintenance costs. Another strategy is to prioritize equipment replacements based on data-driven assessments. By using energy audits and digital monitoring tools, manufacturers can identify the most energy-intensive systems and target them first for retrofits or replacements. This ensures that capital investments are directed toward the areas with the highest return on investment (ROI).

Life cycle cost analysis is also becoming a standard practice. Companies are evaluating not just the upfront cost of equipment but also long-term operational savings, maintenance requirements, and potential regulatory benefits. For instance, in industries where cooling and climate control are critical, replacing aging chillers with high-efficiency models can significantly lower operational costs while maintaining reliability.

Additionally, financial mechanisms such as performance-based contracting, where upgrades are funded through energy savings, are helping manufacturers manage capital expenditures effectively. Many businesses are also leveraging government incentives and rebates that support energy-efficient retrofits, reducing the overall financial burden.

Ultimately, a phased approach allows businesses to align energy efficiency improvements with operational needs, minimizing risks while steadily transitioning toward more sustainable and cost-effective manufacturing.

Government schemes like PAT incentivize energy efficiency but require compliance. How are manufacturers effectively utilizing these incentives to optimize costs?

The Perform, Achieve, and Trade (PAT) scheme has been a key driver in pushing industrial consumers toward efficiency improvements. Large manufacturing units, especially those in energy-intensive sectors, are now treating PAT compliance not just as a regulatory obligation but as an opportunity for cost savings.

Companies are taking a data-driven approach to energy efficiency by conducting energy audits and implementing targeted interventions. For instance, power purchase agreements (PPAs) for renewable energy, combined with energy-efficient building solutions, allow businesses to reduce their reliance on expensive grid power while earning tradable energy-saving certificates.

Another important aspect is the increasing integration of digital tools to ensure compliance and maximize incentives. Digital twins and AI-driven modeling help companies simulate different energy optimization scenarios, allowing them to make strategic investment decisions that align with policy benefits.

As the regulatory framework evolves, manufacturers are also considering future-proofing their facilities by adopting modular and scalable energy-efficient technologies that can be easily upgraded to meet changing standards.

AI-driven energy monitoring helps optimize power consumption in manufacturing plants. How are AI-based predictive maintenance and demand forecasting reducing energy costs?

AI is playing a transformative role in manufacturing by enabling predictive analytics, which allows companies to anticipate energy consumption patterns and optimize their operations accordingly. AI-driven systems can analyze vast amounts of data from sensors embedded in industrial equipment to predict failures before they happen, thereby reducing costly downtime.

One of the biggest advantages of AI in energy management is its ability to forecast demand more accurately. Traditional manufacturing processes rely on fixed schedules, but AI-powered systems adjust energy use dynamically based on production needs, weather patterns, and even market conditions. For example, AI can determine the most efficient times to run energy-intensive equipment, helping to reduce peak demand charges and overall consumption.

Additionally, machine learning algorithms are being used to improve asset efficiency by identifying equipment that is consuming more energy than necessary. By flagging inefficiencies early on, plants can implement corrective measures before the problem escalates, preventing irreparable equipment damage and leading to long-term cost savings and improved sustainability performance.

Smart grids, IoT-enabled energy management, and hydrogen-based power are gaining traction. Which of these will have the greatest cost-saving impact?

The impact of these technologies depends largely on the specific industrial context and regional energy landscape. In the near term, IoT-enabled energy management systems are likely to offer the most immediate and tangible cost-saving benefits. By providing real-time visibility into energy use, these systems enable manufacturers to optimize consumption, reduce waste, and improve efficiency without major capital investments.

Smart grids are another critical advancement, particularly for facilities looking to integrate renewable energy sources. They enable more efficient distribution and consumption of electricity, allowing manufacturers to manage peak loads better and reduce dependency on expensive grid power. In markets where variable energy pricing is in place, smart grids can help shift energy-intensive processes to lower-cost periods, further driving savings.

Hydrogen-based power, while promising, remains a longer-term solution. The technology is still in the early stages of commercial viability, and widespread adoption will depend on infrastructure readiness and cost reductions in hydrogen production. However, industries with high thermal energy requirements, such as heavy manufacturing and industrial cooling, are closely monitoring developments in hydrogen as a potential alternative to traditional energy sources.

For most manufacturers, the best approach will likely be a combination of these technologies, tailored to their specific needs and long-term sustainability goals. The key will be to balance investment with immediate returns while positioning themselves for future advancements in energy efficiency.