(Issue: August 2017)
Operations and Management for Lighting Companies
By Jack Curran
What started as a scientific discovery in the 1960s, using a solid-state diode to produce electroluminescent output in the visible portion of the spectrum, today has caused a revolution in the lighting industry. From the largest lamp and fixture manufacturers to mid-level distributors to one-man design shops, this revolution is totally reshaping how lighting is manufactured, sold, delivered and even perceived by everyone involved.
So how does that revolution change the operation and management of today’s lighting companies, whether large manufacturers, small distributors or service companies? What should management be doing to prepare for this change? In this article, we will look at some of the areas where I believe folks need to prepare for this new world.
Today’s lighting companies require a range of knowledge and skills that are primarily centered around the following areas: the functioning of various light sources, the maintenance of light fixtures and controls, the “standard of care” minimum illumination levels recommended by the Illuminating Engineering Society (IES) for various lighting applications and safety and code requirements specified by the National Electrical Code (NEC), UL and ASHRAE.
As an example, here are the areas covered by the Certified Lighting Management Consultant (CLMC) certification exam conducted by NALMCO:
- Characteristics and proper usage of lamps
- Characteristics and proper usage of ballasts
- Characteristics and proper usage of fixtures and controls
- Lighting layout designs and applications
- Energy conservation Issues as related to lighting and controls
- Lighting maintenance, recycling and disposal practices
Someone certified as a CLMC will have demonstrated knowledge in these subjects. Even with the dramatic changes in the types of light sources over the years—with LEDs being the most disruptive—the knowledge and skills required to successfully implement lighting systems have been relatively consistent.
What skill sets will be required by future companies in the lighting industry? Soon, lighting control systems will become a much more important part of the equation. While control systems have been a part of large lighting projects for many years, today’s building owners are looking for control systems to be a part of small projects as well (storage facility, doctors’ office suite, etc.). Manufacturers have responded by providing controls down to the lamp level. As such, familiarity with these (typically wireless) control systems is becoming a necessary skill. However, adding that capability requires major changes from an operational viewpoint in terms of sales and support knowledge. As difficult as it may be for smaller companies to add those skills to their operation, in my opinion companies that lack the ability to supply and support lighting control systems will be at a severe disadvantage. The next wave of LEDs/lighting controls is already here, and the unprepared will soon find themselves out of business.
For the past decade or so, there has been consolidation in the lighting industry in terms of manufacturers. Many familiar names have disappeared or been absorbed into a few large lighting giants. That consolidation process, while having slowed down recently, is not over. In fact, the consolidation is now taking place among large conglomerates where lighting is only part of their business. Eaton Industries, for example, purchased Cooper back in 2012. One of the largest lighting companies, Philips, announced plans last year to spin off their entire lighting business in an IPO with an offering of 25 percent of the company with the balance to be sold off over a few years’ period.1
Also, last year, Osram announced the sale of its LED lamp business to a Chinese consortium.²
What is driving this consolidation/sell-off? Simply the entire lighting industry has become a commodity business with a race to the bottom in terms of pricing. The introduction of LED technology over the past 12 years initially had the effect of reversing the declining price trend for a period. LEDs were a novelty, offering measurable energy and maintenance savings to customers. Those savings along with the higher cost of the LED devices allowed/forced suppliers to raise their prices, initially. However, as the cost of LED devices (courtesy of Haitz’s law) has come down significantly, that march to the bottom has begun again.
The picture is even bleaker when one considers that for many lighting companies, lamp replacement was a significant portion of their profit margin as a reoccurring revenue stream. With LED technology that stream pretty much dries up, due to the longer life of LED devices. Assuming a minimum five-year life for LED products, that represents an 80 percent minimum decrease in lamp sales. Imagine being in the razor business if everyone only bought a razor blade once every five years. Given this economic reality, it is no wonder that some iconic lighting manufacturers have bailed for greener pastures.
Further downstream, management for today’s lighting supply companies faces two primary issues due to this consolidating industry: (1) How do I grow my business (or at least keep it running) and (2) will my business relationship with my supplier continue? Or to put it another way: can I continue to make a profit selling to my customers and can my supplier continue to make a profit selling to me? As mentioned previously, wireless lighting control systems offer a potential new revenue stream, however, management needs to make sure their company can take advantage of this opportunity. It won’t be easy, but will make the difference between success and failure.
Companies providing lighting services, likewise will need to take advantage of wireless lighting control systems in terms of programming, commissioning, troubleshooting and overall support. Luminaire maintenance will represent a declining source of revenue for those companies as well. Service and support can provide additional revenue, however, the support necessary will require a more in-depth understanding of the control systems. Also, there is the danger that—depending on the complexity of the system supported—the amount of time required to support facility managers and their end users could be substantial, resulting in lower than predicted profit.
Unexpected Competition from IoT
Long before the invention of electricity, the ceiling of a room in any structure was a logical place to hang lighting fixtures whether those fixtures used candles or oil as their light source. With Edison’s invention of the incandescent lamp, that practice continued and expanded, particularly in the case of commercial buildings. In today’s commercial facilities, the lighting industry “owns the ceiling.” Whether troffers, downlights, chandeliers or pendants, the ceiling is where they are installed, and the lighting industry is the one that installs them. Sure, the HVAC industry puts ductwork and vents up there, the life safety industry installs sprinklers and some fire alarms up there, and security locates the occasional camera there as well. However, most equipment installed on any ceiling in a commercial facility is lighting. That is true today and will continue to be true for the foreseeable future, correct?
Maybe not, when considering a new wave of sensors starting to appear in the market. Readers have probably come across the term Internet of Things (IoT), which can be defined as “a global infrastructure for the information society, enabling advanced services by interconnecting (physical and virtual) things based on existing and evolving interoperable information and communication technologies.”³ Using IoT sensors having low cost and low power consumption that can communicate directly with computing systems provides a new paradigm for measurements (basically measure everything). Imagine a lighting fixture that can measure room size, temperature, humidity, light level, occupancy and maybe even mood of those occupants. What can be done with that data is the subject of much speculation. What is not up for speculation, however, is the need for those sensors to have an unobstructed view of a room and the best views of any room are located on the ceiling.
Tomorrow’s lighting fixtures will combine illumination, sensing and communication into one package. It is the sensing and communications elements that represent potential competition for the ceiling (and the lighting industry). The overall IoT industry is predicted to represent trillions of dollars in revenue, and many outside the traditional lighting industry are becoming interested in that ceiling. Some of those interested are companies that presently provide limited control systems for their portion of building equipment (e.g. HVAC, security). Lighting industry players are familiar with them and, in my opinion, on an even playing field. Others having an interest are presently associated with different industries (names such as Cisco, IBM, Qualcomm and LG). Those potential competitors bring with them an inherent knowledge of sensors and communication skills that typical lighting industry players lack.
Lighting companies whether large or small will need to expand their offerings to keep up with customers’ needs. And those needs will be rapidly expanding far beyond what has been discussed in this article, with the use of lighting for non-traditional uses such as building occupant health, productivity increases and communications applications. Management of lighting companies will need to stay on top of these rapidly evolving uses for lighting and the research behind it to ensure that company strategies and skillsets align with these uses.
CERTIFICATION FOR A CONTROLS WORLD
1 Philips plans to spin off lighting business, Jackson and Thompson, Financial Times, May 3, 2016.
2 Osram Licht to Sell Light Bulb and LED-Lamp Business, Henning and Schwab, Wall Street Journal, July 26, 2016.
3 Internet of Things Global Standards Initiative, International Telecommunications Union, July 2015.
Jack Curran is President of LED Transformations, LLC. Jack is a regular LM&M contributor. You may reach Jack at firstname.lastname@example.org.
Demand for LED lighting and advanced lighting controls is accelerating. As lighting and controls become increasingly complex, customers need qualified professionals. NALMCO’s Certified Lighting Controls Professional (CLCP) designation provides assurance that a professional is highly educated about lighting controls based on high-quality curriculum designed by the Lighting Controls Association
(LCA). This will help ensure that correct strategies are deployed, optimal solutions designed, equipment properly installed and commissioned, and that equipment will perform as needed.
To read NALMCO’s white paper focused on the market forecast for controls, or for detailed information on the CLCP certification, including application, exam qualifications, preparation and fees, visit www.nalmco.org/NALMCO/Certification/CLCP/NALMCO/Certification/CLCP.aspx