The cost line your manufacturing clients can't see

If your client runs a factory or a serious workshop, a compressor on site is turning electricity into pressurised air that powers tools, actuates valves and moves product down the line. The US Department of Energy (DOE) estimates that compressed air accounts for around 10 per cent of a typical manufacturing site's electricity use. In some plants, it's higher.

It survives every cost review because it never appears as a line item. The power bill arrives as one number. When you decompose the variance, you can test price, but you almost never get to test quantity: there's rarely a sub-meter on the compressor and no GL code for leaks. So, a deteriorating air system books itself as a tariff problem, and tariff problems get a shrug.

And it does deteriorate. The DOE's industry sourcebook reports that leaks can waste 20 to 30 per cent of a compressor's output in plants without an active leak management program. That's air, paid for at industrial electricity rates, escaping through fittings, couplings, worn hoses and lines that were abandoned years ago but never isolated.

Run the arithmetic on a mid-sized client. Site electricity of $400,000 per year means roughly $40,000 is spent driving the compressor. If nobody has ever surveyed the system, the DOE's band says 20 to 30 per cent of that output can be going to leaks: as a first-pass estimate, $8,000 to $12,000 a year of air being made and lost. The recoverable number needs a survey; the order of magnitude is the point. And it compounds quietly, because leaks don't fix themselves and new ones appear as the system ages.

The June version of this conversation

EOFY is when this cost finally surfaces, and it arrives in disguise. A struggling air system is presented as a capex request: the client says they need a larger compressor. Pressure drops at the far end of the plant, tools starve, production complains, and a five-figure quote for a new plant lands in your capex conversation.

Often the right answer is repairs. A leak survey and a round of fixes restore the capacity the client has already paid for, with payback typically measured in months. You know the tax treatment as well as I do: genuine repairs and maintenance are generally deductible in the year incurred, while the new compressor is capitalised and depreciated over its effective life, or written off immediately where your client qualifies for the instant asset write-off, with the usual repair-versus-improvement caveats.

But the operational point matters more. A compressor bought to address leaks is an oversized asset with inflated running costs, purchased to solve a maintenance problem. The client pays twice: once for the asset, then again, every month for the leaks it was bought to feed.

Three questions that turn this into advisory work

We keep being told to move from compliance to advisory. Here's what that actually looks like in practice: a question the client can't answer, attached to a number.

1. When was the last compressed air leak survey? If the answer is never, or nobody can remember, the DOE's 20 to 30 per cent band is the realistic starting assumption.
2. Does the compressor run on weekends and overnight when production doesn't? A compressor carrying load while nothing is being made is feeding leaks and not much else. The interval data on the client's own electricity account will show it.
3. Has anyone priced the air? Compressor kilowatt hours multiplied by the site's electricity rate turn an invisible utility into a number. Once it's a number, somebody owns it.

None of this requires you to become an engineer. Leak surveys are a routine service in every state, done with an ultrasonic detector, and most of what they find is fixed by a site fitter with new fittings and hose. Your contribution is the question, not the spanner.

You walk into the EOFY meeting with a cost nobody has ever seen, a defensible estimate of its size, and a repairs-first answer to a capex decision they were about to get wrong. That's not a file note that says tariffs. That's the meeting they remember you for.

Byron Raal is a chartered accountant and the founder and editor of Compressed Air Solutions, an independent Australian technical reference on industrial compressed air systems.