Posted on Jan 25, 2018

One of the most nerve-wracking experiences in a manufacturing executive’s career is when an Occupational Health and Safety Administration (OSHA) inspector shows up at the door and says something like: “We received a complaint and we’d like to take a look around.”

Part of the reason for the anxiety is that OSHA investigators don’t give any notice and can be very secretive.

Here are some steps you can take to help protect your company:

If there’s a fatal industrial accident at a plant, OSHA will conduct an investigation within eight hours. The company should have at least one experienced employment lawyer on hand who can not only deal with OSHA, but also the police and the prosecutor’s office. And it sometimes helps to have an attorney sit in at meetings with concerned employees.

Put someone in charge of a possible inspection. You need a designated hitter who can respond intelligently and courteously. And you should have a back-up contact person ready in the event of vacations or days off.

Check credentials. If someone shows up at your workplace and claims to be from OSHA, don’t automatically believe it. You obviously don’t want strangers walking through your facility — whether you have trade secrets or just modern-day security concerns. If you aren’t satisfied with the inspector’s credentials, call the local office before letting him or her get past the waiting room.

Inquire what it’s all about. Ask the inspector to tell you the area of concern and what OSHA is looking for before answering questions or giving a tour. Inspections are usually caused by complaints. While the inspector won’t say who called, he or she will outline the issue. Less often, OSHA does programmed inspections based on Standard Industrial Classification (SIC) codes and it’s possible that your number just came up.

Don’t demand a court order in most cases. The inspector won’t have any trouble getting one quickly and you’re likely to antagonize the government. If you’re uneasy, you might want to call and see if your attorney can come right away.

Keep the visit focused. Once you identify the problem, answer only the questions the inspector asks — don’t volunteer additional information. And only show the inspector areas of your building that are affected. Avoid walking through the rest of the building if possible. This isn’t to impair the agency. You’re simply trying not to raise new issues that will enlarge the enforcement effort.

Do what OSHA does. If the inspector measures something and takes pictures, you should measure and take pictures of the same items. If the inspector does an air-quality study, bring in an expert as soon as possible — that day, preferably — to repeat the study. If you aren’t armed with your own test data or photographs, it’s hard to argue that the agency’s determination is wrong. And it may be even more difficult to convince a jury that the testing is wrong.

Consider the alternatives. After an inspection, OSHA holds a closing conference. The inspector will outline the problems and tell you to expect correspondence from the agency. Citation notices and proposed penalties arrive shortly afterwards. There are rules you must follow in posting the citations in your workplace.

The penalties may seem small, but by paying them, you may trigger action from other government agencies. And if you don’t change the way you do business, subsequent penalties are likely to increase dramatically. So what initially may seem like an expensive fight to prove your company’s innocence can turn out to be the less-costly route in the long run. Consult with your human resources and legal advisors.

Don’t let time slip away. OSHA gives 15 business days to contest a citation. Failure to meet deadlines can result in serious consequences. Get legal help.

By understanding how OSHA conducts inspections, you can be better prepared to handle the situation in a way that minimizes your legal and financial exposure.

Posted on Jan 16, 2018

Educators, students, parents and manufacturers need a wake-up call. Technology education has improved manufacturing processes in recent years — sometimes in quantum leaps — but education isn’t keeping pace with the technological strides. And that’s leading to a talent gap that is becoming difficult to bridge.

There is a significant shrinking in the number of manufacturing workers. Part of the reason for the decline is that technology has eliminated many jobs. Another is a reduced interest in manufacturing work.

Stuck in the Industrial Age

Why? The manufacturing industry faces an image problem. There is a widespread perception that all jobs in the industry are dirty and dangerous, unstable, low-paying and likely to be the first sent offshore. As a result, young people don’t pursue careers in the field. This dampens motivation to expand education efforts.

Our education system places far too little emphasis on smart, connected product manufacturing, advanced material development and digital design integration in manufacturing. Instead it is stuck in the era of metalworking and welding.

As a result, students — your next potential employees — may not be aware of exciting developments like 3D prototyping and printing taking place within the industry. And those advances will create a multitude of new careers. It’s clean, exciting and challenging work, but few people know much about it.

Clearly, there is a pressing need for updates and improvements in education and training of manufacturing technology. But there is no real consensus on how to improve education and training in manufacturing. The industry is at a crossroads.

Currently, most technical training in the manufacturing field takes place at two-year technical, community or junior colleges. But there is little coordination between the schools, so the curriculums may veer all over the map. Little thought is given to a common goal.

In some cases, however, school programs link to companies involved in targeted manufacturing in certain parts of the country. For example, you may find education-company links in Rust Belt areas known for auto manufacturing and the Northwest for the aerospace industry. However, in regions where there is no dominant manufacturing force, two-year schools might not offer any courses in manufacturing technology.

The Online Role

Online education could play a more prominent role, but it’s been off to a slow start. Typically, online course are made available in computer programming, network management and other tech-driven studies. But manufacturing technology has been either minimal or nonexistent at most two-year colleges that offer online training.

There are exceptions. The Francis Tuttle Technology Center, based at three campuses within the Oklahoma City area, provides vocational and technical training to students, including middle-aged adults. The center offers several courses relating to manufacturing, such as advanced manufacturing, welding, precision machining and computer numerical control (CNC) programming. Some of the course work is done online.

Another example of progress is the Advanced Technology Education Center, an association of 39 specialized education organizations across the nation that focus on technical education. They generally target specific industries like auto manufacturing or are linked to a two-year community college.

Despite these inroads, the relative slow pace of advancement is frustrating. What’s more, the impact from education and training is far from immediate. There is a long lead time until educated workers actually make their mark in the workforce.

In the not-so-distant past, “replacement” employees in manufacturing were plentiful and turnover wasn’t as detrimental. Now it’s imperative for manufacturing firms to become more aggressive in strategic planning.

A Brighter Future?

If manufacturing is to be revitalized, with technology education gaining a stronger foothold, the various stakeholders must pitch in. To this end, here are six practical ways that can brighten the outlook.

1. Greater coordination is needed from federal, state and local government offices that can provide incentives to encourage manufacturing technology programs. If these branches of government work together, manufacturing technology training will be enhanced.

2. Manufacturing firms must reach out to junior and community colleges in an effort to stimulate education. Those colleges may not be fully aware of the shortage in trained workers and could be persuaded to pursue this avenue.

3. Two-year colleges should establish connections with businesses; it’s not a one-way street. By consulting with employers, the schools can structure curriculums to better match the needs and wants of the manufacturing sector.

4. Online education must be expanded on the college level. While this is particularly critical for the two-year schools where most manufacturing technology education takes place, it could be extended to include four-year colleges and universities.

5. Industry leaders need to show a more active presence, advocating for manufacturing technology education. Organizations such as the National Association of Manufacturers may be able to strengthen the public profile, and increased publicity should lead to more interest in the sector.

By learning about the possibilities, including a chance at a rewarding and fulfilling career, students will be more inclined to pursue degrees in manufacturing technology or at least take courses relating to the discipline. Educational efforts can also help parents and school counselors better understand how students can benefit.

With all these stakeholders pulling together, education can move forward and begin to catch up with the technology, which continues to evolve at breakneck speed.

Changing Corporate Culture

A confluence of events has put the manufacturing industry in jeopardy, but advances in technology can stem the tide. The key is to work up from the ground floor to impart the knowledge and education required to take advantage of the new technology. This changing of the corporate culture is one of the main challenges facing manufacturers in the coming years.

Lessons from Abroad

Perhaps the United States can take a page out of the book of its foreign counterparts.

Technical education has a higher priority in other parts of the world, especially in the German-speaking enclave of Germany, Switzerland and Austria. Consider the common attributes in those three countries:

  • Early introduction of technology-based training to students,
  • Numerous internship or apprenticeship programs where on-the-job training is mixed with classroom courses,
  • Strong connections with employers,
  • Comparable educational offerings in different regions of the countries, and
  • A cultural tradition encouraging industrial and technical careers.

This priority put on technical education isn’t just limited to a small part of Europe. Other countries — including Australia, Mexico and the Scandinavian nations — emphasize vocational education. The U.S. should pick up the pace.

Posted on Nov 22, 2017

Additive manufacturing (AM) might become synonymous with manufacturing itself sooner than you think.

AM already is no longer a small segment of the manufacturing industry and, as we head into a new year, it will be moving even further into the foreground.

Often used interchangeably with 3-D printing, AM is a process where digitally designed data is used to create a three-dimensional object. Controlled by a computer, either a print head sprays tiny particles layer by layer to build up an object, or a laser is directed at a liquid or other material to create a solid form.

The process uses a range of materials in powder form, including metal, plastics and other composites.

Tech-driven firms can create a distinctive presence in the marketplace with AM. The process has been especially successful in situations where design determines production, rather than the opposite. Furthermore, AM allows highly complex structures to remain extremely light and stable. Among its other advantages, it

  • Provides a high degree of design freedom, and
  • Allows mass manufacturing of small batches at reasonable costs and a high degree of customization.

In many cases, AM has led to improved consumer goods at reduced costs, a combination that’s hard to beat. Among the products developed are knee replacements, pulley mechanisms in automobiles and fuel nozzles.

Trends Continuing for 2018

AM has already made inroads, but you can expect the following trends in 2018 and beyond.

Increased industrialization. One of the main developments involving AM is a shift from design to production of arts. Improvements in processes and materials are making additive manufacturing more efficient, less costly and more productive.

To assist in this sea change, robots are more commonly being added to the mix. Robotic arms are helping to accelerate the move to more automation. They can, for example, transfer detachable print beds to additive printers and, once an item is complete, move it to post-processing stations and put another print bed into place.

Flexibility in materials. Great strides have been made in machines printing metal products as the processes become more affordable.

Typically, metal is deposited along with a catalyst substrate material — it could be a wax, gel or other material — that goes through a sintering or heating process. This removes the substrate so the metal can solidify.

Previously, AM of metal products was expensive for prototyping or mass production. As prices go down and availability goes up, more companies are expected to join in these efforts. For now, the automotive industry seems to be leading the charge.

Similarly, there is an upswing in application-specific materials. When creating a customized solution for one part of a product, manufacturers previously had to rely on off-the-shelf materials. Now specific materials are being developed for jobs. Ceramics also are becoming a major factor, particularly in small parts that can be manufactured rapidly and cost-effectively.

The Road to the Halfway Point

Tooling. In manufacturing, technology applications are often based on the duration of products. For some industries (for example the automotive sector), the life cycle can be ten years or more. So manufacturers will take their cue and use AM as needed.

As we look toward 2018, a car maker isn’t likely to start printing new cars — at least not yet. However, it can implement tooling at various stages. As an example, a new car model that is coming out in three years may have just a few parts produced with AM. When the next generation debuts in ten years, half of the car might be produced through the additive process.

We aren’t at the point where complete products will be produced additively, but tooling is likely to gradually increase over time. Experts suggest that it won’t be long before the halfway mark is reached.

Specialized products. Generally, manufacturers have relied on AM mainly for stages in the production of larger products produced in bulk, such as cars. But the broader adoption of tooling may result in firms seeking solutions for smaller products, some of which are highly complex and intricate. Until now, these endeavors may have been cost-prohibitive.

Notably, this trend toward specialized products could be significant in the medical and dental professions, ranging from complicated hearing aids to crowns to invisible braces. Size will no longer be a detriment.

The creation of complex parts will help bridge the gap for many manufacturers from traditional processes to AM. Over the short term, producing intricate parts may remain relatively expensive, but prices can be expected to decrease as access to mass production increases. Furthermore, being able to quickly deliver specialized products in a multitude of sizes, colors and shapes can develop into a competitive advantage for firms willing to make the leap.

Need for More Software

Coordination with software. In order for AM to take root fully, hardware and materials must work hand-in-hand with software. Much of current software often doesn’t encourage additive processes for designers. But new products that can address these needs are appearing regularly.

For example, the latest version of Autodesk’s Netfabb software optimizes additive processes for machine and material combinations. This software encompasses all the tools to ready files for 3D printing, including design optimization, build simulation and printer prep. Autodesk is a member of a consortium developing the format along with 3D Systems, GE, Microsoft and others.

It’s clear that AM is taking off in a big way, if not in 2018, then in the not-so-distant future. Investigate the opportunities for your firm in this tech-driven marketplace.

Learn More at a Conference

If you want to know more about AM, conferences and similar events are taking place both in the United States and at locations around the world. Search online for additive manufacturing conferences to find opportunities convenient for you to attend.

Posted on Nov 9, 2017

The drumbeats for tax reform are growing louder.

The Trump administration, in conjunction with the president’s hand-picked “Big Six”1 group of GOP leaders, has released a nine-page outline of tax reform proposals. Not only would the plan overhaul numerous individual provisions, it would have a major impact on corporations and pass-through business entities, including significant changes for the manufacturing sector.

Manufacturers are likely to look favorably on the tax plan’s provisions. The quarterly survey by the National Association of Manufacturers released at the end of September 2017 found that a strong majority of small and large manufacturers said the promise of tax reform will spur growth and create jobs. The survey found that 64% of manufacturers would expand, 57% would hire more workers and 52% would raise wages and benefits if the GOP proposals are passed.

Generally, the tax reform provisions don’t include any effective dates, nor is enactment assured, with or without modifications. Here is an overview of the key proposals and their expected impact.

Corporate Tax Proposals

These key changes for C corporations, including incorporated manufacturing firms, are designed to stimulate business growth:

  • Reduce the top corporate tax rate from 35% to 25%. Trump’s initial proposal lowered the rate to 15%.
  • Allow immediate “expensing” for at least five years of new investments in depreciable assets, other than buildings, purchased after September 27, 2017.
  • Partially limit interest deductions for C corporations (details weren’t provided).
  • Repeal the corporate alternative minimum tax (AMT).
  • Preserve the research credit (Congress would review most other business credits).
  • Repeal the Section 199 deduction for domestic production activities. This deduction is currently available to all business entities.

The list of corporations that might profit from these proposed changes is long. Larger corporations would benefit from a reduction in the top corporate tax rate and businesses of all sizes could use the expensing allowance.

However, partially limiting interest expense deductions will likely play a significant role in C corporations’ investing and financing decisions and affect corporations carrying significant debt. It’s unclear how Congress will handle carryforwards of any credits that are eliminated. Many manufacturing firms would miss the Section 199 deduction.

Pass-Through Tax Proposals

The tax outlook for pass-through business entities — including partnerships, S Corporations and Limited Liability Companies (LLCs) — will be very different if the new tax reform plan is approved. It proposes that:

  • Business income received by pass-through entities be taxed at a maximum rate of 25%. Currently, this income is taxed at ordinary income rates for individuals, which can be as high as 39.6%. It isn’t clear if personal services firms would qualify for the tax break.
  • The lower rate on income for pass-through entities be coordinated with tax law provisions that don’t permit wages to be treated as business profits.
  • Congress be required to determine the ramifications for pass-through entities and sole proprietorships of the partial limits on interest expense deductions.

This series of tax reforms could change the thinking of business owners. In theory, the shift away from the current tax format is designed to align C Corporations and pass-through entities. However, some experts fear that this could lead to an unfair tax advantage for wealthier business owners.

With the top tax rate now set at 39.6% and a proposed maximum 35% rate, owners may have an opportunity to slash their tax bills. Restricting these changes to qualified small businesses has been discussed and could be put into effect.

International Tax Proposals

The Trump campaign pledged to bring business back from overseas. In support of that objective, the tax reform plans proposes several changes relating to manufacturing:

  • Impose a one-time repatriation levy on offshore profits to encourage a return of U.S. multinational corporations from so-called tax havens. However, the proposals don’t specify a rate or time period for this change.
  • Adopt a territorial method of international taxation that would include an exemption for dividends from foreign subsidiaries if the U.S. company owns at least 10% of the subsidiary.
  • Authorize a global minimum tax on foreign profits of U.S. multinational corporations. Congress would be directed to “even the playing field” between companies headquartered in the United States and those based in foreign jurisdictions.

If these proposals have their desired effect, certain multinational corporations would be encouraged to shift more business operations to the United States. This would represent an historic shift in the way that companies are taxed. But the proposed guidelines leave as many questions as they provide answers, including how foreign tax credits would be used against repatriated earnings.

Individual Tax Proposals

The new tax plan features a wide variety of changes that would affect individuals, including:

  • Consolidating the current seven income tax brackets into three brackets of 12%, 25% and 35%. There are no details about the potential bracket thresholds. An add-on tax for the wealthiest taxpayers was discussed, but not finalized.
  • Increasing the standard deduction from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for married couples filing jointly. All personal exemptions would be repealed.
  • Repealing most itemized deductions other than those for charitable contributions and mortgage interest.
  • Eliminating the AMT.
  • Condensing several tax breaks for families. Along with the repeal of dependency exemptions, the new plan features a proposed $500 credit for non-child dependents.

Again, the experts are divided as to whether these changes would mostly benefit the low-to-middle or upper-income classes. In many cases, it makes sense for individuals to accelerate deductions into 2017, unless there are special circumstances that prevent that.

Expect Some Modifications

Although the tax reform plan has some momentum, there’s still a long way to go before it becomes law. Even if key tax reforms are enacted, some modifications can be expected.

What about the Estate Tax?

The tax reform plan would repeal the federal estate tax. This would include elimination of the generation-skipping tax (GST), which applies to most direct transfers from grandparents to grandchildren, even those made through a trust. However, if the proposed legislation is passed as a reconciliation bill, as many believe it will be, the estate tax could reappear in ten years when Congress would have to address it again.

The tax reform plan doesn’t call for the repeal of gift taxes.

1The Big Six: Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell (R, KY), Senate Finance Committee Chair Orrin Hatch (R, UT), Speaker of the House of Representative Paul Ryan (R, WI) and House Ways and Means Committee Chair Kevin Brady (R, TX).

Posted on Oct 25, 2017

If you’re like most manufacturers, your on-time delivery rate could use some improvement. While it’s most critical in a “Just in Time” environment, it’s an issue for every manufacturer in terms of building customer satisfaction and maintaining a competitive edge.

A number of factors influence the ability to deliver on time. Here are a few to consider:

Improvement begins with measurement.

On-time delivery is measured as the percentage of time that goods reach customers’ loading docks by the due date. That number in and of itself is important, but you can add power by routinely analyzing the figure to see what contributed to both meeting and missing due dates.

Quote realistic due dates.

Unrealistic due dates have consequences — and none of them are good. You may have to go into overtime, disappoint the customer or bump another customer’s order. Take into consideration historical output data, as well as current and expected plant capacity. Don’t quote on a best-case scenario. Factor in some wiggle room for an equipment breakdown or another big customer wanting a rush order. Of course, if the customer needs the order sooner than your realistic due date, you have to be willing to add capacity.

Adopt or upgrade finite capacity and scheduling software.

Managing the many variables affecting production is almost impossible to do manually. Computer programs can help enable your company to create realistic plans and schedules displayed on monitors throughout the plant. More importantly, it helps you react to changes and communicate them quickly. Software also enables you to generate “what if” scenarios so you can be prepared for unexpected events, such as an employee’s absence or a delay in getting materials.

Simplify your shop floor configuration.

Do you have a traditional functional layout in which, for example, all welding work goes to a welding department? Consider converting to customer-focused cells arranged so that work flows logically from raw material to finished goods. This model is better at adapting to change than the functional model and flexibility is a key benefit of cells in terms of achieving on-time delivery.

Shorten customer lead times.

The shorter the time between order entry and delivery, the fewer uncertainties you have to deal with. Manufacturers with short customer lead times tend to have the highest on-time delivery rates.

Posted on Sep 26, 2017

The Manufacturing Leadership Council (MLC) has identified the several important issues facing manufacturers over the next 12 months.

The council recently released its 2017 to 2018 Critical Issues roadmap to Manufacturing 4.0. (M4.0). The new  agenda “focuses on the technological, organizational and leadership changes” that manufacturers” must coordinate as they pursue a more efficient, agile and data driven future,” said David R. Brousell, co-founder of the MLC, one of the world’s foremost organizations supporting manufacturing executives. “From country to country, M4.0 initiatives and programs are underway, reshaping the competitive environment and raising the stakes for all companies,” Brousell added.

A Pivotal Point

M4.0 creates the smart factory. In smart environments, systems communicate with each other, as well as humans, resulting in real-time decisions and cross-organizational services for participants of the value chain. According to the MLC, the manufacturing sector is at a pivotal point. The changes ahead are expected to transform the competitive environment, how work is performed, how firms will be organized and what leadership must do.

There are several elements to M4.0:

  • Production and supply networks predict firms’ needs and are rapidly reconfigured to meet changing demands,
  • Products are customized and connected,
  • Supply chains are visible, traceable, resilient to risks, analyzed in real-time and responsive to customer requests and changes in the marketplace,
  • Enterprises are cross-functional, collaborative and highly integrated, often around a single framework that connects elements in a process that are typically in silos and provides a view of an asset throughout the manufacturing lifecycle (digital thread) that stretches from design to deployment, and
  • Leaders and employees are digitally savvy and ready and willing to adapt to challenges and grasp new opportunities.

What’s on the Agenda?

MLC’s roadmap addresses the following seven critical issues:

1. Factories of the future.

Both large and small manufacturers need to understand and embrace the potential of new and evolving materials and technology for production models. The new factories that result will be more cost-efficient, responsive and flexible.

Areas of focus:

  • Migration paths, roadmaps, maturity models and frameworks to help companies move from current to future production models,
  • End-to-end digital integration of manufacturing and engineering processes and functions, and
  • Agile and modular production models that deliver on the promise of M4.0.

2. Collaborative manufacturing enterprises.

To maximize the potential of M4.0, firms must create more collaborative, cross-functional and integrated structures, both within and outside their organizations. These structures will stretch across the value chain and improve decision-making in multiple activities.

Areas of focus:

  • How manufacturing fits into collaborative value chains that unify the firm’s overall mission and key activities,
  • Digital threads that constantly connect all functions of the business, and
  • Cross-functional processes and organization structures that harness multiple areas of expertise to make faster and better decisions, reduce time to market and boost competitiveness.

3. Enterprise innovation.

Manufacturers will be driven to expand their products and services by developing and managing rapid, collaborative and often disruptive processes.

Areas of focus:

  • Best practice approaches that focus on ways technology can help deliver innovative ideas and improvements faster from the plant floor to the supply chain to new products and services,
  • Collaborative innovation approaches that leverage the ideas and development resources of employees, suppliers, partners, customers, and others to create products and improve processes, and
  • Methods for manufacturers to play an active role in gaining a competitive advantage and enhancing customer experiences.

4. Transformative technologies.

Companies should learn how to identify, adopt and scale the most promising technology. This will help them gain speed, agility, efficiency and competitiveness, as well as drive new business models and improve customer experiences.

Areas of focus:

  • The latest developments in the Internet of Things (IoT), 3D printing, advanced analytics, modeling and simulation, and other emerging technology,
  • Best practice approaches for selecting, justifying costs and deploying new M4.0 technology, and
  • Strategies for encouraging and using standards and architectures that support open, interoperable systems.

5. Next-generation leadership.

M4.0 requires manufacturing leaders and their teams to be forward-thinking and act quickly. That means embracing new behaviors and engaging the talent and skills of the current and next generation workforce.

Areas of focus:

  • Effective leadership role models, behaviors and mindsets, and
  • Employee transition, development and engagement strategies for the next generation of workers.

6. Cybersecurity.

As factory floors, supply chains and products are more closely connected through technology in the M4.0 world, firms face increased vulnerability to external cyber threats and internal disruption. They must identify the effective cybersecurity processes to ensure continuity, data security and IP protection.

Areas of Focus:

  • Uncover points of cyber vulnerability and prevention to help bolster data security,
  • Bridge the gap between IT and operations to coordinate and improve cybersecurity strategies, and
  • Develop best practice policies, training, behaviors and education in cybersecurity, including an understanding of the global regulatory environment.

7. Sustainability.

Along with innovation comes responsibility. Successful engagement with customers, partners and the next-generation workforce also requires manufacturers to become more transparent about their environmental and socially responsible practices.

Areas of focus:

  • Design products for easier reuse, remanufacture, refurbishment or recycling at end of life,
  • Develop M4.0 production strategies that streamline production processes, to increase efficiency, reduce costs and waste and keep at their highest utility and value at all times, and
  • Create holistic, sustainable manufacturing business models, supported by collaborative cross-sector partnerships and deeper community engagement.

Jump to the Forefront

Some manufacturers have already implemented many of these best practices, putting them well on their path to M4.0. Make sure that your firm is at the forefront of the revolution that is changing the sector from top to bottom.

Posted on Aug 31, 2017

 

In our Succession Planning Starter Kit, we lay out all the steps to build a solid business transition plan in 210 days.

  • Assessment – 90 days
  • Execution – 90 days
  • Communication – 30 days

Once we can get a business owner past the procrastination or constraints of time and inertia, the Assessment phase can flow fairly smoothly with an estimation of business value, a discussion about the owner’s post-transition plans and goals, and two potential options for future owners or successors. (We discuss why you should have a plan A and a plan B in the starter kit.)

The second phase, execution, is where many new gaps or “constraints” arise. These constraints can include the following:

  • Wills need updating based upon new tax laws
  • No non-compete agreements with some of your key management
  • Disability policy is woefully inadequate based on the level of income needed
  • Personal investment portfolio is performing below average (e.g. 1 percent rate of return when it needs to be at least 5 percent)
  • Legal entity structure changes needed to pay less tax upon sale
  • Unaddressed estate tax problem

Business owners can get lost in one of these constraints, impeding the transition planning process. Instead, the supply chain Theory of Constraints advises taking the critical path. This means starting with the constraint that will take the longest to sort out. We advise going through the entire business transition planning process first, and then you’ll be crystal clear about the largest constraint to achieving your goal.

Working with your CPA, attorney and other advisors, you can prioritize these constraints and take the critical path forward. As each constraint is “broken,” you move on to the next largest and most complex constraint. Before you know it, your priorities are ticked off and you are that much closer to achieving the net worth outcome from your business that you deserve.

Why leave your future to chance or someone else’s control? Supply chain management is a proven methodology for increasing throughput, reducing operational expenses and investment — thereby improving profits. In this competitive environment, you owe it to yourself and your key employees, maybe even to your country, to plan for a successful transition of your business. Identify your constraints, and if the main constraint is you, it’s time to get out of your own way and plan for success.

Download the Whitepaper: How Supply Chain Theory Applies to Your Business Transition Plan

Gary Jackson, CPA, is a tax partner at Cornwell Jackson. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience at Cornwell Jackson and in providing tax planning to individuals and business leaders across North Texas.

Contact him at gary.jackson@cornwelljackson.com.

Posted on Aug 28, 2017

Idle machines, production bottlenecks, equipment breakdowns, absent employees, new orders — these are just some of the factors that can disrupt production and eat into your company’s profit.

Could you improve control, workflow and decision-making abilities if you had real-time tracking of work in progress? One software solution that’s starting to gain acceptance is the shop floor control system, otherwise known as the manufacturing execution system (MES). It enables planning and real-time tracking either as a stand-alone system or integrated with an enterprise resource planning system.

The manufacturing execution system provides information about activities from orders to finished goods. It is particularly useful for managing operations that run small batches and process numerous varied orders, such as those typical of pharmaceutical, computer chip and chemical product manufacturers. It involves four major stages:

1. Planning begins with the customer order. Process times and materials are determined, and the due date and truck loading date are entered into the program.

2. Scheduling is set up according to how the new order fits into work already in production. The system sees the forest, as well as the trees, so that process sequencing of all orders utilizes each machine or workstation to its advantage. Schedules can be printed and posted. Workstations aren’t totally locked into the schedule.

For example, if there are two identical machines scheduled to divide one job equally, the supervisor might see that one machine and operator could do 60 percent of the order, which would allow the other machine operator time to cross-train another employee. The MES program also provides specifications, instructions and drawings for the job, and computer numerical control machine operators can download “recipes” for running their machines.

3. Tracking is handled in real-time and displayed on computer monitors. The system identifies and tracks components by reading bar-coded labels or travelers. When a problem occurs, such as a delay in getting materials, the schedule can be updated and the changes communicated to every workstation.

4. Reporting and documenting work in progress lets everyone know if processes and the orders themselves are completed as scheduled. As an order moves through production, each workstation makes an entry into the system upon the completion of its work and explains any deviation from work as scheduled.

On one level, the cost savings realized by using a manufacturing execution system are derived simply from greater efficiencies in the day-to-day utilization of equipment and labor. On another level, MES reports provide valuable data that can aid a company’s decision-making ability. They amass important information such as processing history, time on line, time in queue and rejection rate.

Note: Once you get MES reports, be sure to use them. One study found that many companies miss the boat by failing to train managers to use the information available to them.

Posted on Aug 16, 2017

 

If we can determine that there is, in fact, a potential buyer for the company based on a number of attractive assets and an initial calculation of business value, we can then pursue additional constraints to realizing the preferred value.

An owner may not be satisfied by the initial calculation, believing that the company can be worth far more. This may be true. We can identify weak links or bottlenecks that impede a higher value. According to the Theory of Constraints methodology, common constraints that impede a goal (in this case, a favorable multiple for your business), can include the following:

  • Physical – Equipment or other tangible items such as material shortages, lack of people or lack of space
  • Policy – Required or recommended ways of working that are outmoded or restricting
  • Paradigm – Deeply ingrained beliefs or habits that impede throughput
  • Market – Production capacity exceeds sales

When we begin the conversation with a manufacturer — or any business owner — about some of the factors holding back a successful business transition, all four of these constraints can arise over time. An owner, for example, may strongly believe that a family member will take over the business, and that family member has not given the owner any reason to believe otherwise. This is a paradigm constraint in which the owner needs to be open to the possibility of a Plan B to mitigate the risk that this family member won’t or can’t take over.

Physical constraints may include workforce shortages or outmoded equipment; these require a longer-term and strategic approach to attracting and training talent as well as applying throughput improvements to the production floor. Market constraints may require diversification of product lines to maintain throughput that matches market cycles. And policy constraints can be addressed by looking at “how things have always been done here” to how they can be done better.

Policy constraints can be the biggest constraint to business transition planning because they tie closely to ingrained cultural beliefs about how things are done. It may require an outside advisor to identify policy constraints and to walk owners through a process of improvement. An open communication process can also support policy change when new employees come on board and are able to suggest improvements in process or production.

Of course, a big paradigm constraint is the constraint of time. Owners often say they don’t have time to think about business transition planning because they are too busy running the company. Perceived lack of time leaves owners with a lack of knowledge about their business value, which creates assumptions, misguided hopefulness and inertia. Transition planning is left to waste away in quadrant three of priorities: important but not urgent.

If time is a major constraint to business planning, the Theory of Constraints introduces the “five focusing points” to eliminate this constraint.

Beware of inertia creeping back in. Business transition planning is not a “one and done” activity. It will require regular attention over several years to monitor progress on business value improvements, delegation of owner responsibilities to experienced and stable team members, and development of contingency plans. Increasing your time to work on the plan is a big initial step toward committing to increased year-to-year profits and fair value for your business.

Continue Reading: Taking the Critical Path Towards Succession

Gary Jackson, CPA, is a tax partner at Cornwell Jackson. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience at Cornwell Jackson and in providing tax planning to individuals and business leaders across North Texas.

Contact him at gary.jackson@cornwelljackson.com.

Posted on Aug 9, 2017

One of the big assumptions, or constraints, that holds back a business transition plan is that the owner assumes there is a future demand for the company. Before you determine how much a buyer is willing to pay for your business, you have to confirm there actually is a potential buyer.

Having no future buyer is an “undesirable effect” that can be addressed and eliminated by applying the Theory of Constraints “thinking process.” If you are concerned that there may not be a potential buyer, this is your current reality. The next step in the thinking process is to identify what can be changed to attract a potential buyer. This may include things like clean accounts receivables and strong credit terms, upgraded equipment, a highly trained and stable workforce, cash in reserves, profits and a transferable customer base. Other considerations may include:

  • Long-term demand for the products
  • Intellectual property
  • Well documented processes and systems
  • High cost to enter the industry
  • Easy access to debt financing and capital
  • Favorable tax structure

The Theory of Constraints emphasizes that increasing throughputs is more important than cutting expenses — something that seems contrary to traditional accounting. However, throughput has no limits whereas you can only reduce expenses to zero (rarely). In addition, net profit is derived by throughput minus operating expenses. In a manufacturing environment, efficient production and improving net profits are attractive to potential buyers. By contrast, inefficient production and low expenses are less attractive.

To determine the true demand for your business in the early stages of business planning, a calculation of business value can be performed to provide a baseline from which to pursue a more formal business transition plan. It will remove the constraints of owner procrastination and assumptions by putting real numbers to your future net worth.

Continue Reading: Identifying Weak Links to a Successful Transition

Gary Jackson, CPA, is a tax partner at Cornwell Jackson. Gary has built businesses, managed them, developed leadership teams and sold divisions of his business, and he utilizes this real world practical experience at Cornwell Jackson and in providing tax planning to individuals and business leaders across North Texas.

Contact him at gary.jackson@cornwelljackson.com.