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 Mar 20, 2017

Good old-fashioned paper is continuing to return to the manufacturing process.


For some companies, environmental concerns prompted the switch back to paper from styrofoam peanuts, bubble film and other plastic-based materials in packaging since paper is recyclable and reusable.

Other manufacturers discover that customers are dissatisfied or simply refuse to accept shipments packed in plastic. This is the case in certain parts of Europe and states that have landfill restrictions, such as California. Customers and employees also appreciate the cleanliness of paper and its lack of static electricity, which can annoy handlers and be hazardous to electronic equipment.

Switching back to paper, of course, requires spending money on machines that process paper into fill, cushioning, carton linings and product wrappings. But that initial investment is likely to be offset by critical, long-term financial benefits. Here are a few:

  • Labor and material costs drop. Kraft paper is slightly less expensive than plastic peanuts. But the major savings comes from labor. Packing speed is quicker and handling is trimmed, with fewer trips between the warehouse and packing area.
  • Storage needs decline. Foam peanuts require vast amounts of space, while paper stays compactly rolled up until it is put into the processing machines, creating just-in-time packing material.
  • Cleaning costs fall. Paper produces little dust, while peanuts create particles that settle everywhere on equipment and floors.

The paper processing systems are broadly adaptable to fit different production environments. Some of the potential benefits include:

  • Flexibility. Dispensers can be set up in work cells, over conveyor lines or packing tables.
  • Ease. An operator presses a foot pedal to dispense, crumple and cut the paper to a pre-set length. Automatic lifters can take the strain out of handling the heavy rolls and operators can replace an empty roll quickly.
  • Adjustability. Both the speed of dispensing and length of paper can be altered.

One Example

A converter machine can turn a 30-inch-wide, three-ply roll of paper into 8-inch-wide pads that are suitable to replace the bubble film protecting shipments.

One manufacturer of medical instruments experienced an 18 percent drop in material costs after the switch from plastic to paper. In addition, the manufacturer found the pads require less space than bubble film to provide the same level of protection, allowing the company to trim its carton size by as much as 25 percent. This, of course, reduced shipping costs.

Consider all the issues involved in using paper packaging versus other materials. Getting rid of plastic and peanuts can save space, the environment and money.

Posted on Aug 1, 2016

Section 199

Despite its name, the Section 199 deduction — also referred to as the domestic manufacturing deduction — isn’t necessarily limited to traditional manufacturing activities within the United States.

The IRS has issued guidance addressing situations where this valuable tax break can — and can’t — be used. A recent Chief Counsel Advice (CCA) answers the question of whether a retailer could take the deduction for marketing materials that ostensibly are made in the United States and generate revenue for products that are manufactured abroad (CCA 201626024).

Background Information

During the past decade, the Sec. 199 deduction was gradually increased from 3% of “qualified production activities income” (QPAI) to 9% for 2010 and thereafter. That means that if your firm is in the 34% federal tax bracket for 2016, a 9% deduction effectively will amount to a tax cut of more than 3%.

Detailed calculations are required to arrive at your company’s QPAI. Basically, you take your domestic production gross receipts and subtract:

  • The cost of goods sold allocated to such gross receipts,
  • Direct expenses allocated to such receipts,
  • A ratable portion of other indirect expenses (such as certain overhead items)

For this purpose, DPGR includes gross receipts derived from the sale, exchange, lease, rental, licensing or other disposition of qualified production property. Significantly, the property also must be “manufactured, produced, grown or extracted” (MPGE) in whole or in significant part within the United States. In other words, this is a home-grown tax break.

Other limits may also come into play. For instance, if your firm’s taxable income is lower than its QPAI before the Sec. 199 deduction is calculated, the deduction is claimed as a percentage of taxable income. Furthermore, the annual deduction is limited to 50% of the W-2 wages paid by your company.

Overall, the IRS guidance for the deduction is favorable to taxpayers, often extending the tax break for DPGR in borderline situations. For example, gross receipts derived from a qualified disposition of Sec. 199 property generally don’t include advertising income and product placement income. However, they do if that income is included in gross receipts from the lease, rental, license, sale, exchange or other disposition of newspapers, magazines, telephone directories, periodicals or similar printed publications that are manufactured or produced in whole or significantly within the United States when the ads were placed in those media.

Important note: This special exception applies only if the gross receipts, if any, derived from the qualified disposition of the printed materials are or would be treated as DPGR.

The IRS provides the following example: Assume that a taxpayer produces and manufactures a newspaper in the United States. Gross receipts from the newspaper include receipts from newsstand sales, subscriptions and advertising placed in the paper. Gross receipts from the ads are then treated as “derived from” newspaper sales and qualify as DPGR.

Facts of the Recent Case

The taxpayer in the Chief Counsel Advice is a specialty retailer of clothing, intimates, accessories and non-clothing gift items distributed under various brand names. Its products are available to U.S. and international customers through the retailer’s website and telephone call centers for its catalogs.

Although manufacturing and producing its physical products happens outside the country, the retailer claimed to be the manufacturer of its catalogs, mailers and other similar printed publications. The materials are distributed for free to existing customers and no advertising space is sold. The advertising in the print materials is only for the retailer’s brands.

The price the retailer charges for its branded clothing includes a component to cover the cost of producing the printed materials, including a profit markup. The retailer claimed that it was entitled to a Sec. 199 deduction for the print materials because advertising is a key component of the clothing and accessories it sells.

It argued that the print media is responsible for generating the majority of the company’s sales. As a result, the retailer claims it qualifies for the Sec. 199 deduction because advertising was a component of the clothing and accessories sold.

IRS Advice

The IRS didn’t buy the argument. It published a CCA, concluding that the taxpayer can’t characterize any gross receipts derived from the sale of its products as DPGR from advertising income.

The retailer’s products are manufactured outside the United States. Accordingly, gross receipts from their sale aren’t DPGR.

The CCA points out that the exception in the regulations for tangible personal property is limited to certain printed publications and applies only to advertising income from ads placed in those media. The Sec. 199 deduction isn’t available just because the taxpayer derives gross receipts from the sale of a tangible product it advertises. In this case, the taxpayer wasn’t paid by a third party for advertisements in its printed media. The ads were solely for the retailer’s own brands.

The fact that advertising taxpayer’s products increases sales has no bearing on the result. Thus, the IRS rang up a no sale on the retailer’s deduction claim.

Key Takeaway

Although this ruling didn’t go the taxpayer’s way, don’t make any broad assumptions concerning eligibility for the Sec. 199 deduction. Notably, an activity that falls outside mainstream manufacturing may still qualify as MPGE in the United States under an exception. Review your company’s situation with a tax adviser who can provide the necessary guidance.

Section 199 Covers a Broad Range of Activities

The Section 199 deduction specifically allows a tax break for many activities that fall outside traditional manufacturing, including:

  • Construction of real property,
  • Services provided by architects and engineers,
  • Production of electricity, natural gas or water,
  • Production of computer software,
  • Production of qualified film and videotape, and
  • Processing agricultural products.
Posted on Apr 11, 2016

Women in ManufacturingWomen are sorely lacking in the manufacturing industry, according to a recent survey. They make up 47% of the U.S. workforce, but just 27% of workers are women in manufacturing jobs.

An annual survey commissioned by the Manufacturing Institute and others takes a look of this disparity and highlights some interesting points. The Institute, which works to develop manufacturing talent, conducted a survey of 600 women across a broad spectrum of the industry to try to understand why this gap exists.

Persuasive Argument for Attracting and Retaining Women in Manufacturing

The argument for attracting and retaining more women in manufacturing is compelling: They represent a vast untapped pool of workers that can help to fill a talent gap. Manufacturing is facing a shortfall of an estimated 2 million workers over the next decade, and a recent skills analysis referenced by the study shows that six out of 10 positions in the sector are currently unfilled due to a skills gap. It’s clear there is a place for more women in the sector.

And women are underrepresented in virtually every sector within the industry, from industrial and consumer products to technology, media, telecommunications and chemicals. In addition, the portion of women in leadership roles lags most other industries.

The respondents to the survey exhibited certain traits that are generally viewed as favorable when seeking new hires. Among them, the women:

  • Were experienced, with nearly 90% having more than 10 years experience and 47% with more than 25 years.
  • Held supervisory positions (65%),  including director (15%) and C-suite executive (12%).
  • Were well educated; about 75% had bachelor’s or master’s degrees, and about 66% studied general business, engineering or operations.
  • Were ambitious, with the majority aspiring to be senior managers or reach the C-suite (of those, 82% said they see a career path to get there).

Motivational Tools

Seven out of every ten women participating in the survey said they’d stay in manufacturing if they were to start their careers today. Only three out of ten said they’d take a different career path. For those who might leave, the main reasons were poor working relationships, lack of opportunities and low compensation.

When asked to list the benefits that are most likely to attract and retain female workers, the respondents listed the following three items as key:

  1. Flexible work practices,
  2. Formal and informal mentorship and sponsorship programs, and
  3. Identifying and increasing visibility of key leaders who serve as role models for employees.
    Respondents were also asked which industries are superior to manufacturing in attracting and retaining women. Here are their answers:
  • Retail (38%),
  • Consumer products (22%),
  • Life sciences and medical devices (20%),
  • Technology, media and telecommunications (14%), and
  • Others (6%).

Interestingly, 42% of the respondents represented women in the industrial products, process and transportation sectors, and none of those wound up in the list.

Furthermore, about 66% of the respondents indicated that their companies don’t have active recruitment programs to attract women and only about 33% said they believe that their company is good at recruiting, attracting and developing female workers. Notably, 71% believed that there is a pay gap between women and men. All those sharing this belief said men are paid more.

Six Steps for the Future

Only 12% of the respondents believed that the K-12 educational system actively encourages female students to pursue careers in manufacturing and 53% said that it doesn’t. A similar recent study from the Manufacturing Institute echoes the results with only 40% of the respondents stating that today’s students are qualified for a job in modern manufacturing.

Yet the studies also show that industry familiarity would foster a positive perception. The best path forward, according to the respondents, is based on these six steps:

  1. Start at the top. Any change in corporate culture must start in the C-suite. For diversity to have real meaning, executives must demonstrate their belief in programs and lead by example.
  2. Eradicate gender bias. When promotions arise, women should be placed on an equal footing with men and should be compensated in kind.
  3. Create a more flexible work environment. By accommodating a better balance between work and family, manufacturers improve the likelihood of attracting and retaining women.
  4. Facilitate sponsorship. A sponsor helps a worker develop and progress professionally. In addition, sponsors extend beyond mentoring and coaching to being a vocal advocate, enhancing a worker’s presence in the organization.
  5. Begin recruitment early. The survey cites a current lack of confidence in the education system. Manufacturers should begin recruitment in secondary school to encourage manufacturing careers.
  6. Promote personal development. Offering women challenges and opportunities to succeed is part of what will make manufacturing an attractive option.

Perceptions May Change

Granted, women in manufacturing have made great strides. But there still is a long way to go. As the industry continues to evolve, perceptions may be changed from both the male and female perspectives.