Manufacturing Blog

Jay Timmons, president of the National Association of Manufacturers, had much to say about last night's State of the Union address and U.S. manufacturing:

Industry Week:

It was the moment that so many U.S. manufacturers had been waiting for: the president of the United States - in front of a primetime national audience - talking, at length, about the importance of manufacturing. It was the president asserting that the blueprint for economic revival begins with manufacturing. While Obama seemed to indicate that he understands the challenges and opportunities facing U.S. manufacturing, they are, of course, just words. National Association of Manufacturers (NAM) President and CEO Jay Timmons urged Obama to back up those words with action.

"We agree with the president on one point: Manufacturers are poised for a renaissance. ... However, it is 20% more expensive to manufacture in the United States compared to our largest trading partners. This cost gap is a barrier that must be eliminated."

Roll Call reports:

[Timmons] issued a post-State of the Union statement attacking the administration's decision last week to reject the Keystone XL pipeline despite "the promise of nearly 20,000 manufacturing and construction jobs along with the 118,000 indirect jobs that would ripple across our economy." Timmons said the pipeline could have accomplished many of the goals espoused in the State of the Union address and, "Its rejection undermines the president's commitment to them."

The Washington Post reports:

The prolonged emphasis on manufacturing was well received by Jay Timmons, president of the National Association of Manufacturers, of which nine out of 10 members represent small and medium-sized businesses. However, he too faulted the president for not further addressing tax code problems and energy deficiencies, which he said have left American manufacturers at a significant disadvantage against their foreign competitors.

Justin Hayes is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients. reports

In June, 2011, President Obama announced the launch of the Advanced Manufacturing Partnership (AMP). The AMP is an effort by the federal government to partner with manufacturers in industry and academic experts to invest in ways it improve or "advance" the U.S. manufacturing industry. The plan calls for more than $500 million to help start the efforts. President Obama announced the following key steps are being taken by the government to ensure the success of the AMP:

• Building domestic manufacturing capabilities in critical national security industries
• Reducing the time to develop and deploy advanced materials
• Investing in next-generation robotics
• Developing innovative energy-efficient manufacturing processes

Over the past few years, many Americans have lost jobs with strong manufacturing companies. Professors at Massachusetts Institute of Technology (MIT) are hoping that the efforts of the AMP program are able to restore many of these jobs. The goal is to create an environment through partnerships with government, academia and private industry to create new means of manufacturing more for less, therfore increasing manufacturing profitability.

MIT political scientist Suzanne Berger says, “This isn’t just about ways of moving widgets around. What we’re talking about is a whole new set of technologies.’’

The work at MIT and other universities is already beginning to impact the current manufacturing environment. MIT labs sparked the idea that created the lithium-based batteries that are now beginning to truly impact the auto manufacturing sector. MIT has created a strong working relationship with five other universities with the hope that the more academia involved, the more impact there will be.  Only time will tell how successful the AMP initiative will truly be, but as Jason Miller, assistant to President Obama, states in  a recent speech at MIT, it's not about the past. It's about the future.

"It's not about some desire to return to a romantic notion of the past, of what manufacturing was," Miller said. "It is about a fundamental recognition that without a robust and vibrant manufacturing sector, it's going to be difficult for us to sustain a robust and innovative economy."

Justin Hayes is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

A recent report from the Institute for Supply Management (ISM) has indications that the manufacturing sector will lead growth in the overall economy during 2012. The ISM report shows that most manufacturing forecasting plans show growth in purchases (an anticipated 5.5% growth for 2012) and in capital investment (an anticipated 1.9$ growth for 2012. While growth during 2012 is anticipated, it might not be to the same extent as what actually occurred in 2011. However, growth is growth, and it is far better than the alternative. The ISM report is also forecasting an increase in sales of approximately 7% and an increase in employment of approximately 1.3% for 2012.

“Manufacturing has demonstrated its resilience throughout this challenging economic recovery period, with consistent growth dating back to August of 2009,” Bradley Holcomb, chairman of the group’s factory survey, said in a statement. Manufacturers “expect to see continued growth in 2012.”

Justin Hayes is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

Multiple sources have shown growth in the US manufacturing sector during the month of November. In fact, some of theses sources note that the manufacturing sector grew faster in November than October. Either way, signs of growth are encouraging given the current economic state.

• Christopher Rugaber writes for the AP, "Factories are producing more. Construction is growing. Americans are buying more cars. The holiday shopping season is off to a strong start. Normally, all that would suggest a bright outlook for the economy. Problem is, employers still aren't hiring much, the number of people seeking unemployment benefits remains high and Europe's debt crisis poses a grave threat to the future."
• Josh Mitchell reports in the Wall Street Journal that the U.S. was just one of a few large economies where manufacturing grew faster in November than in October. In the U.S., the ISM index rose to 52.7 in November from 50.8 in the previous month. A reading above 50.0 indicates the sector is expanding.
• BBC News reports, "According to the ISM report, manufacturing sectors that reported growth included textiles, electronics, and food and drinks. Chemicals, transport equipment and machinery were among sectors that contracted."
• Finally, Bob Willis reports in Bloomberg News, "Corporate purchases of new equipment, export demand, stronger consumer spending during the holidays and leaner inventories lay the groundwork for a pickup in production. At the same time, risk of recession in Europe may restrain US manufacturing, the industry that spurred the recovery."

• Customer-Focused Innovation: Manufactures will need to figure out how to produce and market new products that are deemed by their customers at a faster pace then their competitors.
• Actively Engaged Personnel: Manufactures will need to figure out ways to recruit, develop, and retain top level talent to create a competitive advantage over their competitors.
• Annual Productivity and Quality Gains: Manufacturers will need to be able to improve the manufacturing production process at a pace above and beyond their competitors through company-wide initiatives.
• Supply-chain management: Manufactures will have to develop and manager their supply chains (possibly through partnerships) to be able to improve flexibility, response time, and delivery performance at a rate that exceeds their competitors.
• Sustainability: Manufactures are facing increased pressure from their own customers to improver their sustainability efforts.  Improvement in this area could create opportunities if it exceeds that of a competitor.
• Globalization: Manufactures need to be willing to look at their business on a global level and see what time of partnerships can be entered into global to create competitive advantages.

• The United States is the world's largest manufacturing economy, producing 21 percent of global manufactured products. China is second at 15 percent and Japan is third at 12 percent.¹

• U.S. manufacturing produces $1.6 trillion of value each year, or 11.2 percent of U.S. GDP.²

• Manufacturing supports an estimated 18.6 million jobs in the U.S.—about one in six private sector jobs.³ Nearly 12 million Americans (or 9 percent of the workforce) are employed directly in manufacturing.⁴

• In 2009, the average U.S. manufacturing worker earned $74,447 annually, including pay and benefits. The average non-manufacturing worker earned $63,122 annually.⁵

• U.S. manufacturers are the most productive workers in the world—twice as productive as workers in the next 10 leading manufacturing economies.

• U.S. manufacturers perform two-thirds of all R&D in the nation, driving more innovation than any other sector.⁶

• Taken alone, U.S. Manufacturing would be the 9th largest economy in the world. ⁷

¹ United Nations, Statistics Division (2009).
² U.S. Bureau of Economic Analysis, Industry Economic Accounts (2009).
³ The Facts About Modern Manufacturing(2009).
⁴ U.S. Bureau of Labor Statistics.
⁵ U.S. Bureau of Economic Analysis, Compensation of Employees by Industry and Full-Time Equivalent Employees by Industry.
⁶ National Science Foundation (2008).
⁷ U.S. Bureau of Economic Analysis, Industry Economic Accounts (2009) and International Monetary Fund (2009).

Justin Hayes is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

Results are in from Katz, Sapper & Miller's 2011 Indiana Manufacturing Survey: Performance, Practice and Strategy, which indicate that Hoosier manufacturers are strong and getting stronger.

“This study has some of the most encouraging findings we've seen in years,” said Scott Brown, partner-in-charge of Katz, Sapper & Miller’s Manufacturing and Distribution Services Group. “It suggests that many Indiana manufacturers are once again investing in their businesses and holding their own against the competition. Such investments and improvements are the key to Hoosier manufacturers remaining successful."

Key findings of the survey reveal:

• A majority of Indiana's manufacturers have maintained a "stable" financial performance over the past two years. Additionally, 60 percent of Hoosier manufacturers reported that they are now increasing investments across the business and in areas essential for revenue growth.
• When asked about future financial priorities, the top goals of Indiana manufacturers are: 1) improving cash flow and working capital management; 2) improving short- and long-term operational efficiencies; and 3) accessing credit for working capital – all strategies designed to improve finances.
• More than 10 percent of survey respondents plan to open new manufacturing facilities in Indiana in the next two years. Just as encouraging, 13 percent of respondents reported that they anticipate relocating or "onshoring" some manufacturing back to America in the next several years. 

This fifth annual survey is a collaborative project with Indiana University’s Kelley School of Business - Indianapolis, Conexus Indiana and the Indiana Manufacturers Association. The survey was designed to provide insights into management choices made by manufacturing and distribution companies across Indiana.

U.S. manufacturers face a steep hill to be competitive globally according to a recent report by The Manufacturers Alliances/MAPI and the Manufacturing Institute. The report, titled "The 2011 Structural Costs of Manufacturing in the United States," states that U.S. manufacturers are paying approx. 20% more in costs than nine of its largest competitors in the world (Canada, China, France, Germany, Japan, Korea, Mexico, Taiwan, and the United Kingdom). The impact on manufacturing profitability can be quite large.

The study looked at five key elements, which included corporate taxes, employee benefits costs (including health care costs), tort (legal costs for lawsuits) costs, pollution abatement compliance costs, and energy costs.
 

“The story of the structural cost gap boils down to two issues: health care and corporate taxes,” says Jeremy Leonard, author of the study and an economic consultant with MAPI via the MAPI website. “We have the policy tools to deal with them, but lack the leadership to bring them under control. Absent structural costs, U.S. manufacturers are broadly competitive with their international peers thanks to the tireless efforts to innovate and become more efficient. It is up to the policymakers to step up to the plate to ensure a vibrant manufacturing sector in the years ahead.”

The largest barriers noted in the study relate to corporate taxes and employee benefits, mainly health care costs. The U.S. pays approximately 8.6% more for corporate taxes and 5.7% more for employee benefits on average then their competitors abroad. This can have a dramatic impact on the pricing model of U.S. manufacturers, which will ultimately impact manufacturing profits in the U.S.

Stephen Gold, president and CEO of MAPI stated, “This report tells an important story, one in which the White House and Congress should be very interested. While we recognize American manufacturers face a myriad of challenges from overseas, these data demonstrate that domestically imposed costs further undermine our ability to compete. We hear a great deal from policymakers these days about the need to bring manufacturing back to America, yet these challenges continue to undercut American manufacturing competitiveness.”

Justin Hayes is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

A study by the Bureau of Economic Analysis showed the growth in Indiana's 2010 GDP was driven by growth in the manufacturing sector.  According to the study, Indiana was able to increase real GDP by 4.6% in 2010. This growth led Indiana to have the third-largest growth in real GDP for 2010 (behind North Dakota at 7.1% and New York at 5.1%).

The study states that "the Midwest and New England regions grew the fastest, led by finance and insurance and durable-goods manufacturing, respectively." In perspective, Indiana's  real GDP growth of 4.6% was driven by 2.29% growth in the durable-goods manufacturing sector. The next closest sector was the non-durable-goods manufacturing sector with growth of .68%.

The full study can be found here.

Justin Hayes is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

A recent article from AccountingWeb reported concerning results from a recent survey commissioned by Advanced Technology Services, Inc. (ATS) and was conducted by The Nielsen Company. The survey confirmed the concerns of many in the manufacturing industry of the shortage in skilled workers that will be created as Baby Boomers retire. The article notes that the top three findings from the survey were as follows:

• Manufactures with revenues of $1 Billion or more will be hit the hardest by the Baby Boomer retirement at an estimated cost of $100 Million or more over the next five years
• 45% of respondents said that they are trying to encourage their older workers to stay on the job (seems to be a short-term fix, not a long-term solution)
• 50% of the respondents stated that their company has 11 more openings for skilled workers, with 31% having over 20 slots.

For us aviation and manufacturing buffs, today was a landmark day as Boeing delivered its first substantially composite passenger jet (787 Dreamliner) to All Nippon Airways in Tokyo. As a newly minted private pilot in the early 2000’s, I was fascinated with its unique design concepts. As a third-tier supplier to the aviation and defense markets, I was impressed to see how an entire supply base could get excited about a single product release. It has been a roller-coaster ride for Boeing that lasted over a decade. After some years of design, the first order was received in 2004 and the first aircraft delivery was not expected until 2008. Here we are in 2011 to see it. Through a great deal of economic adversity, technical challenges, miles of bureaucratic red tape, cancelled orders, labor strife, and strong industry skepticism, Boeing persevered and marched on with intelligence and courage.

So it goes for many of the rest of us as we look forward to what may be another economic recession on the heels of the last. Are we prepared to enter it with intelligence and courage? For tax savings, have we considered segregation studies of our facilities and assets? Tightening lines of credit will not ease; are we prepared with adequate cash-flow strategies and cash-flow projection tools? Have we screened and cleaned our supplier base - retaining only those who offer the best value and have the sustainability to be there for us down the road? While we have already leaned out our factory floors, have we offered the same support to our administrative and technical support departments?

As today’s landmark delivery for Boeing is really just a new beginning, we might look to our future economic challenges as an opportunity to make some very smart business decisions that pay off well.

While reading a news report on six employees charged with stealing precious metals from Olin Brass near East St. Louis, I was struck by the number of experiences I’ve had with employee theft of materials from factory and warehouse floors. I’ve witnessed employee theft of nickel anodes from electroplating operations, customer-owned product from contract powdercoating operations, cash and food from break-room vending machines, merchandise from a retail store and stainless steel off-fall from fabrication operations. In two plants that I managed, the company was willing to take some very simple and affordable steps to help prevent and detect such theft. I wanted to share some of the tactics we used there, but must admit that they were part of an over-arching risk management program that lent consistency, legitimacy and longevity to our actions.

1. Have a clear and published policy to inspect employees’ otherwise personal spaces such as purses, lunch boxes, tool boxes, desks and gym bags. Have all employees agree ahead of time in writing to such an inspection policy and make sure it is written iron-clad and legally defensible. Exercise the right to inspect with prudence and good judgment.
2. Restrict employee access to the facility through a limited number of doors; and make sure those doors are clear of any trash cans, rubbish piles, or cluttered storage shelves. Watch doors that are left propped open during the day for smoke-breaks and additional ventilation.
3. Secure trash and recycle dumpsters in an area that is away from employee parking and public streets. If possible use a streetlamp and a gate to secure the area during off hours.
4. Control precious material by keeping it stored behind at least one lock, regularly conducting inventory using personnel other than those with daily production access, and know your cost of goods sold. Regularly review inventory reports versus cost of goods sold and investigate any unexpected variance (over or under).
5. Install at least some sort of physical security system that regulates the plant perimeter and includes video surveillance of employee entrances. There are many affordable and simple systems available that may be efficiently installed and maintained.
6. Randomly show up at the employee exits during punch out time to say thank you and let them know you appreciate their hard work; but also do this to add an element of unpredictability to an otherwise common daily event. For the same reason, owners and managers should also spend some time being observed poking around the plant’s nooks and crannies.
7. Set the tone from the top. Business owners, senior executives and managers should be sensitive to how their words and actions set an example for other employees. Taking home a load of scrap skids to burn as firewood may help a dishonest employee rationalize their theft.
8. Consider having a complete security survey and risk analysis conducted on your entire operation which would include physical plant security; but would also include adequacy of insurance coverage, department of labor compliance risks, environmental compliance risks, employee safety risks, data security, emergency response/recovery planning, fraud prevention and many other areas.
   While this list is not exhaustive, these actions proved themselves to be both affordable and effective in reducing the risk of employee theft of precious materials. As reported, Olin Brass lost an estimated $7 million over three years from long-term trusted employees that did not fit any profile of those you might otherwise suspect of employee theft.

According to preliminary data issued by the U.S. Department of Commerce, hot-rolled steel imports in July increased 43% over June levels to 297,157 metric tons. This hot-rolled figure is the highest monthly import total for hot-rolled steel since the pre-recessionary days of November 2006.

Imports of cold-rolled steel also rose 7% to 130,177 metric tons compared to June. On a year-to-date basis, hot-rolled and cold-rolled imports combined are up 22%. While overall steel imports declined 4% in July over June, falling to 2,344,441 metric tons, this import level is up 22% on a year-to-date comparison to 2010.

Steel demand metrics are often used as indicators of confidence held by metalworking manufacturers in short-term future economic conditions. Following a period earlier this year of tightening domestic steel supply, we wonder how well the statistic actually speaks to the true nature how metalworkers view their near-term economic risk. And, we must normalize such demand changes with the marginal strengthening of the U.S. dollar over steel exporting currencies. Confidence surveys continue to underline the lingering uncertainty that plagues this recovery.

The hot-rolled and cold-rolled steel indicators shared good news, but it must be taken carefully and in context.

Tim Musholt is an accountant in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.

• Material Specs:  This is the most fundamental part of the process. The materials must meet your needs in order to protect your product as well as your brand.  You should always evaluate alternative materials that help meet or exceed current specifications. 
• Package Design:  Design changes can have an impact to your costs both positively and negatively. If your company utilizes the outside of the packaging to transfer information to your customer, this too is loaded with areas that impact cost. For example, you might consider switching to fewer print colors. For example, if your box is printed using three colors, switching to two colors will provide instant savings.