future proof your business

36
PERSPECTIVES ON THE CHANGING STATE OF MANUFACTURING your business future-proof

Upload: brian-kirby-business-development-manager

Post on 08-Aug-2015

63 views

Category:

Documents


1 download

TRANSCRIPT

Page 1: Future Proof Your Business

PERSPECTIVES ON THE CHANGING STATE OF MANUFACTURING

your businessfuture-proof

Page 2: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS2

Page 3: Future Proof Your Business

PLANTE MORAN 1

GUEST CONTRIBUTORS

AUTOMOTIVE TRENDS

Profitable Supplier Growth Amid Major Industry ChangeSeveral megatrends are converging and driving real change in the auto industry. Opportunity abounds for those with their sights on the road ahead.

GLOBAL STRATEGY

Experts Roundtable DiscussionScott Becker of Chromaflo and Ed Holland of M. Holland share their international strategies and the importance of balancing risk and opportunity.

Is Your Strategic Plan Missing a Passport?Today’s business leaders are under pressure to develop ever more sophisticated, nuanced international strategies. What’s yours?

Geographic Rationalization: A Discussion on Reshoring When it comes to international strategy, there’s no one-size-fit-all solution. For some companies, geographic rationalization includes reshoring.

TALENT

Belaboring the Point: Cultivating Talent Starts at the TopRecruitment and development strategies need to be part of your overall business strategy to grow and innovate over time.

Women in Manufacturing: Are You Investing in the Other 50 Percent? There are many ways companies can capitalize on the opportunities to invest in women and break down barriers.

LETTER FROM CHRIS MONTAGUE

TALK TO US

Table of Contents

2

5

11

17

21

25

30

33

32

Page 4: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS2

Guest ContributorsSCOTT T. BECKER President & CEO of Chromaflo TechnologiesChromaflo Technologies is a leading independent global supplier of colorant systems and chemical and pigment dispersions serving customers in architectural and industrial coatings as well as the thermoset composites market. Headquartered in Ashtabula, Ohio, Chromaflo has production facilities in the United States, Canada, The Netherlands, Finland, South Africa, Australia, and China. chromaflo.com.

ALLISON GREALIS Founder and Executive Director of Women in ManufacturingWomen in Manufacturing is a more than 500-member-strong national organization dedicated to the attraction, retention, and advancement of women who are pursuing or have chosen a career in the manufacturing industry. This group encourages the engagement of women who want to share perspectives, gain cutting-edge manufacturing information, improve leadership and communication skills, participate in sponsoring programs, and network with industry peers. www.womeninmanufacturing.org.

JOHN W. HENKE JR.President of Planning Perspectives and Professor of Marketing in the School of Business Administration at Oakland University Planning Perspectives, Inc. is the world’s leading authority on company-supplier working relations. Located in Birmingham, Mich., Planning Perspectives, Inc. offers its clients an integrated approach to understanding and improving all aspects of their supplier-interfacing activities to help them develop more collaborative supplier working relations, which lead to increased profits. ppi1.com.

Page 5: Future Proof Your Business

PLANTE MORAN 3

EDWARD J. HOLLAND President & CEO of M. Holland CompanyM. Holland is the largest family-owned distributor of application-specific plastics resins, with warehouse, packaging, and bulk terminal locations across North America. In 1994, Ed Holland succeeded his father, Marvin Holland, as president and CEO. Under Ed’s leadership, the company has grown to one of the top four distributors throughout the United States and Canada. Ed oversees the company’s long-term strategy, development and execution of business plans, and is the proud protector of the company’s culture. mholland.com.

HARRY MOSER Founder, Reshoring InitiativeThe Reshoring Initiative, founded in early 2010, takes action by helping manufacturers realize that local production, in some cases, reduces their total cost of ownership of purchased parts and tooling. The Initiative also trains suppliers how to effectively meet the needs of their local customers, giving the suppliers the tools to sell against lower priced offshore competitors. reshorenow.org

PRIDGEON & CLAY As manufacturers pursue new technologies to meet more stringent mileage and emissions targets, Pridgeon & Clay is leading the industry with its engineered solutions. The company produces more than 3,000 different automotive products each year, and those products can be found on nearly every vehicle produced in North America. From the end caps of the battery on the GM Volt, to the complex diesel exhaust mixing system on the Ford F-Series, more than 120 million finished goods and metal assemblies are produced worldwide. www.pridgeonandclay.com.

Page 6: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS4

Page 7: Future Proof Your Business

PLANTE MORAN 5

It’s hard to ignore the fragility of today’s supply chain as the automotive industry undergoes dramatic change and post-recovery restructuring. The industry has grown to volumes we haven’t seen in a decade, and suppliers are being pressured by their OEM customers to meet increasing demands for new products and expanded production capacity. As a result, supplier business models are being tested as they’re forced to devise new strategies to achieve profitable growth.

These aren’t flash-in-the-pan trends. Companies are struggling to keep up with the demands without sacrificing quality — we see it every day. It’s not surprising that suppliers are also struggling with the resulting capital investment.

We can’t emphasize it enough: It’s crucial to consider the impact of the current industry transformation on your business. It’s even more crucial to understand the strategic and operational actions that will enable you to build sustainable value for shareholders. Opportunity abounds for those with their sights on the road ahead.

Automotive

Trends

Several megatrends are converging and driving real change in the auto industry. You must consider their impact now.

Profitable Supplier Growth Amid Major Industry Change

Page 8: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS6

THE ONES TO WATCHSeveral megatrends are converging and driving real change in the auto industry. You may have heard the trends before, but you must consider their impact now.

Mass/weight reductionOEMs have weight reduction targets averaging between 3 and 5 percent annually over the next 10 years to improve fuel efficiency and reduce environmental emissions. Think of the 2015 Ford F-150, with an aluminum body, making it 700-plus pounds lighter than its predecessor. It’s a big risk in a truck market traditionally dominated by steel.

As the industry moves toward lighter materials, such as aluminum, carbon fiber, and plastics, steel will drop from two-thirds of the average vehicle’s weight today to only half by 2030.

Next-generation powertrainsTightening fuel-efficiency and environmental regulations are driving OEMs to embrace advanced technologies, ranging from turbochargers to hybrids to fully electric vehicles. The components required for the evolving powertrains will be very different from those used in traditional internal combustion engines.

In the case of hybrids, for instance, while some have a gas engine, it acts primarily as a generator, and the size and duty requirements are significantly different. Suppliers need to think about re-engineering and redesigning components to fit the demands of forthcoming vehicles.

Vehicle platform consolidation to fewer, shared architecturesOEMs are shifting to combined, and in many cases, global platforms as a way to better manage their capital expenditure across vehicles. By reducing the number of architectures, while providing consumers differentiated products, OEMs hope to create more common compo-nents that can be purchased at higher volumes with lower per-unit costs.

Suppliers should be prepared for

much higher production volume

requirements ... and a higher level of risk.

Page 9: Future Proof Your Business

PLANTE MORAN 7

Moving forward, suppliers should be prepared for much higher production volume requirements for new and existing businesses — and a higher level of risk. Suppliers need to win the vehicle programs they want to win, and not the ones that will cost them.

Mobility technologyIt’s not your parents’ driver’s ed car. Today’s middle- schoolers will more than likely take their driver’s tests in cars with autonomous features. Within five years, projections indicate that up to 40 or more models will have autonomous capabilities. We’re not talking about some distant sci-fi future; the technologies, spurred by efforts to improve vehicle safety, are essentially here and already starting to drive competitive advantages.

These technologies affect the entire vehicle, so it’s essential that all suppliers be heavily engaged in developing new vehicles with their OEM customers to ensure ongoing safety and quality standards.

Emerging market production to meet economic growthOEMs are becoming more globally integrated, expanding production in non-U.S. markets, such as China, India, and South Asia. Production capacity in Mexico, for example, is expected to increase by 50 percent over the next five years. Even today, BMW, Kia, Audi, and others are establishing new production plants south of the U.S. border.

To effectively serve global OEMs and markets, suppliers must determine how to grow their production locally, which requires significant investment in plants, equip-ment, tooling, and labor. Even Tier 2 suppliers will find it increasingly difficult to supply only the U.S. market.

As the trends converge, OEMs are scrambling to meet new market and regulatory demands, and they don’t have the internal capacities to go it alone. OEMs will increasingly seek to transition more capabilities to their supply base. Suppliers that can work collaboratively with OEMs — and even their own competitors — to provide products in multiple regions and across vehicle platforms will become the preferred suppliers.

Within five years, projections indicate

expect increases in production capacity in Mexico over the next five years.

50%

40+will have autonomous capabilities.

vehicle models

AUTOMOTIVE TRENDS

Page 10: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS8

But those suppliers should also be prepared to pull back the curtain and offer increased transparency on both financial and operational fronts, as OEMs will continue to push for better products at a lower price. As volumes increase, OEMs and suppliers need to problem-solve and pursue innovative technology development — together. These innovations and their related capital requirements are driving new partner-ships, joint ventures, and alliances.

We’re also seeing increased M&A activity in this space. The pending acquisition of TRW Automotive by ZF Friedrich-shafen AG is a telling but hardly a lone example. ZF CEO Stefan Sommer has explained that the move will strategically position the transmission and chassis maker by extending its current product technologies and capabilities to meet anticipated demand for safer technology systems and autonomous vehicles.

ADAPTING TO CHANGE As OEM demands shift, many segments of the supply base will change significantly. For instance, suppliers of conven-tional mechanical fasteners will need to develop innovative solutions, since new and improved fastening technologies will be required to hold together a variety of materials and accommodate complex vehicle designs.

New needs also mean new opportunities. For example, General Motors Co. is increasingly using structural adhesives, and therefore fewer heavy fasteners, to reduce weight and vibration. Myriad other opportunities exist for suppliers with foresight — companies that are nimble and able to pivot in response to changing customer and market needs. Adap-tation may require offering new or different products and services. It may mean walking away from dying technology. It may mean diversifying your customer base and/or looking toward entirely new segments and new business models.

Supplier opportunities will depend on identifying and developing strong customer, product, and regional strategies and maintaining clarity and discipline around your business model, be it based on operational excellence, technology innovation, or customer collaboration.

Adaptation may require offering new or different products

and services.

Page 11: Future Proof Your Business

PLANTE MORAN 9

STRATEGIC HORIZONSThe capital requirements and investment risks at play in this dynamic market space can be daunting. As suppliers consider the inevitable impact of industry change, they should look to the following strategic recommendations to chart their course:

Build efficient, highly effective commercial relationships and offer value-added services, particularly in areas such as engineering and technical support, pricing and costing transparency, warranty responsibility, transportation, and delivery.

Add critical value through innovative products and technical knowledge. Supplier investments in R&D and early involvement in OEM R&D and engineering processes can help differentiate you from competitors. Higher value-added, innovative products will almost always result in significant profit margins.

Provide extensive technical support for vehicle launches. As new vehicle models proliferate in number, the ability to meet program targets without sacrificing quality will have an increasingly critical impact on sales.

Invest in targeted vehicle platforms. As fewer and combined vehicle architectures drive up production volumes for suppliers but lead to consolidation of the supply base, suppliers must place their bets and figure out — quickly but cautiously — where and how to invest.

Devise geographic growth strategies. Smart international strate-gies will be crucial to supplier support of OEM customers as they boost production in Brazil, India, China, Mexico, and other emerging markets. Suppliers must align their physical footprint with their business model — regional, multiregional, or global.

We’ve seen too many suppliers chase volume only to hurt their businesses by accepting razor-thin margins. That’s not to say companies can’t be successful with volume-based business models, but the trade-off must be deliberate if your goal is to increase shareholder value, and mitigate risk, in the long run.

Profitable and sustainable growth rely upon smart strategic decisions. After all, growing revenue, however significantly, is only meaningful if you can bring it down to the bottom line.

For more information, contact Plante Moran’s Daron Gifford.

AUTOMOTIVE TRENDS

Page 12: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS10

Page 13: Future Proof Your Business

PLANTE MORAN 11

Global StrategyCompanies must develop the right international strategies to balance risk with opportunity; there is no one solution that will work for all businesses. Key factors to consider include the market segment you operate in, your overall business strategy, enterprise discipline and value proposition, available capital to invest, risk tolerance, and many others.

To hear firsthand how two companies are growing their international footprint, Plante Moran spoke with Scott Becker, president and CEO of Chromaflo, global provider of pigment dispersions, and Ed Holland, president and CEO of plastics resin distributor M. Holland. Below, they share how they navigated the issues given their unique company attributes and vision and the dynamics of the markets in which they operate.

Ed, you took M. Holland into Canada in 2004, and today Mexico and Central America make up about 8 to 10 percent of your business. Do you want to talk about some of the strategic choices you made?

HOLLAND: In the 1970s M. Holland was a regional Midwest company. During the 1980s and 1990s we expanded nationwide. In 2004 we had an opportunity

Experts Roundtable Discussion

Page 14: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS12

and opened up M. Holland Canada. At that point, it wasn’t a strategic decision; it was “We have an opportunity,” and that drove strategy. Subsequently, we developed a plan, a strategy, and a vision. We’ve determined that it’s important strategically to expand outside the United States and Canada for a number of reasons: Certain customers moved their manufacturing out of the United States; Mexico, in particular, is developing a first-class plastics industry of its own; and one of the biggest changes is that the shale gas and oil boom is changing the landscape of plastics around the world, allowing us access to export markets.

Scott, tell us about some of the strategic choices Chromaflo made as you expanded overseas?

BECKER: We had captured significant share in North America and we knew we had good technology based on who we were selling to in both the thermoset and industrial coatings marketplace. We had blue chip customers (who had opera-tions overseas). We knew we had good technology, and my view was that we really needed to go international because we can do so much more in the world. But we didn’t have the vehicle….In the past we had tried licensing, distribution, co-manufacturing, all the vehicles to try to penetrate interna-tional markets. The bottom line for us was, you have to have assets and people on a continent to really gain a foothold. It’s too difficult to try and do it with people who view your business as secondary. Having gone through those other processes, it was clear we had to do something different. For us, that meant taking the risk of taking on significant amounts of debt to generate business in other areas of the globe.

Can you talk about some of the risks you identified as you expanded into other countries and how you addressed them?

HOLLAND: You have to manage the three C’s of risk: currency, country, and customer. We’ve embarked on currency hedging and trade credit insurance which help mitigate some of the risk. We’re expanding in countries that are business-friendly and have good mechanisms in place to do business with the United States and international communities. Those countries

You have to manage the three C’s of risk:

currency, country, and customer.

Page 15: Future Proof Your Business

PLANTE MORAN 13

need to have stable currencies and business practices that align with our core values. To manage customer risk, the key is to have feet on the street, people who understand the business environment in that country. Regarding M&A in foreign countries, we need to be clear on what an asset is and how it would align with our strategies.

BECKER: To me, the risk was when we stepped into private equity and debt … there are a lot of unknowns, we’ve all heard the stories about being involved in private equity but the key to being successful in that realm is picking the right partner. I spent a lot of time — I probably spent five months — finding, vetting, and doing due diligence on the partner we ultimately did business with and eliminated 19 others. That’s a critical aspect; we had the right partner (Arsenal Capital Partners) — everything they told us would happen in terms of supporting our growth strategy has come through, including helping us deal with integration issues. The biggest factor for me at the time we took our big step was believing that we picked the right partner and were doing the right thing by the employees and the business.

It’s one thing to make a strategic decision in a conference room in your home country, quite another to try and implement on the ground in a foreign country. How do you go about it?

BECKER: There’s a tremendous amount of work to accom-plish. Everything from legal aspects in every country, all the name changes to technology transfer to simple things like signage and business cards, compared to complex things like IT integration, making sure databases can communicate effectively, distribution partner realignment, pricing scenarios, discounts, etc.

Basically what we did is we developed a pretty significant integration plan, everything from communications through sales and marketing, technical, manufacturing, finance, IT, legal, and we created it with key actions in every one of those segments and a time table and responsible parties to handle it and then followed it every two weeks like the bible and drove the process to conclusion. We’ve done that with every acquisition and integration since then. I had a team of people

The biggest factor for me was believing we picked the right partner and were doing the right thing by the employees and the business.

GLOBAL STRATEGY

Page 16: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS14

globally working on them, and we broke it down regionally. That’s also a key aspect. We had itemized everything but broke it down on a regional basis, and regional people took care of regional things. Global things like the web page, as an example, we handled in Ashtabula [Ohio].

How do you integrate and suffuse your culture into new operations overseas?

BECKER: We are very customer-centric. A lot of people say that, but I can tell you we live and die by it everyday. So what I did right from the get-go until this very day is, I hold biweekly meetings with every region. We talk about three things: customer retention (what issues are out there); cus-tomer conversion or new business targets; and integration activities. It gives focus to the most important thing, what I consider the most important thing, which is taking care of customers. You do that for a few months and people see, okay this is real, I have to make something happen and they start to buy in. You don’t want too many meetings to go by without something happening on a particular account. That set the tone for what our focus was going to be. If you think about it, if you take care of customers a lot of the other things fall into line. That’s how we came to a common culture.

HOLLAND: We spend a lot of time on culture. I’m told by our suppliers, customers, and competitors that we live our culture and core values more than anyone they know. The values are a constant reminder and reinforcement of how we’re expected to behave in the marketplace, and that doesn’t change, whether we’re in the United States, Canada, Mexico, or anywhere else.

Probably one of the single biggest dangers in global expansion is that people think everybody thinks like they do. We have to understand what the local culture is and make sure that it aligns with our company culture. If it doesn’t align, our efforts aren’t going to be successful.

One of the biggest dangers in

global expansion is that people think everybody thinks

like they do.

Page 17: Future Proof Your Business

PLANTE MORAN 15

How would you summarize your global strategy today?

BECKER: We want to be the premier provider of technology solutions to the coatings and thermoset plastics marketplace, that’s our vision. We have three plants in North America, three in Europe, one in South Africa, two in Asia, and technical labs in Brazil, India, and Malaysia. We have 760 employees — it’s pretty exciting. We’re heavily focused on the customer, and our strategy is to continually expand in markets we currently consider growth markets, where we really need to have a larger footprint. So we’re focused on developing manufacturing capabilities in India and in South America and strengthening our manufacturing position in China. Those three markets are getting a lot of focus right now to better understand the dynamics and also developing either a strategy to acquire or create our own facilities. We’ll be focusing on that in the next year.

We’re also looking at new market applications, so right now we have coatings and thermoset plastics, and we’re looking at whether we could we add a third or fourth leg? There are a lot of other markets that use colorant that we don’t participate in that we could. That’s getting a fair amount of focus from our marketing and business development groups.

HOLLAND: Our global strategy is a North-South strategy. The plastics industry in the Americas is a growing industry. These regions — Mexico and Central and South America — will continue to be net importers of plastics raw materials. The United States is going to have the lowest cost feed stocks in the world due to shale gas and shale oil. Within the next two to five years this will become a huge export opportunity for U.S. production. We do some spot trading in Asia, but we don’t have true distribution there now. West and North Africa are additional markets to be looked at in the future.

The plastics industry in the Americas is growing. Mexico and Central and South America will continue to be net importers of plastics raw materials.

GLOBAL STRATEGY

Page 18: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS16

Page 19: Future Proof Your Business

PLANTE MORAN 17

Is Your Strategic Plan Missing a Passport?

The U.S. economy is recovering slowly but steadily, and there is good news domestically — low energy prices for one — making the U.S. extremely competitive. Yet times still aren’t great for a number of middle-market manufacturing and distribution companies. If you look at other parts of the world — China, India, and many other emerging markets — growth rates, demand and wealth creation, especially among the middle class, are much stronger.

That should be a wake-up call for American companies focused solely on the domestic market. What we’re seeing in the M&A space only underscores that warning. Higher values are being put on companies with international operations. We see increased enterprise value in firms operating in multiple countries vs. those with a solely domestic footprint. To state it frankly, I’m concerned for companies where most of the wealth is tied up in the U.S. market because that wealth over time could erode.

With a brighter outlook at home in the near term, now is a good time to develop — or revise, as our world of constant change demands — your company’s international strategy. That old saw about making hay while the sun shines? It’s true, and companies would be wise to consider diversifying risk and taking advantage of opportunities to get more active in foreign markets.

Globalization isn’t going away, and it affects all businesses — even, perhaps especially, those with a domestic focus. If

BALANCING RISK AND OPPORTUNITY IN INTERNATIONAL MARKETS

We see increased enterprise value in firms operating in multiple countries vs. those with a solely domestic footprint. To state it frankly, I’m concerned for companies where most of the wealth is tied up in the U.S. market because that wealth over time could erode.

GLOBAL STRATEGY

Page 20: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS18

anything, business leaders today are under pressure to develop ever more sophisticated, nuanced international strategies. Unfortunately, there are too many companies that don’t have any international strategy at all.

The most common concerns we hear from middle-market manufacturing firms about expanding internationally surround complexity, risk, and cost. Those are valid concerns. We’ve seen companies rush into new (to them) and emerging mar-kets, and it didn’t go well. One didn’t consider the impact of currency movement on their costs; they lost money on every product they sold and had to shutter the operation. Others skipped due diligence, trusting people they shouldn’t have until their customers were stolen and their plants duplicated.

That’s why you don’t rush. That’s why you focus on a continu-ous loop of diligence, process and control in developing your international strategy, just as you do in your manufacturing. That’s why you choose your strategies wisely. A reactive approach, when customers — or competitors — are forcing your hand, is much more fraught than learning your customers’ needs and proactively working to meet them.

All businesses today should be, at the very least, internation-ally aware, if not necessarily internationally active. Your strategy might be as simple as monitoring various markets. It’s not a question of active or inactive; it’s not that black or white. An overwhelming majority of businesses need to be in that gray space between monitoring customers, competitors, and suppliers in more than just the domestic market.

At a minimum, companies should be able to identify

• Your market share in key global markets

• Your major competitors in those key markets

• Supply chain impact; what vendors exist in those markets, and what relationships they have in place with your competitors

• A competitive price in each of those markets

• Environmental factors that could significantly impact your business, such as the pricing of commodities, raw materials, energy, and currency

If you can’t, you might be, consciously or unconsciously, taking a bury-your-head-in-the-sand approach, one that

It’s not a question of active or inactive; it’s not

that black or white. An overwhelming majority of

businesses need to be in that gray space between

monitoring customers, competitors, and

suppliers in more than just the domestic market.

Page 21: Future Proof Your Business

PLANTE MORAN 19

There are too many companies that don’t have any international strategy at all.

may result in the unfortunate discovery that your competition is undercutting you on price or delivering more value at a similar price, and you’ve lost market share. As your customers expand their international operations, they’re looking for global suppliers and distributors. In many cases, it’s not enough to set up shop closer to a border; customers want their suppliers in-country (or perhaps in-region).

The positive flip side is this: We’ve seen clients whose competitors were too slow investing in particular markets where their customers needed product created. As a result of entering those foreign markets, the clients have grown their businesses tremendously and gotten hundreds of millions of dollars in new business.

Which brings us back to that yin-yang balance between opportunity and risk. When developing your international strategy, it’s important to balance the evolution of international activity with the degree of complexity, investment, and uncertainty your company is willing and able to handle.

Potential strategic approaches run the gamut: On the lower-risk, lower-complexity end of the spectrum, consider sourcing, exporting, contract manufacturing, and licensing arrangements. Mid-spectrum, consider contractual, equity, or profit-sharing joint ventures with local or regional strategic partners. On the highest-risk, most-complex (and most capi-tal-intensive) end, consider greenfielding and acquisitions.

In other words, you can dip your toe into international waters rather than dive headfirst. Particularly in Europe right now, where there is excess capacity, you might be able to contract or buy someone else’s excess before investing heavily to build your own.

Is developing a strategy that reaches beyond your original borders a tall order? Indeed. But it’s a necessary process. A deliberate, well planned — and, of course, well executed and nimble — strategy may require less of a financial investment than you assume. In any case, the journey calls for serious company soul-searching since your international strategy, in whatever form it ultimately may take, helps position your business for sustainable future growth.

For more information, contact Plante Moran’s Lou Longo.

GLOBAL STRATEGY

Page 22: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS20

Page 23: Future Proof Your Business

PLANTE MORAN 21

Geographic RationalizationA DISCUSSION WITH PLANTE MORAN’S LOU LONGO AND RESHORING EXPERT HARRY MOSER

LONGO: Speaking of strategy, it’s imperative that compa-nies rationalize their global investments, proactively identifying opportunities (and risks) geographically, both from their own standpoint as well as their customers’ current, and future, requirements.

Our clients frequently ask us about reshoring, or bringing previously offshored production of goods to be sold in the U.S. back to the U.S., and how it fits within today’s global environment and their own international strategy development. As we’ve said, there’s no one-size-fit- all solution, and for some companies, geographic rationalization includes reshoring.

MOSER: Most production was offshored because wages were so low in China, Mexico, and other places. Companies didn’t do their homework and only looked at wages, the purchase price of the product or the landed cost, but not at the total cost of ownership.

Those other costs include and relate to carrying costs of inventory, IP risk, quality and warranty issues, product liability risk, the hit to innovation when you separate R&D and engineering from manufacturing, supply chain interruption, loss of control over “green” considerations, and others.

With labor costs in emerging markets rising — as much as 15 to 20 percent annually — and low energy prices in the United States right now, companies that didn’t do the math and ignored those other costs are realizing that the gap is now small enough that in a lot of cases it makes

GLOBAL STRATEGY

Companies ... only looked at wages, the purchase price of the product, or the landed cost — not the total cost of ownership.

Page 24: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS22

Supply chain and logistics riskssuch as the longer part-ordering lead times, transit issues, and customs complications

Lower energy costs in the U.S.

Continued socio-economic growth of developing nations

Source: Plante Moran’s 2013 North American Plastics Industry Study

KEY DRIVERS FOR RESHORING INITIATIVES

sense to bring the work back. Companies can do the math using our free online TCO Estimator.

The rate of new offshoring has dramatically declined. I like to say, we haven’t won the war but certainly we’ve stopped the bleeding. There is still roughly a $600 billion trade deficit in goods, which represents about four million manufacturing jobs.

LONGO: I often hear companies use the recovery in U.S. manufacturing as an excuse for putting international expansion on the back burner. But American companies

Page 25: Future Proof Your Business

PLANTE MORAN 23

that want to grow need to have, or be developing, an international strategy in some form. Reshoring may be one part of a company’s overall strategy, but it is a different animal from investing in partnerships, operations, acquisitions, or market penetration efforts overseas.

MOSER: I tend to go back to first principles, that you make goods near where they’re going to be consumed. Let me share one of my favorite examples: A few years ago, GE had its U.S. engineers take apart some water heater models that had been designed and produced for GE in China and re-design them. The new models resulted in lower warranty costs and better thermal efficiency. Even though wages were five times higher here, the engineers had simplified the design so much that GE could sell a made-in-the-USA product for 20 percent less. You can’t get a better story than that. It underscores the importance of having your engineering and manufacturing functions together, not necessarily in the same building but at least speaking the same language and in the same time zone and able to work together.

LONGO: Agreed about first principles. OEMs and consum-ers are demanding goods produced locally or regionally. Foreign firms are moving their manufacturing here to be closer to the U.S. market, and many U.S. suppliers are finding their OEM customers, who are producing in Mexico, for example, want them to be in-country.

Another issue that comes up a lot among our clients, particularly in the middle market, is talent. I know readers will wonder, ‘Who is going to do all this work I bring back?’

MOSER: Skilled labor availability is a challenge. There has to be a healthy ecosystem and a workforce ready for reshoring. Commentators, educators, the U.S. Department of Labor — we all have to show young people that there are alternatives other than pursuing a four-year college degree. Apprenticeships in the skilled trades, training programs, referring to toolmaking not as a vocation but as a profession like they do in Germany and Switzerland, we need those kinds of efforts to change the perception of manufacturing into one that is a viable, lucrative career pursuit.

GLOBAL STRATEGY

We have to show young people that there are alternatives other than pursuing a four-year college degree.

Page 26: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS24

Page 27: Future Proof Your Business

PLANTE MORAN 25

Belaboring the point:CULTIVATING TALENT STARTS AT THE TOP

The outlook for manufacturing is improving but finding skilled labor remains a major concern for manufacturers, particularly in the middle market. Companies’ underinvestment during the downturn in their skilled manufacturing workforce and, as a result, in the potential for innovation that workforce brings, now threaten to impede growth during the recovery and beyond.

At the same time, while unemployment within the sector is dropping, we haven’t seen the degree of upward pressure on wages we would expect in a true shortage. Several experts have suggested the gap in manufacturing talent may be less skills-based than wage- and perception-based. The public’s image of manufacturing — physically demanding, dirty, repetitive, male-dominated, low-paying — may not yet have caught up to the increasingly high-tech manufacturing environments of today.

Among Gen Y-ers, aka Millennials, many of whom live much of their personal and professional lives online, a career in manufacturing may seem less appealing than one in digital media, finance, or IT. This generation has had far fewer opportunities to take shop and other vocational or occupational

Talent

The gap in manufacturing talent may be less skills-based than wage- and perception-based.

Page 28: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS26

classes in high school. According to the National Center for Education Statistics, high school grads earning career and technical education credit in manufacturing dropped by almost 10 percent from 1990 to 2009. But the sector needs Millennials since about one-third of the industry’s current workforce is between 55 and 64 years old.

TAKING THE TRAINING REINSHistorically, manufacturers played a much greater role in developing talent than they do today. Think Henry Ford Trade School and General Motors Institute, for instance. More recent examples include Merrill Fabricators’ Merrill Institute and Automatic Feed Company, which created a novel collaborative program, the Northwest Ohio Learning Center for Manufacturing Sciences, with area community colleges and high schools.

In Grand Rapids, Mich., Pridgeon & Clay, which provides metal-stamped and fine-blank components for the auto industry, teamed up with other area manufacturing firms and the Precision Metalforming Association to host facility tours for high school students. The company, with over 1,000 employees, also created a Career Paths program for skilled trades that includes paid positions in conjunction with flexible hours and education reimbursement toward an associate’s degree.

Pridgeon & Clay also offers a 12- to 18-month press operator apprenticeship program. Over 20 classes have been developed and are taught on-site, and the program has been recognized with the Precision Metalforming Association’s A.R. Hedberg Award.

Granted, such programs can be expensive, and of course there’s no one perfect, or quick, solution or model. Yet not taking charge also carries costs. Companies must think creatively about how to cultivate the talent they need, now and into the future. In short, manufacturers need to develop the people they want to recruit.

CULTURE: THE RECRUITER’S, AND INNOVATOR’S, BEST FRIENDAs manufacturers consider strategies and tactics to attract talent, they shouldn’t lose sight of one factor that is well within their control: culture.

Page 29: Future Proof Your Business

PLANTE MORAN 27

“Culture creates an environment that ‘A’ players want to be part of,” says Ed Holland, CEO of M. Holland, a distributor of plastics resins. “It plays a huge role in recruitment and reten-tion. It’s one of our differentiators.” Holland says the company’s core values, generous benefits, and innovative environment all keep current employees excited and attract new top talent.

Your culture doesn’t only draw talent to your door, it helps keep that talent a productive, motivated source of innovation. Plante Moran’s 2014 Innovation Study: Is Your Corporate Culture a Catalyst for Innovation? explores how elite organiza-tions use culture to engage employees and spur innovation. As one survey participant commented, “They [employees] drive the innovation, and the rest of the organization follows.”

Among elite organizations, defined as organizations that saw a 30 percent or more increase in revenue over the past one to three years, four categories of cultural and workplace practices emerged from the survey results:

• a collaborative work environment

• programs and tools to support innovation

• work-life balance programs

• perks and benefits

A FORMULA FOR SUCCESSFUL INNOVATION

employees

culture

innovation

increased revenue

Source: Plante Moran’s 2014 Innovation Study: Is Your Corporate Culture a Catalyst for Innovation?

TALENT

Page 30: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS28

A culture that fosters open communication and rewards creative thinking is key to motivating employees to take the kinds of risks that innovation demands. Elite organizations found that collaborative workspaces and team- and trust- building programs help create a positive environment. These companies recognize employee contributions through awards ceremonies and incentives. Interestingly, successful firms found nonmonetary recognition more effective than monetary incentives, suggesting that such programs don’t have to cost a lot.

The most innovative organizations also believe that the right training is crucial to helping employees generate innovative ideas. These companies reported offering both formal and informal training programs, access to continuing education, and tuition reimbursement.

INVESTING IN TALENT IS NOT OPTIONALWhile the benefits of talent development programs are clear, many companies are hesitant to invest in current and pro-spective employees only to have them leave for a job with a competitor. Of course that’s a possibility, but investing in your workforce is necessary, not a luxury, and you may have more control over the return on that investment than you think.

“You have to protect your ‘A’ players,” said Holland. “That ties back to culture, making people feel they belong and giving them opportunities to grow with the organization. One of the things we’re told we’re good at is allowing people to rise to where their talents take them.”

The company has undertaken a number of recent talent-related initiatives, including creating M. Holland University, establishing a scholarship with the Plastics Pioneers Association, investing in a collaborative electronic perfor-mance management system, and developing an extensive onboarding and orientation process for new employees. “Motivated individuals love this environment,” Holland said, “because they can feel valuable.”

Companies that can offer employees challenging but reward-ing growth experiences indeed have an edge, according to Scott Becker, CEO of Chromaflo, which makes pigment

of elite organizations offer training opportunities.

83%

Source: Plante Moran’s 2014 Innovation Study: Is Your Corporate Culture a Catalyst for Innovation?

Page 31: Future Proof Your Business

PLANTE MORAN 29

dispersions for thermoset plastics and the Coatings industries. The company is based in Ashtabula, Ohio, with plants and technical labs on six continents.

“That was one of the benefits to us of expanding internation-ally,” Becker says. “It’s created a good growth opportunity for everybody who works for us and also created career opportunities that would not have been available had we stayed just a North American company. Many of the people who work for us travel internationally now, and they manage people internationally. It’s given them exposure to other customers and cultures and processes that they just would not have experienced otherwise. Those kind of opportunities keep people with us.”

SHORT-TERM, HIGH-IMPACT Cultivating talent, both outside and inside your organization, takes time. Outreach and STEM initiatives targeting students take time. Yet, as you likely know all too well, the talent issue looms today. In the short term, companies should consider easy-to-implement programs that can have an impact in the near-term. Consider instituting tuition reimbursement for relevant college courses and continuing education and/or partnering with local community colleges to co-develop courses that teach the skills your firm, and perhaps other local firms, need.

Also take a hard look at your onboarding and performance appraisal processes. Are you bringing employees into the fold from the get-go, so they feel a sense of belonging, understand their role with respect to company goals, and see growth opportunities? Are you identifying promising talent early in order to provide mentorship and training to address gaps in skillsets, be they technical or “soft”?

While it’s easy for near-term needs to eclipse long-term planning, consider your talent needs three, five, 10 years from now, especially in light of current and anticipated market trends. Talent recruitment and development strategies need to be part of your overall business strategy, not only to keep operations humming today but to grow, innovate, and thrive over time.

For more information, contact Plante Moran’s Jeff Jenkins.

Are you identifying promising talent early in order to provide mentorship and training to address gaps in skillsets, be they technical or ‘soft’?

TALENT

Page 32: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS30

Women in Manufacturing:

Why aren’t the numbers of women in manufacturing higher? What’s keeping women out, or why are they choosing to stay out?

GREALIS: We know that women are underrepresented in manufac-turing not because they are not able, but because they still believe the manufacturing field is a better fit for men. The biggest challenge women face when considering the manufacturing sector is the untrue stigma that surrounds manufacturing today. Too often, women still think of it as their father’s manufacturing. They think that manufacturing is dirty, dark, or dangerous. But manufacturing today is generally very high-tech and involves advanced technology and automation. It is much more about brains than brawn.

How do the priorities of women working in manufacturing and of young women considering their career options align with the opportunities within the sector?

GREALIS: A recent survey Women in Manufacturing conducted with Plante Moran found that among women aged 17 to 24, interesting and challenging work and high earning potential were top priorities as these young women contemplate future career paths.

Women comprise 47 percent of the U.S. workforce, earn more than half of associate’s, bachelor’s, and master’s degrees and hold more than half of all managerial and professional positions in the U.S., yet they make up less than one-quarter of the manufacturing sector’s workforce. Women in Manufacturing Founder and Executive Director Allison Grealis shares her thoughts regarding this disparity and how to overcome it.

24%

24%47% of the U.S. workforce=

But only of personnel at durable goods manufacturers

=

ARE YOU INVESTING IN THE OTHER 50 PERCENT?

As companies struggle to fill open positions, there’s a segment — make that half — of the population they are not tapping as effectively as possible.

Page 33: Future Proof Your Business

PLANTE MORAN 31

Among women currently employed in the manufacturing industry, the survey found that 82 percent reported that the field offers interesting and challenging work. Seventy-four percent agreed the industry offers multiple job roles for women, and more than half agreed that manufacturing is a leading industry for job growth. One-half believes that good compensation is a benefit of the sector. These priorities align very well with the opportunities manufacturing affords.

When we talk to women in the manufacturing sector today, the thing we hear most often about why they like their jobs is that the work is exciting. Manufacturing, our members have told us, provides the opportunity to work with emerging technologies and offers the chance to learn new skills … It really comes down to simple math. The high number of women who are pleased with their jobs in manufacturing plus the high number of open manufacturing jobs equals a unique opportunity to attract more top-tier female talent to the manufacturing sector.

It’s also well documented that diversity is crucial to fostering innovation in the workplace, and many recent studies have shown that organizations with larger percentages of women in leadership positions outperform their competition.

But those outdated perceptions of manufacturing are hard to overcome, especially if women remain under-represented among manufacturing leadership positions. Survey results found that over 50 percent of women felt having very few to no women currently in executive or management positions was a primary obstacle in the retention and advancement of women.

GREALIS: There are many ways companies can capitalize on the opportunities to invest in women and break down barriers. Many of the successful female leaders in manufacturing today indicate they had an internal champion or role model. Mentorship is important. Building a solid infrastructure for a supportive community also is important because we often hear from our members that they were not planning on a career in manufacturing until someone along the way recognized their talent and encouraged them.

In addition, competitive salaries, modern workplaces that offer challenging and stimulating assignments and the chance to work with advanced and emerging technologies, flexible work schedules, job sharing, programs to promote careers in manufacturing. These all move us beyond the negative stereotypes and attract diverse and talented workers.

82%of women working in manufacturing report that the field offers interesting & challenging work that young women are seeking.

TALENT

Page 34: Future Proof Your Business

FUTURE-PROOF YOUR BUSINESS32

The transformation gripping the manufacturing industry can feel both sudden and incremental, depending on the issue and the day. Effectively navigating through this period of transformation requires planning, flexibility, and adaptability. That’s why we developed this report — to help companies anticipate future changes, or future-proof their operations. Hopefully by doing so companies will minimize the effects of these shifts by challenging and adjusting their current strategies.

To future-proof your company, it’s important to:

• Know yourself. Opportunities for middle-market manufacturers will depend on identifying and developing strong customer, product, and regional strategies and maintaining clarity and discipline around your business model.

• Invest in talent. Consider your talent needs three, five, even 10 years from now. Talent recruitment and development strategies need to be part of your overall business strategy.

• Be more internationally aware. Even if you’re not internationally active, it’s important to monitor customers, competitors, and suppliers in more than just the domestic market.

Although all three of those points are important, knowing yourself is the most critical. To succeed in our industry going forward, you have to be self-aware. You have to have a deliberate strategy for evolving and responding to innovations like those megatrends referenced earlier. There is no one-size-fits-most approach, let alone one-size-fits-all. The key is to stay focused and keep moving forward. A positive attitude also plays a role. As Henry Ford once said, “Whether you think you can, or you think you can’t — you’re right.”

CHRIS MONTAGUE, PARTNER Manufacturing & Distribution Practice [email protected]

Page 35: Future Proof Your Business

PLANTE MORAN 33

Reach out to one of the leaders on our manufacturing team to discuss how to future-proof your business.

RICH ANTONINIWest Michigan Manufacturing & Distribution [email protected]

Talk to us.

DARON GIFFORD Partner-in-Charge, Strategy Consulting [email protected]

CATHY HARE Ohio Manufacturing & Distribution [email protected]

JEFF JENKINS Partner-in-Charge, Operations & Supply Chain [email protected]

LOU LONGOPartner-in-Charge, Global Services Consulting [email protected]

PAUL OETTER Illinois Manufacturing & Distribution [email protected]

BRYAN WELSH Southeast Michigan Manufacturing & Distribution [email protected]

If you’d like to receive more insights from our manufacturing team, go to subscribe.plantemoran.com.

Page 36: Future Proof Your Business

About UsPlante Moran’s team has broad experience working with more than 2,500 manufacturers and distributors, ranging from growing, owner-managed businesses to international market leaders. Our practical industry knowledge and deep array of services will provide you with the tools and resources you need to future-proof your business. Stay connected to the firm and receive more of our manufacturing industry publications by visiting plantemoran.com.

PLANTE MORAN

27400 Northwestern Highway

Southfield, MI 48034

Presorted Standard U.S. Postage PAID

Plante Moran48037