Friday, June 28, 2013

Understanding True Costs: What You Risk Missing

Many manufacturing companies use absorption costing methodologies that simply add up all costs and divide by the number of hours worked in a given year. This equation typically yields an average cost per hour for each department, or a blanket cost per hour (i.e. everything in the shop costs $120 per hour). This approach is quite easy to calculate and it provides a safe way to make sure all costs are ‘covered’ in terms of determining costing rates. While there is a lot to be said for simplicity, this approach is fraught with dangers that can have serious negative business implications…

Absorption costing makes a lot of assumptions, which are simply not true when it comes to how much any given activity really costs to perform. What gets lost in the lump-sum absorption equation are universal business truths, such as:
  • Activities that have larger footprints cost more in terms of building occupancy expenses.
  • Activities that require more maintenance or tech support often cost much more to perform.
  • Activities that consume larger amounts of electricity, water or gas cost more to operate.
  • Activities with equipment of varying age have varying depreciation costs.
  • When a process is running (and you are charging enough), you are making money; When a process stops running, it is costing you money. Dividing costs by payroll hours is quite different than dividing by actual machine running hours.
  • When a company writes a check to buy material there is an overhead rate associated with buying the material, bringing it to the workplace, moving it through the process and shipping it out (i.e. $1.00 of material really costs $1.15). Not adequately marking up material costs often leads to losses, especially on high volume jobs.
These are just a few examples of how absorption costing can lead to bad business decisions. The choice to use top-down general ledger data is tempting because you already have to keep score in order to pay your taxes. If simplicity is the goal, then using general ledger information to run the business seems like a safe, easy bet. If informed business decisions and profitability are desired, measuring activities from a sideways, or activity-based perspective often changes the way companies look at themselves and the way that they do business.

Friday, June 21, 2013

Preparation: Reaping the Benefits of Safety Compliance

Every business owner cares about workplace safety for the obvious reasons. I mean, who doesn’t want the reassurance that their employees are working in a safe and healthy environment? However, many of Michigan’s manufacturers “play defense” when it comes to safety regulations. Let’s be honest…when we hear or say the words “safety compliance,” it’s typically accompanied by a roll of the eyes. 
Manufacturing Safety
People generally aren’t enthusiastic about adhering to regulations and sometimes view them as a hassle to say the least. Nonetheless, accidents do occur in the manufacturing field and businesses need to protect themselves accordingly. While we always hope for the best, common accidents like falls or getting caught in between equipment happen. 
In addition to protecting our workers, there are many regulations in place to prevent accidents and a failure to comply results in financial penalties from the Occupational Safety & Health Administration (OSHA).
It is estimated that over 70% of OSHA inspections are unannounced and can lead to a variety of fines. The average fine is estimated to be approximately $2,300 but be upwards  to $70,000 for what is viewed as a “willful violation.” In the coming years, the average fine is expected to increase between $3,000 and $4,000. This money can be better spent elsewhere! 
Michigan’s manufacturers need to “play offense” when it comes to safety. According to OSHA, the following were the top 10 most frequently cited standards for the last fiscal year…so be on the lookout for the following:
  1. Fall protection
  2. Hazard communication standards
  3. Scaffolding, general requirements
  4. Respiratory protection
  5. Control of hazardous energy (lockout/tagout)
  6. Powered industrial trucks
  7. Electrical, wiring methods, components and equipment
  8. Ladders
  9. Machines, general requirements
  10. Electrical systems design, general requirements
A key way you can avoid penalties is to make yourself aware of existing laws and the inspection process. You can view Michigan’s state plan by clicking here and here. A little corrective action can go a long way to eliminate exposure to costly OSHA violations.
Another important way you can manage this is by obtaining OHSAS 18001 certification. This certifies that a manufacturer has undergone an official process to identify safety and health gaps and implement corrective actions to meet compliance. As a bonus, having certification can also enhance your marketability to potential customers and clients!
If you are interested in achieving certification, MMTC can help. Click here for more information about the process. If you are in the food industry, MMTC also has specialized programs to ensure safety regulations are being met. Click here for more information. If you would like to set up a call with a MMTC , call 888-414-6682 or email inquiry@mmtc.org.

Image by Poly Bag Pro.

Friday, June 14, 2013

Succession Planning Strategies – Things You Need to Know

According to the findings of a recent Deloitte survey, "Perspectives on family-owned businesses; Governance and succession planning," family-owned business executives may be impacting their companies' long-term success and competitiveness due to gaps in the areas of governance, board operations and succession planning.

More than a quarter (28 percent) of respondents from family-owned businesses indicated that they do not have a board of directors. Additionally, a significant majority say their boards have no term (82 percent) or age (89 percent) limits on membership, and one-third do not evaluate or provide any compensation to board members. While it’s good that almost 75% of family-owned business do have a board, it must also be noted that almost half indicate that family members comprise a majority of those boards, leading to potential conflicts of interest in governance.

From the Deloitte Press release "Family-owned businesses are a huge component of the U.S. economy, and their attention to good governance practices can have an impact on success and failure," says Tom McGee, national managing partner of Deloitte Growth Enterprise Services, Deloitte LLP. "Tapping into the insights and experiences of an engaged, diverse, and independent board can yield significant operational advantages in the long run. Given that these companies are considered engines of job creation, a sharper focus on governance is important to their longevity, and to the success of our economy as a whole."

Succession planning can be an uncomfortable topic and often relegated to the 'only when we have to' conversation pile. The difficulty is that it usually involves a health crisis, either for the family or the business. In that moment, unless you’re cool under pressure, operating in crisis mode leads to bad decisions or compromises that can undermine decades of work. Successful transition can occur in those instances but a well thought out, planned transfer can lead to a seamless, and worry free validation of leadership that strengthens a company for the future.

Some things for current leaders to evaluate:
  • Do we have a consistent, well understood and communicated vision for the company?
  • What strengths and talents do I bring to the job?
  • Do those strengths exist in an individual or select group of individual in the company?
  • What professional development is needed to build those strengths? 
There are so many things to consider, but the most important thing is to do something. Being prepared, at least knowing what questions to ask and how to find the answers, puts you in a better position to act. In business, it’s less about survival of the fittest, and more about survival of the flexible. The better your planning, the more stable and better positioned your company for the next generation.  

Friday, June 7, 2013

Three Key Marketing Initiatives for Michigan’s Manufacturers

Michigan’s manufacturers come from different niches and consist of many sizes. Despite their differences and nuances, they virtually all have one thing in common: they want more sales! And when it comes to sales, there’s a very simple rule: you can’t have more sales without marketing.
Marketing is critical in today’s competitive environment. With your customers getting constantly bombarded with sales pitches, you have to find a way to connect with your target audience and drive new revenue. Now is the perfect time to focus on marketing.
Here are three key initiatives to help you get thinking about the topic:
Conduct Market Research
What markets can I expand into? How do I improve my current customer base? What new products or parts could my customers benefit from? You can’t answer these critical questions without market research. It’s difficult to implement marketing tasks if you don’t have a strategy to begin with… and that’s dependent on research. By extracting and evaluating some crucial data about your target market, you can develop a marketing strategy and plan which appeals to current and potential customers.
Click here to learn more about MMTC’s Market Intelligence and Research solutions.
Improve Your Website
Study after study is demonstrating that the sales process is moving online. With technology at everyone’s fingertips, your potential clients are searching the Internet for solutions. If you don’t have a strong website that attracts and nurture leads, your targets may find your competitors first. An effective website gets found when key terms and phrases are searched for in Google and its content converts visitors into leads. If you’re not consistently obtaining digital sales, it may be time for a tune-up.
Click here to learn more about MMTC’s website solutions.
 

Own the Made in America (and Michigan!) Brand
Simply put, there has been a revolution of the sorts… we are all about buying American again! Customers prefer the quality of American goods and there’s a preference to support the local economy. Let people know that you proudly make products in the U.S.A. Use the Made in America label in your marketing materials…whether on- or offline.
Take it a step further by showing people that you are Proud to Manufacture in Michigan! MMTC has a free program for Michigan’s manufacturers that provides them with collateral stating that they’re proud to make things right here! Click here for more information.
We cannot emphasize enough the importance of marketing. When a comprehensive marketing strategy is implemented, sales and profits increase!