August, 2014

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Article Index

South of the Border - Why Outsourcing to Mexico Makes Sense
Article by: Don Keysser

 As a manufacturer, you periodically assess your needs and opportunities for outsourcing all or some of your manufacturing. In the last couple of decades, the choice for many U.S. manufacturers has been Asia, first China and now increasingly other countries in SE Asia, including Thailand, Vietnam and Malaysia.


Rapid Margin Improvement Through Capitalizing on Data: 100 Day Margin Improvement Program
Article by: Rob Steinberg

CEOs invariably recognize the importance of organizing data into an easily accessible and useable format.  Particularly in companies with a large number of stores, offices, facilities, projects, and product lines, the ability to compare results among segments and spot cost anomalies on a weekly or even monthly basis is key to improving margin.


Gear Up For Better Results
Article by: Warwick Alcock

In an increasingly competitive globalized economy, it’s quite possible that your organization is being outperformed.


Featured Member Company - ProMed Molded Products "Molding for Life"
Article by: Pete Mangan

ProMed started out as part of an industrial rubber company called Industrial Molded Rubber (IMR).  In the late 1980’s a local medical device manufacturer approached IMR with a request to mold medical silicone components. A small clean room was built and the tiny start-up was called “ProMed Molded Products”.


Why Read Business Books?
Article by: David Haynes

“Life is not so much about beginnings and endings as it is about muddling through the middle." a forgivable, I hope, paraphrase of Anna Quindlen.


MN Economic Outlook
Article by: Dr. Ernest Goss

July’s survey results mark the 20th straight month Minnesota’s Business Conditions Index, or leading economic indicator, has remained above growth neutral. The index decreased to a regional high of 66.4 from June’s 70.1, also a regional high.


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South of the Border - Why Outsourcing to Mexico Makes Sense

 As a manufacturer, you periodically assess your needs and opportunities for outsourcing all or some of your manufacturing. In the last couple of decades, the choice for many U.S. manufacturers has been Asia, first China and now increasingly other countries in SE Asia, including Thailand, Vietnam and Malaysia.

But let's not overlook our neighbor to the south - Mexico offers many advantages to U.S. manufacturers, while reducing some of the disadvantages inherent in out-sourcing and off-shoring.  Here are some reasons to consider Mexico instead of Asia:

1)    Lower manufacturing wages: Labor costs are lower in Mexico than in China, when you adjust for the significantly higher productivity of Mexican workers.  Even when looking elsewhere in SE Asia, while labor costs are lower there, so is productivity and quality.

2)    Free Trade Agreements: Mexico has more Free Trade Agreements (FTAs) than any other country - 44 FTAs, including NAFTA with the U.S.   These FTA's open many more doors for trade, not only with Mexico but trading further on with Mexico's many FTA partners, for sub-contracting and vendors.  It is many respects a more hospitable FTA environment than most of Asia.

3)    Energy: The costs of electric and natural gas energy are significantly lower in Mexico than in China and most of the rest of Asia.  Mexico has huge reserves of both oil and gas, and is in the process of privatizing its energy industry.  Energy-intensive manufacturing costs less in Mexico than in China (not even taking into account the energy costs of transportation).

4)    Strong industrial clusters and expertise: Mexico has developed considerable expertise and experience in a number of industrial clusters, including automotive, machine building and medical devices, providing U.S. manufacturers with a rich network of skilled labor, training facilities, vendors and sub-contract manufacturers.

5)    Supply chain: The supply chain and shipping distances between Mexico and the U.S. are much shorter, faster and  less expensive.  While the supply chain between SE Asia and the U.S. is measured in weeks, it is measured in only a few days between Mexico and the U.S.  As transportation costs continue to increase, that advantage will accrue more and more to Mexico.

6)    Accessible: Most of Mexico is in the same time zone as Minnesota, compared to 12 hours difference to SE Asia, and therefore much easier to travel to.  A trip to Mexico can be done in one-two days, while a trip to SE Asia requires several days, and entails jet lag.  Phone conference calls are much easier to arrange, being on the same time zone, and the English language is prevalent throughout Mexico.

7)    Quality control: The quality of Mexican labor and productivity is very high, offering fewer QC problems than in dealing with much of SE Asia.  Adding that to the substantially shorter supply chain means that U.S. manufacturers will have far fewer quality problems in dealing with their Mexican subcontractors.

8)    Politics:  Mexico is a strong ally of the U.S., with few of the political tensions we have with China.  Mexico sees itself as an important and valued partner with the U.S., unlike China, which at best views us in a more adversarial light.

9)    Political stability: Mexico is a stable democracy; despite its reported problems with drug violence, there are fewer country risks with Mexico than with most of the countries in SE Asia.  Consider that Thailand just experienced a military coup.

10)    Intellectual property: There are far fewer problems with IP theft and hacking in Mexico than in SE Asia, especially in China.  Your production methods, processes and materials are safer in Mexico. 

No off-shoring opportunity is a panacea, and must be considered in the context of your overall corporate strategy, needs, market, supply chain and pricing.  But many manufacturers have discovered considerable advantages in time, speed, quality and reliability when dealing with Mexican partners, as compared to Asian.  It is worth exploring south of the border.

Article written with assistance from James Chollett, experienced Operations and Project Manager, who has developed very close relationships with Mexican contract manufacturing firms, and assists U.S. businesses to develop partnerships and manufacturing relationships in Mexico.

Don Keysser is the Managing Principal of Hannover Ltd., a firm that provides business financing consulting services, M&A services, and capital raising. He works primarily with small-medium size manufacturing and technology companies, and can be reached at don@hannoverconsulting.com, and 612-710-0995.

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Rapid Margin Improvement Through Capitalizing on Data: 100 Day Margin Improvement Program

CEOs invariably recognize the importance of organizing data into an easily accessible and useable format.  Particularly in companies with a large number of stores, offices, facilities, projects, and product lines, the ability to compare results among segments and spot cost anomalies on a weekly or even monthly basis is key to improving margin.

However, developing and or implementing a tool to provide this data on an easy, reliable and weekly basis is frustratingly difficult.

Off-the-shelf software package are usually extremely expensive both in costs in implementation time, and may not delivery the information upper management wants.  In-house personnel may be able to create “snapshot” analytic tools but not one that functions like the sophisticated software solutions – i.e. can be easily updated on a long-term basis with base data that is protected and whose integrity is maintained.  Often, the best alternative is to develop an easy-to-update, internal analytic tool to compare performance among segments – e.g. stores, facilities, projects and products, yet is easy to update each week and its base data is secure and accurate.

Rapid cost-savings and margin improvement almost always occur once data is organized into a reliable, useable form – i.e.  knowing how discrete business segment margins compare to targets; quickly identifying which segments are driving up costs and why; and then transferring best practices from the high performing to the low performing segments. 

Creation of the analytic tool typically takes less than 30 days, and the cost of the tool is more than covered shortly.  After the tool is developed, a consultant then may assist by meeting weekly for a few hours for a 10 week period (70 days) with key managers to assess results and ensure actions are taken based on the new information obtained.  As an outsider, the consultant brings an increased sense of urgency and enhanced employee focus.   

A more granular, reliable and systematized process for identifying and correcting cost anomalies in processes, projects, and performance among segments of a business will yield significant margin improvement.  Once simple analytics are implemented, more advanced analytics, i.e., applying statistics and other mathematical tools to business data, can be applied to take previously isolated data sets, aggregate them, identify patterns and relationships, and optimize the factors that have the greatest impact on margin.  However, even developing the initial analytic tool will have a positive impact on operating results for your portfolio companies.

Article written with assistance from Josh Young, Director at Cornerstone.

Rob Steinberg is Managing Partner of CornerstoneAS, a Minnesota-based management and financial consulting firm. Email him at rsteinberg@cornerstone-as.com for more information on how to set up systems to understand your future cash needs and other key reports to enable your business to succeed.

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Gear Up For Better Results

In an increasingly competitive globalized economy, it’s quite possible that your organization is being outperformed.

That's because most companies are better depicted by diagram 1 or diagram 2 on the left—having vague goals and poorly aligned processes— than by diagram 3 (the diagrams are borrowed from the Baldrige Criteria for Performance Excellence). High performance manufacturers (diagram 3) are characterized by well-aligned processes and teams focused on clearly defined and well-integrated strategic and operational goals. Research data shows that the manufacturers that achieve level 3 are few in number, but they significantly outperform their peer group of companies in terms of market share, profitability, rates of growth and bottom-line results.

The question, then, is why do so few organizations exhibit this unusually high level of performance?

One reason is that many leadership teams are preoccupied with day-to-day operations rather than strategy.

Research conducted by Kaplan and Norton (The Execution Premium) indicates that 85% of leadership teams spend less than an hour a month on strategy, and less than 10% of employees understand company strategy.

As a result, these companies merely exist as a series of fragmented parts with no consolidating sense of purpose or direction — so they under perform.

What is the quickest and easiest way to fill this performance gap?

Traditional approach

If you don’t have time for strategy, consider delegating day-to-day operational responsibilities to your next-in-command. This makes for good succession planning, and helps develop the next generation of leaders. Delegation frees you up to work on strategy. Key steps:

  • Distill the critical few, innovative, market-relevant initiatives and goals needed to provide direction and take the organization, over a few years, to the next level of performance. Don’t take on more than three strategic initiatives at a time so that you can be focused and successful.
  • Cascade the strategic direction and goals throughout the organization, engaging managers and supervisors to align their operational, process and team goals with the company’s strategic direction and goals.
  • Review execution on an ongoing basis to drive improvements to the bottom-line.

Signature process approach

A different but complementary approach focuses on signature processes.

  • Signature processes are the organization’s critical few (five or so) cross-functional processes which embody the company’s unique DNA. The company’s DNA is the essence of what makes the company successful: its unique blend of differentiating competencies that work together to drive critical outcomes.
  • Signature processes drive the company’s customer value proposition, and make the company successful and distinctive in the marketplace. The customer and market focus is key, because a manufacturer is not just making products: it’s in the business of providing customer-creating value satisfactions with creativity and flair (think Apple).
  • Signature processes point to where strategic initiatives and goals should be focused. Strategic initiatives should alleviate bottlenecks or constraints in these processes (internal, operational focus), and make them as effective as possible (external, market focus) in driving results — results that satisfy customers, build market share, ensure competitive advantage, and drive bottom-line results.

Keep focus sharp

If your organization is stretched for time and resources, avoid a shotgun approach to improvement. Some companies start with a broad approach, but soon realize they can get a much bigger bang-for-the-buck by focusing resources first on their critical few signature processes — and then bringing them to maturity as a results-focused, integrated system (diagram 3). 

Signature processes have an operational component but drive strategic outcomes, so make sure they have clear strategic and operational goals. Goals are vitally important, because they clarify direction and quantify expected outcomes. Goals are linked to the (signature) processes and teams that drive them, so performance against goals provides the critical feedback loop needed to align and improve processes and teams to get better results. This is crucial for optimizing performance as depicted in diagram 3.

Key takeaways

  1. Create time for strategy by delegating operational responsibilities to your second-in-command.
  2. Regardless of your approach (traditional or signature) be creative and relentlessly customer-focused.
  3. Integrate and align strategic and operational goals.
  4. Focus on improving a small, integrated set of signature processes first.

In doing so, you’ll drive significant value to the bottom line, out-pace the competition, and take your company to the next level of performance.

(This is the first of a series of articles on optimizing manufacturing performance. Future articles will focus on developing key performance drivers and enablers linked together to drive bottom-line results.)

Warwick Alcock is a management consultant who helps leadership teams with strategy and business performance improvement. He has extensive experience working with companies both in Minnesota and abroad. He can be contacted at warwick@agilityfirst.com.

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Featured Member Company - ProMed Molded Products "Molding for Life"

ProMed started out as part of an industrial rubber company called Industrial Molded Rubber (IMR).  In the late 1980’s a local medical device manufacturer approached IMR with a request to mold medical silicone components. A small clean room was built and the tiny start-up was called “ProMed Molded Products”.

Although there are now nine clean rooms at ProMed, this original clean room still exists and churns out medical components every day. Growth was steady for the next decade, focusing on broadening ProMed’s customer base for silicone molded components.

In 2003 ProMed Molded Products was sold to Wayne Kelly, whose previous experience came from his family’s metal machining business as a supplier to the long term medical implant market, which was the same market ProMed was serving, so it seemed like a match made in heaven.  Wayne recognized that having medical implant components manufactured in the same building with industrial rubber components probably would not be very appealing to ProMed’s customers, so he moved IMR out of the Plymouth MN facility. ProMed got busy serving its medical customers, several with a large presence in the Minneapolis area. 

As ProMed was growing in Plymouth MN, it was noted many of its customers had large manufacturing facilities in Puerto Rico.  In late 2005, ProMed established a manufacturing presence in Puerto Rico to provide a local supply chain for these customers.  In 2009, ProMed expanded further into a new building in Dorado, PR where it continues to provide next day service to customers on the island.

Although ProMed started out making only silicone components, in 2006 they expanded offerings to include more value added operations consisting of sub-assemblies, which required operations like gluing, bonding, over-molding and light assembly.  In addition, the company got involved with combination devices, (a silicone component mixed with an active pharmaceutical) starting with components used in leads for cardiac rhythm management.  This was the start of ProMed’s Pharma division, which has since expanded in both combination and pharmaceutical devices in key markets like women’s health, pain management, ophthalmic products and, of course, cardio rhythm management.

ProMed began its lean journey in 2007, focused on establishing six sigma capable manufacturing processes and a world class workforce that lived by the motto of “continuous improvement”.  The benefit s we have seen as a result are an unmatched quality record, along with greatly reduced lead times and reduced costs that are passed on to our customers.  Shortly after touring Western Graphics through Manufacturers Alliance, we implemented a company-wide “lean game” built on the Western Graphics example.   In just two years we have implemented 2123 CI’s (Continuous improvement ideas) and receive calls from all over the world asking ProMed to help their companies implement a similar game.  We’ve also spent the past three years improving our New Product Development (NPD) process, which is now in a class of its own.  Our process outputs plug directly into our customer’s FDA submissions, saving them time (speed to market), providing bullet proof documentation, which lets everyone sleep soundly at night, and assuring continuity of supply after product launch. 

Our objective to never stand still pays dividends today.  In late 2013 we started ProMed Prototypes, providing silicone molded parts (not 3D printed) from a concept drawn on a napkin to CAD designed, to parts in the customer’s hand in around one week, and often faster.  ProMed’s motto is “start with us, stay with us” as they provide a full contingent of options for the life cycle of products.  From design and prototyping to manufacturing, with two manufacturing site options, ProMed continues to change with the demands of the medical device manufacturing industry. By adding four fully automated molding presses that provide a low-cost option, many customers are taking advantage of what these presses offer in repeatability and reduced cost.

ProMed has adopted the tag line “molding for life”, affirming pride in producing medical components and devices used to save or improve lives of patients worldwide.  Although silicone molded products are used in many different ways, ProMed chose to focus on medical component manufacturing to make a difference and have a long lasting impact on the users of their products. In producing approximately 15 million components and devices every year, a ProMed customer states they “help improve another life every 3 seconds”. This really resonates with the ProMed organization, so “molding for life” seems to fit the way ProMed thinks and how they perform their jobs every day. 

Pete Mangan is the President and General Manager at ProMed Molded Products/ProMed Pharma. He can be reached at PMangan@promedmolding.com or (763)331-3838

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Why Read Business Books?

“Life is not so much about beginnings and endings as it is about muddling through the middle." a forgivable, I hope, paraphrase of Anna Quindlen.

This is my last book review for Manufacturers Alliance. It's been fun. In particular, I'd like to thank Vickie Parks for her support, her insights, and her additions to my fiction reading list.

As I sit here on the porch enjoying one of those perfect Minnesota summer mornings my first thought is to use this last missive to write about my favorite books–or maybe the books that have influenced me the most. In the end (or perhaps the muddling middle) I realize that I'm probably misconstruing how that sort of influence really comes about. Even if I had the inclination I couldn't sort it all out – and why should I?

So I'll take the self-indulgent route and just ramble on a bit.

Maybe the first question is why read business books at all? Given the choice between Mike Rother (whose business writing is pretty good) and Carl Hiaasen (whose non-business writing is hilarious) I would pretty much always chose the fiction. Even good non-fiction (harder to find) is more fun than business books. 

For me there are two answers: First, I'm just curious about how organizations work (or don't work) and second, I keep hoping against hope that we'll all be able to find meaningful work in humane settings with people we enjoy. Work so good that we have trouble imagining what it would feel like. It is, in fact, that very particular lack of imagination that most distracts me when I think about business and leadership today.

There are, of course, outliers. My recent review of Rich Sheridan's book, "Joy, Inc." describes a case in point. But even Sheridan felt compelled to subtitle his book "The business value of joy." Why does joy need to have "business value" in order to justify it as a workplace attribute? Or perhaps more to the point, why would we purposefully create organizing principles that made joy so difficult to find? Other people have written eloquently (Matthew Crawford and Kathy Davidson come to mind) about the historical origins of our institutions of work and school. All of which is fascinating and, at the least, serves to suggest that we built these institutions to serve a different time and a different perspective – they're not inviolable.

Still, organizations are made up primarily of two things: people and relationships. Understanding organizational relationships is difficult. Understanding people – at least as individual collections of behaviors and beliefs– is impossible. At one point I looked up "biases in judgment and decision-making" in Wikipedia. The list ran to 168 items.

"So what?" you may fairly ask. Life's complicated. You've got a business to run, bills to pay, a payroll to meet, strategy to craft, markets to expand. How can you be expected to take responsibility for the inner life of the people who work for you? I understand the question–I just think it's the wrong one.

Here's the better one. What sort of organization do you secretly dream of working for? Would bright, energetic, creative people–if they had the ability to choose to work anywhere they wanted to–choose to work with you? Are you sure?

It's been fun. Thanks for reading. I'm off to the bookstore to roam the racks – a real bookstore with old-fashioned books where literary serendipity is still possible. The last time I went looking for Christopher Moore I discovered Susanna Moore – a lovely happenstance. This time I'm thinking about picking up Christopher's latest novel – it seems that the lust lizard of Melancholy Cove may have been spotted in the canals of Venice. I love sea monsters.

David Haynes- Owner of Lean4All LLC providing consulting services in influencing change: aligning strategy, IT, process improvement, and organizational communication. David may be reached at david@lean4all.com

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MN Economic Outlook

July’s survey results mark the 20th straight month Minnesota’s Business Conditions Index, or leading economic indicator, has remained above growth neutral. The index decreased to a regional high of 66.4 from June’s 70.1, also a regional high.

Components of the index from the July survey of supply managers in the state were new orders at 77.5, production or sales at 77.9, delivery lead time at 61.0, inventories at 57.1, and employment at 58.4. “Durable goods manufacturers, including metal producers, and nondurable goods manufacturers, especially food processors, supported a healthy reading for the month of July. Even with solid job growth in the state, average weekly wage growth for workers in the state over the past year expanded at an anemic 1.2 percent, well below the rate of inflation,” said Goss.

Dr. Ernest Goss of Creighton University, used the same methodology as The National Association of Purchasing Management to compile this information. An index number greater than 50 percent indicates an expansionary economy, and an index under 50 percent forecast a sluggish economy, for the next three to six months.

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