September, 2014

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MnTAP Pilot Projects

The University of Minnesota’s Minnesota Technical Assistance Program (MnTAP)
is looking for companies to participate in pilot projects to reduce VOC emissions
from solvent cleaning or degreasing. Contact Jane Paulson, janep2@umn.edu
or 612-624-1826.



Export Compliance Course

Dakota County Technical College is offering a 6-session, interactive course, focusing on the complete export transaction, with emphasis on export controls and various aspects of international trade. Starts October 6. For more information and to register:

http://www.dctc.edu/continuing-education/business-management/export-trade-compliance/



Century College's New Professional Trainer Certificate

Free information session:
September 25
5:30pm - 6:30pm
East Campus Room
Room 2311
Century College
To register: 651-779-3341 or cect@century.edu 



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February 7th 2023 09:00 am
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February 14th 2023 09:00 am
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February 22nd 2023 08:00 am
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February 22nd 2023 09:00 am
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Article Index

What Do Your Product Costing Issues Really Cost Your Company?
Article by: Susan Edwards

Much of the financial reporting that is done by companies today is in support of external financial reporting, e.g. creditors, stockholders, tax authorities. 


MN Economic Outlook
Article by: Dr. Ernest Goss

August survey results mark the 21st straight month Minnesota’s Business Conditions Index has remained above growth neutral. The index climbed to a regional high of 66.9 from July’s 66.4, which was also a regional high.


Turbocharge Your Innovation Project With Lean LaunchPad
Article by: Steven Snyder

Over the past several decades, lean management techniques such as value stream mapping and root cause analysis have yielded untold billions of dollars of savings, helping businesses run more smoothly and efficiently. 


Learning and Development an HR Perspective by Amy Valek
Article by: Amy Valek

Amy Valek, Learning and Development Specialist  at JB Group in St. Michael, MN. Amy has been with the company for  7 1/2 years.


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What Do Your Product Costing Issues Really Cost Your Company?

Much of the financial reporting that is done by companies today is in support of external financial reporting, e.g. creditors, stockholders, tax authorities. 

Strategy Graphic 1

Tools are needed, which support the business in understanding where they are in relation to their business mission, vision, goals, and objectives. More accurate product costing, the identification of value drivers and the creation of tools to measure and track the product costing and value drivers can provide much needed information, which can then be used to make proactive decisions related to business direction, growth and increased earnings.

Companies today are dealing with the impact of global markets, challenging economic conditions, technological changes and more complex business environments, which have resulted in increased competition.  Successful companies are capturing the Value Proposition of the customer and transforming that into goods and services for which the customer is willing to pay a price, which will deliver profit to the bottom line. 

Understanding the true profitability, by customer, can make a significant difference in the bottom line.  Professor Paul White, CPA (inactive), CMA, of University of Minnesota Department of Accounting, advocates a better understanding of product cost as well as profitability by customer.

            “Businesses need to be able to assess profitability by customer.  Product costing is a key component in Strategic Planning.  A lack of understanding of Accounting by Upper Management can result in huge waste being generated by chasing the wrong issues. The cost of excess capacity should also be understood and be included as a part of the monthly reporting process.”

A case study entitled “When to Drop an Unprofitable Customer”, published in Harvard Business Review in April 2012, reiterates his point.

 http://hbr.org/2012/04/when-to-drop-an-unprofitable-customer/ar/5

Strategy grphic 2

Many manufacturing companies today are implementing Lean Manufacturing Principles. Lean Manufacturing Principles focus on eliminating waste and achieving the shortest possible production cycle while producing based on customer demand. The focus is on what holds value for the customer. The resulting benefits can be lower inventory, higher inventory turns, higher product quality and, in many instances, reduced costs.

Accountants are realizing that many standard costing concepts are no longer meaningful in a Lean Manufacturing environment. Traditional accounting systems were designed to support mass production and distribution of information to stakeholders outside of the company. When standard cost accounting was developed in the early 1900’s, the majority of a company’s cost structure was labor cost. That is not the case today. Labor costs, on average, make up a significantly lower percentage of a company’s total cost structure today.

Under Lean Manufacturing, some non-financial measures show significant improvement including lead times and on time delivery. Yet, these measures don’t show up on GAAP based financial statements. GAAP financial information is a metric of corporate success that is required by law. It gives us assurance that information is completed consistently across companies and industries and provides a solid basis for many metrics currently used to measure a company’s results. 

This information, however, is historic in nature and provides lagging indicators. The score of a football game is an excellent example of a lagging or historic indicator. The operational metrics used to make informed decisions on running a business need to be leading indicators. A good example of a leading indicator would be number of downs or yards to go.

Product Costing

Costing disparities can have an enormous impact on a company’s decision-making and long- term profitability. Product profitability analysis that uses distorted costs can result in erroneously assuming some products are performing better than they are while other high performing products end up subsidizing less profitable offerings.

There are a number of potential costs associated with producing and selling a product.  Product costing is the process of tracking and studying all of the costs that are incurred throughout this process. Product costing has undergone significant changes over the past few years and it is incumbent on businesses to review their current costing processes. Companies are finding that their competitiveness is enhanced when they are better able to associate costs with specific products. 

Direct Costing is a specialized form of product costing that uses variable costs to make decisions related to plant load, product rationalization and capital investments.  It does not directly consider fixed costs, which are assumed to be associated with the time periods in which they were incurred. Fixed costs, or fixed overhead, have little relationship with volume in the short term. Direct Costs can be traced easily and do have a direct relationship to volume. Contribution Margin (Revenue less Direct Costs) focuses management’s attention on the dollars available to cover fixed costs, as well as other costs necessary to get the product to market. Fixed costs are included in standard costs, as it is necessary for inventory valuation as mandated by US GAAP, and fixed costs do have to be covered by Contribution Margin. Fixed costs should not be ignored but, due to the difficulty in appropriately allocating these costs, they would be considered separate from variable costs when utilizing Direct Costing.

As Professor White states, “The value in shifting to direct costing is immense in a broader sense.   Issues with product costing will not be blatantly obvious. Upper Management also needs to understand that fixed costs can’t be unitized.”

Direct Costing Uses 

  • Make Versus Buy Analysis
  • Customer Profitability Analysis
  • Plant Loading Decisions
  • Cost-Volume-Profit Analysis
  • Cost Reporting/Cost Analysis

Direct Costing

Key Definitions

In ”Traditional” costing systems, gross margin is often used for costing analysis, which includes the allocation of fixed costs. With Direct Costing Implementation, fixed cost allocation is excluded for the purposes of cost analysis. Contribution Margin is then used for the purposes of cost analysis.   See the example below, for a heavy equipment manufacturer with multiple sites, which highlights the difference in perceived product profitability using Gross Margin Analysis versus Contribution Margin Analysis.

CM graphic

© 2014 Enlighten Management Consulting, Inc.

Susan Edwards CPA, CMA, CLCP, of Enlighten Management Consulting, Inc., is a Certified Coach and Management Consultant with 25 years experience in manufacturing companies. Contact Susan at Susan@MakingMoneyWithStyle.com or 651-368-2109 to learn more about implementing Direct Costing in your company.

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MN Economic Outlook

August survey results mark the 21st straight month Minnesota’s Business Conditions Index has remained above growth neutral. The index climbed to a regional high of 66.9 from July’s 66.4, which was also a regional high.

Components of the index from the August survey of supply managers in the state were new orders at 72.1, production or sales at 72.3, delivery lead time at 61.1, inventories at 69.2, and employment at 59.8. “Economic growth will remain healthy for the second half of 2014 for Minnesota based on our surveys over the last several months. Since the national recovery began in July 2009, the manufacturing sector in Minnesota added approximately 22,000 manufacturing jobs for a 7.4 percent job gain. For 2014, both durable and nondurable goods manufacturers have continued to add jobs at a healthy pace,” 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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Turbocharge Your Innovation Project With Lean LaunchPad

Over the past several decades, lean management techniques such as value stream mapping and root cause analysis have yielded untold billions of dollars of savings, helping businesses run more smoothly and efficiently. 

Still, these approaches center mainly on optimizing existing operations and provide little guidance for those who wish to introduce radical innovation in their organizations, like introducing a new product line or entering a new market.

Fortunately, a new set of tools—inspired by lean principles—are emerging to help organizations grapple with this messy and unpredictable world. This new approach, called Lean LaunchPad, emanated as a tool to help budding entrepreneurs, but is increasingly being tapped by forward-thinking organizations who aspire to increase revenue and profit through breakthrough innovation.

At the core of Lean LaunchPad is the recognition that uncertainty and unpredictability are inherent in the process of discovery and invention. Thus, organizations who seek to improve their innovation capabilities need to become experts in navigating the inevitable risks that stem from the unknown.

Lean principles focus on eliminating waste.  With innovation projects, waste comes from continuing to invest time and resources on a strategy that ultimately turns out to be wrong or suboptimal. The earlier you can detect these mistakes, the earlier you can pivot to pursue a more appropriate course of action.

How does Lean LaunchPad help you detect and correct mistakes early in your innovation journey?

With Lean LaunchPad, you first explicitly identify all the assumptions inherent in your new business venture, specifying them in the form of testable hypotheses. Then, you systematically test the most crucial assumptions through carefully constructed experiments designed to confirm or refute your hypotheses. The more quickly you gather data on your most critical assumptions, the more likely you are to discover errors early, and not waste valuable resources on dead ends.

To help you organize your hypotheses, Lean LaunchPad comes with a new vocabulary, the Business Model Canvas, consisting of the nine crucial elements that often distinguish between success and failure. Through the Business Model Canvas, you delve into questions such as: Which customer segments are you targeting? What is the value proposition you are offering each customer segment?  What revenues do you expect to derive from each segment?

Recently, the Mayo Clinic ran six teams, each with a new business idea, through the Lean LaunchPad method. One of the teams was piloting a radical new invention for healing wounds. Before starting Lean LaunchPad they were quite sure that they clearly understood the market opportunity. To their surprise, when they began to interview doctors, they found that the market segment they thought would be most receptive to this new technique actually showed little interest. But, when they began to explore a different type of wound, doctors responded much more enthusiastically. In fact, their interviews revealed that the economic value of their procedure in this new market was ten times more than they previously imagined. The team pivoted, and is now refocused on this newly discovered, more profitable, target market.

Lean LaunchPad brings clarity, precision and focus to a world historically inhabited by wild guesses and miscalculation. Both the National Science Foundation and the National Institutes of Health have endorsed Lean LaunchPad as the preferred method for invention commercialization. Nearly 5,000 teams have benefited from this approach, testing over 100,000 hypotheses, resulting in over 20,000 pivots. 

It is well known that human beings tend to be overconfident that their beliefs are correct. The power of Lean LaunchPad is to force you to go out and test the implicit assumptions you might otherwise take for granted. You will probably be surprised by what you find.

Steven Snyder is an innovation coach who helps companies of all sizes accelerate innovation, catalyze discovery, and tap emerging market opportunities. He can be reached at 952-471-2586, steven@snyderleadership.com, or visit his website http://snyderleadership.com/.

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Learning and Development an HR Perspective by Amy Valek

Amy Valek, Learning and Development Specialist  at JB Group in St. Michael, MN. Amy has been with the company for  7 1/2 years.

Brief description of companies product and service offering:
J& B Group is a family-owned company based in St. Michael, MN, founded in 1979. With approximately 650 associates, we’re a leader in perishable protein manufacturing and distribution, serving the retail and food service industry across the Midwest and beyond. Currently, the company offers a combination of wholesale and branded products, custom food service cutting, cold storage and transportation of a variety of meat, poultry, seafood and deli food products.  We are dedicated to providing our customers with quality products, commitment to food safety and outstanding customer service.

Where did you receive your education? 
I received a Bachelor of Science degree from Carroll University in Waukesha, Wisconsin.  My focus was communication with an emphasis in management and a minor in psychology.  Since graduating, I have participated in various growth and learning courses and activities to increase the tools in my toolkit, including becoming an Insights Discovery Client Practitioner. 

How and when were you introduced to Learning & Development and what fuels your passion for the profession?
Both of my parents were educators so I was a bit predisposed to being interested in helping others learn and grow.  Although, I did not go to school to become an educator per se, in a roundabout way, that’s where I ended up (it must be in my blood)!  Upon graduating, I worked for six years with Junior Achievement, developing curriculum and training teachers, volunteers and students.  Looking for additional career development, I joined J&B Group starting in marketing, then worked with the family foundation and ultimately, found my place in Learning & Development.  I feel like I have definitely found my niche in my current role – I love coming to work every day!

What is one of your key current L&D-oriented activities?
One of our main focus areas for 2014 has been on a program called Insights Discovery.  Insights is a global people development tool based out of Dundee, Scotland.  The goal of Insights is to understand more about ourselves and others and then create more effective ways to adapt and connect.  By doing so, we create more positive interactions with others and ultimately, impact the effectiveness of associates and teams.  As an Insights Discovery Client Practitioner, I have had the great opportunity to lead approximately 200 of the 650 J&B associates through the program over the past 12 months. The response has been incredibly positive and energizing. 
 
What was one major lesson learned in 2013 that you feel others could benefit from reading?
Don’t bite off more than you can chew.  Learning and development encompasses a great deal and it is easy to get bogged down.  Start with some basics.  Create a plan to launch various pieces in phases. Take a breath.  Enjoy the ride.

What are the next steps planned for improving your company’s Learning & Development initiatives?
From the time J&B was founded in 1979, there has always been a dedication to growing associates however, over the past year and a half there has been a greater focus on developing a more formalized program - J&B University (JBU).  Within JBU will be three focus areas; programs for all associates, programs that are specific to certain job functions and programs for emerging leaders and senior leaders.  Developing a program of this scope and scale is immense, so our plan is to launch it in phases with the first phase rolling out in Q1 of 2015.

How would you describe peer-to-peer education to a colleague in manufacturing?
Peer-to-peer education is all about collaboration.  Learning from others’ real-world successes and challenges, especially those that are similar to our own, can help change attitudes, behaviors and processes – for the better.  Sharing resources and supporting each other only makes sense given all that we encounter day-to-day.

Amy Valek is a Learning and Development Specialist at the JB Group, in St Michael, MN for the past 7 1/2 years. Amy can be contacted at amy.valek@jbgroup.com.

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