December, 2008

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Article Index

MN Economic Outlook
Article by: Dr. Ernest Goss
For the month of December 2008, reported January 2, 2009. For the ninth time in 2008, Minnesota's Business Conditions Index fell below growth neutral.
More in Store for Members in 2009
Article by: Art Sneen
Over 250 local manufacturers took advantage of Manufacturers Alliance membership by attending the November 2008 Monthly Educational Program on the topic of "Capturing Great Ideas from Your Workforce."
Managing Your Customer Value Proposition
Article by: Richard Artes
Successful companies make sure they provide the best value to their customers. In simple terms this is called managing your value proposition.
Book Review: Who's Counting
Article by: John Hehre
The subject of Lean Accounting can be divided up into three topics. The first topic is the improvement of accounting processes like paying suppliers, invoicing customers and closing the books.
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MN Economic Outlook
For the month of December 2008, reported January 2, 2009. For the ninth time in 2008, Minnesota's Business Conditions Index fell below growth neutral.



The index, a leading economic indicator, based on a survey of supply managers in the state, dipped to 32.2 from November's 33.5 and October's 39.1. Components of the overall index for December were new orders at 23.3, production at 26.8, delivery lead time at 51.9, inventories at 42.1, and employment at 32.5. "Strength in telecommunications was more than offset by very weak business conditions among durable and nondurable manufacturers in the state. Since peaking in March 2008, the state has lost 39,000 jobs. By mid-2009, I expect Minnesota to lose another 15,000 jobs, with the seasonally adjusted unemployment rate approaching seven percent," 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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More in Store for Members in 2009
Over 250 local manufacturers took advantage of Manufacturers Alliance membership by attending the November 2008 Monthly Educational Program on the topic of "Capturing Great Ideas from Your Workforce."

We were reminded of the saying "all ships rise on a rising tide." When we share best practices, we all get stronger.

As part of our ongoing strategy to help members stay competitive during challenging economic times, the Manufacturers Alliance will increase member services and expand training opportunities. In 2009, we will offer even more value:
  • the ability to send four employees free to Monthly Educational Programs from each division of member corporations.

  • our first online webinars for remote learning

  • a record number of new, shorter, therefore lower-cost workshops that include:

    • Continuous Improvement Idea Systems

    • Sustaining Lean

    • High Performance Leadership Series

    • Situational Leadership

    • Financial Accountability

    • Advanced Visual Management

    • Leading Kaizen Events

    • Corrective And Preventive Action

    • Quality Function Deployment

    • Lead Time Reduction - in a Custom Shop
Additionally, we are offering all Leaders Alliance member companies who participate in the 2009 Compensation and Benefits Survey a free copy of the finished survey-
over 200 pages of current data.

Lastly, we encourage you to invest in training wisely, by focusing on workshops, programs, and certifications that help you hang onto your 'A Players' and position your company to rebound after the recession.

Thank you for helping us to accomplish our mission of sharing education and resources peer-to-peer. We look forward to watching the year unfold and hope that you enjoy continued success in 2009.
Art Sneen founded the Manufacturers Alliance in 1990 - an association of over 300 hundred manufacturers in the greater Twin City area. This 12,000-member industrial association specializes in sharing manufacturing education and resources peer-to-peer.

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Managing Your Customer Value Proposition
Successful companies make sure they provide the best value to their customers. In simple terms this is called managing your value proposition.

The value proposition provides the best value of products and services to meet current and future customer needs. This also means consistently exceeding the performance of all your competitors. This process requires that you first identify and update your customer value drivers. You rate them to your competitors and customer expectations. Then you identify your strengths and weaknesses. Finally, you develop strategies to amplify your strengths and eliminate your weaknesses. This process should be conducted at least annually with quarterly reviews.

Define Your Value Drivers
Defining your value proposition consists of a four step process. The first step is to identify your most important value drivers that your customers deem necessary. Value drivers may be attributes like price, quality, quick schedule changes, or technology question response. There are two types of value drivers. The first type is a qualifier; you must meet their requirements to be considered in the sales process. The other type is a differentiator; your performance is consistently better than your competitor. This step requires that you define your value drivers and validate them with your customers and markets. Value drivers may be unique or different for each market or market segment. While the process to establish value drivers is easy to describe, assuring relevant drivers in the eyes of the customer is more challenging.

Conduct a Competitive Assessment
The second step of the value proposition process is conducting a competitive value analysis. This step requires you to gather data and information about your competitors and their performance relative to you and your customer's value drivers. Gathering accurate data is not a simple activity. Several collaborating sources are necessary. The tasks for this step must be carefully planned and integrated into associated systems like quotation, call reports, customer service data and industry databases.

Rate Your Performance Against Your Competitors
The third step is an analysis of value strengths and weaknesses. This comparative analysis is a ranking of your performance and the performance of your competitors for each market and market for your products and services. This analysis rates your performance and your competitors' performance in the eyes of your customer. If you rank high in a value driver such as quality and your competitors rank average to low, this value driver is considered a strength, This analysis allow you to identify the relative strengths and weaknesses that are important to your customers.

Amplify Your Strengths
Step four is identifying market value opportunities. This means amplifying your strengths and reducing your weaknesses based on your assessment of your value proposition. Customer value is the first principle of Lean. The best Lean improvement strategy is to focus on improvements that focus on your value proposition.

Manage Your Value Proposition as a Continuous Business Process
Managing your value proposition means continuously evaluating your customer needs, market changes and competitor performance. You must change as they change, you must improve as they improve. Apply Lean continuous improvements to projects that impact your value proposition.
<img src="http://www.mfrall.com/newsletter/authorpics/RichardArtes.jpg"align="left">Want to know more? Read Competing for Customers and Winning with Value by R. Eric Reidenback and Reginald W. Goeke or contact consultant Richard Artes at artesrichard@aol.com.

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Book Review: Who's Counting
The subject of Lean Accounting can be divided up into three topics. The first topic is the improvement of accounting processes like paying suppliers, invoicing customers and closing the books.

This is really just the application of Lean Office principles to the accounting function. The second topic, finding and eliminating errors in areas like receiving or expense reports, is essential to long term gains and mimics many quality initiatives. It is the third topic, changing the accounting structure to more accurately reflect changes brought on by Lean Manufacturing, that is both the most difficult and, ultimately, the most beneficial for the longer term success of Lean.

Who's Counting is a book about the third topic, disguised as a novel. The fictional Tricor Electronics is a company faced with a lot of problems, including declining earnings, flat sales, high inventory and poor service levels. The two main characters are Fred, the CFO who is good at the traditional approach to accounting and is nearing retirement, and Mike, the new VP of Manufacturing who has successfully implemented Lean in other organizations and has little patience for delays or politics. Naturally, the conflict between these two is intended to highlight the differences between the traditional approach to accounting and the changes required to support Lean Manufacturing. Tricor is a traditional manufacturer in that it uses a forecast to drive MRP which in turn drives purchasing and production. Lead times are long and batch sizes are large. The solution proposed by Mike is, of course, to drive down batch sizes and decrease lead times along with all the other typical Lean initiatives.

The book covers many of the key issues that arise from an accounting perspective when Lean practices are implemented. One of the biggest is the apparent hit to the income statement when inventories are reduced. Another is the disconnect between the traditional absorption approach to accounting for overhead expenses and the implementation of cells, or groups of machines and operations, that were originally distinct. Over time the accounting people realize that simplification and elimination of minute detail will actually improve understanding and still allow them to maintain control.

Stories are inherently easier to read than traditional business books. This one does a good job of weaving the principles of Lean Accounting into the story so the reader will develop a good understanding of the concepts and practice. This book would be an important book for accounting personnel in a company going through a Lean transition. It would also be useful for the Lean leaders throughout the organization so they can get a good sense for the magnitude of the changes required in accounting and the many issues that will have to be resolved along the way.

To learn more about the Lean Accounting mini-series offered by the Manufacturers Alliance click here
John Hehre is a senior operations executive and provides interim management and project based consulting to mid-sized private companies in need of transformative change. He can be reached at jhehre@cprocess.com.

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