October, 2009

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Engineering Student Builds Robot That Plays Guitar Hero
Banner Engineering partnered with a Minnesota West Community and Technical College engineering student and robotics instructor to develop a robot designed to play the Guitar Hero video game—responding to each note as it appears onscreen.

Pete Nikrin, who graduated from Minnesota West in 2008 and now works as a manufacturing engineer at Meier Tool & Engineering, designed the robot to compete with a friend that Nikrin had introduced to the game and, after playing for two weeks, had surpassed Nikrin in his ability. Full Article


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Article Index

MN Economic Report
Article by: Dr. Ernest Goss

For the month of September 2009, reported October 1, 2009. Minnesota’s leading economic indicator continues to point to improving economic conditions in the months ahead.


Lean Leader of the Month: Jeff Quarberg
Article by: Kirby Sneen

Jeff Quarberg, Value Stream Owner – Aerospace & Defense at Donaldson Filtration Solutions in Baldwin, WI is our Lean Leader of the Month.


Environmental Remediation Liability - Know Your Options
Article by: Jim Ripple

If your business is at risk for potential environmental contamination, or if you’ve considered or purchased a site for expansion with such risks, there are a few things you can do to protect against major liability.


Does the Current Economy Have Your “Exit Strategy” On Hold?
Article by: Dyanne Ross-Hanson

Current economic conditions have business owners everywhere taking a deep breath and holding when it comes to the future of their businesses. For many, survival mentality has taken hold. So thought of the “end game” is either postponed or accelerated depending upon perspective gained while “riding out the storm”.     


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MN Economic Report

For the month of September 2009, reported October 1, 2009. Minnesota’s leading economic indicator continues to point to improving economic conditions in the months ahead.

The Business Conditions Index dipped to a still healthy 55.4 from August’s 58.0. Components of the overall index for September were new orders at 66.0, production, or sales, at 58.1, delivery lead time at 59.9, inventories at 49.7, and employment at 43.4. “Over the past year, Minnesota has lost more than 120,000 jobs, or 4.4 percent of its nonfarm employment.  Due in part to discouraged unemployed workers leaving the workforce, the state’s unemployment rate dropped to 8.0 percent for August.  Based on our surveys over the past several months, I expect the job outlook to improve in the months ahead.  This will stimulate the discouraged to enter the job search process and will cause the state’s jobless rate to rise by 0.3 percent by the end of 2009, even as the employment outlook improves,” 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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Lean Leader of the Month: Jeff Quarberg

Jeff Quarberg, Value Stream Owner – Aerospace & Defense at Donaldson Filtration Solutions in Baldwin, WI is our Lean Leader of the Month.

 

Tell us about Donaldson’s unique product and service offering:

Donaldson Filtration Systems’ Baldwin facility produces industry-leading integrated filtration solutions for application in both the Industrial Filtration Systems and the Aerospace & Defense sectors.  Our customer base includes Amana, P&H Mining, General Dynamics, and BAE Systems.

 

Where did you receive your Lean training and experience?

My experience in Lean began in 1998 at Sauer-Danfoss in Plymouth, MN.  While there, I had the privilege of being part of the journey from the first shop floor Lean event to the cross-functional new product introduction 3P events utilizing the voice of the customer.  Following Sauer-Danfoss, my personal Lean journey lead me to Goodrich Aerospace and to my position with Donaldson Filtration Systems where implementing both Lean manufacturing and business processes continues to be the base of my career.   In 2007 I formalized this experience with Lean Practitioner Certification with the Manufacturing Alliance.

 

What were the lessons learned or hurdles you overcame from leading or training your team on a Lean project?

I’ve always viewed employee tenure with a company as a resource of great potential:  To tap into this potential, communication is an absolute.  An uncertainty with change may accompany this valuable tenure, and in-depth mutual conversations help to alleviate this uncertainty.  By speaking with employees regarding the purpose of the Lean project and being there to field their questions and concerns, the employee becomes more comfortable with change and the project team gathers valuable information about the process at hand.  When you think you’ve communicated enough, go communicate more.

 

What would you say to describe training the Manufacturers Alliance offers?

Throughout my 10 years of working with the Manufacturers Alliance, I have found the training offered to be great value and pertain to a wide variety of very relevant topics in manufacturing

Kirby Sneen is the Vice President of the Manufacturers Alliance - an association of over 400 manufacturers in the greater Twin City area. This industrial association specializes in sharing education and resources peer-to-peer. Kirby may be reached at (763) 557-8007, kirbys@mfrall.com, or www.linkedin.com/in/kirbysneen/

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Environmental Remediation Liability - Know Your Options

If your business is at risk for potential environmental contamination, or if you’ve considered or purchased a site for expansion with such risks, there are a few things you can do to protect against major liability.

Risk Avoidance — Includes not performing the activity that could carry risk.  Prevent the problem before there is one. Conduct an environmental study on sites you consider for expansion. If a problem is found, get an estimate on potential clean-up costs and negotiate them into the deal. Or walk away.  Not entering into a deal avoids the risk of loss, but also prohibits the possibility of earning the profits.  CERCLA* law dictates that liability extends to current as well as former owners regardless of who caused the contamination.

Risk Control —   Involves methods that reduce the severity of the loss.  An example includes installing sprinklers designed to reduce the risk of loss by fire.  Adopt adequate internal controls for handling and disposal of potential contaminants. This can include any number of solvents, cleansers, waste byproducts and corrosive materials. Stay informed on industry standards and be aware of the latest EPA requirements.

Risk Transfer — Causes another party to accept the risk.  Insurance is one type of risk transfer that uses contracts.  Other possibilities may involve contract language that transfers a risk to another party without the payment of an insurance premium.   There are two ways to mitigate risk if you are involved in a high-risk industry for contaminants. Check with your insurance provider and purchase enough coverage to protect your company from financial disaster if you must pay for environmental remediation. Another option is to hire a reputable vendor to collect and properly dispose of contaminants. A third-party service reduces your liability if a problem occurs.

Risk Retention — Involves accepting the loss when it occurs.  Risk retention is a viable strategy for small risks where the cost of insuring against the risk would be greater over time than the total losses sustained.  Like a family that saves up three months of living expenses, your company should hold a reserve of funds that are comparable to the anticipated costs of any remediation. You don’t want to pay $50,000 for insurance if your potential risk is only $20,000. Talk to your CPA about having a risk analysis done based on your industry and the internal controls you have in place to prevent a problem. You may be safer than you think.

*The Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) and Superfund Amendments and Reauthorization Act of 1986 established the Superfund.  Superfund money is used mainly to clean up facilities, which are abandoned or inactive or whose owners are insolvent.  Under these laws, the EPA has the authority to obtain reimbursement for cleanup costs from the parties that are considered responsible for the contamination.

Jim Ripple,CPA, is a Manager and member of the Manufacturing and Distribution Niche Team at Olsen Thielen CPAs, St. Paul and Minneapolis, www.otcpas.com

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Does the Current Economy Have Your “Exit Strategy” On Hold?

Current economic conditions have business owners everywhere taking a deep breath and holding when it comes to the future of their businesses. For many, survival mentality has taken hold. So thought of the “end game” is either postponed or accelerated depending upon perspective gained while “riding out the storm”.     

If you were among those owners thinking that your exit was around the corner you were not alone. According to a 2005 Price Waterhouse Coopers’ survey of 364 CEOs of privately held, fast-growing companies, “nearly two-thirds … planned to move on within a decade or less: 42 percent within five years, and 23 percent in five to ten years.” (“Wide Majority of Fast-Growth CEOs Likely to Move On Within Ten Years, PwC Finds.” January 31, 2005.)  Add to these numbers those owners looking to hang up the towel at the market’s first sign of life and we have the potential for an exit planning tsunami. 

While many owners may be tempted to batten down the hatches the smart ones recognize the opportunity before them. What is that silver lining among the grey clouds? The answer is time: time to prepare your company for sale, time to prepare your potential successors for leadership and time to prepare yourself for financial independence. While the economy is uncertain the following realities remain. First, an owner’s departure from their business is inevitable. For most, financial freedom is dependent upon converting their business to cash. Second, demographics indicate there will be far more sellers looking to secure top dollar as they exit their business than there will be buyers willing to pay. And finally, there has never been a more critical time for owners to concentrate on building and protecting value within their companies.   

Time afforded by this economic slowdown allows owners to step back from day to day operations and look at the big picture.  What is their “end game”? Whether sale to an outside party, sale to an inside party or some combination most owners need to build or sustain value in order to realize their financial dreams.  How?  Measures can and should include such things as minimizing tax exposure where possible, contracting business overhead (and possibly staff),  committing additional resources to marketing or strategic planning, recruiting key talent made available by competitors downsizing and reviewing key employee non compete agreements, to name just a few.  What about acquisitions?  As the sellers of goods or services, owners sometimes forget that they, too, can be buyers. Now may be the perfect time to acquire smaller, less adaptable, less capitalized or less well-managed competitors. And in this buyer's market, you can expect to find not only lower purchase prices, but also much more attractive seller-based financing and earn-outs. 

Creating value within a company requires close attention to what many refer to as “value drivers”. Value drivers have been described as those intrinsic characteristics of a company that buyers look for when deciding what company to buy and how much to pay. Value drivers reduce risk within a company or increase the investment return within a company. Value drivers include the following:

  • A solid, diversified customer base
  • Stable and improving cash flow
  • Operating systems that improve sustainability of cash flows
  • Effective financial controls
  • A realistic growth strategy
  • A stable, motivated and high-performing management team

Of all the value drivers mentioned none is more important than developing, motivating and retaining key employees. In addition to net cash flow often identified as Earnings Before Income Taxes, Depreciation and Amortization (EBITDA), the quality of your management team and the likelihood they will stay following a sale are the two greatest factors in determining a company’s value.  More than a bonus, incentive plans need to be aligned with specific performance benchmarks that when achieved increase profitability. In this way they become “self-funding”. They need to have retention attributes to encourage loyalty and they need to be communicated clearly to be effective. Owners may think that given today’s economic conditions they cannot afford to direct dollars toward key employee incentive/retention plans. Today’s reality dictates they must do exactly that. If properly designed, these plans are a win-win for everyone involved.  Whether a sale to an outside party, family member or key employee group, an owner’s greatest value driver is a motivated, loyal and high performing management team.   

So resist the temptation to bury your head in the sand and wait for this economic storm to pass before addressing your “end game”. Take advantage of this precious commodity of time to figure out exactly what you need from the sale of your company to support a comfortable post sale lifestyle. Whether or not you intend to transition ownership in the near future, it makes eminent good sense for owners to concentrate on those elements of their businesses that create more cash flow, more sustainability, and more future value (aka value drivers).  After all, the sun will shine again on this economy. And when it does you’ll want your company in prime time condition to garner maximum value for your life’s work.

Dyanne Ross-Hanson is President of Exit Planning Strategies, LLC. She can be reached at drh@exitplanstrategies.com or by phone at 651 426-0848.

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