Page 1

St. Cloud’s DCI shows that there is no “I” in lean

Green:

The new ripple of lean How energy savings can add up

Helping Manufacturing Enterprises Grow Profitably

August 2013

YOU CAN INCREASE

THE VALUE

OF YOUR

COMPANY

New analytical tools provide a strategic picture that goes well beyond financial fundamentals

Can Lean and ISO coexist?

How Elk River Machine blends them into a seamless management strategy 24

Hutchinson Manufacturing:

The challenges of 100 percent growth 14 Meet: MnSCU’s new Grand Connector The new mini-Jarraff Enterprise Minnesota’s Esteemed Colleague

Enterprise Minnesota 310 4th Avenue S. Suite #7050 Minneapolis, MN 55415

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www.enterpriseminnesota.org


THE LOOKOUT Always keeping watch to save his business energy and money.

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AUGUST 2013

Features 14 Hutchinson Manufacturing

The challenges of managing 100 percent growth with a shortage of employees.

20 The Power of Enterprise Value

Enhanced—and affordable—methods of determining a company’s valuation can help owners see what their businesses are worth, what’s working well, and areas for improvement.

24 Can “lean” and ISO coexist?

Interview: How an ISO-phobic lean specialist helped Elk River Machine blend the two concepts into a seamless management strategy.

29 Green: The new ripple of lean

Companies are discovering how energy savings can add up.

photograph by patrick kelly

38 PM

contents

Hutchinson Manufacturing

Subscribe to our e-Trends newsletter today! Get updates on the people, companies, and trends that drive Minnesota’s manufacturing community. To subscribe, please visit http://www.enterpriseminnesota.org/Resources/ Magazine-eNewsletter/Subscribe.aspx.

Visit the Enterprise Minnesota Web site for more details on what’s covered in the magazine at www.enterpriseminnesota.org.

in every issue:

Bob Kill:

Innovations:

Innovations:

Final Word:

Manufacturers in greater Minnesota get due respect. In the Twin Cities? Not so much. Page 2

Jarraff Industries listens to customers and creates a smaller, remote controlled version of its signature tree trimmer product. Page 8

Joe Mulford is manufacturers’ point for contact into the system. Page 10

The trusted principles that have served manufacturers since World War II are now accommodating a more sophisticated marketplace. Page 32 ENTERPRISE MINNESOTA AUGUST 2013 1


bob kill

ABob tale ofKill two regions

Manufacturers in Greater Minnesota get due respect. In The Twin Cities? Not so much

Helping Manufacturing Enterprises Grow Profitably Publisher Lynn K. Shelton

Data from Minnesota’s

Department of Employment and Economic Development tell us that manufacturing in Minnesota’s northwest is enjoying an economic renaissance that outpaces the rest of the state. But a recent trip north in which I toured seven companies showed me again that the company narratives behind the data are even more compelling. Over a couple days, I visited LaValley Industries, Nortech Systems and North Central Doors, all in Bemidji; Real Stone (Bagley), Anderson Fabrics, (Blackduck), Claw Stamping (Merrifield) and American Peat Technology (Aitkin). Each of these diverse and entrepreneurial Bob Kill is president and CEO companies shows how they combine to of Enterprise Minnesota. establish deep new roots in their communities that promise to directly and indirectly yield vigorous economic benefits. But an equally encouraging dynamic is how well their communities seem to appreciate it. Here’s what I mean: The primary purpose of my visit north was to deliver a lunchtime briefing in Bagley about the results of our State of Manufacturing survey/ research project. The event attracted more than 60 people, an audience that represented a significantly a diverse cross section of manufacturers, other business owners, and community leaders. The people who attended that briefing are invested in their manufacturers. Some of this might be residue from the you-don’t-know-what-you-have-until-it’s-gone syndrome. Local communities may not have had an appropriate appreciation for their manufacturers until the great recession of 2009 forced manufacturers to cut back contracts with local suppliers and lay off employees. Our Bagley meeting (and others like it) demonstrated how local chambers, MnSCU schools, economic developers and elected officials have a resurging appreciation for their manufacturers. They seem to be more conversant with the benefits manufacturers provide and with the challenges they face. But there is an important distinction to make. This phenomenon is much more evident in Greater Minnesota than in the metropolitan Twin Cities area. Manufacturers in the Twin Cities don’t often enjoy the political and community recognition they deserve for uplifting the local tax based and providing solid, well-paying jobs to their communities. The fact is, the citizens of Bemidji or Thief River Falls or Willmar are more likely to know exactly who their local manufacturers are, who works there, and what they contribute to their economies. The “local economy” in the Twin Cities is less well defined and certainly more integrated across a larger geographical area. It is much easier for a suburban plant to work away anonymously in industrial parks or neighborhoods without acknowledgement. I am no longer surprised during the manufacturing company tours in the Twin Cities that Enterprise Minnesota helps organize when elected officials or community leaders are amazed by the company’s level of sophistication and complexity. And I am no longer surprised when they admit afterward, “I had no idea this was even here.” We need to rectify that. 2 ENTERPRISE MINNESOTA AUGUST 2013

Editors

Contributing Writers John Connelly Kate Peterson Photographer Patrick Kelly Art Director Amy Bjellos

Contacts To subscribe subscribe@enterpriseminnesota.org To change an address or renew ldapra@enterpriseminnesota.org For back issues ldapra@enterpriseminnesota.org For permission to copy lynn.shelton@enterpriseminnesota.org 612-455-4215 To make event reservations events@enterpriseminnesota.org 612-455-4239 For additional magazines and reprints contact Lynet DaPra at lynet.dapra@enterpriseminnesota.org 612-455-4202 To advertise or sponsor an event jim.schottmuller@enterpriseminnesota.org, 612-455-4225 To pitch a story tmason@mason-publicaffairs.com

Enterprise Minnesota, Inc. 310 Fourth Ave. S., #7050 Minneapolis, MN 55415 612-373-2900 ©2013 Enterprise Minnesota ISSN#1060-8281. All rights reserved. Reproduction encouraged after obtaining permission from Enterprise Minnesota magazine.  Additional magazines and reprints available for purchase. Contact Lynet DaPra at 612-455-4202 or lynet.dapra@enterpriseminnesota.org. Enterprise Minnesota magazine is published by Enterprise Minnesota 310 Fourth Ave. S., #7050, Minneapolis, MN 55415 POSTMASTER: Send address changes to Enterprise Minnesota 310 Fourth Ave. S., #7050 Minneapolis, MN 55415

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r.


INNOVATiONS

There is no “I” in lean

Tom Evens, plant supervisor

St. Cloud-based DCI uses lean for efficiency and team-building

4 ENTERPRISE MINNESOTA AUGUST 2013

photographS by patrick kelly

A sometimes-overlooked legacy of Lean Enterprise training in manufacturing is the team-building culture it develops among employees who collaborate to make operations run with less waste and improved efficiency. That point was never lost on Tom Evens, the plant supervisor at DCI, Inc., the St. Cloud-based manufacturer of custom processing equipment. Evens was one of three featured speakers at a hugely popular business event sponsored recently by Enterprise Minnesota called Lean Office: Beyond the Manufacturing Floor. Evens demonstrated how he used lean training to rebuild company morale after an extended and dispiriting collective bargaining negotiation. “We were looking at very, very difficult negotiations with the union,” Evens recalled. “We had seen a downturn in business. We went through a tumultuous time. We needed to come up with something to re-engage the workers on the floor.” “We really struggled to come about with some kind of solution that was going to work for the union and for DCI long term. We were in a quandary.” So in 2010, DCI brought in Enterprise Minnesota to structure lean exercises to bring his employees together. Over the past three years, DCI has deployed cross-functional teams for most of its 200 St. Cloud-based employees. They conducted five Lean 101 training sessions with Live Simulations. From there, 110 shop and office employees have participated in 13 Rapid Improvement Events six informal in-

But most importantly they have greatly improved our working relationship with all our co-workers through out the entire organization and that has made us stronger. house events. “But my whole goal was to try to get guys back involved,” Evens says. But most importantly they have greatly improved our working relationship with all our co-workers through out the entire organization and that has made us stronger. “It has had a cultural impact,” he says. “Nothing happens overnight. My main goal was to get the guys back on board, because there are some really talented craftsmen out there.” “Not everything is a win,” Evens said. “I had more luck driving the shop

projects than I did driving the office projects, although some of the office projects have more potential for savings.” Evens says the company still has its share of what he calls “C.A.V.E men” -- Citizens Against Virtually Everything. “We still have some guys reluctant to change,” he says. Engineers, for example are not always the most outspoken. “They are very intelligent, but sometimes it takes a while to pull out their ideas.” “But from Day 1, building a stronger culture was my goal with this. I needed


DCI was founded in 1955 to produce stainless steel storage tanks from a vacant farm implement building in Holdingford. The company outgrew Holdingford in 1969 and moved to its present location in St. Cloud. The quality stainless steel equipment being made by DCI, Inc., was being purchased by a wide range of industries. In 1978, it became apparent that the Dairy Craft corporate name was not symbolic of the products and industries being served by the company and the name was changed to DCI, Inc. Today DCI supplies steel and stainless steel alloy equipment to many industries requiring the metal’s long-lasting, corrosion-resistant advantages in processing and storage equipment. Industries served by DCI include dairies processing milk, cream, ice cream, butter, cheese, yogurt and whey products, breweries; the beverage industry for processing its products; including storage of sucrose and fructose; and the pharmaceutical industry for processing and storing blood plasma and sterile water, as well as in manufacturing drugs like insulin and interferon. Biotechnology is a relatively new growth industry and DCI’s ability to produce fermenters of extremely high quality will place DCI in the forefront as an equipment supplier.

photographS by patrick kelly

About the company

these guys back on with us. And now they are. When we started the lean process, there was a lot of pushback.” Now, he says, the most controversial questions he gets about Lean is “when is my department getting an opportunity?” “Sometimes it is just having that formal mechanism to set that resource aside to do the work.” To learn more about DCI, Inc., visit www.dciinc.com

You DRIVE the INNOVATION. We ride SHOTGUN. Because the manufacturing industry moves fast, it’s important to have someone by your side to help navigate the hairpin turns. Baker Tilly Virchow Krause’s knowledge of the road ahead can help provide solutions to Minnesota manufacturers in an ever-changing global marketplace. There’s no telling how far we’ll travel together. Connect with us: bakertilly.com/manufacturing 612 876 4600

© 2013 Baker Tilly Virchow Krause, LLP Baker Tilly Virchow Krause, LLP is an independently owned and managed member of Baker Tilly International.

ENTERPRISE MINNESOTA AUGUST 2013 5


INNOVATiONS

Minnesota Widens the GAP Legislature funds popular rebate program for consulting Minnesota’s

manufacturers

got significant recognition when the Minnesota legislature this year funded the Growth Acceleration Program (GAP) in the amount of $750,000. More meaningful yet was the fact that legislators put GAP funding into the government’s General Fund, which means it will be regularly included in the State’s budget. GAP is a 6-year old program that provides a $1 rebate to manufacturers for every $3 they invest in consulting services that increase operational efficiencies and promote growth. Insiders say that part of GAP’s extraordinary funding success originates with the fact that so many legislators have become personally acquainted with their local manufacturers through visits coordinated by Enterprise Minnesota. Over the past 6 years we have personally organized over 300 of these meetings all across Minnesota. Legislators and other local policymakers invariably leave these meetings with an eye-opening appreciation for manufacturers. They see that manufacturers really are an increasingly high-tech local job creator, whose employees enjoy well-paid careers in challenging and rewarding environments - and whose efforts evolve into a valuable economic multiplier effect that benefits, suppliers and contractors, as well as lawyers, bankers, accountants and insurers. Plus, they understand that there are things they can do legislatively (or not do) that can materially help manufacturers compete and grow. GAP is a good case in point. An independent survey of clients using GAP funding found that collectively, manufacturers created and/or retained 1,700 jobs in Minnesota; they boosted company sales by $106 million; they 6 ENTERPRISE MINNESOTA AUGSUT 2013

Stern Compnaies has used GAP. photographS by patrick kelly

An independent survey of clients using GAP funding found that collectively, manufacturers created and/or retained 1,700 jobs in Minnesota; they boosted company sales by $106 million; they saved $15.9 million in business costs; and on average, generated a $15-to-$1 return on investment. saved $15.9 million in business costs; and on average, generated a $15-to-$1 return on investment. To be eligible for GAP, companies must be located in Minnesota. They must be in manufacturing or in a related industry. They must operate as independent profit centers, employ 250 or fewer full-time employees, have a business plan for improvements and demonstrate an economic need for GAP. The program is administered by Enterprise Minnesota and the Minnesota Department of Employment

and Economic Development is the fiscal agent. GAP works solely to benefit smaller manufacturing companies and is beneficial to the creation and retention of Minnesota manufacturing jobs. Advocates recognize that manufacturing is a key economic driver of our state’s economy, and particularly in Greater Minnesota, where manufacturing jobs are oftentimes the lifeblood of local communities. Manufacturing is the key to our economic recovery and job creation.


ly

Innovations

For the

Love of Peat

Aitkin-based APT showcases its facility to local leaders Doug Green seems continually on

a mission to bring value to things that might otherwise be overlooked. You have to start with the fact that he has taken peat moss – a manufacturing component that most people might consider have just slightly more value than dirt – and transformed it into an Aitkin-based business that experts predict might help add 5,300 mining jobs up on the Range. The other under-appreciated value was uncovered recently when Green and Enterprise Minnesota co-hosted local policy-makers for a tour of his American Peat Technology facility. Attending were State Senator Carrie Ruud, State Representative Joe Radinovich, Mike Steffen, President, Bremer Bank in Aitkin, Matthew Hill, Aitkin Chamber of Commerce, Mark Wedel, Aitkin County Commissioner - District 1 – along with Bob Kill, president & CEO, Enterprise Minnesota. Enterprise Minnesota has arranged scores of these tours over the past few years to help manufacturers showcase their value to the community, especially through elected officials. Green’s tour was among the best yet. “I wanted them to see that local talent is available in rural Minnesota to do what I think are some pretty remarkable things,” Green said. Green took the team on a full tour of his facilities, where he explained that since 2003 he and his team have been on a mission to analyze peat’s molecular structure and capabilities, and engineer useful products in the process. Among them is the ability to remove dissolved heavy metals from water—and the potential ability to remove the sulfate that forms and

enters the water supply when metals are mined from sulfurbearing rock. “It’s wonderful that we have a company that is so focused on its future, bringing jobs and great new products,” State Senator Carrie Ruud told a Lakeland News television reporter. “Peat is one of the least valued and most valuable natural resources we have,” Green says. So is APT.

Doug Green gives a plant tour to Senator Carrie Ruud and State Representative Joe Radinovich. photograph by lynn shelton

Are you

driving IT? Or is IT

driving you?

Power comes from being understood.® When you trust the advice you’re getting, you know your next move is the right move. That’s what manufacturing professionals can expect from McGladrey. That’s the power of being understood. Experience the power. View our free technology newsletter at www.mcgladrey.com/techbulletin.

ENTERPRISE MINNESOTA AUGUST 2013 7


INNOVATiONS

photographS by patrick kelly

Heidi Boyum stands atop Jarraff’s signature product.

Mini-Jarraff to Make Big Splash

“ ”

Jarraff Industries listens to customers and creates a smaller, remote controlled version of its signature tree trimmer product. St. Peter-based Jarraff Industries’ smallest product is poised to kick-start what could be its biggest growth trend to date. The new Mini-Jarraff is a takeoff on the company’s Jarraff mechanical tree trimmer, designed to trim tree branches encroaching on electrical power lines. The finalized model is set to hit the market later this summer. Heidi Boyum, Jarraff Industries owner and CFO, says the idea for the Mini-Jarraff came from its customers, many of whom had asked for a smaller product similar to the Jarraff that could easily maneuver in residential backyards. While residential tree trimming work has traditionally been bucket truck territory, Boyum says bucket truck setup and operation can be expensive and requires larger teams of people. Jarraff Industries wanted its product to require a smaller setup team, and just one operator. “We knew it needed to be remotecontrolled. We knew it needed to be able to get in backyard gates. We wanted to make it as nimble as possible,” Boyum says. The 2009 recession, Boyum adds, 8 ENTERPRISE MINNESOTA AUGUST 2013

was the perfect opportunity to make it happen. “I didn’t want to sit on the sidelines and wait for this thing to pass,” she says. “I wanted to come out of this recession and have something to show for it. This downtime gave us an opportunity to be able to produce something new, something that people would want to purchase when they were ready to buy again.” After more than a year of research and development, the 37-employee company unveiled a preliminary version of its Mini-Jarraff at a trade show in 2011. Attendees were impressed by the Mini-Jarraff’s remote-controlled operation, which allows the operator to walk alongside the machine to get the best view. Its faster setup also allows operators to complete projects in nearly half the time it would take with a bucket truck. “We had people placing orders that day that had never seen the machine before,” Boyum says. Those customers have since worked closely with Jarraff Industries to finetune the Mini-Jarraff’s design and ease of operation. Boyum says the collaborative product development process

“We had people placing orders that had never seen the machine before.” Heidi Boyum, owner

has strengthened Jarraff Industries’ relationships with its current customers. “It is an honor for them to request that we build the next thing they think the market needs. It makes us feel good that they are confident in what comes out of St. Peter, Minnesota,” she says. She also expects the Mini-Jarraff will help Jarraff Industries to gain new customers as smaller companies invest in the more affordable Mini-Jarraff. Boyum anticipates 20 percent growth in revenues this year. Once the MiniJarraff becomes established in the marketplace, she says it could account for 30 percent of company revenues. For more information about Jarraff Industries, go to www.jarraff.com.


Wittenbraker Joins Board Says Enterprise Minnesota has a ‘customers for life’ approach To hear Joel

Wittenbraker talk about Enterprise Minnesota, you might be reminded a little of the old razor blade commercial in which busiJoel Wittenbraker ness executive Victor Kiam said he liked his Remington Shaver so much that he bought the company. Well, almost. Wittenbraker, president & CEO of Red Wing-based Machtech, had such a good experience with Enterprise Minnesota’s consulting services over the years that he agreed to join the board of directors. Mactech is a manufacturer of on-site machining equipment and processes, offering standard product supply on a sale or rental basis, specialized tool design and development and full on-site staffed contract service to a variety of industries such as oil and gas processing, decommissioning, power generation, and shipbuilding. “I’m a guy that doesn’t like to use consultants,” he says. “I don’t like to go outside, as a rule, because I think it is an easy way to waste money. But the rewards (with Enterprise Minnesota) have been consistent: I’ve done marketing, they built our website, we’ve done plant layout, we’ve done process analyses – the export marketing program. I feel that every one of them has paid for itself.” In addition, he says, “The quality of the people that I’ve dealt with and the quality of the service that we as an organization have received has been valuable. I like the people in this organization – as friends. When Bob said there was an opening, I was extremely flattered.” Wittenbraker joined Mactech in 1994 as president. His experience includes a history in corporate finance, investment banking and business development, in-

cluding capital formation, mergers and acquisition and public securities offerings. “Basically, Enterprise Minnesota is a very high level consulting business that brings value to companies at a reasonable price, with a lot of breadth,” Wit-

tenbraker said. “It is like I run my own company. Everyone may not be a customer, but when you do get them, you want them to be a customer for life. “I feel that Enterprise Minnesota has a customers-for-life type of approach.”

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ENTERPRISE MINNESOTA AUGUST 2013 9


INNOVATiONS

MnSCU’s Grand Connector Joe Mulford is manufacturers’ point of contact into the system

10 ENTERPRISE MINNESOTA AUGUST 2013

photographS by patrick kelly

Enterprise Minnesota’s State of Manufacturing survey in recent years (both in the poll and especially in focus groups) has made two issues abundantly clear. First: The availability of workers who can skillfully adapt to the increasing sophistication of modern manufacturing operations will be essential for the industry to adapt and thrive in the increasingly competitive global economy. Second: Manufacturers consider Minnesota’s State Colleges and Universities (MnSCU) the resource necessary to producing those future workers. Manufacturers, meet Joe Mulford. His title is System Director for Education Industry Partnerships, but his function is MnSCU’s Grand Connector. If there one easy entry port for individual manufacturers to have an impact on how MnSCU is developing future members of their workforce, it is probably through Mulford. “My primary duty is to cultivate relationships and partnerships for the (MnSCU) system,” he says, especially for individuals or organizations that have workforce solution needs or issues. His day, he says, can be as routine as finding a campus that might want to receive a donated piece of used manufacturing equipment, or as dynamic as helping Minnesota’s notoriously confidential aerospace manufacturers develop customized programming. Mulford admits he can’t provide any tangible deliverables from the system office, but says his job is to find people who can. A product of the MNSCU sys-

Mulford is System Director for Education Industry Partnerships

tem, Mumford considers himself an “accidental” educator. His personal educational path seems to have gradually progressed down Interstate 94, beginning at Moorhead State, where he received a two-year degree and winding through a four-year degree in marketing from St. Cloud State and a Master’s Degree in Administration of Metropolitan State. He received his entrepreneurial chops between Moorhead and St. Cloud when he spent four years as a fish farmer, at a facility near the Brandon Exit off Highway 94, just north of Alexandria. Starting as an employee, he eventually bought the business, before selling it four years later. “I loved it. I sold it. I went back to school,” he says. In 1995, he began work in education, starting as an admissions recruiter for the Minnesota School of Business (Globe University). In 1999 got a job as a customized training representative at Century College and eventually spent eight years at Hennepin Technical College, where he became dean of the manufacturing program. For their part, Mulford says manu-

facturers can have a direct impact on their local MnSCU institution by engaging the advisory committee structure that all of institutions are required to maintain. “There probably is never an easy time to do it,” he says. “People are busy. But if they get involved, they’ll build a relationship with the faculty, which will give them insights and influence into the curriculum that’s being offered locally.” On top of that, he says, they’ll get a head start on finding the best students. “Advisory committees have impact,” he adds. “It isn’t any more complicated than calling them up and saying, ‘I’m involved in manufacturing. I’m interested in hiring graduates, or doing internships.’” That call, he says, can be with the president of the college, the folks that work in the outreach divisions, customized training, or the faculty members themselves – all available on MnSCU’s website. To learn more about MnSCU, go to www.mnscu.edu.


Esteemed Colleague Greg Langfield

was named this year’s Esteemed Colleague at Enterprise Minnesota. The award draws attention to an employee whose peers think has best embodied the cultural values of Enterprise Minnesota, both in terms of success and style. With a degree in Mechanical Engineering from North Dakota State University, Greg has devoted his entire career to manufacturing. Before joining Enterprise Minnesota one and a half years ago, he worked at several different manufacturing companies, where he says he became passionate about be-

photographS by patrick kelly

Peers honor Langfield with Enterprise Minnesota’s top employee award Langfield receives congratulations from Bob Kill, president and CEO of Enterprise Minnesota.

ing a problem-solving partner. Langfield’s expertise includes Operational Excellence, GreenLean, and Human Capital Improvement. He’s earned a reputation among staff for being “ideally rounded” as a consultant. “He enters every relationship without any bias, so he’s willing to look for creative opportunities,” according to John Connelly, director of consulting. “And he’s always eager to learn.”

On top of that, Connelly says Greg shows unrivaled enthusiasm for the in-depth analysis of the results of our efforts, required as one of 59 affiliate organizations of the Manufacturing Extension Partnership, part of the U.S. Department of Commerce. “He knows that’s the best way to demonstrate our value, as well as improve our services.”

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ENTERPRISE MINNESOTA AUGUST 2013 11


INNOVATiONS

Shelton contributes a new digital column Enterprise Minnesota’s e-Trends appears each Friday via email

e-Trends,

Enterprise Minnesota’s weekly digital newsletter is now getting a little more personality as Lynn Shelton has begun contributing a regular column to its editorial lineup. e-Trends for years has provided Minnesota’s manufacturing community with news about the industry and notices of what’s happening behind the scenes at Enterprise Minnesota. Shelton’s column, she says, will bring a little more personality and analysis to the news. The newsletter doesn’t promise comprehensive information about manufacturing, Shelton says, but focuses on news items, instructional insights and interesting people – all of which illustrate relevant industry trends. “In a lot of ways, this builds on the success Enterprise Minnesota has enjoyed through our State of Manufacturing survey research project,” says Bob Kill, president and CEO at Enterprise

Minnesota. For the past five years The State of Manufacturing has used a nationally recognized pollster to conduct an annual survey of manufacturers about business prospects, trends and worries. “Where the poll enables Enterprise Minnesota to capture the trends, frustrations and aspirations of manufacturers across the wide spectrum of their marketplace – including their relationship with government,” he added, “eTrends encapsulates a quick snapshot of that environment on a weekly basis. “It all contributes to our companywide objective to be the statewide connector for manufacturers.” Shelton is director of communications and marketing at Enterprise Minnesota. Drawing on more than 25 years of management-level positions in policy and public relations, her experience includes time as a staff member in

the U.S. Senate and for the leadership in the Minnesota state senate. She has held senior level positions at two local agencies and also served as a director at Minnesota’s Department of Trade and Economic Development (now named the Department of Employment and Economic Development). At Enterprise Minnesota, she directs the organization’s marketing initiatives, promoting Enterprise Minnesota’s business services, business lead generation, website development, online marketing, legislative relations, media relations, publishing, and business events. Shelton is also publisher of Enterprise Minnesota magazine.

Readers may opt-in to e-Trends by going to www.enterpriseminnesota.org

Hosting manufacturing’s best and brightest CEO Peer Councils schedule their first members-only statewide conference Enterprise Minnesota’s

CEO Peer Councils will convene their first annual statewide conference October 14 in Plymouth. The meeting, open to peer council members only, will represent an influential gathering of Minnesota’s manufacturing CEOs, according to Bob Kill, president and CEO of Enterprise Minnesota. “This might be unprecedented,” he said. “Manufacturing’s best and brightest are getting together behind closed doors with no agenda other than to help each other -- to talk about only things that are relevant to the success their businesses, on their terms.” The Peer Councils were created eight years ago with a single group of CEOs. Today, more than 85 manufacturing CEOs belong to one of ten councils throughout Minnesota. Each 12 ENTERPRISE MINNESOTA AUGUST 2013

council convenes one full day each month for a combination of topical presentations and open-ended conversation. In this way, members function as an members advisory board for the others. “The fact that there is such a high CEO retention rate over the eight years of operating CEO Peer Councils speaks to the tremendous value placed on these relationships,” Kill said. Membership is by group invitation only, which fosters a high level of trust, confidence and respect among members. It also ensures that council members have a similar level of “business sophistication.” Each day’s meeting is organized and facilitated by the Enterprise Minnesota business advisors. Between the monthly meetings members receive one-on-one coaching from our consultants toward their

specific growth and operational goals, with ROI measured every six months. The meetings are also supplemented by multi-council events, leadership development webcasts, company tours, demonstrations, and a council website. At the request of member CEOs, Enterprise Minnesota recently expanded the Peer Council approach by developing three Operations Executive Councils using a similar model. Enterprise Minnesota’s Peer Councils (and the staff that manage them) received significant national recognition when they were named “Practitioner of the Year” by the National MEP Awards. Enterprise Minnesota is one of 59 regional centers that make up the U.S. Manufacturing Extension Partnership (MEP).

Q


Innovations

Innovations

Photograph courtesy of Gray Plant Mooty

with Steve Eide Position: Attorney and Principal at Gray Plant Mooty, a full-service law firm based in Minneapolis.

Questions

Role: Steve counsels employers in a variety of industries with respect to employee benefits. He has over 25 years of experience providing legal services to employee-owned companies and ESOP trustees.

What is an ESOP and what are its advantages as an ownership succession tool? An employee stock ownership plan, or ESOP, is a trust created to purchase a corporation’s stock on behalf of its employees. The trust contains separate tax-deferred retirement accounts for each employee, where shares of employer stock accumulate until the individual retires or leaves the company for other reasons. The trust is subject to the requirements and protections of federal pension laws, much like a 401(k) plan or qualified profit sharing plan, but the law invests ESOPs with other unique capabilities. The advantages of ESOPs are varied and extensive. They allow owners to transfer equity to a broad group of employees without requiring the employees to invest personal assets or future income. Thus, ESOPs can deliver a shared incentive to more employees than stock options, with less financial risk to the employees. ESOPs often provide a catalyst for greater employee engagement and productivity, resulting in a more sustainable and resilient business model. ESOPs offer tax savings for the corporation, and employees accumulate wealth on a tax-deferred basis, which can later be rolled into IRAs after their stock holdings have been liquidated. The tax benefits give ESOPs an advantage over phantom stock, restricted stock and other equity compensation programs. In some cases, selling to an ESOP also provides tax advantages for the former owners. An important aspect for many closely held business owners is that an ESOP gives them more control over the timing and manner in which they hand over the reins, which could involve staged sales of stock over a period of years. Putting a business up for sale on the open market creates a risk that the buyer will cut jobs or move operations out of the community where the company is located. Selling to employees through an ESOP virtually eliminates those concerns.

How does a company set up an ESOP? Once the company has determined that an ESOP is feasible, the selling shareholders usually start the process by obtaining a preliminary appraisal of the value of their shares. This is an important step because an ESOP, by law, cannot acquire shares at a price above the appraised fair market value. Based on the preliminary appraisal, the sellers decide how much stock they want to transfer to employees. Meanwhile, the company designs how the ESOP will operate as a benefit program, creates the trust that will hold the stock, and appoints one or more trustees for the ESOP. The stock transaction may take many forms, but typically the sellers or their representatives negotiate directly with the ESOP trustee over the terms of the sale. The ESOP trustee is assisted by its own legal counsel and financial advisor in this process.

How are ESOP stock purchases usually financed? A distinguishing feature of ESOPs (as compared to other types of retirement trusts) is their ability to borrow. This capability allows the ESOP to consider several options for financing the purchase of employer stock. The trust can borrow cash from a bank or other third party lender, or it can borrow from the company itself. In many instances, especially in recent years, sellers have provided some or all of the financing by accepting notes from the ESOP. ESOP debt is secured by the acquired shares and is repaid with contributions or dividends from the company’s future earnings.

What are the critical success factors for an ESOP? The most successful ESOP companies have a wellconceived management succession plan, reliable cash flow, a team of knowledgeable advisors, and a commitment to nurturing a culture of employee involvement.

ENTERPRISE MINNESOTA AUGUST 2013 13


Hutchinson Manufacturing now fabricates 70 percent of the components in FMC’s massive undersea energy exploration.

Hutchinson’s

Undersea Adventure

The challenges of managing 100 percent growth with a shortage of employees

In 23 years as a welder,

Rian Suchy, a weld lead at Hutchinson Manufacturing, Inc, (HMI) has likely never been busier. He’s not only producing weldments of unprecedented precision and sophistication, he’s having to do it every day with apprentices in his shadow. Suchy’s assignment is just one example of how the folks at HMI are managing the challenges of a massive and technically sophisticated contract with FMC Technologies to manufacture components for its thriving subsea oil and gas operations. 14 ENTERPRISE MINNESOTA AUGUST 2013

The effort has not only doubled the company’s revenue over the past 18 months, but it has plant managers scrambling to find creative uses for every inch of its 100,000-foot factory floor and scouring the region to find skilled employees. HMI’s workforce has increased from 105 to 176, with slots still unfilled. “You can’t walk in the door without seeing how busy it is and how much work actually is being done here,” Suchy says. Indeed, the plant seems continually alive. The shop floor, the offices

and the lunch-room seem packed to capacity. Just finding an empty space in the company parking lot can be as frustrating as getting a mid-day space at the Minnesota State Fair. Suchy’s piece in this this puzzle is to help the company satisfy its burning demand for welders. Unable to attract a sufficient number of alreadyscarce welders to this community of 14,000, just 75 miles east of the Twin Cities, HMI has decided to do the next best thing: they are making their own. Beginning last march HMI inaugu-


“I have a great staff. We really did a great job. People wouldn’t believe that we got this done, this type of specialized one-off custom manufacturing at the specifications we’re operating.”

do by the time we turn them loose out on the floor.”

The FMC Connection

FMC Technologies

rated an aggressive weld apprenticeship program. “We found there were a lot of people entering weld programs and local community colleges, but they weren’t getting the necessary skillset they need to walk into HMI and start welding,” says Isaac Marceau, an HMI vice president. Their 90-day apprenticeship requires the company’s weld leads to take on two or three trainees at a time. “They come in with very little experience,” Suchy says. We basically train them to build our products. We want them to know exactly what we

The architect of this bustling business is owner Tom Daggett. In 2006 he invested $2,500 to attend what he calls an “on-line dating service” for suppliers that wanted networking introductions to energy companies that operated in the Houston, Texas market. As a result, FMC dispatched an audit team to assess Hutchinson’s machining capabilities. “In ‘06 we were not a machining house, but we had welding and painting capabilities that they also needed,” Daggett remembers. At one point, he says, HMI was the only shop in the FMC network that was certified supplier to do painting, welding, laser machining and non-destructive examination (NDE) of welding. By 2008 Daggett says he knew the FMC relationship was going to be “a big hit,” but he couldn’t foresee that there would be glitch along the way. In April 2010, the explosion at a BP drilling facility in the Gulf of Mexico created the largest accidental marine oil spill in history, which forced FMC to scale back its contract with HMI by 30 to 40 percent. By early 2012, the business came roaring back. “Looking back,” Daggett says, “we grew, but it was managed growth. I have a great staff. We really did a great job. People wouldn’t believe that we got this done, this type of specialized one-off custom manufacturing at the specifications we’re operating.”

A Massive Effort

Hutchinson now fabricates 70 percent of the components -- housings, frames, and control panels

Tom Daggett,

Owner, Hutchinson Manufacturing

-- that comprise the two to four story underwater pods that are eventually plumbed together two miles below the surface of the ocean to harness oil and gas. FMC performs the actual assembly, inserting and regulators inside of the assemblies. Marceau compares the assembly to a computer server room. “We might make the server rack and the housing for the server, but we aren’t making the hard drive or the wires inside of it,” he says. On the shop floor, HMI employees call it “making a Swiss watch of structural steel.” Marceau is the key choreographer of this complicated process. As vice president for operations, he balances responsibilities for engineering, purchasing, estimating, and the operations of the entire shop floor. He says the company has matched the “very precise demands” of the industry through welding technique, welding practices, a lot of layout and design of joint configuration, how the parts line up and, of course post-weld machining. Has HMI done anything like this before? “Not to this scale,” Marceau says. Is he ever worried that project might overwhelm them? “We have that discussion nearly every week in our staff meeting – to make sure we’re not over our skis,” he says. Applying expertise he acquired in part from training with Enterprise Minnesota, Marceau leads a continual campaign to optimize the plant’s resources. Every quarter, he and other managers review what he calls the plant’s “overhead recovery.” During the most recent review, for example, the group decided to free up space for highly profitable welding operations by decommissioning a metal press break, the oldest piece of equipment on the HMI floor. ENTERPRISE MINNESOTA AUGUST 2013 15


Daggett’s other energy plan HMI supplies Par Nuclear with cranes for reactors In addition to his lucrative relationship with FMC’s sub-sea drilling operation, HMI’s owner Tom Daggett is also working in the production of nuclear power facilities around the world in conjunction with Shoreview-based Par Nuclear. The story of that relationship contains eerily similar plot points to FMC: of being in the right place at the right time, showing the instincts and agility to seize a market opportunity, and then to endure the vulnerability to outside unforeseeable incidents. In the summer of 2008, executives at Par Nuclear approached Daggett about what they called a “big opportunity.” The downside: “We can’t tell you much about it” --even though HMI had been a “limited” supplier to Par. Parr needed a facility to build operating cranes for the new Westinghouse AP 1000, a “prefab” nuclear reactor for which it already had orders. photograph by patrick kelly

After looking at the requirements, Daggett concluded he’d need a much bigger facility than the one he had. They responded: Why don’t you build one? He declined, at first, but then reconsidered, thinking he could build on some property he already owned. He sent a basic proposal. He said: “Here’s what this building would need to look like to build these cranes. Based on what I know, here’s what a pro forma would look like to staff and build it, not knowing what it would really take. I’ll be the landlord. Here’s the timeline.” Daggett says his letter showed up about the same time that the Westinghouse Toshiba board met and told Par they would not fund the purchase of a crane manufacturer. “Go find a partner,” they said.

16 ENTERPRISE MINNESOTA AUGUST 2013

Owner Tom Daggett

Daggett’s proposal was approved just three months later. But then came financing – in 2009. “This is a time when you can’t finance a car. And I’m looking for $5 million,” he said. After Bremer backed out at the 11th hour, he says, Wells Fargo agreed to finance 60 percent. Center Bank in Litchfield agreed to do the rest. They broke ground on August 24, and occupied the plant on March 20, 2010. In March 2011, the nuclear power plant in Fukushima, Japan suffered a series

of equipment failures and nuclear meltdowns, eventually becoming the largest nuclear disaster since Chernobyl. Those 10 contracts were quickly reduced to four. But Daggett remains upbeat. “New plant construction will be questionable, but the rebuild business will be very good,” he says. “There are 109 nuclear plants in the United States. They need controls. They need lift capacity. It is going to be good.”


“Think of a metal fab shop getting rid of a press break,” Marceau says. “That doesn’t sound logical, I know, but it was the right decision.” The press break not only occupied several hundred square feet of scare floor space, he says, but was infrequently used. Marceau’s review revealed that the press break had used only 76 hours of labor this year. The decision to remove it was easy: instead of generating only $4,000 of revenue in that space, HMI can now generate $400,000 a year welding in that same square footage – and outsource the press break time. The company also recently sold two laser-cutting machines, leaving it with just one. “We work that one a little harder,” Marceau says. “That freed up space to buy a new plate role, also freed up space for another weld bay.” Says Daggett: “In 2000 I had five lasers and I had five press break operators. Today I have one laser and one press break operator. The business totally changed. I remember back when we had five machinists, now we have 30 machinists.”

Finding Employees

A bigger challenge has been to enlist a sufficient number of new employees to take on the process. The company had some luck recruiting from Hutchinson Technology, a crosstown business that had had to make workforce reductions. “A lot of our indirect and new leadership has come from finding individuals HTI has let go,” Marceau says. But the fact is, he adds, “this area is not rich in welders.” Enter Holly Wanous, an HR professional, who eventually found this to be something of an understatement. HMI hired Wanous in April 2012 to help the company meet the exploding demand for employees, especially welders and machinists, in a market that had few takers. Managers warned her that the company would be expecting her to recruit maybe 20 employees in its ramp up for the new business. The actual number ended up being more like 70.

Like Marceau, Wanous had to balance competing demands. She had to satisfy the plant’s urgent and immediate need for workers without sacrificing the quality of the people she hired. “I had to be tactful, but you don’t want just warm bodies,” she says. The skills and experience required by the FMC contract simply overwhelmed the area’s resources. Wanous began by doubling down on traditional recruiting methods. She increased their presence on Monster.com, Craig’s list, and Minnesota’s Job Bank, reaching even into the Twin Cities’ markets. She revived their use of advertising in the local paper. When the company sponsored a billboard to celebrate its 60th anniversary, they even included a message about jobs. “We even did a few radio ads,” she says. “They weren’t really that helpful, but I think it was good just getting our name out there.” The company enjoyed some recruiting success through referrals. Employees who recruited newbies received $200 initially, another $200 after 90 days, and a final $200 on the new employee’s first year anniversary. Wanous says the company eventually hired about 15 people through this method. Job fairs showed promise but delivered little. When Wanous first visited Dunwoody, she says, candidates didn’t know about the company or even where Hutchinson was. The second job fare was more productive – instructors had tipped off students about the opportunities at HMI -but the only candidates willing to relocate were “pretty green,” she says. Eventually, she says, the company realized it would have to start looking at candidates who had more potential than experience. “We looked for people who seemed like good employees and seemed capable of learning,” Wanous said. Which meant, in turn, that the company would have to make a bigger investment in training. In addition to the weld apprentice program, the company invested in Tooling U, an online teaching center. It developed an IT tech and training

Stalking Profits Acquisition triples revenue; brings $1 million in contract work to HCI In 2002, HCI president Tom Daggett bought the assets of Hutchinson-based May Wes Manufacturing out of bankruptcy. The company had been founded in the late ‘70s when Wesley and Marvin Bruns innovated a way to lengthen the life of a combine by placing plastic sheets on the metal bottoms to reduce wear and rust. The idea had been a success, but not enough to sustain the financial demands of their newly constructed facility. Daggett transferred ownership to Pride Solutions, another of his holdings. “The company had a lot of inventory and really good name in the industry, so I dramatically reduced the overhead and let it sit for three years and live off its catalog, some advertising, and its name,” Daggett says. The company slowly rebounded, helped greatly by the popularity of the innovative Stalk Stumper. As a combine harvests corn, the Stalk Stumper bends corn stalks over, to prevent costly damage to the combine. The popular product got a significant bump as genetic corn seed manufacturers engineered a product that would be strong enough to support more ears and to withstand greater amounts of wind. Related sales jumped $3 million to $10 million. “That was a nice deal,” Daggett smiles. Not to mention that Hutchinson Manufacturing does more than $1 million worth of manufacturing work for May Wes. center that has four computers in a lab setting, where machinists can sit in a quieter environment and really work through online modules. They also use MasterCam software for programming its machining centers. They send employees to offsite training facilities.

Navigating the Future

Marceau says the company has a backlog of work for the next 18 ENTERPRISE MINNESOTA AUGUST 2013 17


Isaac Marceau, vice president, operation photograph by patrick kelly

months and has a “good idea” where the company will be in three years, “but we don’t necessarily know.” What he does know is that “oil and gas isn’t going to drive us forever.” Never far from their thoughts is the memory that FMC is the second multi-national energy company whose contract work has catapulted HMI to lucrative, if uneven, success. In the late ‘70s, the company began building component natural gas turbine parts for Donaldson Company, which over the next quarter century became by far Hutchinson’s largest customer – rising at one point to 80 percent of the company’s revenues. Then, almost out of nowhere in the midst of recession, that business went to Mexico. The contract collapsed. “We were really caught flat footed because it had been such a hot market,” Daggett says. “I could circle the day on the calendar when I realized it was over: March 8, 2002. That was the day we looked at it and thought, wow, this is dead.” The FMC experience has enabled HMI to examine different markets and how it could expand its business. “It certainly raised the bar internally, in terms of our capabilities and our understanding the market,” Marceau 18 ENTERPRISE MINNESOTA AUGUST 2013

says. The project, he says, has enabled HMI to grow into a “world class” heavy steel fabricator. “It gave us an opportunity to grow our expertise. The engineering department we have now versus what we have in 2007 is vastly a different model.” “Marketing?” Daggett asks. “That thought is like a knife to my heart. I think about it every day,” he says. “Here we sit. We are really good a making stuff. We can sell, but we can’t market. That’s probably my biggest fear, my biggest concern.” Marceau agrees: “To be honest, the last two years have been consumed by creating processes and systems. “But have got to get on it. Everything has a sunset,” says Marceau. The company has engaged Enterprise Minnesota’s Deb Bly to help plot out that future. Her mission, she says to spend time helping the company focus on different opportunities and a lot of different directions. “I give Tom (Daggett) a lot of credit for not resting on his current success,” Bly says. “He understands that in three years, the situation may look different. -- and that now is the time to start strategically planning for that event.”

But reality is what it is: “They are so busy,” Bly says.” They are trying to manage it, to keep it together and also to be proactive, to be intentional about very specifically looking at the longer term.”

In May 2013 Hutchinson Manufacturing hosted an open house for community leaders and employees’ families to celebrate the company’s 60th anniversary. The original 2,400 square foot building has today become a 100,000 foot facility with 180 employees. To learn more about the Hutchinson Manufacturing, go to www.hutchmfg.com.


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You can Increase The

Value of Your Company Enhanced—and affordable—methods of determining a company’s valuation can help owners see what their businesses are worth, what’s working well, and areas for improvement. By Kate Peterson In 2009, GEOTEK, a Stewartvillebased manufacturer, generated $18 million in annual sales, primarily from the composite cross arms it sells to the electric utility industry. That’s when Granite Equity, a private equity firm headquartered in St. Cloud, took a majority stake in the company. Prior to that transaction, Granite Equity looked hard, really hard, at the company’s financial picture. In addition to examining GEOTEK’s income statements and five year financial history, Granite Equity thoroughly and systematically reviewed the underlying elements that 20 ENTERPRISE MINNESOTA AUGUST 2013

contributed to cash flow. Think of it as an assessment of company value on steroids. Among other revelations, Granite Equity’s analysis uncovered industry dynamics that pointed to GEOTEK’s potential for growth in international markets. That meant a more accurate sale price, and equally important, a guide for boosting future income. The result: GEOTEK has doubled its annual sales, to $36 million, since 2009. The company has also doubled the size of its facilities and its workforce in that time. There’s a lesson in GEOTEK’s

experience for all business owners, whether they are thinking of selling immediately, within five years, in ten years or more, or possibly not at all. Experts say regardless of when—or if—you might sell, there’s no better, more comprehensive tool for business improvement than a thorough company valuation. Recent developments in analytical methods allow a company’s valuation to reflect the true future potential of the enterprise, giving owners a better understanding of the company’s price, and a blue print for strategic planning and improvement, whether a sale is


imminent or not. Equally exciting, these methods aren’t just available to the select few being courted by outside investors. Sophisticated new ways of gathering information and crunching the numbers—including comprehensive valuation software called “CoreValue”, which is now offered in conjunction with Enterprise Minnesota consulting services—provide a picture that goes well beyond financial fundamentals. Packaged pricing allows businesses to purchase access to the software, assistance with completing the evaluation, and follow-up consulting services starting at $5,000. “The CoreValue assessment simply identifies and quantifies value in a private company by looking at the operations within a company versus just the financial results,” says Lisa Kable, CoreValue’s co-CEO. “More importantly, it identifies red flags or issues that could render a company ‘valueless’, and untapped value in a company called the ‘Value Gap.’” An understanding of enterprise value is clearly critical for business owners on the verge of a major milestone. The sale of the company, an acquisition of another enterprise, a major expansion requiring a large commercial loan or outside investors, for example, all demand an exhaustive calculation of the company’s financial worth. And, supplementing that firm’s financial record with data showing the enterprise’s future potential can boost the sale price considerably. This kind of information can also make a case for a large commercial loan or a bid for new investors much more compelling. Mary Connor, a business growth consultant with Enterprise Minnesota emphasizes that it’s not only companies anticipating a major change that benefit from assessing company value. Advanced approaches to determining corporate worth provide a more detailed picture of a company’s current and potential value, looking at the many factors that contribute to long-term viability. And from those deeper analyses, which consider market, supply and industry dynam-

“By considering market forces, supply chains, corporate leadership and industry dynamics, executives get a much clearer picture of what the company is worth, where it can improve, and the opportunities that can make it stronger.”

ics, for example, business leaders can develop a clear view of the company’s value now, and how to improve it in the future. A case study in the power of valuation Art Monaghan, a partner with Granite Equity, the private equity firm that took a majority stake in GEOTEK in 2009, says a company value analysis is important before a sale, but also after. All of Granite Equity’s companies go through a company value evaluation annually. The reason for the yearly review is simple. “If I were running a business, I would hope that what I was doing on a day to day basis is increasing the value, for the long-term. Because if you’re not increasing value, you are likely to go out of business, because in this competitive world, either your competitors are, or your industry is shrinking,” says Monaghan. Dale Nordquist, the CEO of GEOTEK, says that annual valuation provides a much-needed understanding of where the company has been and where it’s headed. “It’s helpful for me to know how the value of the company is recognized and growing. Increasing company value is a by-product of our creating value for our customers, and it shows us that to be successful, both have to grow in harmony,” he says. The assessment process Granite Equity uses—both before an acquisition and for ongoing analysis of the companies it owns—involves a very methodical look at what Monaghan describes as “cash flow sustainability.” By considering market forces, supply chains, corporate leadership and industry dynamics, executives get a much clearer picture of what the company is worth, where it can improve, and the opportunities that can make it stronger, Monaghan says.

art monaghan, Granite Equity

Monaghan and his partners often use what they call the “Five Forces Model,” which looks at a handful of very specific factors contributing to the company’s future cash flow potential. Specifically, Granite Equity considers the threat of new entrants to the industry, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products, and the rivalry of existing players “in your sandbox,” he says. GEOTEK offers an excellent example of how the information gleaned through this type of meticulous evaluation of its cash flow—specifically looking at its position within its industry—can be used to develop a growth strategy. In the U.S. electric utility market, with more than 3,000 different utilities and only minimal standardization, GEOTEK sells its ability to customize its products for each utility it serves, as well as its ability to test its products to customers’ unique requirements, in addition to offering outstanding reliability. “We’re exceptionally good at giving it to them their way,” says Nordquist, pointing out that understanding GEOTEK’s strength in the market helps company executives know where to make investments and focus activity to inject the most value for customers and the company. Through its company value assessments, GEOTEK also evaluates customer dynamics around the globe, and it has found that the value of its composite cross arms is even greater in harsh climates. Where wood cross arms typically last 25 to 40 years in the U.S., in a country like Malaysia, wood cross arms have a five year life span, Nordquist says. Understanding those customer needs has allowed GEOTEK to market its long-lasting composite products very effectively around the world. ENTERPRISE MINNESOTA AUGUST 2013 21


A strategic planning tool for all businesses

John Connelly, director of consulting for Enterprise Minnesota encourages all companies to undergo the kind of valuation process that provided direction and opportunity to GEOTEK. Combining Enterprise Minnesota consulting and CoreValue’s software, the same type of evaluation used by equity investors is accessible to the full spectrum of businesses. “When we use this approach, we can tell you not only what your business is worth today, but what it can be worth in the future, and what steps to take to get there,” Connelly says. The evaluation process weighs 18 specific “drivers” within the company, including brand strength, differentiation among competitors, margin advantage, and barriers to entry. Connor says that information, coupled with financial statements, takes enterprise valuation to a new level by drilling down into the data about industry-specific intangibles. In some industries, a company might be deeply discounted for relying on one or two suppliers, for example. In other industries that might not be the case. Because the analysis includes that builtin understanding of industry dynamics, accurate valuation is highly likely. But the valuation is only the beginning of the process. After businesses complete the Web-based questionnaire, they receive a prioritized summary of “best bets” for investment dollars, Connor says. “Our system helps determine which of these 18 drivers is most important,” she says. Company owners can use the information provided by the analysis and begin taking specific steps to boost enterprise value. If a company has a narrow customer base, which discounts the enterprise value in its industry, for example, Enterprise Minnesota consultants can help complete the market research to determine how best to expand the business’s reach. That research might show the best opportunity for growth in international markets. Consultants can help the company identify the best potential global markets, assist with any necessary application or permitting processes, and ultimately work with the company to begin making sales. 22 ENTERPRISE MINNESOTA AUGUST 2013


Connor emphasizes that the results and action items are beneficial for all companies—whether the owners intend to sell the business or not. For example, leadership issues should be addressed regardless of where a company is in its life cycle. “If all the business decisions and knowledge about the company rest with the owner, that can discount the value of the enterprise,” she says, but addressing that weakness will make the enterprise stronger, regardless of who owns it.”

Determining and boosting sale price

While valuation is an excellent strategic planning tool for all companies, it is critical for those business owners considering selling. A thorough understanding of a company’s market price is essential in advance of a sale. With a realistic valuation in mind, the seller can determine how much time and investment will be required to create a more valuable enterprise for buyers, even if they are not intending to sell right away, or within a set time frame. Indeed, some business owners aren’t even sure they want to sell their companies, and if they do, they are uncertain if it’s best to wait and build more value, or sell sooner. Connor says a generation of entrepreneurial baby boomers is thinking hard about whether and when they want to sell the companies they founded and have nurtured over the years. Should they sell now, or hang on for a few more years? And if they hang on, will those companies grow in value or not? How can they know? Can they take any steps to boost value in a relatively short time? Should their investment dollars go toward equipment, marketing, or some other area? Understanding how much the company is worth today and how much time, effort and investment would be needed to increase the sale price helps business owners answer those questions and make the best decisions about the company’s future. Ultimately, company owners want to

“When we use this approach, we can tell you not only what your business is worth today, but what it can be worth in the future, and what steps to take to get there.”

sell viable, thriving companies with a management team in place in an industry that has many other successful companies. A complete valuation provides the type of information needed to reach that goal. “This assessment shows a few steps that can be taken to increase the value of the company in a short period of time. Owners can take those results and start increasing their value,” Connor says, noting that Enterprise Minnesota consultants have extensive expertise in those high priority areas that boost company valuation. With the system Enterprise Minnesota uses, consultants can access the CoreValue evaluation results and help guide the executive teams as they work through the action items prioritized by the software. “We can use this software as a communication tool between the consultant and the owner,” Connor says. As each project is completed, the client “checks it off online, the consultant is notified, and the consultant can either review that item or move on to the next project.”

Beyond strategy and sale price

While some companies might use valuation as a strategic planning tool, and others may employ it to boost sale price, the process can be valuable for businesses facing other situations as well. Enterprises face a number of milestones through their life cycle, and an evaluation of value at these junctures is useful as well. Thorough company value assessments are particularly good for growing companies in need of a large commercial loan, for example. If a bank is uncertain about extending a line of credit based on assets alone, a detailed, industry-specific valuation can reveal strength and future

John Connelly,

Enterprise Minnesota

potential that may not be evident with a traditional examination. “The company can show it is worth so much more than its assets—it has an excellent management team in place, for example, or its policies and procedures are very advanced for the industry it is in,” Connor says. Connor also says assessing value is important for companies in the midst of an intergenerational transfer of ownership. When the next generation of a family takes over the company, having a thorough understanding of the company’s value is essential—it gives the new owners an appreciation of the company’s history, its place within the industry, and its future potential. “It’s a quick way for Junior to learn about the fundamentals of the business, if he’s in the room as the questions are answered. Dad may have thought he knew everything about the business, but it turns out Junior wasn’t actually paying attention to all those conversations at the dinner table,” Connor says. “This is a great way to provide that information.” Regardless of why company owners go through a company value assessment, how they use the results can have an enormous impact on the future of the business. Executives cannot afford to allow those action items to languish at the bottom of a crowded to-do list. That’s why Enterprise Minnesota consultants are enthusiastic about offering the valuation analysis and consulting services together. “There are so many different ways we as consultants can use this system to help our clients. We can guide companies in a step-by-step process to get the results outlined by the evaluation,” Connor says. “We’re helping them eat the elephant, one bite at a time.” ENTERPRISE MINNESOTA AUGUST 2013 23


CAN LEAN & ISO COEXIST? Interview: How an ISOphobic lean specialist helped Elk River Machine blend the two concepts into a seamless management strategy. In July 2011, just six weeks after joining Elk River Machine Company to help drive the company on its lean journey, Bruce Roles was asked to sit in on meetings in which company managers were developing and creating a QMS system for ISO. It was odd, maybe a little uncomfortable for Roles, because as lean expert, he was no fan of ISO. Lean adherents, in his experience, had long viewed ISO’s bureaucratic reporting requirements as being incompatible with, even antithetical to lean. A subsidiary of Cretex, Elk River Machine’s 75 employees work out of an 80,000 square foot facility in the middle of their namesake community, located northwest of the Twin Cities. The company’s build-to-print fabrication shop and concrete equipment division provides made-toorder concrete processing, transport, and installation equipment. Like many companies, Elk River Machine thought ISO certification would open them up to new and lucrative customers and markets. 24 ENTERPRISE MINNESOTA AUGUST 2013

Bruce Roles photograph by PATRICK KELLY


But it wasn’t going well. The original Management Representative (MR) left the company early on when the company was still very much in the learning process. That lack of experience resulted in poor decisions that led to the MR not attending and leading the Management Review Meeting – a Major Non-conformance. That meant automatic failure of the preliminary Stage I audit. The auditor’s expressed opinions suggested a lack of company dedication; that management wasn’t serious – just trying to check the box and get it done. Roles was then asked to take over the process that would prepare for the next attempt, a little like asking a Hatfield to host a McCoy family reunion. You were hired as a lean expert. Is it fair to say that you weren’t a fan of ISO? Roles: I wasn’t keen on ISO at all. Everything I had heard was that it required reams of documentation and compliance -- and it was largely a quality gig. People on the “lean” side of the fence always said that trying to do lean and trying to do ISO would not work well. Lean looks for the waste in process/system and identifies ways to eliminate it. A QMS with excessive procedures, work instructions and regulations would potentially be full of non-value added activities in just keeping track of and managing the documentation. Is it fair to say that you may not have taken the Elk River job had you known that ISO would become among your responsibilities? Roles: Maybe. With the little I knew about ISO, it would have weighed in on my decision. So let’s reset the scene: You were the new ISO Management Representative at Elk River. The first effort had failed; you were distrustful of ISO as unnecessarily bureaucratic; and you had zero background to manage ISO. What was your first step?

“Lean is all about improving your processes and driving out waste. ISO is all about improving your processes and driving out problems. They are both rooted in the continuous improvement of the business.”

Roles: I have dived into enough unknowns in my career to know that I would have a vertical learning curve. I looked for anything I could read to educate myself. One book was Memory Jogger 9001:2008, a little book that simplifies the standard and helps convey what the standard might be driving at. And then l literally read the 9001: 2008 ISO standard itself. It was a path of self-education. I also worked a lot with (Enterprise Minnesota consultant) Kent Myhrman. I asked a lot of questions. In the beginning I was a kind of thorn in his side during the early meetings. Coming from lean, I challenged a lot of things. Then one day, I am suddenly in charge of ISO; working with him on it, and asking him to help lead me through it. It helped that Kent had some experience in lean, so he understood some of the things I was driving at. In the end, it worked out very well. What sealed the whole thing for me was that the more things I learned about ISO in the supplemental materials, the more I started to see links to lean. Both are foundationally continuous improvement programs. As such, both use similar tools & principles to drive the continuous improvement. Fundamentally both apply the PDCA process improvement model. In addition both use similar process mapping tools to help identify the waste and problems in the processes being analyzed. Finally, to maintain your certification you need to show evidence of continuous improvement. Then it just became a matter of Kent and me working together. Kent had regular visits to ERMC to review progress and provide direction to the management team. In addition, Kent

bruce roles,

Elk River Machine Company

and I would have meetings after the meetings to discuss things in greater detail. Beyond that the correspondence was via the phone and e-mail. Over time, Kent became a good resource to draw on for explanation and insight into development of a QMS. You had about five months to prepare for the next ISO audit. Were you nervous? Roles: I was nervous right up until we did it. The deeper I dove into it, the more work I saw that we had to do. I honestly didn’t know what to expect. I’d never been through an audit before. Every part of getting ready was a learning experience. I had nothing in regards to personal experience to bump it up against. Did that become an issue in the audit? Roles: When we started the audit, we were all sitting at a table and we went around and introduced ourselves. When it was my turn to talk about my background, I mentioned nothing about ISO. The auditor came back and said, “you didn’t say anything about your ISO background.” I said, “no, I didn’t.” “What experience do you have?” I said, “None.” “Do you have any training?” “No.” “What makes you think you can do this?” “I’ve been studying and learning on my own and from Kent and I think we are ready.” Then I went into probably 45 minutes of trying to sell myself and the company to the auditor. No other ERMC executives spoke. I talked in detail about what I had

Y

ENTERPRISE MINNESOTA AUGUST 2013 25


done to get up to speed. I identified the resources I had used, talked in detail about what the company had done to address the issues identified in the Stage I audit. Through examples I tried to show and explain why it appeared management wasn’t committed and then talked about what had been done to show we were ready – appointing a MR, new and revised procedures and WI, large amounts of training of staff, control of the MRM and alluding to things he would see during the course of the audit. You wore him down? Roles: I started to build a rapport with him as I answered his questions. And then, I think, as he went though the process of the audit throughout the week, I was able to show what he wanted to see in me and show that we were a different company than what he had seen in November. I spoke confidently and accurately about how we were applying the standard to our business. The difference now was the effort to become ISO certified had a designated leader that had the ability to lead the company on that journey. The company was always willing 26 ENTERPRISE MINNESOTA AUGUST 2013

to do what it needed to do; it just needed leadership. At the time of the Stage I audit there were two people trying to fill that role and still meet all of their other responsibilities. As a result the ISO certification effort didn’t get the attention it needed. You passed the audit and then passed the next one as well. Would you say now that you have evolved into an ISO advocate? Roles: Yes. I suppose being ISO certified could be a big challenge for a company if they take the wrong approach. The challenge is in how you look at your QMS - is it Qms or qMs. I think some companies focus on the big “Q” and it becomes just a gig for “Quality”. Meaning it focuses on just something they (Quality) do – tracking product quality, following some inspection procedures and documenting product quality problems when they arise and then tracking the resolution of those problems. But as you plow through the standard, you come to understand that it is trying to drive you in terms of how you perform as a company. ISO is really a management system – qMs. It is rooted in quality, but it really is a way

photograph by PATRICK KELLY

Cretex delivers a gigantic concrete beam for the new Hastings bridge using a “Hydra-Steer” trailer built by Elk River Machine.

to manage the business. It can become an all-encompassing approach to managing the business – not just tracking product quality, writing nonconformances & corrective actions on bad parts, but instead, looking at performance against procedures and WI across the entire business. Because of our focus we could be just as likely to write a preventative action on how Sales enters orders as we would on how an inspection process is done in manufacturing. You have said that the company’s ISO certification became a game changer for the company. How so? Was it immediate? Roles: It is both immediate and gradual. You start to think what ISO can do for you – and you start to put procedures in place that start driving how you do things that you weren’t doing before. That doesn’t necessarily change the business. It changes the way you procedurally do things, but it doesn’t immediately change things like the culture of the company. That happens over time and it changes as a result of how problems are solved. People start thinking differently about the issues they have before


them and how to solve them. It takes time and it is still changing the business. One way it continues to change the business is we have shifted from writing and executing a lot of corrective actions to a lot fewer correctives and more preventatives – sometimes more of them than correctives. This is because many problems have been resolved. It is also a sign we are shifting from chasing problems to getting out in front of issues and solving them before they become problems. Here’s an example: When I started here there was a lot of conversation on the floor about “when are they ever going to fix the errors in the drawings?” -- or errors in the documentation or errors in the travelers that come down to the floor. A specific problem could be repeated drawing errors. The last time we built it we discovered a problem on the drawing and solved it. The change never was made to the drawing and now we are building it again and resolving the same problem. Well our system was this: there was no system. An employee told the supervisor, the supervisor talked to someone up in production control.

And in that whole process you hope that one guy remembered to tell the other guy, and if he did, did he tell him the right thing. And then when it finally got to the right guy, did he remember to make the change? And did he change the right thing? As we created our QMS we put systems in place. We put a formal process in place to drive engineering change orders. Now instead of talking to someone, you pull out the change order, write it down, attach the appropriate documents, you log it, you track it, you send it to the person that makes those changes. And then you track that it got done and what gone done. These things don’t happen over night. You’ve got 40 years of doing things in a very informal way, that for many years, were adequate given the size of the company. Now as the company has grown, more robust formal systems are needed to give the company the operating platform that a larger company needs. That takes time. What we’ve seen in a year and half of having those kinds of tools and methodologies in place is the noise level has gone way down. Seldom do

you ever hear someone complain that they got inaccurate drawings. Because we have a number of efforts in place driving improvements across the organization, it is hard to point at any one of those and say it is because of that effort that things are improving. Yes, we are seeing improvement in the bottom line and in the metrics, but it is because of the combination of these efforts. Do the people in the plant credit ISO with these improvements? Roles: People truly start to sense that things are getting fixed. Does the guy welding parts on the floor? I don’t know if he makes that connection. But what he does know is that people are working on making things better and he is noticing improvements in the items he works with – piece parts, documentation, etc. What is the value of having a President who understands the wide-ranging value of ISO? Roles: I think he was in the same boat I was in, maybe a little further downstream, in understanding its true value. Maybe there was a little naiveté

Bruce Roles with Corey Mitchell, a welder at ERMC.

photograph by PATRICK KELLY

ENTERPRISE MINNESOTA AUGUST 2013 27


at the beginning. But together we came to understand the value of what we’re embarking on. ISO was a requirement to take the business in the direction we wanted to go and into some of the markets we wanted to be involved in. Then, along the way, you get smarter and a better understanding of how it really works and how it works better for the business. And we both mentally make the shift from big Q to big M. Forget about just those companies who require it to do business with them, this is going to make us a better business. Without the president, ISO would just be a bunch of paperwork. People would complain, compliance would be harder and getting through an audit would be a lot more difficult. You talk a lot of about the value of your ISO quarterly reviews. You call them “sideways” reviews: What do they entail? What do you get out of them? Roles: We just did one: The Q2 management review meeting. Every company does meetings – daily, weekly, monthly – that review performance: Where are these orders? Are the parts coming through on time? Are things getting through paint when they need to be? How much money did we make on that job? Are we are profitable as we thought we’d be? In the management review meetings, we look at the business sideways. We may look at some general parameters about profitability, but then we look at the system. How many NMRs (Non-Conforming Material Reports) did we have? Why are we having so many non-conforming parts coming from this area? What’s driving those errors? Why so many non-conformances from suppliers? Is it something we’re doing? Without ISO we didn’t have the tools in place that generate the data to analyze. We didn’t have a Nonconforming Material Report. We didn’t track NMRs – we knew we had them but had nothing that showed us magnitude or trends. 28 ENTERPRISE MINNESOTA AUGUST 2013

“Without ISO we didn’t have the tools in place that generate the data to analyze. We didn’t have a Non-Conforming Material Report. We didn’t track NMRs – we knew we had them but had nothing that showed us magnitude or trends.”

bruce roles,

Elk River Machine Company

A lot of things that come out of the ISO processes are metrics that tell you how well your processes are looking. You are taking a different perspective. We do it every quarter. It is on the calendar. When we go into that meeting, the doors close, there is no email, NO phone calls or anything else. It is a lengthy meeting, about four hours. The net effect might be measurable by action items. Every meeting generates a list of action items that drive improvements to the QMS in general or to specific pieces of it. It also provides an opportunity to talk about issues in a general sense, analyzing trends, that point out ways that we can improve the QMS and how the business operates. If you have an issue with a customer – that issue is dealt with as it happens, you get resolution for that issue on that day. In the MRM, you review all issues with customers and look for trends and common themes. That leads to an action item and then you solve that. You’ve obviously re-assessed your view that lean and ISO are incompatible. Roles: The fact is you apply lean to make ISO more effective. If you didn’t, you could drown in procedures, work instructions, forms, and documents. If you put your lean glasses on, you say, I’m not going to create any more procedures than I have to – and I’m not going to make things more complicated than they need to be. Lean is all about improving your processes and driving out waste. ISO is all about improving your processes and driving out problems.

They are both rooted in the continuous improvement of the business. Lean is about running the business and applying those tools and so is ISO. They merge nicely as you create an overall culture of continuous improvement. They don’t get in each other’s way. In fact, I think they enhance each other. We have a program in house known as SCIPs – Small Continuous Improvement Projects. It is an opportunity for every employee to identify opportunities for improvement. They are cards filled out by the employee to the start the process. Many times the work of making the improvement identified is done by that same employee. Sometimes those SCIP ideas drive changes to our QMS in that a procedure needs to be revised or a form changed, etc. So our lean tools can drive change to the QMS and vice versa.

In the final analysis, do you think it was pretty savvy to put a lean guy in charge of ISO? Roles: Looking back, you’d say it was pretty smart, although I’m not sure if it was intentional. What would you (or do you) tell former “lean” colleagues about the value of ISO? Roles: If they were to say that you can do one, but not both, I’d tell them they simply don’t understand ISO. And you don’t understand how QMS can be structured to manage a business. Also, if they said “our customers don’t require it, so we won’t do ISO,” I would say the same thing. For more information about Elk River Machine, visit www.ermc.com.


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At the same time, some companies were taking on green/lean initiatives with very encouraging results. In 2011, Le Sueur Incorporated (LSI) was one of a handful of companies who participated in a 30-month Minnesota Jobs Skills Partnership program, administered by Enterprise Minnesota, that helped the organizations identify and remedy sources waste through green/lean techniques. In one set of Kaizens, the company identified sufficient waste around compressed air that saved the company $120,000 per year. Savings focused mainly on leaks, but there also examples also mis-use. “There were some big ones,” Zwart remembers. His team discovered, for example, that employees were using compressed air to clean areas underneath large band-saws. “It was a clever idea because they didn’t have to sweep underneath,” he says, “but at what cost? Zwart became a fan of green/ lean initiatives. “It was an extremely valuable experience for us,” he said. It

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many manufacturers could see no connection between lean and green. In fact, there are many who still don’t. “For too long manufacturers viewed “green” and “lean” as two different – even oppositional --approaches, methods, and philosophies,” says John Connelly, director of consulting at Enterprise Minnesota says. Lean was driven to make manufacturing systems go faster and work more efficiently by removing wasted time; green represented add-on processes that were imposed on manufactures at the political/regulatory behest of environmentalists. “Lean is easy to deal with,” Connelly says. “When we remove time, we make the process faster and more cost effective. We improve our price and our margins. We improve quality.” Green, on the other hand, he says, is correlated with expenses that inflate price, suppress margins and possibly slow down completion. Where once manufacturers merely disposed of waste by putting something down a drain or hauling it away, green regulations now required that they had to treat it, or separate it, or flush it with water. The ultimate merging of Green and Lean principles seemed felt incompatible. One reduced costs, the other added expense.

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certainly saved more money than any of us would have expected. I thought that was a great lesson learned. And when you are going through the process, you discover that there are other opportunities. He now thinks there may be a half million dollars in potential energy savings throughout his plant. Connelly describes the evolution of green and lean in terms of waves. “Think of a company’s productivity as a pond,” he says. “Poke the center and watch the ripples.” Connelly says, the center ripple – operational efficiency -- began decades ago when manufacturers began to comprehensively analyze their processes to identify the fastest, most efficient ways to make parts, or to make a machines run faster. Operational efficiencies are so ingrained in modern manufacturing, he says, that manufacturers seldom pay attention to it. “It’s inherent in the way they do business.” More than 20 years ago, Connelly says, manufacturers recognized that there’s “a chunk of non value-added ENTERPRISE MINNESOTA AUGUST 2013 29


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Pier Foundry and Pattern Ship in St. Paul is one of many Minnesota manufacturers that has saved money through green lean.

time” within every one of those processes. To address this, they added the second ring, the lean ring. Lean experts characterized eight non value added wastes that take place outside of what’s valuable in the process itself: overproduction, waiting, excessive transportation, non valueadded processing, unnecessary inventories, unnecessary motion, defects, and underutilized people. And they devised 12 tools to get rid of those wastes. “They could say, I got the machine down to the tightest number I could, but it still took too long and cost too much money to make the part, because these pieces weren’t well managed,” Connelly says. “This is the non-value added within that process. That is the ripple that has occupied most manufacturers for the past 20 years. It is really simple to understand, challenging to apply and well worth the effort.” The third ripple, the green ripple, involves what Connelly calls reducing waste that occurs outside the process itself. These overhead

issues include energy, compressed air, chemicals, water and solid waste. “In essence, it is about how we control these overhead issues to further reduce non-value added waste,” he says. The ability to experience savings from green activities – the concept of actually merging the philosophies of green and lean -has taken time to evolve for at least a couple reasons beyond the bad wrap that green added costs. One is that it was simply not on the radar screens of manufacturers. Connelly recalls early on asking the director of operations for a client company how much he paid for electricity. “He didn’t know. He assumed it wasn’t an issue,” Connelly says. Of all the budget elements he managed, electricity was a bill that got paid. “The machines were electric and we need electricity to run them. What else did he need to know?” The “what else,” Connelly says, turned out to be meaningful. The manager discovered his electric bill was five digits on a regular basis. “That’s not a case where they


photograph by patrick kelly

embraced the synergies of green and lean. Jones Metal Products in Mankato, for example, invested in a machine that captures solvent for re-use, thereby eliminating hazardous waste disposal and the need to buy more solvent. St. Paulbased Pier Foundry used a value Does your accounting/ERP stream mapping to categorize the type and disposal of waste. In software do this? addition the company identified a method replacing plastic Reduce your manufacturing cycle time containers for holding hazardous Improve customer service materials with metal. Foldcraft eliminated the need to rent, light Provide real time information and heat at least 35,000 square Streamline operations feet of space, saving $634,000 in Reduce administrative costs utilities and even more in avoided truck traffic between multiple sites. Employees at Medtronic’s Brooklyn Park site launched a sustainability council that dove headfirst into to reducing waste, Call Rob or Russ at Solution Dynamics, discovering opportunities for your local Microsoft NAV manufacturing reusing and recycling by literally experts at 952-854-1415 or sales@solutiondynamics.net jumping into its garbage containers resisted being green, it was a place to see what it was throwing away. where it wasn’t on their radar. 1 entmnjune08_toc_edltr_19e.qxd 6/26/08 8:12 PM Page 2 The company has continued Industry experts call this to pursue waste reduction in a learning to see, Connelly says. variety of areas, including water “Green/lean becomes viable when and electricity conservation, and manufacturers comprehend its positive impact on productivity and recycling of plastic, cardboard, metal, light bulbs and batteries. profitability. My premise is that we Today, 52 percent of the industrial won’t learn how to get rid of these overhead costs until we learn to see waste created at the Brooklyn Park facility is reused or recycled, up them.” Helping Manufacturing Enterprises Publisher Grow Profitably A New Namesix years ago. At from 27 percent A second impediment to green Lynn K. Shelton Reflects its BrooklynOur ParkMore facility alone, lean is how to easily quantify Inside Enterprise Minnesota® Focused has Mission Medtronic saved 1.5 million results. While lean wastes can be magazine youEditor will find in-depth Tom Mason Blazing Trails gallons of water, reduced wood and measured in units of time, green information and unmatched Contributing Writer In 1991 Minnesota Technology, Inc. debuted with to the TOP Andrea Strand the mission to help manufacturers insights into the latest packaging byMinnesota 200,000 pounds, and inputs can seem more vague. A improve their productivity and efficiency through innovations, business successes, has sustained an annual savings of manufacturer might be paying automation and technology. Over the years we and ingenious company leaders $215,000 through its green and Bob Kill introduced clients to lean manufacturing processes $35,000 in energy over a period of among Minnesota’s to help them become more efficient. We focused on improving operational Managing Editor lean efforts. time, but doesn’t necessarily see Sarah Asp Olson processes that would lead to cost reduction and an improved competitive position. manufacturing community. There’s no question that there the portion of that total bill which Art Director Overseas competition was for real and efficiency was vital to our state’s The magazine reaches Shari Schumacher ismanufacturers. a substantial business case to be is part of a specific process. I go Advertising Sales over 42,000 readers, As the world has become flatter we expanded our view from lean manufacturing THE NEW Laura Cohen made combining lean with through a half million gallons of to lean enterprise. We now complement ourgreen. operational efficiency expertise to NORMA including CEOs and 612-373-9562 L include programs for sales, marketing, product development, and supplier and advertise@enterpriseminnesota.org Bruers of Xcel Energy says water in a month, but I don’t know Ryan additional key customer relationships. We truly have evolved to help our clients across their Editorial Director, Custom Publishing that the exactly how much is tied to this Sarah Wyatt Elbert extended leanaverage enterprises. manufacturer To celebrate this evolution, we are renaming and decision-makers. rebranding our organization Enterprise Minnesota. Design Director, Custom Publishing could use green practices to save process. Geoff Kinsey What does that mean to you and your company? We are not abandoning our about a third of inits bill focus on manufacturing; factenergy it is stronger thaneach ever. We have developed “That’s part of learning to see,” Project Manager Anna Rivard Biss programs that capitalize on the effectiveness of “leaning an organization” through year. he says. new products, markets and sales channels. >> Jim Schottmuller, One example, Training Within Industry, helps companies develop needed Many Enterprise Minnesota Enterprise Minnesota Relationship Manager training for supervisors and first line managers. Another relatively new program, customers have learned to see in >> jim.schottmuller@enterpriseminnesota.org Accelerate, works with clients on creating and managing an effective supply chain Enterprise Minnesota, Inc. process. Finally, we are helping clients develop, test and market new products money-saving ways. >> 612.455.4225 310 Fourth Ave. S., #7050, Minneapolis, MN 55415 To learn more about green lean, go ® 612-373-2900 through unique programs such as Eureka! Winning Ways . This program applies >> www.enterpriseminnesota.org Other local manufacturers have Enterprise Minnesota helps manufacturing enterprises grow totowww.enterpriseminnesota.org hard data growth strategies through a three step process: idea engineering, profitably.

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In

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Helping Manufacturing Enterprises Grow Profitably

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Women leaders in Minnesota’s manufacturing industry tell us how they got there, what it’s like to be a woman at the top in a historically male-dominated industry, and why women today can thrive within it.

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With the recession fading, companies look to hire new talent. 18

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Contract manufacturer LouRich takes a unique approach P Ranks ǚ 22 to exporting. Zierke

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Helping Manufac turing Enterprises Grow Profitab ly SEPTEMBER 2011

New appro aches manufactur that will help ers prospe r

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market research and an action plan designed to bring products to market. The ©2008 Enterprise Minnesota ISSN#1060-8281. program employs quantitative methodology to product development and trains All rights reserved. your key staff members how to take new sales, market and product ideas from ENTERPRISE Reproduction MINNESOTA encouraged after obtaining AUGUST 2013 31 permission from Enterprise Minnesota magazine. concept through introduction. We are excited about the many client testimonials Additional magazines and reprints available for purchase. Contact Laura Cohen at 612-373-9562 or for these new products and services advertise@enterpriseminnesota.org. So, welcome to Enterprise Minnesota. And welcome to the first issue of Enterprise Minnesota magazine. Just like many of our clients, the changing nature Enterprise Minnesota magazine is published eight times per year by Enterprise Minnesota of business has led us to add new capacity and expertise. We grow and thrive by 310 Fourth Ave. S., #7050, Minneapolis, MN 55415


final word

The Evolution of TWI

The trusted principles that have served manufacturers since World War II are now accommodating a more sophisticated marketplace

manufacturers in the 1940s developed TWI -- “Training with Industry” -to help them overcome two obstacles that hindered their transition to a wartime economy. First, as they were expected to retool their plants to produce tanks, battleships, planes and armaments to support the American war effort, they also had to work within the reality that most males of the right age – their employees – now comprised the U.S. fighting force. Hence, the second obstacle: Manufacturers needed to backfill their plants with people who weren’t used to production, many had never worked on a factory floor. TWI became the basic process that American manufacturers used to quickly transform these inexperienced workers into an efficiently productive wartime engine. It worked so well, so incredibly well, that many TWI experts refuse to adapt the original model, even today. But there are others, like us, who think that methods deployed 70 years ago need to adapt to the more sophisticated and inter-related processes that characterize manufacturing today: TWI 2.0, if you will. And we can do it without abandoning the three primary programs that have always structured TWI. • Job Instruction involves teaching someone to independently perform a particular process. Envision operators in the ‘40s who sat in front of a lever-activated drill press. They’d take a part out of one bin, place it in its fixture, pull the handle down, inspect their work, and then place it in the next bin. They’d repeat that process all day long, day after day. Today’s operators require skills and expertise in six or 10 or more

different processes, each of which involves a 12 or 18 or 20-step process. Their instruction must accommodate higher complexity and greater sophistication. • Job Relations encompasses communication and conflict resolution. In the ’40s, those responsibilities included what to do, when to do it, how it should be done. Its objective was to provide specific direction. Today’s job-relations efforts involve a sophisticated program that empowers, motivates and integrates work-teams. We want employees to be involved and engaged, not just directed. • The Job Methods of the ‘40s were simpler and so was their analysis. Efforts to add structure typically applied to the most repetitive processes and were perceived to be controlling, boring, and inflexible. Today we want to transcend merely analyzing a common method for its efficiency. Standardized work can contribute to nonroutine and even creative functions leveraging knowledge and skills to continuously seek a better method. By addressing the repeatable aspects in a process we can best ensure consistent quality and efficiency and go beyond to study the uncommon and to innovate. Our conclusion is that the 1940s version of TWI remains a solid product. But in 2013 it should evolve from merely developing better trained sets of steps into a more direct connection to business results. It is the difference between developing a series of tactics or using that knowledge to cultivate a generation of supervisors and team leads who understand how to deploy them.

To learn more, go to www.enterpriseminnesota.org.

32 ENTERPRISE MINNESOTA August 2013

Photograph by patrick kelly

As you probably know, U.S.

John Connelly

John Connelly is responsible for the consulting services of Enterprise Minnesota and manages Minnesota’s connection the NIST Manufacturing Extension Partnership [MEP] national system. He has more than 25 years of consulting, manufacturing, and management experience. He has been a regional sales manager for a manufacturer of automotive wheel service equipment, a sales and marketing manager for a manufacturer of engineered motion controls, a director of program management for a gear systems manufacturer in the aerospace industry and general manager for a tooling and machining company before coming to Enterprise Minnesota. John has a BA degree in Business Administration from Penn State University and a mini-MBA from the University of St. Thomas.


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McGladrey

Eide Bailly is a full-service CPA and business advisory firm that serves more than 650 diverse manufacturing clients, ranging from food processors and household products to machinery, electronics and fabricated products. Our clients appreciate that we understand the complex issues they face and stay connected with them throughout the year. Using a team approach, clients benefit from seamless access to the services and resources they need to succeed.

McGladrey helps more than 8,000 companies compete in today’s complex environment. Combining industry knowledge, deep resources and personalized service, McGladrey offers solutions to reduce costs, increase efficiency and maximize profitability. McGladrey LLP is the largest U.S. provider of assurance, tax and consulting services focused on the middle market. McGladrey is a licensed CPA firm.

To learn more call 888.510.2687, or visit our website at www.eidebailly.com

801 Nicollet Ave., Suite 1100 Minneapolis, MN 55402 612.573.8750

Solution Dynamics

U of M College of Continuing Education

We are focused on solving supply chain challenges for manufacturing and distribution companies while delivering real operational efficiencies through world-class, industry-specific, Microsoft business software. Your local Solution Dynamics team has extensive experience assisting organizations to select and successfully deploy ERP projects specifically for Minnesota distribution and manufacturing companies.

The University of Minnesota’s College of Continuing Education has been “opening doors” since 1913 for individuals looking for educational opportunities outside traditional paths. We offer interdisciplinary and applied degrees designed with the needs of working adults in mind. Our evening and online/blended course delivery and our supportive advisers contribute to your success. Credit and noncredit certificates, conferences, and individual courses provide distinctive opportunities for professional and personal growth.

d Business Solutions from Bank 2626 East 82ndU.S. Street, Suitesince 160 1863.

Cash Flow

ssociation, Member FDIC. 130135

Bloomington, MN 55425 Voice: 952-854-1415 From managing your cash flow to providing tailored business solutions, Fax: 952-854-1442 U.S. Bank can propel your business to new heights. Our local & experienced www.solutiondynamics.net

SAVE THE DATE

612 624-4000 • fax 612 625-1511 CCEinfo@umn.edu www.cce.umn.edu

Business Banking sales managers and their team of Business Banking Officers are ready to take your business from where you are to where you want to be.

U.S. Bank

Tailored Business Solutions from U.S. Bank since 1863. From managing Call us today for a solution tailored to your business. your cash flow to providing tailored business solutions, U.S. Bank can propel your business to new heights. Our local & experienced Business Banking Sales Managers and their team of Business Banking Officers are Vice President Region Manager, ready to take Craig your Veurink, businessSr.from where you are to where952.927.1277 you want to be. MarySr. Charbonneau, ExecutiveRegion Assistant,Manager, 952.927.1275 Craig Veurink, Vice President 952.927.1277

With a strong regional focus, Wipfli LLP ranks among the top 25 accounting and business consulting firms in the nation. With 80+ t4JYUPQJDTXJMMCFQSFTFOUFEJOUXPTFQ years of experience serving over 1,800 manufacturers and distributors throughout the Midwest, we provide solid strategic thinking from ToolsLean Lean different perspectives: financial success, tax optimization, operational excellence, and engaged workforce. Put the power of our industry focus to work for you.

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Jeff Thill, CPA 651.766.2862 jthill@wipfli.com www.wipfli.com

Mary Charbonneau, Executive Assistant, 952.927.1275 Member FDIC

Payments

Wipfli

Business Growth

Saint Paul College

Future

Customized Training and Continuing Education provides quality, applied training at our site, your business, or online. We assist businesses and organizations throughout the metro area stay current and informed regarding best practices relevant to workplace and technical skills, leadership, organizational sustainability, and practical business solutions. Our partners can expect: • Customized training solutions to meet your organization’s unique needs and culture • Real-world applications taught by industry experts • Flexible training to ensure you get exactly what you need, when you need it.

Contact us at: 651-846-1800 www.saintpaul.edu/CTCE

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Business events attendees get 1 additional registrat

free.1MFBTFDPOUBDU5PN,BNNFS PG4 Sponsorship Opportunities Available Now!

Sponsoring Enterprise Minnesota® Business Events is a great $FOUSBM$PMMFHF PS(SFH5IPNBTPG&O way to increase sales, expand your visibility and reach Minnesota .JOOFTPUBUPUBLFBEWBOUBHFPGUIJTH manufacturers. Platinum, Gold, Silver and Bronze sponsorship levels are available.

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Jim Schottmuller, Enterprise Minnesota Relationship Manager 612-455-4225 jim.schottmuller@enterpriseminnesota.org www.enterpriseminnesota.org

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Enterprise Minnesota Magazine August 2013  

Published by Enterprise Minnesota www.enterpriseminnesota.org