The Goods (May 2015)

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KENTUCKY ASSOCIATION OF MANUFACTURERS

GOODS

THE

MAY 2015


TABLE OF CONTENTS | The Goods | May 2015

FEATURES 14 The Future of Manufacturing

Rapid advances in the manufacturing sector are making it possible to build out an on-demand distributed manufacturing platform that will allow for a more effective and iterative product development life cycle.

17 Best Practices: KMCC

The Kentucky Manufacturing Career Center (KMCC) is a one-stop resource in Louisville that has been providing career counseling and training to people interested in the manufacturing field since May 2013.

26 2015 KAM Energy Conference

The KAM 2015 Energy Conference content and experience were designed to bring you information and proven case studies, as well as challenge you with new thinking opportunities.

30 Small Business Tax Credits

More and more of Kentucky’s small business owners are applying for and receiving up to $25,000 through the Kentucky Small Business Tax Credit.

32 Lessons Learned from Working with Toyota

Chosen as only one of three domestic manufacturers to work with the global car manufacturer, we were eager to learn the famed Toyota Production System (TPS) as it is hailed as the “crème de la crème” of manufacturing processes.

36 KY Arbitration Agreements

Kentucky has a strong public policy in favor of enforcing arbitration agreements

38 Exploring Small Business Retirement Plans

As a business owner, traversing the universe of retirement plans and can be challenging, but offers many rewards for your business and your employees!

40 Patent Litigation Reform

H.R. 9 (“The Innovation Act”) is intended to target abusive litigation tactics that are commonly employed by patent trolls.

DEPARTMENTS

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4 President’s Desk

18 CPA Focus

6 BIPAC

20 CHP

8 Advocacy Corner

22 Energy Law

10 Education Matters

24 Energy Focus

12 Healthcare

34 Labor Law

13 Health & Wellness

42 MEP

May 2015 | The Goods | KAM.US.COM


From the

EDITOR The school year is winding down, vacation plans are in full swing and the winter weather is a distant memory. We are hours past closing out our fifth annual Energy Conference-Make a Brighter Tomorrow. This energy conference, built by manufacturers for manufacturers, fulfilled its promise of two full days of trade show, breakouts, workshops and general sessions filled with information, success stories and testimonials from manufacturers just like you and policy makers covering emerging energy policies across Kentucky and the nation. We are very grateful to the speakers, presenters, exhibitors and attendees who made this, by all accounts, our best Energy Conference yet! We are happy to welcome a new team member to KAM this month! Ms. Camille McManus, Director, Business & Member Development, is excited about the prospect of meeting our current members, and speaking with prospective members. She’ll be attending all KAM events in the future and making calls to current members and prospects, so introduce yourself and get to know our newest team member! Things never slow down here at your Association. We will no sooner get the Energy Conference put to bed than we will be preparing for our Annual Wage & Benefits Survey Data Collection phase. We expect to begin data collection sometime in midJune to mid-July, closing that phase in late August. After the data is analyzed and interpreted, we expect the Wage & Benefit Reports to be available in October, helping us to celebrate Manufacturing Month! We have a full slate of events scheduled for October, and throughout the next few months, we’ll be giving you a peek at what’s coming, so stay tuned, check the website frequently, and of course, read our e-comms for more details. If you are not a KAM member yet, check us out on our website (www.KAM.us.com) or call and let us tell you why you need KAM as much as KAM needs you. Together we are stronger—join today!

Editor, The Goods k.ellis@kam.us.com

Executive Committee Mike Baumgardner, Chair McCoy & McCoy Laboratories, Inc., Madisonville Richard N. Whitaker, Immediate Past Chair Sumitomo Electric Wiring Systems, Inc., Bowling Green David Hall, Secretary/Treasurer CSX Transportation, Louisville Greg Higdon, President & CEO Kentucky Association of Manufacturers, Frankfort Jerrod Etienne Central Motor Wheel of America, Paris John Malloy LG&E-KU, Louisville Warren Markwell, Immediate Past Chair Emerson Industrial Automation (Retired), Maysville Jerry Morton Regal Beloit America, Inc., Florence Diane Snow Swift & Staley, Kevil Directors Bluegrass Dan Antis, VP Manufacturing, Toyota Motor Mfg., Ky., Georgetown Joe Blackburn, Plant Manager, Schneider Electric USA, Inc., Lexington Jerrod Etienne, Sales/Product Engineer Manager, Central Motor Wheel of America, Paris Greg Higdon, President & CEO, Kentucky Association of Manufacturers, Frankfort Mike Peffer, Xerox, Lexington Rejeana Thompson, Aichi Forge USA, Inc., Georgetown Central Carroll Knicely, Jr., Director & General Manager, ACK Controls, Inc., Glasgow Herbert A. Krase, Vice President, Administration, Toyotetsu America, Inc. Somerset Richard Whitaker, Vice President, Sumitomo Electric Wiring Systems, Bowling Green Eastern Duane Danis, Director, Services Division, Boneal, Inc., Means Greg Pauley, President & COO, Kentucky Power Company, Ashland Dan Schlaeppi, Manager - Engineering, Marathon Petroleum Company, Catlettsburg Louisville Alex Alvarez, SVP Chief Production Officer, Brown-Forman Corporation Lawrence Ford, Director, Government Relations, Anthem Blue Cross-Blue Shield Pete Gritton, President, Gritton & Associates, Louisville David Hall, Resident Vice President, CSX Transportation Gregory Kosse, General Counsel, Kentucky Farm Bureau Mutual Insurance Jerome L. Lentz, Chief Financial Officer, Challenger Lifts, Inc. Brian Long, Plant Manager, Dupont Louisville Works John Malloy, VP, Customer Services, LG&E-KU John Rainey, Director of Governmental Affairs, Altria Corporate Services Douglas P. Wichmann, Dishwasher Plant Manager, GE Consumer & Industrial Products Northern Douglas Irvin, VP of Environmental Affairs, Griffin Industries, Cold Spring Warren Markwell, Immediate Past Chair KAM, Maysville Jerry Morton, VP Global Operations, Regal Beloit America, Inc., Florence Carl H. Wicklund, Plant Manager, Wagstaff, Inc., Hebron Western Robert J. Baker, President, Campbell Tobacco Rehandling, Mayfield Mike Baumgardner, Vice President, McCoy & McCoy Laboratories, Inc., Madisonville Mary Beth Hudson, VP, Site Manager, Wacker Polymers, Calvert City Steve Loyal, Vice President, Government Relations, Atmos Energy Company, Owensboro Diane Snow, Swift & Staley, West Paducah KAM TEAM MEMBERS James W. “Jitter” Allen, Legislative Agent Rachel Bayens, Legislative Agent Carl W. Breeding, General Counsel Donna Brown, Legislative Agent Lloyd “Rusty” Cress, Executive Director, KAM Chemical Industry Council Karen Ellis, Operations & Communications Manager Matt Ellis, Director, Web Development & Creative Design Prentice Harvey, Legislative Agent Mike Helton, Advocacy Team Leader Greg Higdon, President & CEO Diana Hill, Executive Assistant Bert May, Legislative Agent Camille McManus, Director, Business & Member Development Dustin Miller, Legislative Agent Kelly Shasky, Legislative Agent Mike Shea, Legislative Agent George Troutman, Certified Public Accountant Mary Breeding, Advancement Consultant Molly Sutherland, Branding Consultant


DEPARTMENT | President’s Desk

President’s Desk FROM THE

By Greg Higdon

T

he General Assembly wrapped up their work the early morning of March 25th after 29 legislative days. This was the legislature’s short session and normally is not expected to produce a lot of substance, but this session seemed to prove that notion wrong as several bi-partisan efforts emerged with some significant legislation. After the bruising legislative races in 2014 and some new leadership in both the House and the Senate, I think most of us felt 2015 might be a shakedown cruise, but both chambers got to work and were able to adopt legislation that had been stalled in previous sessions. Some of the more high-profile bills that passed addressed the state’s heroin epidemic, modernizing telecommunications reform, expanding booster seat laws for children riding in cars, funding for a new cancer research center at UK, Pediatric Cancer research and a much-needed fix for the state’s

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falling gas tax. Even legislation that failed received essential discussion and moved along in the process to set up more discussion in the Interim, positioning those issues well for the next session in 2016. Some of those included LIFT--the local option sales tax proposal, pension reform, public-private partnerships, and a statewide smoking ban. We are never satisfied with our advocacy efforts and continue to strive for improvements, but we feel pretty good about the 2015 session. We don’t believe we got hurt with anything that passed and we were at the table with input on all of the major legislation. We supported the telecommunications effort and worked very closely with the gas tax fix, believing both issues to be vital to Kentucky’s infrastructure that our members rely on every day. Had the gas tax not been addressed, the state’s road fund would have fallen as much as $300


DEPARTMENT | President’s Desk

million annually, nearly 30% of the entire gas tax. Repairs to damage caused by this winter’s snow storms and the salt used to clear the roads would have been severely limited. Another issue supported by our advocacy team included an energy efficiency bill known as EPAD or energy project assessment districts. The bill, sponsored by Rep. James Kay, provides another tool for the financing of energy efficiency projects by allowing increased assessments to property based on the energy efficiency improvements. Another important energy bill sponsored by Senator Julian Carroll modernizes Kentucky’s regulations on high-volume hydraulic fracturing for oil and gas production. Bills that our advocacy team was successful in opposing included a couple of health mandates that were pushed this session. A bill introduced in both chambers would have mandated that health insurers cap the amount of co-pays and coinsurance consumers pay for prescription medication. By capping pharmacy cost-sharing arrangements, all insureds would end up subsidizing the additional costs and increase monthly premiums. KAM has a long history of opposing health mandates that drive up our members’ costs. We had the usual workers comp legislation that would have increased attorney’s fees and extended benefits, thereby increasing members’ premiums. Our advocates follow workers comp legislation throughout the year and 2015 will be no different. I mentioned earlier that KAM supported several high-profile bills that received a lot of discussion and debate, but failed to get through the legislative process. Those issues are likely to come up in Interim Committee meetings that begin in June and run through November. Our advocacy team monitors all Interim Committees and will be reporting on issues through the rest of the year. Public Private Partnerships are one of those issues that fell short. P3s as they are

known are a financing mechanism for public projects. When appropriate, they can save state and local capital revenues and also expedite necessary projects. We participate in a coalition of local governments and other business groups, such as state and local chambers of commerce. The bill has fallen short the last two sessions, primarily over the possibility that a P3 might be used on the Brent Spence Bridge in Northern Kentucky, utilizing tolls to fund a portion of it. That bridge is a vital link north to south and our members on the Northern Kentucky side of the river must use it for delivery of parts and products. We will continue to push for a P3 bill in upcoming sessions. Another issue that has been up for consideration the last couple of sessions is pension reform for state and local government and teacher retirees. This is a huge issue facing the Commonwealth and with the level of funding involved, business and industry must be involved because our member’s tax dollars are ultimately at risk. There is no doubt that the governor’s race will generate discussion and debate with the issues we have mentioned today and many more in which we may have an interest. We will be monitoring the primary and general elections and will be reporting to you as they progress. See our Advocacy Corner article in this edition of Goods for more on the coming elections. It was good to see so many of you at our fifth annual Energy Conference last week in Lexington. Thanks for your continued support and participation!

Greg Higdon President & CEO Kentucky Association of Manufacturers

KENTUCKY ASSOCIATION OF MANUFACTURERS

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DEPARTMENT | BIPAC

The Twelve Percent:

Kentucky’s 2015 Primary By Mary Beth Hart

I

t was predicted weeks ago that Kentucky’s primary election would have minimal turnout and that a heated Republican gubernatorial ballot would come down to a handful of votes. The morning after Election Day, the forecasters were right; Kentucky’s Board of Election is reporting 12.57 percent of the state’s approximate 3.1 million registered voters turned out and 83 votes separated the top two Republican gubernatorial candidates. With this election in the bag, it’s still important to understand how Kentucky’s low turnout rates impact important key public policy issues and provide a unique opportunity for increased involvement.

Primary election turnout has historically been lower than general election turnout, despite the fact that primary results directly determine the general election ballot.

While approximately 93 percent of Kentucky’s eligible voters are registered to vote, turnout rates in the last four primary

KY Primary Voting Eligible Elections Population* 2007 Governor 3,100,828 2010 Senate 3,152,629 2011 Governor 3,198,252 2014 Senate 3,228,938 2015 Governor+ 3,260,695 Average Voter Turnout

elections are ghastly. On average, only about 19 percent of the eligible population cast their ballot in Kentucky’s statewide primary elections. Furthermore, only approximately 20.4 percent of registered voters voted. Couple this with the fact that Kentucky’s closed primary system means that only registered Democrats and Republicans may cast ballots for partisan races, thus removing approximately 250,000 voters from the primary electorate.v There are many factors that influence voter turnout: electoral competitiveness, the type of election (closed versus open), voting laws, and voter demographics.vi Each election should be examined based on the state’s political environment and names on the ballot, these numbers show a consistent and alarming trend—only a small percentage of the total voting eligible electorate choose the candidates for all of Kentucky. In the case of the 2015 primary, the approximate 12 percent of voters who cast ballots early and on Election Day decided for 100 percent of Kentucky’s eligible voters.

Registered Primary Ballots Voter Turnout i Voters Castii (Ballots/VEP) 2,795,013 565,395 18.23% 2,851,995 920,226 29.19% 2,917,836 304,923 9.53% 3,133,002 840,749 26.04% 3,175,905 399,196 12.24% 19.01%

*The voting eligible population (VEP) is calculated by adjusting the July 1 Census Bureau age-sex-race population estimates for non-citizens and ineligible felons, depending on state law.iii For the table above, VEP figures are listed from 2006, 2008, 2010, and 2012.iv + Preliminary numbers as of May 20, 2015 taken from elect.ky.gov.

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DEPARTMENT | BIPAC

Primary election participation is especially pertinent to ensure the candidates are on the general election ballot. We often hear it is important for a candidate to unify a majority of the party’s registered voters. With such a small fraction of the electorate participating in the primary election, one must wonder if the outcome reflects the party as a whole. Some research supports the notion that the primary electorate may be composed of more radical voters—those who lean towards the extremities of their party’s ideology.vii In their 2014 report, Political Polarization in the American Public, the Pew Research center asserts that “those who hold consistently liberal or conservative views, and who hold strongly negative views of the other political party, are far more likely to participate in the political process than the rest of the nation.” In other words, both Democrat and Republican voters who strongly dislike the opposing party are significantly more likely to be active voters.viii So, what does partisanship have to do with the Kentucky primary? If the Pew Research report holds true, consistently conservative and consistently liberal voters most certainly voted on or before Election Day. In the case of the competitive Republican gubernatorial primary pool, only time will tell. Tea Party favorite Matt Bevin declared victory over state agriculture commissioner, James Comer. One can’t help but wonder how much Bevin benefited from the Tea Party turnout, even if it was only a handful of voters. After the completion of Comer’s requested recanvass (and assuming that Bevin retains the nomination), we’ll have to look to November to see how Bevin’s Tea Party tendencies fare against the Democratic nominated Jack Conway.

Low turnout rates conflict with the spirit of representative government.

of the entire electorate. As Kentucky swings from primary election to general, voters must continue to listen closely to the nuances of candidate stump speeches, research candidate positions and statements, and ask tough questions. The private sector must work hard to keep candidates honest and the electorate informed. Employers should share company issue platforms with employees, create and distribute non-biased candidate comparison documents, and encourage voter participation on or before Election Day. With general election turnout rates historically higher than primary election turnout, you’ll have more people paying attention and more of an incentive to get involved. Learn about the candidates in your district and educate yourself on their platforms. By doing so, you can help bring the focus back to the issues important to our prosperity. And, if anyone tries to convince you that one vote doesn’t matter, remind them of the Kentucky primary and Matt Bevin who secured his victory with 83 votes. Check the Kentucky Prosperity Project (P2) website at kentuckyprosperity.org in the coming weeks for more information. i Kentucky State Board of Elections. (2015). Turnout Statistics. ii Ibid. iii McDonald, M. P. (2015). Frequently Asked Questions: Components of the Voting-Eligible Population. United States Elections Project. iv McDonald, M. P. (2015). 1980-2014 November General Election. United States Elections Project. v Kentucky State Board of Elections. (2015). Voter Registration Statistics. vi Fair Vote: The Center for Voting and Democracy. (2014) What affects voter turnout rates. vii Gerber, E. R., & Morton, R. B. (October 1998). Primary Election Systems and Representation. Journal of Law, Economics, & Organization, 14, 2. viii Pew Research Center. (June 2014). Political polarization in the American public , section 5.

Mary Beth Hart Midwest Regional Director BIPAC

All voters, regardless of where they stand on the conservative/liberal spectrum need to be engaged and participate. Twelve percent of voters may not represent the sentiment KENTUCKY ASSOCIATION OF MANUFACTURERS

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DEPARTMENT | Advocacy

AdvocacyCorner

The Race is On

K

entucky is a political oddity, but you already knew that. Our congressional delegation is dominated by Republicans with both U.S. Senators and five of six U.S. Representatives hailing from the GOP. However, on the state level, all of the statewide constitutional offices except for one are occupied by Democrats. The Democrats hold the state House in Frankfort, coming off a 2014 election cycle where they thwarted an attempt by Republicans to take control of that chamber. Republicans control the state Senate, coming off a 2014 election cycle where they significantly increased their margin. So, maybe the state is less of an oddity and Kentucky voters are just schizophrenic. One of the other ways that Kentucky is a little different politically is that we elect our statewide constitutional officers (Governor, Lt. Governor, Attorney General, Secretary of State, State Auditor, and State Treasurer) on odd, non-Federal election years. 2015

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is one of those years and before Kentucky voters go to the polls in November to elect new constitutional officers, they had to go to the polls on May 19 to select party nominees for state constitutional officers: Governor/ Lt. Governor, Attorney General, Secretary of State, Auditor, Treasurer, and Agriculture Commissioner. A quick rundown of the unofficial race results follow.

Governor/Lt. Governor With incumbent Governor Steve Beshear in the final seven months of his second term in office and constitutionally barred from again seeking the office, Kentucky will elect a new governor in 2015. The political environment between the parties has been highly competitive with Kentucky in recent years as discussed above. Even with significant Republican gains in the state legislative chambers, the Democratic Party remains viable and at the statewide office level, Democrats have occupied the governor’s mansion for all but two terms since the 1960s.


DEPARTMENT | Advocacy

Thus we expect a very competitive Governor’s Race in 2015. The primary election featured a competitive GOP ballot and a less crowded Democratic field. For the Republicans, the slate included Matt Bevin, James Comer, Hal Heiner, and Will T. Scott. On the Democratic side, Kentucky Attorney General Jack Conway had a substantial advantage over a relatively unknown Geoff Young. Below is an update on the election results. Matt BEVIN / 32.91% 70,479 Jenean HAMPTON James R. COMER / 32.87% 70,396 Chris McDANIEL Hal HEINER / 27.05% 57,948 K.C. CROSBIE Will T. SCOTT / 7.17% 15,364 Rodney COFFEY The four candidate race for GOP primary for Governor has been a wild ride over the past month and the election results lived up to the hype. The outcome may not be known for some time as Bevin and Comer are locked in a dead heat, separated by less than 100 votes. Comer has asked for a recanvass, the results of which will not be known until after May 28. In the Democrat gubernatorial primary, there was less drama as Attorney General Jack Conway handily defeated Geoff Young. Conway awaits the eventual winner of the GOP Primary. Jack CONWAY / 78.78% 140,627 Sannie OVERLY Geoff YOUNG / 21.22% 37,887 Jonathan MASTERS

Attorney General There was no Democrat primary election as Andy Beshear ran unopposed. He will face State Senator Whitney Westerfield in November, who won the Republican primary. With Jack Conway term-limited, this is an open seat. Whitney H. WESTERFIELD 53.38% 96,581 Michael T. HOGAN 46.62% 84,364

Secretary of State Incumbent Secretary of State Alison Lundergan Grimes defeated her primary opponent and will face Stephen Knipper in November. Knipper is the GOP nominee, but

did not have a primary opponent. Alison Lundergan GRIMES 73.25% 131,640 Charles LOVETT 26.75% 48,083

Treasurer With this office being open due to term limits for Todd Hollenbach, there was significant interest on both sides of the aisle to run for this office as it drew eight candidates. Allison Ball won a three candidate race for the GOP nomination. State Representative Rick Nelson won a five candidate Democrat primary. Allison BALL 46.88% 84,516 Jon LARSON 30.91% 55,712 Kenneth IMES 22.21% 40,039 Rick NELSON Neville BLAKEMORE Richard HENDERSON Jim GLENN Daniel B. GROSSBERG

27.17% 22.44% 20.14% 19.06% 11.19%

44,397 36,663 32,914 31,146 18,284

Commissioner of Agriculture This is an open office with Comer running for Governor. State Representative Ryan Quarles defeated State Representative Richard Heath for the GOP nomination. Democrat nominee Jean Marie Spann ran unopposed and will face Quarles in November. Ryan F. QUARLES 50.39% 92,700 Richard HEATH 49.61% 91,273

Auditor Incumbent Auditor Adam Edelen ran unopposed for the Democrat nomination and will face State Representative Mike Harmon who ran unopposed for the Republican nominee. We will be delving into the November gubernatorial election including the issues that will shape the campaign in the summer issues of The Goods. For more information, contact Dustin Miller at 502-226-3976 or via email at dmiller@govplan.com.

Dustin Miller Partner Government Strategies

KENTUCKY ASSOCIATION OF MANUFACTURERS

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DEPARTMENT | Education Matters

Lean Educational Partnership By Dianne Leveridge

L

ean process thinking began with Walter Shewhart, engineer, physicist, and statistician, in the early 1900’s. Shewhart is known as the father of quality control because he invented quality control charts while working at Bell Labs in 1924. The American Society for Quality has a medal named in his honor. Edwards W. Deming arrived after Shewhart, developing a culture of thinking based upon organizational process, product and performance improvements designed to insure longevity. Deming proposed his ideas, commonly referred to as “lean thinking”, or simply “lean”, first to Henry Ford, who was not interested at the time, then to Mr. Toyoda in Japan. Deming spent 40 years in Japan helping Japanese manufacturers creating a wasterecognition and reduction culture. As a result, today, almost 75 years after Deming proposed his ideas to Mr. Toyota, Toyota Motor Manufacturing maintains a deeply-held culture of lean thinking, waste removal, continuous improvement, and constant internal scrutiny. Frequently overlooked and understated, lean improvement culture pervades every initiative within Toyota, and modeled by many other employers in many other sectors. More than a set of skills, metrics, or process improvements, lean includes deepened understanding and

10 May 2015 | The Goods | KAM.US.COM

thought processes. The KYFAME model was developed within this pervasive, deep, process designed to cultivate skills manufacturers need to insure long-term longevity and sustainability for conducting business globally. By now many readers have likely heard of the Kentucky Federation for Advanced Manufacturing Education, or KYFAME for short. Questions abound regarding KYFAME: What is it? Why should an employer be involved? Who leads it? What does it “do”? And many more. Thus, we will attempt to address those questions, through the lens of lean culture. KYFAME and lean culture are closely connected and interdependent. What is it? A group of manufacturers collaborating together to develop a lean, crisp, pipeline of manufacturing employees, starting with the manufacturing maintenance function. Graduates represent the future generation of plant managers, line managers, and company leaders, possessing the skills necessary to insure company longevity. In fundamental lean thinking, initially developing the manufacturing maintenance pathway addresses the largest skill gap first. Other pathways are planned, as are other industry sectors.


DEPARTMENT | Education Matters

Why should employers become involved? For too long employers have recruited skilled maintenance employees between companies, enabling the proverbial robbery between Peter and Paul without addressing the root cause of the skills gap in Kentucky. Employers involved in KYFAME developed an educational model serving the long-term interests of manufacturing maintenance, the manufacturing as a collective industry, and thus moving the entire manufacturing mission forward within our Commonwealth. Collaboratively developing talent serves existing industry, and attracts new industry. Thus the process becomes a win-win for all stakeholders. Who leads it? Employers. Educators, state agencies, community leaders, and families all play critical roles in the pathway process, following the leadership of manufacturing employers, in the case of KYFAME. As manufacturers collaboratively agree to support a cohort of students into the Advanced Manufacturing Technician track, within KCTCS, other stakeholders collaboratively participate in partnership. KYFAME represents a novel notion of Employers as the customer in this partnership process. Pathway design enables novel communication, understanding, collaboration, teaching and learning, along with deep work experiences for students. KYFAME develops technical, professional, personal, and other soft skills such as teamwork and communication, skills critical to achieve business longevity and productivity. What does KYFAME “do”? KYFAME collaboratively, in a partnershipbased environment, embraces and expands a novel educational model across our Commonwealth, for the benefit of employers, students, families, and ultimately communities. As manufacturers grow within communities, communities grow. KYFAME facilitates, leads, and develops the path for growth. Why KYFAME? Because it works. Beginning in 2010 through May 2014, KYFAME employers have graduated 33 students in the Central Kentucky area. All but one are employed, thus the employment rate is 96% for this pathway. The pathway represents

deep commitment by all stakeholders. Student attrition is 30%, for a variety of reasons. The pathway garnered the National Best Career Pathway Award in October 2013 because it is proven to develop tomorrow’s employees today. What is the employer commitment? Employers commit to sponsoring students within the manufacturing environment; collaboratively recruiting applicants; and partnering with education. Currently the KYFAME model is focused on the manufacturing maintenance pathway; thus students enroll into manufacturing maintenance in a new pathway which meets in class two days per week. Employers have the students in their facilities working the other three days per week. Recruiting involves a variety of processes, depending upon the geographic region in Kentucky. Northern Kentucky Beginning 100 years ago with Shewhart, and few years afterward with Deming, lean culture has expanded into a variety of industry and business sectors, from healthcare to banking and of course, manufacturing. KYFAME represents expanding lean cultural thinking and process development with college partners to develop productive, proactive, promising people. Employers seeking further information regarding becoming involved in KYFAME should check the KYFAME website at www. kyfame.com and contact Josh Benton, Kentucky Cabinet for Economic Development at joshua. benton@ky.gov or contact KAM at info@kam. us.com. KAM and the Cabinet for Economic Development connect potential future KYFAME member employers with current KYFAME member employers. KCTCS’ works with community and technical colleges developing KYFAME program delivery infrastructure statewide as employers are ready to support students. Contact Dr. Dianne Leveridge via email (dianne.leveridge@kctcs.edu) at KCTCS regarding programmatic or academic questions.

Dianne Leveridge, PhD Director of Technical Programs KCTCS

KENTUCKY ASSOCIATION OF MANUFACTURERS 11


DEPARTMENT | Healthcare

Affordable Care Act

An Ever-Changing Landscape of Rules & Regulations By Jim Dingus & Daryl Carlson, BB&T Insurance Services, Inc.

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ffective January 1st of this year, employers with more than 50 “full-time equivalent” employees (FTEs) are required to report certain health coverage information to the IRS (published by the IRS on February 8th, 2015). These reports are to be submitted to the IRS by Feb. 28th, 2016 (March 31st if filed electronically). In addition, a personalized statement is required to be delivered to each employee by January 31, 2016. (One may “Google” IRS Form 5196 for a snapshot of the Affordable Care Act Reporting Requirements.) On the surface, this new required filing will appear overwhelming to many employers. Taken piece by piece and then assembled within IRS Forms 1094-B, 1095-B and 1095-C -- it’s reduced to another precise and labor intensive piece of being an employer in America. Preparation for this reporting will bring together HR, payroll and tax reporting elements of any given employer to complete these forms and transmittals. The Affordable Care Act levies penalties of $100.00 per violation for non-compliance - up to $1.5 Million per year and may be increased or decreased depending upon circumstances. There is also “short-term relief” from penalties available if the reporting entity shows a good faith effort to comply with the new requirements. There exists an urgency in building a reporting platform because the information necessary to complete the filings are based upon month by month compilation of information and includes military service, jury duty, FMLA and other status of employment data. Some good news: there are workable solu-

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tions to comply with these new mandates. The Kentucky Association of Manufacturers (KAM) with BB&T Insurance Services (KAM’s Broker) will sponsor regional seminars across Kentucky to inform, educate in great detail and assist the manufacturing community in preparing for these required filings. Many manufacturing employers have created or sponsored Wellness Programs for the benefit of their employees. On April 20, 2015 the U. S. Equal Employment Opportunity Commission published long awaited proposed rules in the Federal Register. This notice clarifies how wellness programs fit into Title I of the Americans with Disabilities Act. • Wellness programs must be designed to promote health and/or prevent disease • Employers may offer limited incentives for employees to participate • Medical information obtained as part of a wellness program must be kept confidential • Employers must provide reasonable accommodations that enable employees with disabilities to participate • Wellness programs must be voluntary The Kentucky Association of Manufacturers, through its affinity program managed by BB&T Insurance Services, has invested keenly in keeping Kentucky Manufacturers with cutting edge tools, products and services to remain compliant with the changes brought by The Affordable Care Act. It is your participation as a member of KAM that makes these programs possible. We encourage you to keep an eye out for notices of Regional Seminars. You may also contact Collin Barber at 859-4223884 directly for more information.


Small steps to a healthier heart in just 10 minutes

Small steps add up: 10 minutes of exercise, 3 times a day is all you need to get started for a healthier heart. Aim for at least 150 total minutes a week and increase time and intensity as you go.

Visit anthem.com to find more information on preventing heart disease.


FEATURE | Future of Manufacturing

The Future of Manufacturing is Distributed - Among Other Things

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marter, more opinionated, and involved consumers are driving the American economy. Time is precious to them and experience is everything, which is causing brands to shuffle in response to their needs. Rapid advances in the manufacturing sector are making it possible to build out an on-demand distributed manufacturing platform that will allow for a more effective and iterative product development life cycle. Paul Milgrom and John Roberts forecast that increased technology adoption will lead to cheaper, faster, and more accessible manufacturing in turn driving the potential for increased product line diversity and turnaround. This is best seen in the proliferation of car models over the years.

Toyota Car Models Over the Years OEM’s have increased the diversification of their product lines to respond to ever changing consumer demands. Concurrently, we have seen the rise of entrepreneurs and prosumers delivering products that fill unmet needs. All the while, domestically, we have seen manufacturing jobs moving to countries that respond to change quicker and move at a global pace. To accommodate this shift, manufacturers and machine shops must adapt. So what do we do? The critical step is to strip the heartbeat of manufacturing to its core and build it back up. CNC machining begins with a file that is produced which generates a toolpath 14 May 2015 | The Goods | KAM.US.COM

that in turn is posted to a machine to cut or add material. Yes, there are required tolerances and set up involved, but for the most part the machines do all the work, even assembly, and in many cases the machines can speak to each other. Yet, the majority of the manufacturing world still believes in paper based invoicing, driven by the need for minimum orders to produce too many things that will not be purchased and end up sitting on shelves. At the center of all of this is time. You need time on machines to make the things that consumers want. Buying and selling machine time by the hour will open new horizons in manufacturing. First, it will reduce


FEATURE | Future of Manufacturing

overhead for successful manufacturers and machine shops. No need to buy a new machine when you can rent the time (including an operator) on an as-needed basis. Sorry Mazak, Haas, DMG, etc. We’re not trying to compete with your sales people: quite the opposite. We want to fill the machines you’re leasing and selling so your customers can buy more. Second, monetize idle machine time in shops where there is lack of work. Wouldn’t that be great - to fill machines across the country? Third is risk mitigation and new development in large OEMs through time based machine extensions to their own capabilities - think on demand, aggregated contract manufacturing. Be proactive in risk, don’t react and fly parts when you have verified people next door to you. Time and potential are everything. It doesn’t matter to Toyota that they can get a $.20 part produced for $.15 as much as knowing they can receive the part on time and in the quantities needed. No part, no delivery. That is a huge problem. For entrepreneurs and makers it opens new possibilities. There is no need for minimum order quantities. If you are starting a new business, it is very dangerous to invest in a large order. What entrepreneurs making things need is a way to make a little, test a little, make a little more, hone a little more. Iteration is key. Imagine a successful Kickstarter project or a new life-saving medical device being manufactured and shipped in days instead of months using machines in a shop sitting on idle time. Crowdfunding sites like Kickstarter love empowering independent creators, and this new model will enable their production while empowering American machine shops. It’s a perfect fit, they need manufacturers and manufacturers need them.

What does this mean for the future? The future of manufacturing is in distributed manufacturing. More and more processes will be automated with further digitalization of the supply chain. We believe in a step through process to accommodate this change, beginning with our online marketplace where you can buy or sell time on machines like a CNC mill, lathe, laser, waterjet and Swiss lathes. Then stepping into API connectivity to ERP systems, and ultimately moving straight to machine to machine communication. Working in hourly units allows scalability and new pathways to distribute information. Companies like Fanuc are consistently pursuing increased automation of factories with their highly intelligent, ultra-precise, reliable and interconnected robots. Organizations like the MTConnect Institute are collaborating in an effort to produce an internet-based, open source technical standard and specification to foster greater interoperability between equipment, accessories, applications, and devices in the manufacturing industry. Stephan Biller’s idea of a “Brilliant Factory” no longer seems so farfetched – a “digital thread,” he calls it, which runs through the manufacturing process from product design to the factory floor and back. Companies on the ground like ITAMCO are leading the way, showing that innovation and technology adoption are an integral part of business. Automated, interconnected machines able to communicate to one another and relay operational information and manufacturing status to a controller’s computer, iPad or iPhone 24 hours a day, 7 days a week will be the new normal. What would you do if you were an entrepreneur or a maker with zero overhead? What would you do if you were a manufacturer with a fully automated, interoperable and interconnected production line running 24-7 with no idle machine time? You would change the world by focusing on what you need and can do versus what you think you should do. Drura Parrish CEO and Founder MakeTime

KENTUCKY ASSOCIATION OF MANUFACTURERS 15


JOIN THE FUTURE OF

MAKING Manufacturers, designers, and makers all need machines to make things. Now you can buy and sell machine time instantly on our Marketplace.

JOIN our marketplace t o d ay

16 May 2015 | The Goods | KAM.US.COM


FEATURE | Best Practices: KMCC

BEST PRACTICES: Kentucky Manufacturing Career Center Using MSSC Courses to Capitalize on Resurgence in Manufacturing and Increasing Job Placement Rates The Kentucky Manufacturing Career Center (KMCC) is a one-stop resource in Louisville that has been providing career counseling and training to people interested in the manufacturing field since May 2013. The center is a unique partnership between KentuckianaWorks, a regional Workforce Investment Board; Jefferson Community and Technical College (JCTC); and Jefferson County Public Schools – Adult Education, Career and Technical Education, and Iroquois High School Magnet Career Academy. The Louisville Redevelopment Authority provided funding to launch the Kentucky Manufacturing Career Center. Training and programming are funded by the National Fund for Workforce Solutions and JPMorgan Chase Foundation. Operational funding is provided by the Workforce Investment Act. More than 60 companies are actively engaged with KMCC through the Employer Advisory Group. This group advises KMCC on skills needed for the current workforce, types of training needed, and ways to promote manufacturing careers in the region. While manufacturing is indeed recovering, many employers are finding it hard to fill those new positions with qualified workers – people who have problem-solving skills, can apply mathematics to their work, can listen and read for information, and have a basic understanding of safety and production processes. This is the challenge that KMCC is working to address by enrolling students into its four-week MSSC Certified Production Technician (CPT) training courses. CPT is focused on those who want to start a new career in manufacturing or certify their manufacturing skills to secure a better job. “This is a great opportunity for people to get a solid start in manufacturing, a field that has strong growth and career potential and is a

huge part of our local and regional economy,” stated Louisville Metro Mayor Greg Fischer in a recent news release. Topics covered include safety, quality and measurement procedures; manufacturing process; and maintenance. Those who complete the course will earn a CPT certification, which is preferred by a number of Louisville companies, including GE Appliances, Westport Axle, Universal Woods Inc., Mondi Industrial Bags, Dakkota Integrated Systems LLC, Paradise Tomato and Derby Fabricating Solutions LLC. The KMCC program earned “M-List” recognition from the National Association of Manufacturers in 2013 for its alignment with industry needs. The center has become a go-to place for local manufacturers to find qualified candidates and to post job openings. Since the center opened in May 2013, 356 people have been placed in jobs through KMCC. Of these, 127 students earned the MSSC - CPT full certification and also earned four college credit hours at JCTC for use toward the school’s manufacturing programs. Karen Carlisle is a dislocated worker who moved to Louisville last year looking for new opportunities. After completing the MSSC class at KMCC and earning her credential in May 2014, Karen was hired at GE Appliance Park in June. She feels so strongly about the value of the MSSC CPT training that she makes a point of visiting each class to provide a “pep talk” to the new students. She tells each class about the value of the CPT course because she is using what she learned every day on the job!

For more information about KMCC, please call (502) 276-9711, or contact Executive Director of KentuckianaWorks, Michael Gritton, at michael.gritton@kentuckianaworks.org.

KENTUCKY ASSOCIATION OF MANUFACTURERS 17


DEPARTMENT | CPA Focus

Regional Manufacuring Hubs: A modern industrial revolution By Brad Smith

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anufacturing is the heart of America. It accounts for about 12% of U.S. gross domestic product and one in six private-sector jobs, according to the National Network for Manufacturing Innovation (NNMI). President Obama believes that investing in industrially relevant advanced manufacturing technologies is the key to U.S. economic recovery and ongoing prosperity. Therefore, he’s planning to launch a national network of up to 45 regional manufacturing innovation centers — or “hubs” — over the next 10 years with the support of Congress. Let’s take a look at the first five regional pilot facilities and how the hubs are intended to work.

National Additive Manufacturing Institute (Youngstown, Ohio). Now known as “America Makes,” the first hub was launched in August 2012 and focuses on waste reduction. Specifically, it aims to develop new techniques that minimize the use of expensive materials through automation and computer simulation. Next Generation Power Electronics National Manufacturing Innovation Institute (Raleigh, N.C.). This hub specializes in developing wide bandgap semiconductor technologies that are smaller, faster and more energy-efficient than those based on silicon. It strives to revolutionize energy efficiency across a wide range of applications, including electronic devices, power grids and electric vehicles.

Lightweight and Modern Metals Manufacturing Innovation Institute (Detroit, Mich.). This hub’s overriding objective is to develop new processes Coming to a region near you The first five pilot facilities were selected and applications for lightweight alloys and metals, from a competitive bidding process. Here’s a such as aluminum and titanium. The complex physical properties of these materials create large-scale brief overview of each, including long-term fabrication challenges. If the hubs can overcome objectives: technological barriers, lightweight materials promise to improve performance, enhance safety and boost energy-efficiency of vehicles and machines. Digital Manufacturing and Design Innovation Institute (Chicago, Ill.). This hub is meant to address digital manufacturing and design technologies for new consumer and commercial goods. Its longterm goals include enabling supply chain interoperability, creating digital technology to design and test new products, and reducing production costs and lead times for all types of manufacturing processes. Advanced Composites Manufacturing Innovation Institute (Knoxville, TN). This hub was announced in January 2015 and is focused on developing advanced fiber-reinforced polymer composites that are lighter and stronger than steel. These composites have widespread use in clean energy products, including fuel-efficient and electric vehicles, wind turbines, and hydrogen and natural gas storage tanks. 18 May 2015 | The Goods | KAM.US.COM


Fostering collaboration and best practices Education and innovation are essential raw materials to boost America’s competitive edge in advanced manufacturing. In addition to setting new production standards, each hub will serve as a “teaching factory” that provides opportunities, especially for small manufacturers, to: • Train workers at all levels and connect skilled workers with local employers, • Collaborate and share resources to design, test and pilot new technologies, • Share best practices in procurement, production, logistics, and financial strategy, • Tap into local supplier networks, and • Act as thought leaders that model effective coping strategies for daily manufacturing challenges. Participants in these teaching factories include manufacturing companies, universities, community colleges, research institutions, and local and federal governments. Legal and financial advisors who specialize in the manufacturing niche may also become involved in blogs, education sessions and roundtables organized through these regional hubs. They may lead candid discussions on such topics as lean manufacturing practices, supply chain data management, offshoring and

reshoring, strategic acquisitions and divestitures, intellectual property security, and taxsaving opportunities. Joining the revolution Government investment in private sector manufacturing initiatives is nothing new. The Internet, the microwave and the solar photovoltaic cell, for example, are the results of collaborative research efforts between the private sector and the U.S. Department of Defense. Regional manufacturing hubs provide opportunities to leverage shared resources and knowledge. In turn, manufacturers may grow and innovate faster than they could on their own. More hubs will be announced in 2015, providing more opportunities for manufacturers to innovate, collaborate and learn best practices. The U.S. Department of Energy has been accepting bids from regions interested in hosting the next innovation hub. For more information on regional manufacturing hubs, visit http://www.manufacturing.gov/nnmi.html. Brad Smith CPA Mountjoy Chilton Medley

Best and Brightest As a regional CPA firm, MCM’s Manufacturing & Distribution Services Team offers you access to some of the brightest, most technically proficient minds in our profession. Our bluegrass roots drive our passion for intensely personal tax, assurance and advisory services, while our international network helps us equip your company to compete at a world-class level.

Contact us at 502.749.1900.

www.mcmcpa.com | Kentucky | Indiana | Ohio

Expert guidance, beyond the bottom line.


DEPARTMENT | Combined Heat & Power

Owensboro Grain & Domtar Paper Host CHP Showcase Event By Bill Lunsford

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ecause of its relatively large industrial base, Kentucky has one of the most energy-intensive economies in the United States. At a time when market forces in energy production as well as federal environmental regulation present unique challenges, especially to Kentucky’s manufacturing and industrial businesses, combined heat and power (CHP) technologies offer solutions to remain economically competitive while protecting the environment. CHP is the concurrent production of electricity or mechanical power and useful thermal energy (heating and/or cooling) from a single source of energy. The Kentucky Association of Manufacturers (KAM) joined the Kentucky CHP Partners to increase awareness of CHP as an energy saving option. Throughout the past year, conference presentations, workshops, and webinars introduced potential end-users to CHP, opening discussions to its benefits and how implementation challenges might be avoided or overcome. Details of stakeholder meetings as well as presentation materials may be viewed on the Kentucky Department for Energy Development and Independence (DEDI) CHP web page. This past March, the Kentucky Pollution Prevention Center of the University of Louisville presented the Kentucky CHP Showcase. This one-day event was part of a state-wide outreach initiative to promote the environmental, economic and resiliency benefits of CHP in 20 May 2015 | The Goods | KAM.US.COM

partnership with the Kentucky Department for Energy Development and Independence. The Showcase featured on-site tours of CHP systems in action at Owensboro Grain and Domtar Paper Hawesville, two of Kentucky’s manufacturing facilities incorporating CHP technologies. Clad in hard-hats and neon safety gear, Owensboro Grain and Domtar Paper energy experts guided representatives from industry and manufacturing, state agencies, energy service providers, and utilities participants through their CHP systems. The first tour was held at Owensboro Grain, a company that produces “a vast array of products from soybeans.” Since the O’Bryan family founded the grain processing company in 1906, it expanded to include soybeans while keeping its “roots still tied closely to the soil.” In January 2014, the fourth generation O’Bryan family commissioned a Prime Power CHP CoGeneration facility to produce 100 percent of the plant power needs. Owensboro Grain has 3 natural gas fired reciprocating engine CHP systems that generate approximately 9 megawatts of electrical power and utilize the associated thermal energy to preheat process boiler water. Combined Heat and Power has increased the overall energy efficiency from 44% to 85% compared to separately generated heat and power. Presentations were given by the systems contractor Power Secure and by the controls provider Rockwell Automation. In addition to facility tours, representatives of


DEPARTMENT | Combined Heat & Power

Perdue Farms of Cromwell, Kentucky discussed their vision and long-standing commitment to environmental stewardship. In 2011 Perdue installed an integrated waste recovery process that collects naturally occurring gases from a waste pond and converts them into renewable energy. At the Cromwell complex, Perdue produces nearly 1,000 kilowatts of electricity using the renewable fuel engine—about the same volume used in 500 homes—and derives 20 percent of its hot water needs from the waste heat generated by the biogas system. Perdue staff performed most of the systemlevel work and contractors were used for specialized expertise. When asked if they would take on the project again, Perdue staff responded that they would gladly do it again with the same team. Domtar Paper in Hawesville, KY was the second CHP site visit. Domtar is known as “The Sustainable Paper Company” and currently has the greatest capacity CHP generator in the state at 88 megawatts. The system consists of a biomass fueled boiler, a steam turbine, and the electric generator. The biomass fuels include bark, sawdust and other wood residuals, as well as waste cooking liquor. The CHP system generates as much as 80% of Domtar’s electricity needs. The CHP came online in 2001 and won the Department of Energy and Environmental Protection Agency Energy Star CHP award in 2005. At 86 percent efficiency, the CHP uses 23% less fuel than separately generated heat and power. This performance leads to an estimated annual CO2 reduction of 267,000 tons. “At Domtar, our employees are proud of our investment in CHP,” stated General Manager Steve Henry. “We reduced our environmental footprint by generating enough green energy to power the equivalent of 22,600 homes every year. In addition to sustainability improvements, we also improved our longterm competitiveness. CHP is a win-win for our facility and our community.” An important initiative in 2015 for the Kentucky CHP Partners is to engage potential CHP end users, connect facilities with technical assistance professionals, and hopefully identify opportunities where the success of Owensboro Grain, Perdue, and Domtar can be replicated.

This is the fourth installment of a continuing series of articles related to Combined Heat and Power (CHP). If you missed the previous editions and would like to learn more about specific CHP technologies, please see the June, August, and December 2014 editions of The Goods at www.kam.us.com. For questions or more information, contact Bill Lunsford at 502-564-7192 or via email at bill.lunsford@ky.gov.

Perdue Farms Gas Engine

Domtar CHP System

Owensboro Grain Reciprocating Engine CHP

Bill Lunsford KY Division of Efficiency and Conservation

KENTUCKY ASSOCIATION OF MANUFACTURERS 21


DEPARTMENT | Energy Law

Complying with your KPDES Permit Part 2: Details By W. Blaine Early, III

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n a recent Goods article I discussed three key elements of complying with Kentucky Pollutant Discharge Elimination System (KPDES) permits (Read It; Do It; Document It). This installment describes details to help implement those key elements. These details include knowing the requirements of your permit, training employees, managing third-party contractors, and performing internal compliance audits.

permit is a must. Your facility’s compliance team, which includes the plant manager, environmental managers and engineers, outside consultants, and legal counsel, can assist in interpreting and implementing the permit. In addition, the professionals in the Kentucky Department of Environmental Protection are valuable resources of information. The inspector who regularly visits the facility can answer questions and The Kentucky Department of Environmental give advice, as can staff of the Compliance Protection’s Division of Enforcement gets and Operations Branch and the Permitting three to four hundred new cases each Branch. year. Most of case referrals concern water Many facilities hire consultants to assist programs. Figure 1 shows the breakdown with the permit application process and of new case referrals for fiscal year 2013. to prepare the accompanying plans (best In preparing this article I sought out the management practices; spill control, advice of Mark Cleland, Assistant Director containment, and countermeasures, etc.). of the Division of Enforcement. I thank him One common source of noncompliance for his helpful insights. I believe that your happens when the facility puts the permit facility’s compliance record will benefit if and plans away in a file or on the shelf and you pay attention to the following details. does not fully implement the requirements. That leads to the next detail: training. Know Your Permit To reiterate the first element of the last Train Your Employees article, reading and understanding your The employees who are responsible for dayto-day implementation must know the procedures and obligations in the permit and related plans. Training is not only a good compliance strategy, it is required by many permits. One of the first training items should be to cover what documents are present on-site and where they are located. By informing your employees you can avoid the awkward silence when an agency inspector arrives and asks to see the facility’s KPDES permit, BMP Plan,

22 May 2015 | The Goods | KAM.US.COM


DEPARTMENT | Energy Law

SWPPP, or inspection and maintenance and the analytical laboratories. Ensure records. that they are using the required sampling and analytical methods and that they are A common cause of noncompliance arises performing the required quality control/ when the people who must perform a task quality assurance protocols. Finally, if you either do not know that they are supposed are depending on the contractor to prepare to do it or do not know how to do it. Even periodic reports, ensure that the reports are the best plans are of no value, however, if completed in the required form. Confirm the people who must put them into action that the reports have been submitted. do not know what they contain. So train Internal Audits your employees about their responsibilities You and your compliance team should and document their training. Actions by periodically assess whether you are employees on-the-ground should match doing what needs to be done to remain in the detailed procedures that have been compliance. Put yourself in the position of scrutinized and approved for compliance an agency inspector arriving at the facility with the permit. for the first time and learn from what you see. Once you identify an issue, you must then address it. Kentucky law provides certain protections and benefits for conducting environmental audits and making voluntary disclosure (see KRS 224.1-040). Details of these audits will be the topic of a future article.

Manage Contractors Some tasks are better left to speciallytrained outside professionals. Even though the facility may engage a contractor to do certain required tasks such as taking required samples, preparing reports, and monitoring plan effectiveness, the permittee is responsible for compliance. “I thought my consultant was doing it� is not a good defense to an enforcement action. Because so much of your good compliance record depends on the actions of these third-party contractors, you should select the contractor with care and then monitor and confirm their conduct. A common problem with large facilities that have multiple permitted KPDES outfalls concerns confusion about the location of a specific outfall, when it should be sampled, and what parameters should be analyzed. Make sure that your contractor knows those points. Consider assigning someone to accompany them occasionally so that you can be sure they are sampling what they are supposed to sample.

In conclusion, environmental compliance is a continuing and dynamic process that involves facility management and staff, outside professionals, and regulatory agencies. Environmental permits are the immediate manifestation of laws and regulations. Understanding the facility’s obligations under those permits, training employees about their roles and duties, and supervising third-party contractors are essential to compliance. Conducting periodic internal checks or audits can give feedback on successes as well as where steps should be taken to improve.

W. Blaine Early, III Member Stites & Harbison, PLLC

Ask critical questions of the field technicians KENTUCKY ASSOCIATION OF MANUFACTURERS 23


DEPARTMENT | Energy Focus

Bipartisan success story: a bill encouraging energy efficiency By Jonathan Miller

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n today’s polarized and paralyzed system of government, it’s all too uncommon to hear about the passage of non-ideological legislation that addresses a pressing economic need. However, this week’s gubernatorial signing of the EPAD Act — sponsored by Rep. James Kay, D-Versailles, and thoughtfully facilitated by the Senate’s Republican leadership — represents one of those rare bipartisan achievements in Frankfort. EPAD stands for Energy Project Assessment Districts, which offer an innovative and proven way for commercial and industrial property owners to pay for energy efficiency upgrades — and there’s no cost to Kentucky taxpayers. Building owners acquire private financing for a project’s costs, and then repay these loans via an assessment on their property tax bill over a term of up to 20 years. Participation is totally voluntary; no

24 May 2015 | The Goods | KAM.US.COM

assessment is made unless the property owner initiates the process. While the debate over state and federal energy policy has tended to be loud and toxic of late, efficiency’s the one energy issue on which even the Friends of Coal and tree-huggers can agree. Buildings use about 33 percent of the energy consumed in Kentucky, and prices are expected to increase. Promoting energy efficiency and building rehabilitations therefore are a policy winwin-win: saving energy costs for businesses, protecting the global environment and creating jobs in the high-tech rehab industry — jobs that pay well and can’t be outsourced to India or China. Meanwhile, energy efficiency projects pay for themselves in the short run through utility savings while, in the long run, all of the benefits go straight to the building owner’s bottom line.


DEPARTMENT | Energy Focus

The challenge is identifying the financing to make this process possible. For too many smalland medium-sized businesses, finding the startup funds can be prohibitively expensive. That’s where EPAD comes in. It allows business owners to borrow money from a ready and willing private investor market, and then pay back their loans through affordable monthly chunks out of their energy savings. And because EPAD allows building owners to voluntarily make these payments through their property-tax bills, they don’t need to worry about the possibility of selling the property before the loan is repaid; the assessment would be passed on to the new building owner. This property-tax vehicle, moreover, comforts banks and private investors against the possibility of default, empowering them to engage in low-risk, low-cost, long-term lending. EPAD can be found in 31 other states (usually under the name PACE), and more than $1 billion in projects have been either completed or in the current pipeline. Now starting this year in Kentucky, owners of some of the country’s leakiest building stock will be able to start the process of saving money, creating jobs and protecting the environment. It’s easy today to be cynical about our democracy, but in passage of this legislation we witnessed state government at its best. Very liberal and very conservative legislators — and many of those in the middle — shed their labels to write, amend and enact a complicated bill that should have a positive, long-term impact on our economy. Despite all of the snow, it was a beautiful moment in Frankfort. Jonathan Miller, former Kentucky state treasurer, serves as general counsel to the Kentucky Energy Project Assessment Districts council. jmiller@fbtlaw.com (502) 589-5400. To see if EPADS is right for your facility contact Jonathan or Ty Vierling, Harshaw Trane at 502.499.7000.

Jonathan Miller Member Frost Brown Todd LLC

Welcome to Our Newest Members!

Northwood University

KentuckyOne Health

Kobe Aluminum Automotive Products

LuxEvo LED Lighting

We welcome you to KAM and look forward to hearing from and working with you!

KENTUCKY ASSOCIATION OF MANUFACTURERS 25


26 April 2015 | The Goods | KAM.US.COM


Manufacturing continues to drive Kentucky’s economy, representing more than 219,000 jobs, and bringing $29 Billion into our Commonwealth. It is the #1 contributor to Kentucky’s GDP. When manufacturers are asked, “What keeps you up at night?” you will hear two strong, consistent concerns: Continuation of reliable and affordable energy and access to a 21st century talent workforce. The Kentucky Association of Manufacturers’ (KAM) 2015 Energy Conference focused on energy and how to Make a Brighter Tomorrow. As you know, decisions must be thoughtfully considered, researched, and properly vetted. The KAM 2015 Energy Conference content and experience were designed to bring you information and proven case studies, as well as challenge you with new thinking opportunities. KAM’s Energy Conference is the only energy conference in Kentucky built by manufacturers for manufacturers. The agenda and content were packed with opportunities to learn, network, share and bring doable initiatives to your organization to help save money.


Wednesday kicked off with three “Go & See” on-site tours, to the Georgetown Toyota facility, the UK Center for Applied Energy Research (CAER), where the Argon Advance Battery Research is housed, and Big Ass Solutions. Each tour opportunity had limited capacity to enable those involved to go behind the scenes and get a real feel for operations in each facility. Wednesday afternoon offered a variety of workshop sessions designed to be more indepth than a typical conference. Topics included: • The Kentucky Pollution Prevention Center (KPPC) offered a two-part breakout that will take the participant through the “nuts and bolts” of energy management. • The CHP workgroup hosted a session on Combined Heat & Power (CHP), taking the discussion into a deeper dive and including some permitting fundamentals. • Harshaw Trane shared real-world case studies that have been successful, producing some unanticipated synergies within the organizations putting them into effect. • KCTCS had two workshops designed for the energy educator. These sessions, “Illuminating Energy Opportunities” and “Plugging into the Resources” featured a full spectrum of the energy environment from a global view with Rodney Andrews, UK CAER; Karen Wilson, Kentucky Energy and Environment Cabinet; and both gas and electric utility industry updates, including Smart Grid technology. In addition, speakers from UK, UL, Murray State University and Sullivan University Systems addressed the audience. 28 April 2015 | The Goods | KAM.US.COM


Thursday, May 14th was equally dynamic! The conference was kicked off with a video welcome from Senate Majority Leader, Senator Mitch McConnell. The conference then took a “Global View of Energy” from the National Association of Manufacturers’ lead energy economist, Chad Moutray. Rudy Underwood, Vice President with the American Chemistry Council shared national energy updates and activity, with Secretary Len Peters brought us up to speed on the impact to Kentucky and Kentucky manufacturers. Thursday breakouts included: • An update on the gas and oil industry • Funding opportunities for energy initiatives • Case Studies on leveraging energy technology solutions • Legislative update and discussion with both our federal and state policy makers Because energy is so critical to Kentucky’s prosperity, KAM invited all gubernatorial candidates to address the group in a closing general session on Thursday, May 15. Five of the six candidates were able to attend and treated the attendees to their perspectives on Kentucky’s manufacturing scene and the continued importance of affordable, reliable energy to Kentucky’s manufacturing economy. As you can see, this was a “must-attend” conference, and if you missed it, you missed a lot! However, many of the presentations and videos will be available on the KAM website in the coming days, so check back to find out what you missed! Established in 1911, the Kentucky Association of Manufacturers (KAM) is the Commonwealth’s only statewide trade association dedicated solely to the sustainability and growth of the $29 billion manufacturing industry. KAM’s mission is to advocate for Kentucky manufacturers, communicate with and listen to members, and ultimately protect and create a manufacturing friendly environment. For more information on how Sutherland & Associates can help your organization, contact Molly Sutherland at molly@sutherlandww.com or call her at 859-509-2249.

Molly Sutherland Sutherland & Associates KENTUCKY ASSOCIATION OF MANUFACTURERS 29


FEATURE | Small Business Tax Credits

Business Owners Taking Advantage of Kentucky Small Business Tax Credit Kentucky Cabinet for Economic Development

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ore and more of Kentucky’s small business owners are applying for and receiving up to $25,000 through the Kentucky Small Business Tax Credit. We caught up with one owner who used the credit to grow his business. For Dan Day, there simply aren’t enough hours in the day. “I’m putting in 10- to 12-hour workdays,” said Day, the owner of Spalding & Day Tool & Die Co. in Louisville. “Like many small businesses, we have more work than we can handle.” It’s a good problem to have, but for many small businesses, growing to meet that demand can be a challenge. The recession left Spalding & Day, which builds tooling for the sheet metal industry, deep in the red for several years. And although the company is back on its feet, there isn’t a ton of money to expand. “Many people think that small business owners are making a lot of money,” he said. “In reality, we’re trying to get by like everyone else.” One day last year, a friend of Day’s, an accountant, informed him of the Kentucky Small Business Tax Credit (KSBTC). “My friend said that the state offers a tax credit to growing small businesses and that it is very easy to apply for,” he said. “I then asked my own accountant if my company was eligible. We can use any help we can get, and even a few thousand bucks would make a big difference.” The criteria to qualify for the KSBTC are relatively simple. All a small business has to do is create and maintain at least one qualifying job and purchase $5,000 or more in qualifying equipment, and it may be eligible to receive a state income tax credit ranging from $3,500 to $25,000 per year. The amount of the tax credit depends on the number of jobs created and the amount of equipment purchased. Turns out, Spalding & Day was eligible. The company, which has been in business since the 1940s, added 10-15 jobs over the past several

30 May 2015 | The Goods | KAM.US.COM

years and Day had been putting his profits back into the company. He received a small business tax credit of $7,000. The money was well worth the effort. “The process of applying for the small business tax credit was incredibly easy,” said Day. “I just had to download a few forms, fill them out and then hand them over to my accountant. The approval process was extremely fast and straightforward.” Kentucky allocates $3 million for the KSBTC credit each year. Last year, Kentucky businesses received less than a tenth of the money allotted for the credit because very few companies applied for it. Day has an idea why the credit is being under utilized. “Small business owners are so focused on their day-to-day operations that we don’t have time to look for outside help,” Day said. “I think if more small businesses knew of this opportunity, they would take advantage in a heartbeat.” Day, himself, is applying for the credit again this year as he plans to hire more employees and further invest in his company. The KSBTC is helping drive that investment. “Many companies are on the fence about whether or not to expand,” he said. “The Kentucky Small Business Tax Credit is an incentive to take that step forward.” Would Day encourage other small business owners to use the KSBTC? “No doubt,” he said. “A few thousand dollars might not sound like much to a big company, but to us little guys, it makes a huge difference. Anything to alleviate the tax burden on small businesses is vital. In fact, I’ve been telling other small business owners about the credit, hoping it’ll help them grow, too.” It’s simple to see if a business qualifies and to apply for the credit. Interested business owners or their accountants should contact the Kentucky Cabinet for Economic Development at 800-626-2250 and its small business experts will walk them through the process.



FEATURE | Lessons Learned from Toyota

Lessons One Smaller Manufacturer Learned From Working With Toyota By Jeff Turner

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en years of hard work and perseverance finally paid off when we got our foot in the door with Toyota. Chosen as only one of three domestic manufacturers to work with the global car manufacturer, we were eager to learn the famed Toyota Production System (TPS) as it is hailed as the “crème de la crème” of manufacturing processes. In February, we shipped the last of the seven machines we designed and manufactured to be used as part of the fender assembly process in three Toyota plants in San Antonio, Texas, Baja, California and Georgetown, Kentucky. The entire experience challenged us to examine our own methods and procedures.

Multi-leveled Communication

As you might imagine, conducting business with a major manufacturer requires multiple levels of communication with various departments, which can become lengthy and cumbersome. For example, if we had questions during the design process with smaller customers, a simple phone call or visit would suffice, remedying the situation in a matter of hours. But, with Toyota, getting approvals or answers could take a couple of days because it must go through multiple people in several departments. As a result, we learned to be more proactive in anticipating any issues or potential problems on the front end with each successive project for Toyota. That way, we could address all issues or questions in the beginning to avoid timely delays. We have carried that proactive approach into projects with new customers in an effort to be more efficient and timely. To aid in the communication, Toyota provided a communication liaison, which was integral to the overall process. If we were waiting for a response to a design problem, we could contact the liaison, who would get in touch with Toyota directly. Having that liaison at our disposable proved invaluable in getting speedy responses. 32 May 2015 | The Goods | KAM.US.COM

Detailed-orientated Processes

Toyota excels at the details. In our experience, not many customers provide us with project specifications. But that wasn’t the case with Toyota. From the beginning, the car manufacturer provided us with incredibly detailed project specifications, including concept drawings, required voltage, general numbers and needed sensors. This proved highly effective because it cut down on the guesswork and allowed us to focus on delivering the machine they expected. While there were still some questions or issues that arose, having a detailed project specification eliminated extraneous work. Since working with Toyota, we are implementing a new project specification procedure with new customers to maximize time and efficiency.

Issue-tracking Procedures

When it comes to tracking issues, Toyota uses a PowerPoint method for documentation and resolution. For example, when we would come across a design problem, we would create a PowerPoint slide with an image of the problem, along with a detailed description. Then, we would send that to Toyota, who would create a slide detailing the solution and then send it back. As more issues would arise, another slide would be created. PowerPoint was an effective method to track all issues and ensure resolution. We have since implemented the same PowerPoint method with other customer projects to much success.

Trimming the Fat

No matter how much your standard processes resemble Toyota’s, be prepared for some disruption to your normal routine because Toyota overhauls shop operations to mimic the “Toyota way.” During that time, we learned how to reduce production costs through standard packaging, products and design, as well as, how to cut corners to maximize time and efficiency.


FEATURE | Lessons Learned from Toyota

While we’ve maintained several of Toyota’s processes, we also reverted back to some of our effective procedures. Upon completion of the projects, it took a few days to get back to our “normal,” but the knowledge you gain is worth the minor inconvenience.

the review, we were able to locate our strengths and areas needing improvement. Toyota praised us for our facilities and our hospitality. Further, the car manufacturer expressed how pleased it was with our in-house capabilities and willingness to react swiftly to any issues that arose during the final stages of each project. We have Lack of Access taken that feedback and used it to better serve With most jobs, once the machine leaves our our other customers. shop, a representative accompanies it to the Overall, working with Toyota was a learning customer’s shop to ensure a smooth installa- opportunity and a chance to grow as a compation. With Toyota, once the machine leaves the ny. If your company is pursuing an opportunity shop, it becomes Toyota’s property and our job to work with a global manufacturer, be flexible is done. Because of that, we did not have access and open to change, as your normal routine will to more networking opportunities on the pro- be shaken up. Use this opportunity to evaluate duction floor like we do with other projects. So, whether new policies and procedures could don’t go into the experience hoping for more make your business run more effectively. While networking opportunities because the chances there may be some hiccups along the way, the of that are slim. However, the opportunity to knowledge you gain from working with a global work with Toyota far outweighs the lack of net- manufacturer is invaluable to future growth. working opportunities. Jeff Turner CEO Turner Machine

Review process

Toyota’s review process is reciprocal. While the manufacturer provided us feedback, we also provided Toyota feedback, as well. During

ThinkKentucky.com (800) 626-2930

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KENTUCKY Thousands of Kentucky-made products make their way to customers around the world every day. This high demand is the reason Kentucky’s most recent manufacturing GDP growth rate of 10.7 percent, the third highest in the nation. The Kentucky Cabinet for Economic Development understands the importance of manufacturing on Kentucky’s economy and strives to encourage the startup, growth and retention of manufacturing jobs. By offering an array of tools and services, we can be your strategic partner for success. Visit ThinkKentucky.com to explore the many opportunities Kentucky holds for you.

KENTUCKY ASSOCIATION OF MANUFACTURERS 33


DEPARTMENT | Labor Law

Be Mindful of Wage and Hour Laws When Non-Profit Employees Volunteer By Nick Birkenhauer

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mployees who work for not-for-profit organizations can be some of the most committed and caring employees in the workforce. Indeed, it is not unusual for nonprofit employers to hire employees who are motivated by a passion for the organization, or the organization’s cause, as much as a paycheck. Beyond their regular job duties, these employees may wish to give back to their organization, outside of their normal work day, in a volunteer capacity. For instance, a clerical employee at an animal shelter may wish to volunteer at a weekend pet adoption event. While volunteer events like these often benefit all involved – the employer, the employee and those served by the employee’s volunteer services – it is imperative that employers treat employee volunteerism appropriately and with caution. Under federal wage and hour laws, even employees who volunteer their time and services may be considered to be “working,” and therefore entitled to compensation, under the Fair Labor Standards Act (FLSA). According to Section 6 of the FLSA, an employer must pay all employees not less than the minimum wage for all hours worked. For purposes of the FLSA, such time is referred to as “compensable time.” Under certain circumstances, compensable time can also include any time employees spend volunteering. Specifically, time spent volunteering on behalf of, or at the request of, the employer may be

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considered by the Department of Labor (DOL) – the federal administrative agency responsible for enforcing the FLSA – to be compensable time. For salary-exempt employees (i.e. professional, executive and administrative employees who meet the DOL’s criteria for exemption from overtime regulations), this issue typically will not be of concern, so long as the exempt employee is being paid at least the minimum wage for all hours worked (which is almost always the case for these typically higher-salaried employees). On the other hand, employee volunteerism is a significant area of concern when it comes to hourly employees. For these non-exempt employees, an employer is required to pay overtime for all hours worked in excess of forty hours in a workweek. In certain circumstances, this may include time spent volunteering, if such time is classified as “compensable.” The general rule for determining whether time spent volunteering is “compensable” time is set forth in 29 CFR 785.44, which provides: Time spent in work for public or charitable purposes at the employer’s request, or under his direction or control, or while the employee is required to be on the premises, is working time. However, time spent voluntarily in such activities outside of the employee’s normal working hours is not hours worked.


MANUFACTURING INNOVATION 2015 KENTUCKY IS #1 AUTOMOTIVE Kentucky has just been awarded the Governor’s Cup from Site Selection magazine. In 2014, Kentucky led all other states in the number of new and expanded facilities per capita.

WORKFORCE Partnerships such as KY FAME and others allow Kentucky to create a pipeline of highly-skilled talent to meet the needs of manufacturing employers in the Commonwealth.

ENERGY Kentucky enjoys some of the most affordable energy in the nation. In large part, the low price results from producing more than 90 percent of our electricity from coal.

Kentucky is #3 in the nation for automotive production. 80 counties have an employer engaged with the industry and 10 different car and truck models are made in KY.

AEROSPACE Aerospace exports topped $7.6 billion (over 20%) in 2014, ranking Kentucky behind only Washington and California among all US states and providing thousands of jobs.

LOCATION Strategically located, Kentucky’s borders are within 600 miles of over 60% of the nation’s population, personal income, and manufacturing business establishments.

KAM.US.COM In light of this general rule, and as set forth in various opinion letters, the DOL has clarified several factors which determine whether an employer must compensate an employee for performing volunteer work. According to the rulings set forth in these opinion letters, time spent volunteering is not compensable time if: (1) the volunteer work is done outside of normal working hours; (2) the volunteer services are not the same type of services performed by the individual in the course of his or her regular employment; (3) there is no coercion or undue pressure on the employee to perform the volunteer work; and (4) the services are performed for a civic, charitable or humanitarian reason, without promise, expectation or receipt of compensation. The DOL will usually examine each of these four factors in light of the given circumstances of a particular situation, and may lend more weight to one or several of the factors, depending on the case. While the DOL will always consider the totality of the circumstances, and each of the four factors will be examined, it is not uncommon for the DOL to make a ruling based on a single one of the factors. For instance, if the DOL discovers the

existence of “pressure or coercion” on an employee to perform volunteer services, there is a very good chance that the DOL will find such “volunteer” time to be compensable time, the application of the other three factors notwithstanding. If you are a non-profit employer, keep these considerations in mind the next time you sponsor, or participate in, a volunteer function in which your employees might also be participating. Nick Birkenhauer is an associate at DBL Law and his practice focuses on advising employers on various aspects of their employment and labor law needs. He represents employers of all types and sizes throughout the Commonwealth of Kentucky. For questions or more information, contact Nick at 859-426-2176 or via email at nbirkenhauer@dbllaw.com.

Nick Birkenhauer Associate DBL Law

KENTUCKY ASSOCIATION OF MANUFACTURERS 35


FEATURE | KY Arbitration Agreements

Stop, do not pass go and conduct no discovery on the merits! By David Treacy

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entucky has a strong public policy in favor of enforcing arbitration agreements. Parties that include arbitration clauses in their agreements often do so to avoid the perceived expense of litigation as compared with arbitration and hope to avoid the broad written discovery, document production, and deposition practice that can be attendant to civil litigation. A party named in a Kentucky lawsuit who wants to enforce a pre-existing arbitration agreement typically moves the court to compel arbitration of the dispute after they are served with the complaint in the lawsuit. If the party who filed the lawsuit argues there is no valid agreement to arbitrate, the court may permit limited, targeted discovery on whether the parties reached such an agreement and then conduct a summary hearing to resolve the question. But what happens to the case while the court is considering its ruling on the motion to compel arbitration? May discovery on the merits of the case proceed while the motion is pending? The Kentucky Court of Appeals’ recent decision in Stanton Health Facilities LP v. Fletcher reinforces Kentucky’s strong public policy in favor of arbitration by making clear that Kentucky’s version of the Uniform Arbitration Act (the “Act”) does not permit discovery to be taken on the merits of the claims and defenses in a lawsuit while a motion to compel arbitra-

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tion is pending. The decision instructs trial courts to focus on the validity and scope of an agreement to arbitrate under Kentucky law when it has been raised in a case and prevents the parties from moving a case forward to the merits even if a court is delayed in evaluating whether an enforceable arbitration agreement exists. In Stanton Health Facilities, the plaintiff sued a rehabilitation facility alleging her father received negligent care and medical treatment. The rehabilitation facility denied the allegations and moved the trial court to compel arbitration of the parties’ dispute based on an arbitration agreement between the rehabilitation facility and the plaintiff’s father. The plaintiff responded by arguing that her father lacked the capacity to enter such an agreement. The trial court did not rule on the rehabilitation facility’s motion and instead had the parties engage in limited discovery regarding whether an agreement to arbitrate existed. Several months later, the rehabilitation facility renewed its motion to compel arbitration. Again, the trial court deferred a ruling on the motion to compel arbitration—this time instructing the parties to proceed with discovery on the merits of the case while awaiting its decision. As the trial court had not entered an order denying the motion to compel arbitration, the rehabilitation facility could not exer-


FEATURE | KY Arbitration Agreements

cise its right under the Act to pursue an immediate appeal. Therefore, rather than participate in the discovery process while awaiting a decision on its motion, the rehabilitation facility sought the extraordinary remedy of a writ of mandamus, asking the Court of Appeals to direct the trial court to stay pretrial discovery on the merits and issue a ruling on the motion to compel arbitration. Addressing the request for a writ, the Court of Appeals first noted that, in Kentucky, the improper denial of a motion to compel arbitration amounts to an irreparable injury because it denies a party its bargained-for contractual right to proceed with dispute resolution in its chosen forum. The Court of Appeals found that the trial court’s decision to force the rehabilitation facility to participate in pretrial discovery on the merits of the plaintiff’s claims before the trial court ruled on the motion to compel arbitration was causing an irreparable injury to the rehabilitation facility. Next, the Court of Appeals also found the trial court erred as a matter of law when it directed the parties to take pretrial discovery on the merits of the case while the motion to compel arbitration was pending. The Act provides that if there is a dispute on whether an agreement to arbitrate exists, “the court shall proceed summarily to the determination of the issue so raised.” The Act also requires a trial court to stay any proceeding involving an issue subject to arbitration. Based on this language, the Court of Appeals concluded that when a motion to compel arbitration is contested, the trial court should not allow any investigation into the merits via pretrial discovery, as “requiring a party to defend an action in court irreparably destroys the right to arbitration.” The Stanton Health Facilities decision has implications for litigants and judges alike. Where the existence of an agreement to arbitrate is contested, while limited discovery on the scope of that agreement might be required, Stanton Health Facilities gives parties seeking to enforce arbitration agreements under Kentucky law a strong backstop regarding exactly what discovery may be taken before a motion to compel arbitration is decided. Plaintiffs facing arbitration clauses who seek to avoid the reach of Stanton Health Facilities may attempt

to take pre-suit depositions under the Court Rules or may be more prone to plead claims that would not be covered by the arbitration clause as drafted in hopes of procuring discovery on the non-arbitrable claims–which discovery could overlap with discovery on arbitrable claims. Finally, the decision puts pressure on trial courts to resolve motions to compel arbitration quickly as the parties’ dispute will remain in limbo until the motion is resolved. For questions or more information, contact David Treacy at 859-425-1037 or via email at david.treacy@dinsmore.com.

David Treacy Dinsmore & Shohl LLP

KENTUCKY ASSOCIATION OF MANUFACTURERS 37


FEATURE | Small Business Retirement Plans

Exploring Small Business Retirement Plans By Rick Fuller

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s a business owner, traversing the universe of retirement plans and can be challenging, but offers many rewards for your business and your employees! Benefits include: attracting and retaining employees, offering tax advantages for the business owner and employee, pre-tax savings for employees, employee tax-deferred retirement savings vehicle and helping everyone save for retirement. The most important question you will need to answer is what kind of plan is right for my business and my employees? There are a variety of small business retirement plans; each is designed to provide the benefits and flexibility that a small business needs. It is best that you discuss your needs with a Financial Advisor to help you through the process. So what does a retirement plan do for me and my business? Retirement plans have special tax privileges under the tax code. So they allow a business owner or employee to defer taxes until the money is taken out of the plan. Simple enough...right? Where it gets complicated is in the contributions, and who can participate and who

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can’t. Will there be a match or not? Do you want to make regular contributions or when you can afford it? Are you willing to pay for plan administration? There are some lower cost options for a small business owner who wishes to have a retirement plan. SEP IRA or Simple IRA is a lower cost and easier platform method to establish a retirement plan. These types of plans are easier to setup, and plan administration is simple. What is a SEP IRA? Simplified Employee Pension IRA (SEP) is an employe- sponsored plan funded by employer contributions only. They are not required to have contributions made every year. However, any year that they are, they must be made for every eligible employee. How much can be contributed to a SEP IRA? The employer can contribute up to 25% of an employee’s compensation or $53,000.00. What about the Simple IRA? The Savings Incentive Match Plan for Employees is an employer-sponsored retirement plan that can be funded by both the employer and the employee, pre-tax! They give the employee the


FEATURE | Small Business Retirement Plans

ability to defer a portion of their salary into their own account along with the employer contribution. Simple IRA’s are limited to 100 employees. Employees can defer up to $12,500 per year - $3,000 in catch-up for participants over the age of 50. Employers can make the following two choices when contributing to a simple IRA, matching contributions or non-elective contributions. Matching requires the employer to match the amount the employee is deferring up to 3% of his compensation. Non-elective contributions the employer can make a contribution of 2% of contribution for all eligible employees. There are some limitations. That is a brief glimpse into a couple of options for the small business owner. There are other solutions as well, such as a solo 401K, 401K, 403b and a Defined Benefit Plan. In the end, all of these plans are designed to encourage employees to save for retirement. Employees should also supplement their retirement strategy with other tools such as insurance, personal IRA, and annuities to reach their goals. Relying on one retirement vehicle will most likely result in the employee falling short of their goals.

Tax and/or legal advice is not offered by Transamerica Financial Advisor, Inc., Transamerica Financial Group Division or their affiliated companies. Please consult with your personal tax professional or legal advisor for further guidance on tax or legal matters. Securities and Investment Advisory Services offered through Transamerica Financial Advisors, Inc. (TFA), Transamerica Financial Group Division - Transamerica Financial Advisors Inc, 271 West Short Street, Suite 510C, Lexington KY 40507 – 859-977-8907 - Member FINRA, SIPC, and Registered Investment Advisor. NonSecurities products and services are not offered through TFA. Rick Fuller – Investment Advisor Representative - Specializes in helping business owners and individuals with investments, insurance and retirement plans to help them reach their financial goals. For questions or more information, contact Rick at 859-977-8907 or via email at Richard.fuller@tfaconnect.com. Rick Fuller Investment Advisor Representative Transamerica Financial Advisors, Inc.

KENTUCKY ASSOCIATION OF MANUFACTURERS 39


FEATURE | Patent Litigation Reform

U.S. House of Representatives Continues to Consider Patent Litigation Reform By David Nagle

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he problem of “patent trolls” continues to garner the attention of government officials, and after its recent recess, the U.S. House of Representatives is again considering a bipartisan bill intended to further curb abusive litigation tactics. As many businesses, big and small, have learned, a “patent troll” is a pejorative term applied to an entity that owns and enforces patents, but does not manufacture any patented products. Rather, the business of the patent troll is to negotiate and collect license fees for the right to practice under its patents, and negotiation is often tied to aggressive lawsuits for patent infringement. Even if the infringement allegations are of questionable merit, the very high costs associated with defending such a lawsuit often drive a targeted business to negotiate a resolution. H.R. 9 (“The Innovation Act”) is intended to target abusive litigation tactics that are commonly employed by patent trolls. As currently drafted, the Innovation Act would enact the following:

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1. The plaintiff would be required to provide more detailed information about the factual basis for any lawsuit at the outset. Specifically, the plaintiff would have to provide a complete explanation of its infringement allegations. 2. In most cases, discovery would be limited until the Court has construed the claims of the patent(s) in issue. In other words, written discovery and depositions (and the often high costs associated with such discovery) would be postponed until key legal issues have been resolved. 3. The real party behind a lawsuit (i.e., a party with a direct financial interest) would have to identify itself and participate in the lawsuit to prevent entities from hiding and attempting to avoid responsibility for baseless claims. 4. The plaintiff patent owner would be required to litigate against a manufacturer of a product, rather than pursuing claims against customers. 5. Finally, and perhaps most controversially, attorneys’ fees would be awarded to a prevailing party in patent litigation, absent a reasonable basis in law or in fact for the losing party’s position.


FEATURE | Patent Litigation Reform

Although many of the provisions may sound reasonable, especially in the context of a troublesome “patent troll,” there are valid concerns about the potential adverse impact on legitimate patent litigation. In this regard, the additional burdens imposed by The Innovation Act would apply to all plaintiffs, including, for example, independent inventors, small business owners, and universities, increasing the costs for such entities to enforce their own patent rights. Indeed, two associations that collectively represent 145 leading research universities reached that same conclusion. In a recent letter that was directed to the Consumer Electronics Association, those research universities opined that “[a]ll entities without extensive litigation budgets, including nonprofit universities, startups, small companies, and individual inventors, are ill-equipped to operate in the environment that would be created under H.R. 9.” With universities and other significant constituencies voicing such objections and concerns, passage of The Innovation Act is certainly far from guaranteed, at least without further compromise and modifications. Indeed, in a recent hearing, the primary sponsor of The Innovation Action, Rep. Robert W. Goodlatte (R-Va.), seemed to acknowledge that some modifications were likely. Furthermore, testimony from the new Director of the U.S. Patent and Trademark Office, Michelle K. Lee, indicates that, while the administration supports the general objectives of The Innovation Act and believes that abusive litigation tactics should be targeted and curtailed, the administration also believes that some modifications to the proposed legislation are needed. For example, Director Lee was not supportive of postponing discovery until after claim construction, nor was she supportive of changing the standards for an award of attorneys’ fees. Finally, a very similar version of The Innovation Act passed by the U.S. House of Representatives in December 2013 died without action in the Senate in 2014, and it is questionable whether there is sufficient support in the current Senate for The Innovation Act.

how to protect and enforce its own patent rights must continue to make decisions under the current legal framework. At the same time, it is important to be mindful of the changing landscape and the ongoing debate in Congress. In this regard, other bills with similar objectives have also been proposed, including The STRONG Patents Act of 2015. Thus, any business facing questions about patent defense or patent enforcement should engage a patent attorney knowledgeable and experienced in this area of the law to assist and develop an appropriate strategy.

David Nagle Member/Registered Patent Attorney Stites & Harbison, PLLC

Enjoy complimentary WiFi at the 2015 Energy Conference! ADVOCATE EDUCATE CONNECT

For now, a business that is the target of a patent troll or a business that is thinking about KENTUCKY ASSOCIATION OF MANUFACTURERS 41


DEPARTMENT | MEP

Transitioning Employees to Leaders

By Scott Broughton

they can make a difference and hard work Leaders need tools to be successful. “Promote from within” is what we have truly does pay off. It allows them to dream of been taught. The assumption seems to be that accepting a leadership role is the natural transition for employees once they have gained the technical knowledge of their responsibilities. Although technical knowledge is obviously important, technical knowledge in and of itself is simply is not enough. The fact is, most people who are promoted from within do not have the proper tools in their tool bag to handle the added responsibility of leading others. In spite of this, there are many legitimate reasons to promote from within. According to David Hakala, author of Promoting from Within, published in HRWORLD, “Promoting from within is a powerful morale and productivity tool, as many studies have shown. It’s also an attractive recruitment incentive for employees who want to know if a long-term career path is available in a company.” This is one of the many things senior management can do to say, “Employees matter to us.” Promoting from within proves to employees 42 May 2015 | The Goods | KAM.US.COM

a better way in which they may possibly have some control. It gives them something to strive for and ultimately creates a more proactive, empowered workforce--and who does not want a group of self-thinking “get-‘er-done” types of employees? Leaders are supposed to lead by example, make jobs easier and more intuitive, empowering their workers, and generally being the liaison between floor workers and senior management. To do that, they need three things; 1. Technical knowledge of work 2. “Soft skills” to help create a positively empowered work environment 3. Training in Continuous Improvement philosophies

Technical Knowledge of Work.

All businesses have them—the seasoned experts who have been around for years and years. They are the “go-to” guys with the most knowledge and understanding. They have seen


DEPARTMENT | MEP

everything! At some point, they are looked upon as leaders, either officially or unofficially. After all, everyone wants to lead and everyone can be successful, right? Not necessarily so. For every success story of someone promoted from within, there are a half-dozen horror stories of someone promoted from within who did not work out. These are the individuals who were “simply not ready” or “did not have the right mindset.” Well, maybe they were ready but did not have the right mindset because they were not given the tools to allow them to be successful. Unprepared employees tend to be frustrated and make bad decisions, regardless of how those decisions relate to technical or leadership roles within an organization. Leaders/managers can be just as ill-prepared for their duties as your technical staff. How can you better prepare leaders? The same way you prepare any new hire: providing them a mentor and a guide. A mentor is someone the organization provides who has the patience and knowledge necessary to allow for proper training. They need to be able to employ patience and understand that with any new employee, mistakes will be made and they are all learning opportunities. Guides are simply a “how-to” manual that is reference material. It comes in many forms from formalized SOPs to shadowing a seasoned professional who can show them the ropes. Ultimately, it gives the employee the fundamentals and directions needed to fulfill the job requirements. It’s the “new hire manual” that lays out the proper procedures for completing tasks. Guides are just as important for new leaders as they are for new hires.

Soft Skills Training.

The biggest difference between an employee with leadership responsibilities and one without leadership responsibilities is leadership needs to interpret any given situation by taking into consideration employee personalities AND the technical needs of the situation and act appropriately. It’s not enough to simply know how to resolve the situation; they need to motivate OTHERS to resolve the situation. It’s these “soft skills” that are almost always lacking in new leaders/ managers. The lack of these “soft skills” makes sense

if you think about it. Who would have taught them that? Their jobs in the past were to gain as much technical knowledge and be as versatile as possible becoming a more valued employee. Their job was not to interpret nor motivate others. It was simply to get the job done. Soft skills need to be part of the training. Organizations such as the Advantage Kentucky Alliance has “soft skills training” through many programs such as our Training Within Industry programs. This program breaks the fundamentals down to Job Relations, Job Instruction, and Job Methods. This program involves mentorship, training and education, but also “learning by doing.” Advantage Kentucky Alliance has done this training over the course of one week as well as over six weeks, depending on the needs of the participants. Another such program involves the Growth Management System (GMS) which brings structure and focus to the development of ideas. One of the many benefits of a GMS program is focusing on empowering employees and teaching proper delegation skills--both core fundamental philosophies for any leader.

Continuous Improvement (CI).

In addition to “soft skills training,” leaders also need training on the fundamentals and yes, I mean even the seasoned experts. Leaders who do not think “out of the box” or learn from others will not have the lasting impact that is needed to become a “lean, mean, efficient machine.” This philosophical training involves many “how tos” that simply are not available within just one organization. By truly understanding that our improvement journey is always evolving and never-ending, leaders who participate in workshops and additional education learn how to employ processes that benefit both the company and also the employees. They learn how to apply lessons learned by other companies to their culture, and how to generate momentum leading to a team environment. For sales leaders, there is no better training than the Sandler Sales Training Boot Camp that is starting in April through the Advantage Kentucky Alliance. Depending on who your Leader is leading, AKA has assistance to help with education, mentorship and assistance. Good leaders take others’ techniques and KENTUCKY ASSOCIATION OF MANUFACTURERS 43


DEPARTMENT | MEP

philosophies, mix it with their technical aptitude, leverage their “soft skills” to excite the staff, and re-apply to their environment in a way that works within their culture. There are many moving parts and with anything that has moving parts, it takes training to master. AKA’s professionals have performed 1000’s of such workshops over the past couple of decades. Past clients not only found the workshops pertinent but many schedule workshops 12 months in advance. The Advantage Kentucky Alliance (AKA) is Kentucky’s resource to address the challenges of today’s hyper-competitive business environment. Cut cost. Be efficient. Achieve profitable growth. AKA’s cost-effective services give manufacturers the tools to be competitive. Regardless if it’s a specific need or total transformation, all technical assistance and training is customized to fit your objectives and develop the AKA as the Resource Center of choice in KY. We measure success by the

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results we deliver to your business. We are the only manufacturing assistance provider in Kentucky that independently verifies the impact of its services. Again, if you are “willing and able,” allow AKA to educate you on potential solutions. For more information about the Advantage Kentucky Alliance programs for “soft skills”, Continuous Improvement, Growth, Sandler Sales Training Boot Camp, Training Within Industry or other empowerment workshops, please contact Scott Broughton, Center Director at 814-505-3786, via email at scott.broughton@wku.edu or visit www. AdvantageKY.org.

Scott Broughton Center Director Advantage Kentucky Alliance


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