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PARTING Publications mail agreement #43155015

THOUGHTS Jayson Myers on the future of Canadian manufacturing

Issue 2, Volume 1 • Fall 2016

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Publisher Ronda Landygo ronda@prairiemanufacturer.ca 877.880.3392

In this issue We need more dragon slayers In this issue’s View from the C-Suite column, 3twenty Modular co-founders and Dragons’ Den alumni Bryan McCrea and Evan Willoughby give their take on how to inspire the next generation of manufacturing entrepreneurship.

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Parting thoughts

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Prairie Manufacturer Magazine Editor Derek Lothian sits down with outgoing Canadian Manufacturers & Exporters CEO Jayson Myers for a candid Q&A on the future of Canada’s manufacturing sector.

The new era of FX management

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Two decades ago, the practice of foreign exchange management was reserved primarily for multinationals and commodity traders. Today, with Prairie merchandise exports at an all-time high, it has become mission critical for even the smallest manufacturer.

Harnessing our innovation infrastructure

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The Prairies are home to some of the best R&D and commercialization assets on the planet — but are they being used to their full potential? Business writer Martin Cash examines what the region must do to up its innovation game.

Homegrown private equity

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Once considered the ‘bank of last resort,’ private equity firms were shunned as out-of-touch investors from far-off places, whose only mission was to maximize returns. But for a growing number of Prairie manufacturers, that couldn’t be further from reality.

An ambassador’s outlook

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With only weeks to go before the United States elects its 45th president, Canadian manufacturers are pondering the future of the world’s most important trade relationship. Canada’s former ambassador to the U.S. Gary Doer weighs in.

Next issue In our upcoming Winter 2016 issue, Prairie Manufacturer Magazine heads out to Alberta to explore how manufacturers are bucking low commodity prices to adapt and innovate. Our award-winning team of writers also takes a special look at Western Canada’s trade corridors — how goods are making it to market, and where those market opportunities are shifting. Booking deadline: November 18, 2016 Material due: November 25, 2016

Editor Derek Lothian editor@prairiemanufacturer.ca 306.380.3765 Special thank you to our editorial advisory committee. Creative Director Dana Jensen Sales info@prairiemanufacturer.ca

© Copyright 2016 Prairie Manufacturer MagazineTM All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without prior written consent of the publisher. Publications mail agreement #43155015 Return undeliverable Canadian addresses to: Prairie Manufacturer Magazine 207 Hugo St. North, Suite 3 Winnipeg, MB R3M 2N1 To change your address, or to be removed from the mail list, e-mail info@prairiemanufacturer.ca. While every effort has been made to ensure the accuracy of the information contained in and the reliability of the source, the publisher in no way guarantees nor warrants the information and is not responsible for errors, omissions or statements made by advertisers. Opinions and recommendations made by contributors or advertisers are not necessarily those of the publisher, its directors, officers or employees.

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Prairie Manufacturer Magazine • Fall 2016


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Editor’s Notebook

The imperative of ‘big, innately silly ideas’ By Derek Lothian

B

ack in June, I attended the Saskatchewan Construction Association’s annual conference near Waskesiu, on the fringes of Prince Albert National Park. Maybe it was the three straight days of sun, maybe it was the unwelcome remnants of the Great Western Pilsner, but there I found myself — bright and early Saturday morning — oddly indifferent to the lucky foursome teeing off only yards away. Instead, I sat spellbound, listening to business commentator Paul Martin hash out his ‘big ideas’ for the future of Saskatchewan prosperity. The first I really enjoyed: ‘Pulling a Newfoundland’ and inviting the Northwest Territories to join the provincial brotherhood as an extension of Saskatchewan. Instantaneously, our region’s natural resources would have access to tidewater, and we would have a hammered stake in the mineral-rich north for the next 50-plus years of exploration. The second I liked even more (and continue to take credit for whenever Paul isn’t around to hear): Capping lifetime personal income tax. Let’s just say we do so at $1 million dollars (or whatever number makes sense) — $750,000 if you pay in one lump sum. The province would have the money up-front to invest in things like critical infrastructure, and Saskatchewan would, overnight, become the Switzerland of North America. High networth investors would flock here to park their money, and we would have the capital network necessary for new entrepreneurs to thrive. Why do I bring these up? Because they are such big, outlandish ideas, they teeter between absurdity and genius. And that’s exactly what we need — in Saskatchewan, Manitoba, Alberta, and right across this great land we call Canada. The status quo is no longer enough. Our inaugural issue of Prairie Manufacturer Magazine was all about just that — thinking big, from exploring the new role of Indigenous economic development in manufacturing, to questioning everything we thought we knew about motivating people. This pursuit of transformative — and, at times, uncomfortable — innovation must find its way into our everyday creed as a manufacturing community. I’ve been fortunate in my career to visit some truly amazing places. One that jumps to mind is the cozy village of Hallstatt, tucked away deep in the Austrian Alps. It was here my now-fiancée and I had the chance to hike along the trail of the world’s oldest active pipeline — a 40-kilometre-long

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Prairie Manufacturer Magazine • Fall 2016

chain of hollowed-out tree trunks (now replaced by plastic pipes), built in 1597 to transport salt brine from nearby mines. I can’t help but to wonder how innately silly the idea must have seemed at the time, yet at how that very concept helped to eventually transform our entire economy on the Prairies, and our manufacturing sector as we know it. I’m reminded of William McKnight, former president and chairman of 3M, who once mused: “Listen to anyone with an original idea, no matter how absurd it may sound at first. If you put fences around people, you get sheep.” These big, ‘innately silly’ ideas will be the difference between leading and following in the new global economy. There’s no doubt that manufacturing is changing — and at a pace we haven’t seen since the Industrial Revolution. The forefront will belong to those recognizing the trends, embracing the challenges, and innovating as a cultural imperative. Here are three of those trends I believe are ripe for big ideas in manufacturing:

The ongoing decentralization of products and services If you haven’t already seen the infographic making the rounds on social media, consider this: Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s largest media owner, creates no content. Alibaba, the world’s most valuable retailer, carries no inventory. And Airbnb, the world’s largest accommodation provider, owns virtually no real estate. Something very interesting is happening. In manufacturing, we have disruptors of our own. More than half of global manufacturing production already takes place near the consumer. Add in the fact that 3D printing — which we take a closer look at in this issue (Page 62) — is expected to grow to a $21 billion industry by the end of the decade, and we can be sure the nature of supply chains is about to change forever.

The rise of data-driven decisionmaking We’ve all heard the term big data. But how ‘big’ are we talking? More than 90 per cent of all the data that exists in the world has been created in the past three years. That comes from structured data — databases, ERP systems, CRMs — as well as


unstructured data — social media, videos, online blogs. Digital content is doubling every 18 months. Now, I know you’re probably thinking: So friggen what? Well, let’s look at four new business value propositions that have stemmed from big data: Cloud-connected cars are now helping insurance companies set premiums based on information collected on driver habits, including speed, rate of acceleration, rate of breaking, and time spent on the road. Facebook now analyzes location data, as well as voluntary details, such as your ‘likes’ and hobbies to customize advertising. In 2012, during Superstorm Sandy, Twitter hashtags were leveraged to find out where power, fuel, water, and emergency goods were urgently needed. And then there are smart factories. Industrial powerhouses like Pepsi, Siemens, and GE are harnessing unprecedented connectivity, embedded sensors, and integrated software to collect data from plant and supply chain operations, analyze that data, and drive real-time improvements in production, procurement, and processes.

The globalization of education Earlier this year, I had the opportunity to tour through one of the fastest-growing farm equipment manufacturers on the Prairies, located in a town with roughly the same population as the company’s workforce. In speaking with their CEO, he showed me a handful of job postings the organization had available. Out of eight positions,

six involved international travel, and four required foreign language capability, from Mandarin to German. Globally, the number of workers being assigned by their employers to roles outside of their home country has increased 25 per cent over the past decade, and is projected to increase by another 50 per cent by the year 2020. While the grips of nationalism have tightened in many markets around the world, we cannot ignore or unlink the interdependency of global economies. Take China. Chinese construction projects will use more concrete in the next five years than the United States has used, ever. You cannot simply tell a person that and have them truly understand the magnitude of what it means. You need to be there. You need to see it first-hand for yourself. And that is exactly why our education efforts — internal to companies, as well as externally in our schools — must remain focused on borders beyond simply our own. If I had it my way, every professional diploma or degree program in Canada would be mandated to contain an optional international co-op component. Is that realistic? I don’t know. One thing I am sure of, however, is the rest of the world will not wait for us. We need more ‘big, innately silly ideas’ right now.

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View from the C-Suite

We need more dragon slayers By Bryan McCrea & Evan Willoughby 8

Prairie Manufacturer Magazine • Fall 2016


Dragons’ Den alumni Bryan McCrea and Evan Willoughby give their take on inspiring the next generation of manufacturing entrepreneurship

W

hat do a smooth-talking commerce student and an eager engineer have in common? Shipping containers, dragons, and an all-tooaggressive aversion to the word no. Our story starts in 2010 at the University of Saskatchewan — the birthplace of some of the province’s most innovative and thriving manufacturing firms: SED Systems, Vecima Networks, and International Road Dynamics, just to name a few. It was there we first crossed paths and began a journey that would take us to the airwaves

on national television, to Canada’s most powerful boardrooms, and, in recent years, all the way up to the northern tip of Alaska. The two of us became serendipitous allies during the fourth-year Wilson Centre for Entrepreneurial Excellence i3 Idea Challenge. Our big idea (okay, Evan’s): To turn shipping containers into housing for students. Truth be told, we soon realized it wasn’t a very good idea as far as business competitions go. Students don’t have money. We didn’t have money for land. It didn’t make a lot of sense. So, we took a step back and asked ourselves what the benefit would be of building anything out of shipping containers. Well, they’re stackable, transportable, and highly durable — perfect for mining as well as oil and gas companies working on remote, industrial sites. That was it. Lightning in a bottle. Before long, we had earned our first $30,000 — two times that if you count the in-kind marketing, legal, and accounting support that came along with the top prize for the business plan competition — and built our inaugural prototype. A chance encounter with serial investor W. Brett Wilson a few months later, and there we were: Two Prairie boys pulling a flat deck trailer through downtown Toronto to our taping of CBC’s hit show, Dragons’ Den. Long story short, we made our pitch and had our first investor, the same W. Brett Wilson we had met only weeks prior. Now that we had a billionaire’s money, we thought we should probably get serious, and 3twenty Modular was born. Our first contract was to build a Northern Saskatchewan camp for Claude Resources (now Silver Standard Resources), a gold mining operation, in January 2011. We had no idea how we were actually going to design and build the units, and, in turn, we lost our shirt. But it was the cost of entering the market. The good news was they were so impressed with the high quality and quick turnaround, the company ordered another Continued on Page 10

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million dollars of product in our first calendar year. We’d need more space. Soon thereafter, we started working out of a 3,000-square-foot farmyard quonset, and then a vacant 10,000-square-foot auction mart. We weren’t flashy by any means. The evolution of the business was not limited to our physical infrastructure. How we responded to the market evolved as well. Up until 2012, we had always sold things. Then, one day, our phone rang from Fort McMurray. A company needed to rent 10 units (which we didn’t have on-hand, by the way) and ship them within the next two weeks. All of a sudden, we were in the rental business. In 2013, for the first time, we responded to a public tender to build a 180-bed workforce housing camp for the Department of National Defense. Fifty-nine days later, we were trucking 36 modular units to Cold Lake at a price tag of $2.8 million. That federal contract showed we could do big projects for big clients. It also meant, however, additional capacity

was necessary — which, under normal circumstances, would have been fine. But it was also about the same time capital expenditures in the resource sector were starting to slow down. We have no illusions that we could’ve easily been an overnight boom and bust, if it were not for one critical decision to start diversifying into non-traditional revenue streams. Our biggest win was actually building portable school classrooms. Today, non-container-based work accounts for two-thirds of our sales, and we recently moved into a brand new facility of our own in Saskatoon’s north end. Why are we telling this story? We’re telling this story because we are in no way special, despite what our mothers may say. Unless you come from money these days — which we didn’t — it is incredibly hard to make a go of it as an entrepreneur. We are among the lucky few who came out the other side. There are lessons we’ve learned and observations we’ve made along the way, though, we think are worth highlighting:

Spurring entrepreneurship As kids, we all filled out those career aptitude tests. Some of us were supposed to be lawyers, others firefighters. None of us were supposed to be entrepreneurs. I’m sure many of us remember our friends from school whose parents did own their own businesses. We couldn’t relate, nor did we know what it took to get there. Few of us cared, either. Why? Because they still looked like our parents. Kids need to hear from entrepreneurs that look like their brother or sister rather than their parent or grandparent. And schools need to present entrepreneurship to young people as a viable first-choice career option, not as a footnote or afterthought.

Keeping unfocused When we launched 3twenty, everyone told us to focus, focus, focus. That was good advice, sort of, yet it limited our growth. We should’ve diversified earlier. Let’s be clear: There is nothing wrong with focus; but if it dominates your business mantra, it can come at the

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Prairie Manufacturer Magazine • Fall 2016


Evan Willoughby (left) and Bryan McCrea (right), co-founders of 3twenty Modular.

Celebrating the grand opening of 3twenty Modular’s new facility in August 2016 (left to right): W. Brett Wilson, Bryan McCrea, Saskatoon Mayor Don Atchison, Evan Willoughby, and provincial cabinet minister, Gordon Wyant.

“Kids need to hear from entrepreneurs that look like their brother or sister rather than their parent or grandparent. And schools need to present entrepreneurship to young people as a viable first-choice career option, not as a footnote or afterthought.” expense of innovation. New companies need to embrace agility and get used to saying the word yes — even if it means not knowing how at that exact moment. We always say entrepreneurism is part of our culture, and not, in any part, by design. We’ve been innovative out of necessity. Having the ability to do so requires hiring excellent people that trust each other non-conditionally. In reality, that was our biggest mistake: Not hiring good enough people sooner. Just because your aim is to be one of the most costcompetitive players in the market does not mean you need to be the cheapest employer.

The role of government Innovation is like an egg. It’s not government’s job to lay the egg, or raise the chick; it does, however, have a role in protecting the egg and giving the chick a chance at maturing. The core principle governments must recognize is the interconnectedness of the Canadian economy. That’s amplified

perhaps even more in the west, where so many businesses like ours — from accounting firms to catering companies — rely on a prosperous resource development sector, which depends on pipelines and market access. Politics cannot get in the way of progress. We also must shift how we publicly support business investment, especially for start-ups. We need more incubators focused on industrial technology, not just advanced technology; we need to reward aggressive investment in young companies; and we need to incentivize programs that work. Take, for instance, the (to be polite) overly cumbersome Scientific Research & Experimental Development (SR&ED) Tax Credit. Unannounced revisions to SR&ED meant small companies like ours had invested significant time in an already bureaucratic process, only to find out the rules had changed. In our experience, the program has evolved to suit multinationals with R&D departments — not small, growing enterprises

where innovation and research is less structured. The National Research Council – Industrial Research Assistance Program, on the other hand, is an excellent example of a model that works. It’s responsive, it isn’t administratively heavy, and it has accelerated our own R&D spend and product development.

Staying true to principle Call them cowboy ethics. When someone like W. Brett Wilson shakes hands, his intent is to do the deal. We’ve embraced those same values, and expect our staff, suppliers, and customers to do the same. It’s one of the most important pieces of our brand and identity. In the end, there is nothing easy about the business of manufacturing. We are constantly changing our definition of success to ensure we’re successful. We have no secret ingredient or special approach — we simply try to outwork our competition, each and every day. For small manufacturers, there is no substitute. Bryan McCrea and Evan Willoughby are the co-founders of 3twenty Modular in Saskatoon — winner of the 2014 Saskatchewan Manufacturer of the Year award.

www.prairiemanufacturer.ca

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Money & Markets

GROWTH from the ground up By Chris Dekker

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Prairie Manufacturer Magazine • Fall 2016


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his year, the Saskatchewan Trade & Export Partnership (STEP) celebrates 20 years of operation. While manufacturing has figured prominently in the province’s 350 per cent export growth in that timeframe, the majority of the increase has come from trade in commodities. But much has changed over those two decades. According to British novelist L.P. Hartley: “The past is a foreign country; they do things differently there.” If we could visit the country called 1996, 20 years away, we would be able to see just how different economic development strategies were back in the day. Leading into the 1990s, economic development was dominated by the big ‘D’ word — diversification. The overarching notion of diversification was to shift away from our dependence on resources. A few years ago, I joined 30 experts in economics, government, and academia for The Hon. James A. Richardson Discovery Roundtables, to examine the role of economic diversification on the Prairies. The result was a report from the CanadaWest Foundation, deliciously titled, Who Cares About Baskets? We’ve got Eggs!: Diversification & Western Canada’s Economic Future. One key observation was that diversification in the 1990s was generally meant to be “the creation of provincial economies resembling that of Ontario.” To this end, investment attraction strategies in the late 80s and 90s were largely focused on landing large-scale manufacturing facilities that were disassociated with our key sectors of the economy — a monumental task made even more difficult given limited labour pools and the fact that markets for the manufactured goods were located thousands of kilometres away. Not surprisingly, this approach was met with limited success. Instead, the CanadaWest report suggested future growth and diversification efforts in Western Canada should be rooted in the region’s resource base. “Economic development strategies in the west should focus on expanding and developing industries that are grounded in natural resources,” it read, “or on cultivating new streams of products and services that have their origins in resource-based economic activity.” Combined with programs to ensure local manufacturers are connected to propulsive sector supply chains, this is the new diversification strategy of today. This approach yields significant benefits when commodity prices are low and consequently provide cheaper feedstock for value-added processors or manufacturers. TheBy important take-away for Chris Dekker manufacturing now, and over the next two decades, is the incredible pan-sector opportunity this strategy provides, from forestry and mining to oil, gas, and — in particular — agriculture. For years, agri-food exports have been driven by the sale of raw commodities. With growing populations and rising purchasing power in the middle class, the time is right to expand our value-added ag sector, and take advantage of an increasing demand for food, feed, fuel, and fibre.

In Saskatchewan, the food and beverage sector has already blossomed to become a $4.25 billion industry, which encompasses more than 300 processors and 5,000 employees, and accounts for about 22 per cent of the province’s total manufacturing and processing output. And we have an achievable plan to reach total revenue of $6 billion by 2020. To reach this target here at home, and to achieve similar benchmarks in Alberta and Manitoba, governments must work together to capture economic value beyond primary production — by attracting investment, developing transportation infrastructure, promoting research and development, and creating new opportunities through export and business development support. Pulse crops are a blueprint for what can be accomplished — a timely example as we celebrate the United Nations International Year of the Pulse. It wasn’t long ago very few pulse crops were grown on the Prairies. Today, Saskatchewan alone makes up more than half of global production, with a young (albeit, thriving) value-added cluster that has sprung new ventures selling consumer goods, bio-products, and nutritionally advanced feedstock all over the world. As we move forward, STEP’s role will be to develop and promote international markets for the new products that can be created from pulses, cereals, oilseeds, and fruit grown right here in our backyard, ranging from food ingredients, healthy oils and antioxidants, to starches, alternate protein sources, and non-allergenic ingredients. In this effort, STEP, and all provincial trade promotion agencies, must employ the last pillar of the new diversification strategy — market diversification. If you examine the customer list of most small and mid-size manufacturers, you will find the 80/20 rule holds true — that is, 80 per cent of their sales are from 20 per cent of their clients. This, too, applies for international markets. In 2015, 77 per cent of all Canadian exports were shipped to the United States. While the proportion of exports to the U.S. from the Prairies as a whole is similar, Saskatchewan has been able to diversify its markets such that only 54 per cent of its exports ship south of the border. Export Development Canada Chief Economist Peter Hall noted that, “Saskatchewan has led the way in something we like to call trade diversification. About a quarter of all trade from Saskatchewan ends up in emerging markets.” Trade diversification, of course, decreases dependence on markets that can be impacted by economic stagnation, regional conflict, or protectionism — an important part of our regional growth strategy. Without question, we have progressed exponentially over 20 years, and the opportunities over the next 20 are limitless. Just like some foreign countries, 1996 would be a nice place to visit, but I wouldn’t want to live there. Chris Dekker is the president and CEO of the Saskatchewan Trade & Export Partnership.


Oil slump squeezing Alberta manufacturing jobs By Jonathan Hamelin

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hese days, Alberta manufacturers are hardly having a gas. The devastating drop in crude prices — from more than $107 per barrel only two years ago to the $40 mark being edged upon this summer — has caused a downward jolt in capital investment, delaying or cancelling many projects altogether. In April, the Canadian Association of Petroleum Producers forecasted capital investment in the country’s oil and gas sector to drop to $31 billion this year, down from a record $81 billion recorded in 2014. For companies servicing the industry, it has been a rocky ride. “All of the business is drying up,” says Tony Lam, executive vice president of engineering and operations for StreamFlo, an Edmonton-based manufacturer of wellheads, as well as gate, check, and surface safety valves. “There are no longer any new projects. They might go back to make some changes to improve production; but otherwise all of the drilling projects for heavy oil have disappeared.” The sluggish Canadian dollar has been no friend, either. “It has been challenging trying to purchase raw materials. With the struggling [loonie], suppliers in Canada can’t really compete, so we’ve had to outsource raw materials overseas in U.S. dollars,” explains Lam, adding the conditions also make it difficult to manage costs. “It’s a tough situation trying to buy materials in U.S. dollars

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Prairie Manufacturer Magazine • Fall 2016

and sell in Canadian dollars without overpricing. It’s a tall task to achieve.” Stream-Flo is not alone. Through the first half of 2016, Alberta manufacturing sales failed to hit $30 billion for the first time since 2010, coming in just shy of $29.6 billion — a 14 per cent year-over-year decline. Durable goods, meanwhile, of which machinery and fabricated metal products are a major contributor, were down nearly 24 per cent over the same timeframe. On a whole, the sector has shed 8,500 jobs since January, and 33,500 since the five-year employment high set in August 2014. Few experts are surprised by those numbers, especially given lacklustre exploration activity. According to the Canadian Association of Oil Well Drilling Contractors, only 30-or-so drilling rigs were in operation throughout Western Canada during the first week of May — a utilization rate of about four per cent. To fully understand the impact to manufacturing, Calgary economist Mike Holden says it is important to look both downstream and upstream. “On the downstream side, petroleum refining is one of Alberta’s largest manufacturing industries,” he explains. “When the price of oil goes down, the value of crude goes down, the value of petroleum goes down, the value of refining goes down, and the value of petrochemicals goes down. “Secondly, there’s the supply chain, which goes upstream. Massive cuts to

capital spending in the oil sands and elsewhere have caused a drop in demand for manufactured goods made in Alberta, such as steel, pipes, valves, gauges, and machinery.” The key, says Holden, is diversification — although he acknowledges that doesn’t happen overnight, nor is it reasonable to transplant an industry like aerospace into the province and expect it to prosper. But that doesn’t mean manufacturers should sit around and wait. “In spite of the challenges and the declines in energy, it still makes sense to diversify around that industry in Alberta, whether it means selling our goods in other countries, or using the expertise we have to branch off into additional or related industries,” he says. “An obvious example would be technologies that will help reduce the greenhouse gas emissions profile of the Alberta energy sector.” At Stream-Flo, diversification has been positioned front-and-centre, as the company redistributes resources towards driving innovation during operational downtime. “We’re not standing still. We are working really hard to come up with new products that are going to help out customers,” says Lam. “On the other hand, we also have to be able to spend the time right now looking to markets outside North America. Even though we already export to different parts of the world, we want to expand on this. This is not the time to be conservative.”


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Farm equipment sales projections show

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optimism in agriculture

@jpgervais Blog: fcc.ca/AgEconomist

The low Canadian dollar is poised to help Canadian farm equipment manufacturing throughout 2016 and 2017 in two ways. Expected to stay in the range of US$0.750.80 for the remainder of 2016, it will help boost sales of Canadian equipment in the U.S. market, and indirectly impact sales of equipment here in Canada too. A lower loonie leads to higher farm cash receipts for Canadian producers, and higher receipts lead to more equipment sales.

in 2017. Expectations in 2015 of lower commodity prices led to a slowdown in total equipment sales from their highs in 2014, a near-record year. In fact, given the strength of 2014 sales, the lower 2015 sales were still high enough to remain in line with the 10-year average.

Producers also tend to buy equipment based on their expectations of future cash receipts. And the future economic health of the Canadian ag sector looks bright.

Farm cash receipts likely to show strong growth in 2016

FCC’s annual report on farm equipment shows strength building in sales The recently published Projecting 2016-17 Farm Receipts and Equipment Sales, FCC’s annual report on farm equipment, provides a mixed outlook for sales of different classes of farm equipment in 2016, with further growth of all equipment in 2017. Total farm equipment sales (including combines) in Canada are projected to continue falling in 2016 and increase

Sales of 4WD tractors, which largely go to cash cropping farmers, are likely to do well in 2016, and grow again in 2017.

2015’s farm cash receipts ended strongly as the low Canadian dollar shielded producers from softer commodity prices. Canadian crop receipts are projected to increase in 2016, with another more modest increase in 2017. Crop receipts hit their high in 2013, and have fallen slightly since with increasing global production that caught up to the demand for agricultural commodities. However, production concerns in South America and robust demand from fuel, feed and export markets have helped strengthen futures prices of grains and oilseeds for 2016-17.

TOTAL FARM EQUIPMENT

Production continues to trend up The strength of the 2016 crop receipts will be in part due to the size of the 2015 crop. Although prices dropped, the sheer volumes produced made up the losses. Production of canola, corn and soybeans was significantly above each crop’s respective five-year averages, and larger than the 2014 crop. Wheat production has declined, but the impact has been offset by increases in other crops. Of course, the impact of weather on 2016 production is unknown, so 2016-17 projections of crop production assume average yields for the 2016 harvests. A low Canadian dollar helps too FCC Ag Economist projections for crop and livestock receipts suggest a strong Canadian ag sector. Higher farm receipts support farm equipment purchases. With a CAD hovering in the US$0.80 range throughout the year, sales of farm equipment in 2016-17 appear promising.

Visit fcc.ca/FarmEquipmentSales to view the full report and learn more.

4WD TRACTORS

30%

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2016

20% 10%

2013 2017 2014

2017

2013 2013

2017

0% -10% -20%

2016

2016 2015 2014

2014

2015

-30% -40%

2015

Source: Bloomberg and FCC calculations


Lessons in Lean

Next-level lean By Ian Marshall

T

hink, for a moment, of manufacturers in your network that have implemented and sustained long-term lean programs. Five years, 10 years, 20 years? How about in your own operations? Is lean merely set of tools, or is it a way of doing business, embraced from the shop floor all the way up to the corner office? If you’re wary to disclose the answer, don’t fret — you’re not alone. The truth is most lean programs fail to deliver the hoped-for results. Or, at least, they falter over time. Even Shingo Prize winners — companies that have been recognized for excellence in lean — publicly struggle to realize endured success. The more disparaging part is that few stop to ask why. Most business owners and senior managers think about lean as a vehicle to improve business performance. But to motivate, engage, and bring the workforce along, there has to be a compelling reason that goes beyond reducing costs or increasing sales. There needs to be a bigger purpose, a bigger reason to change. I remember listening to the CEO from Denver Health a few years ago. She talked about the tens of millions of dollars saved by the organization through lean. Yet, at the end of the day, she said, it’s all about saving lives. Closer to home, Decor Cabinets is another manufacturer that embraces customers in their company mission: To create cabinets people love and to build life into people’s lives. And if all else fails, consider Toyota. When you walk into a Toyota plant, you see the physical infrastructure, but you don’t see the human side in the background. Internally, TPS is actually thought of as the thinking people system — a call to action to an army of problem solvers channeling their energy into continuous improvement.

“When you walk into a Toyota plant, you see the physical infrastructure, but you don’t see the human side in the background. Internally, TPS is actually thought of as the thinking people system — a call to action to an army of problem solvers channeling their energy into continuous improvement.”

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Prairie Manufacturer Magazine • Fall 2016


If you blinked, you might have missed it. One word in the last sentence is the missing link in most lean journeys: A system. A clear and defined lean management system. David Mann, author of Creating a Lean Culture, is (in my humble opinion) one of the premier thought leaders in this space. He outlines three dimensions of lean management systems fundamental to sustaining results. The first centres on establishing visual controls and measurements around critical processes. The most common mistake made by manufacturers is limiting what they consider critical to attach KPIs. You need to look at not only end results, but also at the processes that deliver those results. Kitchen Craft, for instance, may have a goal of producing 250 kitchens per day. Those 250 kitchens don’t get built, however, unless they meet quality and productivity targets at each step of the manufacturing process — cutting, painting, assembly, and packaging. These days, machine monitoring makes it easy to collect data, but it only takes a marker and a whiteboard to connect the cell team to the process. The second element is formalizing an accountability mechanism. This includes daily huddles, assignment of tasks, and responding to the needs and demands of the team. Kaizens are often a spin-off of this process. It is important all areas have one key measurement that connects them to the process. If things are going sideways, it is immediately evident and tasks are assigned. The final piece of the puzzle is what Mann refers to as leader standard work. This is the thing most companies struggle with — how to take the front-line leader out of the firefighting, reactive mode, and shift them to a position where they can work on the system, not in the system. Toyota group leaders — the equivalent of our supervisors — spend 80 per cent of their time on the shop floor, all consumed connecting with and supporting team leads. Fifty per cent may be a more realistic target for most Prairie manufacturers. Now, don’t be intimidated if this all seems overwhelming. At Canadian Manufacturers & Exporters (CME) here in Manitoba, our membership represents between 50-60 per cent of total

ATJ

manufacturing shipments, and roughly half of our entire membership is involved in our lean development initiatives. Of that group, I can count on one hand the number that have cemented a lean management system directly connecting the people to the overall direction and focus of the company. It’s not something you need to rush into, either. Before you even start trying to establish a lean management system, you better ensure you have a certain level of stability in your business. New Flyer Industries, one of the largest manufacturers on the Prairies, spent three years after starting their lean journey focused solely on getting their house in order, creating basic symmetry and stability using 5S as the tool. I typically receive calls from companies that feel they are much further along than they are; and, when I sit down to look at the way they’re doing business, it’s borderline painful. You need to be honest with yourself. The person cutting the metal (or wood, or whatever other material you’re working with), bending the metal, doing the painting — the guy or gal adding the value: Do these people have the environment they need, with good lighting, a clean workspace, clear instructions, adequate supplies, proper training, and the required time in their day? Even if you’re not sure, start with that. And if you’ve nailed that down, move on to standardized work. Standardized processes (how to drill a hole, read a drawing, assemble a part, issue an estimate) are the domain of highly customized manufacturers and fabricators as well — not just those working in batch. Manufacturing success is about four, elementary pillars: Safety, quality, schedule, and cost — in that order. Lean is the ‘way’ to realize that success. Our industry is full of bright, capable people, who can always come up with a fix. It’s time to ask yourself: How will that fix be maintained? Ian Marshall currently serves as lean champion for CME Manitoba. He has more than 30 years continuous improvement experience with manufacturers throughout Canada and Europe, including senior positions with Motor Coach Industries and Lucas Industries.

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Striving to increase

PRODUCTIVITY Kaymor Machining and Welding Ltd., of Grande Prairie, Alberta, was striving to increase the productivity of its business to support continued success and growth. Past investments in equipment and technology increased capacity and gave more insight into operations through data, but the company identified that the full benefits these investments were meant to enable were not being achieved.

Kaymor was looking to address: l

l

l

Space constraints in the facility, limiting capacity and obstructing material flow Ad hoc work order management, which contributed to suboptimal machine utilization, operator downtime, and a heavy burden on the machine shop foreman Limited use of available data to drive material management decisions on the shop floor

How GO Productivity helped The Challenge

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Kaymor’s machine shop deals primarily with high-mix, low-volume production, posing unique challenges for streamlining and standardizing processes. Adding to this complexity are customer demands, including extremely short order lead times and short cycle time requirements driven by the nature of unplanned maintenance, which accounts for up to 80 percent of the business. Such an environment adds complexity to continuous improvement and process optimization efforts.

GO Productivity worked with Kaymor over a three-month period, spending six days on-site at the company’s shop learning about the business, the team, the processes, and the opportunities for improvements. The team was le d through a series of assessments, workshops, and roadmapping exercises which helped realize the desired improvements.

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The Principal Resource

Why safety training isn’t enough

[and what to do about it] By Warren Clark

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Prairie Manufacturer Magazine • Fall 2016


H

ow do you define workplace culture? What does it mean to you? Many times, I’ve heard it characterized as ‘the way we do things around here’ — taking the good, the bad, and the ugly implications along with it. All too often, manufacturers’ ‘safety programs’ are comprised of only the basic foundations of a safety system — policies, procedures, rules, responsibilities, new employee orientation, and training. But is training in all these areas enough? Should we be surprised then when safety outcomes don’t improve, or when we battle with the same recurring headaches day after day? Building and sustaining an enterprise-wide culture of safety requires a top-down strategy, wholly embraced and communicated by management. The ground-level buy-in, meanwhile, starts with action. Employees need to see unwavering support and action for safety, from both senior leadership and supervisors. They need to believe the company is willing to do whatever is necessary to protect the wellbeing of staff (even at the expense of profits). They want to see words become action. In addition, they need to be armed with the tools and awareness to make safe, individual choices — not just at work, but off-the-job as well. For most of us, the most dangerous task we’ll do every day without thinking twice is driving. Picture this: It’s a long weekend. You’re leaving work and wondering how you’ll make your 5:30 p.m. tee time at the local golf course. You’re dreaming about hitting that first shot when, all of a sudden, you pull out in front of a car you thought was turning. Horns start blaring and you’re left feeling about two inches tall, realizing (as you snap out of your fog) you could have been seriously hurt or hurt someone else. That sounds like a situation that could’ve happened to you, doesn’t it? Maybe it actually did. These things occur all the time, because it’s hard to maintain a sharp focus all the time — it’s mentally exhausting. Now, just imagine you are over your head in debt, are in the middle of a divorce, or are battling substance abuse. How focused would you be? Workplace safety does not start at the factory doorstep. I think about the incidents I’ve seen over the years, and I wonder what else was at play to have resulted in these events. No amount of guarding, procedures, PPE, or training would have prevented them. Intuitively, I know they have been foundationally rooted in a cultural disconnect — a failure to recognize the role of external, personal factors in workplace incidents. In other words: I’m talking about things that are outside the control of the organization. We’ve seen it in our own workplace. And while we are not near the ‘gold standard’ quite yet, the efforts we’ve taken to nurture a safe culture, and the subsequent decline in time-loss injuries, show a trend in the right direction. Those efforts were not overnight, nor were they absolute. They continue to evolve. The principles behind them, however, remain fundamental. Continued on Page 24

“Building and sustaining an enterprise-wide culture of safety requires a top-down strategy, wholly embraced and communicated by senior management. The ground-level buy-in, meanwhile, starts with action.”

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Prairie Manufacturer Magazine • Fall 2016

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The best way to derail a safety program is to be slow in addressing safety concerns. There needs to be clear expectations and a genuine attempt by all levels of management to listen and respond. Corrective actions need to be acted upon in a timely fashion, based on the level of hazard present. This concept also crosses over to incident reporting. Encourage full disclosure, and don’t criticize or downplay the issues your staff brings forward. That is the perfect recipe to eradicate trust, or destroy the employer-employee relationship in a unionized environment.

Communication Clear and open communication is the crux of any safety program. The trouble is that everyone feels differently about what ‘good’ communication is, and whether there is enough of it. I have spent considerable hours thinking about how to communicate an issue to staff, only to find out the memo was misunderstood, murky, or missed altogether. I know you feel my pain — but that cannot be a reason to regress. There is a delicate balance between disclosing enough information to ensure the message is relayed, and not too much that will overwhelm or dissuade people from listening (and comprehending). The medium needs to fit the message, too. Posters, e-mails, in-person meetings, and printed letters are all options. Selecting the wrong tool can create internal unrest, so choose wisely. When discussing important information, I’ve found group meetings,


where everyone has the opportunity to participate, work best.

Honesty You can easily substitute the principle of honesty with forthrightness. In my mind, they are two in the same. Employees want to know the facts, and they want to know them when they matter — no fluff. My theory is that if you exemplify trust in your staff to absorb and react to sensitive information, there is a stronger likelihood of self-ownership and change.

The other dimension of being honest is not external — it is a leadership team’s ability to be honest with itself. You know better than anyone where your organization stands, so don’t do anything too complicated or elaborate unless you, and your people, are ready and capable. The road of good intentions is paved with struggles and failure. Start small, build upward, and make compliance as simple as possible (while maintaining compliance with applicable regulatory bodies, of course).

Accountability I’ve always been struck by how less accountable many OH&S departments are compared to their sales counterparts. Can you fathom a business development team with no targets? The success of any safety program, though, should not be measured solely against the end outcome (injury rates, for instance). KPIs should, alternatively, be a product of the strategy, reflective of your organization’s values: Continued on Page 26

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How many safety improvement ideas were submitted by frontline staff? How many of those ideas were implemented? How many inspections and toolbox talks (or meetings) were held? Are inspections of critical equipment being completed? Accountability, by the way, does not start with your staff. Can you guess where it does start?

individual or team who can support staff in their challenges, whether it is through company employee assistance programs or simply listening, can help de-clutter the subconscious. Providing a safe haven for staff to talk or find resources to help them deal with issues is a great way of supporting employees, and can help them regain focus on their work.

Support your people

Diligence

indicative of safety, or commitment. You need champions, and they need to be visible — whether they are on the shop floor or in the local hockey rink. Make sure your organization values and rewards safety success — as a team and individually. It takes years, and a lot of momentum, to create a strong, positive culture of safety. It only takes a few bad decisions to turn the positive into a negative.

The existence of a good HR department is critical in helping build a strong safety culture. The burden of everyday life can be a struggle for people within your organization. Having an

Last, but certainly not least, I would be remiss if I didn’t touch on the requisites of patience, observance, and the willingness to go one level deeper. Signatures on a safe work practice or procedure are not

Warren Clark (CRSP, CES) is the health and safety manager with BEHLEN Industries LP, Canada’s largest manufacturer of steel building systems.

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Parting

thoughts Editor Derek Lothian sits down with outgoing Canadian Manufacturers & Exporters CEO Jayson Myers for a candid Q&A on the future of the country’s manufacturing sector

Jayson Myers will be stepping down as president and CEO of Canadian Manufacturers & Exporters in September.

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Prairie Manufacturer Magazine • Fall 2016


Derek Lothian denoted by the initials DL; Jayson Myers denoted by the initials JM. DL: Dr. Myers, thanks for taking the time. Since you started your career with Canadian Manufacturers & Exporters (CME) in 1991, a lot has changed in Prairie manufacturing: Sales have multiplied two-and-a-half times over — more than double the national pace. Employment has increased 38 per cent. And, in the last 15 years alone, average weekly earnings in the sector have swelled by 54 per cent — 16 points ahead of even the highest provincial rate of inflation [in Alberta]. Take us through the major milestones you’ve seen during your tenure. JM: There’s no doubt there has been a boom in Prairie manufacturing. Over the past 10 years, the centre of Canadian manufacturing activity clearly has shifted westward. When I joined CME in 1991, Canada and the U.S. had just signed a landmark free trade agreement, and Mexico was being brought into that framework to form NAFTA. At that time, it was clear the future of manufacturing over the next decade-orso was going to be built on exports to the U.S. Sure enough, and in no small part due to a low Canadian dollar, which hit 62 cents USD in 2002, manufacturing right across Canada boomed. Sales doubled over the 1990s. But 2002 was a turning point, and the decade that followed was a period of levelling off. The dollar shot up to par, sometimes even higher, and exports tapered off because companies couldn’t keep up with its rapid appreciation. Canada lost a lot of manufacturing capacity between 2002 and 2008 because of the currency. Then, the recession hit and — over a span of only eight months in 2008 and 2009 — an entire third of customer demand evaporated. That was the story for manufacturing across Canada. Yet, we still saw tremendous growth on the Prairies. Even with a higher dollar and the recession, commodity prices were soaring. Demand for agricultural equipment was strong. Our oil and gas and mining sectors were expanding rapidly. By 2013, Western Canadian oil sands operations were purchasing more than $60 billion annually for capital projects and maintenance, and a great deal of that went to Prairie manufacturers. In fact, what we saw coming out of the 2008-09 recession was the exact opposite of what happened in the late 80s and early 90s. The first time around, growth was powered by exports; and if you were selling only into the domestic market, you weren’t doing so well. The latest growth cycle, on the other hand, pivoted strongly towards domestic resource development, and manufacturers that were exporting bore the brunt of the downturn. Now, conditions have changed again. The commodity sector is soft, and manufacturers are again looking for export opportunities to grow. DL: You held the top job at CME for the past nine years. Are Western Canadian manufacturers more or less competitive now than when you assumed the role? JM: They are much more competitive now, no question. They are more entrepreneurial, more specialized, and more service-oriented. Unfortunately, it’s hard to measure that sort of value. We are held hostage by statistics that, quite frankly, I think are wrong and misleading when it comes to how

competitive manufacturers really are. Stats for, say, productivity measure how much product volume is going out the door — not how much value is being generated for customers. Prairie manufacturers know that if they are going to compete and grow, they need to be more agile and more flexible in order to respond quickly to customers and take advantage of new business opportunities. They need to be efficient; but more than anything else, they need to focus on how to create value for customers. It’s the solution they can provide that counts, not just the volume they produce. It’s an ongoing revolution we see on the Prairies, and one that requires a re-evaluation of business models. DL: Revolution is a big word in manufacturing. We’ve really only had three in the past, dating back to the Industrial Revolution. Do you think that’s what we are witnessing today? JM: Absolutely. New materials, as well as digital and advanced technologies, are revolutionizing every aspect of manufacturing, from finished products through design, development, production, logistics, and supply chain systems. That, however, is only one, small dimension of the revolution I see happening in manufacturing. The really interesting part is how the business of manufacturing is changing. It’s becoming more highly integrated with technology and services. It’s more extended across production and services networks that can be reconfigured to respond to changing business conditions. It’s certainly more global, more intensely competitive, and more innovative than ever before. The real challenge for manufacturers is simply how to make money. All of these changes pose serious challenges to standard ways of doing business. That said, there are opportunities for companies that can figure out how they can create customer value. DL: Balance that with Canada’s innovation performance, because — by almost every index — we’re falling behind. Is that an accurate portrayal of where we’re at? JM: We have some of the most innovative manufacturing companies in the world. But, in a general sense, yes, the bad rap is probably deserved. It’s no secret that Canadian manufacturers tend to be more risk averse and slower to adopt new techniques and technologies than in the United States, Western Europe, or Asia. That’s part of it. On the other hand, Canada’s strength has always been in problem solving. We’re renowned on the world stage for our technology development and engineering capabilities. What we’re terrible at doing is selling and marketing those capabilities, and growing businesses — actually translating our capabilities into value for customers. DL: So, it’s a sales problem? JM: One of the best parts of my job has been traveling around the world talking about Canadian manufacturing, and I can say without hesitation that we tend to lose a lot of business by being too humble. We feel if someone is giving us a sales pitch, they’re out to fleece us. Too often, we tend to think that manufacturing is just about getting product out the door. But today, you’re not just Continued on Page 30

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competing on your product — you’re competing on how well you know your customer, and on your ability to offer them a solution they want to buy. That type of a relationship takes time and commitment to develop. It needs to start with a conversation somewhere. DL: Let’s switch gears and talk about trade. As you know, the premiers announced back in July the framework for a new interprovincial trade agreement. Will that solve our domestic trade woes in this country? JM: The very first issue I ever worked on at CME was interprovincial trade, and I can tell you that things were much worse 25 years ago. But, we still have major restrictions when it comes to moving goods and people across Canada. It’s ridiculous when you think that U.S. and, potentially, European companies have better access to provincial markets than a domestic manufacturer wanting to do business across provincial boundaries. More personally, it’s ridiculous I can’t buy beer and wine, fruit or cheese, from anywhere I want in Canada. I don’t think this new agreement will do a lot to improve the situation. There are too many regulatory issues at stake. In my opinion, the only thing that will open interprovincial trade is if Ottawa actually exercises the power it has in the constitution to ensure free market access across Canada. Regulatory management, though, is a huge problem and it goes well beyond interprovincial trade. I’d love to write a book on the stupidities of Canada’s regulatory system. There are thousands of out-of-date or needless compliance requirements that are on the books simply on the whim of regulators. We need a lean approach to regulation in this country. We need to focus on outcomes and eliminate unnecessary compliance requirements. And we need to build a system that incentivizes regulators to help companies comply

rather than endlessly inspect and enforce — usually because it’s just easier to do their job that way. DL: How about international trade more broadly? It wasn’t long ago it seemed as if we were signing a new trade agreement every week. Have things really taken that dramatic of a turn, and what should Prairie manufacturers be looking for? JM: I think we’re in a very risky time for the Canadian economy and for trade. We are so exposed to international markets and financial markets — the U.S. in particular — and that makes us very dependent on access to those markets. The truth is that our trading partners may not be as equally committed to keeping their markets open as we are. Just look at what’s going on in the U.S. election. During the recession, everyone was heralding how we can’t go back to the 1930s and put up trade barriers, but that’s exactly what we’ve started to do with Buy America and procurement. The big risk is that it gets even worse. The only certainty right now is uncertainty. You have the Brexit throwing the European Union into question, Greek and Italian banks destabilizing the integrity of the euro, and two presidential candidates south of the 49th saying they are firmly against the Trans-Pacific Partnership — one challenging the future of NAFTA. None of the BRIC countries have met our expectations and liberalized into lowcorruption, free market economies, and the assumption that globalization would continue unscathed is now cast with a huge shadow of doubt. All of this affects export and investment opportunities, and the entire supply chain. DL: Is that the biggest risk right now for manufacturers — the uncertainty of global trade? JM: The single biggest risk right now is the instability of financial markets. Countries have pumped a

“Canada’s strength has always been in problem solving. We’re renowned on the world stage for our technology development and engineering capabilities. What we’re terrible at doing is selling and marketing those capabilities, and growing businesses — actually translating our capabilities into value for customers.”

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lot of money into their economies as of late — money that is just sloshing around asset markets, and that is what creates credit crunches and asset bubbles that distort the realities of supply and demand. Instead of trade determining capital flows in and out of a country, today, those financial flows are determining prices and trade. Stock market performance is disconnected from real earnings expectations. It’s a crapshoot that is causing a huge amount of volatility and risk in currency, commodity, and credit markets. So, how companies manage those challenges will be difficult; and their decisions will ultimately influence their cost structure, revenue streams, and everything in between. DL: You mentioned Brexit a few moments ago. There has been a great deal of debate around its impact on financial markets. What’s your take? JM: Wild swings in financial markets impact banks and bank stocks, and impact the banks’ ability to offer up credit. That’s my biggest concern with what’s going on in Europe. Its banking system wasn’t necessarily healthy in the first place, so Brexit could tighten credit markets, which manufacturers and their customers need in Europe and other countries — like Canada — too. DL: Canadian firms have been enjoying relatively decent access to credit and capital. Is there a concern that the tightening of markets abroad finds its way home? JM: Beyond the global volatility, Canadian banks are in pretty good shape. I do, however, think we need to recalibrate our attitudes in this country around how we make capital more accessible for smaller companies — particularly, small manufacturers. We have a tech sector that thinks growth means going out, getting venture capital, and exiting with a huge payback as soon as possible. It’s a system that rewards quick wins — forget profitability altogether. You need more patient capital in manufacturing that isn’t always as easily accessible as we’d like to think. We need to encourage businesses to grow if we want to see our economy grow. DL: Before we wrap up, I want to ask you two more questions. You are widely


viewed by government and industry alike as the voice and chief advocate for manufacturing in this country. Heading into the next chapter of your career, what has been your most important achievement on behalf of the sector? JM: That’s a good question. For every one thing we’ve done, there are three things we’ve stopped the government from doing — preventing a new regulation, a bad decision on a trade negotiation, or something like that. But our biggest win was working with the government to implement accelerated write-offs for capital investments in machinery and equipment. That’s been in place since 2007, and — assuming it’s not changed before it lapses in 2025 — will have saved manufacturers $25 billion.

“The single biggest risk right now is the instability of financial markets. Countries have pumped a lot of money into their economies as of late — money that is just sloshing around asset markets, and that is what creates credit crunches and asset bubbles that distort the realities of supply and demand.”

DL: Last question, and it’s one you hear every now and then these days in the media. Some people say manufacturing in Canada is dying. Are they wrong? JM: They are wrong. Manufacturing has simply become more of an anchor in the economy. The footprint around the sector — all the technology and services companies that depend on manufacturing — is growing rapidly, even if the direct share of manufacturing in the economy has declined. You don’t have to drive far on the Prairies to see just how important manufacturing is and will remain. Some of my best memories and profound takeaways will be visiting places like Winkler, or Frontier, or Lethbridge — this is the land of open skies and tremendous opportunity. Manufacturers here are extremely entrepreneurial, and have a sense of community that is unrivalled anywhere else I’ve visited.

So, yes, manufacturing is changing and will continue to change. But if you can grow your business here on the Prairies, it’s clear to me that you can compete anywhere. DL: I lied. One more, and it’s a question I know a lot of people are interested in: What’s next for Jayson Myers? JM: I’m incredibly proud of what we’ve been able to accomplish at CME over the past nine years. We’ve made a big difference for Canadian

manufacturers and exporters, and I think for Canadians as a whole. I’ve always enjoyed bringing business leaders together, working with them to understand how the world of manufacturing and exporting is changing, and then trying to make a difference, whether in terms of public policy or in building initiatives that will help them compete and grow. I want to continue to do that while pursuing some exciting new business opportunities. So all I can say is stay tuned!

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The new era of FX management Why currency markets are now top-of-mind for many small- and medium-sized manufacturers By Will Stanley

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wo decades ago, the practice of foreign exchange (FX) management was reserved primarily for multinational corporations and commodity traders. Today, with Prairie merchandise exports at an all-time high, it is an in-demand skill set that has become mission critical for even the smallest manufacturer. Few executives know this better than Casey Davis. Davis is the CEO of Morris Industries, an agricultural implement manufacturer with operations in Saskatchewan and Manitoba, and sales in more than a dozen markets around the globe. Although exports currently account for half of the company’s annual revenue, international sales have spiked as high as 80 per cent in recent years. At any given time, Davis estimates Morris Industries is dealing in at least a handful of different currencies. “There was a time when we would be measuring foreign purchases against sales quarterly at best,” he recalls. “We’ve accelerated that quite a bit, especially leading up to our fiscal budget cycle. Now, we’re often looking at what currencies are doing twice a day.” For Davis, it’s a matter of competitiveness. Educated as an accountant and lawyer, he views FX management as an intrinsic part of the profitability equation — one that rewards proactivity and penalizes imprudence. This has become acutely true since the recession. Growing market volatility, coupled with political instability across many

major Canadian export markets, has translated into historic currency swings. The Russian ruble, for instance, has fluctuated more than 250 per cent in the last eight years, and — at its lowest point — shed nearly a quarter of its value in 2016 alone. “Currency is all about global competition,” says Davis. “That’s why we need to be keenly aware of what it’s doing. Decisions we make on how to manage currency have a direct correlation to changes in demand.” Andrew McGuire couldn’t agree more. The CEO of AgilityForex, a prominent Western Canadian currency broker, is seeing many more small- and medium-sized manufacturers seizing control of their FX risk. “Companies need to take the bull by the horns,” says McGuire. “Having some lazy positions in currencies can completely wipe out profit margins. Look no further than what’s going on in Britain. The sterling has moved 10 per cent in only the last couple months.” The key, he adds, is knowing what tools are available. “The most obvious mechanism is for a company to perform a transaction for a future forward date. So, if you know you’ll be receiving foreign funds in three months, or if you’ll be taking possession of supply, you can lock in the rate you’ll be paying today so you can better plan your cash flow.” Other tools regularly used by companies include options, swaps, factoring, and natural hedges (see sidebar). The latter has been particularly effective for Morris

“There was a time when we would be measuring foreign purchases against sales quarterly at best. We’ve accelerated that quite a bit, especially leading up to our fiscal budget cycle. Now, we’re often looking at what currencies are doing twice a day.”

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Industries. As a large product manufacturer with a heavily integrated global supply chain, the company has been able to hedge much of its risk exposure by adjusting where it sources inputs and materials relative to foreign sales levels. For Prairie manufacturers, natural hedging is most prevalent with the U.S. market and USDs. Morris Industries is no different. “We do buy a lot in foreign currency,” explains Davis. “This goes back to when the dollar started strengthening again. Before we got to $1.05 or $1.08 (CAD versus the USD), we had already converted much of our large items — tires and steel — to U.S.based purchases.” Deciding which currencies to sell in — and hedge against — is the first question exporters must answer. And there are many considerations to take into account: What makes it easiest for your customer to do business with you? How important to you is transaction speed? How sophisticated is the banking system in your sale market? Another important decision is determining what insurance products to purchase. Accounts receivables insurance and bank factoring insurance are both policy types that can help mitigate the risk of getting paid while managing currency movement. It all comes back to having a plan — a plan, notes McGuire, that is as easy as one, two, three. “The first thing manufacturers must do is calibrate their exposure to risk,” he says. “For most companies, the focus is on transactional risk.” One way to calculate transactional risk is to subtract expected foreign currency receivables from expected payables over a set timeframe. The net difference is the exposure to be hedged. “The second step is to review all the financial and natural hedging tools at your disposal, and develop policies detailing when and how to use each of them. “And the third step is to measure and review your activity on a continual basis. Currency markets can change rapidly; so, although one tool may be right for you one day, it may not fit your risk profile the next. As with any part of your business, the trick is to be informed, patient, and deliberate.”

HEDGING INSTRUMENTS Forwards Forward contracts, or forwards, are available from most banks and brokerage firms, and allow a company to lock in a price that it will either sell or purchase a foreign currency at in the future. This tool generally has no up-front purchase price, but requires collateral against the amount hedged in most situations.

Options Currency options are similar to forwards, but give companies the right — not obligation — to buy a foreign currency in the future at a pre-determined price. This flexibility makes it a useful tool to manage downside risk, particularly for companies bidding on contracts, but are subject to an up-front cost.

Swaps Swaps are simultaneous transactions in which a company both buys and sells a foreign currency at a pre-set rate. This is most commonly used to balance receipts and payments that are separated by a determined period of time. Simply put, it is a combination of a spot transaction and a forward, with no up-front cost.

Factoring Financial institutions specializing in factoring may purchase from you foreign trade receivables, providing you cash flow and working capital, and relieving you of time-consuming credit and debt collection activities.

Natural hedge A natural hedge is a strategic approach to mitigating risk by increasing or decreasing inputs paid for in a foreign currency relative to the value of foreign sales in that same currency.

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Speer: New interprovincial trade pact undermines the promise of Confederation By Sean Speer

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uly’s agreement between the premiers to eliminate interprovincial trade barriers earned considerable selfpraise. The premiers called it “historic,” “unprecedented,” and “ground-breaking,” and committed to having the accord in-place for Canada’s sesquicentennial anniversary next July 1. It all sounded pretty significant, especially for Western Canadian manufacturers and processors, who are subjected to the high costs of complying with these barriers — ranging from different employee standards to separate trucking regulations to competing weight definitions — and thus for whom an ambitious deal to establish free trade inside of Canada could be a significant financial boost. But underneath the small print and the premiers’ hyperbole lies disappointment. The agreement-in-principle may offer marginal relief for Prairie businesses, but it fails to offer real progress on establishing an economic union for Canada. Remember that Canadian Confederation was, in large part, motivated to eliminate barriers to trade and commerce among the provinces. The United States had just walked away from a free trade deal with us and part of the solution was to bind the provinces together in a national economy. And knowing that the provinces would be inclined to protect their own industries and workers, the constitution gave Ottawa power to regulate interprovincial trade and commerce. As Alexander Galt, Canada’s first finance minister, put it: “No one can doubt that the great interests of trade and commerce will be best promoted and developed by being entrusted to one central power, which will wield them in the common interest.” Yet, successive federal governments have failed to stand up for the common interest. The provinces and territories have been free to enact barriers on top of barriers and the result is that Canadian businesses — particularly manufacturers and processors — now have better access to some foreign markets than they do inside of Canada. And the economic cost of these interprovincial barriers is significant. One estimate finds that their full removal could contribute up to $100 billion — or $7,500 per Canadian household — to the national economy. Hence the significant interest in last month’s negotiations. An ambitious agreement to strengthen Canada’s economic union could be a real shot in the arm of the Canadian economy and complete the Confederation project envisioned by Galt. The fact the premiers were negotiating the elimination of these barriers without Ottawa’s involvement, however,

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reflects an inherent flaw. Any process that treats trade barriers as bargaining chips between the provinces rather than an affront to Galt’s vision is bound to disappoint. As leading constitutional lawyer Ian Blue has written: “The main objection to interprovincial trade barriers should be that they violate the Constitution of Canada.” It doesn’t necessarily mean the eventual agreement (it will be months before the full list of affected trade barriers is finalized) won’t represent an improvement to the status quo. It sounds like government procurement rules will be liberalized and wine sales may be streamlined between a small number of provinces; but it does mean that the claims about a “groundbreaking” deal are wildly overstated. “Historic” national progress can only be achieved by Ottawa. It is the only way to assert a domestic economy unshackled from parochial or narrow interests. Those who have studied the matter seriously, such as the Senate committee on banking, trade, and commerce, have come to similar conclusions. Ottawa has the constitutional power to introduce a sweeping statute — an economic charter of rights — to ensure that no government rules or policies unnecessarily restrict the free movement of goods, services, labour, and capital, and give individual citizens clear legal remedies against such restrictions. The charter would be faithful to the founders’ vision and rooted in the principle that a Canadian has the right to seek employment, earn a living, and sell his or her goods and services anywhere in Canada without exception. This would take the removal of barriers out of the hands of government and place the power in the hands of Canadian businesses and workers. It is the only way to keep the provinces’ protectionist inclinations in check. As we approach the sesquicentennial, Canada’s political leaders should aim for more than marginal improvements with regards to interprovincial trade barriers. The goal should be to establish a true, national economy, free of protectionism and what Freud called the “narcissism of small differences.” That would be a significant boost to Western Canadian manufacturers and processors, and help to achieve Galt’s vision just in time for Canada’s 150th birthday celebrations. Sean Speer is a Munk senior fellow at the Macdonald-Laurier Institute, and previously served as senior economic advisor to Prime Minister Stephen Harper.


Harnessing our

innovation infrastructure The Prairies are home to some of the best R&D and commercialization assets on the planet — but are they being used to their full potential? By Martin Cash

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ne attribute most representative of Prairie manufacturing is part and parcel with perhaps its primary ongoing challenge: Innovation. With such a diversified base — from resource development supply and aerospace to ground transportation vehicles and agricultural implements — building the right supports to assist in research and development is not an easy task. Factor in geography, limited government resources, and a collective population roughly the size of the Greater Toronto Area, and there are immediately competitive restraints. That said, Prairie manufacturers are no strangers to competition, either. They thrive on it. But as the rest of the world vies for position at the top of the value chain, decisions on where and how to invest public dollars in manufacturing innovation have become more vital than ever before. It starts with accessibility, industry alignment, and a technological anticipation of the market.

Take, for instance, the Winnipeg-based Composites Innovation Centre (CIC). Formed in 2003, the facility has steadily grown in both capacity and utilization, booking more than $1 million in private sector projects annually. According to CIC President & CEO Sean McKay, the centre’s role is to strategically complement and accelerate — not replace — a company’s internal commercialization efforts. “We’re supporting businesses that want to go out and do something that they would feel less comfortable doing unless there was a degree of risk mitigation,” he explains. Case in point: The Eastside Group of Companies. What began as an automotive repair business in 1979 has since reinvented itself several times over. Eight years ago, it waded even further outside its comfort zone, establishing an industrial coatings and composites division. Today, Eastside is a top-tier supplier to such OEMs as BUHLER Industries, MacDon Industries, and Polaris. Continued on Page 36

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“I truly believe that Western Canada is the best place in the world to innovate. We have the know-how, we have the facilities, we have the business environment — it’s time to take stock of all the great things we have going for us and start trumpeting that story in every corner of the global economy.”

“When we first started to get into composite manufacturing, we talked to CIC and got some help from the folks at NRC-IRAP (the National Research Council – Industrial Research Assistance Program),” says Chad Brick, president of the Eastside Group. “We went out and found our own work, but CIC was instrumental in helping us figure out equipment and plant design.” That relationship hasn’t stopped there. Eastside’s latest business line continues to leverage the expertise at CIC to explore exciting new opportunities. Their latest foray is manufacturing consumer landscape products out of bio-based composites. These natural fibres include waste

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streams, like flax straw, that otherwise would be discarded. It’s only a small part of the business, and Brick acknowledges the company is still behind where it needs to be on marketing consumer products in general; however, it is the future potential of biocomposites that excites him. “We’re big on innovation. We always want to be trying something new,” he enthuses. “This is a new substrate, and it’s going to gain traction. The government is interested; the auto sector is interested — it’s only a matter of time.” The CIC has been at the forefront in Canada, and one of the leaders in the world, when it comes to the development of bio-composites. It’s currently in the

process of creating what would become the first bio-fibre grading data bank, parsing individual bio-fibre properties that could, in theory, compare fibre inputs grown in Manitoba to those from other regions. And Brick wants to be ready for the wave of commercialization that is sure to follow. “I want to make sure we are the most knowledgeable to manufacture with it. I want that edge.” Brick’s sentiment captures one of the primary tenets behind the need to nurture a world-class innovation infrastructure across the Prairies. It’s about coming up with ways to give local companies a leg-up on the continuous flood of fresh ideas necessary to be competitive in the global arena. Next door in Saskatchewan, industrial scientists and technicians from across North America are lining up at the Canadian Light Source (CLS), eager to secure time working with the facility’s


$200 million synchrotron — the only of its kind in the country. Synchrotrons use radio frequency waves and electro-magnets to generate brilliant light that can help gather information about the structural and chemical properties of materials at a molecular level. Energy giant Chevron, steel producer Evraz, and sports start-up Shutout Solutions are three examples of companies that have leaned on the CLS for backing. Chief Industrial Science Officer, Jeffrey Cutler, points out that even though the work stations operate 24 hours per day, six days per week, they are oversubscribed by 50-60 per cent, with a burgeoning demand from a wide swath of sectors. Some critics suggest the synchrotron is too heavily occupied with primary rather than applied scientific research, but Cutler notes there is a very sharp sensitivity to the kind of impact research CLS can offer in formulating product concepts. “Industry definitely sees the value of having access to the CLS, because they

know it will help them get their products to market faster,” he says. Speeding up product development is something NRC-IRAP has long championed. Many in the manufacturing sector highlight the 70-year-old initiative as one of the most effective government supports available. Andrew McNaughton is NRC-IRAP’s Calgary-based executive director for the Prairie region, and head of the new IRAP International program. His office manages roughly 900 projects each year, and aims to be agile in response to the needs of the market. “When the price of oil decreased dramatically, we had to switch gears,” he says. “But for every company we are serving, there are still 10 more lined up behind them.” Not all innovation supports, however, are as subscribed as they’d like to be — particularly those that have transitioned away from their reliance of government funding towards a more businesscentric, fee-for-service approach. The Prairie Agricultural Machinery Institute (PAMI) is one of those entities.

Despite a sterling reputation for helping introduce some of Canada’s premier innovations, the economic slowdown means fewer companies are investing in R&D and commercialization, thereby leaving a gap in the organization’s operating budget. “We could definitely be busier,” exclaims PAMI President & CEO David Gullacher. “It’s up to us, though, to present ourselves to industry and to add value for our customers.” In part, that means expanding outside its traditional clientele. PAMI no longer restricts its equipment development and testing projects solely to agricultural clients. In fact, it recently completed a major project for the Department of National Defense, and does a substantial volume of work for the ground transportation industry. As Prairie manufacturers grapple with rising costs, fluctuating labour pools, and capacity restraints, the push for innovation does not stop at product development. Process innovation is equally as important. Continued on Page 38

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That’s why, in February 2015, Manitoba’s Industrial Technology Centre (ITC) unveiled its Robotics Demonstration Facility. Here, manufacturers can prove out a process concept to confirm whether robotic equipment can perform a particular function with the accuracy and quality required — before making the capital investment. The hope is that, by removing some of the cost risk associated with integration, more Canadian manufacturers will begin to consider robotics a viable option. And not a minute too soon. The International Federation of Robotics reports worldwide industrial robot sales are up 12 per cent in the first quarter of 2016, and that Asia — one of North America’s chief manufacturing competitors — now accounts for twothirds of the overall total. The elephant in the room has been mere awareness. Akin to many other public innovation assets, the ITC does not have the marketing resources necessary for large-scale promotional campaigns.

That’s compounded by the fact these organizations are not just marketing capabilities or services — they are developing entire markets, by drawing companies into the innovation space that may not otherwise find their way. It takes dollars, and a skill set, not necessarily inherent to the engineering crowd. Back in Saskatoon, Dale Kelly is no stranger to fighting that battle. The CEO of POS Bio-Sciences — a federally funded-turned-private R&D facility specializing in the fractionation, modification and purification of biobased materials — often muses Prairie capacities are more recognized outside of Canada than in our own backyard. The company has completed more than 5,400 projects for clients into close to 50 countries — including in agricultural biotechnology, food ingredients, cosmetics, nutraceuticals, and medical devices — yet, less than one-fifth of its revenue comes from Canadian customers. “POS is unlike any other facility on the continent; and, I can say with a reasonable degree of confidence,

our region has many other resources, experts, and institutions that are in the same boat,” notes Kelly. “There is so much potential we haven’t even begun to explore. The Prairies produce a lot of what the world needs, and we have the tools here to extract the most value possible out of those raw commodities. It’s now up to us to connect the dots.” As for how to get more companies along the path from concept to commercialization? “We need to do a better job telling our story,” he says. “I truly believe that Western Canada is the best place in the world to innovate. We have the knowhow, we have the facilities, we have the business environment — it’s time to take stock of all the great things we have going for us and start trumpeting that story in every corner of the global economy. “There is an abundance of innovative people already here — smart people that have created significant wealth in many sectors, including manufacturing. That, I think, signals courageous and proven entrepreneurship is alive and well in the west.”

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Made-in-Saskatchewan

leadership On the heels of the 11th annual Saskatchewan Manufacturing Week this November, Prairie Manufacturer Magazine asks three of the province’s foremost CEOs: What is the best advice you have ever received? STEVEN HOFFROGGE President & CEO Crestline Coach

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s a leader, the most precious commodity you have is your time. How you make decisions, how you prioritize competing demands can determine whether you are a drag or draft on your organization’s progress. In most situations, time aids you in making better decisions. It allows you to gather more information, consult others, and critically examine your own thought process. The reality, however, is that you don’t always have time, so being able to identify what decisions you can make versus the decisions you need to make is an indispensable skill. This really hit home around the year 2000, as I was exposed to a senior leadership team in the midst of a turnaround. One particular individual, who has since become a mentor of mine, taught me there is a great art and wisdom to choosing when and how to act. It was U.S. President Eisenhower who said, “What is important is seldom urgent, and what is urgent is seldom important.” Every morning, I come into the office and consciously make decisions that will not have an impact for six, 12, or 24 months down the road. A key tool to guide these decisions is quadrant analysis. Lean value graphs, measuring impact versus effort, are prime examples of how this type of aid works. It can also help you differentiate other measurables, such as urgency versus importance — what to do now, do later, plan to do, or delegate. It’s all about steering the company to a place where you are prepared to capitalize on market opportunities when they present themselves. And that takes time — there is no eureka moment. I’ve been in this job for three years; and we spent the first two conducting our initial assessments and unleashing capacity to grow. But in the last year, we’ve doubled output, produced a record number of ambulances, and have moved from 125 to 190 employees. The final rule you cannot ignore is that capacity and decision-making are both tied to the same common denominator: Your people. The staff you surround yourself with naturally influences what you do, when you do it, and how you delegate responsibilities. That’s why it is so critical to be mindful of team composition — to bridge gaps that complement you as a leader. And, if need be, go out and find the right people to support you. Don’t spend too much time trying to mould an employee into something they’re not, regardless of talent. Skill can be developed to augment attitude, but skill alone is never, ever enough.

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PETER CLARKE President & CEO Seed Hawk

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here are two attributes fundamental to every executive: Recognizing skill beyond your own, and bringing the people who possess those skills together around a common goal. True leadership starts with understanding yourself. If you want to build a strong team, you need to know — and own — your personal strengths and weaknesses. This requires deep self-reflection at many stages throughout your career. And it’s not always easy. Admitting fault or failure can leave you feeling exposed — to ownership, to staff, and to customers. But, over time, I’ve learned it is quite the opposite. I’ve never met anyone who didn’t have weaknesses, and I’m no different. I have, however, met many individuals who are confronted by blind spots, and who won’t acknowledge or admit their shortcomings. We tend to surround ourselves with people who are more like us than we know. In high-performance manufacturing environments, this can stifle creativity, conversation, and learning, resulting in a detrimental impact on products, processes, and profitability. Regardless of industry, every business needs a leader that can draw the best ideas out of his or her team, and the best thinking around challenges, opportunities, risks, and direction. A well-balanced set of styles and abilities supports the diversity that exists within the organization’s ecosystem — from management and staff to customers and suppliers. We have all been in situations where everyone is rallying around a singular solution; and the more discussion that takes place, the stronger that consensus becomes. We subconsciously convince ourselves to ignore legitimate criticisms that are right in front of our noses. It’s called intellectual scotoma — the mind contorts facts to match with what you want to be true. If you appreciate, though, that your own perspective is only one perspective, and open up to (and encourage) other points of view early, the outcome is generally well thought-out and properly considers all of the relevant factors that go into making a decision. A leader who knows his or her weaknesses ultimately feels compelled to be surrounded by people who don’t think or act the same way. It is rare, if not impossible, to find someone skilful at building relationships, analytical thinking, blue-sky conceptualization, and simply getting things done, all at once. So, build a balanced team to capture the best of all these skills, and organizational performance will surpass the standard. It’s the best advice I’ve been given, and it’s an approach that has proven irreplaceable for Seed Hawk.

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TERRY BERGAN President & CEO International Road Dynamics

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teve and Peter are spot on: Manufacturing starts and ends with people. I’m going to pick up on this theme, but come at it from a slightly different angle. International Road Dynamics (IRD) has earned a reputation around the world for being a leader in innovation. Like many companies in Saskatchewan, we are far better known in other global markets than we are in our own. If you were to ask folks in the province what IRD is and what we do, those who have any inclination whatsoever would probably say we are a manufacturer of vehicle scales — which is true. But that is only a small part of our business. More accurately, we are an integrator of intelligent transportation systems, with subsidiaries in the United States, Latin America, and Asia. We are the link between your vehicle and the roadway — the high-end scales, sensors, cameras, computers, communications technology, and installation know-how powering everything from toll roads and commercial truck compliance to traffic monitoring and management systems. This illustrates the stark contrast between how we are viewed at home and by the markets to which we sell. On the Prairies, we already face unique challenges with respect to logistics access, cost pressures, and regulation. Getting the right engineers, technicians, and supervisors ‘on the bus’ to drive leading, best-in-class innovation performance — and in a niche industry segment — is something else entirely. Think of where the vehicle sector is heading. Just this summer, Ford announced it plans to mass-produce a fully autonomous, self-driving car within the next five years. This isn’t Tesla or Bentley or even Audi. The technology is no longer fantasy — it’s mainstream. Now think of what that means for our business. Some of the most exciting, historic advancements in how people move from place to place — how driverless vehicles talk with the road and other vehicles — will be developed right here in Western Canada; and we need the people to make it happen. The best advice I’ve received is also the best advice I’ve adopted: Your people are your most important, and most valuable, asset. I took this advice to heart; and, as IRD grew from a start-up company in 1980 to what it is today, we continually focused on the value of our team members and the culture of IRD. By hiring based on a combination of skills and the ‘right’ attitude — followed by providing appreciation, respect, learning experiences, training, and encouraging creativity and innovative thinking — IRD has built a highly skilled team competing and leading in our marketplace.

Your image is in good hands. premierprinting.ca

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The pursuit of excellence Meet two Saskatchewan manufacturers finding lean success the second time around By Joanne Paulson

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hree years ago, the management team at Degelman Industries knew something had to change. The Regina-based manufacturer of farm equipment opened its doors in 1963, eventually moving into an 11,000-square-foot plant three years later. In the decades that followed, the company expanded its product line to include livestock and tillage equipment, land rollers, dozer blades, and other industrial goods, growing its facility to 160,000 square feet, with 300 employees.

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Business was booming — but they weren’t meeting their deadlines. “In the fall of 2013, we were in rough shape,” recalls operations manager Justin Kleckner. “We couldn’t supply our customers with accurate delivery times. We had trouble capturing the cost variances. We weren’t as efficient as we could be. Priorities were constantly changing, and demand was as well. It hit a point where we decided we couldn’t do it anymore.” Continued on Page 44


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“The bigger picture is the culture and leadership. You need to engage all of your employees. Ultimately, we had to look at ourselves first: How we manage our people, and what we want to get out of them. Part of that goes back to being visual — that your people understand the importance of their work, how it’s contributing to the business, and how it’s helping society.” Enter lean. Degelman, which had flirted with lean manufacturing implementation 13 years earlier, knew it was time to give it another try; so management brought in some help from the outside. “The first thing we did was run a small CESD Ad2-4.625x7in-ADDCHAPTER-Final kaizen event surrounding lead times,”

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says Kleckner. “From there, we created an action plan, and went from telling our customers it was a six-week delivery time, which we often didn’t hit, to consistently delivering on-time within only a couple weeks.” The next step was to create a new copy.pdf 1 8/23/16 PM connecting communications plan,6:34 better

the sales team to the production department, and vice versa. “Since then, we’ve been able to reduce our inventory and keep deliveries to exactly when the customer wants the product. Currently, we’re holding onto 30 per cent less dozer inventory than we were, yet we’re delivering to the customer within a week.” It has been a similar story at International Road Dynamics (IRD) in Saskatoon. A publicly-traded manufacturer and integrator of highway traffic management and intelligent transportation systems, IRD had also attempted to ‘go lean’ in the mid-2000s, with little success. But as the company experienced unprecedented global growth, and leadership eyed doubling sales in a fiveyear window, the question could no longer be ignored: How is it possible to double sales without doubling staff? Lean was back in. “We had a lot of our people trained with introductory lean principles back in 2005-07,” says Trevor O’Byrne, the company’s manufacturing services manager. “So that’s where we started again. It began purposefully slow and small, because when you venture out to change a culture, you can’t just do it overnight.” Like many companies entering — or picking up on — their lean journey, IRD began by implementing 5S, with the full backing of senior management. It was a key initial decision. “You have to get rid of the garbage before you can clean up your processes,” he explains. “If you’re constantly tripping over things, or looking for equipment, it’s not doing you any good. And if you’re always walking across the shop to get the tool, you’re losing a lot of valuable time.” Lean is also visual, adds O’Byrne. At IRD, all systems, standards, and work instructions are visible to staff; schedules are posted to encourage accountability; and the entire production floor can identify where inventory is moving along the process.


While there is much talk about lean tools, IRD has embraced the notion that true lean excellence starts and ends with the people. “The bigger picture is the culture and leadership. You need to engage all of your employees. Ultimately, we had to look at ourselves first: How we manage our people, and what we want to get out of them. Part of that goes back to being visual — that your people understand the importance of their work, how it’s contributing to the business, and how it’s helping society.” Dave Cohen, vice president of operations with IRD, agrees, and points to the internal champions that have sprung up as proof. “We have the naysayers on-board now, wondering how they ever lived without lean,” he says. “I believe we have a happier workplace, for sure. Even though we have a long way to go, we’re certainly a few good steps down the road, which is further than we’ve ever been.”

Lean leadership A driving force behind the resurgence of lean in Saskatchewan manufacturing is Darryl Minty, the executive director of productivity and innovation for Canadian Manufacturers & Exporters (CME) in the province. Prior to joining CME in 2014, Minty spent more than 25 years on the manufacturing frontline. He vividly remembers one company he worked for, trying and failing to adopt lean in the 1990s. It wasn’t until ownership mandated the application in 2007 that it was taken seriously; and, by 2010, Minty couldn’t believe the progress. “When we brought in lean, like a lot of Prairie manufacturers, we were pretty darn good already. We had a very good product. We had good people. We had good processes. And, yet, if you took a step back and looked at our scorecard — at things like on-time delivery, health and safety, and quality — we were challenged. “Lean helped us cut through that.” Today, Minty shares his experiences with other manufacturers through the CME-administered Saskatchewan

Manufacturing Centre of Excellence — a government-funded initiative encompassing lean training and mentorship. Since launching the project, Minty and his team have built a 24-member lean consortium, and have graduated more than 350 students through lean 101, yellow belt, green belt, and black belt certification courses. Degelman’s Kleckner and IRD’s O’Byrne were both graduates of the firstever black belt class.

“It’s amazing how, when you go through the training process, you see things in your everyday life that can be more efficient,” notes Kleckner. “There’s a place for lean in every industry.” The gains at Degelman, meanwhile, have been indisputable. “We’re way further ahead than I ever thought we would be. We’re getting more product out the door with less effort, people are more comfortable, and the shop is in the best condition it has been in.”

COMMUNTRON INDUSTRIES Celebrating 20 Years Young This year, Commutron Industries Ltd. is celebrating its 20th anniversary. Some say we’re doing so ‘against all odds’ being a small, custom-build electronics assembler nestled on the shores of Lake Diefenbaker. Yet, here we are, in the village of Elbow, Saskatchewan (population 314) — better known for its fishing and golfing than its manufacturing prowess. We’re proud of where we live. Life here is simple. And while there is nothing simple about the business that we’re in, our customers will agree that the way we do business is just that — simple: Simplified solutions, viable outcomes and meaningful, lasting relationships—elements that are within our mission statement! We realize, though, that we must never stop improving and continuously reinventing ourselves to better serve our clients. That passion for excellence is part of our DNA. It’s in the reliability of our work and the quality of our service. Commutron is proud to be an ISO 9001 certified company, committed to lean principles and refined best practices. This allows us to continue to meet or beat out-of-country pricing, while delighting clients with our service. What can we do? You name it. With two surface mount technology lines and various other production systems, we offer everything from prototyping and testing to full mechanical and sub-assembly services. No hassle. No piecing out work to different suppliers. No minimum order required. Over the years, our company has served several sectors, including communications, mining, instrumentation, aviation, energy, agriculture and consumer goods. Our entire customer base is located in Canada, and the majority is within the Prairie Provinces. Why? Because we have developed a niche for being highly agile, competitive and darn good at what we do. If you’ve never heard of us, don’t worry, you’re not alone. But don’t let that stop you from giving us a call or dropping in next time you’re out on the lake. We’d be happy to show you what we’re all about! Robert Leonardo CEO Communtron Industries

306.854.2265 | www.commutron.ca www.prairiemanufacturer.ca

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Homegrown private equity This isn’t ‘Toronto money’ — it’s your neighbours’ savings, investing in a prosperous Prairie manufacturing sector By Joanne Paulson

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rivate equity has long been marred in mystery and misconception. Once considered the ‘bank of last resort’ by many business owners, private equity firms were shunned as out-oftouch investors from far-off places, whose only mission was to strip cost and maximize shareholder returns. For a growing number of Prairie manufacturers, however, that notion could not be further from reality. Just ask Steven Hoffrogge, president and CEO of Crestline Coach. The Saskatoon-based ambulance and bus manufacturer underwent a private equity-backed management buyout in 2004 with the help of PFM Capital — located 250 kilometres south, in Regina. Since that acquisition, the two organizations have walked hand-in-hand through a top-down corporate transformation. “This company is probably three times the size it was, in revenue, from when PFM first became involved,” says Hoffrogge. “We’ve gone from fewer than 75 employees to approaching 200 today. We have expanded our footprint as it relates to where our customers are located as well.

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We now have shipped to 32 countries around the globe, and our product line has expanded significantly.” PFM currently manages seven unique funds, totalling more than $627 million in assets. These funds are not just earmarked for management buyouts, either. Manufacturers can also leverage private equity as a financing option to expand production, launch new products, or restructure operations. “We raise the majority of our money from Saskatchewan and, in turn, invest that capital back into Saskatchewan companies,” says PFM CEO Randy Beattie. “Our genesis was looking at the strength of the Saskatchewan business community — manufacturing being a big part of that — and asking if these companies have adequate access to capital to help them grow.” Twenty years ago, when PFM began managing private equity, the answer to that question was a resounding no. “The banks provide a certain type of capital, and we work with those banks,” he explains. “On the balance sheet, they’re Continued on Page 48


PFM CAPITAL INC. IS A SASKATCHEWANBASED, PRIVATE EQUITY INVESTMENT FIRM. At PFM Capital Inc., we invest in some of the most dynamic businesses in our market, aiming to provide portfolio companies with the capital required to execute their strategic goals while adding long-term value to the benefit of all stakeholders. Our experience, combined with rigorous due diligence and monitoring standards, has established a strong track record of consistent deal flow, focusing on the areas of growth capital, management buyouts, expansion financing, and restructuring.

This company is probably three times the size it was, in revenue, from when PFM first became involved. We’ve gone from fewer than 75 employees to approaching 200 today. We have expanded our footprint as it relates to where our customers are located as well. We now have shipped to 32 countries around the globe, and our product line has expanded significantly. STEVEN HOFFROGGE, PRESIDENT & CEO OF CRESTLINE COACH

RenĂŠ Benoit, Business Development 306.791.4824

Stay informed with the latest PFM news and updates at www.PFM.ca

2nd Floor, Assiniboia Club Building, 1925 Victoria Avenue, Regina, SK S4P 0R3 | EMAIL pfm@pfm.ca


“This company is probably three times the size it was, in revenue, from when PFM first became involved. We’ve gone from fewer than 75 employees to approaching 200 today. We have expanded our footprint as it relates to where our customers are located as well. We now have shipped to 32 countries around the globe, and our product line has expanded significantly.”

doing the term loans and operating lines of credit, lending against assets of the company. We’re more behind the company on the balance sheet — more of a partner with the owner.” PFM raises capital through two primary sources. The SaskWorks Venture Fund, for instance, is offered to Saskatchewan residents who invest in it as an RRSP, and who are interested in supporting area businesses and the local economy. With 29,000 shareholders and $400 million in assets under management, the fund has swelled in popularity over its 16-year existence, due largely to performance as well as the 35 per cent tax credit it offers to investors. The second capital stream focuses on institutions, such as credit unions and insurance companies, as well as high-networth individuals. Categorized as APEX Funds by PFM, these investments encompass a diversified portfolio rooted in several of the province’s core industries, including manufacturing, energy, real estate, and value-added agriculture. “Because we’re in so many sectors, we’re spread virtually across the province — in manufacturing especially,” says Beattie. “That’s because a lot of the manufacturing facilities are dispersed geographically across Saskatchewan and aren’t in the major centres.”

Investments grow with funds The size of PFM’s industrial and manufacturing investments has gradually increased over the years, alongside the funds under management. According to Beattie, the firm generally targets transactions between $1 million and $30 million, although — in Saskatchewan — the “sweet spot” has hovered in the $4 million to $7 million range. And not all the financing required necessarily has to come from PFM or any single source. Assume a manufacturer needs $10 million in financing. The bank might lend $4 million, PFM might lend $3 million in subordinated debt and $2 million in equity, and the company itself might put up $1 million. “By using multiple sources of capital, we are able to create an ownership structure that works for us but also, and as importantly, a model that works for the owners of the company,” says Beattie. “We always want them to have some money in the company, because it’s important our interests are aligned; and certainly one way of making sure we are aligned is to all have money at risk inside the investment.” Depending on the complexity of a deal, the process from idea to investment can range anywhere from four weeks up to six months. Once finalized, most investments remain in place for five to seven years before exit. For PFM, after initial discussions with a potential investee, an internal analysis is performed, followed by the provision

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of a preliminary term sheet to outline the key details of the investment. After due diligence is completed, approval is sought and provided by the funds’ investment committees. While PFM’s goal is to generate returns, it touts many other benefits to ‘homegrown’ private equity. Understanding the market, notes Beattie, is critical to appreciating the business that has been built, the role it plays in the community, and the employees working there. Economic spin-offs, like job growth and supplier opportunities, are additional considerations. “It’s part of making the company grow, and not just the infusion of equity capital into the business,” he says. “We’re active. We’re not a passive investor. We sit on the boards of these companies. We meet with them on a regular basis. But we aren’t involved in the day-to-day business side of things.” This connection to the region is notably influential when it comes to management buyouts. “It’s important for the sector and important for the province that we stay focused on assisting companies in the transition of ownership by financing management buyouts,” adds Beattie. “Typically, these businesses stay in Saskatchewan, which is not always the case if the buyer is from out-of-province.” Crestline Coach has been one of those success stories. So, it’s not surprising that Hoffrogge has an extensive list of advantages to private equity. “There are two consistent elements that aid one’s ability to drive growth, and enhance profitability or expansion,” he says. “One is access to capital and the second is access to talent — access to experience. “Owner-operators and key executives in small- to mediumsized organizations are spending 90 to 100 per cent of their day driving the business; and yet, sometimes, the business needs additional expertise on the finance side of things. On the strategy side, private equity takes a seat on an advisory board, or at the board of directors table, whose number one job is to ensure solid strategy. As an executive, you have to be willing to embrace the insight that they have.” Despite well-respected companies like Crestline Coach waving the banner, the preconception that private equity can’t thrive in a small market like Saskatchewan still lingers, says Beattie. Even five years ago, walking into a boardroom, it would not have been uncommon for him to hear, “Oh, that’s just a little Saskatchewan fund.” Times have changed, but Beattie believes PFM and other private equity firms throughout the Prairies need to be more vocal about what they can offer. “Our growth has been slow and steady, and that has probably helped people understand we are here to stay.”


The anatomy of an effective kaizen By Dave Hogg

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n lean, the term kaizen is made up of two separate Sino-Japanese words: Kai, meaning ‘change’ and zen, defined as ‘for the better’ — compounded quite literally as ‘change for the better.’ It is a methodology and mindset, which must be sustainable. When that philosophy is implemented in the workplace, it triggers everyone to continuously look for small ways to improve processes. Doing 1,000 things one per cent better is far more advantageous than doing a single thing 1,000 per cent better.

A quick history The Second World War gave birth to Training Within Industry (TWI), a system of standardized work that reverse-telescoped the duration of employee training — a necessity given the historic need for increased productivity. Through TWI, some critical training was cut from five years to six months, with identical competence. After the war, this approach helped evolve kaizen thinking into a powerful, common sense tool to rapidly solve specific problems. At first, kaizens took weeks or months to complete. Many decades later, in the 1980s, the Association for Manufacturing Excellence (AME) saw the value of kaizen, but knew it had to be repackaged for the fast-paced North American market. So, the 4-5-day intensive process that followed was nicknamed kaizen blitz because of its association with the word Blitzkrieg. The condensed duration was accepted as significant enough to impact meaningful change — in cutting cycle times, reducing waste, and accelerating throughput velocity.

other. Communicate a vision of the problem they will solve, and the process they will use to attack it. Equip participants with the lean tools that may be required, such as plan-do-check-act, 5S, the five whys, the fishbone diagram, and value stream mapping. Even if your team is well-versed in these tools, review them to establish a common language. On day two, head to the site of the problem, where the team will observe, investigate, and both gather and measure data surrounding the existing process. Reconvene to debrief on the findings and brainstorm solutions. On the third and fourth days, experiment onsite. The testing of multiple possible solutions allows the team to accurately gauge improvement results. These are hardworking ‘pizza days.’ The final hours should be dedicated to implementing the settledupon solution. Dedicate the last day to completing a written report and presenting the team’s findings and solution to management. This presentation should include suggestions for follow-up kaizens, descriptions of the lessons learned, and a 30- or 60-day schedule for items not completed during the week.

“It is amazing to see the power five to seven practitioners — each with their lifetime of skills and experience — can unleash by executing a kaizen with the guidance of an experienced facilitator.”

What a kaizen is and isn’t

A final word

A kaizen is a launching pad for the culture of continuous improvement. It is a proven process that implements rapid change while building employee ownership. And it focuses on brainpower, not dollars. A kaizen is not a one-shot deal, or a tool for major projects. Nor is it something employees do in a vacuum, or without management support or empowerment.

Enhancing competitiveness in an uncertain marketplace means getting serious about systematic improvement. Kaizens are a great way — a better way — to inspire real improvement with minimal investment. Remember, we’ve all made efforts to improve at one time or another — and, if we hadn’t, many of the companies that exist today would not be with us. Kaizens are now applied in all kinds and sizes of organizations. And although they are not complicated, it is wise to arrange for a facilitator to start. When you do, be sure to tap one of your best people to shadow that facilitator and bring the know-how in-house.

How to run a kaizen It is amazing to see the power five to seven practitioners — each with their lifetime of skills and experience — can unleash by executing a kaizen with the guidance of an experienced facilitator. Most team members know where the improvements are, but may have never been asked or felt their input was wanted. Start day one of the kaizen in a training or lunch room (on the shop floor works, too!), allowing folks to get to know each

Dave Hogg is one of Canada’s premier thought leaders on lean manufacturing, and is editor of the Accelerate the Journey newsletter — a free e-newsletter delivered across North America each month. Register to receive your copy at www.acceleratethejourney.com.

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Moving inland

The growing role of inland ports on the landlocked Prairies By Craig Slater

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hipping goods to market sounds like a straightforward task. Experience, however, reminds us that is not always the case. Every advance in transportation innovation, from the wheel to the 18 wheeler, has been designed to move goods to their destination quicker. For manufacturers, this speed can be the difference between competiveness and bankruptcy. But the latest shift in the logistics equation has little to do with cutting-edge technology or breakthrough invention. Instead, the Prairies are rewriting the rules on traditional shipping hotbeds, diving headfirst into the world of ‘inland ports’ — specialized distribution, warehousing, and industrial centres connected directly into the intermodal

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transportation network. In Manitoba, the 20,000-acre CentrePort, near Winnipeg, is North America’s largest inland port, and amongst the most recognizable. Its trimodal facility — boasting rail, air, and truck capacity — along with its strategic location in the geographic centre of Canada are big reasons why some of the province’s largest manufacturers have become tenants, including Boeing, MacDon, and Winpak. Not only is CentrePort the busiest cargo airport in the country, it is also in close proximity to both the Trans-Canada Highway and the 24-hour Pembina-Emerson border crossing. “There are a number of components to ‘Why here?’ that all come together to support manufacturers,” explains

CentrePort President & CEO Diane Gray. “And what CentrePort layers on is access to global and regional markets in a costeffective and time-efficient way.” Next door in Saskatchewan, the Global Transportation Hub (GTH) is newer and smaller in size, yet there is no shortage of activity. Positioned on Regina’s western edge, the GTH is Canada’s only self-governing inland port, making it the owner, developer, and regulator of its facility and land. “That creates a very distinct opportunity for a client to work what we call speed to operation,” says GTH President & CEO Bryan Richards. “A client comes to us with a concept, presents their idea, and GTH will work with them, maintaining a single point of contact. They only have to deal with GTH when it


“There are a number of components to ‘Why here?’ that all come together to support manufacturers.”

comes to permits, approvals, and zoning bylaws.” The advantage, adds Richards, is the streamlined service set outside the bureaucracy, allowing the GTH to circumvent red tape and respond at the pace business demands. Like CentrePort, the GTH also carries Foreign Trade Zone (FTZ) status. Although domestic manufacturers may not reap significant benefits from the classification, globally integrated producers and foreign investors can take advantage of a host of cash flow and service benefits, such as duty deferral and sales tax relief. Further west in Calgary, CN’s $200 million logistics park is pushing to carve out a niche of its own. Exporters moving goods and raw materials across the

Pacific have taken special notice, given the terminal’s central proximity to ocean ports in Vancouver as well as Prince Rupert. All three inland ports share the same predominant value proposition: Fast access to key distribution services, reliable freight options, easy access to railways and highways, and greater cost savings. The two core challenges now are: Continuously improving that access, and convincing more companies to invest in on-site operations. For Richards, the solution is two in the same. “The infrastructure improvement offered by the GTH in terms of rail is gigantic,” he says, noting that rail volumes have nearly tripled since relocating from downtown Regina. “Expanding the space

and the opportunity to increase the number of handlings (lifts of containers on and off the trains) is one of the prerequisites of attracting people here. They see that capacity. They see that opportunity in the future. Companies make these decisions based on 20- or 30-year timelines.” Meanwhile, over at CentrePort, Gray sees inland ports as only one piece of the puzzle to draw in manufacturing investment. She points to Manitoba’s hydroelectricity rates — the lowest published rates in Canada and the second lowest on the continent — as one example of how the pieces come together. “It’s our motto to help companies make the decision to invest in CentrePort, and Manitoba, as easy as possible.”

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Here’s what really drives business performance Hint: It’s probably not what you’re thinking By Gordon McGilton

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f you were to ask a member of your team to dig a square pit — 10 feet wide by 10 feet deep — using only a spoon and measuring tape, could they? Of course they could! The real questions are: In how much time, and at what cost? The answers have little to do with your employee at all. Instead, performance will be a product of the system you have provided them, taking into account methods, materials, machinery, facilities, training, policies, compensation, capital, authority, and leadership structure. But let’s forget about all that for a moment. In the example of the pit, what other information may be required? How about: Where to locate the pit? How to get in and out of it as it is dug deeper? What to do with the removed dirt? What should be done if water starts seeping in? And, what will it be used for? Now, if you were to provide that insight, as well as perhaps a backhoe, ladder, stakes, and some string, you would be implementing a different system for your staff to leverage. As a result, you could (and should) expect a higher level of performance, even if the workforce remains the same. Conversely, if you kept the original system, but swapped out the worker, it would be unreasonable to expect any change in performance, correct? Unfortunately, especially in manufacturing, we instinctively try to measure the outcome against the people, without any acceptance or acknowledgement of the system that was required to get there. Think of it this way: If you were to double the salaries of everyone employed in your company starting tomorrow, would you see a spike in output? An improved bottom line? Didn’t think so. In basic terms, a system brings in a set of inputs and combines them in a certain way to produce a resulting state. This entire relationship can be easily mapped out as a diagram. Once you have articulated what you wish to accomplish, you will then be able to answer the most

fundamental question in the business equation: By what method? Outcomes are effects, caused by methods. As a business, you have a solution for which a customer is willing to pay — that is the opportunity. But opportunity itself is not enough. The efficiency of the method, or system, is what dictates productivity, performance, and, ultimately, profit. The reality is that our beliefs (or theories) govern our actions — in life and in work. Your actions will lead to your methods. And your methods will produce your outcomes. There is no ‘good’ theory or ‘bad’ theory. What matters is the utility, or effectiveness, of a theory to produce predicted outcomes. Can you confidently take action that will always produce the outcomes you desire? If not, then your theories do not have utility for what you are trying to accomplish. Maybe, just maybe, it’s time to question what we think we ‘know’ and start looking at the system, instead of exasperating so many resources trying to ‘fix’ our people. People only use the system. They can make suggestions about how to improve it, but it is the system — not the people — that stands in the way of producing better outcomes. How could you know if that were true in your organization? If, every day, you are faced with and are discussing the same problems, then the theories you have been using to eliminate them must have limited utility. Your current theories are perfect — for producing your current results. Are you satisfied with your current results? Everything, both good and bad, that is happening in your organization, is authorized by you. If you wanted a different theory or method to be applied, you would have asked for it. By not asking, you are authorizing what you have. Gordon McGilton is a speaker at the W. Edwards Deming Institute, and regularly conducts seminars across North America to teach Dr. Deming’s theories.

“Unfortunately, especially in manufacturing, we instinctively try to measure the outcome against the people, without any acceptance or acknowledgement of the system that was required to get there.”

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Olympic hurdler Phylicia George wearing Hillberg & Berk’s Canada-red Sparkle Ball™ earrings.

From Regina to Rio By Will Stanley

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t’s been a busy few months for Rachel Mielke. The founder and CEO of Reginabased jeweller Hillberg & Berk took home Business of the Year honours from the local chamber of commerce, placed sixth on Profit Guide’s list of most influential women entrepreneurs, and recently welcomed a new life into the world with her husband, Zlatan. Oh, and she also stole the spotlight with Team Canada at the Olympic Summer Games in Rio de Janeiro. No, Mielke isn’t a hurdler or a tennis star; but her work did earn her a place atop the podium — specifically, on the ears of Canadian athletes. Less than two short weeks before Brazil opened its doors to the world, Hillberg & Berk announced it would be entering into a licensing partnership with the Canadian Olympic Committee, to outfit every member of the Canadian team with a shiny red pair of the company’s signature Sparkle Ball™ earrings.

“Seeing our female athletes wear their earrings in competition, during interviews, or with a medal around their neck is an amazing feeling,” says Mielke. “Females in sport have such talent and determination, and seeing them break the boundaries in an area that has traditionally been dominated by men is inspiring.” The jeweller is no stranger to taking centre stage. Its pieces have been donned by countless politicians and celebrities — even Queen Elizabeth II, catapulting Mielke from the owner of a one-woman start-up to a leading authority on marketing and a sought-after public speaker. It has also helped her double sales for six straight years, to more than $10 million. “Companies need to think bigger than Saskatchewan, bigger than the Prairies,” she exclaims. “From the beginning, we’ve always thought of Hillberg & Berk as a global brand that would compete on the global stage. You never know when a big break will appear, so you need to be ready and willing to jump in with two feet.”

A large part of cultivating that iconic brand has centred on the value of empowering women. Currently, 2.5 per cent of profits are redirected to fund initiatives that support female education, health care, and entrepreneurship around the world, totalling more than $500,000 to date. Mielke hopes the Olympic showcase will contribute to that mission and help inspire the next generation of women entrepreneurs. “Dream big and follow those dreams. If you have a great product and work hard, good things will happen.” Hillberg & Berk employs upwards of 30 people in its manufacturing and distribution centres — one of its fastestgrowing departments — and 120 women throughout its national operations. Canadian Olympic team earrings can be purchased at Hillberg & Berk retail locations or online at hillbergandberk.com. A portion of the proceeds funds the training of Canada’s Olympic athletes.

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PHOTO CREDIT: THE CANADIAN PRESS / JUSTIN TANG

An ambassador’s outlook Former Canadian ambassador to the United States Gary Doer on cross-border trade, energy policy, and ‘bumper sticker politics’ By Derek Lothian

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ary Doer is no stranger to the public spotlight. Heralded as a consensus builder by those of seemingly every political stripe, his résumé is among the most decorated in the country: Provincial cabinet minister, leader of the opposition, three terms as premier of Manitoba, and more than six years as Canada’s Ambassador to the United States. Since returning to Winnipeg from Washington this past January, however, Doer has been enjoying life free from underneath the microscope. He has joined five boards of directors, including Investors Group and Great West Life, and sits as co-chair of the Canada Institute at the D.C.-based Woodrow Wilson International Center for Scholars. It is a change of pace that has allowed the 68-year-old to remain connected to one of his true passions and an issue that has become a hallmark of his career: Canada-U.S. trade. Amidst one of the most contentious presidential election campaigns in recent memory, international trade has been embroiled at the centre of the U.S. debate. But strangely absent from much of the discourse has been America’s largest customer and — notwithstanding the European Union — it’s most significant source of imports. In 2015, Canada purchased $337 billion USD in goods and services from its neighbour south of the border — more than any other nation, including all 28 countries comprising the E.U. Canadian exports to the U.S., meanwhile, topped more than $325 billion USD. Perhaps the only context in which the world’s largest trading relationship has received meaningful attention has come while debating the merits of NAFTA — signed in 1993 by thenpresident Bill Clinton. And although Mexico remains prominently in the crosshairs of NAFTA discontent, Canada hasn’t been able to escape the widespread frustration felt across many hard-hit industrial states. It’s a narrative, Doer believes, must change. “We need to talk to the United States as customers. Sometimes, we tend to talk more as abstract traders, or we get involved in regurgitating numbers that, when people hear, their eyes glaze over,” says Doer. “People understand you take care of your best customer. In a world of bumper sticker politics, you need to stick to bumper sticker advocacy. We should just keep asking ‘Who is your best customer?’ over and over again.” Many Western Canadians called on Doer to ask that very question following President Obama’s decision to reject the proposed

Keystone XL pipeline this past November, capping a turbulent, seven-year saga that would’ve delivered crude from Alberta’s oil sands to specialized refineries 2,500 kilometres away along the Texas Gulf Coast. As ambassador, Doer was a vocal champion for the pipeline’s approval. He sharply criticized lawmakers for not considering the safety implications of moving oil by rail or truck as opposed to pipelines, and saw it as a missed opportunity to tackle North American energy security. But, as he points out, that doesn’t mean there hasn’t been progress. Under President Obama, the United States has increased its Canadian oil imports by 1.4 million barrels — double the 700,000-barrel-increase managed by the administration of George W. Bush. “There is a tale of two cities when it comes to energy,” explains Doer. “Obviously, Keystone received all the coverage given the prime minister was involved and the president was involved. But people should know that Canada went from 19 per cent of the U.S.’s foreign oil imports to 44 per cent — from being below OPEC to well above. The volume of oil getting to market throughout the last 10 years has been quite dramatic.” The future of energy policy, he suggests, is a cooperative strategy between the two countries addressing both consumer demand and climate change. Each presents a unique challenge, yet neither can be solved individually. “What we need to do is take the debate from one project to another, where you get episodic opposition, to a vision where we are going to make Canada and the United Sates energy independent from the Middle East,” says Doer. “And we are going to do it through sound environmental practices like enhanced efficiency and renewables, which include hydro transmission lines, as well as traditional supply like oil and gas.”

Regulation One major hurdle in developing a joint energy framework is regulatory reform. Methane emissions standards, for instance, which are a by-product of oil and gas exploration, differ substantively on either side of the 49th Parallel. This becomes particularly problematic in shared economic regions such as the Bakken oil play, where 275,000 tons of methane — about two per cent of the global total — are emitted each year. The lucrative basin straddles the Continued on Page 56

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borders of Saskatchewan, Manitoba, Montana, and North Dakota, placing stricter rules on Canadian companies than their American counterparts. “Why should we have one rule for the Bakken in Saskatchewan and another in the U.S.?” asks Doer. “It doesn’t make much sense, because air flows across the border. You don’t need a NEXUS card for the movement of air.” Of course, the energy sector is not alone in its irritation. The food industry has long battled regulatory inconsistencies, such as country of origin labelling. Even a product as simple as soup is subject to different container size requirements in Canada and its southern neighbour, making it cost prohibitive to export from one country to the other. The good news is all parties seem committed to walking the path of harmonization — albeit slowly. Initiatives such as the Beyond the Border Action Plan and Regulatory Cooperation Council are intended to reduce variation and overlap, simplify requirements, and minimize the cost of compliance. Vehicle emissions standards are a case study for how these efforts can lead to stronger business outcomes. Due to the highly integrated nature of the vehicle manufacturing supply chain (a car can cross the border up to seven times before reaching saleable condition), consistency was a core priority of environmental regulators in the early 2000s. The result was better greenhouse gas performance — and increased car sales. Not all regulatory reforms are as high profile. Some barely make it onto the public radar. “It doesn’t lead the news, but this is an area we have had some real impact for manufacturers and exporters,” exclaims Doer. “For example, last year, we had the avian flu situation in B.C. Under the old rules, we would have closed border crossings down across the country. But, because of regulatory reform, the impact was geographically isolated to that single province.”

Softwood lumber Another burr in the saddle of the Canada-U.S. trade relationship has been the export of softwood lumber.

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At the heart of this dispute have been Canadian stumpage fees — public levies charged to harvest timber, most of which is government-owned. The United States claims, because the price is not set in the competitive marketplace, the fees amount to unfair subsidization and a violation of trade rules. It is an issue Doer knows well. He was part of the team that negotiated the last extension, which expired in October 2015. And while Doer remains optimistic a new deal can eventually be reached, he warns getting there may be a rocky road. “There are three main challenges Canada will have in these negotiations,” he says. “The first is that we won all four arbitration cases under the previous agreement, including a big one on pine beetle wood, so the Americans will likely ask to change the dispute resolution mechanisms. “The second issue is going to be the dollar. It’s easier to have the argument surrounding levelling the playing field when our dollar is higher and the two currencies are closer together. “The third is we need a unanimous mandate from the provinces. There is some disagreement as it stands right now, and you can’t go to the table while our coalition is divided and theirs is united.” The United States currently accounts for more than two-thirds of Canada’s softwood lumber exports.

Trade protection 2016 may very well be remembered as the year of nationalism. In the first six months alone, concerns over immigration and the euro drove Brits to ‘Brexit’ the E.U., and the U.S. election stoked unprecedented calls to rip up trade agreements and thicken borders. Then again, for Prairie manufacturers, U.S. protectionism is nothing new. Buy America provisions have been sprouting up in legislation for years. Yet, Doer says a compelling sales pitch, paired with diligence, can be an instrumental tool to ensure Canadian companies retain market access. “In my time as ambassador, we dealt with about 300 proposals that were Buy American,” he recalls. “Now, don’t forget any one of the 535 elected senators or

congressional reps can propose a Buy American provision, put out a press release, and get coverage. We were able to stop or obtain waivers on almost all of them. But if you go through them, you see that most of the language is meant to deal with China, not Canada, so I fundamentally believe we need to start talking more as customers and not sellers.” U.S. ire, though, has not been limited to Canada. The Trans-Pacific Partnership (TPP) — a pending, 12-nation agreement touted as the benchmark for 21st century trade pacts — has played the role of political football thus far in the American election cycle. Even Democratic Party candidate Hilary Clinton, who negotiated TPP while serving as Secretary of State, has reversed course on whether she will support implementation. But, according to Doer, don’t close the book on TPP just yet. “Obama is still president, as he pointed out, and he supports TPP. Plus, many of the same people who voted for the agreement in the house will still be there after the election,” says Doer. “So, despite the fact both major party candidates have been critical of TPP as it’s currently written, I think there is momentum for it moving forward. We won’t really know until we see who wins the senate and who is appointed to cabinet.” In many ways, Canada is at the mercy of the U.S. on TPP. The agreement cannot come into force unless backed by members comprising 85 per of the collective gross domestic product — a notso-well-veiled implication that, if the U.S. or Japan back out, the deal is dead. It would be a tough pill to swallow, remarks Doer, but not a catastrophic blow to Canadian trade. “If you get a mere two per cent increase in trade to the U.S. and a 10 per cent increase to any country in Asia, including China (which is not a part of TPP negotiations), the two per cent is still dramatically more beneficial to the Canadian economy because of volumes,” says Doer. “We’re neighbours, we’re partners in trade, and we’re allies. The biggest issue will continue to be how we work together to keep the world safer, our neighbours safer, and drive economic growth together.”


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5

about executive sleep With Dr. Amy Bender, sleep scientist with the Calgary-based Centre for Sleep & Human Performance

QUESTIONS How much sleep do executives need to function at optimal performance? Business executives have a lot in common with elite athletes when it comes to mental exertion and the sleep needed to perform at a high level. Although there is a great deal of individual variability (women, for instance, typically require 20-30 minutes more sleep than men), the recommended amount of sleep for a healthy adult is between 7-9 hours per day. Even if you feel you are performing well on reduced sleep, it may be an illusion. In fact, only five per cent of the population requires fewer than six hours’ sleep. Ideally, executives should wake up refreshed without an alarm clock. If you find yourself regularly hitting the snooze button or relying on caffeine to get you through the day, you’re likely not receiving enough shut-eye. And if you snore, cannot fall asleep within 30 minutes, or get more sleep but still feel exhausted, seek help from a sleep professional. These could be signs you have an underlying sleep disorder.

What are the impacts of executives not receiving enough sleep? Research shows when you’re sleep deprived, your decision-making ability is compromised, your ability to manage stress declines, your mood is impaired, and your creativity slows. All of those things are crucial for senior executives. There is also a direct correlation between poor sleep and physical health. When people don’t get enough sleep, their metabolisms slow and hormones are released that spike hunger, triggering carbohydrate and sugar cravings. Apart of weight gain, sleep deprivation weakens your immune system and puts you more at-risk for mood disorders, diabetes, high blood pressure, and heart disease.

Can you explain the different stages of sleep? Sleep cycles are divided into two categories: Non-rapideye-movement (NREM) sleep and rapid eye movement (REM) sleep. After about 90 minutes of NREM sleep, you progress into your REM phase. This sequences through 4-6 times during the course of a normal night. The initial stage of NREM sleep lasts about 5-10 minutes, is the lightest sleep, and occurs immediately after you have fallen asleep. You then move into the second stage, which

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Prairie Manufacturer Magazine • Fall 2016

accounts for roughly half of your total sleep time. It’s at this point your heart rate slows and body temperature falls. Stage three is perhaps the most essential part of your sleep, as your body tissues begin to repair themselves and your brain waves become slower and larger. The final, REM stage of the sleep plays a key role in memory consolidation, and is characterized by a spike in heart and respiration rates, paralyzed muscles, and dream retention.

Is it true that executives should consider napping at work? Napping is a key piece of advice we give to businesspeople, who routinely battle elevated levels of anxiety in fast-paced environments. Research has proven workers who nap are actually more productive than ones that don’t. There is a science, though, behind napping. Naps should be less than 30 minutes long and taken between the hours of 1 p.m. and 4 p.m., when body temperature drops and it is easier to fall asleep. One trick is to set your alarm 10 minutes longer than your intended nap — and if you wake up before your alarm, get up. Resulting grogginess probably indicates you took too long of a nap and moved into a deeper, ‘stage three’ sleep.

How do executives balance sleep with busy travel schedules? Travel can be a huge issue for executives; and how you deal with it depends on the length of stay at the destination. Managing your sleep starts with pre-trip planning. If you’re heading east, go to bed earlier and seek light in the morning. If you’re westward bound, go to bed later and seek light in the evening. Once you board the plane, adjust your watch to the destination time. It helps your mind to think in that time zone and starts to adjust your internal body clock. While you’re in the air, beat jet lag by getting as much sleep as possible before landing. If you have trouble falling asleep on the plane, consider a taking short-acting hypnotic or melatonin supplement. Finally, once you’re on the ground, shut off your laptop, phone, television, and tablet an hour before going to bed, and pick up a pair of blue-light-blocking glasses. We know that the blue light emitted by electronic devices can be detrimental to sleep quality.


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Three effortless web design and marketing By Ryan Yedersberger

I

n the immortal words of Bob Dylan, “The times they are a-changin’.” Dylan’s 1964 counterculture hit, ranked 59th on Rolling Stone’s list of the top 500 songs of all time, was about many issues of the day — social injustice, government inaction, and inequality, to name a few. It was, in no way, about marketing. Although it very well could’ve been. Few industries have undergone the complete transformation that marketing has over the past five decades. Prairie manufacturers have not been immune to these changes. Yet, many still prefer to focus on ‘classic’ methods to generate sales leads, such as word-ofmouth, trade shows, print catalogues, and cold calling. While these are still important in the manufacturing world, they alone are not enough. According to a B2B research paper published by ThomasNet, 90 per cent of industrial buyers now do some form of online research before choosing a supplier or placing an order. Having a strong digital presence is no longer optional for ‘when sales pick up’ — it is a precursor to sales. Online marketing, however, requires a plan. Don’t just blindly spend money because some millennial told you to. Instead, follow these three, simple steps to maximize effectiveness and get the most out of your hard-earned dollars:

Offer what your customers want The first rule of business success applies to web design and digital marketing as well.

There is a massive amount of industrial activity happening on the web. Some of it is cutting-edge; most of it is downright awful. Your website should make it beyond simple to buy from you, regardless of whether you’re selling custom widgets or large products, direct or through a distribution network. Include detailed product information, specifications, part numbers, plenty of multimedia, service manuals, and whatever else you may want as a customer. Offering too little information is probably the most common mistake on manufacturing websites. Downloadable CAD drawings a great way to streamline the sales process, but make sure to put a form in front of the file to capture lead information first. Another easy trick is to showcase your facility and processes. When a buyer first comes to the website, you need to quickly show who you are and how you’re different from your competitors. Your product is only one influencer. You have less than five seconds to make this first impression, so you’ll need to be concise, strategic, and direct. This is where outside marketing support can prove highly valuable.

Pay attention to search engines and conversion Your website will do little for you if no one can find it. Even potential customers who know you may forget your web address. That’s why it is imperative to optimize your site for search engines. Search engine optimization (SEO) is a key tool for securing your newly developed website at the top of organic (unpaid)

search results. This is a second area where qualified marketing agencies are worth the investment — if you aren’t putting an emphasis on search, believe me, your competitors are. The other area they’re stressing is conversion. Having a great website may help raise your profile, but if it isn’t converting prospects into leads, it’s being largely underutilized. High-impact calls to action (CTAs) should be strategically setup throughout the site. These tell users where to click to take them to the next step of the sales or information gathering process. Keep CTAs simple, incentivize interaction (giveaways are always a hit), and make them stand out.

Invest in measurable online marketing mediums You’ve done it: Created the perfect website, with excellent search engine ranking and solid conversion strategies. Now it’s time to drive more traffic. Today, there are many alternatives to the traditional marketing channels like billboards and radio. Some of the most cost-sensitive and beneficial are YouTube, Facebook, and remarketing. Let’s start with YouTube. There are several different types of advertising on YouTube, but TrueView in-stream ads are one of the best to develop top-of-mind branding. These are paid ads that appear just prior to videos playing, requiring the viewer to watch at least five seconds of the ad clip. Why are they so great? Well, you only pay when people watch the entire ad —

“There is a massive amount of industrial activity happening on the web. Some of it is cutting-edge; most of it is downright awful. Your website should make it beyond simple to buy from you, regardless of whether you’re selling custom widgets or large products, direct or through a distribution network.”

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tips for manufacturers

not when they click the skip button. They also allow you to zero in on your customer by targeting key demographics (who they are, where they’re located, and what they’re interested in). Now, let’s move to Facebook. Facebook ads are amongst the lowest cost-perimpression advertising channels in the marketplace. They average roughly 25 cents per 1,000 impressions, which is about one per cent the cost of television advertising. Facebook ads, too, can be targeted to very specific demographics; and — as with YouTube — and can be tracked using builtin analytical tools.

Finally, let’s touch on remarketing. Remarketing is a powerful new type of online advertising that shows ads to your past website visitors as they browse other sites, YouTube videos, and mobile apps, meaning you can connect directly with people most likely to buy. This method provides time-sensitive touchpoints to drive leads back to your website when they’re most engaged.

The bottom line If you aren’t investing in proper online marketing, you’re missing out on business. You wouldn’t generally hire an

accountant as a welder, and you wouldn’t likely expect a millwright to manage your books. Bring in the specialized skill, training, and experience to deliver results. Follow these three, simple steps, and watch your marketing outcomes soar to new heights. Ryan Yedersberger is the founder and marketing director of STEALTH Media, and was a recent Young Entrepreneur of the Year finalist at the Saskatchewan Chamber of Commerce ABEX Awards. STEALTH Media has offices in Saskatoon, Regina, Calgary, Edmonton, Vancouver, Toronto, and New York.

MANITOBA IS BUILT ON MERIT Working to give your company a competitive edge. At Merit Contractors Association of Manitoba, we believe our success is your success. That’s why we strive each and every day to provide open shop contractors with one thing — value. Join more than 270 members already benefitting from the Merit advantage in areas such as:

• Training and education: There is no more important asset than your people. Equip them with the skills and knowledge they need through Merit’s classroom and online training programs. Most of our courses offer credit towards Gold Seal Certification.

• Employee benefits: There’s strength in numbers, and our comprehensive benefits plan proves it. Tailored specifically to the needs of the construction industry, members across Canada have access to industry-best rates, coverage portability, and our signature Hour Bank Benefit Plan, which allows workers to credit hours so they remain insured during periods of layoff.

• Career advancement: We believe in playing a proactive role to develop the next-generation construction workforce — and we demonstrate that belief by offering a tuition bursary for apprenticeship, as well as scholarships to young people pursuing a career in the construction sector.

• Results-based advocacy: Your business success starts with the right business environment. We advocate for the unique interests of open shop contractors at all levels of government on the issues important to you, from open tendering and labour relations to common sense regulation. Yvette Milner, President Merit Contractors Association of Manitoba

We are open shop, open opportunity, and open for business. If you are an open shop contractor, let’s discuss what Merit can do for you.

Give us a call today at (204) 888-6202 or visit www.meritmb.com

www.prairiemanufacturer.ca

61


A new industrial dimension 3D printing is no longer a fringe technology or inane fad — it is a manufacturing tool here to stay By Craig Slater

O

nce little more than sci-fi fantasy, 3D printing has long since proven its potential in mainstream manufacturing circles, leaving behind a trail of inspired technologists and giddy salespeople. Unlike subtractive manufacturing, where a component or product is derived from the removal (and, often, consequent combination) of material, 3D printing is a form of additive manufacturing, which involves synthesizing three-dimensional objects through successive material layering. Although the technology has only garnered widespread profile in the past decade, it has been standard practice with many companies around the world for more than 30 years. Industrial modelling is one of the longest-standing applications. In the past, when manufacturers endeavoured to design and test a new product, it was not uncommon to wait weeks for a prototype — and, then, if additional changes were required, came more delay, racking up untold costs in shipping, engineering, and lost-time. Today, using 3D printers, multiple prototypes can be produced in a matter of hours. “It’s a technology you have to experience to really understand what it can do,” says Steve Brand, a product designer with Loewen Windows in Steinbach, Manitoba. “You can iterate design changes very quickly. “Before, with new designs, you would spend a lot of time, especially when you were getting to a point of buying tooling, analyzing to make sure you got it right. Obviously, once you cut the tooling, then you’d wait a few weeks. When it comes back to you and it’s wrong, it can cause quite a bit of difficulty. Now, you can just try. It’s so easy and relatively cheap to print something — you end up trying many more ideas than you did previously and you arrive at your final solution much quicker.” Noel Mattson can attest to that experience. A few years ago, his team at Winnipeg-based Melet Plastics was experimenting with water heater drain valves, a simple plastic component the company sells millions of each year. During the optimization process, using simulation tools, researchers were able to modify the design to improve flow. An integral part of the validation involved 3D printing the design concepts, and running flow tests to verify accuracy. The end result: A reduction in tank drain time from 48 minutes to 19 minutes. Mattson also credits 3D printing with

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upwards of $50,000 in savings from tooling that otherwise would have required several modifications — not to mention hours of time. “Examples like that show how [3D printing] really transforms the engineering process,” he says. “It shortens the development cycle significantly.” Other sectors and business functions have begun embracing the idea of 3D printing as well. Physicians are now creating transplantable organs and tissues produced specifically to fit a patient’s anatomy. Homebuilders are able to create architectural-scale designs and models for new structures — without the aid of an architect. Manufacturing technicians are becoming one-person fabrication shops. And, in 2013, a 3D-printed part was used in a jet engine for the first time. At Loewen, Brand is adamant 3D printers are not just for large multinationals, either. “The technology is more mature than some people believe,” he says. “A small manufacturer may think this is way out there for their needs, but that’s not necessarily true.” Experts are predicting a bright future for 3D printing. The industry is expected to see a significant bump in worldwide sales, up from $3 billion in 2013 to $13 billion in 2018, and then upward again to $21 billion before the end of the decade. The rapid adoption has helped to drive down the cost of equipment — in turn, feeding new demand. “You’re seeing a democratization of 3D printing technology,” Brand explains. “Online, you could probably find a very large number of companies selling 3D printers for as little as $300. That changes access, and the entire landscape of who’s using the technology.” Printable materials are also expanding. Beyond plastics and polymers, nanocomposites, ceramics, and even metals like titanium and cobalt are emerging as options. But there is undoubtedly room for improvement. Many users wait for the day when entry-level 3D printers are so advanced, it will be hard to differentiate a printed part from a moulded part. Mattson suggests it’s only a matter of time. “It’s still definitely growing,” he says. “There are more material options everyday, and it seems like the machines are getting better and better with resolution and surface finishes. “I don’t think we’ve come close to seeing its limitations.”


Manufacturing Success Agriculture, mining, oil & gas, and renewable energy: these are the sectors driving opportunities for Saskatchewan manufacturers. Find your competitive edge in Saskatchewan: • The lowest business taxes for manufacturers in Western Canada • A highly skilled and productive workforce • Two new manufacturing and processing exporter tax incentives to help offset the cost of hiring full-time employees and head office staff • The new Saskatchewan Manufacturing Centre of Excellence, helping businesses compete domestically and around the globe Discover opportunities for your business by emailing invest.sask@gov.sk.ca or visit us online.

saskatchewan.ca/invest |

2015 Saskatchewan Manufacturing Shipments

14.1 billion

$

% 46 

Manufacturing Shipments 2005-2015


An initiative of

71%

Heavy Metal

36%

100%

Light Metal

76%

Automobile

Aerospace

100%

Millwork and furniture

We’re looking at the Province half-full. Made Safe members represent over half of Manitoba’s manufacturing sector and counting. There’s safety in numbers—just one of the benefits of an industry-led safety association. 64

Prairie Manufacturer Magazine • Fall 2016

100% Plastics

Prairie Manufacturer - Issue 2 • Volume 1  

Jayson Myers on the future of Canadian manufacturing

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