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Canadaâ€™s clean secret How green technology is revolutionizing the oil and gas supply chain Issue 3, Volume 2 â€˘ Winter 2017
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Shooting for the stars with supply chain diversity
ith a name like Apollo Machine & Welding, one could assume the Edmontonbased fabricator has long been immersed in Canada’s aerospace industry. Or perhaps it was just a sign of things to come. When founder Robert Norton first rented a basic manual lathe in 1971, however, his sights were set not above the earth’s surface, but beneath it, focused squarely on servicing Alberta’s budding energy supply chain. It has been a sector that has treated the company well over the past fourplus decades. Apollo has grown to more than 250 employees, with two facilities spanning a total of 165,000 square feet. Its laser cladding division is also one of the most advanced in the world, using specialized laser technology in surface engineering repair and manufacturing applications. Times, though, change. And with the latest commodities cycle putting the squeeze on suppliers, second generation co-owner and President Wayne Norton contends there has never been a more important time to diversify revenue mix. “The world and how it views resource development is evolving,” he says. “While oil isn’t likely going anywhere anytime soon, we see the trends and have asked ourselves where we need to pivot as a business to stay profitable over the next 40 or 50 years. It is tempting when you see upticks in your traditional markets to diverge from the path of diversification, “It is highly appealing for large aerospace manufacturers like Airbus, Eurocopter, BAE Systems, and Rolls Royce to see potential suppliers that have already adopted a system similar to what they’d use in their own companies.”
which has its own set of challenges — you really need to believe in and commit to your strategy.” Through a chance connection at the National Research Council, Norton was introduced to Competitive Edge Strategic Development Services, better known as CESD, an offshoot of Manitoba Aerospace that is dedicated to assisting small- and medium-sized enterprises in entering the aerospace, defence, and advanced manufacturing supply chains. The synergies were kismet. CESD’s consulting lead, John Kliewer, began working alongside the Apollo team in December 2016. His first task was to assess the company’s ‘supplier readiness’ in four critical areas: Strategic business planning, leadership, skills development, and innovation. The next step was a fivemonth process to implement a business operating system (OS) that would comply with the quality management requirements of the AS9100 standard. “It is highly appealing for large aerospace manufacturers like Airbus, Eurocopter, BAE Systems, and Rolls Royce to see potential suppliers that have already adopted a system similar to what they’d use in their own companies,” explains Kliewer. “This OS is one that is visual, intuitive, and allows the team to concentrate on what their daily, weekly, and monthly requirements are for operational excellence. “It’s important for the structure of the OS to integrate into their regular functions, as to not add a depth of bandwidth into their day. The focus needs to be on actions and accountabilities.” Once the methodology was put in place, CESD and Apollo then turned their attention to driving sustained improvement, and preparing Apollo staff for a different type of procurement than they have been previously accustomed to.
“Do your homework. Understand what associations and relationships already exist that can help you network with those worlds. You need to go out, be seen, and shake hands.”
The latter is not always an easy transition — especially for companies that are already well-known in their respective industries. It requires a reexamination of marketing efforts, and a hard, self-assessment for preparedness. “You need to build capabilities in advance of having those introductory conversations with new markets,” adds Kliewer. “The first question to ask is: Are you ready for procurement officials showing up the next day?” Kliewer’s says his best advice is perhaps the most simple: When it comes to aerospace and defence, there is no substitute for hitting the pavement. “Do your homework. Understand what associations and relationships already exist that can help you network with those worlds. You need to go out, be seen, and shake hands.” For Apollo, it is still a work in progress, yet they feel substantially more prepared to break through. “With oil bouncing back somewhat, the urgency for us does not feel as grave, but we are acutely aware we need to continue to push in this direction,” says Norton. “Having the processes and systems in place have made us a better company regardless of what sector we’re working in. “Our aerospace sales will grow. As with anything, it takes focus, patience, and time.” To learn more about CESD’s ITB Awareness Program and its other offerings, visit www.cesdservices.ca.
Publisher Ronda Landygo firstname.lastname@example.org 877.880.3392
In this issue Productive by design
Two decades ago, Plains Fabrication & Supply chief executive Chester Nagy had the dream of building a new manufacturing facility. In 2010, that dream became reality, and remains a case study in how lean principles can guide workflow and plant design.
#MeToo and #IWill: How to promote a respectful workplace
It seems you can’t turn on the news these days without hearing a story of workplace harassment. Are you prepared to respond to these complaints in your business?
Canada’s clean secret
Oil. To some in Canada, it’s a vilified swear word, synonymous with environmental degradation. But what is fact and what is fiction? Prairie Manufacturer Magazine explores how green technology is revolutionizing the oil and gas supply chain.
Rethinking your supply chain as a strategic asset
For many manufacturers, the supply chain is by far the largest asset they ‘own,’ and is core to a company’s ability to succeed both financially and in the marketplace. And while the supply chain is a major strategic asset, it is seldom seen or managed as one.
Uncertainty, adaptation the name of the game in 2018
The beginning of a new year: It’s the time when economists dust off their crystal balls and pronounce what they see lying ahead for business. You should excuse them if their forecasts are less confident than usual — 2018 has its fair share of question marks.
The commodity conundrum
There are few jurisdictions as tied to commodity prices as Western Canada. Manufacturers on the Prairies are no different. Which resources are up, which are down, and where are they trending in the months ahead?
Next issue Spotlight: In a recent report, Canada ranked near the bottom of OECD economies for innovation performance. Is this a fair assessment, or are we measuring the wrong things? Our first issue of 2018 untangles the innovation equation, and what manufacturers must do to sharpen their global edge. Regional feature: Manitoba is manufacturing. Aerospace, agriculture, transportation, high-end bio-products — you name it, the province has it. Prairie Manufacturer Magazine sets out to discover how this market is defying the odds. Booking deadline: February 9, 2018 Material due: February 16, 2018
Editor Derek Lothian email@example.com 306.380.3765 Special thank you to our editorial advisory committee. Creative Director Dana Jensen Sales firstname.lastname@example.org © Copyright 2017 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 email@example.com. 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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Surviving and thriving in an age of disruption By Derek Lothian
his past November, I had the honour of representing Saskatchewan at the Polytechnics Canada National Strategy Group meetings in Ottawa. Between roundtables with cabinet ministers and senior bureaucrats, we were fortunate to hear from Dominic Barton, the managing director of global consulting giant McKinsey & Company and one of the most influential figures on the federal government’s 14-member Advisory Council on Economic Growth. I have heard Barton present on a handful of previous occasions, and his speeches tend to pattern around the same message: There are four forces currently transforming the global landscape — and they will impact the very foundations of life and commerce, from where we live to how we do business. Seldom, however, have I found his insights to be so raw, pointed, or relevant to manufacturing. With this issue of the magazine focusing on supply chain excellence, I thought it was an opportune time to briefly look at
“Between now and 2050, farmers will need to produce more food than in the previous 10,000 years combined. That plays right into our strengths on the Prairies with respect to maximizing land utilization, driving agricultural efficiencies, and creating higher quality, higher value food products.”
Prairie Manufacturer Magazine • Winter 2017
each of these four pressures and begin a conversation around our own preparedness on the Prairies. As manufacturers, and as organizations that support manufacturers, are we truly ready to embrace to the challenges and opportunities of the next 10, 25, 50 years? Let’s start by examining the first driver: Changing international growth dynamics. Over the past half-decade, there has been a great deal of bluster surrounding the so-called ‘pivot to Asia.’ In fact, it was one of the foreign policy cornerstones of President Barack Obama’s administration. And, while there remains dissention among experts on the validity of moving domestic resources to fund this strategy, there is no argument the world’s economic centre of gravity is shifting away from North America and Europe, back to the Asia-Pacific. Part of that movement is due to the boom of the middle class. By 2030, there will be 2.4 billion new middle-class consumers in Asia and Africa alone. This phenomenon is
helping to attract and organically grow large corporations. Within the same timeframe, more than half of the world’s billion-dollar-plus companies will be headquartered in emerging markets, as these middle-class populations consume like their counterparts in the developed world. Two of the biggest implications for Western Canadian manufacturers and processors are the creation of supplier opportunities in infrastructure and food. Between 2017 and 2035, the world needs to spend $3.7 trillion annually on infrastructure, including energy infrastructure, largely to support urbanization in Asian cities. 2008 was the first time on record the percentage of the planet’s urban population exceeded that of rural dwellers. Looking a bit further ahead: Between now and 2050, farmers will need to produce more food than in the previous 10,000 years combined. That plays right into our strengths on the Prairies with respect to maximizing land utilization (potash-derived fertilizer is a big piece to that puzzle),
“To sustain population levels, the fertility rate must hover around 2.1 children per woman, which essentially means couples produce enough kids to replace themselves. The last time Canada achieved that benchmark was 1971.” driving agricultural efficiencies, and creating higher quality, higher value food products. The second transformative force is probably the most acute to Canadian industry: Accelerating technological disruption — of which, according to Barton, there are a handful of catalyzing factors, among them: Computing power, connectedness, artificial intelligence, and big data. Probably the best example is a device we use daily, if not hourly: Our smartphone. Remember how that revolutionized the way we communicate and run our businesses? It wasn’t that long ago. Heck, I remember waiting in line to buy the Continued on Page 8
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first-ever iPhone when it was released. Well, the latest version of that same device — the iPhone X — is 210 times faster than the original. Imagine what that change in speed and capability enables, and the data that connectivity can create and capture. Earlier this year, at the Goldman Sachs third annual Innovation Symposium, one speaker suggested the integration between cloud technology and data analytics could increase global crop yields by up to 15 per cent — or $180 billion in value — by optimizing production decisions for variable conditions. Just in our last issue of this publication, we heard from a homegrown company east of Regina manufacturing the world’s first autonomous air seeder. Becoming a hub for this type integration — particularly in sectors our provinces already specialize in, such as agriculture, resource development, and aerospace — must be a priority for Western Canada to protect our manufacturing advantage. The third force, and the one I must admit I didn’t even consider, is the world’s aging population. Canada has not been immune, either. Over the past 150 years, we have gone from a society where it was not uncommon for women to have four, five, or more children to an average of one or two, and at increasingly older ages. To sustain population levels, the fertility rate must hover around 2.1 children per woman, which essentially means couples produce enough kids to replace themselves. The last time Canada achieved that benchmark was 1971. The picture is arguably grimmer on a global scale. By 2050, for the first time in our collective history, there will be more people over the age of 65 than under the age of 14; and the number of people over 80 will quadruple, to 400 million. In countries like Japan and Spain, one in three residents will be 65 or older. Both here and abroad, this will place massive strains on public budgets. It could seriously further jeopardize the availability of workers and certain skill sets as well. We need to do a better job preparing young people for the most in-demand skills of tomorrow, and pair those efforts with proactive immigration and technological adoption strategies to ensure Western Canadian manufacturers have the talent and capacities necessary to compete well into the future. The last — but certainly not least — of the four pillars is what Barton calls “the search for a new societal ideal.” Yes, that hurts my head, too. He masterfully breaks it down, though, into a quadrant of considerations that have a strong resonance to some of the issues I personally hear in going out to speak with manufacturers and customers who are purchasing manufactured goods. The consideration that hits home the hardest for our industry is the increasing displacement from trade and technology. Take automation. A McKinsey report released in July 2016 estimated that, for 60 per cent of jobs filled today, 30 per cent of their activities could be automated. Predictable, physical
Prairie Manufacturer Magazine • Winter 2017
“Canada only produced 29,000 technology graduates in 2015, but will create more than 50,000 technology jobs annually by the end of the decade.”
work common to manufacturing was number one on this list for jobs that are most likely to become automated. Keep in mind, however, the types of jobs in manufacturing are also changing. We’re just not changing the workforce fast enough to keep up. Canada only produced 29,000 technology graduates in 2015, but will create more than 50,000 technology jobs annually by the end of the decade. Furthermore, only a third of employers believe graduates are ready for the labour market (ironically, more than four-fifths of education providers disagree). So, an obvious question would be: If we aren’t getting the right skills out of the post-secondary system, can we ‘reskill’ existing employees whose jobs may be at risk? If that’s our approach, we’d better get spending. After crunching the numbers, McKinsey’s projections indicate the cost of adult reskilling would need to increase by $40 billion to manage the effects of automation over the next two decades. Not chump change. The remaining three considerations with respect to ‘the new societal ideal’ are worthy of thesis-level discussion on their own, and thus I won’t get into too much detail here. I mean, I could write all day about the polarization of media and politics, and increasing geopolitical instability — and if you haven’t already stopped reading, you would right there. Yet, I do believe it’s important to touch on the last one that may very well be at the root of a lot of this disruption: Rising inequality. I will always remember Barton’s assessment on this file: “We are living in parallel universes” when the richest 62 individuals in the world have the same wealth as the bottom half of humanity. On a more relatable scale, 65-70 per cent of advanced economy households also had flat or falling incomes between 2005 and 2014. That’s our neighbours. That’s you and I. Now, why is this all important? What does the changing global landscape have to do with manufacturing on the Prairies? Everything. We are no longer insulated in our own bubble. We are amongst the most trade-dependent, globally exposed jurisdictions on the planet. Our supply chains, our outlook on business opportunities, our R&D efforts, our technology strategies, and our workforce planning must all take into account influences beyond our singular control. Embrace the challenge. Because, despite the hardships, Prairie manufacturers are better positioned to capitalize on the opportunity than anyone else.
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Canadian manufacturing and the global supply chain By Guillermo Moreno
f you have been following the conversation about creating a national energy strategy, you’ve likely heard the argument that a Canada-wide supply chain approach will generate jobs. You’ve also likely heard the argument that it won’t. So often we are quick to assume that any job creation in energy development will only benefit one province or one industry. As the leader of Tenaris in Canada — a global steel pipe manufacturer and service provider for the world’s energy industry with a distinct focus on local operations, I am often asked to explain the value domestic manufacturing provides to our clients. Today, our customers intuitively understand the importance of global competitiveness, but they typically underappreciate the advantages of a local network. As the world becomes increasingly globalized, it’s easy to lose sight of the role the domestic market plays, and the opportunity our local industry has to add value well before the resource is developed. Domestic manufacturing creates value for the customer and Canada. Being local adds value to the local economy. Being local means providing customers with better results by understanding their needs, developing collaborative relationships, and fostering continuous improvement. Being local means adhering to higher standards in health, safety, and environmental regulations.
Being local adds value to the local economy In the energy industry, a domestic supply chain has a multiplier effect on the economic impact to Canada’s economy. Consider manufacturing domestic steel pipe, for instance. The supply chain allows steel, manufacturing, and mining industries to grow alongside it. These impacts include the jobs added when a supplier from Quebec provides steel to Ontario or Alberta manufacturers that produce pipe used by Canadian energy companies in Manitoba, Saskatchewan, Alberta, and British Columbia. By connecting the western energy supply chain with the central Canadian manufacturing supply, Canada’s economy benefits. The cascading effect of local businesses using and developing other local businesses generates a stable, secure economic engine that fosters further growth. At the macroeconomic level, when the buyer and seller are both Canadian companies, the contribution to the national economy is maximized.
Being local means providing customers with better results As a local manufacturer supplying local customers, proximity and regional connection is an obvious advantage, but so too is
Prairie Manufacturer Magazine • Winter 2017
continuous dialogue. A commitment to continuous improvement is a unique attribute of domestic manufacturers. It leads to better product performance, and lowers total costs by minimizing errors, waste, and downtime. Tenaris’s Rig Direct™ service is an example of this concept. With local technical consultants dedicated to understanding the operating conditions of each formation and well, customers receive optimized products and materials selection that make sense for them. This can even include creating tailor-made products from our mills to help meet customers’ needs. Choosing the right materials from the beginning reduces costs from unnecessary product purchases and wasted material. A shorter supply chain means less time to deliver a product, and less working capital to make projects happen. In the case of the oil and gas industry, operators can change the well design to increase production more quickly when they rely on a short, responsive domestic supply chain. This dynamic supply chain allows companies to reduce on-the-ground inventory to generate greater revenues. Working together with a local business that understands the needs of the industry and the challenges it faces provides innovative ways to collaborate to find solutions. Additionally, by connecting domestic manufacturing and investments in integrated logistics services and RFID tracking, with just-in-time installation in the field, the customer and supplier relationship is designed around meeting customer needs and providing services that matter to them.
Being local means higher standards in health, safety, and environment Maximizing the local economy as a domestic manufacturer creates an industry more responsive to Canadian values. It’s easy to forget that Canada has some of the world’s most stringent health and safety standards. Choosing to be a domestic manufacturer in Canada means providing the best working conditions for workers, not to mention generating high-quality products. Understanding the local environment also allows companies to curate a workforce that meets the market needs and supports community growth. By using a local supply chain there is an opportunity to reduce greenhouse gas (GHG) emissions when considering the total lifecycle. Steel manufactured in Canada, by comparison, is the lowest GHG-emission steel available to Canadian suppliers. Canadian produced steel has one-third of the full lifecycle GHG emissions of steel produced in China, and one-half the emissions of steel produced in South Korea. An energy industry increasingly committed to reducing its emissions footprint sees value in
Canadian manufacturing of steel pipe to meet their corporate social objectives. Other shared corporate social objectives include a commitment to education in Canada and a renewed focus on areas of science, technology, engineering, and mathematics disciplines, particularly in enhancing the diversity of students pursuing this education focus. Manufacturers and end users in Canada are aligned in their support for science, robotics competitions, and in supporting the continued education of Canadian youth. But the success of a domestic manufacturing sector would not be possible without fair market competition. Canadian manufacturers compete on market-based values and principals, but this isn’t necessarily the case for some foreign competitors. Many foreign competitors use government intervention and less-than-market-value supports that distort their costs. These supports may include intervention from state-owned enterprises; manipulated currency; lower levels of health, safety, and environmental standards; and, engineered home market prices to support their export business competitiveness. Competition must be based on a level playing field and not distorted by unfair imports through dumping and illegal subsidy. Working together with local government to establish an effective trade remedy system in Canada prevents unfair imports from affecting competition. This makes investment in local manufacturing more attractive allowing for a more secure and stable supply available to the Canadian end user.
“The cascading effect of local businesses using and developing other local businesses generates a stable, secure economic engine that fosters further growth. At the macroeconomic level, when the buyer and seller are both Canadian companies, the contribution to the national economy is maximized. “ For global companies operating in Canada, there is a real opportunity to combine local commitment with global capabilities offering complementary niche products to better serve the domestic manufacturing sector. Global product supply can complement local commitment rather than replace it. Through collaboration and enhanced relationships, customers can receive customized solutions that balance specializations and further enhance the value for our domestic market. Utilizing a Canadian manufacturing and service supply chain that incorporates a commitment to Canada and global excellence with complementary products generates an economic benefit for the customer, the supply chain, and the country. As we consider the need for a national energy strategy, think about how all Canadians in the supply chain can benefit from this economic opportunity. Guillermo Moreno has been the president of Tenaris in Canada since October 2012, managing activity across the country for the company’s 1,300 employees, including its Calgary-based headquarters, three manufacturing facilities, and six service centres.
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Money & Markets
Growing Alberta’s manufacturing sector makes sense, but it’s not a silver bullet By Rob Roach
lberta’s manufacturing sector tends to be either overshadowed by the province’s oil and gas industry or hailed as a key source of the economic diversification needed to reduce Alberta’s reliance on oil and gas. There is truth in both sentiments, but the reality is more complex. In Alberta, oil and gas extraction is king. The sector accounted for a whopping 27 per cent of the province’s real GDP in 2016 (the nominal figure was 17 per cent per cent due to low oil prices, yet this is still a huge proportion of the provincial economy). Nationally, oil and gas extraction accounted for six per cent of real GDP in 2016. And in Ontario, it was less than one per cent. Alberta manufacturing represented just under six per cent of the province’s real GDP in 2016. While nothing to snuff at, this is clearly much smaller than the output of the province’s oil and gas sector, and explains why manufacturing in Alberta does not get the same amount of attention it does elsewhere. In Ontario, for example, manufacturing yielded 13 per cent of the province’s real GDP in 2016 — double the proportion in Alberta. It would take five of Alberta’s manufacturing sectors to equal the output of Ontario’s manufacturing sector. Conversely, it would take Ontario’s entire manufacturing sector to replace Alberta’s oil and gas extraction industry. From more good jobs to greater economic diversification, expanding Alberta’s manufacturing sector makes sense for all sorts of reasons, but it will take a lot of new activity to even make a dent in the role played by oil and gas extraction. So, even though Alberta is home to the third largest manufacturing industry in the country, after Ontario and Quebec, it is known for its energy patch rather than its manufacturing prowess. When we subtract the oil and gas extraction sector from Alberta’s economy, manufacturing’s share of real GDP rises to eight per cent. This is closer to, although still below, the national average of 10 per cent. While its relative weight in the Alberta economy is less than in the other provinces (the only exception is Newfoundland and Labrador, where manufacturing accounted for less than four per cent of real GDP in 2016), manufacturing in Alberta still generated more real GDP last year than healthcare, retail trade, public administration, finance, education, and agriculture. Only oil and gas, real estate, and construction produced more GDP than manufacturing. On top of this, manufacturing is a magnet for other economic activity. It becomes something of a chicken and egg situation in an advanced economy like Alberta’s — in which services,
Prairie Manufacturer Magazine • Winter 2017
infrastructure, local amenities, natural resources, and other variables such as public policy, geography, and social norms interact in complex ways. But manufacturing businesses tend to be a base upon which other economic activity is built. Imagine a small town that is home to a single large factory. If the factory closes, the town’s corner store might go under. If, on the other hand, the owner of the corner store was to close because the owner retired, the factory would keep operating. Manufacturing is not the only economic magnet available; it is, however, is a key one. As such, manufacturing in Alberta is a significant and foundational piece of the province’s prosperity. And while competing against countries that have cheap labour and lax environmental standards for new investment in mass manufacturing is a non-starter, there are significant opportunities to expand and diversify Alberta’s manufacturing base. The growing global middle class represents billions of potential new customers for our current and future products. Finding ways to outmaneuver our competitors and supply this group with what it wants will be a critical challenge going forward. Keeping the U.S. market (which accounts for 70 per cent of Alberta’s manufacturing exports) open through a renewed NAFTA and other means is also essential. As we look for ways to do this, Albertans should keep their comparative advantages top-of-mind. North of 80 per cent of the products sold by Alberta manufacturers are linked to the province’s natural resource base in terms of providing the raw materials that are being processed or as a major customer of manufactured goods, such as machinery used in farming and oil and gas extraction. Several vibrant manufacturing subsectors have been built around Alberta’s bounty of oil, natural gas, and trees, turning crude oil into gasoline, natural gas into plastic, and trees into lumber and paper. The same is true when it comes to agriculture. Local farmers and ranchers provide Alberta’s food and beverage manufacturing businesses with a ready supply of high quality inputs that are turned into everything from French fries and pot roasts to pasta and craft beer. Alberta stands out among the provinces when it comes to the proportion of its manufacturing output sold into the domestic market. More than 60 per cent of products manufactured in Alberta are sold within the province or within Canada. This reflects the strong linkages between Alberta manufacturers and the Canadian energy sector, with the latter
being a key buyer of products from Alberta. It also reflects the fact that most of the gasoline manufactured in Alberta is sold within Canada rather than to U.S. buyers. The opposite is true in Ontario, where two-thirds of its manufactured products are exported south of the border and to other countries. These strong linkages to the natural resource economy explain why Alberta manufacturing was hit so hard by the recent recession in the province. The sector contracted during the recession in terms of both sales and the volume of valueadded production, with a 21 per cent drop in sales between 2014 and 2016, and a 13 per cent drop in real GDP over the same period. The contraction in the manufacturing sector was not, however, spread evenly across its subsectors. Machinery manufacturing was the hardest hit with a drop in sales of 57 per cent in two years, with real GDP dipping by almost the same amount (56 per cent). Much of this was the result of reduced demand for machinery used by the oil and gas sector. Much less reliant on the oil patch and fuel demand, Ontario’s machinery manufacturing subsector’s real GDP increased by six per cent between 2014 and 2016 (the increase would likely have been greater if Alberta’s oil and gas industry was in a position to buy more products from Ontario). Sales of petroleum and coal products fell by 44 per cent, while output shrank by just three per cent between 2014 and 2016. This indicates that it was soft prices that cut deeply into the sales figures, rather than a large drop in the volume of production itself.
The primary metals and fabricated metals categories, both of which rely heavily on demand from the oil and gas sector, saw sales fall precipitously during the recession, at 39 per cent and 26 per cent respectively. Only the furniture, wood, and food subsectors managed to stay on the positive side of the ledger in 2016 compared to sales in 2014, with food products posting a solid seven per cent gain over the recession. As with so many things in Alberta, manufacturing’s success — at least overall — is tied to oil and gas. This has tremendous benefits; but, it also means that any pain experienced by the oil and gas industry quickly spreads to other sectors, including manufacturing. The ongoing quest for more good jobs, long-term and widespread prosperity, and less volatility in the Alberta economy point to the value of expanding and diversifying the manufacturing sector. Good ideas and a willingness to experiment, combined with Alberta’s highly educated labour force, fantastic quality of life, reliable infrastructure, proximity to U.S. and Asian markets, and growing expertise in artificial intelligence comprise a recipe for expanding manufacturing in the province. This is not an easy task. It is, though, achievable. At the same time, we need to be realistic. Even if Alberta was to double the size of its manufacturing sector, it would still only replace a fifth of the output of oil and gas extraction. Rob Roach is the director of economics, insight, and research for ATB Financial.
Lessons in Lean
Productive by design: How better flow can lead to better results By Chester Nagy
“Perhaps one of the most overlooked aspects of lean is ergonomics, worker comfort, and how to maximize the efficiency of your human capital. That doesn’t mean tougher supervisors or higher wages. It means creating a physical environment your people actually want to come work in.”
Prairie Manufacturer Magazine • Winter 2017
oughly two decades ago, I had the dream of building a new manufacturing facility. Our existing plant was a glorified, 90-year-old dungeon, located in an industrial park near the Calgary Stampede Grounds — dark and dingy, cold in the winter, and sweltering in the summer. Like a lot of buildings similar in vintage, the layout was not designed for the scope of work happening inside it. Once components came through the overhead door, they could usually move in only one direction, even if there was another project or problem holding up the line. After completion, the finished product had to exit back through the same door. To the most layman of observers, we had flow issues, which translated into performance issues — efficiency, quality, profitability, on-time delivery, you name it. Our first eureka moment came when the Government of Alberta began funding a program through Canadian Manufacturers & Exporters that allowed manufacturers to bring in outside expertise to conduct an in-house lean assessment. At the time, lean principles were still foreign to us, but it was free and we knew — taking an honest, hard look at where we stood — it simply couldn’t hurt.
That two-day visit fundamentally changed the way we viewed our own processes. Truth be told, it saved our business altogether. It also taught us that we had no idea what we needed to improve. Plains Fabrication & Supply was founded in 1988 primarily to service Alberta’s booming oil sector. Pressure vessels and piping packages were our speciality from day one. As the company grew, however, so too did the size and scope of our products, driving new demand for bigger, more advanced equipment, more flexibility in scheduling, and more staff. ‘Bursting at the seams’ would be an accurate description of the state we were in, despite the fact roughly 50 per cent of the space we already had was essentially ‘wasted.’ There was no argument change needed to be made. But exposure to lean systems and methodology quickly taught us that we didn’t know precisely what changes we needed to make. Investing millions of dollars into a new building to end up with many of the same problems was a stark reality if we didn’t get it right. The best decision we made was to turn to our frontline employees for input. They did all the work, they experienced the frustrations, they were the most plugged-in ‘consultants’ Continued on Page 16
money could buy — who better to tell us where we needed to go? The secondbest decision was to then take their ideas and test them out in real-time, where possible, to gauge whether they had the intended effect. The concept of ‘kitting’ — packaging, storing, and moving certain parts that fit together in a particular process — was one of the instant winners. It significantly cut down on the time spent manually fetching pieces or waiting for larger skids to get shuffled around the narrow production floor. There were some problems, though, we knew we weren’t going to be able to solve given the existing constraints. Shipping large equipment in and out of the plant, for instance, was incredibly cumbersome given the proximity to downtown, and often carried a price tag in the tens of thousands of dollars. To realize the full potential of the opportunity our staff had presented to us, ownership knew we had to rescale. And because there was no room to scale, the determination was made to build a new plant, using lean design methodology as our guidepost.
In 2010, our 90,000-square-foot, state-of-the-art facility opened its doors in the southeast corner of the city — nearly 30 per cent smaller in fabrication space than the building we had left behind. As a custom steel manufacturer, no two jobs we work on are exactly the same, which is why we initially grappled with the notion that lean was just for the Toyotas of the world that repetitively produced widget after widget, 24 hours a day, seven days a week. Instead, we had to configure our layout for maximum flexibility. Kitting, and storing supplies nearby their point of use, was part of that strategy. Equally important was the ability to move production equipment. In fact, only two pieces are equipment are permanently fixed, enabling us to change out virtually any bay or cell in less than 24 hours. Perhaps one of the most overlooked aspects of lean is ergonomics, worker comfort, and how to maximize the efficiency of your human capital. That doesn’t mean tougher supervisors or higher wages. It means creating a physical environment your people
actually want to come work in. This is probably the starkest contrast now from our old shop. When it comes to the basics of plant design, two things immediately jump to mind: Light and heat. We constructed our new facility to be the polar opposite of our former ‘dungeon’ — high ceilings, bright workspaces, and superior airflow. At -30°C with all our doors wide open, air rotation units can raise the shop temperature back up to normal in a mere 17 minutes — a welcomed feature when working in one of North America’s coldest climates. Best of all: Our energy costs are now 25 per cent of what they once were. This is not complex automation or the result of big data; it is lean in its simplest form. The ‘green’ aspects of lean haven’t stopped at greater energy efficiency, either. Our company, which was acquired by Alstar Oilfield Contractors earlier this year, has doubled-down on recycling and material waste reduction across every aspect of our operations, from the lunchroom to the corner office to the plant floor.
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Prairie Manufacturer Magazine • Winter 2017
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Take our modified sandblasting process. By replacing silica sand with steel slag, we can reuse the same material up to 250 times, and then recycle it instead of diverting thousands of pounds of sand into the landfill each year. The installation of a self-contained chamber has the duel benefit of preventing dust from contaminating general air quality as well. Now, along our journey, I appreciate we have enjoyed some unique advantages. Not every company our size (around 140 people in our plant at the moment) can be, nor should they be, looking at new construction to solve their workflow issues. Yet, I readily contend the principles we applied are universal, and can benefit most manufacturers, regardless of their limitations or capacities: To begin, think engagement — there are some great ideas trapped in your organization if only they were released with the right questions. Think agility — products and processes evolve, and your ability to pivot quickly can be your competitive advantage in the market. Think green — often, the right long-term ecological choice turns out to be the right long-term economic choice. And, finally, think collaboratively — suppliers and customers are a wealth of knowledge and insight into your business. Tap into it. Lean is not a young man’s game, nor an old man’s obsession. It is the path that leads toward the factory of the future. Chester Nagy is the president and chief operating officer of Plains Fabrication & Supply — a division of Alstar Oilfield Contractors. In 2016, he was named one of the 11 most influential people in the oilsands industry.
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Prairie Manufacturer Magazine â€˘ Winter 2017
How to promote a respectful workplace By Shereese Qually
t all started with Harvey Weinstein. This, of course, isn't accurate in that allegations of sexual harassment against powerful figures certainly predate the October claims against the media mogul. In the weeks and months following, however, we have seen a tide of #MeToo stories flooding the media, and an international conversation on sexual harassment to an unprecedented level. Stories abound across social media of various overt and systemic incidents of harassment throughout many industries and workplaces. Continued on Page 20
â€œThe task is to turn inward, look internally at your policies, practices, procedures, and to consider your message to the workplace about harassment of any nature. Employers are required to take reasonable steps to prevent harassment in their workplaces and to mitigate or avoid the effects of any harassment that does occur.â€?
In the employment and labour law context, we are concurrently seeing a message to employers that failing to address or appropriately respond to complaints of harassment of any nature is inappropriate and will be met with significant remedial consequences, including significant damage awards. These cases indicate that not only are there significant financial ramifications for employer and high-level managerial harassment (and there certainly are such awards), but there is also significant liability where an employer fails to implement appropriate policies and procedures to address harassment, respond to complaints of harassment, or follow its own policy in responding to an allegation of harassment. The following are examples of some of these high-mark warning cases: • In the case of Garland v. Tackaberry (c.o.b. Grape & Grain),  MHRBAD 5, an employee was subjected to ongoing lewd comments and actions by a customer of the business. The employer was aware of the continued harassment and failed to take steps to terminate it despite the complaint. The employer was liable for failing to take reasonable steps to prevent the harassment and was ordered to pay $7,750 to its former employee. • In Re Renfrew County and District Health Unit and UPSEU, Local 487 (Correia),  Carswell, Ont. 3402, $9,000 in general damages were awarded as a result of homophobic comments made in a conversation involving the complainant's supervisor, and overheard by the acting manager. The investigation was inadequate, failed to follow policy, and failed to provide an adequate response to the incident. This case clearly states that, to meet its obligations, an employer must act appropriately before there is discriminatory conduct in the workplace, during the management of a complaint, and following the conclusion of the complaint. • In Re City of Hamilton and ATU, Local 107 (BA),  Carswell, Ont. 13296, the complainant was subject to sexual harassment by a supervisor, including inappropriate conduct and comments. She complained multiple times both formally and informally to her superiors. The City was found to have acted inappropriately in that managers did not assist in moving the matter forward, actions taken following the complaint and investigation were sorely lacking, and the City failed to follow its own internal
Prairie Manufacturer Magazine • Winter 2017
policy. The City was found to have taken a half-hearted and insensitive approach to addressing and dealing with harassment; and, as a result, was required to pay $25,000 in general damages. • In The City of Calgary v. CUPE, Local 28,  CanLII 88297 (AB GAA), there was an incident of egregious sexual harassment and assault of an employee by a supervisor, followed by retaliation by co-workers when a complaint was made. It was found that the griever suffered significant, life-changing injuries as a result of the incidents, which were exacerbated by management's complete failure to protect and support her and comply with its own internal policy. The City was ordered to pay $125,000. These are only a small sampling of the recent harassment cases, yet they clearly espouse takeaways for employers. It is integral (and required by provincial human rights, as well as workplace safety and health legislation) that employers act in a proactive manner to encourage a respectful workplace, have clear policies in place, implement processes to encourage those who are being subjected to such actions to come forward, abide by and follow these policies and procedures, and act reasonably in response to complaints. So, where do these stories and cases leave you as employers? What lessons are to be learned and what actions can be taken to address these concerns? The task is to turn inward, look internally at your policies, practices, procedures, and to consider your message to the workplace about harassment of any nature. Employers are required to take reasonable steps to prevent harassment in their workplaces and to mitigate or avoid the effects of any harassment that does occur. The following are the concrete steps to implement these goals:
Have a respectful workplace policy Employers should have respectful workplace policies, procedures for employees to feel comfortable reporting behaviours, protocols to investigate complaints, and a process for possible consequences. While an anti-harassment policy will suffice, the title seems to suggest a lower standard than perhaps an employer would wish to meet. Setting the bar with an expectation of respect and dignity throughout the workplace, discouraging
harassment, bullying, and discrimination is a preferable standard. Therefore, the title of ‘respectful workplace policy’ is preferable, and sets a more positive tone and expectation for the workplace. The policy must include certain language depending on the province in which you operate, but generally should include: Definitions of discrimination and harassment; an expectation and requirement that the workplace be free from discrimination and harassment; a process for reporting any incidents; internal procedures for how complaints will be handled, including who will investigate the matter, any expectations of confidentiality, and reports to be produced; clear processes that permit complaining employees to bypass harassing managers; confirmation that appropriate action will be taken for those found to be violating the policy up to and including termination; and, a promise that those who make a complaint under the policy and those who participate in the investigation process will not be subject to reprisal.
Train your employees on the policy
Follow your policy As the aforementioned cases indicate, it is key when you set out a policy for it to be followed. The first place to turn when an incident of harassment arises is to your policy, to ensure the promises you have made to your workplace — in terms of how a complaint will be managed — are, in fact, met.
Respond appropriately to complaints It is not appropriate to dismiss a complaint on a preliminary basis without due process or following your internal policy. Investigate complaints. Interview relevant witnesses. Make credibility findings (or engage a specialist to do so). There is great risk and folly in minimizing a harassment complaint — both from a legal and liability perspective (as noted in the cases), and from a practical perspective, where complainants receive a message that their complaints will not be seriously addressed.
Take appropriate corrective action
Review and revise your policy
If you find discriminatory or harassing behaviour has occurred, take appropriate corrective action. This may include a disciplinary penalty, such as a formal warning, suspension, or termination, but may also include a more remedial approach of mediation, training, and ongoing monitoring, depending on the severity of the behaviour and relationships involved. It is important to address each incident on a case-by-case basis and respond appropriately to the individual incident or action. Begin the process of assessing your internal policies and procedures, and obtain expert advice where appropriate to ensure you're compliant with relevant legislative and common law requirements. The most important takeaway for management is to espouse a culture and expectation of respect and dignity for all employees. If your employees hear and see managerial-level action that promotes a respectful workplace, with zero tolerance for harassment and discrimination, this will undoubtedly influence the general employee population in a positive manner.
Do not create the policy and let it become stagnant or irrelevant to the changing law and workplace. This policy, like others, should be routinely reviewed to reflect any incidents that have occurred in the workplace, and change to the law or legislation.
Shereese Qually is a partner with Winnipeg-based Taylor McCaffrey LLP. Her primary areas of practice are labour and employment law, as well as human rights and privacy.
The existence of a respectful workplace policy in a manual or on an intranet is of little value unless employees are repeatedly made aware of its existence and trained on the obligations and expectations set out in the policy. People must be aware of the expectations of conduct in the workplace, have this message consistently enforced, and be aware of the consequences of failing to meet these standards. This training can be done internally by a competent human resources or other knowledgeable person, or by engaging an external expert, including your labour and employment lawyer. Training sessions should review the policy and procedure for filing a complaint, but importantly talk through potential examples and engage employees to critically think about incidents that may arise in the workplace. It should be stressed to employees that their obligations extend to any work-related function and activity, as well as to comments and actions on social media.
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Canada’s clean secret How green technology is revolutionizing the oil and gas supply chain By Joanne Paulson
igh-efficiency pulse jet engines burning away harmful emissions. Electricity separating impurities from water. These aren’t wild ideas or futuristic prototypes — they are just two of the latest Prairie-made innovations transforming the way oil and gas producers in Western Canada are operating. While jaw-dropping advancements in technology are nothing new to the resource development supply chain, the pace of adoption has accelerated at an unparalleled rate. Competitive pressures are exerting their full force on the industry, and any advantage extractors and processors can capture — to be more efficient, more productive, more agile, and, with increasing demand, more clean — is a necessary edge that can be the difference between riches and ruin. Dan Wicklum, chief executive of Canada’s Oil Sands Innovation Alliance (COSIA), a coalition of 10 global giants accounting for more than 90 per cent of the region’s annual production, believes there is no turning back, and that fortune will inevitably favour the bold. Continued on Page 24
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“Innovation has been right in the DNA of energy companies, including oil sands companies, since their inception,” says Wicklum. “At one time, it was impossible to get bitumen out of the earth. Now, we’re moving on to the second generation of technology. With progress in communications, new ways of thinking, and new, web-enabled relationships, we can connect with — collide with — so many different organizations at an integrated level never before possible.” This type of collaborative ecosystem is stirring particular excitement in the environmental space. Many of the world’s largest producers are now coming together with start-ups, research labs, and other small- to medium-sized partners both up- and down-stream to commercialize cutting-edge green technologies. “When it comes to priorities like using less water, treating water, protecting the land, and creating fewer greenhouse gases, the best model is one where we work shoulder-
Prairie Manufacturer Magazine • Winter 2017
to-shoulder,” adds Wicklum, whose organization has, to date, released into the public domain close to 950 distinct innovations that cost more than $1.3 billion to develop. “We can say clearly to the whole world what our needs are and create a spot where entrepreneurs can connect.”
Burning the air clean Many of these emerging success stories are not flowing from far-off places or large-scale institutions. They are being crafted here, at home, in our own backyards. With a presence in Medicine Hat, Calgary, and Regina, Atlantis Research Labs had no initial intention of venturing into the oil and gas market. Instead, the company incorporated in 2007 dedicated solely to the aerospace sector, unveiling a patented pulse jet propulsion system containing no moving parts. Pulse jet engines themselves are nothing new. The V-1 cruise missile, also known as the buzz bomb or doodlebug,
gained notoriety during the Second World War as the only production aircraft to use a pulse jet for power. Its design was remarkably simple: A tube rolled from a sheet of mild steel, airflow shutters, a fuel inlet valve, and an automotive-style sparkplug ignition. Even low-grade gasoline was capable of generating more than 660 pounds of thrust. The problem, however, was the speed the buzz bomb had to be traveling at to sustain early flight. The most common method was catapulting the unit off an inclined track, using hydrogen peroxide and potassium permanganate — the same two combustibles propelling the German-made 163 Komet rocket plane — to accelerate the unit to close to 600 kilometres per hour. Atlantis, on the other hand, devised a system whereby the engine is ‘tricked’ into acting like it is moving at a high velocity, allowing ignition and acceleration to occur from standstill. Then, in 2015, the plan for Atlantis changed altogether. An oil producer operating in the Bakken play approached President & CEO Vladimir Mravcak to discuss whether the pulse jet technology could be used to treat waste gas, notably methane, through incineration. Husky, Cenovus, and other
“Innovation has been right in the DNA of energy companies, including oil sands companies, since their inception. At one time, it was impossible to get bitumen out of the earth. Now, we’re moving onto the second generation of technology.”
behemoths followed suit with pilots of their own, and the PureJet was born. The concept, details Mravcak, is not indifferent to that of buzz bombs: Use waste gas (generated by normal oil and gas activities, such as pipeline maintenance) as the fuel source, and burn at such an intense heat that it removes up to 95 per cent of carbon dioxide equivalent (CO2e) emissions in the process. “The byproduct of using the PureJet is a fraction of the CO2e produced by traditional venting or flaring,” he says. “And, at the moment, we are exploring further ways to reduce and capture the last five per cent of CO2e.” These advances have major theoretical implications on our environmental footprint. The Government of Canada recently Continued on Page 26
“This technology — designed, made, and serviced in Alberta and Saskatchewan — has the potential to single-handedly solve the global methane challenge.”
committed to reducing methane emissions by 40 per cent, singling out oil and gas companies for improvement. Mravcak believes PureJet can be the answer. “This technology — designed, made, and serviced in Alberta and Saskatchewan — has the potential to single-handedly solve the global methane challenge,” he beams. “As few as 2,000 PureJet units could achieve the methane reduction targets the entire world committed to at the Paris climate change summit.” Unlike most flare stacks that dot the Prairie landscape, the PureJet is capable of handling virtually any pressure of gas (1 – 1,000-plus psi), volumes as little as 50 cubic metres, and more than 20 per cent sour gas. It also burns in a contained chamber, eliminating odour and smoke, and shielding the flame from outdoor elements that may otherwise cause inefficiencies as well as greater environmental harm.
Currently, the PureJet is manufactured in multiple sizes, ranging from three feet to three stories tall. “The largest units are for refineries or offshore oil platforms, and some of the smaller units can easily fit in the box of a pick-up truck,” says Mravcak. “At single wells on some smaller leases, it’s not economical to have a flare. The PureJet, though, enables producers to use it in smaller spaces. We’re able to treat the thousands of small oil wells ‘burping’ methane.” Atlantis’ workforce is divided up into thirds — equal parts manufacturing, administration, and research and development. Just this past fall, Saskatchewan’s Pasqua First Nation purchased a stake in the company, complementing its ownership of Reginabased fabricator Pro Metal Industries. These new relationships have rekindled Atlantis’ passion for out-of-the-box thinking and the pursuit of the impossible. Its team is now working on adapting the PureJet system for a variety of new applications, from solid waste incineration and electricity generation to separating bitumen and water purification. “It’s imperative to keep innovating,” exclaims Mravcak. “This is our opportunity to not only be a manufacturing champion, but a social leader as well.” Continued on Page 28
Continued on Page 28
Prairie Manufacturer Magazine • Winter 2017
PHOTO CREDIT: DANIEL CRUMP
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DARE TO COMPETE 2018 Western Canadaâ€™s Largest Manufacturing Conference and Gala Conference - Tuesday, March 20, 2018 | Gala Awards Dinner - Thursday, March 22, 2018 RBC Convention Center, Winnipeg As a proud partner and media sponsor Prairie Manufacturer Magazine is inviting manufacturers from across the region to join us for these must attend industry events. The exciting lineup includes THREE internationally-renowned keynote speakers that will deliver engaging, manufacturing-specific sessions. NINE impactful breakout sessions that are designed to inspire. Then join us as we celebrate made-in-Manitoba manufacturing and exporting success at the 2018 CME Gala Awards Dinner. Register by January 31 to take advantage of early booking savings at daretocompete2018.ca/jetsprize and be automatically entered to win two tickets (prime seating) to the Winnipeg Jets vs. Anaheim Ducks NHL hockey game the evening of March 23. In celebration of 2018 Manitoba Manufacturing week, our spring issue will focus on Manitoba and include bonus distribution at the Dare to Compete conference. Find out how you can become involved by emailing firstname.lastname@example.org. Booking deadline is February 10.
Helping Manufacturers Grow
Separating the water from the ‘mud’ Sean Frisky was an engineering student at the University of Regina when he landed an internship with the Co-op Refinery Complex. His boss presented him with a daunting task: Develop and improve technology to remediate the soil around the facility, without the need for excavation. “I came up with an idea, pitched it, and they liked what they heard,” recalls Frisky. “So, I took a semester off and built it. The rest is history.” It was the first job for what would become Ground Effects Environmental Services (GEE) — of which Frisky founded and now serves as president and CEO.
One original process and 19 years later, the company has evolved into an international trailblazer in water and soil treatment technologies, spanning projects into the Middle East, Southeast Asia, the United States, and across Canada. “Some of our technologies are used in production to reduce waste up-front, and some are used at the end to clean up,” says Frisky. “The common theme, the differentiator for us in the world, is using electricity to separate things — oil from solids, water from contaminants, and so on.” In oil drilling, there are typically two uses for GEE’s equipment. The first is to treat the flow-back water when fracking. The second is to clean up drilling mud — or the solution used in drilling — from the soil.
“We are, first and foremost, a technology company, so we have decided to focus on that. We’re taking a leap and concentrating on what we do best: Tech development, manufacturing assembly, and quality control before it goes out the door.”
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“When they frack, they push water, sand, and chemicals down,” he explains. “When the water comes back up — we’re talking millions of litres per well — it’s contaminated. We can treat that using one of our electrical processes so it can be reused for another process or re-fracking.” Without this cleaning, the water cannot be recycled because its impurities can cause operational issues such as plugging. Regulatory controls are tightening, too, compelling companies to use less water and clean on-site wherever possible. GEE’s technology removes contaminants to produce a sludge that is inert and can be land-farmed. If there is an accessible lagoon, the sludge can be deposited in it, where the solids then separate out naturally. This process is made possible by active currents running through an electrolytic cell. “All chemistry is based on electricity — things are held together by a charge,”
“We are creating a whole new sector Canada is poised to do exceptionally well in. Carbon capture and utilization in the future will be a huge sector — billions of dollars. And it will have its roots, in large part, right here in Western Canada.”
says Frisky. “We’re able to disrupt that charge, and separate the contaminants and solids.” The system can filter out nitrates, ammonia, phosphates, pharmaceuticals, and many other pollutants. Soon, he notes, municipalities will be required to remove pharmaceuticals, including birth control and penicillin, from their water supplies. Similar to the PureJet, GEE’s electrical ‘plants’ come in several sizes and are manufactured to be mobile. One such plant measures 8’ x 20’ in a crash frame, so it can be used on onshore or offshore rigs. At 45,000 pounds, it is both compact and heavy, yet is moveable by flatbed truck. Another parallel GEE shares with Atlantis is its recommitment to R&D for a global marketplace. This has meant solidifying partnerships to outsource certain business functions — experimenting with a distribution sales channel, for example — to allow GEE to hone in on its strengths. “We are, first and foremost, a technology company, so we have decided to focus on that,” says Frisky. “We’re taking a leap and concentrating on what we do best: Tech development, manufacturing assembly, and quality control before it goes out the door.”
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Inspiring clean growth XPRIZESUMA — awarding big dollars to WCB17 Foundational Ad 4.625x7 1.0.indd 1 Back at COSIA, CEO Dan teams of innovators that demonstrate Wicklum is confident the shift toward the best idea to convert carbon into a environmental stewardship and clean valuable product. technology will produce many more “We have 26 teams competing Mravcaks and Friskys over the next from seven countries,” says Wicklum. decade. “Interestingly, the country that has the And, as an organization, COSIA is most teams in the final is Canada. We putting its money where its proverbial feel strongly that’s not just because it’s mouth is. a Canadian prize, but because we are Two years ago, the organization helped found the $20 million Carbon global leaders in this area.”
XPRIZE finalists will test 2017-11-09 11:38 AM their submissions at a new commercialization centre funded jointly by the Alberta and federal governments. “We are creating a whole new sector Canada is poised to do exceptionally well in,” concludes Wicklum. “Carbon capture and utilization in the future will be a huge sector — billions of dollars. And it will have its roots, in large part, right here in Western Canada.”
Rethinking your supply chain as a strategic asset By Stephen Rogers & Robert Porter Lynch
or many manufacturers, the supply chain — including both owner production assets and supplier and distribution partner assets — is by far the largest asset it ‘owns,’ and is core to the company’s ability to succeed both financially and in the marketplace. And while the supply chain is a major strategic asset, it is seldom seen or managed as one. Instead, supply chains are often managed as expendable or easily replaceable. Management assumes it will always be there, even when abused. This belief is not only flawed, but also subjects companies to needless organizational risk. To manage the supply chain as a strategic asset, it is important to step back and consider what it is comprised of. Unlike traditional assets, which a company fully owns, the supply chain is both a direct and an indirect asset, much broader and more complex than just its internal component. Let’s examine its parts: Value chain The value chain is an end to end, or E2E, entity. To be managed as a strategic asset, all three parts of the chain need to be considered: Upstream (suppliers), internal (owned production assets and human assets that operate them), and downstream (customer and distribution channels). At each layer, there is a unique set of supplier, internal, and customer relationships. The key is prioritizing efforts depending on the business situation and avoiding the temptation to forget its broader E2E span. Managing one part of a strategic asset independently from another will lead to dysfunction between tiers and parts of the chain; thus, in a crisis, each company’s traditional management focuses on protecting
its own internal assets, mercilessly cutting upstream costs, and praying for downstream relief. It is much more beneficial for upstream and owned parts of the chain to collaborate, coordinate, and integrate to deliver lower cost for both suppliers and owners by eliminating waste and making downstream volume more profitable. Structure The E2E value chain has a different ownership structure than other assets. Companies neither directly ‘own’ nor ‘control’ their value chains — suppliers own their part, customers own their part, and the company owns its part. That requires decision processes to mirror that complexity. Companies want to do business with each other, yet rarely get to completely control each other. Hence, there is a strong need for collaboration, coordination, and synchronization between decision spaces, with efforts to formalize those decisions to offset suspicions or clarify expectations (such as labor agreements, purchase and sales contracts, delivery standards, long-term service and support, etc.). Influence and alignment becomes far more important than command and control; and historical track record breeds either trust or distrust, which, in turn, drives the level of legal wrangling. This is why the best practices of strategic alliances are vital to success. Conduit of value flow Supply chains are not just product flows; they are far more complex. Think, instead, of a supply chain as an asset containing five kinds of capital that establish value flows: Physical/product; financial; human; intellectual; and, social capital.
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Value engine The real power of the value chain is maximized when all five of these value flows are synchronized, aligned, and harmonized, much like a well-tuned engine. Take one of these five out of the ‘value engine,’ and poor performance is inevitable. At the same time, for parts of the chain that are non-strategic but need to operate to maintain the business, managing the flows can also be flexible, handling those that add little differentiation without as much finetuning. Only if all your competitors are performing poorly or tactically will you not recognize the flaws. But, if one competitor gets it right (both the engine tuning and the strategic-versus-tactical balance), your competitive advantage can suffer.
The strategic battle of value chains The best companies have learned that their ability to create strategic competitive advantage is not totally in their control. A company is only as good as the sum of what it does itself, plus the quality and value of its ‘inputs’ from its entire value chain. Here’s a perfect example that demonstrates this principle: Because 70-80 per cent of their cars were made by their suppliers, when Toyota then Honda entered the North American marketplace 30 years ago, they brought their value chain strategy with them. To outsource such a heavy proportion of their cars to suppliers meant more than just quality and cost control — it meant creating and maximizing value at every segment of the value chain. While quality was paramount, the Japanese OEMs emphasized a collaborative, high-trust, highperformance relationship throughout their entire value chain. They saw both
suppliers and dealers as part of their team — strategic partners. Customer satisfaction, speed of delivery, integration and reduction of parts, reduction of total cost in the chain, reduction of non-valueadded work, lowering warranty costs, lean principles, reliability, increased flow of innovation, and mutual profitability were core objectives. Suppliers were expected to be more profitable, and to invest a portion of those profits into advanced technologies for their OEM partner to use exclusively for a period of time. Toyota and Honda saw their suppliers and dealers as alliance partners, not vendors and peddlers to be manipulated and squeezed, unlike their rivals. In fact, when suppliers got into trouble, they sent their own experts to work side-by-side in the supplier plants to solve the problems. The value chain concept extended from supplier to their auto dealers and finally to highly-valued customer relationships formed with the consumer. Customer satisfaction was the ultimate test of the value chain strategy. By the late 1990s, the result was crystal clear — Toyota and Honda were beating Detroit’s ‘big three’ with better quality, lower costs, higher profits, and growing market share. By 2000, while GM’s warranty costs were exceeding
their profits, Toyota was taking over as the world’s largest auto company. It took another decade, after bankruptcies, and numerous crises before Detroit started to understand what their more collaborative rivals were thinking.
Strategic portfolio management A strategic portfolio is a competitive array of the supply system, identifying key competencies needed in the value chain. Strategic value chain leadership (SVCL) aims at ensuring your company is highly selective in choosing the best deliverers of value. Strategic portfolio management is essential to accomplish several objectives: • See the value chain holistically as an entire flow of value that creates competitive advantage; • Define what value truly means to suppliers (do not confuse value with cost — and note that real or total cost is not just acquisition cost, but also factors in operational and disposal costs); and • Assess how good your value chain is in flowing value, by analyzing supplier responsiveness, reliability, innovation, integration, and synergy.
The bottom line The supply chain is a strategic asset that is huge and complex — extending from suppliers to customers, across multiple tiers, across industries horizontally and vertically, with multiple owners made up of people and organizations often driven by different goals and competitive strategies. When thinking strategically, it’s critical to understand how to produce E2E value, especially if you are a major player in the value chain. The discipline of supply chain management is not a spectator sport. It requires a team on the playing field with and end-to-end vision, a strategic view of how competitive advantage is created, the ability to create collaborative alliances among suppliers, and excellent execution. It needs proactive leadership and the willingness to advance into new territory. Stephen Rogers and Robert Porter Lynch co-authored a series of white papers for the Supply Chain Management Association of Alberta (SCMA Alberta). This column has been further edited by SCMA Alberta CEO Janice Isberg for the use of Prairie Manufacturer Magazine.
“The best companies have learned that their ability to create strategic competitive advantage is not totally in their control. A company is only as good as the sum of what it does itself, plus the quality and value of its ‘inputs’ from its entire value chain.”
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A quarter-century of safer manufacturing
MHSA celebrates 25 years helping Alberta manufacturers improve safety performance
hawcor’s safety vision permeates through every aspect of its operations: An incident- and injury-free workplace, with no harm to people, while protecting the environment. One of the nation’s leading pipeline manufacturers serving the oil and gas sector, Shawcor has long been committed to employee safety. It is embedded into the company’s world-renowned continuous improvement strategy. It was in that spirit of progress Shawcor first joined the Manufacturers’ Health & Safety Association (MHSA) of Alberta in 2005. Not only did membership complement their own internal training efforts, it also enriched the awareness of employee safety. “It was a godsend,” says Senior Health, Safety, and Environment Coordinator Frank Metherel. “MHSA gives you the processes and tools to get your own systems in place. They’ve been instrumental in taking our game to the next level.”
Safety needs to be a priority every day, because safe workplaces do not come easily. The thinking of the past was focused on the bottom line, and not on the most valuable asset: The employee.
MHSA became a not-for-profit association in 1992. Since that time, the organization has functioned as the critical link between government and industry to reduce the frequency of injury and occupational illness amongst the province’s manufacturers. Despite the size of the workforce more than doubling over those 25 years, the lost-time claim rate has dropped from 4.3 instances per 100 employees to only 1.3. The disabling injury rate, meanwhile, which represents the probability or risk of a disabling injury occurring during one year of work, has dipped 40 per cent in the last decade alone. According to Rob Wright, vice chairman of the MHSA and vice president of fabrication at Edmonton’s Waiward Steel, these statistics reflect the important role the safety association plays in a business climate evolving at break-neck speeds. “It’s not easy to stay on top of what’s going on — changes in legislation, new methods, or ways of promoting a health and safety culture in an organization, especially for those companies that aren’t large enough to spend money on full-time safety professionals to guide them,” says Wright. “That’s where MHSA comes in — to provide the education for those companies, and to navigate those waters in an everchanging world.”
The right knowledge COR certification is a centrepiece of MHSA’s value proposition. Short for certificate of recognition, COR is a government-approved safety program that distinguishes employers implementing health and safety management systems that meet established provincial standards. Once obtained, manufacturers undergo external or internal audits annually to keep their certifications updated and in-force. “For us, it’s more than a piece of paper, because it validates we are meeting our legislative requirements,” explains Shawcor’s Metherel, who helps oversee safety programming for the organization’s three Alberta facilities and 400 employees. “Safety is becoming a differentiator for manufacturers looking for that competitive edge. Oil and gas companies in particular are getting very sticky about who they deal with. If you don’t have your certification, they don’t look at you.” At Calgary-based Standen’s, North America’s single-largest plant manufacturing leaf springs and suspension components, COR certification is a viewed as a fundamental to industry leadership. But for COR to generate benefits beyond merely market access, Occupational Health and Safety Coordinator Michelle Leeper maintains it must be accompanied by an ongoing commitment to learning.
For Standen’s, one pathway for that education has been MHSA’s Leadership for Safety Excellence (LSE) course — an intensive, two-day offering designed to prepare individuals in management or supervisory positions. The curriculum includes responsibility in health and safety outcomes, the elements of a proactive health and safety program, as well as how to conduct workplace safety inspections and investigations. “The [LSE] program really arms leaders with the practical tools they, need” she says. “Instead of having an army of health and safety people, we are now able to empower our employees to be their own health and safety champions, regardless of what area of the business they are working in.” Three hours north, in Edmonton, Waiward Steel has leveraged much of what it has learned through MHSA to create its own unique system to support safety knowledge. A few years ago, the company began to question worksite injuries, asking if they were actually avoidable. The answer necessitated a change in mindset, forcing management to take ownership of worker safety and pinpoint what could have been done to prevent injury. “Through that journey, one of the things we realized is we needed competency management,” recalls Wright. “Our shop has up to about 315 people in it. At our field sites, we were up to about 750. We had a lot of people coming and going — people we didn’t know all that well. Of the people we did know well, we didn’t know if they had gaps in their training.” The next step was to evaluate each staff member to create competency profiles. Where there were gaps in knowledge, training programs were developed. The company went so far as to look at every piece of equipment, down to a grinder, to
ask themselves if those using it truly knew how to use it correctly. Through that endeavour, Waiward formalized its process to create MODOS — online software that tracks, in detail, the experience, skills, training, and certification of employees. “It can act as a dispatching tool,” says Wright. “If you require workers on-site, it can identify the worker’s skills and if he or she is available. It also has a training component built into it, where you can evaluate competency in a virtual setting. It’s a pretty big, powerful tool.”
Making the commitment Newly-minted MHSA Executive Director Mike Bett is a firm believer that a corporate culture of safety begins with strong leadership, constantly reinforced safe work practices, and a top-down commitment to measured safety performance. Prior to accepting the top job at the association this fall, Bett cut his teeth with the MHSA as a frontline safety advisor and then as regional manager. “Safety needs to be a priority every day, because safe workplaces do not come easily,” exclaims Bett. “The thinking of the past was focused on the bottom line, and not on the most valuable asset: The employee. “All it takes, though, is a split second for a hazardous condition to occur. Individuals who have safety at the forefront of their minds may be more inclined to take the extra minute to correct an unsafe condition or report a machine malfunction or breakdown. The cost savings will follow.” That is precisely why, beyond training and certification, MHSA directly assists companies in creating health and safety programs that encourage workers to adopt a preventative, pre-emptive approach. A cornerstone of that methodology is ensuring protocols are in place that
Safety is becoming a differentiator for manufacturers looking for that competitive edge. Oil and gas companies in particular are getting very sticky about who they deal with. If you don’t have your certification, they don’t look at you. encourage employees to communicate concerns to their managers. “Employees need to recognize what a near miss is and report these to their employer,” says Bett. “Employers who have had a near miss need to then communicate incidents so a similar incident or injury may be avoided. Appropriate training and follow-through is essential. Training leads to a thorough, shared understanding, and can assist everyone in understanding the hazards that exist.” It’s a philosophy that has reaped dividends for members like Standen’s, where safety awareness no longer stops when employees punch out at the end of the day. “I’ve been in the health and safety industry for 12 years, working across different kinds of organizations, and the culture here is fantastic,” says Leeper. “Safety within our people and safety within our products translates over to our customers. It’s a big circle. “Demonstrating our dedication to safety, and partnering with MHSA, lets our customers know we take this seriously. We want everyone to go home at the end of each day. We want them to leave in the same or better condition as when they arrived. To do that, we try to make sure we promote safety both on and off the job. It’s a big reason we are successful as a company.”
Want to Know whatâ€™s New at MHSA? Looking to Register for a Course or Onsite Training? Do you need Assistance obtaining your COR? MHSA TEAM Mike Bett Executive Director 403-567-8930 firstname.lastname@example.org
Ashley Presiloski Executive Assistant 403-567-8949 email@example.com
Rocky View Head Office #201, 292060 Wagon Wheel Link, Rocky View, AB T4A 0E2 (403) 279.5555 | 1.888.249.2002 Jim Hedrick Southern Regional Manager 403-567-8950 firstname.lastname@example.org
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Guy Clyne COR Coordinator / Safety Advisor 403-567-8934 firstname.lastname@example.org
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Red Deer Office 54 Queensland Crescent, Red Deer, AB T4P 0V2 (403) 343.0002 | 1.844.343.0002 Jacob Wannop Central Regional Manager 403-967-0555 firstname.lastname@example.org
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Edmonton Office 225 Parsons Road S.W., Edmonton, AB T6X 0W6 (780) 428.1006 | 1.888.249.2001 Brad Jones Northern Regional Manager 780-395-5274 email@example.com Tanya Preece Safety Advisor 780-395-5276 firstname.lastname@example.org
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Uncertainty, adaptation the name of the game in 2018 By Jayson Myers
he beginning of a new year: It’s the time when economists and other clairvoyants dust off their crystal balls and pronounce what they see lying ahead for business. You should excuse them this go-round if their forecasts are a little less confident than usual. There are fewer certainties and a lot more risks that need to be considered. 2018 will indeed be a challenging year. The world is out of joint. That may not exactly be news in today’s Trumpean Twitterverse; but, the very fact that it’s not emphasizes how uncertain and risky things actually are. A tweet can bring on a sea change in popular opinion. No less so in the world of business where markets, manufacturers, and supply chains are facing far greater political volatility and
more rapidly shifting expectations on the part of customers and stakeholders than ever before — all on top of the more usual but still highly risky disruptions caused by economic and technological change. ‘Business as usual’ in the sense of steady-state growth has been a meaningless phrase for some time now. Today, manufacturers need to manage risk and adapt to change on an almost 24/7 basis. And, in 2018, it looks like the business environment in Canada will be shaped by even more disruption and change than usual. Just when everything seemed to be going so well! Prairie manufacturers finished off 2017 on a roll. Sales were up by more than nine per cent on the year, regaining a lot of ground Continued on Page 34
lost since the collapse of oil prices in 2014. In fact, sales growth for Manitoba, Saskatchewan, and Alberta was collectively more than double Canada’s national average. The picture for 2018 may not be as bright. As a good engineering friend of mine likes to say: There are a lot of vectors flying around out there. Some of them are positive. Oil prices are firming up. Keystone has its go-ahead. The U.S. economy is strengthening. And, industry is spending more on machinery and equipment. But, there are some very daunting changes afoot as well. Here are just a few to take into account:
content requirements to restrictions on procurement to the elimination of impartial dispute settlement procedures, the U.S. administration seems intent on closing off access to the American market in a vain effort to make U.S. manufacturers more competitive. The opposite is more likely to be true. It is bound to become more difficult and more expensive to do business in North America. The political uncertainty itself will be enough to chill investment and force companies to reassess their supply chains. Canadian manufacturers must be pretty damn good to keep their customers happy.
U.S. tax reform
Regardless of the outcome of NAFTA negotiations, our economic relationship with the United States is bound to become more challenging. I’m still optimistic that an agreement can be reached. But, it will require some major concessions on the part of Canada and Mexico. It is bizarre that, in spite of united opposition from business groups, the Trump administration seems so determined to disrupt the supply chains that have developed across North America over the past 25 years. There are lots of things that can be improved in NAFTA; few of them are on the president’s agenda. From higher
Business taxes are going down south of the 49th. Canadian manufacturers thought they had a good deal with a 25 per cent average corporate tax rate and accelerated depreciation. The 20 per cent tax rate and immediate capital write-offs that are part of U.S. tax reform will blow Canada’s competitive advantage out of the water. It will become a lot more attractive for businesses to invest in the United States. Unless our governments respond, Canada’s manufacturing sector stands to lose more product development and production mandates with impacts reverberating throughout the supply chain.
“CME works with all levels of government to help manufacturers grow and compete!” -Ron Koslowsky, Vice President, CME Manitoba
Prairie Manufacturer Magazine • Winter 2017
Higher interest rates and currency volatility The Bank of Canada (BoC) and other central banks are tightening credit conditions. Higher interest rates will slow consumer spending and further deflate housing demand as households spend more of their income servicing their debt. The risk is that the very high level of mortgage and consumer debt in Canada may become unsustainable if interest rates rise too far. Just how far is too far is the critical question. It takes some time before interest rate changes affect the economy. BoC Governor Poloz has a very fine balancing act to pull off. One step too far could spark a major correction in asset markets and seriously weaken our already shaky domestic economy. The prospect of higher rates in Canada may strengthen the Canadian dollar as well. Manufacturers can’t count on the currency to shield them against political or economic risk next year.
Increasing regulatory costs One near-certainty is that the regulatory costs of doing business will continue to go up. The government response to more vocal populist pressures will be to regulate more. Whether in the field of product or project approvals, oversight
“‘Business as usual’ in the sense of steady-state growth has been a meaningless phrase for some time now. Today, manufacturers need to manage risk and adapt to change on an almost 24/7 basis. And, in 2018, it looks like the business environment in Canada will be shaped by even more disruption and change than usual.”
of working conditions, action to mitigate climate change and other risks to the environment, or requirements to consult more with local communities, government expectations and regulations dictating how companies should operate are becoming more stringent. Compliance costs are rapidly rising as a result.
Digitization Perhaps the most disruptive changes for Prairie manufacturers in 2018 will come from the more widespread adoption of digital technologies by customers and competitors. A recent survey of U.S. manufacturers found that 84 per cent of CEOs expect the ‘Internet of Things’ will have a significant positive impact on their business over the next five years. Continued on Page 36
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“Perhaps the most disruptive changes for Prairie manufacturers in 2018 will come from the more widespread adoption of digital technologies by customers and competitors. A recent survey of U.S. manufacturers found that 84 per cent of CEOs expect the ‘Internet of Things’ will have a significant positive impact on their business over the next five years.”
2017 Manufacturing Sales Growth
Total Prairie Manufacturing
Manufacturers are embedding smart technologies in both products and processes. More than four-fifths of the CEOs surveyed expect digital technologies to lead to major improvements in efficiency, agility, product development, manufacturing, and delivery times. Over half also say that digitization will enable them to generate new revenues as a result of greater customization, the commercialization of new products with embedded intelligence, or the development of new data-based solutions and services. Digitization will change supply chains by making them more productive and more efficient. But, it will also create more demanding expectations on the part of customers and more compelling value that can be offered by competitors. Failure to keep up will knock manufacturers out of supply chains altogether.
Prairie Manufacturer Magazine • Winter 2017
6 Per Cent Change
Prairie manufacturers need to keep pace. The flexibility and productivity improvements that digital and other technologies allow are one way of mitigating the risks of a highly changeable business environment. The productive deployment of digital technologies, however, will require companies to think differently about how they make money, how they are organized, and how they compete for the talent they require to deploy and manage new technologies successfully. That may be the biggest challenge of all in 2018. Jayson Myers is an award-winning business economist, specializing in industrial and technological change. He is an advisor to both private and public sector leaders, and has counselled Canadian prime ministers and premiers, as well as senior corporate executives and policymakers around the world.
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Why your lean improvements aren’t hitting the bottom line By Jim Lancaster
ike many companies that launched lean transformations, Lantech, a mid-sized capital equipment maker, enjoyed success after success as crossfunctional improvement teams converted operations from wasteful batch production to efficient flow production. Lead times and costs for producing the company’s rotary stretch-wrapping machines shrank. Manufacturing velocity and quality grew. Millions of dollars in inventory were freed up. The money was reinvested in new products and sales channels to sell stretch wrappers around the world. Lantech’s profitability was an envied industry standard. The Harvard Business Review, numerous trade publications, and business bestseller Lean Thinking featured Lantech’s dramatic success. Thousands of executives, managers, and continuous improvement practitioners visited the Louisville plant to get a peek at operations inside one of the first companies outside Toyota to adopt the Toyota Production System — the prototypical lean management system. Those early kaizen efforts generated tremendous energy and financial results; but, over time, Lantech’s leaders noticed a growing problem: The smart and enthusiastic company featured in Lean Thinking was no longer delivering great business results. Everyone was working hard. Crossfunctional teams conducted multiple kaizen workshops every month. In reportouts to senior managers, they documented savings in time and money. But the improvements evaporated before hitting the income statement. And improvement teams were solving the same problems over and over. Lantech’s competitive advantage was eroding, despite the continuous improvement effort. The problem, as Lantech leadership ultimately realized, is that improvements in any process deteriorate over time. It’s a natural phenomenon, like half-life in science. It’s not an anomaly. It’s inevitable. As Lantech investigated why processes deteriorated, it discovered the
cause usually is that a variable changed — a tool got dull, a part design changed, a new operator wasn’t properly trained, a vendor’s part tolerances shifted, and so on. The same is true for business and service process, except the variables are different. This predictable deterioration in any and all processes — no matter how often or well they are improved — is the silent enemy of getting lean improvements to hit the bottom line. Lantech’s process deterioration rate had become too close to its improvement rate, preventing competitive advantage and margin to accumulate. The countermeasure, established after months of experimenting and closely observing the actual work people do, was a ‘daily management’ system based on overlapping daily and weekly gemba-walk cycles of standardized work activities for executives and managers at every level. Each level’s standardized work loops through the work of the managers above and below, creating a continuous flow of information so that management knew conditions at the frontlines and could support the work there. Every manager and executive adopted some standardized work into their days. A frontline team leader might have 55 per cent of his or her day guided by standardized work. The director of manufacturing might be at 35 per cent, and the CEO at five or 10 per cent. Each station along the management team’s walking route has a visual control board, filled in that morning by local team leaders checking a critical few metrics that bring any problems to the surface. The metrics show whether performance was deteriorating — right now. The management team made it clear that we were not going to show up every morning asking for a report or peppering people with questions. We made sure we were there to support the work, to be of assistance to people in the next management layer down, to help with problems they could not fix within their functional area.
Prairie Manufacturer Magazine • Winter 2017
The unequivocal goal: Management was to immediately resolve operational problems faced by frontline team members, whether machine operators, salespeople, engineers, material handlers, or purchasing agents. Many managers, especially CEOs, will say that the whole idea of personally reviewing the daily performance of frontline metrics is a waste of their time; their time should be spent on strategic vision, innovation, or dramatic improvements. These are all important, but the real work of management is to maintain frontline processes, which is where customer value is added, before trying to improve them. Solving today’s problems at the frontline — the immediate problems that might seem simple or insignificant — has helped Lantech continuously improve productivity, quality, cost, delivery, safety, and quadruple profitability without pressuring people to work harder and faster or outsourcing to a cheap-labour country. It was the critical piece missing in sustaining and improving the company’s competitive advantage and profitability. Since implementing the system, Lantech’s profitability trend line has been on a steady upward path, showing 25-27 per cent improvement each period. Last summer, Lantech booked its most profitable quarter ever. Most managers think the management system is supposed to help them. It's not. The management system is supposed to help the operator, the sales guy, the order entry clerk — whoever the people are that actually generate value for the customer and revenue for the company. Jim Lancster is the CEO of Lantech — a global leader in stretch wrap technology and innovation, as well as case-handling equipment. He is the author of The Work of Management — recipient of the Shingo Publication Award — and will be speaking at the 2018 Canadian Lean Conference, June 4-7 in Winnipeg. Visit embracingexcellence. ca for more information.
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The commodity conundrum Prairie Manufacturer Magazine looks at which resources are up, which are down, and where they are trending in the months ahead By Joanne Paulson
ayson Myers, former president and CEO of Canadian Manufacturers & Exporters, once quipped, “There are only three ways to generate new wealth in an economy: You can grow it, you can extract it, or you can manufacture it. Everything else is a trickle-down from that wealth creation.” In Western Canada, our economic and social wellbeing is intrinsically linked to all three — often more directly than most other global jurisdictions, through interdependent value chains. As a basic example: The world needs to eat. By 2050, humanity must produce more food than in the previous
10,000 years combined. And, to meet that demand, farmers are becoming increasingly efficient, yielding more crop on fewer acres. That requires fertilizer derived from Prairie potash, mined using Prairie equipment, to grow crops planted and harvested using Prairie agricultural implements, which then supply Prairie value-adding processing facilities before export. All these activities, meanwhile, are reliant on Prairie-extracted minerals, such as oil and natural gas. So, when one of these three drivers is adversely impacted by market conditions, they all tend to suffer, and Alberta, Saskatchewan, and Manitoba
Prairie Manufacturer Magazine • Winter 2017
bear the brunt of the hurt. The most recent downturn has been especially painful due to the breadth and depth of softened prices across many of our chief commodities, including potash, oil, natural gas, and uranium. But, according to Steve McLellan, CEO of the Saskatchewan Chamber of Commerce, although there may be some short-term pain, surviving in a resourcebased economy is a long-term play, and the future for these four in particular still looks bright. “We remain very optimistic on all of them,” says McLellan, who is one of the region’s most vocal champions on
“We know the world has the demand we can supply. We know that commodity markets are cyclical. We’ve lived through the peak years, and we’ll live through the slow years. Structurally, we have concentrated reserves, and established, best-in-class companies that are very productive from an operational viewpoint as well. Patience is, as in life, a virtue in business.”
the national stage when it comes to responsible resource development. “We know the world has the demand we can supply. We know that commodity markets are cyclical. We’ve lived through the peak years, and we’ll live through the slow years. “Structurally, we have concentrated reserves, and established, best-in-class companies that are very productive from an operational viewpoint. Patience is, as in life, a virtue in business.” Of course, that does not mean the West is in total control of its destiny. Commodities are subject to a plethora of international pressures and events,
ranging from changes in governments and policies to the threat of terrorism. Even here at home, politics of the day have prevented industry’s ability to construct new pipelines that would take Prairie oil to tidewater. Yet, McLellan maintains the fundamentals of supply and demand position Western Canada at a strategic advantage. Skyrocketing populations and an emerging middle class in places like India and China need what we have, and there are few other places they can get it. “Whether you’re talking commodities, agriculture, or manufacturing, if you’re
betting against Western Canada, you’re placing a losing bet.”
Potash The 2017 story of potash has been one of restrained hope. Unfortunately, most of the ‘pink gold’ has stayed in the ground instead of being pulled into inventory. After reaching historic highs in 2008, plateauing near $1,000 USD per tonne, potash prices and deliveries tanked along with most other commodities in the wake of the 2008-09 financial crisis. It has been a long road back since then, yet noticeable strides have been made. Continued on Page 42
2017 saw the grand opening of Saskatchewan’s first greenfield potash mine in four decades. K+S Canada’s Bethune Mine, just north of Regina, cost more than $4 billion and took close to five years to compete. PHOTO CREDIT: GREG HUSZAR
In its third-quarter conference call with analysts, PotashCorp officials pointed to lower inventories and a rising demand, even as the company announced record quarterly sales volumes. China is on pace to increase its potash fertilizer consumption by 8.6 per cent from 2013 through 2018, while inventories are expected to fall in the New Year by 100,000 – 200,000 tonnes. In India, stockpiles are about 20 per cent lower year-over-year, and consumption is projected to spike 5.6 per cent. In other parts of the world, PotashCorp sees 5.1 per cent growth in the rest of Asia by 2018, and 3.6 per cent in Latin America. Prices have already begun to react. Globally, they improved for the fifth consecutive quarter, up to roughly $180 per tonne from $150 in the same period last year. For PotashCorp, which is in the final stages of merging with Calgary-based Agrium, all signs point to a positive 2018. “We expect that the rising consumption trends in place today will continue,” says President & CEO Jochen Tllk, “with the potential for another record shipment year in 2018.”
Oil On October 27, the Brent Crude benchmark for oil hit $60 USD per barrel for the first time since 2015. Three days later, it was still there, being encroached upon by the West Texas Intermediate
(WTI) hovering around $54 USD per barrel. The price was, at least in part, reacting to the news by Saudi Arabia and Russia that the two countries would declare their support to extend cuts to oil production ahead of an upcoming Organization of the Petroleum Exporting Countries (OPEC) policy meeting. As recently as this past summer, Alberta’s Finance Minister, Joe Ceci, said in his government’s quarterly update the Province was basing its budget and risk adjustment on a price of $49 per barrel, in recognition of the lingering volatility. Oil bottomed out in 2016 at approximately $26 per barrel, in spite of some pundits ominously forecasting it could fall below $10. That didn’t come to fruition, but oil stayed below $50 on the WTI for much of the first three quarters of 2017. Phil Flynn, a senior energy analyst with The PRICE Futures Group, contends the price “won’t be lower for too much longer,” as oil supply continues to drop off at an extraordinary pace, and output in the shale and Gulf of Mexico regions of the United States sputters. Flynn predicts oil prices will rise for the rest of 2017, and likely to the end of the decade.
Natural gas Touted as a cleaner-burning, environmentally-conscious alternative,
natural gas is considered by some to be the ‘fuel of the future.’ Why, then, is its price so low, and why has it languished for several years in Western Canada? At one point this summer, natural gas prices — as a technicality — actually dropped to zero, and then went negative. In other words: It was more expensive to pull out of the ground than to buy it. It turns out the temporary price crash was the result of pipeline maintenance, causing a backup in supply. Nevertheless, prices have been basement-low for years, thanks to gloomy demand in Canada and increased shale production in the U.S. At the 30,000-foot level, the U.S. Energy Information Administration seems to think the price south of the border will start to recover slightly, as they already have in that country so far this year. The Henry Hub spot price, one of the main indicators in the sector, pegged natural gas at an average of $2.61 USD per thousand cubic feet (Mcf) in 2016. It has jumped to $3.14 more recently, and the 2018 forecast is set for $3.31. Canadian prices are a much different story. They are typically much lower than the Henry Hub price, although they tend to move along with the benchmark. Deloitte anticipates the Alberta natural gas price, or AECO, to hover around $2 CAD per Mcf to the end of the year. Deloitte, though, is somewhat bullish on the future for natural gas — with one major caveat: It will take some time. “While the U.S. has growing options to sell its gas, including to Mexico and on the LNG (liquefied natural gas)
Your image is in good hands. premierprinting.ca
Prairie Manufacturer Magazine • Winter 2017
market, Canada has only two options: Domestic consumption and exports to the U.S.,” the company stated in its September forecast. “The lack of market choice leads to volatility and depressed prices in Canada, as the ability of U.S. producers to quickly increase production to meet the growing export market means Canadian plays struggle to compete. “This trend is expected to continue even as several additional U.S. LNG projects are completed over the next few years.”
Uranium Of all the natural resources in Western Canada, uranium has had arguably the roughest ride. Ever since the cataclysmic tsunami in Japan wiped out its Fukushima Daiichi nuclear reactors in 2011, markets have remained timid. At the time, Japan
had 50 operating reactors; only five have come back online, dealing a stark blow to the demand side of the global equation. The ensuing drop in the price of U308 has forced uranium mining firms in Western Canada to tighten their belts. Saskatoon’s Cameco Corporation has been no exception. In his third-quarter statement, Cameco CEO Tim Gitzel noted the average year-to-date spot price of uranium was down another 20 per cent compared to the 2016 annual average. Only weeks later, the company announced it would be suspending operations at its Key Lake and McArthur River sites for roughly 10 months, temporarily cutting 845 jobs. There is, however, reason for hope. As population rises, so too does the demand for cheap, clean electricity. There are more than 50 nuclear reactors
currently being built around the world, including 20 in China. Analysts Rob Chang and Mike Kozak of Cantor Fitzgerald in Toronto share that optimism. Despite minimal upticks projected for 2018 — $23 USD per pound by the second quarter (up from the current range of $20) — 2019 could see prices of $32.75, and north of $40 in 2020. Inventory is the main culprit pulling on the reigns, at about five years’ worth of global demand based on 2017 production. The duo, though, suggests once supplies deplete, look out. Their long-term call is for a “violent” price spike to $80, perhaps in 2025. Back in Saskatchewan, that’s news to Steve McLellan’s ears. “If the world wants green energy, uranium is a fabulous source. We need to have people understand and accept the science. Then, they will apply it more widely.”
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to engage its productivity journey and is built around three key components:
ASSESSMENT | ROADMAP | COACHING
Our standard ARC builds the foundation for a company to engage its productivity journey Building capacity within the team to leverage higher levels of innovation and productivity and is built around three key components:
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ROADMAP - A clear plan and priority around specific opportunities for improvement After a thorough analysis of the assessment results, GO Productivity utilizes several different tools to help the working group value and eliminate waste. It also includes a series of both process and product innovations that have the potential to help with clear accountabilities and timelines are set.
COACHING - Building capacity within the team to leverage higher levels of im Over the course of the ARC, GO Productivity is working actively to build innovation and productivity improvement capacity within the organization. Problem solving tools and techniques, collaboration strategies, improvement methodologies, and leadership concepts are shared continuously and effectively over the course of the engagement. GO Productivity utilizes the ARC process to help a company incite, manage, implement, and ultimately own positive change in their organization.
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Your New Career Starts Here Experience Can be the Best Teacher: Share Yours at MITT! Did you know that an education-specific degree isn’t always necessary to teach at the post-secondary level? It’s true. The Manitoba Institute of Trades and Technology (MITT) is looking for professionals with relevant expertise and a passion for sharing knowledge to teach our growing and diverse group of learners. MITT is a dynamic and innovative education provider in Health Care and Human Services, Information and Business Technology as well as Skilled Trades. We offer a team-oriented workplace where you can learn and contribute to the many facets of our expanding operation. We now offer over 30 post-secondary and diploma programs – alongside integrated secondary training – all of them linked to labour market needs which give students a competitive edge for career success. We’re currently seeking energetic and knowledgeable instructors in these areas: Auto Mechanics* Business Administrative Assistant CAD Technician Carpentry* CCENT and CCNA Cisco Culinary Arts and Design* Cyber Defence and Cloud Administration Early Childhood Education Electrical Applications* Graphic and Print Technician Hairstyling*
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hiring millenials With Stephen Heckbert, public relations professor and executive advisor
As my business is growing, our organization is in transition, and many of our new recruits are under 30. Should I be worried about hiring millennials?
Should I automatically turn my social media accounts over to the youngest person in the building? Do we need to be on Snapchat or not?
Many organizations have expressed concerns about the differences between millennials and others in their workforce — fears, from my experience, I believe are unfounded. The main difference for your organization is that millennials want to know, on day one, what impact their work is having on both the business and society as a whole. The ‘triple bottom line’ is now the equation that matters. So, you will need to improve communication to ensure your new staff understand how what they do is making a positive contribution — but that improvement in communication will be of benefit to your entire organization.
There are absolutely more ways to reach people than ever before, and the decision about what channels to use, and when, is part of your overall operational decision with respect to building your brand and your audience. But should you chase every new social media channel? No. You know what audiences you need to reach and when — the fact that millennials may be more comfortable on these channels doesn't mean these channels are right for you. Your business decisions should still be based on reaching your customers where they are rather than trying to chase ‘clicks’ and social media traffic.
But I've heard millennials are more stressed out and, therefore, harder to manage? The challenge for all young people in today's world is that all they know is change; and, like many of us, sometimes we'd prefer the constant change to stop. Millennials, however, are more adaptable and more capable of moving within an organization than some other generations. You will find they need greater diversity and opportunity within their teams; but, again, having employees who want to see and do more within their teams should be seen as a positive, not a negative. Give them more to do, and a reason to do it, and then get out of their way and let them succeed.
Why have millennials received a bad rap before? In every group of new potential hires, there are the greats who can work anywhere — those who will fit well within most organizations, and those who will only fit in certain roles. That was true of baby boomers, of Gen-Xers, and of every employee throughout history. The challenge for today's young people is that they have had to deal with constant disruption their entire lives, and they have also had enormous expectations placed on them because they are seen — too often —as saviours for an organization's culture. They are not. Leaders still need to lead, and young people still need guidance to enter the workforce properly.
Prairie Manufacturer Magazine • Winter 2017
How will I know who to hire? Do I need to evaluate millennials differently? Much like hockey teams are built by focusing on the skills the coach needs to put the best product on the ice for any given game, you should always be building your team for the requirements you have. Do you need a programmer? Find the best programmer you can who fits your culture. Do you need a sales representative? Find the best salesperson you can who will connect with customers. Millennials offer the same qualities as previous demographic groups — the major difference is they believe technology has flattened organizations, and they will believe they can interact with the person they need to talk to directly rather than worrying about hierarchy. In other words: If you've said all along you have an open-door policy for staff, don't be surprised if your new young hire believed you and sends you a note early in their tenure with suggestions for improvement. The second part of that is they may be right, but work with your team to ensure you are getting the best out of everyone, not just your new hires, and your organizational success will follow.
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Published on Dec 3, 2017