Resurrecting America’s Manufacturing Dominance

1. Resurrecting America’s Manufacturing Dominance

2. Benchmarking Why Benchmark? • Good decisions begin with good information • What’s the standard? • Speculate about own performance. • Identify best practices. • Performance gap. • Credible, objective insight. • Identify strengths & weaknesses

3. SMI Annual Market Summary • Sales Size Category • <$4 Mil, $4-7, $7-12, $12-20, $20+ • Range of Common Experience • Lower Quartile • Upper Quartile • Trend Data – 5 years

4. Financial Performance • Return On Investment • Product/Customer Profile • Income Statement • Balance Sheet • Financial Ratios • Asset Productivity • Employee Productivity

5. Changes in World Commerce • Collapse of the Soviet Union – 1991 • 2 billion more people practicing capitalism • Globalization • Removed barriers to economic competition • Asia • Low wage, high-skilled workers • I.T. revolution • PC’s, Internet, Software • Cheap/Mobile connectivity, Cloud computing • World energy consumption • How to manage it

6. Hyper-connected world • Source everywhere • Manufacture everywhere • Sell everywhere Create new jobs with greater ease & less money

7. Changes in U.S. • Economic growth • Technological innovation • Social/Economicmobility • Budget deficits

8. U.S. Prosperity depends on… • How well you analyze & apply all the data pouring through networks. • Your ability to provide better… • Health care • Education • E-commerce • Innovation • Customer service

9. Education • Computers/robots make an educated person more productive • Less-educated workers are less-employable • Everyone needs a post-secondary education • Start preparing for vocational track or college track in high school

10. Job Killers • Automation • Outsourcing – for lower labor costs • Efficiencies of process

11. Shift in Core Values • Long-term investment => Instant gratification • Sustainable values vs. Situational values • Question authority; lack of confidence in leaders • Americans have little confidence in virtually every institution • Politics, science, teachers, religion, government, The Man • Weakening of our sense of shared national purpose • Partisan politics • Liberals vs. Conservatives, rather than Americans

12. Mind-sets • Think like an immigrant • View that nothing is owed you. • You have to make it your own. • Think like an artisan • Make things or provide services with a distinctive touch & flair, personal pride. • Willing to put your initials on it.

13. Pervading Work Beliefs ofOlder Generations • A job is what you are. • I remember when… • Good things come… • If your hands aren’t moving… • We have to have a system. • All this technology will never overcome the value of hard work.

14. Pervading Work Beliefs ofYounger Generations • A job is a contract, not a calling. • Focus on the outcome. • Balance is more important. • Training/knowledge = versatility • Management should be partners with employees. • Life is too short to pay dues.

15. Resurrecting Manufacturing There are no problems, only opportunities

16. U.S. Productivity – 2010 • China $1 trillion plus in manufactured goods • U.S. $1 trillion minus • China 100 million factory workers • U.S. 11.5 million workers

17. Reasons for productivity • More advanced machines, robots, and software • Greater valued added • U.S. worker can earn more than a Chinese worker.

18. SMI Performance Overview

19. Profit Margin = Profit/Sales

20. Factors For Success

21. Sales Growth

22. Margin & S,G&A Trends

23. Gross Margin Trends

24. COGS Trends

25. Direct Material Costs

26. Plant Labor Costs

27. S,G&A Trends

28. Productivity Results • China • Mass-produced, low-value goods • Low-paying, low-skilled jobs • U.S. manufacturing • High-paying, high-productivity • Aircraft, medical equipment, scientific equipment, control systems, specialized industrial machinery, chemicals

29. For greater productivity • More sophisticated machines • Operated by higher-skilled workers

30. Sales to Fixed Assets Trend

31. Sales Per Employee Trend

32. Sales Per Direct Employee

33. 21st Century Jobs Strategy • Productive workforce • Advance Internet bandwidth • Openness to talent from anywhere • Generous R&D funding • Role of law, patent protection, and investment • Manufacturing tax code superior to any other country • Hospitable to innovation and entrepreneurship

34. The American Dream • Affluence • Work hard = rise in material circumstances

35. Exceptionalism • What makes America special • Wealth • Power • Economic opportunity for its citizens • Example of liberty and prosperity • Hope in the American Dream • Youth • Openness • Dynamism • Best minds in the world • Enormous human capital • The deepest capital markets • Unparalleled institutions of innovation • A market no global business can ignore

36. The Strategic Profit Model:A Valuable Management Tool

37. Profit Margin

38. Profit Margin Trend

39. Asset Turnover

40. Asset Turnover Trend

41. Return On Assets

42. ROA Trend

43. Financial Leverage

44. Leverage Trend

45. Return On Net Worth

46. RONW Trend

47. Setting Priorities:Relative Impact of a 1% Improvement

48. What happened there?

49. A Series Of 5% Improvements

50. SMI Benchmarking Studies Building on the basics to World Class manufacturing • Annual Market Summary– Financial Performance • Executive Compensation Report • Salaried Employee Compensation & Fringe • Mid-level Managers, Administrative, Sales • Wage & Fringe Benefits Report • Beginning & Experienced hourly wages