resurrecting america’s manufacturing dominance. 2 benchmarking why benchmark? 1. good decisions...
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Resurrecting America’s Resurrecting America’s Manufacturing Manufacturing
DominanceDominance
2
BenchmarkingWhy Benchmark?
1. Good decisions begin with good information
2. What’s the standard? Speculate about own performance.
Identify best practices.
Performance gap.
Credible, objective insight.
3. 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
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Hyper-connected world Source everywhere
Manufacture everywhere
Sell everywhere
Create new jobs with greater ease & less money
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Changes in U.S. Economic growth
Technological innovation
Social/Economic mobility
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 Values1. Long-term investment => Instant gratification
Sustainable values vs. Situational values
2. Question authority; lack of confidence in leaders Americans have little confidence in virtually every
institution Politics, science, teachers, religion, government, The Man
3. Weakening of our sense of shared national purpose Partisan politics Liberals vs. Conservatives, rather than Americans
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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.
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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.
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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.
Resurrecting Resurrecting ManufacturingManufacturing
There are no problems,only opportunities
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U.S. Productivity –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
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Reasons for productivityReasons for productivity More advanced machines, robots, and software
Greater valued added
U.S. worker can earn more than a Chinese worker.
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SMI Performance OverviewSMI Performance Overview
2007 2008 2009 2010 2011 2012Participants 60 57 48 55 59 62
Revenue $6.7 $7.9 $5.6 $7.6 $8.6 $9.0
Growth 3.1% 2.3% -21.6% 22.8% 11.5% 7.2%
Gross Margin 25.9% 28.3% 26.2% 28.6% 25.9% 25.6%
Profit Margin 4.7% 5.8% 1.5% 5.9% 5.3% 5.9%
ROA 9.4% 11.6% 2.5% 11.2% 10.1% 10.6%
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Profit Margin = Profit/SalesProfit Margin = Profit/Sales
Profit Margin
1.53.4 4.1 4.6 4.7
5.8
1.5
5.9 5.3 5.9
11.0 10.99.6
14.115.9 15.2
11.0
17.3
13.6 13.4
0.0
5.0
10.0
15.0
20.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Factors For SuccessFactors For SuccessFactors For Success 1st 3rd HighIncome Statement Quartile Typical Quartile ProfitSales Growth 0.5% 7.2% 18.4% 7.3%Gross Margin 17.4% 25.6% 30.9% 30.9%S,G&A Expenses 23.2% 19.2% 9.8% 17.4%Interest Expense 0.0% 0.5% 1.0% 0.2%Sales Per Employee $138,095 $166,724 $209,699 $173,763Balance Sheet FactorsAvg. Collection Period 35.0 42.8 52.2 44.5Inventory Turnover 4.2 6.3 8.3 7.3Sales to Fixed Assets 3.3 5.4 10.0 6.8Strategic Profit ModelProfit Margin 3.8% 5.9% 13.6% 13.4%Asset Turnover 1.6 1.8 2.8 2.3Return On Assets 10.2% 10.6% 28.3% 30.8%Financial Leverage 1.4 1.6 3.0 1.3Return On Net Worth 27.3% 17.0% 52.7% 40.0%
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Sales GrowthSales Growth
Sales Growth
-1.6
13.75.1 4.6 3.1 2.3
-21.6
22.8
11.5-2.9
22.1
9.5 8.7 4.9 1.4
-20.5
29.7
11.97.2
7.3
-30.0
-15.0
0.0
15.0
30.0
45.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Margin & S,G&A TrendsMargin & S,G&A Trends
Gross Margin and S,G&A Expenses
27.1 27.024.9 25.9 25.9
28.326.2
28.625.9 25.6
24.722.9
20.0 20.0 19.9 21.524.1
22.220.0 19.2
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Gross Margin S,G&A Expenses
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Gross Margin TrendsGross Margin Trends
Gross Margin
27.1 27.024.9 25.9 25.9
28.326.2
28.625.9 25.6
30.3
36.7
31.233.4
38.7
32.3
27.8
31.9 32.730.9
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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COGS TrendsCOGS Trends
Cost of Goods Sold Components
28.830.8
33.0 32.2 32.7
37.8
29.327.2 27.9 26.2 26.3
23.7
14.8 15.0 14.2 14.0 14.111.6
15.412.4 12.6 13.3
33.1 31.834.8
37.2
27.0 28.225.3 23.9
0.05.0
10.0
15.020.025.030.0
35.040.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Material Costs Labor Costs Other COGS
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Direct Material CostsDirect Material Costs
Direct Materials
28.830.8
33.0 32.2
37.8
26.9 25.028.9 30.7
33.632.737.2
34.831.833.1 34.9
37.8
32.9
27.427.6
0.05.0
10.015.020.0
25.030.0
35.040.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Plant Labor CostsPlant Labor Costs
Labor Costs
27.2 27.926.3
23.7
25.9 27.1
22.2 23.4
26.229.3
27.0 28.225.3
23.9
26.6
30.5
26.7
23.221.0 21.6
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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S,G&A TrendsS,G&A Trends
S, G&A Expenses
24.7
20.0 20.0
18.7 19.2 18.819.9
22.9
22.221.5
20.0
19.2
24.125.2
21.7
14.6
17.1
21.1
17.416.8
10.0
15.0
20.0
25.0
30.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Productivity ResultsProductivity 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
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For greater productivityFor greater productivity More sophisticated machines
Operated by higher-skilled workers
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Sales to Fixed Assets TrendSales to Fixed Assets Trend
Sales to Fixed Assets
3.5
4.5
5.4 5.7 5.4 5.44.2
5.7
7.5 7.6
5.9
6.8
5.3 5.0 5.24.6
7.07.4
6.8
5.6
0.0
2.0
4.0
6.0
8.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Sales Per Employee TrendSales Per Employee Trend
Sales Per Employee
$0
$100,000
$200,000
$300,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Sales Per Direct EmployeeSales Per Direct Employee
Sales Per Direct Employee
$0
$100,000
$200,000
$300,000
$400,000
2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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21st Century Jobs Strategy21st 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
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The American Dream
Affluence
Work hard = rise in material circumstances
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ExceptionalismExceptionalism 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
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The Strategic Profit Model:The Strategic Profit Model:A Valuable Management ToolA Valuable Management Tool
Profit Margin
1Return On
Profit AssetsNet Sales
x = ROAAsset Turnover Return On
Profit Net Worth2 Total Assets
x = RONWNet Sales Financial Leverage
Total Assets Profit3 Net Worth
Total AssetsNet Worth
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Profit MarginProfit MarginProfit Margin
$531.0÷ = 5.9%
$9,000.0 Return OnProfit Assets
Net Sales
x =Asset Turnover Return On
Profit Net WorthTotal Assets
x =Net Sales Financial Leverage
Total Assets ProfitNet Worth
Total AssetsNet Worth
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Profit Margin TrendProfit Margin Trend
Profit Margin
1.53.4 4.1 4.6 4.7
5.8
1.5
5.9 5.3 5.9
11.0 10.99.6
14.115.9 15.2
11.0
17.3
13.6 13.4
0.0
5.0
10.0
15.0
20.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Asset TurnoverAsset TurnoverProfit Margin
$531.0÷ = 5.9%
$9,000.0 Return OnProfit Assets
Net Sales
x =Asset Turnover Return On
$9,000.0 Profit Net Worth÷ = 1.8 Total Assets
$5,000.0 x =$1.80 Net Sales Financial Leverage$1.00 Total Assets Profit
Net Worth
Total AssetsNet Worth
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Asset Turnover TrendAsset Turnover Trend
Asset Turnover
1.6 1.8 1.9 1.9 2.01.7 1.9 1.9 1.8
1.9 1.9
2.92.5
2.2
1.7
2.21.9
2.32.0
2.1
0.0
2.0
4.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Return On AssetsReturn On AssetsProfit Margin
$531.0÷ = 5.9%
$9,000.0 Return OnProfit Assets
Net Sales $531.0
x = ÷ = 10.6%Asset Turnover $5,000.0 Return On
$9,000.0 Profit Net Worth÷ = 1.8 Total Assets
$5,000.0 x =$1.80 Net Sales Financial Leverage$1.00 Total Assets Profit
Net Worth
Total AssetsNet Worth
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ROA TrendROA Trend
Return On Assets
2.46.1 7.8 8.7 9.4 11.6
2.5
11.2 10.1 10.6
20.9 20.7
27.8
35.2 33.4 33.4
18.7
38.1
25.830.8
0.05.0
10.015.020.025.030.035.040.045.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Financial LeverageFinancial LeverageProfit Margin
$531.0÷ = 5.9%
$9,000.0 Return OnProfit Assets
Net Sales $531.0
x = ÷ = 10.6%Asset Turnover $5,000.0 Return On
$9,000.0 Profit Net Worth÷ = 1.8 Total Assets
$5,000.0 x =$1.80 Net Sales Financial Leverage$1.00 Total Assets $5,000.0 Profit
÷ = 1.6 Net Worth$3,200.0
$1.56 Total Assets$1.00 Owner Equity$0.56 Outsiders
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Leverage TrendLeverage Trend
Financial Leverage1.7
1.51.7
1.6 1.61.4 1.4
1.6 1.6
1.4 1.41.3
1.51.4
1.31.4 1.4
1.3
1.7
1.4
0.0
1.0
2.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Return On Net WorthReturn On Net WorthProfit Margin
$531.0÷ = 5.9%
$9,000.0 Return OnProfit Assets
Net Sales $531.0x = ÷ = 10.6%
Asset Turnover $5,000.0 Return On$9,000.0 Profit Net Worth
÷ = 1.8 Total Assets $531.0$5,000.0 x = ÷ = 16.6%
$1.80 Net Sales Financial Leverage $3,200.0$1.00 Total Assets $5,000.0 Profit
÷ = 1.6 Net Worth$3,200.0
$1.56 Total Assets$1.00 Owner Equity$0.56 Outsiders
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RONW TrendRONW Trend
Return On Net Worth
4.1
10.4 11.714.8
18.6
3.5
15.7 16.2 17.0
29.3 29.0
38.9
45.8 46.8
24.3
36.140.0
15.0
50.1
0.0
25.0
50.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median High Profit
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Setting Priorities:Setting Priorities:Relative Impact of a 1% ImprovementRelative Impact of a 1% Improvement
The Relative Impact on Profitof a Series of 1% Improvements
Area Of Improvement Profit Increase %
Raise Prices 16.3%
Lower Material Costs 6.3%
Improve Labor Productivity Sales Growth 8.1% Reduce Direct Labor 2.1%
Increase Unit Sales 6.0%
Reduce Genl. & Admin. 2.7%
Accounts Receivable 0.1%
Reduce Inventory 0.3%
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What happened there?Unit
Current Pricing SalesSales ($ 000's)($ 000's) 9,000.0 9,090.0 9,090.0Cost Of Goods SoldDirect Materials 3,348.0 3,348.0 3,381.5Direct Labor 1,125.0 1,125.0 1,136.3Indirect Labor 1,026.0 1,026.0 1,026.0Plant Depreciation 180.0 180.0 180.0Other Factory Costs 1,017.0 1,017.0 1,027.2
Total COGS 6,696.0 6,696.0 6,750.9Gross Margin 2,304.0 2,394.0 2,339.1S, G&A ExpensesSelling Expenses 324.0 327.2 327.2General & Admin. 1,449.0 1,449.0 1,449.0
Total S, G&A 1,773.0 1,776.2 1,776.2Profit ($ 000's) 531.0 617.8 562.9
Increase 16.3% 6.0%
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A Series Of 5% ImprovementsA Series Of 5% ImprovementsHigh
Current ProfitSales ($ 000's)($ 000's) 9,000.0 100.0% 9,900.0 100.0%Cost Of Goods SoldDirect Materials 3,348.0 37.2 3,348.0 33.8Direct Labor 1,125.0 12.5 1,125.0 11.4Indirect Labor 1,026.0 11.4 1,026.0 10.4Plant Depreciation 180.0 2.0 180.0 1.8Other Factory Costs 1,017.0 11.3 1,067.9 10.8
Total COGS 6,696.0 74.4 6,746.9 68.2Gross Margin 2,304.0 25.6 3,153.2 31.9S, G&A ExpensesSelling Expenses 324.0 3.6 356.4 3.6General & Admin. 1,449.0 16.1 1,449.0 14.6
Total S, G&A 1,773.0 19.7 1,805.4 18.2Change in Interest 0.0Profit ($ 000's) 531.0 5.9% 1,347.8 13.6%
A/R 1,250.0 1,250.0Inventory 1,400.0 1,400.0
Increase in Profit $816.8
Profit Margin 5.9% 13.6%
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SMI Benchmarking StudiesSMI Benchmarking Studies
Building on the basics to World Class manufacturing
1)Annual Market Summary – Financial Performance
2)Executive Compensation Report
3)Salaried Employee Compensation & Fringe Mid-level Managers, Administrative, Sales
4)Wage & Fringe Benefits Report Beginning & Experienced hourly wages
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Summary and ConclusionsSummary and Conclusions1. Good decisions begin with good information
2. Assess what is most importanta. Identify strengths & weaknessesb. Speculate about own performancec. Industry standards provide evidence to rethink assumptions
3. Informed Decision-Makinga. Limited resourcesb. Shift resources from historical beliefs
4. Motivate Employeesa. Reinforces good performanceb. Identifies performance below competitors c. Support expenditure decisionsd. Reduce resources with least negative impact
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Who is this guy?John R. Mackay is President of the Mackay Research Group, a research and executive education firm headquartered in Boulder, Colorado. John has been conducting the Annual Market Summary survey for SMI since 2002. Mackay Research Group also conducts the Executive Compensation Survey, the Salary & Fringe Benefit Survey, and the Plant Wage & Fringe Benefit Survey for SMI.
Besides working with SMI, Mackay Research Group conducts financial benchmarking & compensation studies for AMT, NTMA, AGMA and other associations in the Metalworking Manufacturing Coalition.
John received his undergraduate degree from The Ohio State University and his MBA from the University of Colorado.