Growing Your Manufacturing Business

February 07, 2018

Growing Your Manufacturing Business

Synopsis
10 Minute Read

Industry Leaders Share Biggest Challenges, Best Opportunities

What do air filters, food products, precision gears, silicone injection molds and pressure vessels have in common?

Despite their very different industries, these are products manufactured by business owners who share surprisingly similar concerns:

  • It's getting tougher and tougher to attract, keep and replace good people.
  • The need to continually strengthen operational efficiency and effectiveness.
  • As a brand, manufacturing is boring.
  • We don't want to think about exit planning, we're focused on growth planning.

During an exclusive roundtable hosted by MNP at Spencer's at the Waterfront in Burlington the founders and leaders of five Ontario-based manufacturing companies candidly discussed their worst headaches and brightest hopes for the future.

In this report, MNP summarizes their shared experiences, challenges and opportunities. For Canada's manufacturers operating in any industry sector and selling into any market around the world, this exchange presents valuable lived insights and ideas.

CANADA'S MANUFACTURING INDUSTRY

A quick overview of Canada's manufacturers

Total number of manufacturers 89,925 (2016)

65% Have fewer than 100 employees

25% Are mid-size (100-500 employees)

Only 9% Are large companies with 500 or more employees

North America represents 90% of revenue growth

63% of growth is from Canada alone

35% of manufacturers plan to enter a new geographic market

Global competitive advantages

There are four key areas where Canadian manufactures have a competitive advantage within the global marketplace.

Quality – 67% are able to provide higher quality products compared to their foreign competitors

Service – 61% provide in-person or phone customer service that excels in comparison to foreign vendors

Customization – 58% have the ability to provide customized engineering solutions

56% provide adaptability that Flexibility – many foreign vendors cannot due to their mass production business model

Source: Manufacturers’ Outlook 2015, Plant magazine Government of Canada, Canadian Industry Statistics

ROUNDTABLE PARTICIPANTS

Russell Kelly, President and Tammy Kelly, CFO – APC Filtration

Russell worked in a third-generation family business for 17 years before launching APC in 1995. Tammy joined her husband in the company as CFO about 15 years ago. APC has more than 20 employees and provides air filter design, engineering, manufacturing and testing for original equipment manufacturers of industrial, commercial and household products around the globe.

After 20 years in Ancaster, APC recently moved to Brantford. Says Russell, "We've been growing every year but this year we've had a significant jump. We're ready to take another big leap and are making provisions for that now."

Stefan Czapalay, Chef de Cuisine and President – Signature Culinary Solutions

After consulting and creating menus for restaurants, airlines and large scale food manufacturing companies, Stefan launched Signature in 2011. The company provides food product research and development, customized food manufacturing and produces its own branded products from its Mississauga facility. Signature's customers are in Canada and the U.S. and Stefan is currently expanding into markets in the U.K., China and the Middle East.

A frequent traveller across Canada and around the world, this entrepreneur continually sources global food trends and ideas to energize his business.

Anjan Tak, President – Robust Gear and Industries

Anjan's father, Sem Tak, founded Robust Gear in Oakville in 1985. The company designs, manufactures and tests high quality custom precision gears for customers around the world. Robust sells into a wide variety of industry sectors: mining, packaging, pharmaceutical, oil refineries, aerospace, atomic energy, marine, railways, forestry and steel.

Anjan joined the company after he graduated from university in 2012. His father died suddenly a short time later. "I could have closed or sold the business. But I decided it was something I loved and want to continue. After going through some tough times, we are now seeing substantial growth."

Ross Hooper, President – Hooper Welding Enterprises

Ross owns and operates Hooper Welding, which designs and manufactures specialized pressure vessels, particularly large, heavy vessels – up to 1,000 tons – that no one else produces. His father founded the company in 1952 as a welding repair shop. Ross was 24 when his dad died suddenly. At that time, the company had about a dozen employees. Today Hooper Welding has close to 100 people working in three facilities: two in Oakville and another in Hamilton. About 60 percent of production is shipped to locations worldwide.

"Right now we're running at about 70 percent of capacity," says Ross. "By later this year we may exceed 100 percent."

Isolde Boettger, Co-founder and Vice-president – Silcotech

In 1998, Isolde met her partner in life and together they founded Silcotech. The company prototypes, develops and produces silicone injection molding solutions for the medical, healthcare, automotive, packaging, consumer electronics and consumer markets. Based in Bolton, Silcotech also has sites in York, South Carolina and Noido, India.

"Many OEMs have moved into India," says Isolde. "The demand for precision parts is becoming much higher as they invest in tooling."

THE HOSTS

Bill Sloper, CPA, CA, CFP, TEP

Regional Managing Partner – South Central Ontario Burlington office

T: 905.333.9888

E: [email protected]

Bill has been working for three decades with a broad range of private businesses, from small and mid-sized companies, to family businesses and professional corporations. His clients rely on him for quality advice and solutions related to corporate reorganizations, mergers and acquisitions, accounting, assurance, taxation, and succession, retirement and estate planning.

Yohaan Thommy, LSSBB, PMP

Partner, Consulting, Mississauga office

T: 905.220.3211

E: [email protected]

Yohaan works with owner-managed, privately held businesses in a broad range of industries, including manufacturing, food and beverage processing, construction, gaming and marketing as well as not-for-profit and government. Clients seek his expertise on enhancing operations, performance, revenue, sales and supply chain management. He is also adept with managing strategic, technical and large-scale projects such as integrations, facility relocations and business turnarounds.

Hussam Malek, PEng, MBA Senior Manager, Mississauga

Senior Manager, Mississauga office

T: 416.515.3866

E: [email protected]

Hussam has been working with manufacturers for more than a decade on projects encompassing operations management, project management, continuous improvement and capital automation. He brings strong leadership, management and LEAN manufacturing capabilities. Hussam has guided successful large organizational process changes and capital automation projects in industries encompassing automotive, food and consumer goods.

Participants’ Biggest Challenges, Best Opportunities

It's getting tougher and tougher to attract, keep and replace good people.

THE CHALLENGES

The top challenge cited by every roundtable participant was labour: finding and keeping capable, committed employees.

A MAJOR OBSTACLE: FINDING THE WORKERS NEEDED TO GROW MANUFACTURING BUSINESSES

75% of Canadian manufacturers expect their business to grow over the next three years

86% find it challenging to the skilled workers they need

This shortage is expected to worsen in the coming decade as manufacturers strive to replace more than 22% of their workforce due to retirement.

The Future of the Manufacturing Labour Force in Canada, January 2017

MNP asked participants about their concerns related to Bill 148, the Fair Workplaces, Better Jobs Act and its increases to minimum wage rates, equal pay provisions, increased vacation leave and pay, and changes to scheduling rules and leaves of absence. While they expressed some concern, simply finding and keeping reliable people superseded worries about the bill.

"The biggest concern I have is attracting good staff and retaining them – not being dependent on temp agencies and all the training worries that come with that," said Stefan. "We pay far above the minimum wage just for unskilled general labour and offer a guaranteed 7 1/2-hour shift but have trouble finding people."

"We're in the $45-$50/hour range for many employees," said Ross. "If that's what it takes to get good, qualified people, that's what we have to pay to keep them. Still, our biggest problem is finding these people."

High-performing processes require skilled workers; therefore, employee development has to keep pace with demand for capabilities. Anjan emphasized. "We're not going to solve our problems by individually training employees. That's a stop gap. When that employee leaves, how will we find another with the same skill set?"

THE OPPORTUNITIES

MNP mentioned that with the unemployment rate at a historical low, about six percent, the labour pool for manufacturing is shrinking and labour is becoming more expensive. Roundtable participants have been exploring a variety of strategies to work around this.

Training: In an advanced economy, Canada's manufacturers specialize in activities requiring more skills. Tammy and Russell mentioned their company has been successful in acquiring government training grants. "Today, we're more efficient than we were several years ago," said Russell. "We have 20 employees and they are 100 percent engaged with the training program."

Hire from beyond Canada: For some participants, looking abroad has proved to be fruitful. for example, said his company is hiring more people from other countries. Isolde mentioned how "it took us a long time to find someone to fill one toolmaker position. We ended up hiring a person who had trained in Germany with an apprenticeship."

Develop high quality apprenticeship programs: Germany, a country with a large number of trade schools and quality apprenticeship programs, is a good example of best practice. Isolde emphasized, "We need to push the government for progress on apprenticeships and build up how they are valued here."

Following a recent trip to Japan where he toured numerous manufacturing facilities, Anjan noted the strong government commitment to draw people into manufacturing. He said it takes the average worker there 12 years to reach the top of an apprenticeship program and this option of continuous learning motivates manufacturing workers.

Show off your operation: Yohaan suggested manufacturers need to do more to convey the message: "manufacturing provides rewarding careers." He cited the example of one of MNP's clients who encouraged employees who were a few years from retirement to bring their kids into work to experience what their parents do. Several ended up joining the company and becoming valued employees.

Disruptive recruiting: Recounting a situation where a generous employee incentive program to generate referrals wasn't doing enough, Yohaan mentioned that when the employer replaced a financial reward with a travel incentive, "referral traffic went through the roof!" While this particular tactic may not be workable for a manufacturer, rethinking the standard recruitment approach and adopting innovative, targeted disruptive strategies could be game changing.

MNP TIP

Investing in people and human resource management practices can help manufacturers build a successful, sustainable organization. Here is MNP's framework for accomplishing this.

A SUCCESSFUL SUSTAINABLE ORGANIZATION - The People Perspective

Role & Goal Clarity

  • Good position design
  • Individual goals and objectives aligned with organizational strategies

Highly Skilled Competent Talent

  • Aligned human resource planning processes
  • Identification of needed competencies
  • Efficient results-orientated recruitment and selection processes
  • Strong leadership development

Equitable Compensation

  • Current and valid external compensation information
  • Defensible system of determining the ‘worth’ of the position
  • Incentives that motivate desired behaviour

Career Opportunity

  • Solid succession planning
  • Ongoing training and professional development programs

Performance Enablement

  • Clarity of expectations
  • Coaching and mentoring programs
  • Consistent and comprehensive assessment of performance

The need to continually strengthen operational efficiency and effectiveness.

THE CHALLENGES

Participants discussed how operational improvements to existing processes are no longer sufficient to compete today. While commenting on how lean manufacturing has added value to their operations, with labour and input costs rising, along with competitive pressures, a strong commitment to operational innovation is considered essential. All of these business owners give attention to devising new ways of developing and producing products and generating sales.

MNP Partner Yohaan Thommy added: "The value proposition for Canadian manufacturers can't be about costs like manufacturers in China, it's got to be about innovation and increasing the effectiveness of doing business." For small manufacturers, there's the added challenge of leveraging innovation without over-consuming time and resources.

HOW CANADA RANKS IN GLOBAL COMPETITIVENESS

  • 15/138 countries Canada:
  • Among the top five problematic factors: insufficient capacity to innovate

Source: Global competitiveness index 2016-2017

While government incentives like the Scientific Research and Experimental Development (SR&ED) program help to offset innovation investments, some participants were discouraged by the complexity and laborious documentation.

THE OPPORTUNITIES

All of the roundtable participants are distinctly entrepreneurial, embracing risk taking and innovation in order to grow. Moreover, all are eager to work with their colleagues in the sector to collaborate and strengthen the innovation ecosystem. They focus on improving effectiveness in numerous areas of their operations.

Skills development: More manufacturers are investing in the personal development of their people. "To grow, we need to get better at what we do," said Anjan. He linked a performance measurement plan to an incentive system that encourages the skills he needs in his enterprise. For younger employees, he is utilizing some web-based training linked to rewards. Results so far are impressive: the company's sales doubled within two years.

Strengthening the value proposition: All of the participants have a substantive value proposition they continually build upon. For Ross of Hooper Welding, this is doing something no one else can. "Others shy away from building a 1,000-ton object. We don't. We take the challenge, coming up with a game plan for each large vessel. We've got a niche where few others do so we can be successful competing."

As well, margin analysis provides an opportunity to help manufacturers identify underlying value: SKU tracking can determine individual customer margins as well as product margins.

WHAT CANADA'S MANUFACTURERS ARE INVESTING IN

64% – Employee training to facilitate efficient operations

53% – Technology, upgrading ERP systems and increasing digitization to deliver data for improved decision making

43% – Automation, including robotics, to improve production

Source: Manufacturers' Outlook 2015, Plant magazine

Educating customers: Anjan offered that manufacturers need to teach customers how to work beneficially with them. "When I took over the business after my dad passed away, I realized we were losing money on certain jobs. Sure, some customers will never change, but going forward you have to be assertive and say, 'this is the cost of doing business.' If they don't see value in what you bring to the table, how is it going to be a mutually beneficial relationship?"

MNP believes conversations about value should be a regular topic in customer discussions. Reinforcing how your products provide value by addressing each customer's particular needs can help to strengthen relationships.

MNP TIP

In an environment of rising global competition and customer expectations and decreasing resources, manufacturers should regularly review business operations with the aim of strengthening performance. This is MNP's approach:

Three circle diagram

As a brand, manufacturing is boring.

THE CHALLENGES

Manufacturing has a branding challenge, according to roundtable participants. They mentioned a pervasive perception that manufacturing is in decline, jobs in this sector are low-skilled and boring and many positions are being lost to automation or foreign countries.

The reality is that roundtable participants are market-leading manufacturers – some of whom have been successful for multiple generations. What is particularly frustrating for them is their advanced manufacturing businesses are not considered exciting, yet exciting new technologies and research and development are an integral part of their operations.

MANUFACTURING IS A HIGH-TECH, HIGH-SKILL ECONOMIC ENGINE

  • 10.7% of Canada's GDP   Representing
  • Directly employing close to 1.7 million Canadians, almost all of them in full-time, well-paying jobs

Source: Manufacturers' Outlook 2015, Plant magazine

THE OPPORTUNITIES

The Future of Manufacturing, a report by the World Economic Forum, includes research which shows that acquiring more knowledge, producing more complex products and developing more advanced manufacturing processes lead to greater economic prosperity for a country and its citizens. Manufacturers want help addressing this issue.

More government collaboration: Competing globally requires manufacturers and government to work more closely together to promote and support manufacturing. Participants want the help of governments at all levels in developing beneficial policies related to labour, taxation, research and development and trade.

Create a strong manufacturing brand: Participants felt that governments, manufacturers and trade organizations need to change old perceptions by promoting the success and appeal of manufacturing. "The onus is on us to make the manufacturing industry better, not just our own companies," stated Anjan. He's on a task force with the manufacturing associations in his industry. The group is creating a video to showcase the advantages of working in this field.

Appeal to the new generation of workers: With skills shortages becoming critical, roundtable participants know they have to create a talent pipeline of a new generation of employees. As they continue building expertise in product design and production, manufacturers need qualified, technologically-savvy workers who want a different work environment than their older counterparts. And so participants would like to work more closely with schools, colleges, universities and the government to develop strategies for building the kind of sustainable workforce that will enable manufacturing to grow and thrive.

MNP TIP

Obtaining the future you envision is possible — with the right plan. This requires understanding the market you operate in and the trends impacting your business and then aligning all components of your operation — people, processes and technology — to support the achievement of your vision. Here's how MNP goes about doing this.

Pre Planning Session

  • Industry Environmental Scan
  • Opportunities & Threats (External)
  • Strengths & Weaknesses (Internal)

Planning Session

  • Mission Vision Values
  • Barriers Gap Analysis
  • Measures Timelines
  • Broad Strategic Decisions
  • Strategic Risk Assessment
  • Strategic Objectivies

Post Session

  • Strategic Planning Document

We don't want to think about exit planning, we're focused on growth planning.

THE CHALLENGES

Growing the business. Meeting changing demands. Expanding into new markets. Developing new products.

All roundtable participants are clearly entrepreneurs focused on growth. They love what they're doing and while they represent a broad range of ages – millennials to baby boomers, some with children working in their companies – all want to keep driving their businesses bigger and better.

MANUFACTURING CONTINUES TO GROW GLOBALLY

World manufacturing in the second quarter of 2017 has continued to show signs of expansion, following an upward trend throughout 2016 and improved growth rates in the first quarter of 2017.

Global manufacturing output rose by 4.2 percent in the second quarter of 2017 compared to the same period of the previous year, building on the robust 3.7 percent increase observed at the beginning of 2017.

Both industrialized and developing and emerging industrial economies gained further strength in manufacturing production and confirmed their healthy dynamic growth.

World Manufacturing Production Statistics for Quarter II, 2017 United Nations Industrial Development Organization

Exit planning isn't on any participant's immediate agenda. Meanwhile, their companies are attracting interest from prospective buyers. "We get a call about once a month about selling the company," said Isolde. "We see a lot of private equity buying up competitors," added Anjan. "But it's hard to know when to sell, especially if the business is growing well," commented Russell.

THE OPPORTUNITIES

Yohaan noted that MNP's manufacturing clients aren't typically talking about exit planning. "By comparison, for our IT clients, exit strategies are in their initial business plan." He added that manufacturing companies tend to be undervalued because buyers see goodwill walking away with departing owners. An owner's reputation, expertise, skill, knowledge and customer relationships are often critical to the success and value of an enterprise.

For purchasers, the less a business depends on the personal goodwill of the owner, the less risky the investment is. Yohaan challenged the group to consider starting the three-to-five-year process of transferring their personal goodwill to their businesses to increase enterprise value for the time when they are ready to sell – and reap the profitable rewards.

MNP TIP

Whether you’re in the early years of running your enterprise or are looking toward retirement or starting a new venture, you can expedite your future success by considering these succession questions:

  1. If not now, then when?
  2. What do I want to realize from my business?
  3. What will be the potential tax impact?
  4. What roadmap should I follow to safeguard my business legacy?

To ensure the longevity of everything that you have and will continue to build in your company and to secure the personal future you want, start thinking – today – about planning your exit from your business.

NEXT.....

Roundtable participants are eager to continue exchanging experiences. They want to learn more about developing proactive business strategies, gaining a stronger voice with government, accessing more funding and innovation programs, developing worker skills, driving sales growth, strengthening margins, and rebranding manufacturing for long-term success.

There was consensus that it is crucial to continue sharing ideas and solutions impacting their businesses and to encourage collaboration that strengthens Canada's entire manufacturing community.

MNP will be hosting additional forums in the coming months to help manufacturers keep ahead of the curve on the trends influencing their success.

If you would like to be included in the invitation list or wish to discuss any of the issues addressed in this report, please contact your local MNP Advisor.

SPECIAL THANKS TO OUR PARTICIPANTS

ABOUT MNP

One of Canada’s largest and fastest growing accounting, tax and business advisory firms – for good reasons

MNP has become one of Canada's leading firms because all of us value hard work, honesty and true concern for our clients. Through the development of strong relationships, over the past six decades MNP has grown to become one of Canada's largest accounting, tax and business advisory firms.

We combine industry expertise, professional insight and innovative approaches to help our clients in the public, private and not-for-profit sectors achieve their goals. Our partners and professionals deliver a broad range of services, including business consulting; audit; risk and business continuity; technology; corporate finance; organization, people and change; valuations and litigation support; and investigations and forensics.

Nearly 4,000 team members proudly deliver personalized strategies with a local perspective from 60 offices across the country. Our firm is also a member of Praxity, the world's largest accounting alliance, enabling us to access global best practices, and support our clients' needs – wherever in the world they do business.

Our success comes from focused, strategic growth with a team that shares our values, providing thought-leading solutions and an exceptional client service experience.

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