Responses from manufacturing firms polled for the Federal Reserve Bank of Philadelphia's Business Outlook Survey suggest that regional manufacturing activity continued to expand in February. The survey's broad indicators for general activity, new orders, and shipments all increased from their readings in January. Firms reported near-steady employment levels but an increase in average work hours. More firms reported higher input prices this month, and a sizable share of firms reported price increases for their own manufactured goods. The survey's broad indicators of future activity fell from levels in recent months but continue to reflect optimism about future manufacturing growth.

Indicators Suggest Continued Expansion

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, edged higher from a reading 7.3 in January to 10.2, its highest reading since October.  The demand for manufactured goods also showed improvement this month: The new orders index was positive for the fifth consecutive month and increased from 6.9 to 11.7. The shipments index also remained positive and increased 9 points. The indexes for both delivery times and unfilled orders recorded slightly positive readings this month, compared with their negative readings in January.

Firms' responses suggest near-steady levels of employment this month. The current employment index, which has been positive for six consecutive months, fell from a reading of 11.6 in January to 1.1 this month, suggesting little overall growth in employment. The percentage of firms reporting an increase in employment (14 percent) was only slighter greater than the percentage reporting decreases (13 percent). Firms reporting a longer workweek (20 percent) outnumbered those reporting a shorter one (10 percent), and the current workweek index increased 5 points.

Input and Output Prices Edge Higher

Indexes for prices paid and prices received both increased this month. Forty-two percent of the firms reported higher prices for inputs this month, up from 35 percent last month. The prices paid index increased 7 points and has now edged higher for four consecutive months. On balance, firms also reported a rise in prices for manufactured goods: More firms reported increases in prices (22 percent) than reported decreases (7 percent). The prices received index increased 4 points, its fourth consecutive increase.

Firms' Outlook Still Optimistic

The future general activity index fell from a reading of 49.0 in January to 33.3 this month. The index, which has increased for five consecutive months, remains at a relatively high level. The indexes for future new orders and shipments paralleled the decline in the future activity index, decreasing 17 points and 19 points, respectively. The future employment index showed improvement, however, increasing 3 points. Firms expecting to increase employment over the next six months (33 percent) outnumbered those expecting to decrease it (11 percent).

Firms were asked about their 2012 capital spending plans. Nearly 36 percent of the firms indicated that total capital spending would be higher this year than in 2011; 23 percent indicated that spending would be lower. Firms that plan to increase capital spending noted that they expect to spend more on noncomputer equipment, software, and computer hardware, and they most frequently cited expected high sales growth, the need for replacement capital, and an improved cash flow or balance-sheet position as the reasons for their increased capital spending plans.

Summary

According to respondents to the February Business Outlook Survey, the region's manufacturing sector continued to grow this month. All of the broad indicators remained positive, with firms reporting a pickup in new orders and shipments. Price pressures were more widespread this month, and more firms also reported higher prices for their own goods. Firms' outlook and employment plans for the next six months remain generally optimistic.

For more information on this survey or to learn more about the manufacturing sector and LEAN, please contact the LEAN Accountants of McKonly and Asbury, LLP.

President Obama recently laid out his Blueprint for an America Built to Last during the State of the Union address.  His plan contains several proposals that focus on the business sector that are intended to support domestic manufacturing and job creation, and to discourage moving operations overseas and outsourcing.  The following is a summary of the proposed reformed package as it pertains to businesses.

Remove tax deductions for shipping jobs overseas and provide new incentives for bringing jobs back to the U.S.

The tax code currently allows companies that move operations overseas to deduct the cost of their moving expenses, which in turn reduces the amount of tax that they pay in the U.S.  Under this proposal, moving deductions would be denied when a company transfers its operations to a foreign country.  On the other hand, if a company moves its operations back to the U.S. after being abroad, the proposal includes a 20 percent income tax credit for the expenses incurred in moving it back.

Target the domestic production incentive on manufacturers who create jobs here at home and double the deduction for advanced manufacturing.

This proposal looks at reforming the current domestic production activities deduction by more narrowly focusing it on manufacturing activities.  For example, it would no longer apply to oil production.  Savings would be invested in expanding the deduction for manufacturers and doubling the deduction from 9 percent to 18 percent for advanced manufacturing technologies.

Introduce a new Manufacturing Communities Tax Credit to encourage investments in communities affected by job loss.

A new credit is being proposed for qualified investments that help finance projects in communities that have been impacted by a major job loss event, such as a military base closure or a major employer closing or substantially reducing operations.  The credit will provide $2 billion per year in incentives for three years.

Provide temporary tax credits to drive domestic clean energy manufacturing.

The President is proposing to extend tax credits to drive investment in domestic clean energy manufacturing, ensuring new windmills and solar panels will incorporate parts that are produced and assembled in the U.S.

Extend 100 percent expensing of investment in plants and equipment.

100 percent bonus depreciation expensing expired at the end of 2011.  This proposal includes a provision to extend the increased deduction for all of 2012 for the cost of investments in qualifying property.

Close the loophole that allows companies to shift profits overseas.

Currently, there are loopholes in the tax system which allows corporations to shift profits overseas from intangible property created in the U.S.  The President’s plan proposes closing this loophole.

Make the Research and Experimentation Tax Credit permanent.

The research and experimentation tax credit has always been temporary in nature.  This proposal supports making the credit permanent, along with enhancing and simplifying it.

To learn more about the Blueprint for an America Built to Last, please contact the LEAN Accountants of McKonly and Asbury, LLP.

 

The 5 Whys is a technique used in the Analyze phase of LEAN environment. The 5 Whys is a great tool that doesn't involve a statistical hypothesis and in many cases can be completed without a data collection plan.

By repeatedly asking the question "Why" (five is a good rule of thumb), you can peel away the layers of symptoms which can lead to the root cause of a problem. Very often the reason for a problem will lead you to another question. Although this technique is called "5 Whys," you may find that you will need to ask the question fewer or more times than five before you find the issue related to a problem.

Benefits Of The 5 Whys

• Help identify the root cause of a problem.
• Determine the relationship between different root causes of a problem.
• One of the simplest tools; easy to complete without statistical analysis.

When Is 5 Whys Most Useful?

• When problems involve human factors or interactions.
• In day-to-day business life; can be used within or without a LEAN project.

How To Complete The 5 Whys
1. Write down the specific problem. Writing the issue helps you formalize the problem and describe it completely. It also helps a team focus on the same problem.
2. Ask Why the problem happens and write the answer down below the problem.
3. If the answer you just provided doesn't identify the root cause of the problem that you wrote down in step 1, ask Why again and write that answer down.
4. Loop back to step 3 until the team is in agreement that the problem's root cause is identified. Again, this may take fewer or more times than five Whys.

5 Whys Examples
Problem Statement: Machine 12 uptime is 50%
1. Why does the machine only have 50% uptime?
   - The operator is cleaning oil from the floor 2 hours per shift.
2. Why is the operator cleaning oil from the floor 2 hours a shift?
   - Valve 623 is leaking.
3. Why is valve 623 leaking?
   - The valve was not rated for the correct pressure .
4. Why was the valve not rated for the correct pressure?
   - The machine was not tested prior to release to manufacturing

5. Why was the machine was not tested prior to release to manufacturing?
   - There wasn’t a standard that required equipment process checks.

In this case five Whys were required to find out that a non-value added standard for equipment process checks was not being followed. 

As you can see, the final Why leads the team to a statement (root cause) that the team can take action upon.

5 Whys And The Fishbone Diagram
The 5 Whys can be used individually or as a part of the fishbone (also known as the cause and effect or Ishikawa) diagram. The fishbone diagram helps you explore all potential or real causes that result in a single defect or failure. Once all inputs are established on the fishbone, you can use the 5 Whys technique to drill down to the root causes.

The 5 Why process is a very valuable tool in the LEAN toolbox. It is simple to use, easy to learn and will identify the root cause of a problem in a clear and concise manner. To learn more about the 5 Why process, Please contact the LEAN Accountants of McKonly and Asbury, LLP.

The State of Pennsylvania recently was awarded a grant from the U.S. Small Business Administration which resulted in the expansion of the Market Access Grant program. The new program, called Global Access Program (GAP) provides up to $5,000.00 in 1:1 matching funds per year to qualifying Pennsylvania companies. GAP is designed to provide flexibility and encourage innovative use of funds to meet the specific international needs of PA companies. Qualifying activities include: overseas trade mission or trade show participation, domestic trade show participation, foreign market sales trip, subscription to USDOC service, independent consultant assistance for CE mark, CSA, ISO, REACH, CITRA, etc., export training workshops, product certification, international marketing media design, website internationalization and marketing literature translation fees. To learn more about this program contact the World Trade Center of Central Pennsylvania at www.wtccentralpa.org

New Trade Adjustment Assistance Guidelines Qualify More Manufacturers

The Trade Adjustment Assistance program was established by the U.S. Department of Commerce to balance global competitiveness and to help those manufacturers that lost business due to foreign competition. The federal guidelines were recently updated to make the application process easier and allow more manufacturers to qualify for the grant dollars, even if they tried unsuccessfully once before. Qualifying companies can be approved for matching dollars up to $75,000. Locally, manufacturers can access the grant dollars through the Mid-Atlantic Trade Adjustment Assistance Center (MATAAC). MANTEC has established an effective process with MATAAC to make the paperwork as painless as possible and help manufacturers access the funds sooner. For more information, please contact Leigh Ann Wilson at MANTEC: (717) 843-5054 x223 or wilsonla@mantec.org

For further information on these grant programs please contact the organizations above or contact the LEAN Accountants of McKonly and Asbury, LLP.

As initially reported by The Association for Manufacturing Technology (AMT) The most current U.S. manufacturing technology orders show 2011 at $4,529.11 million, which is up 80.5% compared with 2010 and is the second highest dollar amount in the last 15 years. As of October, manufacturing technology orders had already surpassed the total value accumulated in 2007.

The Midwest and Central regions of the U.S. have seen the greatest surge in manufacturing technology orders. The Midwest's manufacturing technology orders in 2011 are 105 percent more than the comparable figure for 2010. This large increase is the result of the region's large traditional customer base.

It is also where the oldest equipment resides and the industries impacted most by the weak dollar and reshoring trend are located. The Central region pick-up — 85 percent higher compared to 2010 — was powered by the growth in the energy business and secondly by the automotive industry.

Beyond manufacturing technology, overall U.S. manufacturing is robust. Despite the past several years trend of offshoring, the value of U.S. manufacturing output increased by one-third to $1.65 trillion between 1972 and the 2008 recession. Even though China accounted for 19.8 percent of global manufacturing value in 2010, the U.S. was strong with a share of 19.4 percent.  Exports are rising as American manufacturers meet overseas demand. Manufacturing technology from the U.S. is less expensive than foreign equipment, and U.S.-made goods are more price competitive than many imports due to the weak dollar.

The average age of machinery currently in use at U.S. manufacturing facilities crept up from nine years in 2007 to 13.5 years, and as demand started to increase the need for investment to replace the aging equipment became apparent. Those investments are being made in completely new technology. Multi-operation machines are profoundly impacting productivity. Water jet cutting and hydroforming are experiencing massive growth because they offer all the benefits of traditional processes but eliminate distortion and deformation. Additive manufacturing is growing, nano machining has become commercially affordable, and the availability of new materials, such as compact powdered metals, is having a tremendous impact. Plus, the emergence of cloud manufacturing, which promotes collaborative efforts across organizations, is opening new doors to manufacturers.

 
Expanding markets worldwide are playing an important role as manufacturing grows. China seems insatiable and accounts for almost one half of the world's total consumption of manufacturing technology. India's economy is growing at double the Western economy's rate, with expectations for more China-like development soon. As it prepares for major world events including the Olympics and the FIFA World Cup competition, South America faces the challenge of building infrastructure that can support the events. Russia, South Africa, the Middle East and South Asia are on the fringe, but nevertheless contribute to growth in the global manufacturing economy.

Another factor boosting U.S. manufacturing is the reshoring phenomenon. More work is coming back to the U.S. from foreign shores and there is greater foreign direct investment in U.S. facilities. The quality of work in the U.S. is proving to be more valuable than originally thought in the off-shoring investment calculation. Companies face increasing costs in logistics issues with the delivery of components and the exporting of completed products to North America. Add to that the rapidly increasing labor costs in traditionally “low-cost” labor markets, and the continued decline of labor in the overall share of total production cost, and the reshoring picture becomes clear.

2012 Outlook

The outlook for 2012 remains positive. The weak dollar is making exports strong. Reshoring is in full bloom. The manufacturing base is reinvesting in the latest tools. Energy will continue to be a large investor in manufacturing technology. The automotive industry is making major changes to address green issues, which will lead to significant investments in production technology, as well as spending to support the shift of the industry's center from Detroit to the South/Southwest. Aerospace green field investments will continue in the Southeast and West.

To learn more about this report or LEAN, please contact the LEAN Accountants of McKonly and Asbury, LLP.

PNC Bank has reported that December economic data shows continued improvement in economic conditions in both the manufacturing and construction markets. More specifically, PNC's Economic Division is reporting the following:

 

• Manufacturing and Construction both expanded at the end of 2011
• Retail sales were up over the Holiday season
• Falling house prices remain a drag on growth
• The economy appears to be gathering steam heading into the New Year

To read the full report, click http://www.leanaccountants.com/ISM%20Manufacturing.pdf.

To learn more about LEAN, contact the LEAN Accountants of McKonly and Asbury, LLP.

The following post was first seen on mfrtech.com. the authors of the post are Tage C. Tracy and John A. Tracy. Tage C. Tracy is principal owner of TMK & Associates, an accounting, financial, and strategic business planning consulting firm. John A. Tracy is professor of accounting at the University of Colorado in Boulder and the author of Accounting For Dummies^®. 

Cash flows pose an unending challenge to business owners and managers because they have to be carefully managed. Read on to learn what you can do to make 2012 the year of the cash flow reboot for your business.

Respect and understand financial statements. According to some surveys, 25 percent of businesses don’t even maintain accounting records (let alone produce financial statements).

“The bottom line for small business owners is simple,” says Tracy. “If you don’t make an effort to prepare, review, and completely understand your financial statements, then you need to ask yourself why you’re in business in the first place. And this especially holds true for the statement of cash flows, because an abundance of invaluable information is available from this most commonly overlooked and mismanaged financial statement.”

Plan, do projections, and plan some more. Proper planning is essential to the launch, growth, management, and ultimate success of your business as measured by the ability to generate profits and, just as important, to avoid running out of cash. According to Tracy, “Having access to sound financial plans structured for different operating scenarios is an absolute must.”

Focus on capital and cash—the lifeblood of your business. One of the most common reasons small businesses fail is that they lack adequate cash or capital, not only to survive difficult times, but also to prosper during growth opportunities.

“Remember, one of the greatest losses a small business can realize is that of lost opportunity, which has its roots in not being prepared to properly capitalize on market opportunities,” explains Tracy. “The harsh reality is that this great loss is never accounted for or presented in any way, shape, or form on the business’s financial statements. Rather, missed market and business opportunities lurk in the torturous thought, Imagine what I could have achieved!”

 Understand your selling cycle. The length of the complete selling cycle is often much longer than the aspiring entrepreneur projects and/or wants to believe.

“The selling cycle in its entirety spans the time from the very start of the process when a product or service is first visualized and developed to supporting customers after the sale and developing additional products or services that may be in demand,” says Tracy. “And if not properly managed, the selling cycle generally becomes one of the largest consumers of cash in a business. Without fail, almost every aspiring business owner, at one point or another, will experience delays in the selling cycle.”

Manage your disbursements cycle. To counteract the selling cycle cash consumption machine, businesses need to understand that the disbursement cycle (managing expenditures and cash payments to vendors, employees, and other creditors) can be leveraged and managed to be a primary source of cash for your business. 

“Invoke what’s called the matching principle,” advises Tracy. “That is, similar to properly matching revenue and expenses to ensure that an accurate measurement of a business’s profit or loss is obtained, you should be able to match cash inflows and outflows.” 

Be creative to generate cash. The following three areas offer significant opportunities for creativity when looking to improve cash flows:

• Turn your assets over more quickly. The more quickly you can turn over assets, the more quickly they turn into cash. It’s as simple as that.
•  Leverage your vendors, suppliers, and financing sources. They don’t want to lose your business, so placing just the right amount of leverage on these groups can result in enhanced cash flows because liabilities offer a source of cash.
• Manage external sources of cash proactively. Proactively manage your relationships with banks, leasing companies, and even the federal government to ensure that cash is made available when needed.

 Balance the balance sheet. Many businesses overlook the concept of properly managing the financial structure of their balance sheet, which has gotten more than a few businesses in trouble.

“Your business needs to strike a proper balance between making sure that current assets are financed or supported with current liabilities,” notes Tracy, “and making sure that long-term assets are financed or supported with long-term sources of capital such as a five-year note payable or equity. Every business should strive to achieve a financial condition that ensures constant maintenance of adequate levels of both solvency—the ability to pay all just debts—and liquidity—the ability to quickly access cash to support business operations.”

 Understand external capital markets.  When it comes to external capital markets, think well ahead. In today’s economic climate, it takes a long time to identify external sources of capital and to secure them. So plan well ahead to make sure that you’ll have cash available when needed, because it’s not a process you can rush.

Protect cash at all times. Cash has a unique characteristic unlike other assets that makes it highly susceptible to additional risk of loss: Cash is an extremely liquid and marketable asset.

Always think of CART. CART equals complete, accurate, reliable, and timely. Your company’s financial and accounting information system needs to produce complete, accurate, reliable, and timely financial information, reports, data, and so on, which management can use to make informed business decisions. 

 “When you have the proper systems in place and know what to look for, you can keep cash flowing, helping you to grow a successful business,” says Tracy. “Let 2012 be the year you place a renewed focus on properly managing your cash flows.”

To learn more about this post or other concepts of LEAN, please contact the LEAN Accountants of McKonly and Asbury, LLP.

LEAN principles are all centered on process improvement which leads ultimately to improved efficiency which leads to higher profitability. The concept is simple but getting there is usually harder that one can imagine.

One of the vast building blocks of LEAN relates to quick changeover setup. The faster the changeover times, the less downtime of equipment. Remember DOWNTIME is the definition of the Eight Deadly Waste of a manufacturing environment.

The key to quick changeover setup is the term SMED. SMED stands for Single-Minute Exchange of Die. The SMED system is a theory and set of techniques that make it possible to perform equipment setup and changeover operations in fewer than 10 minutes – in other words, in the single-minute range. SMED principles can be used and applied in almost any operation or process. It was developed to improve die and machine tool setups.

SMED’s goal is to reduce the setup time to within minutes. Depending on the process, setup within minutes may be very difficult, but in most cases, if the SMED principles are followed, drastic reductions in setup time can be obtained.

 

The basic principles of SMED are:

• Identify internal versus external changeover tasks.
• Analyze each task’s real purpose and function.
• Focus on no/low cost solutions.
• Aim to eliminate changeover time.

So you ask, how do I go about this process? SMED is typically broken down into three stages. Each stage has specific tasks and objectives and all are inter-related and work together. Those stages are outlined below.

Stage 1 – Separate internal and external setup

Certain tasks can clearly be done before machines are stopped for changeover. These include lining up the right people, preparing parts and tools, making repairs, and bringing the parts and tools closer to the equipment. There are three practical techniques to doing this:

• Develop and implement changeover checklists.
• Perform function checks on parts and tools.
• Reduce transportation or tools, parts, and materials.

By separating these tasks and performing them as external setup can cut changeover time by as much as 30% to 50%.

Stage 2 – Convert internal setup to external setup

Stage 1 functions alone will not reduce internal setup time to within the single minute range. For that you must implement Stage 2. There are two primary steps to Stage 2:

• Look at the true functions and purposes of each operation in your current internal setup
• Find ways to convert these internal setups to external setup.

The key to successful implementation of Stage 2 is to look at the function as if you are new to it. Three practical techniques help shift internal setup tasks to external setup. Those techniques are:

• Prepare operating conditions in advance
• Standardize functions
• Use intermediary jigs

Stage 3 – Streamline internal and external elements

In this third and final stage, all of the remaining internal and external setup operations are improved. This can be done by looking closely at each operations function and purpose one more time. More specifically, Stage 3 improvements can be divided into external and internal setup improvements. Four basic approaches to accomplishing this are through:

External Setup

• Maintain a visual organized workplace

Internal Setup

• Implement parallel operations
• Eliminate the need for adjustments
• Use functional clamps
• Mechanize functions

SMED provides many benefits for companies and those working within the company. More specifically, the advantages of SMED along with quicker and more efficient setup times are improved flexibility, quicker delivery, better quality and higher productivity. Through these benefits you will also see simpler setups and safer changeovers, less inventory and more standardized processes.

For more information on SMED or other LEAN initiatives contact the LEAN Accountants of McKonly and Asbury, LLP.