2016 Smart Manufacturing Summit: Solutions Exchange Takeaways and Best Practices

Recruiting Success Best Practices | Pg. 2 |

Supply Chain and Inventory Best Practices | Pg. 3 |

Impact of 3D Printing, Robotics & Other Tech on Your Business (Room 1) | Pg. 4 |

Impact of 3D Printing, Robotics & Other Tech on Your Business (Room 2) | Pg. 5 |

Continuous Improvement | Pg. 6 |

Accelerating Product Development/Innovation | Pg. 7 |

Improving Employee Engagement & Alignment | Pg. 8 |

Managing Risk and Leading in Uncertain Times | Pg. 9 |

Sales Improvement Strategies | Pg. 10 |

Family Owned Business Issues | Pg. 11 |

RECRUITING SUCCESS BEST PRACTICES

When recruiting talent, it’s important to develop an “Employee Value Proposition” for prospective candidates on why they should want to work for your company. To do this, you must be able to answer two critical questions:
• Why is your company great to work for, and
• Why will the job be great for the candidate

Once you’ve answered these questions you must be prepared to promote your company and your job opening(s). One great place to start is your company website. A review by NewHire of the websites of the companies represented at this year’s Smart Manufacturing Summit revealed mixed results.
• 73% of companies had an area devoted to job postings.
• However, only 48% of companies addressed why their company is great to work for and why the job opening(s) would be great for a candidate.

To attract talent, companies must think about and effectively communicate, “what’s in it for the candidate”.

Challenges in hiring, motivating and retaining millennial workers
CEOs uniformly expressed challenges and deep concern when it comes to hiring, motivating and retaining millennial talent for their companies. CEOs shared the following observations about their experiences with millennial workers.
• They become bored quickly and expect new assignments before mastering their current job.
• Millennials need constant feedback and praise to stay motivated on the job.
• They want instant gratification and lack a strong work ethic possessed by previous generations.
• Their work is not a priority to them, especially among 18-25 year olds.
• Absenteeism is high among millennial workers.
• They have difficulty adjusting to shift work and an 18-hour-day.

Strategies for successful millennial hiring and retention
Varieties of strategies are being employed by CEOs to achieve better outcomes when it comes to millennial hiring and retention and include the following:

Laying the groundwork
Work to change negative perceptions about manufacturing in your hiring pool communities and schools. Bring them to understand it can be a positive and beneficial career choice.
• Parents of millennials are critical influencers that need to be won over about manufacturing as viable and meaningful work. Educate them on the fact that manufacturing today is very different and more attractive than its past and can be a rewarding choice today.
• Engage administrators, faculty and counselors at the elementary, high school and community college levels to promote manufacturing as an attractive option. Work to influence their curriculum and vocational discussions to include manufacturing.
• Develop a strong “Employee Value Proposition” and invest in promoting it with a robust presence on your company website.

Recruiting/hiring
Recruit from backgrounds that suggest character, discipline and physicality have been an important part of their life experience, such as those who have:
– Served in the military where they received discipline and training
– Athletics where hard work and a competitive spirit are instilled and serve as intrinsic motivation
– In church and youth groups that promote positive values and attributes
• Use plant tours as a means to educate and expose candidates to the world of manufacturing so they get a sense of what to expect in terms of the work and environment.
• Consider using an outside recruiting/staffing firm that can specialize in your hiring needs. Their full-time expertise in recruitment, (i.e., assessment, evaluation and candidate pool), is often superior to any in-house program you can put in place.
• Cost savings and better hiring outcomes can be significant.
• Employ a temp-to-perm strategy as a means of trying out candidates to determine their ability to perform on the job and integrate into company culture.
• Manage millennial worker’s expectations. Many have never worked an 8-hour-day and can be shocked by the experience. Be honest and open with them—have the conversation.

Motivation/retention
• Assign a mentor or “buddy” to your new employees—someone with enough experience to show them the ropes and help them acclimate to their new environment, their work responsibilities and the company culture they have joined.
• Foster a competitive spirit among employees across various work groups that recognizes excellence in performance. This can take the form of tracking, comparing and incentivizing for increments of time.
• Implement a perfect attendance award program to help mitigate absenteeism.
• Satisfy the millennial desire and need for recognition by giving them an upgraded job title. It will not cost your company anything additional to give a title upgrade and will provide them with a sense of making progress in the company.
• Discuss a 5-year-plan with your younger employees so they can envision a path forward inside your company that will keep them engaged.
• Make your work environment attractive and consider turning employee work stations into “luxury suites” that even customers might enjoy spending time in. Employees will feel better about themselves and their work in such surroundings.
• Let employees know their work is meaningful by demonstrating the value of their output to the end user. This can be done effectively through videos showing real-world application and feedback from satisfied customers.
• Prominently display your product to give employees a sense of pride in their work.

Retirees and succession planning
The retirement of highly skilled workers who have accumulated valuable intellectual capital poses a risk with a shortage of talent to replace them. To address this growing problem a succession strategy must be pursued to avoid dramatic losses in productivity and growth.
• Ask your pending retirees to identify the best candidates within the organization to fill their shoes when they leave. Their familiarity with the work and the individuals around them places them in an ideal position to offer excellent succession counsel.
• Make sure retirees carefully document everything connected with the details of their work, otherwise critical processes may be irretrievable and make transition painful in terms of lost time, productivity and ultimately revenue. Have them leave behind explicit instructions for those who follow. Be sure to safeguard this information so it is not lost.
• Push authority down to lower levels within your company to begin grooming successors capable of assuming more responsibility and making important decisions.

Key takeaways
• Developing an Employee Value Proposition and promote it via your website and external publicity initiatives.
• Place an emphasis on “what’s in it for the candidate.”
• Consider an outside staffing firm that specializes in recruitment to save time, money and produce better outcomes.
• Become an employer of choice based on your reputation and brand name.
• Work to change negative perceptions in key communities to make manufacturing a solid career choice.
• Paint a picture where employees can be in 5 years to keep them engaged and motivated.
• Plan ahead by building your talent pipeline today.

Thought leader: Chuck Smith, President, NewHire
73 W. Monroe, Chicago, IL 60603, 877-923-0054, csmith@new-hire.com

Facilitator: Marshall Cooper, CEO, Chief Executive Group

SUPPLY CHAIN AND
INVENTORY BEST PRACTICES

Raw material inventory
How much raw material inventory do you maintain relative to revenues—what is the balance between what is in the “attic versus what is in the garage”?
• The customer expectation is to maintain the same order size even if it is in excess, but they expect the vendor to store the excess inventory at their expense.
• Inventory is considered a competitive advantage through reverse auction pricing;
• Vendors can be pre-qualified through an accurate quality and capacity audit.
• Check “Attic” for tooling and organization of tooling—get functional capacity down to the “Garage”.

Global suppliers
Finding good global suppliers is a challenge. Few manufacturers in our group felt they could find suppliers that could service outside North America well. There is a significant pricing and distribution differential.

Global risk
Supplier globalization costs have increased in China. It is challenging picking good suppliers and distributors globally. Have “What if” contingencies in place. Will a customer accept a commodity product if a custom solution is not possible because of a disaster? Make sure to have catastrophic plans and back up actions in place. Have a friendly agreement with your competitors. They have your back in a catastrophe and vise-versa.
• Review your insurance policies, particularly reflecting overseas exemptions. Review coverage frequently and know details.

On-demand production
This is great in theory, but difficult in execution. The additive process is excellent for some industries, but not mature enough to scale. Yet, the customer wants “just in time” products and services.
• Look to additive manufacturing for customized, small run solutions needing 24-hour turnaround.

Accurate forecasting
Customers are consistently pushing back on mistakes on order size and want the manufacturer to bear the risk when they miss their forecasts.
• Slow-moving inventory needed to be moved within a year or it should be written off.
• One manufacturer wrote it off to the Product Managers’ margin so that it could be addressed within the quarter. Otherwise the costs would get too big. Maintaining off -products is too costly and difficult.
• Analysis of risk management of overstock and obsolete products is essential and manufacturers must determine who in the supply chain is holding it.

Speed of delivery
Improve speed of delivery by manufacturing smaller batches and keep suppliers domestic where possible as global presents supply chain challenges. “Consignment Inventory” works well to manage market intelligence.

Facilitator: Rick Smith, President Additive Manufacturing Council

IMPACT OF 3D PRINTING, ROBOTICS AND OTHER TECHNOLOGY ON YOUR BUSINESS (ROOM 1)

Additive manufacturing can streamline processes and reduce time to market significantly.

While the benefits can be great, before investing in new equipment and soft ware take a hard look at the total expense entailed, factoring in often-overlooked related costs like maintenance and training for the employees who will be running the machines/software.

When negotiating a purchase, require that the manufacturer provide a minimum amount of initial training to get your employees up to speed on the equipment. If investing in 3D equipment is not cost feasible, consider working with a 3D farm, such as those being set up in UPS warehouses. Capabilities vary widely, so shop around for the best technology for your needs. Be aware that additive manufacturing has limitations.

The feasibility of shifting to 3D printing depends partly on materials. For example, additive manufacturing with metals can be cost-prohibitive.

Components manufactured with 3D printing typically require a significant amount of finishing by hand. The technology is not yet appropriate for safety-critical parts of vehicles and machinery.

Robotics
Robotics and soft ware can replace human labor, increasing efficiency in the process.

3D printing soft ware can enable a job to go all the way from upload to printed product on a factory floor without a human seeing it.

Robots are ideal for processes that would inflict inordinate wear and tear—and potential injury—on the human body, such as repetitive tasks involving awkward lifting. Robotic solutions can save time on an assembly line. For example, robotic positioning of parts on an assembly line can reduce application setup time and tooling costs.

Be sure to budget for reprogramming—every change in your process will require reprogramming your robot—a service your employees or the supplier will need to perform. Effectively implementing these technologies will require recruiting and retaining employees with the right technical skills.

Partnering with community colleges on educational programs tailored to a company’s needs can help address the skills gap, particularly in small rural areas.

Ensuring that college students graduate with the skills you need may necessitate funding the development of curriculum or providing instructors to teach the skills you need.

Smaller companies that may not be able to aff ord to sponsor an educational initiative on their own can team up with industry peers to find common interests and organize an initiative that benefits them all.

Such consortia can also be a path to valuable, low-cost consulting from manufacturing peers who aren’t direct competitors.

Consider donating the equipment you need students to be trained on to the school or going 50-50 with the college on an equipment purchase.

Contact CEOs who have worked with community colleges and universities for counsel on how to get a program up and running.

Facilitator: J.P. Donlon, Editor-in-Chief Emeritus

IMPACT OF 3D PRINTING, ROBOTICS AND OTHER TECHNOLOGY ON YOUR BUSINESS (ROOM 2)

Which of these technologies represent the biggest threats to your business and how? What opportunities do they create in your market to add more value to your customers?
• The Uber business model brings signifi cant disruption to industry. In Paris, the average taxi driver’s income has dropped 30% in the last year.
• The sharing model has been around for years with machine shops in Milwaukee. “Call Henry, he’s got capacity this week.”

As the sharing economy expands into industry this will happen on a wider scale with more efficiency.
• We need to be able to benchmark additive manufacturing to understand how much of a threat it is. We need to better understand how fast our customers can adopt it, materials integrity, etc. so we can get a sense for what it means to us and how fast it’s coming. It will impact our smaller products. My fear is I won’t be able to get my staff ready and equipped to anticipate changes.
• We serve the auto industry and driverless vehicles are reducing demand for our products. We are trying to get a sense for the pace and timing of these changes. We are shifting our focus to
other vehicles that will still require drivers. We are using additive manufacturing to reduce the time for new product prototyping.
• Power has shifted from the manufacturer to the point of interface with the market. The old-line industries are isolated from consumers and are very slow to shift. We are struggling to get vital information from customers to provide new solutions when old-line industries aren’t there yet.
• 3D printing is as close to teleportation as you can get. This will have a dramatic impact on our supply chain.
• One thing that scares me is total integration of the supply chain digital thread. The largest global companies will put even more pressure on us, and more transparency will give them more leverage on pricing.
• Our challenge is to make it as easy as possible to do business with us. IoT is raising customer deliverables expectations.
• Ours is a very conservative industry. We custom make products for individual plants. 3D makes sense for us in some ways, but materials need to catch up. The Uber/Airbnb model is all about renting surplus assets; it will be interesting to see where that goes in our industry.
• We build safes. IoT presents the ability for the customer to control his/her safe remotely. Our challenge is finding out what end users need so we can craft solutions. Speed of delivery is a significant problem for us, specifically aligning our manufacturing speed with customer demand.
• The big guys all see this as an evolving journey, similar to the Baldrige 7-year journey. Remote diagnostics is a big deal. An MIT report out this morning reinforces that it’s not the technology as much as it’s about the business processes.

Invent innovative business process first, then get your strategy in place. Political protectionism is going to get worse. Pfizer’s response to this is to produce in every major country in which they operate.
• IoT is incredibly important in the textiles industry. This will force us to make “stand on your head” change.

How are you leading your team to consider these issues and develop a plan that reflects these threats/opportunities?
• Our product is not a commodity. But internally, some of the things we do are commodities. We need to think about what we can share or outsource. Our tool room is the first thing we’ll replace with additive manufacturing. We will replace our highest skilled machinists with kids running the 3D printer.
• In the textile industry we’re taking commodity products and turning them into engineered, value added products. We are engineering weight out of towels without reducing performance,
reducing laundering cost. This will provide enormous savings to large hotel chains. We have to be in touch with our customer to identify needs they didn’t know they had.
• We have a “bird dog” employee researching and looking forward and bringing things to our attention.
• Our customers now make buying decisions about our products online. Our American operations are becoming more like our German operations; we are using capital to replace labor with robotics and advanced manufacturing to reduce costs and streamline operations.
• We have buildings full of German guys with PhDs working on additive manufacturing. Although the pace of change in the primary industry we serve is glacial, IoT is big in that industry. We are working to integrate our main product into the data collection and reporting our customer’s use.

Facilitator: Russell Jensen, Jensen Consulting

CONTINUOUS IMPROVEMENT:
AVOIDING OBSTACLES TO IMPLEMENTATION

• For a continuous improvement process to be successful, senior management must openly demonstrate their support of the initiative. Th e plant manager has to “walk the walk and talk the talk”
• The leadership support must then cascade down through middle-management resulting in a culture shift focused on the principles of continuous improvement.
• It’s critical, particularly for senior leadership, to view the lean process, not as something else we have to do, but how we do it.
• Identify a lean expert or team and have them partner with the Plant Manager to further demonstrate leadership commitment.
• While it’s important to empower everyone involved in the initiative, the organization first has to define what is “touchable” (steps and processes that can be changed autonomously) and what is “untouchable”, those improvements that require management approval.
• Most people were in agreement that the most logical starting point is using 5S. And when trying to determine where to focus, simply identify the biggest point of pain and start there.
• It’s also recommended to identify a department or area in the plant to pilot the new initiative. During the pilot, solicit and capture input from the associates involved.
• If and when the pilot is considered a success, be sure to celebrate within the organization.
• Some organizations are having success using mechanisms to capture ideas from the workforce and incenting idea-submittal with various forms of compensation.
• For those organizations who would like to have 3rd-party support, many recommended contacting the Lean
Learning Center in Troy, MI.
• For additional support, engage suppliers and work with them to partner in the process.

The Biggest Takeaways
1. Continuous Improvement has to be a mindset, not simply a set of procedures and metrics.

2. Senior leadership must be committed to success.

3. Start with a pilot and get feedback from those involved.

Facilitator: Clay Hildebrand, SVP, Sales and Marketing, Psychological Associates

ACCELERATING PRODUCT DEVELOPMENT/INNOVATION

Voice of the Customer
• Keep logs for “Lost Sales” and “Trends” to monitor problems customers identify. Review once a month to glean for actionable corrections.
• Focus on customers’ problems rather than asking them what they “want”. Solving tangible problems is the surest way to prove your value. Yet, it is still important to find out what their customers perceive they do want.
• Close the gap and eliminate filters between sales and engineers. By identifying lead users, several leaders talked about how they arrange for customer interactions/trips with both sales and engineers. Th is allows team members to hear their customers’ problems first-hand.
• Remember the importance of getting ideas and feedback from all “stakeholders”, not just direct customers. Everyone with a stake in the company may have valuable ideas/insights.
• Bring customers to headquarters. One leader shared how his company often paid for trips to visit their company. This investment in creating a shared collaborative relationship with the customer was working well for everyone.
• Be a good, deep listener during interactions with customers.
These efforts pay off well in relationships built on trust.

Solving Customer Problems
• Remember the continuum of innovation—incremental changes on one end and revolutionary change on the other.
• Identify multiple areas that need innovation. One leader shared his firm’s commitment to looking at innovation in 10 diff erent areas of their business. They included: business models, customer experiences, processes, etc.
• Collaboratively work with customers on product designs.

One firm shared their process:

1. Quick rendering & feedback,
2. Create mini-product (scaled-down version) for final review, changes. Th is cut their cycle down from 4 weeks to ~3 days.
• Bring your customer into the process early. This collaboration helps with their buy-in and approval process.
• Be creative with tooling process. One successful leader struggled with how to reduce tooling delays. They manufacture a product with a 6-month lead time due to casting requirements. They now create a 3D mockup prior to casting and develop their tooling and CNC programs in parallel. They exploit technology to dramatically reduce the cycle time.

Open Sourcing
• Recognize the “trickiness” of dealing with Intellectual Property. You must be flexible and creative in finding win/win solutions.
• Commit to “Co-Location”. This can be very beneficial and lead to successful partnerships. Typically, the university brings the corporations onto campus, and provides space/research in exchange for % of royalties.
• Research the administration’s attitude toward “open source” projects. One progressive university president tells his team “Make it work.” This approach requires flexibility on everyone’s
part.
• Consider the pros and cons of a formal research project vs. a “reward-based” project. Sometimes the reward-based projects are less cumbersome as they involve both students and faculty without having a formal royalty arrangement.
• Explore the possibility of jointly funded research projects with multiple competitors. For very large and expensive projects with potentially huge rewards for breakthroughs, some projects involve and receive funding from competitors.

This “consortium” model can be very complex, especially in the early set-up stages. Yet the rewards can be very significant. The National Science Foundation has successfully used this
collaborative model.

New Product Development Process
• Use a Phase Gate Process. Th is provides a disciplined, structured approach.
• Keep a “commercialization” focus. Continue to ask “How can we make money from this, now or in the future?
• Develop solid metrics, including a robust filtering process.
• Aim for a “Pull” mentality vs. a “Push” approach.
• Develop a solid prioritization process based on your business plan and strategies.
• Use Gross Margin as your key metric.
• Open the new product development process to all employees.

One company created an “Idea Tracker” form to solicit ideas from their team.
• Remember the importance of clearly communicating your company’s vision/mission. Remind your stakeholders “Why we exist”.

Facilitator: John Storm, President, BrainStorm Network, LLC

IMPROVING EMPLOYEE
ENGAGEMENT AND ALIGNMENT

1. Defining “Winning” and establishing clear expectations was the most important place to begin any engagement
program.

Without a tangible set of success criteria or alignment of employees with the business strategy, any program would be wasted energy and time. However, the farther employees are organizationally from the strategies and business plan, the more difficult it is to make the connection for them. However, this was not an excuse for not making that connection for all people in the organization.

2. Some form of quantitative and qualitative measuring of engagement is essential for any program. There are a number of very specific areas of measure being used as the focus of measuring and surveying.

They include:
• Leadership quality and how they engage the workforce.
• Depth of connections between peers in the organization.
• Strength and eff ectiveness of communications processes.
• Having the right tools to do the best job.
• Leadership removing obstacles to engagement.
• Driving more ownership for work and output down the organization.
• Creating genuine connections between people across the enterprise.

3. The group wanted to leave the session with some ‘tools’ they could go back and begin to implement quickly and with limited resources. Each participant spoke to one or two things they were doing that others could share. Those included:
• Measuring yield as a leading indicator of engagement among the manufacturing workforce.
• Using internal and external (benchmarking) surveys on a scheduled basis to determine the level, direction and areas of ‘heat’ for engagement work.
• Using ‘third party’ (e.g. Kenexa, Gallup) surveys.
• Asking people what they need to be able to do their jobs better. Usually with a focus on some local issues that are more important, like safety and quality.
• Having quarterly ‘Town Halls’ where people can ask questions and engage in dialogue with leaders on business challenges.
• Spend more time talking about the ‘win’s than the ‘failures’.

Focus on the positives.
• Post scorecards around the facilities that show performance on key metrics.
• Conduct ‘stay’ interviews to find out why good employees stay with the company and then using that insight to build engagement programs and practices.
• Host lunches that are connected to key initiatives like Lean and recognizing KPIs.
• Get out on the floor more often and listen, talk and sense what is going on.
• Have leaders do the teaching for other leaders and employees on topics related to culture, leadership and values.
• Focus on the Human Elements: Knowing what people need, creating more connections, connecting people to the mission.
• Live by the principle that “You don’t have to be bad to get better”. Get ahead of the curve on making improvements and getting input before a problem surfaces.
• Value failure and promote the principle that there is more to be learned from failure than success.

Facilitator: Hank Provost, President and Founder, Organizational Strategies

MANAGING RISK AND LEADING
IN UNCERTAIN TIMES

Manufacturers face a multitude of headwinds and risks such as:
• Anemic underlying economic growth in the U.S., Europe, Japan and other developed markets
• Dramatic slowdowns in the economies of China, Brazil, Russia and other emerging markets
• Anti-trade threats from U.S. presidential candidates in both parties
• Supply chain risks from some countries because of economic, natural disaster or weather-related threats
• Price swings in oil and other commodities
• Cybersecurity and terrorism risks

Cybersecurity
Cybersecurity is a huge and growing risk to most businesses. While headlines focus on large scale breaches at the largest companies and government agencies, small and mid-market companies are vulnerable targets, as well.
• In addition to financial scams and the release of sensitive customer data (e.g., health records and credit card info), there is also a risk to companies’ intellectual property from competitors in countries such as China and Russia.
• Many executives at the table had experienced cyberattacks against their companies first-hand.

Some ideas to mitigate and protect their companies included:
• Make sure your IT team is up to the task and “audit” them regularly. Just as you trust your CFO but have an outside accounting firm audit your financial reports and systems at least annually, one should consider doing the same with your IT team. Cybersecurity is a fast-moving area, so you need to make sure your IT team is on top of the latest threats and solutions.

Some IT leaders had built secret “back doors” to their systems they were able to access remotely—another point of vulnerability that an outside auditor could detect (or prevent if the IT staff knew there were ongoing audits).
• Up-to-date firewalls and cybersecurity software are key, but training to prevent human error is just as important.
• It’s difficult to prevent employees from checking private emails or visiting non-business websites during their breaks, so they need to be trained and made aware of the risks from Phishing and not to provide sensitive information on any site that they haven’t verified is real.
• Many cyber thieves are now researching companies’ organizational charts and posing as senior executives and asking financial staff to wire funds. New processes need to be put into place to require verbal confirmation before wiring funds.

One participant’s finance team got new bank account wiring instructions from a supplier, or so they thought. Fortunately that accounting department clerk called the supplier to confirm the new information on the phone, and was told it was a scam. They have now put in place new processes to validate changes in banking and wiring information.
• There are new soft ware tools such as MAAS 360 which allows one to partition employee cell phones and control the business emails and content—and wipe out records remotely if the phone is lost.
• Insurance is the last line of defense—better to do what you can to avoid a problem before it happens—but it is still a necessary line of defense. Make sure your insurance policies cover cybersecurity threats appropriately. The best cyber insurance policies are being underwritten by London-based insurance companies. A good insurance broker should be able to guide and manage this process for you.

Natural Disasters and Business Continuity
Threats from fire, floods, earthquakes, tornadoes, etc. vary by region, but most companies face some of these risks at their HQ, factories, and/or along their supply chain. Most companies have business continuity plans to respond to catastrophes that include backing up data and computer systems remotely, but there are short-term, medium-term and long-term backup plans, and most small and mid-market companies only have the short-term plans in place.
• A key vulnerability is suppliers—do key suppliers have adequate emergency plans?
• Short-term plans involve ensuring that the company has backup computer systems and phone systems so they can access customer and financial records remotely if there is damage to their facility. Many short-term plans also have arrangements for temporary new buildings where employees can come to work if their facility is damaged or destroyed, but these short-term plans don’t ensure that the company can still produce their goods and services; they’re mainly for offices.
• A best practice is to have a medium-term plan if your plant is destroyed. One company has a mutual aid agreement with a competitor—they will produce for each other in case of an emergency.

Others have arrangements with suppliers to put some production capacity in their locations in case of an emergency. Others have private-label arrangements with competitors set
up in case of emergency.
• Long-term plans should include facility and equipment rebuild contingencies, including a centralized place to store plans, vendors, etc.
• Some companies require their key suppliers to share their emergency backup plans to make sure their supply chains are adequately protected and have annual audits of their key supplier’s
business continuity and disaster recovery plans.
• Most companies have backup suppliers for key inputs lined up—although some don’t have enough geographic diversification if a natural or man-made disaster wipes out a cluster of suppliers in a region.
• One participant keeps 6- to 12-month inventories of key raw material inputs to protect them from supply chain interruptions—need to weigh costs vs. alternatives.

The CEOs Role in Monitoring/Mitigating Risks
Risk is a part of doing business and will never be completely eliminated. CEOs need to learn to live with some risk, but:
• Having a strong team of executives below you is the best defense
• Apply the 80/20 rule to focus on the the key risks
• Create backup plans where you can, have adequate insurance protection as the ultimate backup
• Need to learn to cope with stress and uncertainty—exercise the mind and body to deal with the ongoing stress
• Strong executives will worry about the risks so you don’t have to.
• More importantly, they’ll build contingency plans so you don’t have to.
• It’s best to delegate what you can to your leadership team and ask them to identify the key risks to overall business and their function—and review it periodically with them.

Facilitator: Wayne Cooper, Executive Chairman, Chief Executive Group
Expert Resource: Ivor Bamberger, President, Chief Executive Insurance Services (www.ChiefExecutiveInsurance.com)

SALES IMPROVEMENT STRATEGIES:
USING OUTSIDE SALES REPS VS.
DIRECT REPRESENTATIVES

Type of outside rep needed
• An initial conclusion of the group was that if we were going to utilize outside reps it was better to hire those who were closer to what the existing direct reps were in the company. Also, they should be treated, managed and measured in a very similar manner to how the direct sales force is.
• Regarding what to look for in outside reps, the group agreed they did not want someone who was primarily going to sell on price. In the internet age, there is much less reason to have such a rep on the payroll.
• The ideal rep profi le would be someone with ”partner potential”, i.e., the ability to bring valuable business insights to and from the customer. In some cases, this might even mean a rep capable of finding new or expanded markets for the company’s core competencies.
• The ideal sales rep (whether internal or external) must be consultative in nature vs. product-sale focused. To do this, the rep must clearly understand the core reason the business exists, which is far broader than any need a product might fulfill.
• Before hiring a rep (among other desirable traits), we should test the rep’s knowledge/experience on what they would bring to the table. This includes not just industry knowledge, but more importantly, a consultative selling/problem-solving nature, as well as the ability to ask strategic, insightful, even market research-type questions.

Senior management’s role
• Before going further with sales force recruitment, selection and management, senior management must clearly lay out what a good customer looks like (as well as what it does not look like.) And within this context, what a good sale looks like (e.g. minimum margin levels, cost-to-deliver thresholds, etc.) This criteria should be as specific as possible.
• Beyond this, senior management should outline big-picture overarching goals, e.g. “to be at least first, second or third in all product categories”, etc.
• Beyond providing the requisite company, product & services training, ask a set of “Find Questions” early in the relationship with the prospective customer. Find Questions are specifically designed around the customer’s business and have as their purpose matching up possible strategic opportunities with the core capabilities of the company. Th is would be at least 10, usually more questions designed to open up a productive dialogue about the available opportunities.
• These questions drive the sales process to a more strategic (and generally more profitable) space than traditional discussions based upon product features and price. It is the responsibility of sales management to ensure these questions are being asked on customer visits and that intended results (also defined by sales management and marketing) are obtained.
• Key measurements and metrics need to be in place and reviewed with distribution reps, just as they are with the internal salesforce.

Compensation
• Most companies pay between 5%-6% of sales supported (at least initially) by some kind of draw, but no salary. And in some types of sales, it might also be appropriate to add in an annuity aspect to the rep’s compensation program for retained business.

Other: The Role of Marketing
• Marketing bears a signifi cant responsibility in demand creation in support of the company’s sales goals.
• Marketing & Sales Management must ensure that outside reps are not representing competing product lines.

Facilitator: Bob Grabill, Chairman, Chief Executive Network & Senior Executive Network, bgrabill@chiefexec.com

FAMILY OWNED BUSINESS ISSUES

Th is discussion by a mix of business owners and non-family executives focused on the major challenges faced by owners and managers in the business.

Thirty-three percent of businesses make it to the second generation, 10% to the third.

The need to carefully assess business strategy as well as the long-term viability of the business was emphasized, including the importance of considering legacy as perpetuating a business
family, rather than operating a business.

The entrepreneurial risks of starting a business were contrasted with second- and third-generation members who are oft en gift ed the business. Th e point was made that businesses
should not be gifted, but rather that wealth and values should be transmitted, and wealth should be gifted, to allow the next generation to decide if they really wished to buy the business.

This assures a proper valuation and realistic collaborative decision-making with regard to succession.

There were several examples of members who had taken over the business from their parents—the founders. These transitions were relatively uncomplicated. The parents simply announced their intention to retire and asked the children if they had an interest in taking over the business, which they did very successfully.

The transition challenges are more signifi cant as G2 considers G3 coming into and taking over the enterprise. How to transition most effectively, with minimal tax consequences was one issue raised. Effective tax savings strategies, including the use of grantor trusts were emphasized by one member.

Strong concerns were raised about wealth transfer to the younger generation who did not have to work in the same way to earn the money—how should the wealth be transferred and what was the best way for the business to be purchased by G3. How would the next generation afford to purchase the business?

Non-family executives raised the complications of working in a family business environment, at the same time emphasizing their strong recommendation that family employment policy insist on family working outside the business before working in the business.

It was mentioned by one member that the Pfister Hotel was family owned and operated. Their challenge was to diversify their assets, a not uncommon challenge for many of the larger companies.

Other issues raised for discussion included:
• Making non-family owners by issuing the best employees stock
• ESOP as an exit strategy
• Whether the parents actually want their children to be involved in the family business?
• Whether the next generation will perform well in the family business
• How to assure G2 can take out of the business what they are entitled to
• How to work with complex structures like 120 family shareholders
• The need to base employment on competence, rather than nepotism

Finally, there is a need to professionalize the business with a board that includes outside board members. The problematic definition of “outside” was mentioned as was the advantage to have truly outside unconnected board members. The transition of the board from one that chiefly oversaw operations to one that focused on overall strategy and transition planning was discussed.

The following books and resources were recommended:
Inside the Family Business, by Leon Danco
Every Family’s Business, by Thomas Deans
The Millionaire Next Door, by Thomas J. Stanley and William D. Danko

Facilitator: Steven S. Rolfe MD, Merion Advisory Group LLC | Boswell Group LLC

 

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