IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities.  Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family owned businesses. The following blog article has been provided by Paul Menig of Business Accelerants (https://businessaccelerants.com/):

Manufacturing Sector Strategic Planning & Problem-solving from a Position of Strength

Manufacturing in the United States is immensely important to our economy, representing 11 percent of US GDP and 8 percent of direct employment with 12 million people employed. Further, it represents 35% of productivity growth, 55% of patents, 60% of exports, and 70% of R&D spending. All this according to an August 2022 article by McKinsey and Company(1) and backed by government statistics of the U.S. Bureau of Labor Statistics(2) and the National Institutes of Standards and Technology of the US Department of Commerce(3). The concept of Made in America(4) is poised to make a comeback with recent legislation such as the Infrastructure Investment and Jobs Act of 2021(5) and the Inflation Reduction Act of 2022(6). The importance of manufacturing and the extensive changes with automation and Manufacturing 4.0 put a heavy burden upon the more than 500 thousand owners of small and medium manufacturing businesses. (7)(8) Manufacturing businesses are sought after by other US firms for growth via acquisition and by international companies to establish a better base of operations. You may want to grow your own company organically and/or via acquisition. How can you prepare for and implement a growth strategy when faced with the difficulties of supply chain shortages, delivery delays, labor shortages, the need to re-skill workers and much more?

A Peer Advisory Council focused on manufacturing companies is one method that is both time tested and new. In medieval times, local manufacturers joined together in guilds to learn from each other. Today, many trade associations exist for manufacturers across the country and the world to come together once or twice a year to discuss legislation and common issues in a conference with specific themes, multiple tracks, speakers and opportunities for networking. A virtual Peer Advisory Council, meeting regularly with a group of manufacturing peers from across the country and from different sectors, gives owners the best chance of navigating the challenges they face and successfully creating sustainable cash flow, regular growth, and increasing enterprise value.

Peer Advisory Councils are formed by carefully matching the members based on their business, the maturity of the business, and the acumen of the leader. It’s important for the members to be peers so that they can help each other rather than a few people dispensing knowledge and others unable to contribute. It’s important to find people that are willing to listen and accept advice and not always monopolize discussions. It’s much like building a winning sports team or your own management team. It takes a bit of science and a bit of art. Members get to approve new members. While there are many ways to find and solicit new members, the best way is often to have an existing member recommend a new member. It’s important for the members to maintain the confidentiality of the discussions and information shared. Members, as part of the approval process, make sure that new members are not competing with existing members. Since meetings are virtual and there are so many different manufacturing operations across the country, avoiding competition is not difficult.

Manufacturing company leaders have some distinct issues from other businesses. For instance, while many companies were able to work remotely in the last couple of years, manufacturing is very much a hands on activity. Even someone that programs a computerized numerical control machine (CNC) may be able to do some work at their desk or remotely, but they still need to be onsite observing the equipment during trials of their software and the piece part testing that needs to be completed to assure the machining was done properly. Manufacturing operations frequently require significant experience. A good example is welding. While excellent progress is being made on using virtual reality to provide initial skills training, nothing can replace the real deal of melting metals at just the right heat and fluid movement.

Manufacturing always has to deal with issues of suppliers, supply chain constraints, delivery delays, recruiting manpower, financing receivables, financing equipment, and keeping processes both under control and constantly improving. Most manufacturing operations need to deal with accreditations and certifications from organizations such as ISO, UL, FDA, EC, ANSI, IEC and a host of other organizations with multiple standards. Many of these require extensive on-site audits that can take several days and significant follow-up to correct concerns and failures. Someone that started a business by doing machining themselves with a used CNC is often challenged as the company grows to several millions of dollars in revenue. They can benefit from peers that are and have travelled the same course of growth in the business.

Compared to a trade association, a peer advisory council that meets regularly allows both immediate and unique problem solving for a member. Rather than getting industry wide presentations that touch the surface, the members of a council can dig deep into an urgent challenge, opportunity, problem, or idea. For instance, if a key employee decides to leave unexpectedly or becomes sick, a member can ask for help with dealing with the issue from other members. As with “teaching a man to fish,” the fellow members begin by asking questions to fully understand the issue at hand. The nature of the questions often give great insight into the experience of others and options available to the member. Only after sufficient discussion do the other members summarize their understanding and advice to the member. The member obtaining the advice reports back in a subsequent meeting what actions were taken and the results. This provides additional learning for everyone and holds the member accountable for doing something.

Think of a Peer Advisory Council as a great step to carefully selecting a board of advisors. Some manufacturing leaders will come from a skilled trade background, while others will come from finance or sales. Some will have run, sold, and bought one or more businesses giving them different experiences to help. The council of peers keeps you in control. They are non-fiduciary, so you remain in both control and responsibility for the decisions you make. You don’t have to give up equity in your company and you don’t give up voting rights if you have some sort of official board, as required by those that are C Corporations. You get top notch advice, comrades in arms, and close friends.

Given the importance of manufacturing and the many challenges presenting themselves today, it makes sense to peer into your manufacturing company’s future. A Peer Advisory Council focused on manufacturing can give you the advice you need today and the clearest view of the future.

If you have questions relating to the content of this article, Paul Menig would welcome the opportunity to answer them.  Paul can be reached at PaulMenig@BusinessAccelerants.com.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.

1. https://www.mckinsey.com/capabilities/operations/our-insights/delivering-the-us-manufacturing-renaissance#/
2. https://www.bls.gov/iag/tgs/iag31-33.htm
3. https://www.nist.gov/el/applied-economics-office/manufacturing/total-us-manufacturing
4. https://www.madeinamerica.gov/
5. https://en.wikipedia.org/wiki/Infrastructure_Investment_and_Jobs_Act
6. https://en.wikipedia.org/wiki/Inflation_Reduction_Act_of_2022
7. https://www.score.org/resource/blog-post/how-small-manufacturing-businesses-drive-us-economy
8. https://www.score.org/sites/default/files/SCORE-Small-Business-Manufacturing-infographic.pdf