There was a time when the word “manufacturing” would conjure up images of “dark,” “dirty,” and “dangerous” work. But these days, business owners and leaders in the field are working hard to repair the industry’s reputation.
Dustin Raber, principal with Rea and director of the firm’s manufacturing services team, has witnessed the strides companies have made to overcome the negative stereotypes. But there’s still a ways to go. On this episode of unsuitable, we’re going to talk about some pressing challenges manufacturers are currently facing and some best practices for manufacturing businesses.
And so they know a lot of the employees and it gets tough at times if
you’ve got to decrease your employee group and make those decisions. If you
can do that ahead of time and put a plan together and follow that plan, not
saying it’s going to be a lot easier, but it might take some of those
tougher decisions out of the equation where you feel like you’re making a
quicker or a rash decision, you already have a plan for it.
From Rea & Associate studios, this is unsuitable, a
management, financial services podcast for entrepreneurs, tenured business
leaders and others who are ready to look beyond the suit and tie culture
for meaningful, measurable results. I’m Doug Houser.
There was a time when the word manufacturing would conjure up images of
dark, dirty, and dangerous work. These days, business owners and leaders in
the field are working hard to repair the industry’s reputation. Dustin
Raber, principal with Rea and director of the firms manufacturing services
team has witnessed the strides companies have made to overcome the negative
stereotypes, but there’s still a ways to go. On today’s show, we’re going
to talk about some pressing challenges manufacturers are currently facing.
Then we’re going to get Dustin to share some best practices.
Hello Doug. How are you doing today?
Good. Thanks for making the trek down from the Northeast. Hopefully the
drive was okay.
It was actually pretty nice today. The traffic wasn’t too bad.
Good. Now we’ve got, if I’m, maybe I’m mistaken, but we’ve got National
Manufacturing Day coming up here pretty soon, right?
Correct. National Manufacturing Day is actually October 4th so it’s the
first Friday of October every year. This is the third year we’re going to
actually be doing something as a firm for National Manufacturing Day.
Awesome. That’s fantastic. Talk to me a little bit about what you’re seeing
out there in terms of the manufacturing climate within our client base here
Well, I don’t think it’s surprising. It’s a great climate at this point for
most manufacturers business is good, but with that comes some struggles or
some difficulties, which a lot of it revolves around the employee base and
finding good employees. And so it’s been a struggle for a lot of employees,
they’re basically robbing Peter to pay Paul and stealing from each other to
build their base up.
Okay. Now obviously we hear a lot about productivity and those types of
things over time. Employee productivity has grown immensely, that type of
thing. Do you still see those type of productivity gains with our client
base in terms of efficiencies, things like that? Or has that slowed down in
It’s actually still picking up. Lean is still important in the
manufacturing industry and robotics have really becoming growing and
growing and a lot of people feel robotics is going to just take over
employees’ positions and really it’s supporting those employees and
allowing the employees that are doing more of the lower level work, ones
that usually are typically struggling to come to work on time, be there
every day. We’re replacing those individuals with robotics, is what we’re
seeing and then elevating some of your better employees to do other
practices in the business.
Okay, so in other words, you’re taking away some of the, maybe the more
mundane stuff and if anything, giving people a greater sense of fulfillment
because there’s something more enjoyable to do and more involved in a
technological type of process. Is that fair to say?
Yes it is. I would agree with that. That’s what we’re seeing with a lot of
our clients right now is robotics is really going towards those lower level
positions at this point along with, if there’s assembly lines or different
facets there where you’re seeing it too.
Sure. If I think about what’s ahead and everybody likes to say, “Oh well I
see, we’re hearing all this talk of a recession coming and all of that.”
Frankly, I haven’t seen that with the client base that I deal with. I don’t
know what you’re seeing in terms of the manufacturers out there. Have you
seen any sense of a potential slow down or is that, are they still running
pretty hot at this point?
Most industries are still running pretty hot. I would say the furniture
manufacturing industry has slowed is where we have seen it, if anywhere.
And it’s been interesting because we really haven’t figured out why because
you’d think with the economy being so well and consumers still purchasing
that would keep that going. And a lot of our clients that are in the
furniture manufacturing are going to more commercial helping, with hotels
and different restaurant industries. And so it’s been interesting from that
side, but for the most part manufacturing has stayed pretty strong right
Okay. Now what are some of the things you’re seeing clients do to try to
address the employee shortage out there? How do you, you can’t I guess
fully solve for that problem, but beyond the technology and that type of
thing, what are some folks doing? Are they getting creative with benefits
or flexible work schedules? What are you seeing in terms of that?
I would say both of those is what we’re really seeing is flexibility in the
work schedule and trying to work on a work life balance, which I think
everyone in society is wanting more of at this time. And just working on
benefits. I tell people, usually money is about three or four or five on
their list. There’s other aspects of feeling like their input is valuable
and wanting to come to work and feeling like they’re a valued employee is
usually number one. We’ve seen cafeterias being put into place as different
things like that to help them from those sides. It’s really interesting to
see the creativity that clients are trying or companies are trying to do to
retain their good employees and actually attract other employees too.
Okay. Yeah, that’s exciting. We always like to see the employees benefit
from the the economy as well. Are there any specific sectors that you see
having more robust growth right now within manufacturing? Or is it broad
based? What are your thoughts there?
For the most part we’re seeing it broad base other than the furniture
market, like we noted before, but oil and gas is still going strong in that
manufacturing department. Metal stamping, anything along those lines.
Automotive is still going strong for the parts and some of those pieces
that we’re seeing. Really it’s been across the board for the most part that
we’re seeing it. Now tariffs and some of those pieces have slowed it down
in some facets, but a lot of it’s around the wood furniture industries
where we’re really seeing it.
Because a lot of that stuff’s going across seas potentially.
Oh, okay. Okay. You spoke a little bit about the tariffs. Have we heard
from the client base in terms of concern about that? Or has it been a case
where they’ve been able to pass the cost onto their customers for the most
part? What are we seeing in terms of financial impact?
For most of our clients outside of the wood industry, they’re being able to
pass it on. It seems like it’s been harder in the one industry, foresters,
milling, all those aspects, they’re really struggling and that’s the
organization or the manufacturing group that I see that’s really having
some tough times right now, being able to pass that on.
Yeah, interesting. Hopefully that will rectify itself before too long.
It has to soon because we’re starting to see sawmills shut down and other
facets happening, shipping companies shutting down and so at some point
there’s going to be a demand of the byproducts and even the milling. It’s
got to go somewhere.
Yeah, that’s, yeah, very, very good point. Looking ahead, in terms of
impact to manufacturers, either tax law changes or accounting changes are
there anything from a manufacturing perspective or anything specific that
they should be aware of? I know we’ve got new revenue recognition
standards, lease accounting standards coming in. Obviously we have the tax
cut and jobs act. What do you see having the biggest impact? Or something
they should be most aware of there?
I would say the first two that you noted, the the lease and the rev rec are
probably the two of the bigger ones. The jobs cut act actually really
helped a lot of our manufacturers because they are doing so well and having
that 20% that was able to be carved off really helped them from an
opportunity to invest back into their business, help out their employees,
maybe beef up their programs and plans for the benefits side. But I think
leases and and rev rec are still going to be a big component. I think
leases more than rev rec for most of our clients because rev rec is more of
a timing at the end of the year where leases, it affects them throughout
the year in how they’re going to be purchasing and doing those leases.
Sure. And for, if I’m correct in understanding this, that the lease
standard was just extended in terms of when it’s going to go into effect
for private companies. Is that correct?
Any fiscal year after 12/15/20?
In essence for 2021 at this point.
Yeah. And it’s really helpful that they did separate that from the rev rec
because both of those are really strong standards that are coming out and
there’s going to be a lot of work involved with both, potentially for some
clients. And so to have a break in between those I think will help the
clients to be able to work through step one and then go to step two versus
having to do them both at the same time.
Yes. For all you clients out there, be prepared. There are some, there’s
some extra due diligence that that we’ve got to do and they’ve got to do as
well. That gives us more time to understand really the impact on individual
clients and see if we can make sure that we’re helping them appropriately.
Yeah, and I would recommend, if you haven’t started talking to your
accountant yet about these, you should hopefully be soon because it’s not
something you’re going to figure out in a week or two. It’s going to take a
couple months to work through some of this data.
Right, right. What about capital equipment purchases? We talked a bit about
technology, but do you continue to see companies investing in capital
equipment either to expand their current business or to just replace aging
equipment? Is that still pretty prevalent?
Yeah, it is actually. We’re seeing a lot of companies expanding their
capital expenditures and even building and adding additions, especially up
in the area, I’m up around Worcester in northeast Cleveland where
manufacturing is very heavy. We’re seeing a lot of the excavation companies
that are six, eight months out because they’re doing all this work for the
commercial side and a lot of it’s manufacturing. And so I think with the
economy being so well and strong that a lot of these businesses are trying
to invest and grow and become more modern. A lot of the Amish community and
conservative communities around our area, they’re not as apt to move
forward as quick and replace things, they’ll just fix it. And I think
they’re seeing the time where they’re also struggling to find employees
also. And so it’s a trickle-down effect from the larger companies to them.
And so they’re trying to replace some of this with a little bit better
technology for equipment and different pieces to help with that employee
Yeah, and I know from a construction and real estate perspective that the
industrial sector as we call it, is just booming as you said. There are so
many projects in the pipeline either for expansion of existing facilities,
new facilities, whatever the case might be. And that of course again brings
planning opportunities as well, such as cost segregation and things like
that. Can you talk a little bit about what that means for manufacturers,
that type of thing?
Cost segregations we see a lot throughout the manufacturing side as they’re
building these larger buildings. And usually we look at something over
$750,000 as an opportunity. If you have something in that ballpark or
higher, there’s a lot of opportunities there to be able to break down those
costs of the building and to be able to depreciate it quicker than what you
typically would without a cost segregation. It essentially puts cash in
your pocket now versus waiting over the years to get that. Cash is king and
any money I can get today is better than what I can get tomorrow.
Yep. Liquidity is always of utmost importance. Well, you spoke a little bit
when we started about National Manufacturing Day and we typically have an
event that surrounds that. Can you talk a little bit about what we’re doing
for that this year?
We’re starting our third event this year with National Manufacturing Day.
It’s held up in the Berlin Millersburg area, which is about a half an hour
southeast of Worcester. And we’ve started there just to see with
manufacturing being so prevalent in that area, what our response is. And
it’s really starting to gain traction. And typically we spend about a half
a day, have seminars and we really try to focus on value add, not
compliance related with taxes, auditing, financials. That stuff’s great,
but how can we help grow our businesses and our clients, help them grow
And so we’re working on, you mentioned recession readiness this year,
retirement plans and incentive compensation for employee retention. HR
consulting is a big piece. Knowing your employees, getting the right people
in the right seats. We’re also going to be talking and having a panel up
front with three individuals that have anywhere from 30 to 50 years of
business experience. Business owners that are going to be talking about
some of the trials and tribulations that they’ve dealt with. And so I think
it’s going to be very valuable. And our goal is hopefully in the future as
this continues to gain, is to bring it into other regions. Maybe come down
towards Columbus or Cleveland and have some other ones the same day to
really give some value back to our clients and let them know some of the
different things that we’re seeing in the communities in the industry also.
Yeah, and you talked, I know about recession readiness a little bit. Those
are conversations that I’m certainly trying to have with our construction
client base. I think it’s important to try to get ahead of that certainly.
Not that we want to see a recession come, but you’ve got to think about
those things. What are some of the things that we’re running through with
our client base in terms of recession readiness?
I think it’s just being proactive versus reactive. I think a lot of people
in 2008 were probably a little more reactive than they wanted to be and
trying to take the heart out of it because most of our clients, their
employees are smaller manufacturing. Anywhere from maybe 15, 20 employees
to maybe a 100. And so they know a lot of the employees. And it gets tough
at times. If you got to decrease your employee group and make those
decisions. If you can do that ahead of time and put a plan together and
follow that plan, not saying it’s going to be a lot easier, but it might
take some of those tougher decisions out of the equation where you feel
like you’re making a quicker or a rash decision, you already have a plan
for it. We see it from the employee base. It’s also talking to your clients
and the manufacturers about what if tomorrow you had 25% of your sales go
away, or two or three large customers, what would that effect be?
It’s not always having the exact answer, but starting to talk about that
and putting some ideas together of what would we do? How would we
incorporate that? How would we take that into effect? Because it’s that
side. And then if you have financing with banks or financial institutions,
you still have to cover those costs. And so there’s a lot of different
pieces where it kind of just trickles down and it just starts with an open
conversation of, how did you guys handle it last year and what would you do
differently? That’s where we like to usually start.
And if you talk about employee attrition, it’s much easier if you plan for
it over time as people either decide they want to leave the employment of
your company or they’re retiring, whatever the case might be. If you can
ladder those out and plan and have those transparent conversations with
your employee base rather than addressing, as you said, say a number at a
time and say, “Hey, we’ve got to make some tough decisions.” If you’re all
part of the same team and sort of have a plan, it’s always much better.
Plus also cross training your employees. It’s a lot easier to be able to
handle those decisions if you have someone on staff that can do multiple
tasks and be able to handle some of those jobs that you might be cutting
where you only need it for a portion of the time.
Right. And planning for liquidity needs as well because certainly
receivables will slow and you’ve got to watch inventory turns and all those
things. It’s sort of modeling through all those things to understand the
impact financially rather than trying to manage in the whirlwind as we say,
Yes, I agree. And even having the conversation with your bank. Talking
about, when a recession hits, what are the goals? How can we work through
this? Showing them even the plan sometimes helps. That you’re prepared for
it and that makes them more comfortable on their end also.
Right. And just to be clear to the audience, there, we’re not predicting a
recession at this point. We don’t want self-fulfilling prophecy as far as
that goes. But it’s again, better to be prepared than not. I think the most
of the runway we see for folks next year still looks quite strong and I
think we’re seeing that across a number of industries there’s just so much
activity that, pent up demand and all those types of things. Hopefully that
I agree. And I’m not an economist, but I think they’ve been wrong so far
and we hope they stay that way.
Right. I think it was about two years ago they said, “Well there’s going to
be a recession next year.” That obviously hasn’t happened so we’ll hope
that that continues. What else from your perspective do we need to be aware
of in terms of the manufacturing sector? Are there any specific risks from
a compliance perspective or OSHA or anything like that that you deem as
maybe a a risk that somebody ought to be taking a look at?
We’ve seen a lot of opportunities in the HR consulting side, which I know
we’ve talked about before. And just making sure the records are up to date.
We always have those types of audits that can pop up. And then just your
state and local, you look at the state and local governments and the taxes
that Wayfair are driving. That’s been a big deal to a lot of clients and
even manufacturers also. They might not be over by the dollar side but
they’re over by the transaction side and it’s driving a lot of tax
regulation. I think just talking through those and working with your
accountant through those of, should we be in this state? Should we be
working here if we only have so many sales? And it’s probably driving more
compliance or risk than it is actually driving value. And so having some of
those conversations I think are a big area that we’ve seen a lot of changes
over the last year or two.
Just understanding in essence where your risks are, where you’ve maybe got
potential nexus from a tax perspective on the state and local side and
having those conversations.
Yes, I agree because state and local governments are really struggling and
it seems like they’ve really started to really tighten their grips on those
laws and those rules for the taxes that are due.
Yeah, that’s great tidbit for sure. Well Dustin, we really appreciate
having you here today. It’s been great conversation. I think there’s just
so much to be aware of. If I’m looking at my business from a manufacturing
perspective and I think my gosh, I’ve got all this capital tied up, how can
I manage all of this risk? That’s where you and your team come in, correct?
To kind of take a holistic view of what the client is doing?
Yes. We have about 30 people on our team right now. We have a lot of
variety from the side of backgrounds. We have CFOs, we have controllers, we
have cost accountants on staff, and so definitely if there’s ever
questions, there’s a lot of different things that our team can prepare and
bring to the table to add value for our clients.
That’s great. I’ve certainly seen that firsthand with what the team has
been able to do. So many businesses don’t truly understand what their costs
are and where they’re making money, which revenue streams are actually
important and which aren’t.
And it’s very important if a recession ever hits to know what your costs
are and how to adjust those.
Absolutely. Yep. Well that’s great stuff. Well, thanks Dustin. Appreciate
having you here. If you want more tips and insight or to hear previous
episodes of unsuitable, visit www.reacpa.com/podcast. Thanks for
listening. You can subscribe to unsuitable on iTunes or wherever you like
to get your podcasts, including YouTube. I’m Doug Houser. Join us next week
for another unsuitable interview from an industry professional.
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