Manufacturing in Mexico and Jobs in the U.S. — A More Nuanced View From L.A. Times


There was an excellent article in the Los Angeles Times, written by Natalie Kitroeff titled “Despite fears, Mexico’s manufacturing boom is lifting U.S. workers” (click here).  The article has many very interesting observations and conclusions about the transfer of jobs from the U.S. to Mexico resulting from our NAFTA agreement, as well as jobs moving from China to Mexico and most importantly job increases here in the U.S.  From the article, here is the first important thing you need to know:

In 2016, prior to the election of Donald Trump, the LA Times had a rather nuanced view of NAFTA's impacts on U.S. manufacturing. Click to Tweet

Mexico is in the throes of a manufacturing boom.

In fact, there is probably quite a bit more manufacturing going on than you may be aware of…

Exports from Mexican factories have jumped 13% since 2012. The country already ranks as the seventh-largest producer of cars in the world, and Chrysler, Honda and Volkswagen have major operations there. Over the next five years, another wave of big automakers, including Ford, Audi and Toyota, plan to bring new plants online.

And it’s not just cars. Bombardier, Cessna and Hawker Beechcraft have opened aircraft assembly lines in Queretaro and Chihuahua, Mexico. Plastics and iron and steel exports have steadily risen.

BMW is also producing cars in Mexico.  Kiteroeff goes on to describe how the NAFTA agreement is being portrayed as the worst deal in history by our presidential hopefuls.  But just like in Mexico, U.S. production is rising, at least when measured by dollars of output.  Unfortunately, even with the increase in the U.S. dollar output, jobs continue to decline.  This fact is due more to automation than to jobs shifting to Mexico. 

 Partly thanks to automation,  factory jobs are still way off from their peak of more than 19 million in 1979. But they have been climbing slowly since the end of the Great Recession in 2009. Over the last six years, U.S. manufacturers hired 744,000 new workers, an uptick of 6%. 

If Trump or Clinton want radical increases in manufacturing jobs, it appears as though they will have to pull the plug on thousands of robots to make it happen.  The article makes many good points why we would want to encourage more manufacturing growth in Mexico, especially as compared to manufacturing in China, for example:

Around 40 cents of every dollar that the United States imports from Mexico comes from the U.S., compared with just 4 cents of every dollar in Chinese imports, according to the Woodrow Wilson Center. The influx of auto factories in Mexico might sustain hundreds of supplier jobs in Deforest, Wis., or Calhoun, Ga.

And then there are dynamics in China that are changing the economic models used to decide where to manufacturing products.

Evans says he used to pay Chinese workers $1 an hour, but now pays them closer to $3 per hour. In Mexico, he says, he now pays a typical plastics assembler around $4 per hour, which is just a dollar more than what he paid when he first set up shop there in 2001.

All of which bode well for manufacturing increases in Mexico.  What it does not bode well for is $25 hours manufacturing jobs returning to the U.S.  Manufacturing processes returning to the U.S. from either Mexico or China will be driven by factors pertaining to automation.  Processes that can be automated will return, just the job increases will be smaller and targeted to people that have the technical skills to operate/maintain robots and other automated manufacturing equipment.

There is much more in the article and I encourage you to read it.  One point that I would like to make that was briefly addressed is the beneficial impacts to Mexican society due to the increases in manufacturing. 

The saying that comes to mind is what my mother use to tell me: Idle hands do the devil’s work.  Many of Mexico’s ills, though not the corruption, could be solved with higher employment.  So let’s think twice about throwing NAFTA under the bus.

About the Author
About the Author
Chase Morrison provides CFO services, utilizing Profitwyse’s 3D Growth Platform™, enabling his business owner clients to more readily achieve their goals for wealth creation and family legacy.  Contact him today to learn how your business can hit the accelerator using Profitwyse’s proven platform.

6 Reasons Why Small and Midsize Businesses Need Business Intelligence


Businesses Need Business Intelligence Tools, Which is Now Very Affordable for Midsize Business Owners

Recent changes in the business intelligence market place have greatly reduced the cost of these tools.  One of the more cost effective solutions for business intelligence and business analytics is Microsoft’s Power BI application.  Power BI incorporates a number of technologies that simplify the process used to generate analytics, dashboards and data visualizations that just a few years ago required significant cost and IT capability.  As a CFO services consulting firm, we have this to be an ideal solution for our small and midsize business clients.

Price reductions for business intelligence tools have increased access to even the smallest business. Businesses need business intelligence tools and here are 6 reasons why. Click to Tweet

Microsoft’s goal for Power BI was to release a product that enabled self-service business intelligence tools that did not require IT resources.  A byproduct of this goal was to create an easier path for small and midsize business to begin taking advantage of this technology as well.  What follows are our 6 reasons why business owners should take a hard look at implementing a Power BI-based business intelligence solution that supports their revenue and profitability growth.

Here are 6 reasons why business financial planning matters to your organization. A lack of robust planning is a significant contributor to business failures. Click to Tweet

Reason #1: Business Owners Have More Data Than They Realize

As consultants providing CFO services to privately held business owners, we have noted that many of our clients do not completely grasp the amount of information being generated inside their businesses and how to use that information more fully. Whether they are using only QuickBooks or QuickBooks and some third-party application, there is large amount of information being generated through invoicing, bill paying, job costing transactions, newsletter systems such as MailChimp, CRM systems such as SalesForce, that can provide critical insights.

For example, we have a client that provides nursing services.  The business owner has a custom Access database application that her employees use to record their hours worked, by patient, date, customer, as well as how those hours are distributed between the following: 1) treating patient; 2) traveling to visit patient; 3) writing reports on patient’s progress; 4) conferring with patient’s doctor, etc.  The billing information was solely being generated to support the invoicing process without much regard to other uses of the information. 

Using Power BI, we created measures that leveraged the data in the Access database to compute the following measures: 1) total billable hours; 2) total billed $s; 3) total patients serviced; 4) total nurses billing (or nursing working in that period); 5) average billable hours and $s per patient (#1÷#3 & #2÷#3); 6) average billable hours and $s per nurse ( #1÷#4 & #2÷#4); 7) number of insurers; 8) average billable hours and $s per insurer (#1÷#7).  With these measures, we then able to slice the data by dimension.  We could now filter on a single nurse or customer or patient or group of them.  We could also filter on the service provided, which means we could view the average billable time for travel by nurse to see if there were ways to optimize travel time with different nurse-to-patient assignments, etc.  By leveraging Microsoft’s Power BI self-service technology, this was accomplished at a very low cost to the client while helping the business owner make better decisions regarding their business model.

Reason #2: Business Intelligence Can Improve Profitability

Because many of our clients use QuickBooks for invoicing, bill paying, and general accounting, drilling down into product level profitability is not easy.  Though QuickBooks is an excellent accounting platform, it does not produce much in the way of analytics.  With our product-based clients, we will setup processes for downloading their transactional data, which typically consists of invoicing detail, and transform that data using Access or some other database tool.  The goal is to format the invoice line item transactions into the following format: 1) invoice #; 2) Item or SKU; 3) ship date; 4) units shipped; 5) invoiced amount for line item; 6) cost amount for line item; 7) Customer; and 8) Sales Rep.  (Note: there are third-party applications, such as QQube, that will perform this transform step for you, eliminating the need for Access.  More on QQube in a future post.).

Similar to the previous example, we created measures for the following: 1) total sales; 2) total units; 3) total cost; 4) total gross margin ( #1 – #3); 5) average sales price or ASP (#1÷#2); 6) gross margin (#4÷#1).  Then using these measures in relation to dimensions (customers, locations, sales reps, shipment dates, etc.) the business owner was able to gain insights into differences between sales reps, customer purchasing changes, opportunities for mix changes and the like.  These insights enable the business owner to fine tune their pricing strategy and increase profitability.

Click for more information regarding gross margin analysis

Reason #3: BI Enables Better Forecasting and Predictive Capabilities

Again, because most business owners depend on QuickBooks they have access to very limited forecasting capability.  Product-based businesses are highly dependent on the efficient use of working capital to purchase inventory and finance customer receivables.  By using Power BI, we were able to compute basic metrics by product, such days inventory on hand (DIOH), to easily see where the business was holding excess inventory.  Taking metrics to the next level, we determined the service level desired for each product and given historical product shipment trends computed the safety stock required to achieve the desired service level.  Adjusting service levels and safety stock, lowered overall inventory levels and improved working capital.

Here’s a good article on computing safety stock levels 

Reason #4: Business intelligence can reveal important insights

If a picture is worth a thousand words, then a dashboard is worth a couple of million words!  Most accounting (think QuickBooks) and inventory management systems are not known for their ability to display transactional data graphically.  Because of this limitation, most accounting and inventory management systems allow you to connect to the transactional data through an ODBC-connection type.  Frequently, transactional data can reside in CSV files, Excel workbooks and/or websites.  Power BI allows you to simultaneously link these disparate data sources into an integrated data model with defined relationships between data sources.

For example, using a third-party app such as QQube you can connect to your QuickBooks financial data and also connect to your FishBowl inventory transactions.  All this information can be integrated into a single dashboard to view inventory levels, customer activity, changes in product pricing, changes to geography shipment activity, and whatever else you want to analyze.

Click for more information regarding QQube

Reason #5: Business intelligence enhances ability to identify emerging trends

The self-service nature of Power BI combined with interactive data visualization will accelerate your organization’s ability to wade through transactional data and take action using new insights.  Data visualizations can be created from both the data you have imported to Power BI as well as linking to preexisting Excel PowerPivot models.  In addition to connecting your business’ data sources to Power BI, Microsoft has a growing list of content packs that link to various third party data sources and automatically create a reporting template.  For example, if you use MailChimp as an email marketing platform, in about one minute you can connect Power BI to your MailChimp account and start leveraging Power BI’s analytics capability on your marketing data using a curated dashboard.  This way half the work of creating a dashboard for your marketing data is already done for you.

Click for a list of Power BI service content packs, such as MailChimp, GitHub, and others

Reason #6: Business intelligence Can Foster Organizational Alignment

If cash is king, then culture must be queen.  Do not underestimate the importance of business culture because it is one of the keys to your success.  One aspect of culture is goal alignment, which can be greatly fostered through communication.  A component of your communication strategy should include BI metrics that closely correlate with your success factors.  For example, if customer retention metrics are something you measure, then establishing a goal and measuring progress toward that goal would be something communicated to the greater company.  With that knowledge, employees are better able align their activities around that objective. 

If you want to add steroids to your goal alignment strategy, then add a bonus program to the achievement of those goals and get out of the way.  It is always exciting to observe the positive impact that even modest financial rewards have on employee motivation and progress toward company objectives. 

Summary

It is an entirely new world with respect to small and midsize businesses gaining access to the same business intelligence tools used by larger companies.  The tools continue to get better and cost continues to decrease.  Many of the tools referenced above would have cost many thousands of dollars just a few years ago and now some are free.  Profitwyse can help you implement a cost effective BI solution for your business.  Contact us today.

 

About the Author
About the Author
Chase Morrison provides CFO services, utilizing Profitwyse’s 3D Growth Platform™, enabling his business owner clients to more readily achieve their goals for wealth creation and family legacy.  Contact him today to learn how your business can hit the accelerator using Profitwyse’s proven platform.