Has the America Invents Act been Beneficial or Harmful?

February 23rd, 2015

In September 2011, Congress passed and the president signed the Leahy-Smith America Invents Act (AIA) that changed the U.S. patent system to the party “first to file” instead of the “first to invent to bring the U.S. in line with other countries who adopted first to file patent systems years ago, supposedly to simplify the patent process for companies that file applications in multiple countries. Its central provisions went into effect on September 16, 2012 and on March 16, 2013. Let’s examine whether or not the America Invents Act has been beneficial or harmful to innovation by America’s inventors and small businesses.

At the time, supporters said it would improve patent quality by creating a new process for reviewing patents after they have been issued and allow third parties to provide information on other parties’ applications. Rep. Lamar Smith, who chaired the House Judiciary Committee (R-TX) said, “This bill is designed to help all inventors. The current system “seriously disadvantages small inventors and companies” because it can lead to years of costly legal challenges to their patents.” Another supporter, Rep. Mike Michaud (D-ME), said, “We need to make it easier for companies to innovate and make things here at home, and this bill does that.”

Opponents argued that there was no reason to change the U.S. system, and inventors and small businesses complained that switching to a “first to file” system would give large companies an advantage and hurt individual inventors.

Rep. Sensenbrenner (R-WI) and Rep. John Conyers opposed converting the U. S. patent system to a “first to file” system, but their amendments to strike this language were rejected. Rep. John Conyers (D-MI) said the legislation would “benefit large multinationals at the expense of independent inventors and small businesses” and would “harm jobs, harm innovation and harm our nation.”

Rep. Don Manzullo (R-IL) voted against the bill and stated, “This bill would weaken our strong patent system that has protected American entrepreneurs for centuries from overseas companies trying to pirate their inventions.” Manzullo said. “Any patent reform we undertake should focus on reducing the backlog in patent applications, not dramatically altering the system and giving multinational corporations advantages over American innovators. The last thing we should be doing right now is giving foreign companies an even greater opportunity to take our ideas and our jobs.”

What has happened in the last two and a half years since the American Invents Act went into effect?

Paul Morinville of www.USInventor.org, wrote, “An inventor is the odds on favorite to lose in today’s patent system. Since the America Invents Act created post grant opposition procedures (PGO), inventors have lost the large majority of patent cases. PGO’s invalidate patents at rates above 75%. Article III courts find patents invalid under the indefinable ‘abstract idea’ at similar rates. Today, inventors are losing more cases than at any time in the 224-year history of the U.S. patent system.”

He added, “An infringement suit can cost millions of dollars for each side. Prior to the AIA, even small inventions could be enforced. With the huge increase in inventor losses due to the AIA and the indefinable “abstract idea,” only inventions with exceptionally large damages can be enforced. It’s simple math, damages must exceed the cost of the case plus the cost of risk.”

Patent Agent David B. Waller, J.D. M.S., Patent Success Strategies, LLC, commented, “Recent changes in the United States Patent Laws under the America Invents Act have had beneficial effects for some and significant disadvantages for others. In particular, changing from a first-to-invent to a first-to-file system, while conforming U.S. patent law to a worldwide standard with respect to ownership, has significantly impacted the exclusive rights granted to inventors through the U.S. Constitution and simultaneously impacted collaboration among research groups. The new Post Grant Opposition (PGO) procedures now provide an avenue to invalidate issued patents with resulting costs significantly lower for the challenger than the patent holder. This presents a distinct advantage for those with substantial resources to challenge patents that may directly compete with their technology.

To compound an already problematic system, the Innovation Act that passed the House last year proposed provisions that while seemingly helpful to independent inventors, would have been detrimental. The provision that provided a losing party pay for an infringement suit created a substantial advantage for a party having the greater financial resources. This bill never passed the Senate, and in view of other potentially detrimental provisions of the AIA, it will be important to make changes in this law to readjust and balance the benefit for all inventors.”

Patent Agent George Levy explained some of the harmful effects of the America Invents Act: “The new law presents a terrible dilemma for the small inventor. He can’t talk about his invention until the invention is filed (any competitor could simply publish the inventor’s idea under the competitor’s name, thereby locking the inventor out, or even worse, file a patent in their own name, with or without improvements) – The so called grace period is worthless. He can’t file until he is funded, and he can’t be funded because potential investors are scared of post grant reviews invalidating the granted patent. He does not have the funding to protect himself from a post grant review.

The whole “troll” idea is a red herring. In fact the biggest trolls or non-practicing entities are the large corporations whose legal department make a point of erecting a picket fence around competitors. Note: “A well-known tactic to devalue a competitor’s patent is to create a “picket fence” around it. Using this tactic, a competitor attempts to surround the pioneering patent with many patents covering incremental innovations, thereby hindering freedom to operate or freedom to advance the technology along logical trajectories.”

Mr. Levy added, “A single patent is granted to an inventor who cannot practice it because of lack of funding, and large corporations won’t license the patent from him. However, if the patent interferes with the business of a corporation, the inventor is called a troll and his patent is subjected to post grant review…A large number of patents, called “picket-fence,” are granted to a large corporation and grouped around a competitor’s technology. The patents are specially designed to interfere with the competitor’s business. Such strategies are commonly used by corporate legal teams.”

At our San Diego Inventors Forum on February 12th, President Adrian Pelkus, said, “We are a nation of creators and builders living at a time when science and technology is exponentially enriching our quality of life. Disturbing the evolution of ideas disrupts our development as a society, and changes to our patent laws are doing just that. American inventors create new products and jobs. The more we enable inventors, the more our country prospers and the better our lives become. We can expect only the opposite if we if we stifle inventors by allowing laws to be passed by corporations pressuring our representatives to protect only their interests.”

Thus, my answer is that the American Invents Act has been harmful to American innovation, and the consequences demonstrate that once again our elected representatives in Congress sold out to the interests of multinational corporations at the expense of inventors and small businesses.

Tags: , , , ,
Posted in Innovation | No Comments »

Anti-Inventor Legislation Being Proposed in Congress

February 3rd, 2015

Sometimes it seems we have to play “Whack-a-mole” against well-meaning legislation that would have harmful, unintended consequences. Last year, the Innovation Act, H.R. 3309 passed the House of Representatives by a 325 – 91 vote on December 5, 2013. It seemed like a comparable bill would easily pass the Senate until a concerted effort to defeat this bill was undertaken by Randy Landreneu, Founder of the Independent Inventors of America, and another inventor, Paul Morinville, by visiting key people in the offices of about 60 Senators.

Their efforts were aided by such organizations as CONNECT and Biocom in San Diego, the Biotechnology Industry Group, and the Independent Inventors of America. Because of the opposition by these groups and other groups not cited, the bill ended up being dropped in the Senate.

Why did these organizations oppose this effort on patent reform? Gary Klein, V. P. Public Policy, of San Diego’s CONNECT organization, stated: “A startup company’s main asset is its intellectual property. Most investors’ first question to startups is about how their technology is protected. The Innovation Act that passed the House has several provisions – fee shifting, covered business methods, joinder rules, discovery and customer stay – that will have some very serious adverse consequences for small/startup companies, universities and research institutions, as well as companies who use licensing as a business model.”

Joe Panetta, President and CEO of Biocom, stated “Not only does H.R.3309 fail to adequately address the abusive litigation practices it aims to curb, but it would place burdensome and unnecessary requirements and penalties on all patent holders. The bill is likely to inadvertently harm the world’s greatest innovation system by limiting legitimate patent holders’ ability to assert their rights.”

The Biotechnology Industry Group (BIO) was concerned that it would undermine biotech research and innovation. Daniel Seaton noted on BIO’s Patently Biotech blog, “the Act would ultimately make it more difficult for patent holders with legitimate claims to protect their intellectual property…Provisions in the legislation would erect unreasonable barriers to access justice for innovators, especially small start-ups that must be able to defend their businesses against patent infringement in a timely and cost-effective manner, and without needless and numerous procedural hurdles or other obstacles.”

The Independent Inventors of America against Current Patent Legislation, representing independent inventors and small patent-based businesses across the country, disputed the claim that patent infringement litigation had escalated. They initiated a petition stating “The Government Accounting Office Report required by the America Invents Act finds that there is no ‘patent troll’ problem. Data supporting the claim of billions of dollars of reported cost cannot be verified and actually represent primarily voluntary and court directed license agreements for valid patents. In addition, analysis of patent litigation shows that the number of patent suits relative to the number of patents issued today remains consistent over the 200 plus year history of the patent system with the exception of a short period prior to the Civil War when the rate was higher than it is today. The reports supporting this latest round of legislation are simply not valid.”

They argued that “what is being characterized as a “patent troll,” and the target of the proposed legislation, is really an investor. As individual inventors and small patent-based businesses, we need investors to practice and protect our inventions. A patent is sometimes the sole asset we can leverage to attract that investment. Damaging investors therefore damages inventors.”

The petition stated, “This legislation will levy grave harm upon independent inventors and small patent-based businesses, as well as the investors we need to help commercialize new technologies and to protect our inventions.” They “stand firmly against the proposed legislation and any future legislation that would weaken the American Patent System.” The governing body of the San Diego Inventors Forum, of which I am a member, signed the petition along with many of our members.

The main reasons why inventor organizations opposed the Act were:

Loser Pays – would significantly increase the risk and cost of defending a patent and “could be fatal to a large percentage of inventions.”

“Joinder” clause – allows investors to be personally liable for legal fees if inventor loses lawsuit, so this would severely limit investment in new technologies.

Patent Term Adjustment – eliminates a patent adjustment for a delay in patent issuance caused by the U. S. Patent Office (Note: Patents are granted for 17 years, but if it takes five years to get a patent, the patent term would be only 12 years instead of 17.)

New Bill in the Works

Now, Washington, D. C. insiders are indicating that legislation very similar if not identical to the Innovation Act will be introduced in the House of Representatives as early as February.

Why is a new version of the Innovation Act being proposed? The stated purpose is to curb frivolous lawsuits for patent infringement by so-called “patent trolls,” a derogatory term defined by Wikipedia as “a person or company who enforces patent rights against accused infringers in an attempt to collect licensing fees, but does not manufacture products or supply services based upon the patents in question, thus engaging in economic rent-seeking. Related, less pejorative terms include patent holding company (PHC) and non-practicing entity (NPE).”

Proponents of the Innovation Act said that” in the two years since the AIA was enacted, patent litigation has exploded. More and more firms are acquiring broad patents not to use the technology but rather to extract licensing fees from companies that infringe the patents accidentally…so a number of industry groups that weren’t traditionally involved in patent debates have begun agitating for patent reform.”

However, the Patent Freedom organization states, “NPEs are not all cut from the same cloth. Some inventors choose not to pursue the development, manufacturing, and sales of their inventions. They may lack the resources to do so, or the interest, passion, and commitment that such an effort requires. Instead, they may seek to license their inventions to others who can use them to deliver better products and services, often with the assistance of those with experience in this area. Or they may choose to sell the patents outright…. some entities buy patents with the express purpose of licensing them aggressively. For instance, about 25% of “parent” NPEs tracked by Patent Freedom are enforcing only patents that they had acquired. Another 60% are asserting patents originally assigned to them, and the remaining 15% are asserting a blend of originally assigned and acquired patents”

If new legislation is crafted to be similar to the Innovation Act, it would create additional requirements as part of the legal process associated with patent infringement under United States law. Some of the provisions that were in the Innovation Act are paraphrased below:

  • Requires specificity in patent lawsuits – requires specified details concerning each claim of each patent that was allegedly infringed.
  • Makes patent ownership more transparent with a “Joinder” clause requiring patent plaintiffs to name anyone who has a financial interest in the patent being litigated. This would include investors.
  • Makes the loser pay – “if a losing plaintiff cannot pay, the bill would allow a judge to order others who had a financial stake in the plaintiff’s lawsuit to join the lawsuit and pay the costs of an unsuccessful patent lawsuit.” This could force investors to participate in paying the legal fees, which would discourage investment.
  • Delays discovery to keep costs down – gives time to allow the courts to address legal questions about the meaning of patent claims with the goal of reducing legal costs and allow more frivolous lawsuits to be resolved before defendants have incurred large legal bills.
  • Protects end users – allows technology vendors to step into the shoes of their customers and fight lawsuits against trolls on their customers’ behalf in cases where restaurants, supermarkets, airlines, casinos, real estate agents and other brick-and-mortar businesses are being sued for using technology such as Wi-Fi instead of the manufacturers of the equipment.

Randy Landreneu, Independent Inventors of America, stated: “There were a number of provisions fatal to independent inventors, like Loser Pays (if you sued a corporation for patent infringement and did not prevail, you would be liable for their legal costs, which could be over $1,000,000). The Innovation Act also had the provision that an investor with an interest in your patent would be personally liable for these legal costs. This would have eliminated the ability to defend a patent for the vast majority of inventors, as well as greatly reducing any investment in patent related startups.”

Adrian Pelkus, SDIF President, states, “A new version of the Innovation Act horrifies me in the way that it would allow corporations to beat up on small inventors. Financial ruin for inventors would be extremely easy due to the nature of startups, meaning most inventors could lose their fledgling businesses disputing challenges to issued Intellectual Property. If we increase the risk that their IP will be challenged (perhaps even frivolously just to stop them from progressing to market), innovation will grind to a standstill.

At a time when we need American ingenuity and investors to rebuild our economy, taking steps to diminish our rights as inventors is un-American, economically dumb and intellectually suicidal. Stifling innovation in a technologically based society is a sure path to economic ruin which is why the USPTO system was originally designed to reward not punish the inventor. We are a nation of creators and builders living at a time when science and technology is exponentially enriching our quality of life. Disturbing the evolution of ideas disrupts our development as a society, and changes to our patent laws are doing just that. American inventors create new products and jobs. The more we enable inventors, the more our country prospers and the better our lives become. We can expect only the opposite if we if we stifle inventors by allowing laws to be passed by corporations pressuring our representatives to protect only their interests.”

I urge everyone to contact your Congressional Representative before the new bill hits the floor. Tell them that you are against further weakening of patent rights. Tell them that current efforts at “patent reform” will greatly hurt inventors and innovation in America. We must not stifle innovation if we want to create more American jobs and maintain our technological advantage in the global marketplace.

Tags: , ,
Posted in Economic Development, Innovation | No Comments »

Is there a Relationship Between our Trade Deficits and our National Debt?

January 27th, 2015

In his State of the Union address, President Obama asked Congress for Fast Track trade authority to move forward on the two trade agreements that have been in negotiations behind closed doors for the past four years: The Trans-Pacific Partnership Agreement and the Trans-Atlantic Trade Agreement. I have already written several articles about why Fast Track Authority should not be granted and the dangers of the TPP. The purpose of this article is to show that there is a relationship between our trade deficits and our national debt. As shown by the chart below, we now have a more than $18 trillion national debt.

Source: http://en.wikipedia.org/wiki/History_of_the_United_States_public_debt

Notice how it sharply ramps up starting in 2001. The recessions of 2001-2002 and 2008-2009 obviously played a significant factor in the increase in the national debt from $5.8 trillion in 2001 to its present level, because during recessions, there is a decrease in tax revenues and an increase in spending for unemployment benefits, food stamps, and other assistance, as well as spending on programs to attempt to stimulate the economy.

However, 2001 also coincides with the first full year of trade with China under the rules of World Trade Organization after “Congress agreed to permanent normal trade relations (PNTR) status,” which “President Clinton signed into law on October 10, 2000,” paving “the way for China’s accession to the WTO in December 2000.”

According to Alan Uke’s book, Buying Back America, the United States now has a trade deficit with 88 countries. Of course, some deficits are small, but some are enormous, such as China. According to the Census Bureau, our top seven trading partners are: Canada, China, Mexico, Japan, Germany, South Korea, and the United Kingdom. These seven countries represent 50.9% of our total trade deficit $ -461.3 billion for January – November 2014. At an average deficit of $40 billion per month, the 2014 trade deficit will exceed $500 billion. Our 2014 trade deficit with China alone was $-$314.3 billion for January – November, representing 68% of the total.

Some may claim that we are still the leader in advanced technology products, but this is no longer true. The U. S. has been running a trade deficit in these products since 2002, which has grown to an astonishing average of nearly $90 billion per year since 2010.

Even our most recent trade agreement, the Korea U. S. Free Trade Agreement (KORUS FTA), which went into effect on March 2012 has had negative impact. The Office of the   Last March, the U. S. Trade Representative for the Obama Administration touted, “Since the Korea agreement went into effect, U.S. exports to Korea are up for our manufactured goods, including autos, exports are up for a wide range of our agricultural products, and exports are up for our services.” However, the reality is that our imports continued to exceed our exports, and the U. S. trade deficit with Korea jumped from -$13.62 billion in 2011 to -$22,838.3 billion through November 2014, which is a 60% increase in two and a half years.

china trade deficitSource:  http://www.businessinsider.com/chart-us-trade-deficit-with-china-2013-4

Notice that there is a similar upward slope on the above graph to the upward slope of our national debt chart. Anyone can see that our trade deficits have a significant impact on our national debt.

The only thing that kept our trade deficits from being higher than they have been is that fact that we have increased the exports of services to balance our imports of goods as shown by the following chart:

 

Year Total Goods Services
1999 -$258,617 billion -$337,068 billion $78,450 billion
2000 -$372,517 billion -$446,783 billion $74,266 billion
2002 -$418,955 billion -$475,245 billion $56,290 billion
2004 -$609,883 billion -$782,804 billion $68,558 billion
2006 -$761,716 billion -$837,289 billion $75,573 billion
2008 -$708,726 billion -$832,492 billion $123,765 billion
2010 -$494,658 billion -$648,678 billion $154,020 billion
2012 -$537,605 billion -$742,095 billion $204,490 billion
2014 -$461,336 billion -$673,612 billion $212,277 billion

Source: https://www.census.gov/foreign-trade/statistics/historical/exhibit_history.pdf

As you can see, our trade deficit in goods more than doubled from 1999 to 2004 and reached astronomical heights just before the worldwide recession.

So how do our trade deficits add to the national debt? One way is that many products, especially consumer products, which were previously made in the U. S., are now made in China or other Asian countries, so we are importing these products instead of exporting them to other countries. The offshoring of manufacturing of so many products has resulted in the loss 5.8 million American manufacturing jobs and the closure of over 57,000 of manufacturing firms. These American workers and companies paid taxes that provided revenue to our government, so now we have less tax revenue and pay to pay for the benefits and public assistance for the unemployed and underemployed.

Our balance of payments indebtedness for trade and the additional cost to the government paid by taxpayers for these benefits has resulted in our escalating national debt. The cheaper China price of goods that we import instead of producing here in the U. S. results in a cost to society as a whole. We need to ask ourselves: Is the China price worth the cost to society?

I say a resounding NO! We need to stop shooting ourselves in the feet. We need to stop benefiting the one percent of large multinational corporations to the detriment of the 99% percent of smaller American companies.

Beyond stopping Fast Track Authority and the Trans-Pacific Partnership from being approved, we need to focus on achieving “balanced trade” in any future trade agreement. Until we change the goal of trade agreements, we should refrain from negotiating any trade agreement. The last thing we need is to increase our trade deficit more than it already is.

In addition, we need to facilitate returning more manufacturing to America by changing our tax policies and making regulations less onerous to manufacturers, without compromising our commitment to protect our environment. This is the only way that we will simultaneously reduce our trade deficit and the national debt.

 

Tags: , , ,
Posted in Trade Policy | No Comments »

Looking Back at 2014 and Ahead to 2015

January 20th, 2015

Most economists are predicting a rosy forecast of more than 3 percent expansion for the U.S. economy in 2015, up from 2.3% in 2014. If it does, this “would mark the first time in a decade that growth has reached that level for a full calendar year.” The unemployment rate is also predicted to drop from the current 5.6 percent to 5.3 percent. The questions are: How much will American manufacturing benefit from this expansion and how many manufacturing jobs will be created?

While the country gained 252,000 jobs in December, only 17,000 were manufacturing jobs according the monthly report from the Bureau of Labor Statistics ? “In December, …Manufacturing added an average of 16,000 jobs per month in 2014, compared with an average gain of 7,000 jobs per month in 2013.”

This was a significant increase over the previous year, but notice that President Obama recently stated that “more than 764,000 manufacturing jobs have been gained since the end of the recession.” This means that we still have a long way to go to recoup the 5.8 million manufacturing jobs that we lost between the years 2000 – 2009. According to Scott Paul, President of the Alliance for American Manufacturing, “…December’s manufacturing job gains were behind the previous month, and that halfway through the president’s second term, the country is just over one-quarter of the way to his pledge to create 1 million new manufacturing jobs in that four-year span.”

While the U3 unemployment rate dropped to 5.6 percent, the U6 rate is double at11.2 percent. The U-6 rate includes “Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force.”

In a recent article, business reporter Jonathan Horn of the San Diego Union-Tribune noted, “the unemployment rate fell in part because people dropped out of the labor force ? they either retired or left the labor force. Last month, the number of unemployed persons fell 383,000 to 8.7 million. However, less than one-third of people out of work found jobs; the rest stopped looking. The percentage of Americans who are either working or looking for work fell back to a 37-year low last touched in September.”

The January 6-11, 2015 edition of the San Diego Business Journal’s reported that manufacturing jobs in San Diego increased by 3.3 percent from November 2013 through November 2014, for a total of 97,400 industry jobs, up by 3,100 jobs. However, we still have a long way to go to get back to the 122,600 manufacturing jobs in the San Diego region we had at the end of 1999.

Two manufacturing sectors led the job growth in San Diego: shipbuilding and Unmanned Aerial Vehicles (drones.) General Dynamics’ Nassco division has contracts for five commercial tankers and one Navy ship and plans to “add about 300 additional jobs to the shipbuilder’s staff, bringing the total workforce to about 3,500.” General Atomics Aeronautical Systems Inc’s “local employment grew 9 percent year over year to 4,843 as of June 2014.”

In this same article, I was quoted as saying, “For those with skills and experience in a particular industry, things were definitely trending up in 2014…This (2014) has been a year when people could find jobs.” I’m also quoted as saying, “San Diego greatly diversified its economy following the previous major recession in the early 1990s, and that’s made a huge difference in the past several years…One of our strengths is that we’re not hurt as much from the lack of new defense programs.”

Looking Back at 2014

The R&D tax credit that had expired December 31, 2013 was extended for 2014, but has now expired again as of December 31, 2014. The R&D Tax Credit was originally introduced in the Economic Recovery Tax Act of 1981 sponsored by Rep. Jack Kemp and Senator William Roth. The credit has expired eight times and has been extended fifteen times. The frequent expiration of this tax credit creates unnecessary uncertainty for business investment planning. The R&D Credit Coalition, National Association of Manufacturers, and many other business groups recommend that this tax credit be made permanent.

One bright spot on the national scene is that a bill requiring a National Strategic Plan for Manufacturing authored by Rep. Daniel Lipinski (D-IL) and Rep. Adam Kinzinger (R-IL) became law right before Christmas. Three of Lipinski’s previously authored bills had passed the House three times over the past five years, but failed to either pass or be considered in the Senate. This bill was included in legislation that passed both houses and was signed into law by the President. U.S. Senators Mark Kirk (R-IL) and Chris Coons (D-DE) and Mark Pryor (D-AK) introduced the language in the Commerce, Science and Justice Appropriations bill passed by the Senate.

Rep. Lipinski stated, “After many years of hard work, my bipartisan legislation to boost domestic manufacturing and American jobs by. The bill requires that at least every four years the president works with public and private stakeholders to produce and publish a plan to promote American manufacturing. In addition, every year the president’s budget blueprint will have to contain an explanation of how it promotes the most recent manufacturing strategy. This bill guarantees that Washington has to pay attention to what can be done to help manufacturers and workers. Getting this provision into law can really make a difference by leading to economic growth, increased American security, and more middle class jobs that pay hard-working Americans a good wage. I look forward to finding many more “Made in USA” labels on products we see in our stores and online.”

In June 2013, I wrote an article criticizing an earlier version of this bill, H.R. 2447, the American Manufacturing Competitiveness Act of 2013, and was contacted by Rep. Lipinski’s Chief of Staff to discuss my criticisms. I am anxious to see whether or not the current language included in the Commerce, Science and Justice Appropriations bill addressed these criticisms.

In his 2014 State of the Union address, President Obama pledged to launch four new manufacturing institutes this year, for a total of eight institutes launched so far on an original goal of creating 15 manufacturing innovation institutes. On December 11th, President Obama announced that” the government will invest more than $290 million in public-private investment for two new Manufacturing Innovation Hub Competitions.

One will be in smart manufacturing at the Department of Energy and one in flexible hybrid electronics at the Department of Defense. Each institute will receive $70 million or more of federal investment to be matched by at least $70 million from the private sector for a total of more than $290 million in new investment.”

“The Department of Defense will lead a competition for a new public-private manufacturing innovation institute in flexible hybrid electronics…The Department of Energy will lead a competition for a new public-private manufacturing innovation institute focused on smart manufacturing, including advanced sensors, control, platforms, and models for manufacturing…” The press release invites interested applicants to find more information on the manufacturing innovation institute competitions at www.manufacturing.gov.

While funding manufacturing institutes may have a long-term benefit similar to funding research at other government institutions, there are actions that President Obama and Congress could take that would have a more immediate benefit on the manufacturing industry and create more jobs, such as making the R&D tax credit permanent, addressing currency manipulation by our foreign trading partners, easing taxes to repatriate corporate profits, and actually doing comprehensive tax reform. Let us hope that the economic predictions of a better 2015 than 2014 will come true and that more manufacturing jobs will be created by even more companies returning manufacturing to America.

Tags: , , ,
Posted in Economy, Jobs, Manufacturing, Reshoring, Taxes/Regulations | No Comments »

San Diego is a Hotbed of Innovation

December 16th, 2014

On Thursday, December 4th, CONNECT held its 27th Annual Most Innovative New Product (MIP) Award dinner to honor San Diego companies that had launched innovative new products within the last year. There were more than 700 attendees at the event held at the Hyatt Regency La Jolla at Aventine, led by Mistress of Ceremonies Maureen Cavanaugh of the Midday Edition of KPBS. There were 102 nominations that were narrowed down to 24 finalists by 100 judges, culminating in eight new MIP winners. The 2014 MIP Award winners selected were:

Aerospace & Security Technologies

CyberFlow Analytics for FlowScape – The “platform enables Advanced Threat Protection through a sophisticated Anomaly Detection system and has been designed in a modular fashion in alignment with cloud computing principles and runs entirely in the context of virtual machines…the system involves a series of connected multi-model ‘analytics engines’ that contain hundreds of mathematical predictors that can machine learn network communication transmissions and identify odd anomalous behavior across an entire network…[It} is scalable to handle big data network and application flows through cloud-ready virtualized analytics engines.”

The other finalists were: Cubic Defense Applications for Halo Array, 3D Robotics for IRIS, Space Micro, Inc. for IPC7000, Image Processing Computer.

Communications & IT

Cubic Transportation Systems for NextBus Fleet Management Application – The “application is a modular, mobile gateway for connecting passengers and public transport operators to valuable real-time travel and operations information. For passengers, this means knowing exactly where their next bus is so they know how long their wait time is. For operators, it is a cost-effective, high-quality and reliable application to keep buses on schedule and drive efficiencies in their services.”

This award shows that long-established company can still develop an innovative new product. Cubic Transportation System is “the leading provider of revenue collection management systems and services worldwide” and is one of three business segments of parent company, Cubic Corporation. Walter J. Zable founded Cubic Corporation as a small electronics company in San Diego in 1951, and he remained involved in the management of the company as CEO until his death in 2012 at the age of 97.

The other two segments are:

Mission Support Services is “an industry leader in providing comprehensive support services for all echelons of national militaries and security forces in the U.S. and allied nations.”

Cubic Defense Applications is “the leading provider of live air and ground combat training systems worldwide, a key supplier of virtual and immersive training systems, communications and electronics products, and an emerging provider of cyber technologies and global tracking solutions for commercial and national military customers.”

I started working at Cubic Defense when I was 19 years old for the Chief Scientist, Chief Physicist, and a Staff Engineer in the Marketing Department. The latter had previously developed the geodetic SECOR satellite surveying system, the first of its kind to produce a direct coast-to-coast measurement of the United States long before the Global Positioning System was developed. He was on the fast track for advancement and was promoted to Marketing Manager three years later, and I moved up with him as his assistant at age 22. When I started my own manufacturers’ sales rep agency in 1985, both Cubic Transportation and Cubic Defense became customers for companies that I have represented over the years.

The other finalists were: DVEO division of Computer Modules, Inc. for Ad+EAS Serter™ and Tricopian, LLC for FuelRod.

Diagnostics & Research Tools

Organovo, Inc. for 3D Human Liver Model – “Organovo’s Bioprinted Human Tissue Models are multi-cellular, dynamic, and functional 3D human tissue models for preclinical testing and drug discovery research. Created using proprietary 3D bioprinting process, the tissues remain viable and dynamic for extended time in vitro and exhibit key architectural and functional features that mimic key aspects of the natural 3D tissue environment. Biochemical, genomic, proteomic and unique histologic endpoints can be assessed over time.”

In addition to the MIP award, the life science magazine The Scientist’s selected Organovo’s ex Vive 3D human liver tissue for the seventh place spot of the top 10 innovations for 2014.

The other finalists were: bioTheranostics, Inc for Breast Cancer Index (BCI) and Edico Genome for DRAGEN Bio-IT Processor.

Mobile Apps

Rock My World, Inc. for RockMyRun – this is a mobile app that takes biometric data from smart phones and fitness wearable devices “to adjust the tempo of the music you’re listening to in order to match your pace or motivate you to push just a little harder.”

The other finalists were: GreatCall for Urgent Care and Visual Mobility Inc. for SEENiX.

Pharmaceutical Drugs and Medical Devices

Topera, Inc. for Topera’s 3D Mapping System – the system “consists of the FDA cleared and CE marked RhythmView™ Workstation and FIRMap™ Catheter, which are used in combination for the identification and localization of the sustaining mechanisms of cardiac arrhythmias such as atrial fibrillation, atrial flutter, atrial tachycardia, and ventricular tachycardia.”

On October 30, 2014, the Chicago-based healthcare company, Abbott announced it would acquire Topera “with all outstanding equity for $250 million upfront with potential future payments tied to performance milestones.”

The other finalists were: Bioness for Vector Gait and Safety System and Diazyme for 25-OH Vitamin D Assay for Clinical Chemistry Analyzers.

Software

CloudBeds for CloudBeds – It is an operating system for hotels to “provide the hotel with an automated website, booking engine, Facebook presence, revenue management platform, distribution channels, rate and package manager, and light-weight property management system. The system “automates many of these functions so that an hotelier can focus on its guests instead of managing its property and selling its rooms.” Their “goal is to continue to help streamline connectivity between small hotels and their customers using the latest innovations in software — improving their operational and communication efficiencies.” Their focus is on “the large developing world marketplace.”

The other finalists were: Intific for NeuroBridge 2.0 and Raken, Inc. for Raken.

Sport & Active Lifestyle Technologies

Electrozyme LLC for ProFit SE Real-Time Sweat Electrolyte Sensor – this is world’s first wearable personal hydration monitor that can asses assess fluid and electrolyte loss in a real-time non-invasive way to determine if it’s time to rehydrate, what to rehydrate with, and how much to rehydrate.

The other finalists were: Bast Surf for Bast and Cardiff Skate Co. for Cardiff Skates.

Sustainability

Solatube International for Solatube SkyVault Series – the patented technologies of the Sky Vault series combines breakthrough optics with progressive engineering to enhance light capture, focus light over greater distances, or spread light evenly throughout a space.

I wrote about Solatube in the second edition of my book because they “reshored” by returning manufacturing from China to their plant in Vista at the end of 2011, partially because of the risk of intellectual property theft of their proprietary technologies, in addition to increasing costs and difficulty in managing their offshore manufacturing.

The other finalists were: Blue Wave International, Inc. for ClearWaveAir and Measurabl for Measurabl.

Two other awards were given at the event: CONNECT’s Distinguished Contribution Award for Life Sciences Innovation was awarded to philanthropist T. Denny Sanford received, and the Distinguished Contribution Award for Technology Innovation was awarded to Dr. Robert S. Sullivan, Dean of the Rady School of Management, University of California, San Diego.

From inventors being educated and mentored through the San Diego Inventors Forum to entrepreneurial teams developing technology based products being assisted and mentored through CONNECT’s Springboard program, San Diego is a hotbed of innovation. “Since the inception of the program in 1993, more than 3000 scientific and technological breakthroughs have been guided through the process of innovation to commercialization. Together, these companies have raised over $ 1.4 Billion in capital.” To me, this makes San Diego the “Silicon Beach” of California.

Tags: , , ,
Posted in Innovation, National security, Reshoring, Technology | No Comments »

Miller Ingenuity Combines Innovation and Lean to Create a Unique Culture

December 9th, 2014

Last month, I had the pleasure of interviewing Steve Blue, President of Miller Ingenuity, located in Winona, Minnesota. Winona is a medium-sized Midwestern town of under 30,000 people located on bluffs overlooking the Mississippi River in the southeastern corner of Minnesota across the river from Wisconsin.

“Rudy” Miller founded the company more than 60 years ago after inventing the wick lubricator, a maintenance free lubricating system for locomotives. Miller’s inventiveness enabled the company to develop into a successful company by means of the ability to design, produce and deliver innovative railroad parts that meet the needs of the industry.

Miller Ingenuity currently has 50 employees at their 70, 000 sq. ft plant, but has 18 sales people around the world selling to 100 countries, including Asia. The company remained a privately held enterprise of the Miller family after Mr. Miller’s death 18 years ago, and Mr. Blue became president 15 years ago.

As described on their website, Mr. Blue is carrying on the innovation legacy of Mr. Miller: “Our continued innovations are driven by three core motivations: to take on customer challenges, to think more creatively about solutions, and, humbly, to be everyday heroes to our customers. We put these beliefs into action based on deep and “factory floor” relationships with our customers and on our ability to invent, engineer, and deliver ingenious solutions.”

Mr. Blue stated that the company started on their Lean journey ten years ago, and every employee went through the training. Two of their employees are Black Belts from training they had received when they worked for General Electric. The company has expanded Lean out of the shop floor into “lean office,” but not into “lean accounting” as yet.
In answer to my question as to whether the company is having problems finding employees with the right skills, Mr. Blue said, “Yes, but it is because we are picky by design. We have created a culture, and not everyone fits into our culture. We are slow to hire, but fast to fire if someone doesn’t fit. It’s easy to teach skills, but attitude is more important.”

Mr. Blue added, “We do continuous training as part of our Lean program. We have self-directed work teams and utilize peer interviewing and reviews. We have a “bounty” program with a $5,000 cash award for the most innovative ideas. For example, six production workers reduced a stamping die set up from four hours to 16 minutes.”

Since I saw a wide variety of products on their website utilizing many different fabrication processes, I asked if they were vertically integrated to do sheet metal fab, machining, rubber and plastic molding, wire forming, electronics assembly in-house or if they subcontracted out some of these fabrication services. Mr. Blue said, “We do metal stamping, compression rubber molding, and injection molding of plastics in-house, and subcontract out the other fabrication processes.”

Naturally, I asked if he outsourced any manufacturing offshore to China or other Asian countries, and he responded, “We have some electronic subassemblies and surface mount printed circuit boards sourced overseas, along with some overmolded rubber parts because our competition was selling products at our U. S. cost.”

On their website, I had noticed a heading for the Larry McGee Company and asked Mr. Blue about the company. He said, “We acquired the Larry McGee Company in March of this year. They were our third acquisition in the past 10 years. They had a great product line of radio-controlled interface devices, but no sales force. It was a low risk opportunity to enter into a different technology. We moved their operations into our plant from their Chicago facility.”

I had received a press release about the company’s Creation Station, so I asked Mr. Blue why they started it. He said, “We started the Creation Station because our ability to innovate was slowing down and needed to be accelerated. We hired the ex-Chief Creativity Officer from QVC to teach us innovation principles. We started by having an innovation session every Tuesday, but wanted innovation to be more spontaneous and not wait until Tuesdays. This led to creating a space away from their working space in the middle of the manufacturing area. Glass panels provide natural light. Smart boards are scattered about the room, and there is a pool table in the middle of the room. But, the magic is in the people, not the room.”

An article in the Winona Daily News provides further information, “Creation Station is a big investment in creativity and entrepreneurialism in manufacturing at a level where it needs a shot in the arm,” said Steve Blue, Miller Ingenuity President and CEO. “It’s truly a breakthrough moment for our company, the town of Winona, the region, and small and mid-sized manufacturers in this country.”

“Creation Station offers a flexible workspace designed for both large and more intimate presentations, trainings and meetings. Creation Station will also be made available during off-business-hours for regional organizations and companies looking for a high-tech “think tank” space.”

In addition to the Creation Station, Miller Ingenuity created the 2014 Ingenuity Challenge, open to employees and the general public. The public invitation stated: “The Ingenuity Challenge invites ALL college and graduate students to submit plans and creative ideas in response to the challenge – How Might American Manufacturers Attract the Best and Brightest Innovative Minds to Pursue Careers in the Manufacturing Industry. The best solutions will win: 1st place $7,000; 2nd place $2,000; and 3rd place $1,000.” The deadline was November 19th, and they had eight entries at the time of our interview on November 17th. The winners have not been announced yet, but the results will be made publicly available, and the ideas will not be proprietary to Miller Ingenuity.

In answer to my final question as to what does he attribute the company’s ability to prosper after 60 years in business, he answered, “Our culture by design, not default has enabled us to prosper. We have a cohesive, collaborative, and creative culture.”

We will be hearing more from Steve Blue as he told me that he had just signed a deal with Praeger Publishing to publish a book titled “American Manufacturing 2.0: What Went Wrong and How to Make it Right.” We obviously share a common love of manufacturing and realize its importance to our economy and the creation of good-paying jobs. His book is expected to be published in the fall of 2016 and will utilize “up-to-the-minute data and trends to discuss the future of manufacturing in America and offers an inspiring vision—featuring his own company’s case studies—for revitalizing an entire industry.”

Posted in Innovation, Lean, Manufacturing | No Comments »

Idea Jam Explores Future of Jobs in San Diego

December 2nd, 2014

On November 7, 2014, I attended the “Idea Jam – Innovating for the Future” session put on by the Pacific Center for Workforce Innovation in San Diego. The purpose of the session was to identify the major challenges to the San Diego workforce in the coming years and to generate audience participation in visioning exercises to explore new and innovative workforce development ideas. The event was held at Colman University, and major sponsors were SDG&E, Qualcomm, the Eastridge Group, Point Loma Nazarene College, and Cal State University, San Marcos.

To get our creative juices flowing, Master of Ceremonies, Susan Taylor, San Diego’s TV news icon, introduced Futurist Speaker, Thomas Frey, of the DaVinci Institute as the keynote speaker. It is difficult to do justice to his very visual presentation of images of break-through technologies, but his statements alone created much food for thought about the future. He stated, “We are a backward-looking society…the future gets created in the mind. The future creates the present…Visions of the future affect the way people act today.” He rhetorically asked, “What are the big things that need to be accomplished today?

He continued, “Catalytic innovation creates entirely new industries, like electricity did…Most successful companies today are in the second half of the bell curve…the steel industry had its peak employment in the 1980s.”

It was a shock to hear him state that “Two billion jobs will disappear by 2030…Every time you download a mobile app, you are eliminating a piece of a job.” In answer to his own rhetorical question, “Where will our next generation’s jobs come from, he answered, “from new industries that don’t exist now.” He added, “As you raise the bar for our achievement, we create the new norm.”

“Software is heating the world,” he proclaimed. “In 2030, there will be 100 trillion sensors in the world. Information is being parsed into small things.” He cited some of the new enhanced objects such as: Amazon’s Track Car, the Asteroid Moon Micro-imager Experiment (amie) For Smart-1 Mission, the Vitality Glow Cap for medication management, the Ambient Umbrella by Ambient Devices, Mimo’s Baby monitor, the flying Nixie camera (a tiny wearable camera on a wrist band in which the wrist straps unfold to create a quadcopter that flies, takes photos or video, then comes back to you), the Philips biometrics coffee maker that can recognize users via their fingerprint and make coffee just the way that individual likes it, and the Pintofeed, calling itself the “first intelligent pet feeder”

He explained that “we are entering the age of hyperawareness and the quantified self with products such as printable skin sensors, smart body watches, brain hacking, transcranial brain stimulation.”

Frey stated, “3D printing is changing the world. The new HP 3D printer has 30,000 spray nozzles and can utilize over 200 materials. The iBox Nano is now the world’s smallest, least expensive 3D resin printer. Even shoes can be 3D printed, and Contour Crafting has developed a type of ceramics printing that could be used in construction. Whole walls can now be made by 3D printing, and a company in China was the first company to print a small house for under $5,000. The goal is to print an entire house in one day. In the future, you may live in a printed house…Bio printing can now print skin, veins, organs like a liver, limbs, and an exo skeleton, and there is a pill printer that chemprints antibiotics.” He quoted Chris Anderson, former editor of WIRED magazine and now cofounder and CEO of 3DRobotics, as saying, “3D printing is going to be bigger than the internet.”

“We need to prepare our children for jobs that don’t exist and technology that hasn’t been invented, he declared…By 2030, the average person will have to ‘reboot’ their career six times in their lifetime. To do this, we need to frame our work to train people in a faster way…By 2020, half of all traditional colleges will disappear.”

To facilitate this rapid training, he shared that the DaVinci Institute now offers 11-13-week courses in such topics as 3D printing, web design, game design and development and becoming a drone pilot.” He concluded by saying, “The fastest way to create new jobs is to eliminate the old ones out of existence.”

In California, the community college system is already providing this type of accelerated, focused training through their certificate programs in such subjects as multimedia, web design, web server maintenance and security, and culinary arts. It will be relatively easy to add new training topics to the curriculum to meet future needs.

After Mr. Frey’s predictions of the future, a panel of business leaders discussed what is happening in their industries and what new industries should we focus on. Jeff Nichols from Sempra Energy stated that “San Diego is the nexus of cyber security…Delivering electricity and water is synergistic, so there are opportunities to putting these two together.”

Dr. Ed Abeyta from the University of California, San Diego said, “We need to teach skill sets in a non-university setting but he hasn’t seen an online program that successfully replaces teaching in person.” He added, “We need micro-credentials that you could earn rapidly.”

Matt Grob of Qualcomm said, “The companies that change fastest are the small, startup companies. San Diego is very well placed in the robotics industry…UCSD is starting an incubator for robotics” With regard to training, he said, “A combination of a person and a computer are better than a computer or a person alone.”

In answer to the question, how do we prepare for the change and foster the culture of change in others? Dr. Abeyta responded, “Humanity had its core values before technology came, and we must instill those in our children. We need to marry the technology with our core values. It is not about getting the answer; it is Are we asking the right questions?” Dr. Smith of West Health commented, “We can teach how to think and not what to know.”

The last half of the morning was spent in an idea jam session by small table groups to come up with two ideas: most innovative and most likely to succeed. After lunch, the following panel of judges discussed the ideas developed by the audience: Molly Cartmill, Sempra Energy, Michael Alston, Qualcomm, and Mary Walter-Brown, Voice of San Diego. After presenting all of the ideas for the 17 different tables, the audience voted on the best ideas for both categories. The best ideas were:

Most Likely to Succeed

“Tinder, but for networking and mentoring.” (Note: Tinder is a matchmaking mobile app that uses GPS technology, in which users can set a specific radius have the option to match with anyone that is within that distance.)

“Industry developed after school programs to build skill sets and networking for specific career areas.”

“Change the hiring process from resumes to problem solving practices.”

“Retool community centers and libraries to be career path hubs.” (my idea at my table)

Most Innovative:

“Programmer boot camps for under-served communities integrated with soft and life skills.”

“Establish a mentoring program for retired professionals to share advice and knowledge to persons in transition”

“Implement playgrounds of interests at schools to help students see the possibilities i.e. Maker Spacers & digital playgrounds.”

“Geolocation app that reveals available parking, especially in downtown SD via satellite, with timer alerts”

When I think of the fact that I am now on my fourth career path, I can see that six career paths is a realistic prediction for the future. Just like continuous improvement is one of the tools for becoming a Lean company, continuous learning will be a prerequisite for everyone who wants to keep working during their even longer productive lifetime in the future. My definition of success has been to learn something new to the point of proficiency, so I can highly recommend continuous learning to others. It’s what makes life interesting, challenging, and fun!

Posted in Economy, Education, Innovation, Jobs, Manufacturing, Technology | No Comments »

Why We Must Stop the Fast Track Authority in the “Lame Duck” Session

November 18th, 2014

The rumors in Washington, D. C. are that granting President Obama Fast Track Authority under Trade Promotion Authority will be brought up in the “Lame Duck” session, perhaps as an addition to one of the bills extending certain tax credits, called “Tax Extender bills.”

Simply put, granting Fast Track Authority to the president means:

  • Choice of countries is delegated to President
  • Executive Branch negotiates and signs a trade agreement before vote by Congress
  • Allows only 20 hours of debate by Congress
  • Forbids any amendments to the trade agreement
  • Requires only a simple majority vote in each House violating U.S. Constitution Article 1 Treaty clause giving the Senate authority to approve a treaty by a supermajority.
  • Gives Constitutional power over trade to President and takes it away from Congress
  • Usurps Constitution and is dangerous to give this much power to the Executive Branch

There are two trade agreements that have been in secret negotiations since 2010. The first is the Trans-Pacific Partnership. Eleven nations have participated in the negotiations: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam. Japan announced its intention to join the agreement last spring. However, the TPP is intended as a “docking agreement,” so other Pacific Rim countries could join over time, and the Philippines, Thailand, Colombia, and others have expressed interest. Even China could join the TPP at a later date without suffering any disadvantage though this would negate the original reason for the TPP as a counter to China’s hegemony in the Pacific.

The TPP is much more than a trade agreement; it is a Trade and Global Governance Agreement because only five of the 30 chapters relate to tariffs and quotas. The other 25 chapters cover such topics as: domestic regulation: food & product safety, financial regulation, investor states’ rights, immigration, intellectual property, federal, state and local laws on taxes, patents, copyrights, trademarks, immigration, environment, labor standards, among many other issues. Clauses in these chapters may even overrule prior acts of Congress without new legislation being introduced, passed in Congress, and signed by the president.

Most dangerous of all, International Tribunals, not U.S. courts, would decide on lawsuits between companies in member countries and U. S. In a commentary article on October 15, 2013, Lt. Col (Retired) Allen West wrote, “TPP would subject the U.S. to the jurisdiction of foreign tribunals under the authority of the World Bank and United Nations. These unelected, unaccountable panels would constitute a judicial authority higher than the U.S. Supreme Court. They would have the power to overrule federal court rulings and order payment of U.S. tax dollars to enforce the special privileges granted to foreign firms that would be exempt from EPA and other regulations that strangle American firms.”

In addition, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. What this means is that the TPP’s procurement chapter would require that all companies operating in any country signing the agreement be provided access equal to domestic firms to U.S. government procurement contracts over a certain dollar threshold. To meet this requirement, the U.S. would have to agree to waive Buy America procurement policies for all companies operating in TPP countries. There are many companies that survived the recession and continue in business today because of the Buy American provisions for defense and military procurement. The TPP could be the death knoll for these companies!

The other trade agreement is the Transatlantic Trade and Investment Partnership (TTIP) also known as the Transatlantic Free Trade Agreement (TAFTA), which is a proposed free trade agreement between the European Union and the United States. The Obama administration considers the TTIP a companion agreement to the Trans-Pacific Partnership, and it is similar in scope and nature to the TPP, incorporating all the same global governance chapters.

In the last 20 years, the U. S. has made trade agreements with 20 nations, of which the major trade agreements are:

  • NAFTA
  • Created the World Trade Organization & let China join
  • Panama Free Trade Agreement
  • Central America Free Trade Agreement
  • Colombia Free Trade Agreement
  • Korea Free Trade Agreement

What have been the consequences of these past trade agreements? One consequence is an increasing trade deficit. In 2013, our total trade deficit in goods was $688.4 billion, of which China represented 46% at $318.4 billion. Our top six trading partners of Canada, China, Mexico, Japan, Germany, and South Korea represent 64% of our total trade deficit.

Another serious consequence is the loss of American jobs. From 2000 to 2010, the U. S. lost 5.8 million manufacturing jobs and 57,000 manufacturing firms closed. Where did most of the jobs go? U.S. Department of Commerce data shows that “U.S. multinational corporations… cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.” Millions of people have lost their jobs because corporate CEOs concluded, “It’s cheaper to manufacture where they pay 50 cents/hour and let us pollute all we want.”

As a result, the real unemployment rate is 16.1%, and there are still nearly 2 million less jobs than there were at the start of the Great Recession in December 2007!

The TPP and TTIP/TAFTA are bad for American companies, American workers, and American consumers. What good does it do to have cheaper consumer goods if you don’t have a job?

I urge everyone to Contact your Congressman to ask them to vote no on granting Fast Track Authority!

 

Posted in Jobs, Manufacturing, Trade, Trade Policy | 2 Comments »

Lean Sustainability Requires a Change in Culture

November 11th, 2014

On the second day of the Lean Accounting summit put on by Lean Fronteirs, Cheryl Jekiel, author of Lean HR, gave the keynote presentation on “The Future of the Horizontal Lean Enterprise, Rev Up Your Engines.”

Ms. Jekiel led off by comparing the support functions of a company (Accounting/Finance, Information Technology, Human Resources, Quality, etc.) as “potentially the engine of the organization” in “driving strong performance.”

She outlined six ways to power up support functions to create a different attitude in the whole team:

  1. “Gain clarity on how your work impacts your external customers.
  2. Shift attitudes beyond current expectations.
  3. Focus on highest priorities ? what is the #1 problem in your business?
  4. Develop a service attitude – how do you measure service? Does it meet the needs of your customers? Survey internal customers (other departments).
  5. Synthesize skills of Finance, IT, etc. and combine various items into a cohesive whole.
  6. Leverage diversity of skills ? you are better together”

In summary, she recommended that companies “identify ways that support staff impact external customers, expect more of team members in support functions, and prioritize work based on ability to achieve objectives.”

Retiring American Manufacturing Excellence President, Paul Kucharis, made a comment that has kept running through my mind, “What got you here, won’t get you there.” We have come a long way in the last 25 years since lean concepts, principles and tools diffused out of the Toyota Production System, but it is a never-ending road of continuous improvement to reach an ever-changing target. The underlying discussion among speakers and attendees of the summit seemed to be questioning whether enough progress had been made. The consensus from discussion was that we now have many companies that are lean manufacturers, but how many are lean enterprises? And, of particular importance to the theme of the summit, how many are using lean accounting rather than standard cost accounting?

This is why I selected the breakout session on Accellent Corporation’s “Solving the Standard Costing Problem,” presented by Jeremy Friedman, President and COO of the Cardio & Vascular Division. Accellent is a medical device manufacturer with 17 factories, 5,000 employees, and 20,000 SKUs.

He said, “Standard cost accounting is incomprehensible; we didn’t know where the numbers came from…Our prices were as high as three times competition. Standard costing didn’t work for our 20,000 SKUs…There were too many assumptions, too many variances.”

When he was the Executive V. P. and CFO, he researched the subject, read several books, and spoke to some of the experts, such as Jerry Solomon, Brian Maskell and Nick Katco, whom I met at the conference.

The decision was made to eliminate standard cost accounting, and they made the switch to “plain English P & Ls on October 1, 2012.” He said, “We began with value stream management and focused on cutting costs…We eliminated variance analysis and changed from using standard costs and adding a markup…We had to teach that pricing isn’t a function of cost. Besides the benefits at the operations level, we are no longer pricing products at two to three times higher than competition. We changed to a new paradigm ? lean cash flow.” The old model was “What is the lowest price we can charge based on standard costs and markup. The new is “What is the highest price we can charge and still win the business.”

The companies I represent sometime lose orders for being two to four times higher than the competition, so I have a very good reason for encouraging a transition from standard cost accounting to lean accounting. I firmly believe that if more companies would make this transition, we would be losing less business to China and other offshore suppliers.

Next, I attended the session on “Lean Product and Process Development ? Creating the Future” by Dr. James Morgan, President of Emc Network and a Sr. Advisor for the Lean Enterprise Institute. Dr. Morgan shared his experiences as the Director of Global Body Exterior, Safety and SBU Engineering at Ford Motor Company from 2006 to early 2013 when he left the company.

He said, “Every time you develop a new product, you have the opportunity to create/change the future…Apple and Google changed the future.”

“In many companies,” he commented, “new product development is a nightmare: design and quality problems, late launches, [etc.]…Great products drive enterprise growth and require interdepartmental collaboration…Lean product development requires that you develop the people and product simultaneously.”

Morgan said that at the time of the economic crash in 2008 “Ford had $17 billion in losses over the previous three years and a 20-year market share decline…Ford’s recovery was a product driven recovery based on a new product portfolio and new global development process.

The Body department was organized around the value stream and developing engineers was made a priority following the Technical Maturity Model (TMM), Technical Independent Development Process (TIPD), using mentoring and targeted assignments, and design reviews to demonstrate efficient design. They included the extended enterprise of the UAW and suppliers and used the Matched Pair Process for engineering and purchasing to shape processes, tools, and objectives. They spoke as one voice.”

In summary, he said, “They tightly synchronized activities to create effective concurrency and increase probability of success. The process they followed was:

  • “Study – to create the right product
  • Execution – to deliver the right product
  • Reflection/learning”

He recommended that “you use A3 forms for business planning and align your organization with the right tools and stretch your team.”

In between, the keynotes and one-hour workshops, I attended two of the 20-minute “scrambles.” The first was “Kata, Coaching and TWI” by Jim Huntzinger and Dwayne Butcher, the principals of Lean Frontiers. I was familiar with TWI (Training within Industry) from my Lean Six Sigma Yellow Belt class. It was briefly described as the program implemented during WWII to train women and non-military qualified men to replace men in industry that had been drafted. It contained three “J” programs: Job Relations, Job Instruction, and Job Methods.

They explained that the objective of Coaching Kata is: “Create an organization that solves every problem every time…Coaching Kata shows how to develop problem solving skills one-on-one using PDCA in coaching/mentoring on actual projects.” Huntzinger said, “You will not become lean by doing TWI, but you will not become lean without doing TWI.”

To me, the last “scramble” of the day came full circle from the first keynote by Robert Miller on the future of Lean leadership and put everything into perspective ? Orry Fiume’s discussion of “Executive Leadership.” He stated that whether or not your company has built a sustainable culture of excellence based on Lean principles can be easily determined by using the following simple comparison Mr. Fiume presented:

Traditional Lean
Functional form Business form
Managers direct Managers teach
Management delegates Management supports
Blame people Root cause analysis
Us vs. Them Real teams
Results focused Process focused
Internal focus Customer focus
Managers control Workers control
Hierarchy Flattened organization
Employee is a cost Employee is an asset
Rewards individual Rewards group sharing
   

I would add one more comparison to this matrix to fit the theme of the conference: traditional standard cost accounting vs. Lean Accounting.

Less than half the attendees and speakers were present for the final panel discussion on “Your Organization in 10 years.” The consensus of comments by panelists and members of the audience seemed to be that while the “Lean movement” has come a long way, many companies, still have a long way to go.

Within the San Diego region, I see many companies that participate in the CONNECT Operations Roundtable workshops apply lean principles and tools on the shop floor. They seem to have transformed from traditional companies to lean companies in about half to two thirds of the above matrix. However, I don’t know of any company that utilizes lean accounting.

The problem is that most of these companies are medium to large companies. Very few companies under 50 employees have begun to adopt lean principles and tools. Only two of the small companies I have represented in the past 15 years have gone through lean training. The first was a metal stamping company with less than 40 employees. They obtained the training through one of the California Centers for Applied Competitive Technologies offsetting the cost with some funding from the Employment Training Panel. As a result, average throughput was reduced from five weeks to five days, on-time delivery improved by 70% and work-in-process was reduced by 40%. The other company was a rubber molder with only 15 employees, and they received their training through the southern California Manufacturing Extension Program, California Manufacturing Technology Consulting. Their biggest benefit was eliminating wasted movement and time by implementing 5S and rearranging equipment. The cost of their training was also reduced by Employment Training Panel funding. Small companies have the advantage of not having much of a hierarchy to flatten, and the president has to be fully committed to becoming lean to even initiate the training. This makes it easier for lean to become integral to the culture of the company.

Utilizing lean tools is not enough to become a lean company. Lean concepts and principles must become part of the culture. Lean will not be sustainable in the long run unless it does.

Posted in Lean, Manufacturing | No Comments »

Lean Principles Must Expand Beyond Shop Floor

November 4th, 2014

I had the pleasure of attending the 2014 Lean Accounting Summit on October 21-22 in Savannah, GA, produced by Lean Frontiers, headed up by founder and President, Jim Huntzinger. It was two days of information-packed presentations and workshops that included case studies showing lean principles in action. I was honored to be part of such an illustrious group of lean experts to give a presentation on “Returning Manufacturing to American Using Total Cost of Analysis.” I attended all five of the keynote presentations during the two-day summit and selected one of the four sessions in each breakout period between the keynotes.

The summit began with a keynote presentation on “The Future of Lean Leadership, How Leaders Build Sustainable Cultures of Excellence Based on Principles,” by Robert Miller, now President of Arches Leadership and former Executive Director of the Shingo Prize.

Miller outlined how we got to the present concept of lean starting with the quality circles of the 1960s, leading to the Kepner-Tregoe methodology ofwork simplification in the 1970s, the Just-in-Time and Statistical Process Control programs of the 1980s, the Total Quality Management philosophy of the 1990s, and now the Lean Six Sigma culture of the 21st Century. As a sales rep for Tier 2 and 3 suppliers to Original Equipment Manufacturers starting in the mid 1980s, I remember trying to comply with the JIT and SPC requirements of my customers. I took an intensive 100-hour class in 1993 to get my certificate in Total Quality Management to be prepared for the future, but saw TQM fizzle out as the decade ended because it wasn’t embraced by top management of companies.

Miller affirmed my opinion by saying, “We keep reinventing new versions of known practices, tools, and programs, using a few key principles that are timeless, universal, natural laws that govern consequences in our businesses… Tools and systems are necessary, but are insufficient. Sustainability requires culture. Culture is the sum of all learned and socially demonstrated behavior patterns that exist at many levels: civilizations, regions, countries, communities, organizations, families, etc.”

He explained that “individual acts or behaviors are visible, observable, recordable, and measurable. You can’t improve unless you measure, but measuring requires a standard or principle… Culture is influenced by a leader, reinforced by rules, embedded by routine, validated by recognition, and guided by beliefs. Beliefs are deeply personal.”

He then outlined the six strategies for leaders based on the10 universally accepted Guiding Principles of The Shingo Model™:

  1. Leaders understand principles and know what behaviors flow from principles
  2. Leaders have to be honest with themselves and others
  3. Leaders are humble
  4. Leaders value potential of everyone
  5. Leaders ensure systems align with principles
  6. Leaders balance Scorecard (results and behaviors)

He concluded, “Sustainability requires changes in thinking…attempting to implement practices without understanding the reasons behind them leads to failure,” This is what we saw happen with the philosophy of Total Quality Management because company leaders didn’t learn to understand the principles and didn’t practice the strategies necessary to embrace and embed the philosophy into the culture of their companies. Lean Six Sigma will only be sustainable for the next ten years and beyond if company leaders follow these six recommended strategies so that lean becomes embedded into the culture of their companies and embraced by all employees.

The next keynote speaker, Tom Hood, CEO Maryland Association of CPAs and Business Learning Institute, spoke on “What’s the Future of Accounting?” He caught everyone’s attention by showing the list of jobs that are most likely to being disrupted by technology, and accountants were the second most likely at 94%, just after telemarketers at 96%. He said, “We are in a race with machines, and we can’t beat them.” In my business as a manufacturers’ sales rep, I have to do more telemarketing than ever before, so I took this data to heart.

He continued, “We are experiencing the largest shift change in history in: leadership, learning, technology, generation, and workplace…For every two Baby Boomers, there is only one Gen Xer, while Millennials (Gen Ys) are equal or greater than Baby Boomers in numbers.”

He questioned whether the” leadership of accounting is changing in collaboration, cultural awareness, technology and transparency.” He explained that “incumbent practices, resources, and institutions are in decline, and new business models, practices, and technologies are emerging…The challenge and opportunity is to make the shift from the first curve to the second at the right time and with the right strategy.”

He stated that the MACPA CPA Vision for 2025 is: “CPAs are trusted advisors who, combining insight and integrity, deliver value by:

  • Communicating the total picture with clarity and objectivity
  • Translating complex information into critical knowledge
  • Anticipating and creating opportunities
  • Turning insights into action to transform vision into reality

He briefly highlighted the five ways to thrive in a shift change:

  1. Power of vision, purpose, and alignment
  2. People – strengths and positivity
  3. Collaboration and engagement
  4. Learning and Development
  5. Technology (RONI = Risk of Not Investing)

In conclusion, he stated, “In a period of rapid change and increasing complexity, the winners are going to be the people who can learn faster than the rate of change and faster than their competitors.”

Next, I attended an interesting breakout session by Bill Waddell, author of Simple Excellence and Rebirth of American Industry, on “How to Create and Transition into Value Streams.” From my Lean Six Sigma yellow Belt class, I learned how manufacturers can organize based on their product value streams, but I still didn’t understand how other types of companies could transition into value streams.

Waddell stated, “How we construct value streams should be different for each unique value proposition we have to optimize in order to achieve the objective.” He briefly outlined the following steps a company can take to “pursue the things that have the greatest impact on results:”

  • “Nail down the markets you serve and separate them by the different value propositions/necessary cost structures they require.
  • Identify critical key performance indicators (KPIs) that define how to achieve strategic objectives.
  • Select your value stream managers.
  • Determine initial scope of the value streams by function.
  • Assign the human and physical resources.
  • Restructure core managements systems, ERP systems, accounting, budgeting, and supply chain systems to match value streams”

Waddell featured Wahl Clipper Corporation as an example of a company that has been successful in transitioning to value streams.Wahl has been manufacturing professional styling products, home styling products and animal grooming products since 1919. As an advocate for manufacturing in America, I was delighted to hear that “Wahl has captured 80% of the consumer market in clippers” while manufacturing in the U. S.

In my opinion, becoming a Lean Enterprise is one of the keys to American companies being able to maintain or return manufacturing to America while being competitive and profitable in the global marketplace.

In my next blog article, I will cover day two of the summit.

Posted in Lean, Manufacturing | No Comments »

« Older Entries
Newer Entries »