The Presidents’ Forum of Orange CountyTuesday, March 11, 2008

Building Value in Your BusinessThrough

Lean Business Management

David JacobsAnchor Audio

Chairman

Portable Sound Systems

Lecterns

Wired & Wireless Intercoms

Assistive Listening Systems

Politicians

Military

Educators

Churches

Corporate

Emergency

EntertainmentRene Russo in “Hostage”

Question: How Does Anchor AudioSucceed in Competition With

Foreign Manufacturers?

Answer: Lean Business Management

1. Lean Manufacturing,2. Lean Distribution,3. Lean Vendor Management,4. Lean Engineering,5. Lean Finance.

1. Lean Manufacturing

Action Steps (Over a 3 Year Period):

• Hired CMTC to Consult on Lean Manufacturing Techniques• Point-of-Use Storage (Minimized Movement of Inventory)• Cellular Manufacturing (Eliminated WIP Inventory)• Single Piece Flow (QC Each Unit to Assure High Yield)

• Improved Receiving Inspection (No Bad Raw Materials)• Invested in Automation Equipment to Manufacture Circuit Boards• Re-engineered Products to Capitalize on Manufacturing Capabilities• Created Incentive Programs for Every Employee

Results:

• Reduced Direct Labor By 50% (7% of COGS)• Failures Reduced to 0 – 2 per Day• Reduced Inventory by 45% (No WIP)• On-Time Delivery is 100% (Promise 3 Day Shipping)

Liberty Manufacturing Cell

Automated Surface Mount Equipment

Action Steps:• Improved the Management of Our 3,000 Dealers

– Fired Independent Manufacturers Reps in the US– Expanded Our Sales Department to Provide Dealer Support,

• Phone, E-mail, Web Support, Trade Shows & Field Visits• SPIFF Awards to Dealers’ Salespeople

• Closed Barcelona Distribution Center– European Operating Costs Too High,– New Transportation & Communications Services

Results:• Sales Increased After the Reps Were Fired,• Eliminated Rep Commissions (6% - 10% of Sales),• Improved Dealer Communication (Dealers Prefer Direct Contact)• Eliminated European Inventory, Staff & Overhead.

2. Lean Distribution

Action Steps:• Custom Parts (Plastics & Metal)

– Designed Out Custom Components As Much As Possible– Studied & Improved Vendors’ Manufacturing Processes

» Material Handling Procedures & Fixtures» QC Procedures to Align With Anchor QC Standards

» Replaced Non-Performing Vendors

• Commodities (Electronics)

– Qualified Multiple Sources

» Price, QC & Delivery Requirements

• Accurate Forecasting to Drive the MRP and Purchasing.

Results:

• Gross Profit Increased By 10% (Parts are 87% of COGS),

• Very Few Receiving QC Problems,

• Almost No Raw Material Parts Shortages.

3. Lean Vendor Management

Action Steps:• Efficient Project Planning & Control

– Initiated Daily Project Management Meetings– Involved Marketing, Sales, Production & Finance– Improved BOM & BOO Documentation.

Results: • Rapid Decision Making to Guide the Projects• Organization Operates as a Coordinated Network• Time-To-Market Dropped Dramatically• Accelerated New Product Development:

– AnchorMAN Wireless Intercom – Patent Pending

– Beacon Portable Line Array – Patent Issued 2/08

– Acclaim Portable Lectern– MiniVox Lite – Upgraded Electronics in Existing Products– Improved Enclosures for Human Interface

4. Lean Engineering

Action Steps (Eliminate the Outside Cost of Capital):

• Bought Back All Outside Shareholder Stock• Paid Off All Bank Debt• Purchased a Building for the Company

Result (Positioned to Pursue a New Growth Phase):

• No Payments for Dividends, Interest or Rent,• Cash Flow Is Available to Fund Company Growth

– New Product Development– New Market Development (Europe)– Acquisitions

5. Lean Finance

Summary

FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09

SalesIncr by 14%

Gross ProfitIncr by 39%

OverheadDecrease by 19%

IncomeIncrease by 617%

Debt

RecessionClosed EuropeLarge Dealer BK

Lean MfgCut RepsClosed Europe

Introduced New ProductsImproved Dealer Management

Lean ManufacturingProduct Redesigns