THEGOODSMARCH 2018

KENTUCKY ASSOCIATION OF MANUFACTURERS

MARCH 2018 | KENTUCKY ASSOCIATION OF MANUFACTURERS | KAM.US.COM

GOODS | CONTENTS

WELCOME TO OUR NEWEST MEMBERS!

We welcome you to KAM and look forward to hearing from and working with you!

Cover photo “Capitol Terrace” ©2017 Shawn Bowen, Frankfort, KY

From the EditorKaren Ellis

Executive Shop TalkLee Lingo

Advocacy CornerGovernment Strategies

MakeTime ReleaseNetwork Pricing

World Trade Center KentuckyTrade Agreements

Tariff Q&A SessionDarren Srebnick, World Trade Center Kentucky

BB&T Insurance Beat Human Resources Brief

Energy Focus Tax Reform Allows HVAC as Capital Investment

Health & Wellness Understanding & Preventing Antibiotic Resistance

Kentucky Grown Produce Kentucky Farm Share Coalition

Kentucky BeefCommissioner of Agriculture Ryan Quarles

OSHA Update Fisher Phillips

Building a Brand Blackstone Media

Need a Supplier? Advantage Kentucky Alliance

New Accounting Standards Mountjoy Chilton Medley

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KAM.US.COM | KENTUCKY ASSOCIATION OF MANUFACTURERS | MARCH 2018

FROM THE EDITOR | GOODS

Spring is here in theory, if not in seasonal weather, but that’s Kentucky all over! We’re hoping for more appropriate weather as the legislative session winds down, and things get back to what passes for normal. I hope your bracket weathered the ups and downs of March Madness, and if you had Villanova winning it all, congratulations!

This issue has some great articles and perspectives of value and interest to our manufacturing audience. Be sure to read and share “The Goods” with your friends and colleagues and let us know what you liked best!

We are excited about the planning progress for our upcoming “State of Manufacturing Conference” scheduled for May 8-9, 2018, at the Lexington Convention Center. We have a fantastic lineup of breakouts and subject matter, and for the first time, attendees will be able to register and complete a couple of certification courses at the conference. Mark those dates on your calendar and stay tuned for more details as we finalize the agenda and speakers.

Our Advocacy Corner article covers the wind-down of this session of the General Assembly, and the many issues addressed, as well as those that were not. There has been some beneficial, pro-business legislation passed, but we may not know the particulars of the budget and any attempts at pension reform until the final days, now scheduled for April 13-14.

We welcome several new members this issue, and are excited to see KAM grow! If you’re not a KAM member yet, what are you waiting for? Check out our website here to learn more about the benefits of KAM membership and call or email me for more information. We’ll have you informed, saving money, and increasing your business in no time!

We invite you to stay in touch with KAM through 2018—exciting things are coming, and you won’t want to be left out!

The stunning cover photos for the last two issues have been the work of a former colleague of mine, Shawn Bowen of Frankfort. We appreciate her allowing us to use her beautiful photographic work to illustrate our magazine!

Karen Ellis, Editor, The Goods

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GOODS | EXECUTIVE SHOP TALK

Recently President Trump has started work to fulfill another campaign promise, leveling the trade playing field in a way that is more beneficial to America. Fair trade has been a cornerstone of Trump’s economic and foreign policy initiatives. The United States has a trade deficit with many of our primary trade partners, the most significant being China.

The trade imbalance with China was $375 billion in 2017. US exports to China were only $130 billion while Chinese imports to the US were $506 billion. A significant portion of this trade imbalance comes from US manufacturers who send raw materials to China for low-cost assembly. The assembled items, many in the form of cheap electronics, clothing, and machinery are then sent back to the US as imports from China.

Just the news that he was considering potential tariffs set the markets abuzz and pricing changes in motion. International concerns soon changed from speculation and uncertainty to reality. February saw what would be the first round when President Trump imposed tariffs on imported solar panels and washing machines. Both of these were a direct response to US manufacturers seeking market relief from global competitors.

Midnight, Friday, March 23 saw tariffs imposed on imported aluminum and steel citing national security concerns. Domestic producers seeking relief also requested these tariffs. With the general nature of this second round, President Trump sent a strong message to our trade partners around the world that he is serious about trade equality. President Trump’s new tariffs could be considered the most significant tariffs since the administration of President George W. Bush. A tariff on source materials such as these, used in the manufacture of countless goods could have a very long ripple effect.

Many aluminum and steel companies have been asking for more market parity for decades. These tariffs on imported materials represent a unique opportunity for domestic providers to recapture market share, ramp up production, add more high-wage employees to their payroll and, in turn, better support their investors, customers, and communities.

Our members in this sector are bullish about the opportunity and the positive effects it will have on their businesses and the Commonwealth’s economy.

We at the Kentucky Association of

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EXECUTIVE COMMITTEEJackie Hogan, Chair

Toyotetsu America, Inc., Somerset

Mike Baumgardner, Immediate Past ChairRetired, McCoy & McCoy Laboratories, Inc., Madisonville

Chris DriverHarshaw Trane, Lexington

Douglas Irvin, Secretary/TreasurerDarling Ingredients, Cold Spring

David HallCSX Transportation, Louisville

Lee Lingo, Executive DirectorKentucky Association of Manufacturers, Frankfort

Diane SnowFluor Federal Services, Paducah

Richard N. WhitakerSumitomo Electric Wiring Systems Inc., Bowling Green

DIRECTORSBluegrass

Rusty Ashcraft, Manager, Government Affairs & Environmental Policy, Alliance Coal, LLCJoe Blackburn, Plant Manager, Schneider Electric USA, Inc., Lexington

Chris Driver, Filtration Program Leader, Harshaw Trane, LexingtonLee Lingo, Executive Director, Kentucky Association of Manufacturers, Frankfort

Rejeana Thompson, Aichi Forge USA, Inc., GeorgetownEd Webb, President & CEO, World Trade Center Kentucky, Lexington

South CentralJackie Hogan, General Manager, Toyotetsu America, Inc. Somerset

Carroll Knicely, Jr., General Manager, CHUHATSU North America, Inc., GlasgowRichard Whitaker, Vice President, Sumitomo Electric Wiring Systems, Bowling Green

EasternByron Craig, Business Development Manager, Boneal, Means

Jason Macak, Engineering Manager, Marathon Petroleum Company, CatlettsburgRandy Norwood, Plant Manager, Regal Beloit America, Inc., Morehead

LouisvilleGeorge D. Adams, Partner, Fisher & Phillips LLP

Leanne Cunningham, VP, GM, Brown-Forman CorporationDavid Hall, Resident VP Public Affairs, CSX Transportation

Earl F. Jones, Senior Counsel, GE AppliancesGreg Kosse, General Counsel, Kentucky Farm Bureau Mutual Insurance

Brian Long, Plant Manager, The Chemours CompanyMoriah Ogilvie, Director, KY Large Group & Assn Retention, Anthem Blue Cross-Blue Shield

Christopher Perry, President & CEO, Kentucky Association of Electric CooperativesJohn Rainey, Regional Director, Government Affairs, Altria Corporate Services

Fred Thome, Plant Manager, Ford Motor CompanyPaul W. Weis, Manager, Business Services, LG&E-KU

NorthernDouglas Irvin, VP of Environmental Affairs, Darling Ingredients, Inc., Cold Spring

Carl H. Wicklund, Retired, Hebron

WesternRobert J. Baker, President, Campbell Tobacco, Mayfield

Mike Baumgardner, Retired, McCoy & McCoy Laboratories, Inc., MadisonvilleThomas Koehler, Site Manager, Wacker Chemical Corporation, Calvert City

Steve Loyal, VP Government Relations, Atmos Energy Company, OwensboroDiane Snow, Internal Assessment Lead, Fluor Federal Services, Inc., Kevil

KAM TEAM MEMBERSLee Lingo, Executive Director

Karen Ellis, Operations & Communications DirectorMatt Ellis, Director, Web Development & Creative Design

Sherry Harrod, Executive AssistantRachel Bayens, Legislative Agent

Carl W. Breeding, General CounselDonna Brown, Legislative Agent

Lloyd “Rusty” Cress, Executive Director, KAM Chemical Industry CouncilPrentice Harvey, Legislative Agent

Mike Helton, Advocacy Team LeaderBert May, Legislative Agent

Dustin Miller, Legislative AgentKelly Shasky, Legislative Agent

Mike Shea, Legislative Agent

KAM BOARD | GOODS

Manufacturers wanted a better idea of how these tariffs would affect the bottom line of Kentucky manufacturers. In that regard, we developed a questionnaire with some of our association partners-the Kentucky Automotive Industry Association, the Kentucky Aerospace Industry Consortium, the Kentucky Distillers’ Association, and the World Trade Center Kentucky. We sent the questionnaire to our members, and the data is being collected and anonymized.

Respondents to our questionnaire have shared that costs were already increasing due to anticipated constricted supply and growing demand, and those costs would continue to escalate. Many manufacturers reported that they would have to eat the additional material cost due to established or quoted prices.

As the story unfolds, Argentina, Australia, Brazil, the European Union, and Korea now join Canada and Mexico with exempted status from the steel and aluminum tariffs. The Trump administration has also begun what appear to be significant talks with China.

We are experiencing one of the most significant periods of intentional manufacturing disruption in several decades. Some of it has been beneficial to our industry, some less so. We will continue to monitor how the tariffs are affecting business in the coming weeks and report back to you what our manufacturers are saying.

Lee Lingo, Executive Director, KAM

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MARCH 2018 | KENTUCKY ASSOCIATION OF MANUFACTURERS | KAM.US.COM

GOODS | ADVOCACY CORNER

General Assembly Winds DownWe wrote this piece on April 2, the last day of the General Assembly before the veto recess. Members are scheduled to return on April 13th and 14th for the two final days.

House Bill 200—State BudgetOn April 2 the House and Senate both gave final approval to HB 200, the state budget, and HB 366, the accompanying revenue and tax reform bill and sent it to the Governor for his signature. Governor Bevin had not signed off on either measure at the time of this report. He will have ten days to sign, veto or let become law without his signature.

A “Free Conference” Committee of the House and Senate leadership, charged with resolving differences between the version passed by each chamber as well as the original version proposed by the Governor, finalized HB 366. The same free conference committee recommended the final passage of HB 366 which is pitched as comprehensive tax reform. The details were released as the conference committee was approving the bill. HB 366 contains new revenue sources that were used to restore some of the programs that had been cut in previous versions and helped to balance the budget.

The Governor’s version of the budget, introduced as HB 200 in the House, included 6.25% budget cuts to most state agencies and de-funded 70-plus state programs. The bill also fully funded the three pensions systems as well as making pension reform recommendations like reducing the cost of living increases and increasing the health insurance premiums for teachers. The administration also proposed a plan to begin to pay off the unfunded liabilities.

The House passed their version of the budget along with HB 366, a revenue bill that contained a 50-cent per pack cigarette tax increase as well as a 25-cent per dose opioid tax increase. Both taxes raised approximately $270 million annually combined. The House used the proposed revenue increases to restore funding to many of the state programs that were de-funded as well as cutting back on the 6.25% across-the-board cuts. The House fully funded the pensions but did not address pension reforms.

The Senate version of the budget fell somewhere in between the House and Governor’s versions, probably closer to the Governor’s. They did not include any proposed new revenue but retained many of the 6.25% cuts and many of

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ADVOCACY CORNER | GOODS

the defunded programs. They also fully funded pensions and introduced a pension reform bill in an amended revamped pension bill contained in Senate Bill 151. Teachers and retirees have been very vocal and by their presence have made their opposition known.

The final budget, as agreed to by both the House and Senate, fell somewhere between the two versions. The bill ended up including $240 million in new revenue created in HB 366.

House Bill 366 | Revenue & Tax ReformHB 366 as finally passed includes a cigarette tax increase of 50 cents per pack. Other tax changes include applying the sales taxes to some services. Those include landscaping, janitorial, pet care, fitness, recreational and laundry services, golf course and country club dues, to name a few. The bill also suspends three tax incentive programs including the Kentucky Industrial Revitalization Act, Kentucky Investment Fund Credit, and Kentucky Angel Investment credit. The income tax rate, both individual and corporate, were reduced to 5%. Other corporate reforms including applying a single-factor apportionment formula, establishing a phase-in inventory tax credit, and updates to the internal revenue code in effect on December 31, 2017.

A glaring omission in the tax reform bill was the failure to include funding reforms and an increase in the state’s road fund. HB 609, added a 10 cent gas tax increase along with several license and regulatory fees to generate $400 plus million to state and local road initiatives. The purpose of the new funds was to replace

almost $200 million lost to the road fund two years ago when average wholesale prices fell.

Senate Bill 151 (Formally Senate Bill 1)Pension BillThe pension reform initiative that we talked so much about this session finally passed as SB 151 on March 29. The final bill ended up closer to the House version than the Senate version. It made some changes for new hires into the state’s three central systems and very few for those currently in the systems.

New hires will be placed under a hybrid defined-contribution retirement plan. New teachers will not be included in the inviolable contract. All employees will no longer be able to have unused sick leave days earned after the effective date of the act apply to service time.

Here is the fate of some other bills KAM has been following:

House Bill 2 | Workers Compensation Reform - The bill provides for the following, among other provisions:• Clarifies that limitations on the

reopening of claims will be in accordance with current Kentucky Law

• Sets appropriate limits for identifying claims filed years after

• Establishes appropriate duration of payment of claims

• Encourages employers to bring workers back to work quicker

The bill received final passage on March 27th and awaits the Governor’s signature.

House Bill 3 | Essential Skills Bill - Provides for school districts to promote an essential workplace ethics program and to establish workplace ethics indicators.

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GOODS | ADVOCACY CORNER

Passed both chambers and awaits the Governor’s signature.

House Bill 324 | Critical Infrastructure/Drone - The bill was posted on the consent calendar in the Senate for March 29th and was expected to pass. The Kentucky Chemical Industry Council and Rusty Cress were instrumental in guiding the bill through both chambers with very few changes. It now awaits the Governor’s signature.

House Bill 227 | Net Metering - Provides that the rate of compensation for an eligible customer-generator for power to be set at the most recently approved retail price by the PSC. The bill received a lot of debate and was on the Senate floor pending consideration.

House Bill 370 | Brownfields Update - The bill simplifies regulatory procedures for developing a brownfields property. KAM was instrumental in passing the original brownfields legislation, and HB 370 should make it a much more straightforward statute to maneuver. The bill has been passed by both chambers and awaits the Governor’s signature.

SB 160 | Price Gouging - The bill modernizes the 14-year-old statute prohibiting grossly excessive price increases by sellers of goods and services during a state of emergency. The bill adds clarity drawing on other state laws proven to be effective. The bill also retains strong provisions in existing law and strictly prohibits grossly excessive price increases. The bill passed both chambers and awaits the Governor’s signature.

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MAKETIME: NETWORK PRICING | GOODS

Pricing in manufacturing and the search for the true economic cost of a machined part has been a challenge for manufacturers as long standing as the industry itself. According to recent studies, the existing pricing process results in cost discrepancies of up to 10X for an identical product (or part), depending on the company making it. Receiving a price typically takes days or weeks. Kentucky-based startup MakeTime launched their solution today: Network Pricing.

MakeTime’s Network Pricing instantly generates a budgetary price for machined parts, based on pricing data amassed from across the manufacturing landscape.

Having built America’s largest distributed manufacturing network, MakeTime has an unprecedented view into details that make transactions happen. Using over 40 million unique data points with advanced machine learning techniques, MakeTime has formulated algorithms to instantly generate a price range for any machined part.

“We’re giving procurement and purchasing professionals instant pricing insights based on the context of today’s market,” said Drura Parrish, Founder & CEO, “and the implications of this go far beyond procurement effciency. This technology has the potential to bolster the competitiveness of American manufacturing. As consumers continue to demand higher levels of customization, we continue to develop innovative ways

to help U.S. manufacturers satisfy that demand.”

As the founders of the “online machining revolution,” MakeTime’s focus is on making the disruptive technology of today — like machine learning, AI, IoT and cloud computing — accessible to U.S. manufacturers of all sizes and industries.

“This is a great example of how machine learning and AI can transform an industry. With each data point ingested by our algorithms, Network Pricing becomes more accurate,” said John Clemmens, Director of Data Science, adding, “eventually, highly customized parts will have pricing consistency comparable to that of commodities. The continuous stream of manufacturing information enables MakeTime to bring insights in real time that could not have been imagined in years past.”

ABOUT MAKETIMEMakeTime is the easiest way to source CNC machined parts. Powered by data and the nation’s largest network of qualified and connected suppliers, MakeTime radically compresses the manufacturing timeline, creating a reliable path to CNC machining production that is fast, intuitive and cost-competitive.

Manufacturing startup releases unprecedented pricing technology for CNC machiningUsing over 40 million unique data points with advanced machine learning techniques, Make-Time’s Network Pricing instantly generates a budgetary price for machined parts based on pricing data amassed from across the manufacturing landscape.

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MARCH 2018 | KENTUCKY ASSOCIATION OF MANUFACTURERS | KAM.US.COM

GOODS | TRADE AGREEMENTS

Often, international trade is boiled down to the simple math of imports versus exports. Despite the allure of the comparison, much is lost when global commerce is viewed through such a narrow lens.

Such agreements are colossal and extremely complex documents dealing with everything from intellectual property and regulatory standards across multiple industries to the time-table for reducing duty rates [foreign border taxes] on a wide variety of goods. This is understandable given the magnitude of economic activity happening across international borders and the inherent protectionist tendencies of most countries.

What is lost within the complexities and rhetoric surrounding these agreements, is the tremendous benefits to Kentuckians and the commonwealth’s economy. For that reason alone, it is imperative that the United States reevaluate our stance toward international trade — especially with the Indo-Pacific region, where billions of people are about to enter the middle class and trillions in economic value await. American companies and workers can’t risk missing out.

One of the tremendous benefits to the U.S. economy from the North American Free Trade Agreement is that it has integrated the manufacturing economies of the United States, Canada and Mexico.

Integration allows for components to be made in one country, moved to another where workers add another, and then sent to the United States for final assembly and export.

And the NAFTA supply chain is not unidirectional either: approximately 40 percent of the finished products imported into the United States from Mexico or Canada include U.S. components or material, in other words, American exports.

The high-tech manufacturing renaissance in the United States is largely predicated on the ability to move components between markets in a cost-effective manner. The market access facilitated by global trade and advantageous location within the U.S. has allowed Kentucky to attract world-class companies like Toyota. Protecting the efficacy of these global value chains through free trade agreements is critical to attracting new business investment and remaining competitive.

Consider an example of the interplay between foreign direct investment and free trade agreements. Due to the passage of the U.S.-Korea Free Trade agreement, a majority of goods entered the U.S. and Korea duty-free or at a reduced duty rate. Shortly after this agreement was passed, Toyota exported thousands of vehicles from its Georgetown location to Korea at a

Despite global uncertainty, trade agreements bolster Kentucky’s economyBy Darren Srebnick | World Trade Center Kentucky

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TRADE AGREEMENTS | GOODS

reduced duty rate.

While a significant portion of Toyota’s finished vehicles are produced for the U.S. domestic market, a sizable percentage are destined for a wide number of foreign markets. The continued investment by Toyota in the commonwealth in combination with its robust export volume is a force multiplier for our regional economy.

Global trade can be an important defensive strategy, too. This is especially important for parts of Asia where the rules of commerce are still being written. Agreements like the Trans-Pacific Partnership would go a long way toward ensuring that fair competition — not protectionism — becomes standard. In practice, this means creating new government procurement opportunities for American companies and preventing unlawful seizure of their property.

If America abdicates our influence in this region on commerce, China stands ready to fill the void. This further inhibits our ability to compete in a growing region and hinders America’s ability to build alliances through economic ties. Absent our presence in Asia to influence trade policy, the United States is left to defend itself against protectionist measures at the slower-than-molasses World Trade Organization — or abandon decades of American policy by replicating similar measures at home.

Perhaps the most underreported story on global trade is the benefit of greater cultural integration. Trade deals that ensure fair treatment through a level playing field go a long way toward

encouraging global businesses to operate in the United States. When they do, they bring different perspectives on business operations and new manufacturing techniques that encourage all businesses to raise their game.

The spillover effects for workforce development and manufacturing efficiencies cannot be underestimated. I can confidently say that I am a more productive worker as a result of my 10 years spent in the Japanese automotive industry.

Yet none of these benefits can be realized without the upfront investment of political capital and global leadership necessary to secure trade agreements. If America gives up our seat at the table, it will be American businesses, American workers, and the American economy that ultimately pay the price.

America’s leaders should hold fast in the belief that, around the world, there is no better guarantee of quality than made in America, and they should do whatever is necessary to make sure the entire world knows the same.

Darren Srebnick is the chief trade officer for World Trade Center Kentucky, managing the center’s trade advisory services and all educational programs.

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GOODS | TARIFF Q&A WITH WORLD TRADE CENTER KY

KAM: Thank you for joining me today.

DS - WTCKY: Thank you for the invitation.

KAM: We have a trade “imbalance,” what is that?

DS - WTCKY: This is also referred to as a “trade deficit.” It means that the value of imports is larger than the value of exports. In 2017, the total U.S. trade deficit for goods was $796 billion. The US imported $2.3 trillion of goods while it exported $1.5 trillion. From a Kentucky perspective, we exported approximately $31 billion of goods while we imported $47 billion.

However, keep in mind that the US has a trade surplus as relates to services. In 2017, the US exported $778 billion in services while importing only $534 billion. In other words, we have a trade surplus of $244 billion for services. It means U.S. services are very competitive in the global market. Quite frankly, this is underreported by the media and elected officials.

KAM: This administration has been very open about its trade policy priorities. Specifically, President Trump has been clear that he will seek trade deals with trade partners that are more favorable to America. What does that mean?

DS - WTCKY: First, I do not think Trump will pursue any multilateral agreements (e.g., NAFTA). He seems to prefer bilateral agreements (e.g., US-Korea). Even then, there does not seem to be much talk about bilateral agreements! It appears that the current administration is interested in

pursuing relationships that do not lead to furthering the trade deficit.

The current NAFTA negotiations are a window into this administration’s trade policy. The US wants to raise the threshold for the rules of origin (i.e., the combined content from US, Mexico, and Canada. For instance, the US wants to raise the rules of origin for finished vehicles from 62.5% to 85%. Also, the US wants 50% of that to be US origin. If and when any new free trade agreements are proposed, creating a “win-win” scenario will not be at the top of the priority list.

KAM: Who are our most significant trade partners? In other words, who receives the most substantial amount of exports from the US? How does this compare to the US as a whole?

DS - WTCKY: Kentucky’s largest trading partners from 2017 in order are Canada, United Kingdom, France, China, and Brazil. As a whole, the US’s largest trading partners are Canada, Mexico, China and Japan.

KAM: What is a tariff? Are they designed to generate federal revenue or spur sector growth?

DS - WTCKY: A tariff is a tax applied to the import of a product. One reason for tariffs is to protect the domestic industry. It is no accident that imported trucks are taxed at 25%. Another purpose is to generate revenue. However, most countries do not rely on tariffs as a significant source of income.

Question and Answer SessionDarren Srebnick, Chief Trade Officer, World Trade Center Kentucky

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TARIFF Q&A WITH WORLD TRADE CENTER KY | GOODS

The average applied U.S. tariff across all products is approximately 1.6%. The US, like other countries, can also employ various measures such as anti-dumping duty (used on products that the US deems to be “dumped” on the US market at a less-than-market value) to protect its domestic industry, in addition to the standard tariff applied. KAM: Recently, tariffs were announced on aluminum and steel. Why were these targeted?

DS - WTCKY: The administration is applying tariffs on steel and aluminum under Section 232 which is under the authority of the Trade Expansion Act of 1962. In essence, the tariff discourages importations so the US can build up its steel and aluminum production for national security reasons. Section 232 has rarely been used since its creation in 1962. The rest of the world is very suspicious that national security is the real reason for this tariff increase since the original list included our closest allies (e.g., Canada). Recently, Canada, Mexico, the European Union, Australia, Argentina, Brazil and South Korea have been exempted from the tariffs. However, there have been indications that this exemption is temporary.

I would argue that the application of these tariffs is one negotiating tactic – slap on high tariffs to bring the other party to the table for more favorable treatment of US products.

KAM: The third round of products to be hit with US tariffs is not yet final, but they seem to be predominantly electronics from China. Why these?

DS - WTCKY: These tariffs are being

applied under Section 301 which is also under the authority of the Trade Expansion Act. Section 301 is related to intellectual property infringement and the forced transfer of intellectual property from US companies which set up shop in China. In addition to tariffs, the Treasury Department may apply restrictions on Chinese investment in the US. The main reason that the Trump administration focused on electronics is that tariffs on these products will hit the Chinese hard.

Footwear, apparel and home goods are also targets. These are not insignificant industries in China.

KAM: What retaliatory tariff actions will likely be implemented by our trade partners?

DS - WTCKY: We may see retaliatory tariff actions that will hit our flagship industries and states with influential politicians (e.g., motorcycles in Paul Ryan’s state of Wisconsin). The current list includes spirits, motorcycles, pork, soybean, sweet corn, denim pants, peanut butter, fruits, cigars, makeup, footwear, steel among others. We need to keep in mind that the retaliatory actions are usually symmetric – the retaliating nation or region will apply retaliatory tariffs on an equivalent value of goods on which the US applied tariffs. In other words, if we apply tariffs on $50 billion of Chinese goods, the Chinese may apply tariffs on $50 billion of US goods.

KAM: How might all of this affect Kentucky businesses? Aerospace, Distilled Spirits, and agriculture products are some of our biggest exports. What is the likelihood these retaliatory efforts will affect their continued growth success?

DS - WTCKY: Without a lot of historical

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GOODS | TARIFF Q&A WITH WORLD TRADE CENTER KY

precedences, it is difficult to gauge the long-term growth trajectory. I might leave that to the economists. Our biggest fear is that some of our overseas buyers will seek out suppliers from other countries. Quite frankly, we already see this in the agricultural sector. Mexican buyers imported ten times more corn from Brazil last year amid concern that NAFTA renegotiations could disrupt their U.S. supplies. We cannot forget that Mexico has free trade agreements with 45 countries compared to 20 for the US.

While the US has a distinct advantage in many industries, other countries have come a long way in their global competitiveness. We cannot underestimate the efforts these countries are making to ensure that their country’s businesses are securing sales in overseas markets. Some of our clients have indicated that their foreign buyers have hesitated in making long-term commitments especially in industries that have long lead times for production. We hope that despite the potential application of tariffs to US products, the “Made in the USA” label will carry significant weight in buyers’ decisions.

KAM: What are some of the short- and long-term effects that US manufacturers could see from these tariff hikes?

DS - WTCKY: Higher costs of production are one immediate effect. Some US companies may switch to US suppliers but as you can imagine, switching to a new supplier is not an overnight process. Possible disruption to the supply chain may impact production schedules.

As previously discussed, buyers from our trading partners may look to stronger relationships with other countries. Once

those are locked in, it may be hard to win them back. Also, if the US tries to pursue a new free trade agreement, the potential partner may be wary of agreeing if their products were hit with retaliatory tariffs. We would be in essence limiting the market entry potential for US manufacturers. As of September 2017, Canada has greater access to the 508 million consumers in the EU through the EU-Comprehensive Economic and Trade Agreement. As you can imagine, a US-EU agreement is not in the cards right now. Furthermore, our trading partners could raise tariffs for “national security” reasons. Our protectionist measures could be used against us in the future.

KAM: Let’s talk about NAFTA. Where do we stand in the renegotiation process? Are we finding ways to work out our differences with Canada and Mexico?

DS - WTCKY: So far, we have made progress on six of the thirty chapters in NAFTA. However, there are some significant sticking points related to rules of origin. The Mexican and Canadian negotiators have balked at some negotiating aspects such as the insistence that the agreement include a sunset provision (i.e., agreement must be renegotiated every five years). Due to upcoming elections in Mexico, the pace of negotiation may slow down even further.

Important to note is that this administration has indicated that they would prefer to maintain a trilateral agreement. However, they would not rule out a bilateral agreement with Canada.

KAM: Can the US take a more nationalistic approach and still provide the products our citizens want and need?

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TARIFF Q&A WITH WORLD TRADE CENTER KY | GOODS

DS - WTCKY: Often a trade policy labeled as “nationalistic” can negatively impact the US. We cannot see trade as a black-and-white issue. It would seem that applying higher tariffs to our imports would only bolster US industry. However, there are imported components incorporated into finished goods for US and overseas markets. Raising US manufacturing costs by taxing these intermediate goods could negatively impact the bottom lines of US manufacturers.

There is a perception that Free Trade Agreements merely open up our borders to a flow of goods without any conditions. I would argue that they can are part of an “America First” strategy. Agreements cover everything from intellectual property protection to government procurement. NAFTA even has provisions related to short-term work assignments in Canada that exempt US citizens from obtaining a work permit. We can negotiate carve-outs that maintain US tariffs for certain products and secure market entry for our manufacturers. We need to insist on 1) provisions that ensure US products and services are treated fairly, and 2) a reliable system for enforcement should there be a breach. There is no problem with “free trade” as long as there are rules of conduct and we rapidly bring in the referees when needed.

KAM: When was the last time the US imposed tariffs of this significance? How long did it last? What was the net effect?

DS - WTCKY: In 2002, the Bush administration applied tariffs on specific steel products. At that time, I was a customs broker applying the 30% on importations by some of our automotive clients. The tariff lasted approximately 20 months. The EU threatened to retaliate

against certain US products, and the tariffs were dropped. According to a study by the International Trade Commission report, the US lost 200,000 jobs in downstream industries.

KAM: What advice are you giving to World Trade Center Kentucky members as they prepare for and adapt to changes in US Trade policy?

DS - WTCKY: The main advice we can give to our clients is as follows: 1. Subscribe to reputable trade resources.

You should not base major operational decisions on something that appeared in the New York Times. Always get information from the horse’s mouth (e.g., International Trade Commission).

2. Create the ability to execute rapid impact studies. Things are changing so fast it is critical that you know your import/export numbers inside and out so that you know the implications of the trade policy.

3. If you do not have robust import/export compliance procedures right now, we suggest tightening them up as soon as possible. You should be able to pivot quickly when import or export regulations change.

4. Determine your plan B, C, and D for switching suppliers if required whether that supplier will be located in the US or overseas.

5. Communicate your concerns regarding import/export matters which may affect your business operations to local trade organizations such as the District Export Council and World Trade Center Kentucky.

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GOODS | BB&T INSURANCE BEAT

The Fair Labor Standards Act (FLSA) requires employers to pay their employees for all hours they are “suffered or permitted to work.” These hours are known as “work hours” or compensable time.

What is compensable time?Compensable time includes all hours during which an individual is actually performing productive work and all hours an employee is required by his or her employer to remain available for the next assignment. Compensable time does not include periods where an individual is relieved of all obligations and is free to pursue his or her own interests.

How is compensable time calculated?To determine how much of an employee’s time is compensable time, employers must determine whether the employee is on duty, and how rest periods or certain industry extended hours affect an employee’s hours of work. The U.S. Department of Labor’s (DOL)

Wage and Hour Division enforces work hour standards.

What are the penalties for noncompliance?FLSA violations are punishable by a fine of up to $10,000, imprisonment for up to six months or both. In addition, these violations are subject to civil liability in state or federal courts and employers may be required to compensate employees for unpaid wages, liquidated damages, attorneys’ fees, court costs and any other amount a court sees fit to impose. Fee amounts may increase for repeat and willful offenders.

Employers may not discharge or discriminate in any manner against an employee who files a complaint or cooperates with the DOL in an investigation or proceeding.

Questions?Contact BB&T Insurance Services of Kentucky for more information on wage payment and work hour laws.

DID YOU KNOW?More than 60 percent of employee turnover is voluntary, according to a recent ADP Research Institute report. This report allows employers to understand the workplace characteristics that are most likely to lead to employee turnover.

If you are experiencing high turnover, chances are you are experiencing high losses as well. It costs nearly 20 percent of an employee’s annual salary to replace an employee. Contact us today to learn more about valuable retention strategies to implement at your company.

Compensable Time: What You Need to Know

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KAM.US.COM | KENTUCKY ASSOCIATION OF MANUFACTURERS | MARCH 2018

BB&T INSURANCE BEAT | GOODS

FBI Warns of Direct Deposit Phishing Attacks

The FBI warns that cyber criminals are posing as HR employees and using a phishing scam to get employees to provide the scammer with access to the company’s self-service payroll platform.

When employees click on the link within the scammer’s email and provide the requested information, they unknowingly provide the scammer with their W-2 and pay stub information. The scammer can then change direct deposit instructions, passwords, credentials and email addresses linked to the

account to avoid detection. In the majority of cases, employers were not aware of anything until workers reported they weren’t receiving their wages.

To learn how you can prevent this from happening at your organization, please view the FBI’s suggestions or request employee cyber security training materials from BB&T Insurance Services of Kentucky today.

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MARCH 2018 | KENTUCKY ASSOCIATION OF MANUFACTURERS | KAM.US.COM

GOODS | ENERGY FOCUS

If you’re considering investing in HVAC for your building, now’s the time to do it. For all property placed in service in taxable years beginning after December 31, 2017, HVAC is included in the list of capital investments that can be deducted as an expense.

Instead of having to depreciate HVAC investments over a period up to 39 years, you can now expense up to $1 million in the first year for HVAC systems for nonresidential buildings. The amendment intends to cover the entire HVAC system, so it could potentially impact most, if not all, HVAC updates and purchases.

Why should HVAC updates matter? New models of commercial HVAC are helping building owners meet sustainability goals without compromising efficiency, reliability or safety. New products are designed to help lower environmental impact with next-generation, low global warming potential (GWP) refrigerants, and high-efficiency operation. They deliver:

ReliabilityToday’s HVAC portfolios feature robust yet straightforward designs that enable equipment to last longer than more dated systems.

SafetyIt’s important to focus on using safe refrigerants with low flammability characteristics. Innovative heat exchanger designs in new air-cooled

chillers lower the refrigerant charge by 40 percent while reducing the potential for leaks. The low-pressure and leak-tight design of some chillers keeps the refrigerant inside the machine, resulting in the lowest field-documented leakage rates in the industry. These design choices mean a safer environment for your building and its occupants.

Energy efficiency Maintaining an efficient HVAC system is often the most effective way to minimize greenhouse gas (GHG) emissions. Use a balanced approach to optimize efficiency and lower energy costs. New HVAC products deliver high full-load performance to reduce energy demand and high part-load performance to reduce energy consumption.

Environmental sustainabilityUpgraded HVAC can help you reach your sustainability goals with a lower overall environmental impact, using next-generation, low GWP refrigerants, and highly efficient system operation. You will use less energy to cool your building while using refrigerants that minimize the potential for global warming.

Peace of mindGiven the highly regulated nature of the refrigerant industry, building owners and facility managers often have concerns about product compliance with existing and proposed regulations. New equipment can help the transition to next-

Good News: Tax reform now allows HVAC as a capital investment!

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ENERGY FOCUS | GOODS

generation refrigerants when the time is right. Knowing that your HVAC system is capable of operating using a next-generation refrigerant is your assurance that your assets are designed for the most up-to-date regulatory compliance and the ability to retain market value.

Depending on your tax obligations, that could have a significant impact on first-year cash flow and projected return on investment. Talk to your tax advisor to see how you can benefit from this

amendment. Interested in updating your HVAC? Contact us today at 502.499.7000 or HarshawTrane.com!

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MARCH 2018 | KENTUCKY ASSOCIATION OF MANUFACTURERS | KAM.US.COM

GOODS | HEALTH & WELLNESS

Given their importance in treating and preventing the spread of infectious diseases, it’s not surprising that antibiotics are among the most commonly prescribed drugs in the United States. Since the discovery of penicillin, antibiotics have become life-saving drugs that have revolutionized modern medicine. Prior to the discovery of antibiotics, it was very common for people to die from bacterial infections that we consider minor in today’s society.

Unfortunately, the overuse and misuse of these essential drugs have led to a phenomenon referred to as antibiotic resistance. Antibiotic resistance happens when potentially harmful bacteria change in a way that reduces or eliminates their effectiveness, which used to successfully kill them.

Antibiotic resistance is a significant problem that affects us all. Patients in our hospitals and throughout our communities are increasingly diagnosed with infections resistant to drugs which once were effective against them. Everyone can play an important role in combating antibiotic resistance. Below are a few tips to keep in mind about the proper use of antibiotics.

Take all antibiotics, as prescribed It can be tempting to stop taking antibiotics once a person begins feeling better, especially as employees return to work. However, by stopping treatment before the prescription is completed, you

may actually cause more harm than good as the antibiotics may not have killed all the bacteria that made a person sick. This can have serious consequences if the infection returns, because the harmful bacteria that remain may have adapted in a way that makes them now resistant to that specific antibiotic. This means the infection could last longer and become much more complicated to treat. This also puts others at risk, passing along the antibiotic-resistant bacteria to others and spreading illness throughout a work site.

Do not share antibiotics Never share antibiotics with family members or friends. Sharing means that the person who is ill will not be taking the full dosage needed to fight off the infection. Sharing the wrong type of antibiotic for an illness can potentially cause harm to someone else, causing a drug interaction with other medications they are taking or causing an allergic reaction. Even if an antibiotic is the same name as those needed by another person, the strength or length of therapy could be different. Only use antibiotics that are prescribed to you by your physician. Don’t demand antibiotics If a physician doesn’t believe antibiotics are necessary to treat an illness, do not demand a prescription. Illnesses, such as the common cold, flu, most cases of acute bronchitis and sore throats are caused by viruses. Antibiotics are not useful with these illnesses since they are only effective against bacteria. Symptoms

Understanding and Preventing Antibiotic Resistance in Your Employee PopulationCarrie Schanen, Pharm D, Managed Care Pharmcist, KentuckyOne Health Partners

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HEALTH & WELLNESS | GOODS

from most viral infections will generally resolve on their own over the course of a week; however, over the counter (OTC) medicines such as saline nasal sprays, antihistamines, or analgesics may help to relieve your symptoms. If you take antibiotics when you do not need them, they may not work when you actually do need them.

KentuckyOne Health Partners and KentuckyOne Workplace Care work collaboratively to strengthen the health of manufacturing workers in Kentucky. To learn about our innovative strategies that address health care needs while lowering costs, call 844.573.8942.

About KentuckyOne Health Partners KentuckyOne Health Partners is a care

management company with a network of primary care providers, specialists, hospitals, ancillary services, skilled nursing facilities and agencies that collaborate to ensure that their patients receive better health, better care, and a better experience at a lower cost. Nearly 2,000 providers across Kentucky, Indiana and Ohio participate in the network. KentuckyOne Health Partners engages with all health insurance companies in the Commonwealth, and contracts with businesses and payers. KentuckyOne Health Partners is the largest Accountable Care Organization (ACO) in Kentucky, has been recognized four times by Becker’s Hospital Review as “100 ACO’s to Know,” and has been cited in several national reports and publications.

Pub: Book of ListsSize: 10.375” x 6.76”Insert:

Client: KentuckyOneJob No: KYLX-63395Title: Workplace Care Ad

Good health is good business.The KentuckyOne Workplace Care health and wellness programs keep your employees healthy so they can give their best. Our programs are tailored to your specific needs, with a wide range of preventive and wellness services to keep employees healthy and safe, decrease workers’ comp claims and reduce lost work days.

For more information, visit KentuckyOneHealth.org/OccupationalHealth or call toll-free 844.573.8942.

KentuckyOne Workplace Care offers:

• Statewide coverage

• Access to KentuckyOne Health network

of services, including Anywhere Care,

primary care physicians and specialists

• On site/near site clinics and pharmacy

services

• Injury management

• Disease management

• Customized wellness programs

• Care management/health coaching

• Advisory services including benefit design

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GOODS | AGRICULTURE

Worksite wellness programs are often linked with decreased medical expenses for both companies and employees and have employers to offer subsidies for fitness trackers, smoking cessation coaches and gym memberships.

University of Kentucky researchers have discovered another important benefit: weekly deliveries of organic produce.

Before and after the growing season of 2015, university researchers Tim Woods and Jairus Rossi analyzed data collected from several dozen employees of the university who had been given $200 vouchers to pay part of the cost of a Community Supported Agriculture (CSA) membership. CSA memberships provide a weekly delivery of certified organic seasonal produce for approximately 20 weeks.

Comparing employee data with that gathered from a control group, the researchers found that employees who used the $200 vouchers (1) ate more fresh produce and less processed food, (2) were more likely to prepare food at home, (3) had increased interest in nutrition, and (4) reported visiting the doctor less and buying less prescription medicine.

These changes were particularly noted in voucher recipients who reported lower than average health before the produce delivery began.

While immediate benefits from the

voucher program -- fewer doctor visits and prescriptions – showed significant health care savings, behavior changes including eating more fresh produce and cutting down on processed food, hint at savings over years to come.

In the years since 2015, Lexington-Fayette Urban County Government and Louisville Metro government have both signed on to this employer voucher program.

Administration of the voucher program is handled by the Kentucky Farm Share Coalition. Governed by a board of organic farmers and others, the coalition approves farmers who are in the voucher program, helps plan and assist employee education and marketing, handles customer service and coordinates delivery schedules.

Employers can learn more about the employee CSA voucher program at https://www.oak-ky.org/employers or contact Brooke Gentile at kyfarmshare@oak-ky.org and (502)219-7378.

Kentucky Grown Produce Supports Wellness Initiatives

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AGRICULTURE | GOODS

Remember those old advertisements with the tagline, “Beef: It’s What’s For Dinner”? Now more than ever, Kentuckians can find locally-sourced Kentucky beef products thanks to the nearly couple of decades of work to attract meat processors and develop Kentucky’s food infrastructure network to support local farmers.

For years, the agriculture community has known that Kentucky is a beef cattle state. However, most folks may be surprised to learn that we are the largest beef cattle state east of the Mississippi. With more than 38,000 producers, more than 1 million beef cows, and programs supported by the Kentucky Agricultural Development Fund, Kentucky is in a unique position to produce fine beef for our citizens in Kentucky and around the world.

Take for instance, Kentucky Cattlemen’s Ground Beef. Launched on National Agriculture Day, Kentucky Cattlemen’s Ground Beef is fresh, natural beef produced by Kentucky farm families and processed by The Chop Shop, a Kentucky Proud member in Wolfe County that is the only Global Food Safety Initiative (GFSI)-

certified processor in the state. The beef is ground and packaged by another Kentucky Proud member, Creation Gardens of Louisville, and distributed from Kroger’s Louisville distribution center to more than eighty Kroger stores.

Kentucky’s growing beef market is evidence of what can happen when Kentucky farmers, producers, processors, distributors and retailers work together to support our state economy. Though Kentucky Cattlemen’s ground beef will be in Kroger stores, it joins the many other Kentucky Proud beef products available in local stores and restaurants around the state, ranging from Marksbury Farms in the central Kentucky region and Black Hawk Farms in western Kentucky.

It’s important to remember behind all of these products are our farmers. When talking to Nathan Lawson at the Beef Solutions launch event, he expressed excitement and passion for providing the fruits of his family’s labor for Kentucky consumers. “There’s a lot of love in that package,” he said. It’s true. Now, let’s get out there and support our farmers!

Kentucky’s manufacturing & processing capacity on display with growing beef marketBy Commissioner of Agriculture Ryan Quarles

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GOODS | OSHA

During the 2016 presidential campaign, President Donald Trump ran on a variety of issues — with the advancement of American manufacturing as one of them. Specifically, the Trump administration promised to roll back regulations that it viewed as “handcuffing businesses and stifling the economy.” To this end, President Trump immediately instituted a regulatory freeze shortly after he was sworn in, and then signed an executive order on January 30 requiring federal agencies to cut two regulations for every new one proposed. To date, federal agencies, including the Occupational Safety and Health Administration (OSHA), have withdrawn, made inactive or delayed a combined 1,036 regulations since President Trump took office. Despite these deregulatory actions, some of the OSHA standards and rules that were legally promulgated by the previous administration have recently become, or will become, effective. Furthermore, OSHA enforcement actions have not slowed under the Trump Administration. As such, employers should be aware of what’s changed, what’s stayed the same and what’s yet to come regarding OSHA enforcement. Here is a sampling of what is and isn’t changing under the Trump Administration.

Electronic Recordkeeping Requirements OSHA’s new electronic recordkeeping portion of the new recordkeeping regulation became effective on December 15, 2017. Known as “Improve Tracking of Workplace Injuries and Illnesses,” the new federal OSHA rule requires certain employers with more than 20 employees to electronically submit injury records that will be posted on OSHA’s website.

These requirements were previously set to begin in July 2017, but were delayed to December 1, 2017 in order to allow OSHA “the opportunity to further review and consider the rule.” OSHA’s website portal became available on August 1, 2017. In response to privacy concerns, OSHA has stated its intention not to publish personally identifiable information included on Forms 300 and 301; however, some advocacy groups have filed FOIA lawsuits to obtain this information. Form 300A does not include personally identifiable information. Keep in mind that State Plan states, such as Kentucky, are required to have OSHA programs that are at least as effective as federal OSHA, and are consequently required to adopt and implement new federal standards, or a more stringent standard, within six (6) months of the adoption or amendment by federal OSHA. Kentucky OSHA’s electronic recordkeeping rule went into effect on January 1, 2017. The anti-retaliation provisions of the new regulation became effective on December 1, 2016 for federal OSHA, and became effective in Kentucky on January 1, 2017.

Silica Standard OSHA has delayed enforcement of the crystalline silica standard. OSHA issued its final rule on Occupational Exposure to Respirable Crystalline Silica on March 25, 2016. The final rule established a new eight-hour weighted average permissible exposure limit of 50 µg/m3, an action level 25 µg/m3 and a host of other requirements for all covered industries. The rule was originally scheduled to take effect on June 23, 2017, but was delayed to September 23, 2017. Enforcement in the construction

OSHA Update: A Year in the New AdministrationBy Todd B. Logsdon and Chantell C. Foley

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OSHA | GOODS

industry began on September 23, 2017, but a one-month grace period was provided to employers to comply with the standard. OSHA is set to begin enforcement of the silica standard in general industry, including manufacturing, and the maritime industry on June 23, 2018.

Walking Working Surfaces RuleOSHA’s walking working surfaces and personal fall protections rule became effective on January 17, 2017. Although the rule went into effect last January, there’s a requirement that fall arrest and ladder safety systems be installed on existing and new fixed ladders before November 19, 2018. Existing and new fixed ladders installed after the compliance date must be equipped with a personal fall arrest system, ladder safety system, cage, or well. Employers should begin to make plans regarding how to comply with the new fall protection requirements by the November 19 effective date.

OSHA Inspections and Penalty AmountsOne of the most anticipated changes concerning OSHA enforcement under the Trump Administration has been the decrease of workplace inspections. This

change has not manifested. Kentucky OSHA and federal OSHA compliance officers are still inspecting worksites and issuing citations. According to DOL statistics, OSHA inspections have increased during President Trump’s first term, with 32,396 inspections conducted in fiscal year 2017 compared with 31,948 in fiscal year 2016, during the Obama administration. In addition to increased inspections, federal OSHA has imposed rising penalties against employers for workplace safety violations despite the Trump administration’s deregulatory agenda. The average penalty per serious violation rose to $3,645 per violation in fiscal year 2017 compared with $3,415 during the previous fiscal year, as a result of OSHA’s fine increases. Several State Plan states, including Kentucky, have not adopted the federal OSHA fine increases.

What’s the Future of Workplace Safety? An important change on the horizon is the Senate confirmation of presidential nominee Scott Mugno to head OSHA as the Assistant Secretary of Labor. If confirmed, Scott Mugno would take over from Loren Sweatt, who has served as acting assistant secretary of labor

C O N F E R E N C E

State ofMANUFACTURING May 8-9, 2018

Lexington Center

KENTUCKY ASSOCIATIONOF MANUFACTURERS

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GOODS | OSHA

Expert guidance, beyond the bottom line.

we are the people that will move your business forward.

We’re more than Kentucky’s largest accounting firm,

888.587.1719 | www.mcmcpa.com

Glenn Bradley, CPA Assurance Partner Manufacturing Services Team Leader Glenn.Bradley@mcmcpa.com

TAX SERVICES ConSulTIng SERVICES4% ASSuRAnCE & AudIT SERVICES

since July 24, 2017. How Scott Mugno’s confirmation will effect OSHA enforcement has yet to be determined. So far the Trump administration is following through on the president’s campaign pledge to roll back government regulations. In Kentucky, keep an eye out for HB 314, which seeks to abolish the Kentucky OSH Standards Board and give authority to adopt, amend or revoke Kentucky OSH standards and regulations to the secretary of labor. This may be a critical piece of legislation to employers. The bottom line is, regardless of whether the safety and health standards change or don’t change, federal and Kentucky OSHA still want to ensure the safety of American workers. As such, employers should continue to work toward compliance with existing OSHA standards. When OSHA

comes to your jobsite, it is imperative that you know and exercise your rights during an inspection. It’s just as important under the Trump Administration as it was under the Obama administration to really be ready for an OSHA inspection.

This article presents an overview of certain legal issues. It is not, and cannot be construed as, legal advice. For more information, contact Fisher Phillips’ Louisville, Kentucky office (502-561-3990).

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BUILDING A BRAND | GOODS

Expert guidance, beyond the bottom line.

we are the people that will move your business forward.

We’re more than Kentucky’s largest accounting firm,

888.587.1719 | www.mcmcpa.com

Glenn Bradley, CPA Assurance Partner Manufacturing Services Team Leader Glenn.Bradley@mcmcpa.com

TAX SERVICES ConSulTIng SERVICES4% ASSuRAnCE & AudIT SERVICES

Creating a memorable brand is more than just finding the right logo and building the perfect website. It’s about creating an identity your followers are proud to stand in support of, and it requires community engagement from the grassroots level on up. After all, consumers can spend their resources anywhere, meaning that if you fail them, there are dozens of other businesses willing to take your spot (and their money). No one is indispensable.

So, is it any surprise then that brands who engage their consumers—the ones who create whole communities around their products—perform better in the marketplace than other brands? No, it isn’t. But it’s not just high-profile tech giants like Apple and Samsung that are focused on extending the user experience through community-based messaging and consumer interaction. Even small organizations can focus on creating a fulfilling experience for everyone who comes in contact with their brand and promoting community engagement.

Here are five tips for engaging and building your brand followers, plus one company who’s hitting the ball way out of the park.

How to Build a Better Brand Community

Look who’s talking and make them friends.Take a look at who’s already talking about your industry, your brand, and your products.

Do this by checking out social media sites, industry internet forums, and anywhere

that your brand appears in print. By focusing on pockets of users who are already invested and excited about your brand, you’ll have a foundation to build on. The key here is starting small. You may find many organic communities sprouting around your brand, or you may find just one — try not to engage all of your user communities at once. Instead, focus on the one or two where your efforts will matter most and start there.

By starting small, you can better understand the needs of your users which will help to focus future efforts further. According to Nielsen, up to 83% of consumers trusted a peer’s recommendations over advertisements. It’s up to you to leverage the connections at your disposal by asking your friends and colleagues to be a part of your community and using their contacts to help you grow.

Brand advocacy is more than just a number–keep it simple.Did you wake up this morning and have 100 new followers? You might get excited, but ultimately, that number itself doesn’t mean much.

It’s the quality of the followers that counts the most. Twenty new followers who actively engage with your brand through shares and positive referrals are a far better investment than 100 new followers who are just sitting around stagnant. Sure, 100 looks better than 20, but it doesn’t necessarily get you ahead.

If you want to grow your following but also want people to share your content,

Building a BrandHow Brand Communities Can Impact Your Business

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GOODS | BUILDING A BRAND

products, and services, make it easy for them to do so. When they sign up for your newsletter, ask them to follow you on Twitter or Facebook, then provide opportunities for them to share tweets or posts with their friends. Sometimes you just need to ask, and they’ll take it from there.

Be Bold. Stand out.By focusing on one or two of your communities where you have the most potential for growth, you allow yourself to experiment and try new things because the cost of failure is relatively low. If you have a lot of growing to do, the ground is a lot closer if you fall. Whenever you begin to build your community around your brand is the perfect time to develop your voice (and have a ton of fun doing it).

Don’t get a big head.Twitter followers and likes don’t mean you have succeeded in building a community. Many brands engage their users/consumers directly and individually, but it’s not translatable on a larger scale. The real win happens when you connect them with

one another. By encouraging members of your community to speak to each other, and providing them an avenue and a space to do so, you lay the groundwork for a self-sustaining population that can provide valuable insight and consumer feedback.

The best things in life take time.Exceptional brand awareness and community-building take time. Consumers want to deal with brands that share their values and listen to their thoughts which keep a community (and its related activities) continually evolving. Promoting and nurturing your brand community requires your organization to foster community engagement on a number of levels and provide a non-monetary value they can embrace time and time again.

A Brand on the Right Track

DeWALTDeWALT, one of the leading manufacturers of high-quality power tools is one of the best examples of a company that makes a top-notch product and has built a thriving user community around its brand.

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BUILDING A BRAND | GOODS

They’ve done the legwork by producing quality products that users can trust and depending on those same users to tell them when improvements are needed.

And they meet their users where they are which is critical to their success.

DeWalt not only engages its users with surveys and rewards, but also on social media platforms, internet forums, at conferences and conventions, and most importantly, on the job site. It’s a conversation that has worked so well over the years that now when DeWALT wants to get new ideas, they turn toward a dedicated community of more than 10,000 end-users to help decide where they should be focusing the company’s resources, innovation, and overall mindset.

“One of the best things about our insight community is the speed at which we can get research done. Before establishing the community, we relied on other research methods, including sending customer surveys to an email database. However, the result that we got from ad-hoc surveys didn’t meet our expectations. The response rates were low. We had to send out surveys repeatedly so we could get enough responses, slowing down the process. ”— Shannon Chenoweth, Market Research Manager, DeWALT

Over the years, DeWALT has brought home several awards for its community building outreach. The company continues to invest time into these conversations and to use their community to get to know customers and their needs while gathering invaluable product, packaging, and marketing feedback.

The best part? This community feedback saves DeWALT approximately $5 million annually in market research costs. We’d call that a win-win.

For more information or help in building your brand by building community, contact Blackstone Media at 502.212.0894 or visit their website blackstonemedia.com.

“One of the best things about our insight community is the speed at which we can get research done. Before establishing the community,

we relied on other research methods, including sending customer surveys to an email database. However, the result that we got from ad-hoc surveys didn’t meet our expectations. The response rates were low. We had to send out surveys repeatedly so we could get

enough responses, slowing down the process. ”

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GOODS | MEP

Once you ask yourself these questions, you may find yourself interested in considering new or additional suppliers.

Where do you begin this process? How do you let potential suppliers know what your needs are?

A good place to start is your Kentucky Manufacturing Extension Partner. Advantage Kentucky Alliance (AKA) is the Manufacturing Extension Partner for the commonwealth of Kentucky. Since we work with manufacturers all over the state, and since we are partners with MEP’s all over this glorious nation, we can reach potential suppliers from all over the state and even the U.S.

Will your company be charged anything for this service? No, there are no charges or costs associated with this service.

AKA has just modified its Supplier Sourcing process to make it very simple and easy to use. You can find our Supplier Sourcing on our homepage, advantageky.org. It is at the top left of the page (most likely the first place to which your eyes will be drawn. This is what it looks like:

To get the ball rolling you need merely go to our AKA website, advantageky.org, and click under “Need a Supplier?” This will take you to a very short and sweet form to let us know your need and how to contact you. Keep in mind that there are no costs for this service and, If you don’t believe that the process is short and sweet, try it now.

Once you have completed that simple form, you will receive an email confirming that we got your request. AKA’s Marketing Specialist will then contact you to get any additional information about your supplier need. (You can even respond to the initial email with files and documents for your need.)

We will then add your need to a list of posted needs also on our website. This list will include your contact information so that the potential suppliers can contact you directly. You do not need to worry about your need getting lost in the bureaucracy or multifaceted communication stream…

We will leave your need posted on this list for at least 2 months, unless you ask for it to be removed at a different date.

Matching manufacturers with suppliers is one of the many services that AKA offers. Check us out today at advantageky.org. Or, you can call Kurt Felten, AKA’s Marketing Specialist at (606) 620-0076 to find out more about our Supplier Sourcing program or any of the manufacturing benchmark programs that are offered by Advantage Kentucky Alliance.

Need a Supplier?By Kurt Felten, AKA Marketing Specialist

You’ve heard it said before “you are only as good as your weakest supplier”. Do you have a new product, service or process for which you could use a new supplier? Do you need to decrease your supplier risk by adding some additional suppliers? Are your current suppliers doing you justice?

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ACCOUNTING | GOODS

Two major accounting rule changes will soon go into effect — and they’re ex-pected to have major impacts on how many manufacturers and distributors report their financial results. Here are the details, including what’s changing, when the changes must be implemented and how they’ll affect financial statements.

A new lease on leases

Of the two updates discussed here, the changes to lease accounting are much more straightforward. In fact, the Financial Accounting Standards Board (FASB) didn’t even assemble a transition resource group to help companies implement the updated lease guidance. However, the FASB has recently proposed changes to address certain implementation issues.

In a nutshell, Accounting Standards Update (ASU) No. 2016-02, Leases, requires operat-ing leases with terms longer than a year to appear on the lessee’s balance sheet. As a result, manufacturers and distributors will report leased warehouse space, vehicles, equipment and other property as right-to-use assets, along with the rent they owe as liabilities. Companies will also need to evaluate service contracts to determine the possibility of leases that are embedded in those contracts which will be impacted by the new standard.

The existing lease accounting rules in U.S. Generally Accepted Accounting Principles (GAAP) require companies to record lease obligations on their balance sheets only when the arrangements are similar to financing transactions, such as rent-to-own contracts for buildings or vehicles. So, operating leases are not reported on the balance sheet under existing GAAP.

This fundamental change in financial reporting will make lessees appear more leveraged than they did in the past — even if the company’s day-to-day operations haven’t changed. In some cases, the new standards will cause companies to violate loan covenants, requiring them to obtain waivers from lenders or renegotiate financ-ing terms to reflect higher debt ratios.

For public companies, the updated lease accounting standard goes live in 2019. Private companies have an extra year to

comply. Companies that issue comparative statements will need to start collecting data to implement the changes well in advance of these deadlines, however.

Major changes to the income statement

The changes to revenue recognition under ASU 2014-09, Revenue from Contracts with Customers, are far more complicated than the updated lease guidance. The new rev-enue recognition update replaces about 180 pieces of industry-specific guidance in GAAP with a broad, principles-based method for most businesses to recognize revenue. This new approach to revenue recognition is more closely aligned with ASU No. 2014-09, which will require com-panies to follow five steps when deciding how and when to recognize revenue:

1. Identify a contract with a customer.

2. Separate the contract’s commitments.

3. Determine the transaction price.

4. Allocate a price to each promise.

5. Recognize revenue when or as the company transfers the promised good or service to the customer, depending on the type of contract.

The updated guidance will require com-panies to exercise more judgment when recognizing revenue than do the existing rules.

The changes will be significant, especially for manufacturers and distributors that enter into specialized, long-term contracts with customers. For some companies, the updated guidance will result in earlier revenue recognition than in current prac-tice. This is because the new standard will require companies to estimate the effects of sales incentives, discounts and war-ranties. The new standard also provides guidance on service revenue and contract modifications.

Nearly all manufacturers and distributors will need to beef up their footnote dis-closures under the new rules. The update requires detailed breakdowns of revenue by product lines, geographic markets, con-tract length, services and physical goods.

The revenue recognition guidance goes into effect a year before the lease standard: It’s effective for public companies in 2018 and private companies in 2019. Last December, the Securities and Exchange Commission estimated that 22% of companies hadn’t started implementing the revenue recogni-tion standard guidance — and that statistic is likely higher among private firms.

Proactive manufacturers that have started the implementation process forewarn of the challenges. Last November, Christine DiFabio, assistant controller at Zoetis, a manufacturer of animal medicines, said during a panel discussion at Financial Ex-ecutives International’s Current Financial Reporting Issues Conference, “For those people who haven’t started or are very early [along], try to start to speed it up, because while you may not think it will have a significant impact financially, it’s a significant impact in workload — and documentation efforts as well.” She de-scribed the accounting change as “all encompassing.”

Need help?

With the implementation deadlines for the updated lease and revenue recogni-tion standards fast approaching, it’s time to review your contracts. That’s the first step in implementing the changes.

Expert guidance, beyond the bottom line.

MCM CPAs & Advisors www.mcmcpa.com | 888.587.1719

GET READY TO ROLL OUT THE NEW ACCOUNTING STANDARDS

By Brad Smith, CPA Assurance Partner 812.670.3467 Brad.Smith@mcmcpa.com

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MARCH 2018 | KENTUCKY ASSOCIATION OF MANUFACTURERS | KAM.US.COM

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