Navigatingthe

Economic Storm

Presentation Outline• Company Background• Journey to Lean and World Class• Economic Downturn• Measures Taken• Opportunities• Results• Lessons Learned• Moving Forward

Company Background• Provider of Machining, Welding, Fabrication

and Assembly of components to Off-road OEM’s

• Locations in Canada and China• 33 Years in business• Total of 250 full time employees in 3 locations• Non-union, privately held• Extremely competitive environment

Our Customer’s

The Challenge

The Challenge• Pressure from customers to continuously

reduce costs• Service/Product offered becoming commodity

type business• Growing global competition• Shortage of skilled labor • Changing customer demands-faster, better,

lower price.

Strategic Plan

• Develop a clear company direction.• Retained external resources.• Wide input to develop the plan • Created our Mission, Vision &Value

Statements• Defined a strategy for growth.

To contribute to the success of our customers through world- class practices, with a focus on performing value-added activities and eliminating waste

CGL Mission

Why Lean?• Recognized a need for Continuous

Improvement

• Philosophy and tools that made sense

• Support from practioners and associations

Lean Implementation Plan• Developed a three year

plan defining the approach to apply the Lean Toolsand Philosophies to everything we do.

• Training for management a priority

• Tied into the Strategic Plan

Lean Tools• 5S

-Company wide training-5S Office Fridays

• Value Stream Mapping-Started with management in administrative areas,

order entry, RFQ process.

• TPM-Training for maintenance personnel, implementation

in cell areas.

One Piece Flow• Customer requested 20% reduction in price

for a family of parts that CGL supplied for several years

• Created a cell that combined welding and machining

• Eliminated 1000 km of annual lift truck travel.

• We met our customer request

Lean Tools• Kanbans

- Gradually introduced to cells and specific areas that we where experiencing ongoing problems with the traditional purchasing practices.

Visual Management

Lean Tools• Management Buy-In

– Recognize and reward required behaviors– Management Performance Reviews– Role of Supervision critical

• Marketing Perspective– Builds credibility with Global firms– Systematic way to maintain competitiveness– Facility leaves favorable impression

Critical Factors for Success• Training

-Started with the management group to create continuity and support for the rest of the team –paradigm shift needed.

-Lean simulation exercises-Value Stream Mapping-5S-Benchmark tours – internal/external

Critical Factors for Success

• Communications– Regularly scheduled meetings at all levels– Company Newsletter– Town hall Meetings – English language training

Achievements • Development and implementation of five

production cells, establishing one piece flow.• Developed a Lean based supplier certification

manual.• Greater than 40% reduction in inventories.• Freed up floor space for production that was

previously used to house excessive inventories.

Achievements Cont’d

• Over 500 days no lost time injuries.• Created pull systems that allow for smoother flow

of materials and information• Third party recognition, AME, EMC, IQPC,

Industry Canada.• Customer and prospect feedback “Best machining

facility ever seen”

January 2008• Struggling with margins, but the place looks

great.• Complacent, fat and comfortable• Steel prices increase 40% at start of the year• Escalating employee turnover rate• C.I not a priority• Sales still good

The Storm

Economic Downturn

• December 2007 marks the start of the Global recession.

• Sales forecast for 2008 - $32 Million• Employees – 161

• Direct – 108• Indirect - 53

Downturn

September 2008 -• Second biggest customer announces closure

of Canadian operation. • 30% of sales in jeopardy.• New players, new relationships

US Dollar Weakens

• MEMORANDUM• To: CGL Manufacturing Key Contributors• From: Dave, Doug and Mike• Date: December 18, 2008• Re: A Storm is Coming - Expectations for CY2009 •• Team:• A storm is coming as our economy dips further into a recession and we must be prepared. To date our customer orders have remained steady

but they will drop as construction, forestry and material handling customers continue to cut capital expenditures.• In order to prepare for this storm and ensure we remain profitable we must and will do the following:• Reduce costs – material costs, operational costs , manpower both direct and indirect• Reduce inventory – inventory is tied up cash, we need to free up cash• Improve productivity – achieving the productivity targets is critical for profitability• Reduce spending – do we really need everything we buy?• Ensure we have the right people, with the right skill sets, in the right positions at the right time.• Each of you plays a critical role in the operation, profitability and success of CGL – that is why you are a Key Contributor.• Lets all use the Christmas break as an opportunity to recharge our batteries and to spend time with family and friends. In January, we need to

return to work prepared to be entrepreneurial, lean and focused on eliminating waste and cost from the organization.• We will need your support as we look at all aspects of our business and make difficult decisions about where we are going and how we can

make CGL a better, strong and more profitable supplier for our customers. Change is inevitable, change is critical to success, change will benefit us all as we stay focused on being a profitable supplier of choice for our customers.

• On January 5, 2009 each of you is required to return to work armed with three suggestions to reduce operational costs. Your suggestions should require little to no capital or resources to implement. Please e-mail them to us so we can tabulate them – we will hold a meeting with the Key Contributors to review and prioritize your suggestions.

• For clarification, operational costs include:• Freight• Scrap• Shop Supplies• Repairs and Maintenance• Tooling – Consumables, Durables, Fixtures• Inventory• Manpower / Benefits• Material Costs• Computer and Office Expenses• Travel and Entertainment• Thank you for your hard work and commitment to CGL. All the best to you and your families this holiday season. We have a great team and

we are looking forward to a successful and profitable 2009.• Dave, Doug and Mike

PRESIDENTDave Deskur

Supply Chain ManagerRod Lilke

VP FinanceDoug Smith

Sales & MarketingManager

John McClennan

AdministrativeAssistant/

ReceptionistJessica Deskur

Engineering Manager

Dave Thompson

Quality Assurance Manager

Peter Cashin

Plant ManagerCharles Stewart

Warehouse Supervisor

Kevin Jackson

ShippersReceivers

Picker

I.T. CoordinatorsRachel Chinchilla

Dave Layzell

Accounts PayableSusan Lapello

EstimatorRay Walters

Tool Room

Quality PlannerKen English

Welding & FabricationSupervisor

Quality TechniciansGreg White

Thanh NguyenAaron Wenger

Welding & FabricationOperators

Production Supervisors

Machine Shop

Machine Operators

CGL Board of Directors ChairBert Penzendorfer

Inside Sales Administrators

Lee EmeryDonna Lizotte

Manufacturing Engineers

MaintenanceTechnicians

ProductionManagerMinh Ton

Plant Cleaner

BuyersTahir Ali

Becky Bridges

Material Handlers

New ProgramSet Up and

Programming

Painters

Tooling Supervisor

Terry Holmes

Tool CribAttendants

Current ProgramSet Up

VP OperationsMichael Ritchie

Human ResourcesManager

Karen Winter

Quality PlannerLorne Robinson

Organizational StructureJanuary 2009

DownturnJanuary 2009 –

• Sales forecast – $16M• First round of layoffs – 29

• Direct – 91• Indirect – 42

132

DownturnFebruary 2009 –• Sales forecast – $16M• Second round of layoffs - 25

• Direct – 75• Indirect – 32

107

Austerity Measures• Wage freeze across the board• Management wage cuts 10-20%• Work share program• Overhead cost cutting

– Social events– Benefits– Lawn Care– Freight– Travel restrictions

Where is the Bottom??

• Unreliable customer forecasts• How much deeper can we cut?• Weekly review with Senior Management

Group• Sales• Costs

Downturn

March 2009 –Sales forecast – 12M• Third round of layoffs

• Direct - 67• Indirect - 23

90

Layoff Selection Process• Skill set, capable of multitasking • Attitude• Leadership• Strong problem solving skills• Creative • Change agents• Best soldiers

Layoffs• Deep cuts• 25 year relationships• Challenged our Values• $600,000 in severances

PRESIDENTDave Deskur

VP FinanceDoug Smith

AdministrativeAssistant/

ReceptionistJessica Deskur

Engineering Manager

Dave ThompsonQuality Assurance Manager

Peter Cashin

Accounts PayableSusan Lapello

Tool Room

Welding & FabricationSupervisor

Quality TechniciansGreg White

Thanh Nguyen

Welding & FabricationOperators

Production Supervisors

Machine Shop

Machine Operators

Inside Sales AdministratorsDonna Lizotte

Manufacturing Engineers

MaintenanceTechnicians

ProductionManagerMinh Ton

Plant Cleaner

BuyersTahir Ali

Becky BridgesMaterial Handlers

Painters

VP OperationsMichael Ritchie

Quality PlannerLorne Robinson

Organizational Structure April 2009

Control Costs• Determine our new breakeven• Build a costing model • All purchase orders and purchase requests

required President or VP signoff. “John Henry for every penny”

• Make everyone an accountant• “Need” or a “Want”?

Costing Model• One page income statement• Key drivers

– Labor hours/sales– Overhead– Material

• Weekly review with Managers and Supervisors

“All Hands on Deck”

• Remaining team needed to wear several hats

• Identify issues and respond quickly• Developed “FOCUS” Program. Quick

response to issues on the shop floor.

Communication• Ease fear and anxiety, have we hit the

bottom?• Younger team members never experienced

an economic downturn• Bi-weekly town hall meetings• Employee communications meetings• Weekly meetings with managers to ensure

focus

Behaviors• Customers

o Downsizing lead to insecurity in buyers. Information poor.

• Employeeso Fearo Survival mode

• Supplierso Concern if we would be here tomorrow.

• Banko Abandonment

Closure of Excel SteelJuly - 2009 • Contracted business to former supplier• Leveraged buying opportunity for steel• Lower cost for materials• Less overhead requirements• Focus on core business

New Strategy

• Reinvent ourselves• Get close with the customer• Identify new opportunities that the

competition has left behind• Map all processes that where effected

by the downsizing. Remove waste.

Network• Identified the jobs that where low

margin• Created a network with two

smaller shops that where struggling.

Raymond Closes Canadian Operation

September – 2009• Largest customer announces move to US.• 40% of Sales• 33 yrs• New players, new relationships

The BankMarch - 2010• 2009 showed a loss due to severances• 33 year relationship • Lost interest in manufacturing sector• Find new financial institute• Better support and terms

Opportunities

• Competition reduced• New customer added, $8M new sales• New product lines when customers

reorganized their operations• Formed partenerships with other shops

Programs Introduced• Daily walks with the management team and

supervisors. • FOCUS• Asachi meetings• Lean/Six sigma black belt training • Shop floor audits to identify potential issues

and gather feedback for the team

Asaichi Meetings

Current Situation• Employees – 118 Direct -90, Indirect -28 • Sales forecast – 35 Million• All staff on full time• Recall • Managers salaries returned• Margins have improved• Former long term employees have found new

employment

President and CEODavid Deskur

VP FinanceDoug Smith

Engineering Manager

Dave Thompson

Quality Assurance Manager

Peter Cashin

Plant ManagerErick Trigueros

Warehouse Team Leader

Dan Cao

Shipper / Receiver

Chau Huynh

Accounts PayableSusan Lapello

Tool RoomCun Sang Dip

WeldingSupervisor

Hong Phuong

Quality TechniciansGreg White

Than Nguyen

Welders & FabricationOperators

SupervisorMachine Shop

Chi Luong

Machine Operators

Inside Sales AdministratorDonna Lizotte

Manufacturing Engineers

Than VuongDan Quan

MaintenanceTechnician

Wing Ng

ProductionManagerMinh Ton

Plant CleanerEd Nguyen

Purchasing Supervisor

Tahir Ali

Material HandlersGiang Ngo

Set Up and Programming

Eric Lee

PainterLy Tran

Maintenance Team Leader

Jim Green

Tool CribTeam LeaderBrian Keeble

Director of OperationsBrian Holland

Administrative AssistantsJune Kehl

Quality PlannerLorne Robinson

Vice President and General Manager

Michael Ritchie

Lessons learned• Communicate, make sure everyone knows where

they stand.• The devil is in the details• Leadership is Key

– Managers and Supervisors need to constantly deliver same message and walk the talk.

• Listen more to the team, high anxiety and fear effects their ability to perform

Lessons Learned(cont’d)

• Spend time improving, eliminating waste.• Remove minutia• Plan for the worst, be a good boy scout.• Surround yourself with third party support that is

brutally honest.• Keep close with the team. • Tomorrow will come• Change is good, from change comes opportunity

Moving Forward

• Expand on new customer opportunities• Leverage continuous improvement to

maintain our edge• Identify and mentor up and coming stars• Rebuild and conquer