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A Layoff Aversion Program That Saves Companies and Jobs!. As Developed and Refined in Livingston County, Michigan NAWDP Webinar August 17, 2011. Discussion Topics. Economic Overview Overview of the Solution to Save Companies and Jobs Overview of Process & Benefits

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a layoff aversion program that saves companies and jobs

A Layoff Aversion Program That Saves Companies and Jobs!

As Developed and Refined in Livingston County, Michigan

NAWDP Webinar

August 17, 2011

discussion topics
Discussion Topics
  • Economic Overview
  • Overview of the Solution to Save Companies and Jobs
  • Overview of Process & Benefits
  • Program Costs & Return on Investment
  • Actual Outcomes – 2010
  • Program Growth & Acceptance
  • Case Studies
  • Funding
  • Economic Development Perspective
  • Michigan Works! Perspective
  • Next Steps
  • Q & A
what was michigan s emergency in 2008 generally known issues
What was Michigan’s Emergency in 2008?Generally Known Issues:
  • Six year single-state recession
  • Single-state depression had begun
  • Unemployment near 15% – highest in the nation
  • Over 550,000 jobs lost in six years
  • Sixth worse foreclosure rate in the nation
  • Dramatic decline in manufacturing output and jobs base
  • GM & Chrysler teetering on bankruptcy
  • Corporate bankruptcies up 41% from 2007 – 2008
  • Personal bankruptcies up 19% from 2007 - 2008
what was michigan s emergency generally unknown issues
What was Michigan’s Emergency?Generally Unknown Issues:
  • Many large banks were quietly divesting of automotive, real estate, and construction clients
  • Traditional alternative lenders had credit issues
  • Traditional alternative lenders were more selective
  • Assets had degraded, thus borrowing power was down
  • Reasonably stable companies were being forced into bankruptcy or liquidation
what was michigan s emergency a typical scenario
What was Michigan’s Emergency?A Typical Scenario

Revenues down

20% - 60%

Managers and

Owners inexperienced

With crises

Cash flows

become

negative

Professional

advisors

are not hired

Company

sent to

workout

Loan covenants

are

violated

cash concerns, denial, optimism, embarrassment, ego, past experiences

what was michigan s emergency a typical scenario continued
What was Michigan’s Emergency?A Typical Scenario - continued

Company

sent to

workout

Alternative

financing

is sought

Assets devalued;

bank debt can’t

be replaced

Bank

forecloses

All jobs

are lost

Company is

liquidated

livingston county overview
Livingston County Overview

Livingston County Michigan

  • Population (‘08) 182,575 10,003,422
  • Labor Force (June 2010) 91,600 4,892,000
  • No. of Unemployed (June 2010) 10,850 641,000
  • Unemployment Rate (June 2010) 11.8% 13.1%
    • Active Unemployment Rate 11.8%
    • Chronic Unemployment Rate 2.8%
    • Underemployed Rate 4.4%
    • Total 19.0%
  • Unemployment Rate (Sept ’08) 6.5% 8.9%
  • Unemployment 2008 Annual Avg. 6.5% 8.4%

Poll Question: What is the unemployment rate in your region?

livingston county s actions concerns
Livingston County’s Actions & Concerns
  • Conventional Actions:
    • Utilize Michigan Works! to assist displaced workers:
      • Assess
      • Train
      • Place
    • Utilize current economic development tools to attract and retain businesses.
  • Concerns:
    • Michigan Works! being over-run by an excessive number of displaced workers.
    • Job placement rates were low.
    • Companies were failing and standard economic development tools weren’t effective.
livingston county s desired approach
Livingston County’s Desired Approach

Save jobs by getting to the root-cause of the problem…..underperforming companies

Stabilize distressed companies before they are sent to workout or become insolvent!

Poll Question: Does your region have an active layoff aversion program that focuses on companies?

slide10
How?

Utilize a Corporate Assistance Program (CAP) to assist the companies at NO CHARGE to the companies.

Why no charge?

cap objectives
CAP Objectives:

Increase stable jobs – (ST)

Increase total jobs – (LT)

Strengthen Livingston County’s struggling businesses via:

  • Providing turnaround management assistance:
    • EDSI Consulting
  • Providing additional cost reduction assistance:
    • Blue Ocean Advisors
    • Express Employment Professionals
    • Grace & Porta Benefits

11

process centerpiece proactive business review pbr
Process Centerpiece: Proactive Business Review (PBR)

A PBR is a tool used by turnaround professionals to:

  • Quickly assess:
    • Financial health
    • Operational efficiency
    • Organizational structure - Urgency of Situation
    • Functional effectiveness - Changes Required
    • Strategic direction
  • Identify short-term actions required to stabilize the company.
  • Identify long-term actions required to ensure the company returns to growth and profitability.
overview of cap process
Overview of CAP Process
  • Companies are identified
      • Economic Development staff
      • Michigan Works! Staff
      • Bankers, CPAs, attorneys, etc.
  • The process is explained to key executives.
  • If the owners/executives agree to proceed, an IWT grant is submitted.
  • If the grant is approved, a Proactive Business Review (PBR) begins. This functions as a training needs assessment.

13

overview of process continued
Overview of Process (Continued)
  • Financial analysis is conducted to assess the severity of cash flow issues.
  • Corporate evaluation assesses:
    • Manufacturing, Operations, Sales, Marketing, Finance, Accounting, Human Resources, Information Technology, and Administration.
    • Key processes, metrics, personnel, and strategies are assessed in each department.
    • Company’s overall strategy, facilities, equipment, and organization structure are reviewed.
overview of process continued15
Overview of Process (Continued)
  • Once the assessment is completed, a document is created that contains specific observations and recommendations and a prioritized list of action items.
  • EDSI trainers and management team create an implementation plan and custom training plan.
  • Training and implementation begins.
  • Other CAP team members follow with cost reduction efforts at no initial charge.
process benefits
Process Benefits
  • Identifies and remediates companies before they degrade into Chapter 11 or Chapter 7 bankruptcy candidates.
  • Creates a path to improvement, thus decreasing the likelihood of layoffs, volume shifts, or shuttering of the entire facility.
  • Identifies the root-cause of job stability, i.e. the fundamental well-being of the company itself.
  • Provides a progressive tool for EDC’s and Workforce Development Agencies.
program status as of august 2010 livingston county
Program Status as of August 2010Livingston County

Companies assisted to date: 6

Current survival rate: 100%

Pre-employment level: 167

Current employment level: 220

Funding utilized: $61,600

Cost per current job: $280

17

estimated cost effectiveness of a regional layoff aversion program
Estimated Cost Effectiveness of a Regional Layoff Aversion Program

$12,000

Cost per intervention

250

companies

90%

Save rate

225

Companies

saved

$3 million

investment

Less than the cost of one week of unemployment insurance

45 jobs saved per company

(average)

Over 10,000 jobs saved

Under $300 per job saved

program growth acceptance
Program Growth & Acceptance

Since the pilot program started in Livingston County in 2008, its use has expanded into the following counties:

  • Livingston
  • Wayne
  • Monroe
  • Macomb
  • St. Clair
  • Ingham
  • Clinton
  • Eaton
  • Kent

At this time, eight other counties in Michigan have agreed to use PBR-based layoff aversion programs!

case study a machine shop
Case Study A – Machine Shop
  • Current Status:
  • Solvency: Company is solvent and operating.
  • Employment: 16
  • Financial Condition:
    • Monthly revenues have increased over 15%
    • YTD profits achieved
    • Cash flows are positive
  • Key Changes:
    • Stabilization Plan fully implemented (Reduced operating expenses by $336k)
    • 13-week cash forecast created
    • Re-finance book created, re-finance efforts under way
    • Scheduling processes modified

June 2009 Status:

Revenues: Down 52% from peak of $4MM

Employment: 14 from a peak of 26

Financial Condition:

  • Revenues down 52%
  • Net Loss of $168k
  • Negative Cash Flows
  • In workout at bank

Key Recommendations:

  • Create a Stabilization Plan to stop the cash losses
  • Create a 13-week cash forecast
  • Begin searching for alternative financing
  • Re-engineer scheduling process to reduce overtime and improve delivery performance

20

case study b metal fabricator
Case Study B– Metal Fabricator
  • Current Status:
  • Solvency: Company is solvent and operating
  • Employment: 17
  • Financial Condition:
    • Operating cash flows are positive
    • 2010 projected to be profitable
    • Company is expected to be “bankable” by year-end
  • Key Changes:
    • Organization completely restructured
    • Quoting and scheduling processes re-engineered
    • Financial processes and reporting completely restructured
    • Cross-training plan designed and being implemented

January 2010 Status:

Revenues: Down 31% from 2008

Employment: 12 from a peak of 17

Financial Condition:

  • Steep revenue declines
  • Net Losses in both 2008 and 2009
  • Negative Cash Flows

Key Recommendations:

  • Create a Stabilization Plan to stem the cash losses
  • Hire a Production Manager to organize plant activities
  • Re-engineer quoting process to improve both win-rates and customer service levels
  • Cross-train all production personnel

21

case study c manufacturing company wayne county
Case Study C Manufacturing Company (Wayne County)
  • Current Status:
  • Solvency: Company is solvent and operating
  • Employment: 20
  • Financial Condition:
    • Operating cash flows are positive
    • June 2010 YTD losses converted to profits
    • A Forbearance Agreement has been arranged
    • Company is “bankable” at year-end
  • Key Changes:
    • 320k of costs have been removed
    • Financial processes and reporting processes were restructured
    • 13-week cash forecasts have been implemented

January 2010 Status:

Revenues: Down 44% from 2007

Employment: 18 from a peak of 35

Financial Condition:

  • Bank sent company to workout
  • Commercial credit frozen
  • Net Losses in both 2008 and 2009
  • Negative Cash Flows

Key Recommendations:

  • Create a Stabilization Plan to stem the cash losses
  • Develop financial management and reporting infrastructure
  • Re-engineer scheduling process to improve on-time delivery rates and reduce overtime levels
  • Restructure organization
  • Attain an alternative lending agreement

22

funding
Funding
  • Current Funding – WIA Incumbent Worker Training (IWT) funds
  • Other Potential Sources of Funding:
    • Governors Discretionary Funds
    • Legislative Support
    • Foundations or Private Funding
    • Other -- Creative Thinking?

Poll Question: How many of you have IWT funds available in 2011/2012?

economic development perspective
Economic Development Perspective
  • Retaining existing companies and jobs must be our number one priority.
  • By developing public-private partnerships to help distressed companies, we are able to offer a valuable service at little or no cost to the companies, at a time when they are not able to pay for these services.
  • Michigan’s current programs help companies diversify, but those companies which need the CAP are not yet candidates for diversification.
  • Other traditional economic development tools are typically not helpful to these companies.
michigan works perspective
Michigan Works! Perspective
  • This strategy has been incorporated into our incumbent worker structure
    • Open application process – Companies can submit applications at any time.
    • Proposals considered as they come in, with response within 30 days.
    • Proposals must include a training plan.
    • Training participants tracked in OSMIS per MDELEG policy.
michigan works perspective26
Michigan Works! Perspective
  • Majority of PY 2010 funding used to support this approach to layoff aversion
  • We believe that companies which use the CAP are more likely to also use Michigan Works! for recruitment of new employees
  • EDSI has been a great partner, and is willing to help other communities develop this approach.
next steps
Next Steps
  • Approach could be more effective as a regional, statewide, or even national strategy. Other states have used Rapid Response funds and other revenue sources to employ this strategy statewide.
  • Approach could be more effective when combined with an “early warning network”
      • Steel Valley Authority -- Pittsburgh region
      • Lucas County Ohio -- Greater Toledo
  • Policy changes needed at state and federal levels
  • Funding commitment

Poll Question: Are you interested in getting more information on this layoff aversion program?

slide28
Q & A

Questions?

contacts
Contacts

Jim Bitterle

Managing Partner - EDSIConsulting

15300 Commerce Drive North

Dearborn, MI 48120

Work: (313) 271-2660 ext. 132

Cell: (734) 945-2480

jbitterle@EDSIsolutions.com

www.EDSIsolutions.com