A Layoff Aversion Program That Saves Companies and Jobs! As Developed and Refined in Livingston...
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Transcript of A Layoff Aversion Program That Saves Companies and Jobs! As Developed and Refined in Livingston...
A Layoff Aversion Program That Saves Companies and Jobs!
As Developed and Refined in Livingston County, Michigan
NAWDP Webinar
August 17, 2011
Discussion Topics1. Economic Overview
2. Overview of the Solution to Save Companies and Jobs
3. Overview of Process & Benefits
4. Program Costs & Return on Investment
5. Actual Outcomes – 2010
6. Program Growth & Acceptance
7. Case Studies
8. Funding
9. Economic Development Perspective
10. Michigan Works! Perspective
11. Next Steps
12. Q & A
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What was Michigan’s Emergency in 2008?
Generally Known Issues:
1. Six year single-state recession
2. Single-state depression had begun
3. Unemployment near 15% – highest in the nation
4. Over 550,000 jobs lost in six years
5. Sixth worse foreclosure rate in the nation
6. Dramatic decline in manufacturing output and jobs base
7. GM & Chrysler teetering on bankruptcy
8. Corporate bankruptcies up 41% from 2007 – 2008
9. Personal bankruptcies up 19% from 2007 - 2008
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What was Michigan’s Emergency?Generally Unknown Issues:
1. Many large banks were quietly divesting of automotive, real estate, and construction clients
2. Traditional alternative lenders had credit issues
3. Traditional alternative lenders were more selective
4. Assets had degraded, thus borrowing power was down
5. Reasonably stable companies were being forced into bankruptcy or liquidation
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Revenues down 20% - 60%
What was Michigan’s Emergency?A Typical Scenario
Cash flows become negative
Managers andOwners inexperienced
With crises
Professional advisors
are not hiredLoan covenants
are violated
Companysent to
workoutcash concerns, denial, optimism, embarrassment,
ego, past experiences
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Alternativefinancing is sought
What was Michigan’s Emergency?A Typical Scenario - continued
Assets devalued;bank debt can’t
be replaced
Bank forecloses Company is
liquidated
All jobs are lost
Companysent to
workout
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Livingston County OverviewLivingston County Michigan
Population (‘08) 182,575 10,003,422Labor Force (June 2010) 91,600 4,892,000No. of Unemployed (June 2010) 10,850 641,000Unemployment 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%
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Poll Question: What is the unemployment rate in your region?
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.
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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!
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Poll Question: Does your region have an active layoff aversion program that focuses on companies?
How?
Utilize a Corporate Assistance Program (CAP) to assist the
companies at NO CHARGE to the companies.
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Why no charge?
CAP Objectives: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
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Increase stable jobs – (ST)
Increase total jobs – (LT)
Process Centerpiece: Proactive Business Review (PBR)
A PBR is a tool used by turnaround professionals to:1. Quickly assess:
a) Financial healthb) Operational efficiencyc) Organizational structure - Urgency of Situationd) Functional effectiveness - Changes Requirede) Strategic direction
2. Identify short-term actions required to stabilize the company.
3. Identify long-term actions required to ensure the company returns to growth and profitability.
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Overview of CAP Process1. Companies are identified
Economic Development staff
Michigan Works! Staff
Bankers, CPAs, attorneys, etc.
2. The process is explained to key executives.
3. If the owners/executives agree to proceed, an IWT grant is submitted.
4. If the grant is approved, a Proactive Business Review (PBR) begins. This functions as a training needs assessment.
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Overview of Process (Continued)
5. Financial analysis is conducted to assess the severity of cash flow issues.
6. 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 (Continued)
7. Once the assessment is completed, a document is created that contains specific observations and recommendations and a prioritized list of action items.
8. EDSI trainers and management team create an implementation plan and custom training plan.
9. Training and implementation begins.
10. Other CAP team members follow with cost reduction efforts at no initial charge.
Process BenefitsIdentifies 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.
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Program Status as of August 2010
Livingston 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
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18
$3 millioninvestme
nt
$3 millioninvestme
nt
$12,000Cost per
intervention
$12,000Cost per
intervention
250compani
es
250compani
es
90%Save rate
90%Save rate
225Companie
ssaved
225Companie
ssaved
45 jobs saved per company(average)
45 jobs saved per company(average)
Over 10,000
jobs saved
Over 10,000
jobs saved
Under $300 per job saved
Under $300 per job saved
Less than the cost of
one week of unemployment insurance
Program Growth & AcceptanceSince the pilot program started in Livingston County in 2008, its use has expanded into the following counties:
1.Livingston2.Wayne3.Monroe4.Macomb5.St. Clair6.Ingham7.Clinton8.Eaton9.Kent
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At this time, eight other counties in Michigan have agreed to use PBR-based layoff aversion programs!
Case Study A – Machine Shop
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
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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
Case Study B– Metal Fabricator
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
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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-endKey Changes:
• Organization completely restructured• Quoting and scheduling processes re-
engineered• Financial processes and reporting
completely restructured• Cross-training plan designed and
being implemented
Case Study C Manufacturing Company (Wayne County)
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
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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
FundingCurrent Funding – WIA Incumbent Worker Training
(IWT) funds Other Potential Sources of Funding:
• Governors Discretionary Funds• Legislative Support• Foundations or Private Funding• Other -- Creative Thinking?
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Poll Question: How many of you have IWT funds available in 2011/2012?
Economic Development PerspectiveRetaining 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! PerspectiveThis strategy has been incorporated into our
incumbent worker structureOpen 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! PerspectiveMajority 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 StepsApproach 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 levelsFunding commitment
Poll Question: Are you interested in getting more information on this layoff aversion program?
Q & A
Questions?
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Contacts
Jim BitterleManaging Partner - EDSIConsulting15300 Commerce Drive NorthDearborn, MI 48120Work: (313) 271-2660 ext. 132Cell: (734) [email protected]
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