In recent years there has been an increase in the number of claims filed against employers arising out of employment practice disputes. Many claims have no legal basis, but employers are still forced to defend themselves — spending time and money.
“Businesses are more likely to have an employment practices claim than a property claim,” says Shelley White, assistant vice president at SeibertKeck. “There are over 100,000 charges filed annually against employers under statutes imposed by the Equal Employment Opportunity Commission (EEOC). The majority of these claims target smaller businesses. However, no business is exempt.”
Smart Business spoke with White about understanding employment practices liability coverage.
What’s important to know about employment practice claims?
Employment law has grown at an incredible pace since passage of the Civil Rights Act of 1991 and the Age Discrimination in Employment Act, among others. Ambiguities in these laws allow the widest possible interpretation, which in turn opens the door for litigation.
The most frequent types of claims made against an employer are discrimination, sexual harassment, wrongful termination and retaliation. There’s also been an uptick in wage and hour lawsuits. Claims can come from potential hires, former and current employees, clients, suppliers or vendors.
Discrimination can be defined as the termination of an employee, demotion, refusal to hire or promote due to race, color, religion, age, sex, physical or mental disabilities or handicaps, pregnancy or national origin. Think about the times you or someone in the office told an off-color or racy joke to a new employee or client. It’s only a matter of time until this comes back as a claim.
The average claim costs an employer $50,000, and defense costs represent about two-thirds of the total settlement. Without a mechanism to transfer risk, these costs could cripple smaller businesses, or at least damage their reputation. For larger businesses, one uninsured claim can lead to potential shareholder lawsuits.
How does employment practices liability coverage mitigate this risk?
Businesses can purchase a policy that provides coverage for a wide spectrum of employment-related claims and offers risk management services to help minimize the risk of getting sued. This policy protects the corporation, directors and officers, employees (including leased and temporary), volunteers, and in some cases can be endorsed to include independent contractors (when working for the employer).
The definition of a claim includes arbitration, regulatory and administrative proceedings, and EEOC and Department of Labor investigations.
Limits can range from $500,000 up to $10 million or higher. As your business assets grow, so should your limits. Settlement costs and legal fees are typically included in the policy limits. However, some carriers will provide separate limits for these costs.
It’s important, however, to be aware of the varying contracts and differences in coverage and exclusions from one policy to another. There is no standard form. Sitting down with your trusted insurance adviser will help with this process.
Beyond buying insurance, what preventive measures lower claim risk?
Minimize the possibility of costly claims by:
- Creating an employee handbook detailing company policies and procedures.
- Educating employees on sexual harassment and discrimination, and offering sensitivity training.
- Establishing a procedure for handling employee complaints.
- Developing job descriptions with clear expectations of skills and performance.
- Conducting periodic performance reviews.
- Creating an effective record-keeping system to document employee issues, and what was done to resolve them.
- Instituting at-will employment.
- Implementing procedures for hiring, firing and disciplining employees.
Many carriers offer free risk management services. Online resources provide best practices training modules for addressing sexual harassment, discrimination, investigations and termination, while providing links to HR websites. ●
Shelley White is assistant vice president at SeibertKeck. Reach her at (330) 865-6582 or firstname.lastname@example.org.
Insights Business Insurance is brought to you by SeibertKeck
The environmental due diligence process can be time-consuming, which is why buyers should get started early when entering into negotiations to purchase property.
“Depending on when environmental due diligence begins, environmental issues might not be discovered until close to the end of the deal. That could result in a transaction not closing for months after initially planned, which was the case in a matter we had this year,” says Meagan Moore, a partner at Brouse McDowell. “Be ready to begin a Phase 1 assessment when you initiate discussions regarding a purchase.”
Smart Business spoke with Moore about Phase 1 and Phase 2 environmental assessments, and the protections they provide buyers regarding potential liability related to contamination.
What is the first step in the environmental due diligence process?
Hire an environmental consultant to perform a Phase 1 study. That will give you a better understanding about the property. Because of the way certain environmental regulations are written, even a purchaser that has no culpability for what is on the property could be responsible for cleanup costs. Therefore, it’s best to know what you’re getting in advance so you can plan for it during the transaction.
Phase 1 is a report intended to identify potential environmental issues associated with the presence of hazardous substances or petroleum products on a property. It involves a review of federal, state and local records, government databases, interviews with people familiar with the property and an on-site inspection by the environmental consultant. The review provides an overview of the property’s history and whether there is any information or visible signs of a release or contamination on the property.
Some sellers may conduct a Phase 1 study in order to expedite the transaction. It is important to note that Phase 1 is only valid for 180 days and typically the environmental consultant must grant third parties authority to rely on the report.
There are some environmental issues that the Phase 1 investigation does not cover, including whether the property has wetlands or the building contains asbestos. Those can be added to the scope of a Phase 1 if a buyer envisions potential issues with a property. Any documented or visible signs of contamination noted in the Phase 1 are considered a recognized environmental condition (REC).
If the Phase 1 report includes a REC, what should a potential buyer do next?
A Phase 2 assessment should be conducted, which typically involves a subsurface investigation. Soil and groundwater samples are taken for lab analysis to determine if there is hazardous material present. It’s not going to delineate the extent of the contamination, but it will confirm or deny the presence of hazardous materials.
If the contamination is confirmed, you’ll have to determine how it should be addressed — whether remediation should be done or if the material can be left in place.
All these concerns can be factored into the negotiation process with the seller. You could include indemnity agreements with the seller and establish an environmental escrow account to pay for any issues that arise.
Do any former uses require a different approach?
A Phase 1 assessment should be done for any industrial or commercial property. But you definitely need an assessment if there was a gas station, dry cleaner, auto repair shop or industrial use of the site. Phase 1 assessment requirements are the same no matter what type of business; it doesn’t matter if it was a textile plant or gas station. But if you’re looking at a property that had historical operations that could have led to contamination, a Phase 1 assessment is necessary to determine the condition of the property so you’re aware of what you’re buying. As a buyer, you want to know everything upfront so that can be a part of the negotiations and you can limit your liability. ●
Meagan Moore is a partner in the Environmental Practice Group at Brouse McDowell. Reach her at (216) 830-6822 or email@example.com.
Insights Legal Affairs is brought to you by Brouse McDowell
The IRS is always evolving, remaking itself about once a decade.
At the end of the 1990s, the IRS underwent severe Congressional scrutiny that resulted in the Revenue Reconciliation Act of 1997 and two Taxpayer Bill of Rights to reign in the agency. The IRS lost the power to seize property without due notice and had to start sending out annual statements to both spouses.
Now, over the past four or five years, the pendulum has started to swing the other way — the IRS is perceived as not doing its job fairly or appropriately, so the agency is taking a more heavy-handed approach.
“The new IRS is dealing with a budget that was slashed by a half-billion dollars. It’s technology challenged and fraught with scandal including resignations and a new commissioner, John Koskinen. He made several early appearances in 2014, and the message is clear that resources will be put to the task at hand — combatting offshore tax evasion and tax cheats,” says Douglas Klein, CPA, EA, associate director of tax at SS&G.
Smart Business spoke with Klein, a former IRS agent, about the current state of the IRS and how business owners need to react.
What signs do you see that the pendulum is swinging the other way?
As the tax gap widens, there’s a tremendous push to collect offshore income with reporting changes and amnesty programs for offenders. For example, the Foreign Account Tax Compliance Act, which could be implemented in 2014 or 2015, requires foreign banks doing business in the U.S. to report on U.S. customers.
Also, there’s a need for tax reform. The U.S. has one of the world’s highest corporate income tax rates, around 35 percent. It’s so punitive to keep foreign assets abroad that some companies have moved to tax-friendlier foreign jurisdictions.
So, Congress, the IRS and the president are looking at how to make the U.S. tax system more competitive. Some have suggested lowering the corporate tax rate, moving to a territorial tax system, which only taxes assets under that country’s jurisdiction, and/or creating a tax holiday to allow foreign funds to return to U.S. shores.
What does this mean for business owners?
Even with the problems it faces, a heavy-handed IRS can be aggressive with better tools. In this e-filing age, information matching has improved dramatically. IRS agents are encouraged to look at your website to see where you do business, which better equips them for audits.
Business owners need to stay on their toes. ‘The IRS will never figure this out’ might have been true eight or 10 years ago — but no longer.
How can companies keep in good standing with the IRS?
Some compliance tips are:
- Never ignore a notice. Even if you’re dealing with a personal crisis or family matter, which should come first, an IRS notice won’t go away if you put it in a drawer. Contact your accountant or tax adviser right away.
- Use the best tax accounting system you can afford. Don’t skimp on recordkeeping — software and personnel. QuickBooks is wonderful, but it’s only as good as the people working it.
- Be as educated as possible about all of the taxes that may apply to your business, such as sales, use, payroll, etc.
- Consider a payroll-processing firm to handle payroll processing. The laws are ever changing in regards to employee benefits and many companies don’t have the expertise to handle this properly. Business owners may not see the benefit of administrative spending, but officers can be personally responsible for unpaid payroll taxes. In terms of the risk, outside payroll companies are inexpensive.
- Take responsibility for the tax positions on all returns. For example, public companies require the president and/or board chairman to sign off on knowledge of the tax information. Make sure you talk with accountants, external or internal, so you can be comfortable with decisions. The most defendable tax positions come from a dialog and mutual agreement between the tax expert and taxpayer.
To find more about a changing IRS, visit the Taxpayer Advocate Service, the IRS’ independent watchdog, at
Douglas Klein, CPA, EA IS Associate director of Tax at SS&G. Reach him at (330) 668-9696 or DKlein@SSandG.com.
Insights Accounting & Consulting is brought to you by SS&G
In continuation of the “Billion Back” campaign from the summer of 2013, the Ohio Bureau of Workers’ Compensation (BWC) has announced additional changes to come this year and in 2015.
“As we begin 2014, it is important for employers to be aware of impending changes and understand how they can further impact the protection of their workers as well as their bottom line,” says Randy Jones, senior vice president of Ohio TPA Operations at CompManagement, Inc.
Smart Business spoke with Jones about the upcoming changes and their potential benefits to the employers of Ohio.
What is ‘A Billion Back?’
‘A Billion Back’ is a one-time dividend equating to $1 billion for private employers and public taxing districts. It was made possible because the financially strong Ohio State Insurance Fund exceeded the target funding ratio of assets to liabilities established by the BWC Board in 2008.
Checks were released to eligible organizations in June 2013. For private employers that participated in a group retrospective rating program for the July 1, 2011, policy year, dividends were calculated and paid following the 12-month retrospective refund calculation that occurred in October 2013.
What other program benefits may employers utilize this year?
The BWC has also expanded its safety grant program from $5 million to $15 million to further promote workplace safety, workplace wellness and encourage investment in protecting Ohio’s workers. It has modified the program to be a 3-to-1 match with a maximum grant of $40,000 per employer. The BWC has also expanded the program to allow for various types of previously excluded equipment.
Now is the time to minimize your out-of-pocket expense for new equipment that may be eligible under the safety grant program. For example, your out-of-pocket cost of $13,333 would be matched with the BWC’s $40,000, which equates to a 300 percent return on your investment in safety.
According to BWC statistics, every dollar spent on safety equipment equates to a $3 reduction in claims costs.
What can employers expect in 2015?
The BWC will be transitioning to a billing system that will align it with a standard industry practice, enabling them to collect premiums before extending coverage. The transition will become effective July 1, 2015, for private employers and Jan. 1, 2016, for public employers. The BWC has indicated that a change to a prospective billing system could have an overall base rate reduction of 2 percent for private employers and 4 percent for public employers, and provide an opportunity for more flexible payment options of up to 12 installments.
The BWC envisions a few changes as it implements prospective billing, including:
- Earlier deadlines to sign up for incentive/discount programs. Beginning in the fall of 2014, employers wishing to participate in programs such as group rating, group retrospective rating or other discount programs will have to make those selections sooner.
- One-time credit. A one-time premium credit will be given in July 2015 to the average private employer to cover its August payroll report, which includes the January to June 2015 premium as well as the July and August prospective premium. Public employers will receive a 50 percent credit for 2015 and a 50 percent credit for 2016 within the March 2016 invoice.
- A new payment schedule. Private employers will receive their invoices in June and begin paying premiums before July 1. While that’s earlier than in the past, employers will be able to make quarterly payments, with some employers able to choose as many as 12 installments. Public employers will need to pay at least 50 percent of their annual premium for both 2015 and 2016 by May 2016.
- A true-up process. Since the BWC will be providing workers’ compensation coverage based on estimated payroll, it will ask employers to report their actual payroll for the prior policy year and pay any shortage, or receive a refund for any overage in premium. This begins in August 2016.
- Employers should contact their third-party administrator for workers’ compensation to discuss the transition process. ●
Randy Jones is senior vice president of Ohio TPA Operations at CompManagement, Inc. Reach him at (800) 825-6755, ext. 65466 or firstname.lastname@example.org.
Insights Workers’ Compensation is brought to you by CompManagement, Inc.
Rising health care costs have driven up insurance premiums, straining employers’ funds and leaving less money available to invest in their businesses, hire employees or award pay increases.
“Any time costs go up, there’s less money to spend on other things that are important to the growth of a business,” says Ross Farro, a principal at Benefits Resource Group. “It comes down to companies deciding how they will pay the increased expenses and continue to offer health care benefits.”
Smart Business spoke with Farro to learn about strategies employers can utilize to effectively deal with rising health care costs.
Are certain types of businesses hit harder by these changes than others?
Generally the size of the business determines how it’s treated under the Affordable Care Act (ACA). For instance, the new law means community rating is used to determine premiums for companies with fewer than 50 employees, which eliminates medical underwriting. This has driven up rates for companies with healthier workforces — sometimes as much as 50 to 120 percent. They are also obligated to provide minimum essential benefits to meet the plan design requirements under the law.
Also, employers that offer group benefits are being hit with fees and higher taxes that come with the ACA. Large employers are also still awaiting final U.S. Department of Health and Human Services guidance for measuring the eligibility of employees during 2014 for required coverage in 2015.
What are the most troubling issues for employers as health care costs rise?
Employers are concerned with controlling costs without reducing employee benefits. The taxes and fees that come with the ACA are substantial. This year, taxes and fees are roughly 5 percent of fully insured premiums, and are expected to increase next year. Employers paying $1 million for health care premiums will have $50,000 in associated fees. For many companies, that’s the equivalent of one potential new employee’s annual salary.
What should employers do to better control health care-related expenses?
Wellness plans and an emphasis on consumerism are two approaches that can help employers better afford the health insurance benefits they offer employees. Negotiating with or changing providers really doesn’t work. A better solution is to focus on things that can be changed, such as addressing obesity and chronic disease within your employee population since these are factors that increase costs. Wellness initiatives not only have an impact on insurance premiums over time, but can improve productivity and mitigate disability claims.
Health care consumerism is fundamentally about restructuring an employer’s health benefit plan into one that puts economic purchasing power in the hands of its employees. To leverage this approach, companies should consider programs such as a health reimbursement account or a health savings account paired with a high deductible that pays for health care expenses with pretax dollars from the employee, employer or both. Either strategy brings attention to the costs of services and prescription medications, encouraging employees to be more cost conscious.
Self-insuring allows employers to pay the costs of claims rather than pay for a fully insured premium, offering a more transparent look at costs. It also can substantially reduce the amount of new ACA fees and taxes. Self-insuring is becoming a viable option for employers with fewer than 100 employees, as insurance carriers are developing products for groups as small as 25 employees.
If employers do only one thing to deal with the challenge of rising health care costs, what should it be?
Employers need to work with a consultant, not a broker. It’s not only about shopping your benefits with other insurance providers; it’s about being creative and knowledgeable. You need a proactive consultant who understands the laws and can develop strategies to help you. As much as employers might want to wait to see if something comes along to derail the ACA, they must realize it’s not going anywhere at this time. ●
Ross Farro is a principal at Benefits Resource Group. Reach him at (216) 393-1820 or email@example.com.
Insights Employee Benefits is brought to you by Benefits Resource Group
Few challenges are thornier for family business owners than preparing for a transition of ownership. It’s a time for facing tough choices about the company’s future leaders and how the new owner will finance the transfer.
“About 70 percent of family-owned businesses will change hands over the next 10 years as the baby boomers retire,” says Krista Dobronos, senior vice president and Akron market leader for Westfield Bank. “Unfortunately, too many business owners have not planned sufficiently for this transition.”
At a minimum, this planning process should begin three years before the targeted ownership shift, Dobronos says, though five years in advance is ideal.
Smart Business spoke with Dobronos about transitioning family business ownership.
What elements should be included when planning an ownership transition?
About half of all family businesses don’t have any kind of succession plan on paper. The starting point should always be identifying who will take ownership of the business, whether it’s a key employee, a family member or an outsider.
A business owner should also consider to what degree they want to remain involved in the business. Do they want to remain an investor in the business or get out entirely? They also need to consider the best option for financing the ownership transition.
Exit planning isn’t only about the owner’s retirement. Ownership transitions can also be triggered by divorce, disability, an extended illness or unforeseen death.
What are some of the best financial options for family business ownership shifts?
It all depends on the company, its industry and those who will take over the company.
Some buyers may wish to pursue a traditional bank loan for the company, which is usually a seven-year term loan using a 10-year repayment schedule. The buyer of the business can also take out an individual loan that is guaranteed by the company.
When there is a gap between the purchase price of the company and the value of collateral to back a bank loan, the buyer may need to secure gap financing. Mezzanine financing, for example, is becoming increasingly popular, and usually takes the form of subordinated debt or an equity investment like preferred stock. The seller can also provide financing referred to as a ‘seller note’ for the buyer to cover that gap over a period of time.
What about transitioning ownership to a company’s employees?
An employee stock ownership plan (ESOP) can successfully finance an owner’s exit strategy, but it requires a longer planning process than other financing options.
An ESOP is a way that an owner can transition shares of the business to the company’s employees at a lower after-tax cost, providing employees an opportunity to build wealth.
How can business owners take emotion out of the equation when planning?
It’s important to make a decision that’s based not on emotions but on the sustainability of the business long term.
This is one of the reasons it’s so important to have trusted advisers you can turn to. Sit down with your attorney, banker, accountant, financial adviser and other professionals you trust to help you develop a sound perpetuation plan.
What do banks look for when they consider backing such an ownership transition?
With regard to the company, banks want to ensure there’s adequate cash flow to service debt related to the ownership change. Banks look at the industry the company operates in and how market forces might impact it in the future. In the new owner, banks want to see a track record of experience with that company or industry.
When considering supporting an ownership transition, banks spend time in the company’s facility or office to see them in action, observe the approach to staffing and understand their clients. This interview process is critically important for both sides. It’s like a courtship — the business owner should feel as comfortable with their banker as he or she is with them. ●
Krista Dobronos is senior vice president and Akron market leader at Westfield Bank. Reach her at (330) 668-6420 or firstname.lastname@example.org.
Insights Banking & Finance is brought to you by Westfield Bank
Expansion of the Medicaid program in Ohio was approved by the state Controlling Board because there wasn’t enough support to get it passed in the legislature. But there’s no economic reason for anyone in Ohio to oppose the expansion, says William F. Hutter, CEO of Sequent.
“The battle about Medicaid expansion was based on principle; it was about certain forces resisting an additional expansion of federal government in Ohio. And that somehow expanding Medicaid to the less affluent population in Ohio was an endorsement of health care reform,” Hutter says. “That is one view. I started taking a view that Medicaid expansion in Ohio is good for business and good for the population.”
Smart Business spoke with Hutter about how the Medicaid expansion helps businesses and what companies are doing in response to the program.
Why is Medicaid expansion good for businesses?
Under the Affordable Care Act (ACA), if an individual meets the criteria of having an income of less than 138 percent of the federal poverty level they can apply for Medicaid benefits.
Consider industries like hospitality and retail, which deal with a lower-cost, transient employee population. They’ve taken a position that they have employees they would like to move to full time, but have health care to deal with under ACA and the benefits cost too much. One of the advantages for that group of people, and those industries, in Ohio is that they might qualify under Medicaid.
If employees are covered under Medicaid, they are exempted from the full-time equivalent (FTE) count of businesses. That means they aren’t included in determining whether a business has 50 FTE employees and would be subject to penalties starting in 2015 if they do not provide health insurance coverage for employees. Normally, hours of all part-time employees are totaled to compute how many FTE employees are added to the number of full-time employees to see if a business hits 50.
Having more employees exempted from the FTE calculation could allow businesses to hire more people and get them qualified for Medicaid. Employees get medical coverage, the business gets exempted from the ACA and health care providers benefit.
How do health care providers benefit?
Providers complain that they don’t make money on Medicaid patients because reimbursement rates are lower. However, hospitals and urgent care centers do not turn people away; they provide medical care 90 percent of the time whether or not someone can pay. What’s better, to be paid zero for providing $500 worth of medical services, or to be paid $400? From a patient standpoint, while Medicaid might not cover all costs, it takes some pressure off because there is reimbursement from the federal government.
Have businesses developed strategies in response to the Medicaid expansion?
Absolutely. They are trying to get employees signed up for coverage. We’ve been working with clients on helping them with the Office of Healthcare Transformation, which built the Medicaid application portal in Ohio. Director Greg Moody has done a good job creating a portal that makes it easy for people to sign up.
There have been comments that only 30 percent of the people who register get qualified, but it’s a financial qualification — it’s not arbitrary. It’s a set amount based on income being up to 138 percent of the poverty level.
This is one of the more worthy social benefits that helps keep people healthy and is in-line with the intent of the ACA. It will be good for small and midsize businesses and keep more people employed. Yes, it’s not in high-wage positions, but it is an improvement and will move more money into Ohio and create economic flow.
Employers are starting to figure this out. They want to do what’s best for employees, the company and shareholders. For the current circumstances and environment, Medicaid expansion is good for Ohio. ●
Insights HR Outsourcing is brought to you by Sequent
American Roll Form Products
Phil Misch, president
(440) 352-0753 | www.arfpcorp.com
Lower labor costs elsewhere has made it difficult for companies with domestic manufacturing operations to compete on price. In order to remain competitive, American Roll Form Products President Phil Misch and his team decided to focus on value and find ways to cut costs along the supply chain.
By evaluating assembly drawings, parts and mating components, ARF can identify areas where material can be reduced and assembly costs cut, with potential savings up to 40 percent.
Working with Chamberlain, which sells garage door openers to many top retailers, ARF redesigned a structural bar section that performed better while saving $550,000 a year in materials.
Using prototype facilities to make samples of new sections and perform load tests, ARF designed a part made of new high-strength material that was stronger and 34 percent lighter, yielding an annual freight savings of $120,000.
Chamberlain also cut costs by working with ARF to develop reusable, “green” containers to ship products. The ability to recycle packaging materials reduced packing costs and eliminated disposal expenses.
ARF also has been a leader in innovating products for the solar market, designing piles used in solar panels that have reduced material and freight costs.
To better serve the solar and West Coast markets, ARF opened a 53,200-square-foot manufacturing facility in Las Vegas in the spring of 2013.
Even in today’s price competitive manufacturing environment, value outweighs cost. By embracing creativity and innovation, ARF found a way to create an advantage over its competition. ●
EYE Lighting International
Tom Salpietra, president and COO
(888) 350-7001 | www.eyelighting.com
EYE Lighting International, lead by President and COO Tom Salpietra, lets innovation guide its path to competition in the global marketplace. Realizing an increased demand for energy saving lighting solutions, EYE Lighting developed more energy efficient luminaires and lamps.
The company’s kiaroLED outdoor LED luminaire line of products has been recognized for its efficiency in controlling backlight, uplight and glare. In 2013, EYE Lighting launched its LEDioc brand of LED upgrade lamps, designed to allow for easy retrofit from an HID to LED light source in post-top and pendant luminaires.
To further strengthen its position in the LED market, EYE Lighting acquired all assets related to LED luminaire products from Aphos Lighting in November 2012.
Growth and innovation have led to increased production, including the July 2012 unveiling of a new design and assembly facility in Mentor. The 2,000-square-foot space was specifically designed for LED storage and assembly. The state-of-the-art cell manufacturing room features anti-static floors and fully digital workstations that have adjustable screens, which display interactive assembly instructions and a bill of materials.
EYE Lighting employees are cross-trained to provide flexibility — employees can be moved along different areas of the assembly line as additional support is needed. Employees may work in several parts of the manufacturing process in the same day.
The company supports engineering and business students through scholarships at Lakeland Community College and Cleveland Technical Societies Council. Employees participate in lighting association activities, including those of the Illuminating Engineering Society. ●
Fabrication Group LLC
Patricia B. Setlock, president
(216) 251-1125 | www.fabricationgroup.com
When the recession dried up sources for capital to fund commercial projects, the Fabrication Group went in another direction and developed a noncommercial product line that would provide balance to the seasonal highs and lows of making custom commercial products made of architectural metals.
The company, led by President Patricia B. Setlock, worked with a premise that the new product should be manufactured economically in the United States — due to import difficulties related to cost and size — and be easy to install.
Setlock, a graduate of the Goldman Sachs 10,000 Small Business program in Cleveland, included the launch of the Bright Covers patio line as part of a growth plan developed through the class. Initial processes were outsourced, enabling the Fabrication Group to unveil the new line of products in February 2013.
While the product was being developed, the company’s custom commercial area had rebounded and revenues doubled between 2011 and 2012. The patio cover line and continued growth of custom architectural work led to another doubling of revenue.
This growth period was supported by the company’s ability to improve processes and efficiency through lean manufacturing techniques, an efficient system for inventory management and vendor-financed consignment agreements that eliminated a need for outside capital or loans.
Plans call for two operations to be brought in-house in 2015, which will require additional capital and space. These operations will serve both the commercial and noncommercial lines and bringing them in-house is expected to provide excellent ROI and better quality control. ●
Air Enterprises LLC
Martin Ellis, CEO
(330) 794-9770 | www.airenterprises.com
An enterprising solution
Air Enterprises meets the challenges of climate control as demands increase
The climate in the company data center needs to be controlled for optimum performance of computer servers. More heat is generated all the time and rack density keeps increasing over the years.
That’s just one area that Air Enterprises LLC focuses on to deliver air handling solutions.
For more than 45 years, the company has been a leader in delivering best-in-class air handling solutions to the automotive, medical facilities and high technology, pharmaceutical and manufacturing industries.
Air Enterprises recently joined forces with KyotoCooling, of the Netherlands, acquiring the exclusive license to market, sell, manufacture and commission KyotoCooling technology in North America. This allows Air Enterprises to combine the patented “green” cooling technology of KyotoCooling and the leading energy recovery wheel from Thermotech Enterprises to offer the most energy-efficient data center cooling solutions.
This patented technology is 70 to 85 percent more efficient than traditional data center conditioning solutions.
Air Enterprises, under CEO Martin Ellis, also installed a new air handling system on the Cleveland Clinic’s bone marrow transplant and leukemia floor.
This features a custom filtering system for the entire floor, which was previously handled by individual equipment in each patient’s room.
Air Enterprises’ proprietary SiteBilt process enables clients across the globe to benefit from the most sustainable and energy efficient air handling solutions in the market, without geographical limitations. They are factory manufactured and assembled on-site of aluminum components, which do not rust. ●
Eric Hauge, vice president, general manager
(216) 429-6000 | www.usa.arcelormittal.com
Filling the gap
How ArcelorMittal Cleveland is developing its workforce of the future
The U.S. steel industry is facing a critical workforce challenge: Thousands of skilled workers are needed over the next decade and beyond to fill vacancies created by the retiring baby boomer generation and a declining interest in manufacturing careers. ArcelorMittal Cleveland, an integrated steel manufacturer, is projecting it will lose up to 34 highly skilled maintenance technicians a year for the next five years to attrition and retirements.
To address this problem, the company, under Vice President and General Manager Eric Hauge, has partnered with the United Steelworkers Local 979 and local community colleges to develop Steelworker for the Future, a 2 ½-year program in which individuals attend classes at a participating college and gain hands-on training at ArcelorMittal while working to achieve a two-year degree and a sustainable career within the manufacturing sector.
The aim is to facilitate knowledge transfer from experienced employees to new hires, promote manufacturing career paths, overcome misperceptions about manufacturing jobs, balance the development of prospective workers’ real-world technical competencies and their job-readiness skills, and distinguish ArcelorMittal as an employer of choice.
Steelworker for the Future launched with Lakeland Community College in November 2011 and later with Cuyahoga Community College in May 2012. The company has also partnered with Max Hayes High School and other local youth-targeted organizations to introduce the opportunity to high school students.
Approximately 60 students are enrolled in the program and 17 have participated in paid internships at ArcelorMittal’s Cleveland plant. The first graduates are expected this summer. ●
Mike (Left) and Dave Catanzarite, co-CEOs
(866) 432-7423 |www.darice.com
Crafting a plan
How the Catanzarite brothers keep raising the bar at Darice
Mike and Dave Catanzarite have faced plenty of challenges in helping Darice Inc. stay on top of its competition. The nationwide recession forced many consumers to trim spending and that could have been bad news for Darice, which launched in 1954, becoming a leader in the wholesale craft industry.
But the diligence that Mike and Dave, the company’s co-CEOs, bring to every aspect of their work keeps the company going and keeps customers coming back.
Darice opened with one retail store and now has more than 80,000 product SKUs that are supplied to retailers of all sizes. They range from mom-and-pop stores to big-box retailers like Wal-Mart and Target to craft stores such as Jo-Ann and Michael’s. In addition to its wholesale business, Darice also successfully runs the 28-store regional craft chain Pat Catan’s.
To stay on top, Darice has expanded its China operation with 5,000 square feet of work space as well as 21 employees dedicated to merchandising, sourcing and factory compliance, finance, creative design, direct import operation and quality control/product compliance.
Sourcing is another key component in the success of Darice. Each new supplier goes through a qualifying process to ensure that it can provide the quality that the company and its customers have come to expect. Once on board, suppliers are also subject to a scorecard review that includes inspection and testing failures, delivery and capacity.
The scores are then used to determine whether a supplier is worthy of more business. ●
Grant Cleveland, founder and CEO
(800) 306-4168 | www.dunecraft.com
How DuneCraft gets customers what they want and goes to great lengths to do so
Grant Cleveland isn’t just trying to sell his customers a product at DuneCraft Inc. The company’s founder and CEO wants to sell them the right product, and he’s willing to go to great lengths to make sure that happens.
“Cleveland and the DuneCraft crew will actually make a product suggestion list, in advance of a meeting, to help focus the customer on key items that are correct for their consumer,” says Jay Jacobson, a sales consultant for University Games/Playroom Entertainment. “This helps the buyers make decisions faster and shows the keen interest that DuneCraft has in making sure that the customer is well-taken-care-of.”
DuneCraft has become the leader in themed terrariums and a contender in sprouting kits and science novelties. The company is in thousands of mass, online and catalog retailers, and Cleveland is proud that all of its items and subcomponents are made in the United States.
DuneCraft has developed a proprietary software system, called Steel Stage, that integrates all levels of its manufacturing into an automated system that organizes, stores, tracks and displays information. Steel Stage is divided into 14 different modules and allows managers to see progress and reports in real time, as well as track inventory and quality control and many other aspects of manufacturing.
The company also uses a ticketing system to ensure that team members complete what is expected of them to allow everyone to move ahead to the next level of productivity. The result is a decrease in cost and a much higher level of productivity. ●
Roger Sustar, president
(440) 951-5200 | www.fredon.com
Lighting a spark
How Fredon Corp. gets high school students excited about manufacturing
Two Northeast Ohio teachers are grateful for the strong commitment that Roger Sustar and Fredon Corp. have continually demonstrated for getting young people excited about manufacturing.
It began in 1992 with the Cannons of Fredon, an innovative apprenticeship and training program for local high school and vocational school students. The program teaches students about modern machining and metalworking and about the viability of a career in manufacturing.
The learning continues to this day with the RoboBot competition that Fredon launched in the fall of 2010. RoboBot teams are formed and compete against each other in sanctioned local competitions. They each have the chance to move on to compete against schools from across the United States.
“Fredon has also worked with each team to provide manufacturing support and capacity with their industry partners,” says Yvonne Schiffer, a career and technical education teacher at Cleveland Heights High School. “I have students who used the opportunity to gain employment opportunities on their way to college and some on their way to employment. They have provided each team with manufacturing mentors who have changed the way our students view manufacturing and engineering.”
Cleveland Heights High has participated in this competition for three years and has been recognized for sportsmanship, design documentation and design presentation. Beaumont School has taken part with an all-female team and won the Ohio competition last year. Both Schiffer and fellow teacher Gretchen Santo from Beaumont cite numerous examples of the difference that Sustar and Fredon are making in Northeast Ohio in preparing students for success. ●
Dmitry Shashkov, CEO of the fabricated products business unit
(216) 692-3990 | www.hcstarck.com
H.C. Starck embraces sustainability at its Ohio fabricated products facility
German-based H.C. Starck’s Euclid facility, the company’s fabricated products business unit, continues its development as a leading manufacturer of specialty metal products for the aerospace, nuclear, military and medical industries. One of 12 manufacturing facilities in the global company, the Northeast Ohio facility is led by Dmitry Shashkov, CEO of the fabricated products business unit.
The year 2013 began with a yearlong contraction project. As the company streamlined physical operations, the Ohio facility still had to maintain past improvements in production efficiency, product quality and on-time delivery.
At the same time, H.C. Starck expanded its green efforts through an aggressive sustainability program. The business unit’s goal was to have a net reduction in energy usage of 2 percent, and by the end of October 2013, energy per kilogram of material produced dropped 5 percent, well below the targeted goal.
The Ohio Environmental Protection Agency recently commended the company for recycling 100 percent of its former hazardous wastes.
The effort is ongoing. H.C. Starck is working to develop a comprehensive waste-recycling program that will take 98 percent of all wastes generated. In addition, chemical monitors on wastewater are providing a $30,000 per year cost savings in reduced chemical usage.
The sustainability efforts also focus on employee health, and the types of products manufactured and their end-of-life use.
With tight margins, the company continues to improve management, manufacturing efficiency and quality, while maintaining steady employment. In 2013, H.C. Starck implemented the Total Production Maintenance program to increase production while increasing employee morale and job satisfaction. ●
Magnus International Group Inc.
Eric Lofquist, co-owner, president and CEO
(216) 592-8355 | www.magnusig.com
Growth from sustainability
Magnus International Group turned renewable materials into a sustainable business
In 2007, on an idle 25-acre plant in Painesville Township, Eric Lofquist and Scott Forster started Magnus International Group Inc., a private holding company that soon established three companies in quick succession after converting the plant into a sustainable products manufacturing facility. The companies produced industrial and consumer waxes, alternative liquid fuels, could recover oil and water emulsions, and could make carbon energy for blast furnaces.
The holding company transitioned out of the petroleum industry and shifted its focus to transforming reusable food industry co-products into renewable materials.
To this end, Magnus constructed a one-of-a-kind prill tower facility that produces, packages and distributes custom animal feed products for the cattle, swine and equine industries, and processes food industry fats, oils and greases that would otherwise end up in landfills.
Its success led to the construction of a second prill tower that was built in 2013 to manufacture exclusive varieties of solid animal feed ingredients.
Sustainability is also important for company operations. For example, its Hardy Animal Nutrition business saves on natural resources by utilizing lake water and running on methane gas recovered from the Lake County landfill.
The company says its manufacturing technology is unprecedented, and it has developed products and processes that are an industry first. The once idle plant now employs 50 people, and the administrative offices employ another eight. Magnus reports revenue growth of 2,700 percent between 2007 and 2011 and it serves clients such as Cargill Inc., Perdue Farms and Land O’Lakes Inc. They also do smaller-scale projects that address individual customer requirements. ●
Barry Cik, owner
(800) 917-3342 | www.naturepedic.com
Building a better bed
The Cik family is turning Naturepedic into a household name
Ten years ago, Barry Cik, owner of Naturepedic, didn’t want to put his first-born grandchild on any available crib mattress. His mission to create a better crib mattress that incorporated improvements in structural, chemical, allergenic and fire safety, as well as comfort for the baby, led to the creation of a multimillion-dollar company.
Barry and his sons Jeffrey and Jason built Naturepedic from their garage into a 50,000-square-foot production facility. They also helped change governmental regulations and established GREENGUARD third party certifications for mattresses.
From a single crib mattress, Naturepedic’s line grew to include 11 models of crib mattresses along with infant pads and accessories, such as sheets and changing pads. The company soon expanded into making certified organic cotton mattresses for older children, and in 2012, developed an adult line.
As the company continues to expand its lines of mattresses, it has added employees, bought more equipment and completely revamped its production line to handle increasing demands. The company has added a 9,000-square-foot warehouse, opened another warehouse for product distribution in California and is in the process of opening a West Coast showroom in Los Angeles.
Naturepedic has grown from zero to more than $10 million in annual sales within a decade, and its products are being sold at more than 600 stores nationally and internationally. The company also donates infant pads to more than 100 hospital neonatal units and gives products to the community, organizational and educational groups. ●
Portage Precision Polymers Inc.
Doug Hartley, President and CEO
(330) 296-6327 | www.pppmixing.com
A recipe for success
Portage Precision Polymers mixes up record sales growth by adhering to core values
Founders Doug and Rick Hartley started Portage Precision Polymers Inc. in Ravenna in 2002 with just six employees, producing and selling 1 million pounds of rubber compounds in a single month.
The company, which develops and produces custom mix elastomer compounds for manufacturing and fabricating businesses, has continued to evolve and grow under the leadership of President and CEO Doug Hartley. The company now has 70 employees.
Custom elastomer compounding is a highly technical, complex industry, but Portage Precision Polymers has found a recipe for success by adhering to its core values — safety, quality, integrity and customer satisfaction.
The Ravenna facility’s 179,000-square-foot rubber and elastomeric compound manufacturing operation can mix 60 million pounds annually. It also has a full-service research laboratory and testing department with an on-site team of development chemists.
In 2013, Portage Precision Polymers celebrated the opening of its new silicone custom-mixing facility in Mogadore. Silicone is a rapidly growing niche market, as customers use it for its sustainable and economic benefits. The state-of-the-art 17,680-square-foot facility has 20 million pounds of annual mixing capacity with a full-service research laboratory.
The company is the only compound mixer able to blend both organic and silicone compounds.
In fact, many of Portage Precision Polymers’ customers use the company’s sustainable materials to obtain their desired Leadership in Energy and Environmental Design certification. ●
Rapid Prototype and Manufacturing LLC (rp+m)
Matt Hlavin, CEO
(440) 930-2015 | www.rpplusm.com
Paving the way
Rapid Prototype and Manufacturing LLC is at the forefront of 3-D printing
Within the past five years, 3-D printing has become in high demand as a technology that can save time and money. As a result, Rapid Prototype and Manufacturing LLC was founded with CEO Matt Hlavin at the helm.
In traditional manufacturing, a company must purchase tooling that costs thousands of dollars and takes weeks to build prior to sampling a part. If anything was wrong with the tooling, it would need to be shipped out and repaired; again, costing more money and time.
But with rp+m’s technology, customers can create prototypes within hours rather than weeks. Ultimately, this allows manufacturers’ product development time to drop dramatically and permits more time for making additional products.
In addition, rp+m gives customers the ability to 3-D print end-use parts, rather than just prototypes. This is having an impact in the aerospace, industrial, medical, automotive and consumer products industries.
rp+m also has received several grants to help develop new 3-D printing materials for various markets.
It expanded into metals in 2013 and is the first 3-D printing company to be printing tungsten. rp+m is able to additively manufacture (3-D print) metal parts with complex shapes within hours.
Due to high machine usage, rp+m recently purchased two additional 3-D printers to keep up with demand, and the facility runs 24/7. The employment growth rate is more than 600 percent, and the company expects to add even more jobs in 2014. ●