The latest challenge for financial chiefs at Orange County-based manufacturers is to get more in tune with their companies’ overall operations to meet increasingly complex cost-control requirements amid signs of growth in the U.S. manufacturing sector.
CFOs have been shedding the bean-counter image for some time. But the need for companies’ CFOs to be engaged in different parts of the business—ranging from sales and customer service to branding and information technology—has been emphasized more sharply at manufacturers.
One reason is recent gains the sector has made, thanks in part to a “reshoring” trend that’s begun to take shape, with more U.S. companies bringing work back home in reaction to rising costs related to overseas production and concerns of quality control.
“There’s a little bit of a resurgence of manufacturing in the U.S., and for CFOs, that’s a specific sort of assignment,” said Karl Hardesty, founder and chief executive of Hardesty LLC, an executive-services firm based in Irvine.
The firm works primarily with companies seeking interim or full-time CFOs, controllers and other financial management professionals. Hardesty currently has 25 CFO-level executives working on projects in California and other states.
Cross-training
“A good CFO in a manufacturing company has to be very operationally oriented,” he said. “To survive in U.S. manufacturing, you have to be really efficient.”
That means working to understand the manufacturing process by hands-on engagement, absorbing “what the company does and how the order fulfillment process works, from the time the company takes the order all the way through delivery to the customer,” said Tom Varvaro, chief financial officer at ChromaDex Inc., an Irvine-based maker of natural-food products and chemical compounds.
ChromaDex operates a lab in Colorado and also provides contract-testing services for laboratories. It employs 75 workers companywide, with about 30 in Orange County, and had about $11.6 million in sales last year, up 43% from a year earlier.
“Accounting for a manufacturing firm is a lot more complex,” Varvaro said. “Getting into manufacturing, you’re talking about thousands of parts, making sure costs are right, inventory is right, labor components and overhead components are right. Just your inventory accounting and cost-accounting type of functions are a lot more intensive, whereas for some companies, the main thing might be salaries and hours. It’s not just tracking the cost, but the analysis of that data. Ultimately, manufacturing comes down to … ‘It’s hard to manage a process if you can’t measure it.’ ”
Labels
Varvaro said he has identified and led operations-type projects throughout his finance management career at various companies, including a stint with Illinois-based Maple Leaf Bakery Inc., the North American manufacturing facility for Canada Bread Co.
“We had a lot of bar codes, which were printed on labels, and then people had to fix those labels onto the packaging,” Varvaro said. “We began to use inkjet spray systems so that when it reached the final point, everything was already labeled. That project saved the company a tremendous amount of money and labor and allowed for faster production.”
Dale Balough, president of JG Plastics Group LLC in Costa Mesa, said CFOs at manufacturing companies are “all about cost control,” especially on labor and materials.
J.G. Plastics has about 75 employees and makes plastic components and provides molding services for a number of industries, ranging from medical and electronics to aerospace and tactical. It operates a 40,000-square-foot facility near John Wayne Airport.
“I have a controller who handles all the accounting functions and an outside CPA firm that handles tax issues, so I guess you could say that I essentially act as the CFO,” Balough said. “I’ve … found that good manufacturing CFOs are closely involved with key purchasing activities, particularly raw materials. In the highly competitive U.S. manufacturing sector, a mistake on the purchase of key materials can spell doom for razor-sharp margins.”
That’s not to say that manufacturing is the only sector that calls for CFOs to be engaged beyond the books.
“Regardless of the sector, I believe the perception of the CFO as simply being the gatekeeper for a company’s finances has largely changed,” said Thomas Masuguchi, deputy CFO and chief accounting officer at Fullerton-based tire maker Yokohama Tire Corp., the North American manufacturing and marketing arm of Tokyo-based Yokohama Rubber Co.
The parent company saw about $5.8 billion in new tire sales last year, with the North American unit accounting for about a quarter of that.
“In order to determine where to deploy a fixed amount of resources, it is critical [for the CFO] to understand the return on those resources,” Masuguchi said. “At the same time, CFOs must focus on the operational metrics that ultimately drive profitability. Therefore, the best and most effective CFOs are those that understand all aspects of the business and not just the numbers printed on the financial statements.”
Complexities
Steve Dixon, CFO of San Juan Capistrano-based toilet-parts maker Fluidmaster Inc., said the role of CFOs is broadening in general. Manufacturing companies “by definition might need to be more operational” because of the sector’s having “literally a lot of moving parts,” he said.
Dixon joined Fluidmaster about five years ago after serving in finance roles in various sectors, including restaurant services, medical-device and transportation services.
“At one level, [the CFO’s roles] aren’t terribly different, to the extent that we’re providing a product or service,” he said. “But I think there’s an aspect of manufacturing operations which just kind of requires you to get your elbows into that a little bit. To me, there’s a lot more complexity to our manufacturing activity than maybe when I was in transportation services. We obviously did different things … but the way you cost out your products is more complicated. So it’s an extra step, maybe.”
Fluidmaster makes various toilet parts, including flush valves, flappers, cleaners and repair tools. The company’s products are sold through large retailers, including Lowe’s and The Home Depot.
It employs about 1,200 workers globally, with roughly 135 in Orange County.
The company didn’t disclose its financials, but Dixon said 2012 revenue exceeded the year-earlier total by more than 20%.
“We have about 60% to 70% market share in the U.S.,” Dixon said. “We’re also big in Mexico, Canada, New Zealand … the U.K. and many parts in Asia.”
The company operates manufacturing facilities in Monterrey, Mexico, in the U.K. and Asia.
“As a global company that operates all over the world, we’re going to put manufacturing where it best serves our customers.”
Being engaged in operations “doesn’t necessarily mean I’m talking to those guys every day about how many widgets they make,” Dixon said. “I spend more time knowing the manufacturing capacity. I spend time with sales guys. If you want to know the business and want to be an advocate to the sales guy and engineering team, it does require that.”
ChromaDex’s Varvaro agrees that being “operationally oriented” provides support to employees.
“Finance and accounting all too often get a reputation of being a hindrance to other departments instead of a resource that can help them achieve company goals,” he said.
“I … have found that operations people are more likely to bring suggestions to … their managers [and] other people in the company if they believe that they have allies in the finance department that not only understand the manufacturing process but that also can be an additional advocate of the projects to executive management.”
