David Jacobs, chairman of Anchor Audio, discussed how the company uses lean business management strategies to succeed against foreign competitors. These strategies include lean manufacturing to reduce costs by 50% and inventory by 45%, lean distribution such as firing manufacturer reps to improve dealer support, lean vendor management to increase gross profits by 10%, lean engineering to reduce time-to-market, and lean finance to eliminate outside debt and funding for growth. As a result of these lean initiatives, Anchor Audio has seen sales increase 14%, gross profits increase 39%, overhead decrease 19%, and income increase 617%.

1. The Presidents’ Forum of Orange County
Tuesday, March 11, 2008
Building Value in Your Business
Through
Lean Business Management
David Jacobs
Anchor Audio
Chairman

2. Portable Sound Systems

3. Lecterns

4. Wired & Wireless Intercoms

5. Assistive Listening Systems

6. Politicians

7. Military

8. Educators

9. Churches

10. Corporate

11. Emergency

12. Entertainment
Rene Russo in “Hostage”

13. Question: How Does Anchor Audio
Succeed in Competition With
Foreign Manufacturers?
Answer: Lean Business Management
1. Lean Manufacturing,
2. Lean Distribution,
3. Lean Vendor Management,
4. Lean Engineering,
5. Lean Finance.

14. 1. Lean Manufacturing
Action Steps (Over a 3 Year Period):
• Hired CMTC to Consult on Lean Manufacturing Techniques
• Point-of-Use Storage (Minimized Movement of Inventory)
• Cellular Manufacturing (Eliminated WIP Inventory)
• Single Piece Flow (QC Each Unit to Assure High Yield)
• Improved Receiving Inspection (No Bad Raw Materials)
• Invested in Automation Equipment to Manufacture Circuit Boards
• Re-engineered Products to Capitalize on Manufacturing Capabilities
• Created Incentive Programs for Every Employee
Results:
• Reduced Direct Labor By 50% (7% of COGS)
• Failures Reduced to 0 – 2 per Day
• Reduced Inventory by 45% (No WIP)
• On-Time Delivery is 100% (Promise 3 Day Shipping)

15. Liberty Manufacturing Cell

16. Automated Surface Mount
Equipment

17. 2. Lean Distribution
Action Steps:
• Improved the Management of Our 3,000 Dealers
– Fired Independent Manufacturers Reps in the US
– Expanded Our Sales Department to Provide Dealer Support,
• Phone, E-mail, Web Support, Trade Shows & Field Visits
• SPIFF Awards to Dealers’ Salespeople
• Closed Barcelona Distribution Center
– European Operating Costs Too High,
– New Transportation & Communications Services
Results:
• Sales Increased After the Reps Were Fired,
• Eliminated Rep Commissions (6% - 10% of Sales),
• Improved Dealer Communication (Dealers Prefer Direct Contact)
• Eliminated European Inventory, Staff & Overhead.

18. 3. Lean Vendor Management
Action Steps:
• Custom Parts (Plastics & Metal)
– Designed Out Custom Components As Much As Possible
– Studied & Improved Vendors’ Manufacturing Processes
» Material Handling Procedures & Fixtures
» QC Procedures to Align With Anchor QC Standards
» Replaced Non-Performing Vendors
• Commodities (Electronics)
– Qualified Multiple Sources
» Price, QC & Delivery Requirements
• Accurate Forecasting to Drive the MRP and Purchasing.
Results:
• Gross Profit Increased By 10% (Parts are 87% of COGS),
• Very Few Receiving QC Problems,
• Almost No Raw Material Parts Shortages.

19. 4. Lean Engineering
Action Steps:
• Efficient Project Planning & Control
– Initiated Daily Project Management Meetings
– Involved Marketing, Sales, Production & Finance
– Improved BOM & BOO Documentation.
Results:
• Rapid Decision Making to Guide the Projects
• Organization Operates as a Coordinated Network
• Time-To-Market Dropped Dramatically
• Accelerated New Product Development:
– AnchorMAN Wireless Intercom – Patent Pending
– Beacon Portable Line Array – Patent Issued 2/08
– Acclaim Portable Lectern
– MiniVox Lite
– Upgraded Electronics in Existing Products
– Improved Enclosures for Human Interface

20. 5. Lean Finance
Action Steps (Eliminate the Outside Cost of Capital):
• Bought Back All Outside Shareholder Stock
• Paid Off All Bank Debt
• Purchased a Building for the Company
Result (Positioned to Pursue a New Growth Phase):
• No Payments for Dividends, Interest or Rent,
• Cash Flow Is Available to Fund Company Growth
– New Product Development
– New Market Development (Europe)
– Acquisitions

21. Summary
Recession
Closed Europe
Large Dealer BK Sales
Incr by 14%
Introduced New Products
Improved Dealer Management
Gross Profit
Lean Manufacturing Incr by 39%
Product Redesigns
Lean Mfg Overhead
Cut Reps Decrease by 19%
Closed Europe Debt Income
Increase by 617%
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09