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State-funded Strategic Early Warning Network works to save Pa. jobs

Bill Wallace's company, William J. Labb Sons Inc., a small manufacturing firm in Philadelphia, survived the recession - but barely.

Bill Wallace's company, William J. Labb Sons Inc., a small manufacturing firm in Philadelphia, survived the recession - but barely.

Whether it would make it through the recovery was another question entirely, one extremely important to the 20 people who work at Labb's Bridesburg factory.

"Our industry came back to life," said Wallace - and when it did, he said, he needed help to switch gears from survival to revival before his family-owned company got chewed up in the process.

Labb was nearly out of cash and some key employees had left by October when Wallace, the plant manager and owner's son, called the Strategic Early Warning Network.

Funded by the Pennsylvania Department of Labor and Industry, the network tries to save jobs before they are lost.

"Saving a job is significantly cheaper than creating one," said Greg Olson, a business consultant who heads the network's new Southeast Pennsylvania office.

The math seems simple.

The network, with a statewide $1 million budget, estimates it saved 1,017 jobs at 25 businesses last year at a cost of $976 per job.

Pennsylvania's weekly unemployment benefit averages $302. So in less than a month, the taxpayer cost to fund a lost job tops what the network might have spent to save it. Olson, however, points out that not every job can be saved. Six months of benefits cost the state $7,852.

Each manufacturing job also feeds the economy by generating as many as four other jobs, the American Alliance for Manufacturing estimates.

The network's niche is privately held, family-run manufacturing businesses.

Often, Olson said, the owners are focused so myopically on keeping their stressed businesses alive that they lack the perspective or energy to handle ongoing damaging business issues.

"They've done a good job hanging on by their fingernails over the last two years," he said, "but their fingernails are being worn to the bone."

That was Mike Ross' situation at Henry Ross & Sons, a custom countertop fabricator in Lititz, Lancaster County.

When the 55-year-old family-owned company contacted the network in early 2009, it was in its second year of unprofitability and four to six months away from closing down and putting 27 people out of work, Ross said.

The network's consultants persuaded the company to lay off a few people who were being kept on out of loyalty but who no longer fit the company's strategic plan. Headcount fell to 22.

The consultant helped refinance Ross' bank debt and returned the company to profitability.

These days employment is back to 27 and Ross is hiring. "From our point of view, it was a godsend," Ross said.

In Philadelphia, William J. Labb Sons manufactures machine parts for nuclear power plants and other energy businesses. Marcellus Shale work in rural Pennsylvania has meant more orders.

"Now we have a huge backlog," Wallace said.

That should be good news, but it's not that simple.

"We didn't lay people off during the recession," Wallace said. Labb retained 20 out of 24 positions. Instead of layoffs, he didn't replace the four who left nor did he replenish his supply inventory.

When the avalanche of orders hit earlier this year, it overwhelmed his company's capacity. Its cash position, weakened by the recession, meant it couldn't buy all the supplies it needed to immediately fill every order.

Olson helped Wallace prioritize, focusing on Labb's largest customers with the best record for quick payment, the better to improve cash flow.

Olson also helped Wallace make smart procurement decisions, buying what he needed to fill the big orders, instead of tying up cash with inventory he would use later.

Earlier, Labb had bought sophisticated software enabling it to track orders and inventory, but the company wasn't making good use of it, so Olson found a software expert to help Wallace in the office part-time.

As orders increased, Labb desperately needed to hire another machinist, but those skilled workers are in short supply. Olson is helping Wallace wrangle government training money to build in-house expertise.

An arm of the Steel Valley Authority, the network got its start in Pittsburgh in 1993, trying to save jobs in the supplier network that fed off the city's collapsing steel sector.

Since then, it has handled financial and operational restructuring, cost management, ownership transition, and marketing for 700 companies, impacting 18,000 jobs, the network's director, Tom Croft, said.

The local office, staffed by Olson and two part-time consultants, opened two months ago in Bristol to serve Philadelphia and nearby counties.

Calculating whether the Strategic Early Warning Network actually saves jobs is tricky, because predicting what jobs would have been lost absent the network's intervention is difficult.

But sometimes it's clear. Some referrals, Olson said, come when companies file layoff notices with the state. Other times, banks make the call when businesses come close to defaulting on loans.

The firms aren't out of business yet, but as cash dwindles, their end seems imminent, Olson said.

Wallace doesn't think his struggling company had hit that point. But, he said, he's glad for the assistance.

"It's been really helpful to have an outside perspective," he said. "We have huge possibilities to grow."