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New Directions in Manufacturing: Report of a Workshop
can seriously jeopardize the business. Small manufacturers have small management teams that struggle to meet all the demands on them. Many small manufacturers have been forced to become leaner and, as a result, have limited legal, marketing, and human resource personnel. This leanness makes them more vulnerable to potential lawsuits that may arise from the increasingly complex liabilities related to products and services, workforce issues, federal regulations, and corporate issues. In an SME, capital is typically dedicated to operations, with limited access to capital for improvements such as equipment upgrades, facility expansions, marketing and sales force expansions, or the incorporation of new technology. Small manufacturers are usually fighting for survival and must therefore focus on day-to-day operations, rather than planning future growth.
Retirement is an issue of concern to smaller manufacturers. There are no mechanisms in place for transferring knowledge from retiring employees, and there is a smaller pool of talent available for the next generation of senior managers. Another alarming issue facing small manufacturers is the lack of education of entry-level production personnel who graduate from high school without the basic reading and writing skills required for the jobs. Most small manufacturers believe that this problem is compounded by a trend to reduce vocational education in high schools. In order to cut costs, many high schools have dropped shop classes. Due to safety and insurance issues, shop classes are more costly than, for example, computer laboratories for software development. There are shortcomings in the remaining vocational courses because high school graduates do not have the knowledge or desire to learn the manufacturing trade. As a result, the biggest problem faced by small manufacturers is a lack of trained production workers.
The rising cost of health insurance is a serious issue for small manufacturers. Small companies are, for the most part, family-owned and typically cover all health insurance costs for their employees. While the costs of health insurance are increasing each year, some years by almost 50 percent, health services seem to be decreasing. In the end, small manufacturers are forced to trade off production capability for health insurance, resulting in perhaps one less person that the company can hire.
Globalization of manufacturing results in new challenges for small manufacturers. With manufacturing moving overseas, sales follow suit. It is difficult for small manufacturers to provide effective service overseas. For example, with domestic clients, you can visit 3 or 4 customers per day. Because most of the computer industry has moved to Asia, it now takes up to 4 days to visit one customer in that industry. This makes it more difficult to compete with local manufacturers. In addition, larger companies are moving around, making the market more unstable and causing relationships to change every 1 to 2 years. Finally, the current affairs of other nations have an increased impact on business abroad.
Another major trend is forcing small manufacturers to change from being component suppliers to being systems suppliers. Previously, a large company would purchase several types of brackets from different companies. Today, contracts being awarded to large companies often require a reduction in administrative costs, with the result that the large company prefers to bundle contracts and orders. Large companies therefore want to buy preassembled systems from one company. This trend is not just relevant for DoD but also for companies such as General Motors and IBM.
Small manufacturers must also reconsider their relationship with government organizations, for a number of reasons. First, if an SME works exclusively with DoD, profit margins are typically tight and the SME becomes extremely vulnerable to program changes. If a program is cancelled without warning, the small companies that spent time building up for it will almost always go under as they do not have the infrastructure to support the loss. Second, big