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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers 2 Improving Manufacturing Performance in Smaller Firms "The competitive pressures are so great, we haven't been able to raise prices since 1978. We have to emphasize cost reductions and productivity improvements."1 Smaller companies confront major problems in responding to increased global competitiveness. These problems encompass a broad range of issues, only some of which relate directly to technology. They include: disproportionate impact of regulation; lack of awareness and insufficient knowledge of best manufacturing practices and modern technologies; isolation and insufficient interaction with other manufacturers; where to seek advice and sources of reliable, unbiased information; and scarcity of capital and difficulty acquiring sufficient investment funds. Inadequate resources—people, money, expertise, information—and insufficient time are the bases for many of these barriers to increased manufacturing competitiveness. The idiosyncracies that come from the 1 The quotations interspersed throughout this chapter are taken from the committee's conversations with owners and managers of smaller manufacturing firms who participated in the eight workshops hosted by the committee throughout the United States during the period of this study.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers genesis of entrepreneurial companies are also contributing factors in their resistance to change and slow adoption of more advanced technologies and new organizational structures. Five fundamental barriers to manufacturing performance improvement in smaller manufacturers were identified and discussed during the eight workshops hosted by the committee; all are well corroborated in the extensive literature about conditions in smaller firms. The committee met with nearly one hundred small manufacturing owners/managers, as well as extension service field agents and managers from Manufacturing Technology Centers (MTCs), state extension programs, universities, and trade associations. In addition to discussing barriers facing smaller manufacturers, both company representatives and assistance providers discussed opportunities to help firms overcome these barriers and significantly improve the cost, quality, and market responsiveness of their manufacturing operations. The following sections describe the ideas raised in these discussions. BARRIER 1: DISPROPORTIONATE IMPACT OF REGULATION The Barrier The regulatory environment creates a disproportionate burden for smaller firms. National, state, and local initiatives and decisions concerning trade, the environment, employment, work place safety, health care, and liability have a direct impact on the competitiveness of manufacturing companies. For smaller firms, the economic impact of regulatory compliance is much greater as a percentage of capital investment than it is for larger businesses. "Compliance with regulations is straining the resources of the company [sales of $7–8 million]. . . last year our entire budget for new investment and new equipment—$500,000—was spent to meet EPA [Environmental Protection Agency] regulations." Whereas many large firms spend enormous sums of money for corrective activities and new equipment to comply with complex regulations, smaller firms cannot easily afford or justify such investments. First, the alternatives are limited in many instances because equipment appropriate for their scale of operations and capital budgets
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers is not available. Second, the fixed costs of regulatory compliance can be a greater burden for smaller firms because they must spread the costs over fewer units of production than large firms. The result of these circumstances is that the attention and resources that should be invested in productivity growth and innovation must instead be directed towards assuring conformance to regulatory actions and insurance for product faults (Forbes, 1993). "I believe that there is a need for environmental controls, but we can't read, understand, or interpret the flood of regulatory paper that comes at us. We can't plan for it. . . we just can't keep up." Despite efforts to lessen the impact of regulatory actions for small businesses,2 the amount of time and effort required to stay abreast of and to comply with regulations has become a disproportionate hardship for smaller organizations. A fundamental reason that the regulatory problem is so difficult for smaller firms is that its sources are so numerous and diverse. When federal, state, and local jurisdictions are included, the potential permutations and combinations of regulatory structures are overwhelming. In a survey for the National Federation of Independent Business, respondents said that regulatory problems increased in severity more than any other type of problem over the last five years. The increase in severity varies across states, which indicates that the federal government is not solely culpable (Dennis, 1992). The circumstances of smaller manufacturers are further complicated by the growing impact of health and employment regulatory action by the government and the largely unknown consequences of major changes in the relationships among the international trading partners of the United States.3 2 Regulatory Flexibility Act, 1979, Public Law 96-354 [S. 299]; September 19, 1980. An Act to amend title 5, United States Code, to . . .establish as a principle of regulatory issuance that agencies shall endeavor [consistent with constraints] to fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulation. Agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration. 3 Smaller manufacturers are particularly concerned about low-wage competition that is likely to result from changes in relationships with Mexico as a result of the North American Free Trade Agreement (NAFTA). For example, see Wall Street Journal, March 10, 1993 and March 29, 1993.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers "In their eagerness to punish us for relatively innocuous infractions of OSHA [Occupational Safety and Health Administration] rules, inspectors threatened to shut down all of our production operations." Many companies at the workshops noted that enforcement of regulations is capricious. There was a general sense that regulations are difficult to track so firms may be in violation unknowingly. Companies are convinced that government is intent on detecting violations and fining companies rather than providing any assistance in achieving compliance in a nonthreatening manner. Based on their experiences, smaller organizations are skeptical when someone from the government says, "We're going to help you solve your problem." "We know that there are some areas of our production operations that are violating EPA regulations, but we're afraid to call the local office and ask questions about the regs. We feel that calling them for help just ends up getting us audited and fined." Companies have few places to go for affordable advice or help on interpreting environmental regulations. Fear that inquiries about rules and means of complying will result in plant visits and subsequent citations causes many companies to ignore the potential problems. Opportunities for Resolution or Improvement Most manufacturers at the workshops agreed that regulations and rules concerning the environment, the work place, and employment are necessary. Their concerns, however, are with the overwhelming increase in complexity and specificity, what they perceive to be capricious enforcement, and the crushing economic burden they represent for small companies struggling against foreign competitors that are not subject to equivalent constraints. Opportunities to improve the circumstances for smaller manufacturers to contend with regulatory burdens arise primarily through increased awareness of technological means for meeting compliance standards and better coordination among companies and regulation promulgating agencies. The following specific opportunities were identified:
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Timely information to manufacturers about new or modified regulations can help them assess how the regulatory actions will impact their operations and determine alternative means of complying. Greatly improved dialogue between regulators and smaller manufacturers is needed to encourage both realistic expectations in the design of new regulations and a realistic pace of compliance given the constraints facing smaller manufacturers. Smaller manufacturers could benefit from efforts to articulate clearly the specific problems and constraints they face in complying with regulations. Such a clear articulation could be used not only as information in the regulatory design process, but also in mobilizing university and federal research resources and equipment developers to create effective technological responses appropriate for small firms. The strategies of regulatory agencies need to be reoriented towards "compliance assistance" organizations rather than "adversarial and punitive" organizations. One means for improving dialogue between regulators and smaller businesses involves offering assistance in identifying and filing appropriate forms and documents required by regulatory agencies. BARRIER 2: LACK OF AWARENESS The Barrier Smaller manufacturers are often unfamiliar with changing technology, production techniques, and business management practices. The staff and senior managers of smaller manufacturing companies must devote most of their time and energies to managing the day-to-day operations of the firm. As a consequence those companies are less likely to be aware of best manufacturing practices, innovative application of new technologies, and fresh approaches to improved production efficiency. With less relevant experience and expertise, their expectations for successfully selecting and effectively assimilating new technology are not high, and so they are less likely to risk investment in new ways of doing things or in major changes to the management structure and relationships within the business. Companies need to be motivated to improve their performance and seek assistance. Many companies confront survival-threatening aspects of global competition before they recognize the seriousness of the performance gap. For smaller firms this may be too late. Without the
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers resources and necessary time to accomplish the needed changes, smaller firms can simply disappear from the competitive scene. This situation can be helped to some extent by broader dissemination of information that explains the competitive challenges confronting manufacturers. Smaller firms, particularly those that are in the supplier chain for larger multinational companies, must understand how global competition can affect their business, even if they do not perceive themselves as exporters or participating in other than domestic markets. Companies hear about world-class manufacturing but they have very little concept of how it applies to them or what it means for them operationally. They need help translating the abstract language of global competition into best manufacturing practices and state-of-the-market technology. "We know we have to change, but we struggle with implementation." Even when smaller companies recognize the importance of changing, their circumstances—fewer managerial, technical, financial, and marketing resources than larger companies—present a daunting environment in which to accomplish the needed changes. Their scale of operations prohibits development of customized programs for upgrading the skills and talents of workers.4 The owners and managers of smaller companies are preoccupied with day-to-day survival. Insufficient time and expertise cause many of them to disregard long-term planning or development of a coherent vision for the company. Smaller organizations are particularly vulnerable because they are forced to undertake multiple changes and adjustments with little margin for error. They are faced with assimilating the new tools, disciplines, and philosophy of lean manufacturing, embracing new ways of delegating responsibilities, and developing new kinds of collaborative partnerships with customers, suppliers, and employees; often simultaneously and under pressure from their prime customers. Although some suppliers receive help in making the necessary changes from their larger customers, others are struggling on their own. For many of these companies, innovations are perceived as risking the solvency of the company, not only because of the financial costs involved but also because of the resulting disruptions on the shop floor that can interrupt 4 When smaller companies have devoted time and resources to improvement of worker basic skills, they are generally pleased with the results of their efforts. For case studies conducted at four smaller manufacturing firms during 1991–1992, see Faison, et al., 1992.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers production. Consequently, investment in new technologies and other innovations are delayed and avoided. "I know I should be more aware of modern technology, but I just don't have the time to focus on many of the issues in technology that are changing quickly." Managers' preoccupations with keeping the company alive and fighting day-to-day problems result in low awareness of new manufacturing developments and inadequate access to timely market information, technology availability, and knowledge of best practices for design and manufacture. When they do decide to adopt new technologies they need help to integrate the technology quickly and effectively without bringing the rest of the business to a halt. "Our biggest work place reorganization problems are with the supervisory people rather than the machine operators." Smaller companies need help changing the manner in which they organize work, understanding the importance of upgrading the skills of their employees, and locating the proper means to improve their abilities to function effectively in a rapidly changing environment. For larger companies, transforming organization structures, adopting new ways to accomplish tasks with self-directed teams, and collaborating with customers is so different, so foreign to their company culture, that entire layers of managers must be removed for the changes to be accomplished. Small companies without extensive management often face even greater difficulties because the decision-making authority has always rested with the owner. Changing the firm's internal and external organizational relationships requires the owner to relinquish some authority to his workers and his customers, which often runs counter to his reasons for owning the business. In many, many cases, only a major crisis of company survival is sufficient to motivate change. "It's impossible to introduce greater worker responsibility or teach modern problem-solving skills when so many of my employees have insufficient math and reading skills." Manufacturers increasingly must deal with workers that have insufficient reading skills and are unable to perform simple arithmetic. Mastery of reading and math are increasingly important as workers
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers operate computer-controlled machinery and equipment that requires understanding instruction manuals, entering data, and maintaining statistical process control information. In numerous parts of the United States the inability to speak English must first be overcome before the organization can begin to consider further efforts to upgrade the skills of its employees. However, managers' commitment to restructure factory operations and to invest in new equipment that requires greater worker participation is often the major motivation for workers to improve reading and math skills (Rimington, 1992). "English is a second language for 60 percent of my production floor employees." The benefit of investments in work force education is not always reflected only in upgrading work-related skills. Companies find that the investments they make to develop common communication skills—spoken and written English—are a necessary foundation for any type of improvement program or successful change. Financial commitment to training and education is often perceived by the employees as evidence that the organization is serious about making the changes and improvements necessary to create a more competitive manufacturing company, and not another "program of the month" or cost-cutting measure. Opportunities for Resolution or Improvement Despite the difficulties confronting smaller firms, there is evidence that when they make the commitment to change, the changes take place more rapidly than large companies and often with much greater success. Therefore, the problems of gaining access to appropriate information and instilling appropriate knowledge and skills in managers and workers create many opportunities for industrial assistance providers of all types to offer education and information-sharing programs. Key considerations are ease of access and tailoring for smaller firms' needs because smaller company employees have limited time for education programs and may not have appropriate expertise to gain much from programs developed for larger firms. Specific ideas discussed included: Nationally disseminated materials and programs can increase awareness of best practice. These would include: 1) benchmarking data for smaller firms to use in evaluating their performance against
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers companies of similar size; 2) timely publication of illustrative cases of best manufacturing practices on industry, regional, and national bases; and 3) development of case studies that are directly applicable to the circumstances of companies with few resources rather than scaled-down versions of large company "lessons learned." However, major effort is needed to develop methodologies, foundations, and technologies for identifying, organizing, and then deploying best practices to smaller manufacturers. Television programs could address issues particularly relevant to manufacturers and could reach a large audience. Providing smaller firms with greater access to video tape libraries that illustrate technologies and implementation problems is a means of increasing knowledge in the manufacturing community. Local and regional forums and workshops can introduce and demonstrate new technology, management methods, and market opportunities. Low-cost seminars and formal courses on selection, adoption, and management of specific technologies could be made available at times and places convenient for small firm employees. Mechanisms could be developed to facilitate access to information sources such as national databases and trade and professional societies. Mechanisms that provide access to equipment for "try before you buy" and training of workers could be expanded. Some MTCs already do this for some technologies, such as the computer-aided design (CAD) hardware and software facility at the Northeast MTC. Another example is the teaching factory which, among other services, provides companies with opportunities to use equipment prior to buying it themselves (see Chapter 3). Internship programs could be created for high school and university students and teachers to work with smaller manufacturers that would be unable to afford their participation otherwise. BARRIER 3: ISOLATION The Barrier Smaller manufacturers are generally isolated and have too few opportunities for interaction with other companies in similar situations. Interaction with other firms is essential to continuous improvement.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers These associations seem to be most productive when they occur among companies of similar size and with larger organizations that might be role models for smaller firms. The chance for suppliers to interact with major customers, to benefit from membership in a supplier improvement program or keiretsu-like confederation of companies, can provide enormous opportunities for smaller firms to improve their performance. A wealth of literature and books on improving manufacturing is available (Schonberger, 1986, 1987; Shingo, 1983, 1988, 1989; Stalk and Hout, 1990; Taguchi, 1989; and Womack, 1990). Some exceptional companies have successfully applied concepts and techniques described in the literature, such as single minute exchange of dies (SMED), poka yoke (mistake proofing), work force empowerment, work flow redesign, and improved ergonomics, to cut costs, boost quality, and raise on-time deliveries.5 But such commitment to improvement is rare. More typically, employees in smaller firms find much of the materials are focused on the solutions adopted by larger firms, or the cases presented may be relevant for other businesses. For many smaller firms the efforts to adjust the techniques and methods presented in books for practical use within their plant requires more time and attention than they can afford. ''I've read about SMED and I think I understand the concept of work cells, but I think that talking to people in other companies that have already gone through some of these things would help me understand how to make work place reorganization work in my shop.'' Strikingly, many executives and managers of smaller manufacturing companies have very little association or exchange with other manufacturers within the same or similar industry sectors—even when located in the same community. Therefore, they have insufficient opportunity to trade information about service providers, new practices, and technologies, or to learn from the experiences of companies in similar circumstances. They need to see principles at work in other factories and production settings to better understand operational aspects of implementation. The unknown risk associated with change holds them back. 5 United Electric Controls, Inc. in Watertown, Massachusetts is one example of such a committed company. This manufacturer of instruments, controls, and sensors received the 1990 Shingo Award for excellence in manufacturing.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers "ISO 90006 is a problem for us because our customers demand certification but it doesn't add value to the quality of our products or services." Customers create pressure on suppliers to decrease costs and improve quality. They express their desire for suppliers to integrate new technology in their products and adopt new design and production techniques, such as CAD and programmable automation. Major customers increasingly expect smaller firms to take more responsibility for engineering, to participate in development of new products, and to adopt the same standards and performance measures as the customer uses in their organization. Smaller firms are generally not in control of markets or suppliers, and they have little leverage with suppliers and customers that are often larger and able to dictate terms and conditions. "Our customers don't understand the impact that JIT (just in time) production has on the suppliers. They just tell us 'do it. . .if you want to continue selling to us.'" More original equipment manufacturers (OEMs) have come to play an important role improving the performance of their suppliers and vendors; however, these large customers may be so engrossed in changing themselves that they cannot help their smaller suppliers master the required tasks (Business Week, 1993). They also tend to make contradictory or at least constantly changing demands as they succumb to the temptation of transferring the costs of adjustment to their weaker partners (Moody, 1992 and Welch, et al., 1992). Despite the increase in the number of larger firms with well-designed programs for improving the performance of their suppliers, the size of the programs are constrained by the resources which the OEM can justify, so the number of suppliers that each program is able to help is limited. In fact, one principle of supplier relations that the larger firms are adopting is a radical reduction in number of suppliers from whom they purchase materials, parts, assemblies, and so forth. This further reduces the number of smaller manufacturers that are likely to obtain help from major customers (Wall Street Journal, March 29, 1993b). 6 ISO 9000 is a set of standards created by the International Standards Organization for certifying the quality of production. ISO 9000 certification is becoming a standard requirement for companies exporting to the European Community. See Aune and Rao, 1992 and U.S. Department of Commerce, 1992b.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Opportunities for Resolution or Improvement The manufacturers attending the workshops repeatedly pointed out to the committee that providing occasions (and excuses) for firms within the same, and across radically different, sectors of industry to meet and discuss common concerns and problems were among the most valuable services that a neutral party, such as a MTC, could provide. They felt strongly that the chance for owners and managers to have face-to-face discussions, to exchange information about new methods and technologies, and to hear first-hand how others handled similar business crises was invaluable.7 Talking with other executives about problems in common is the best way to find out "what works, and what doesn't." Suggested topics included work force training, demographic changes, regulatory compliance, and access to investment capital; sharing stories about solutions attempted and approaches that worked; and comparing ways to respond to so many of the problems facing manufacturers today. For some companies this kind of interaction is sufficient motivation for them to begin significantly attacking their competitiveness problems. Many companies are surprised to learn that they have so many of the same problems and that help is available. Even when staff and directors of assistance organizations have business and manufacturing backgrounds, their experiences and the problems they faced, in general, are different from what the owners and managers felt they were confronting today. They appreciated the expertise and experience of the assistance groups but they felt that the opportunity to speak with people that shared their same problems and challenges on a daily basis was especially valuable. Specific ideas to facilitate more interaction among companies included: Construction and operation of networks of companies with similar interests and needs can be an effective way to share both costs and experience. Collective or joint activities among groups of companies can include worker training, marketing, production in "virtual enterprises," and cooperative purchasing of health insurance and production materials. "Sharing" consultants among groups of companies that have 7 Unfortunately, they are less than enthusiastic about paying for such facilitating services. Therefore the paradox for assistance organizations that must be self-funding.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers similar problems but are not competitors has been demonstrated successfully. 8 Workshops, meetings, site visits, focus groups, forums, and roundtable discussions not only motivate interaction among companies but also can provide entry to local, regional, and national webs of information. Some programs to help multiple companies can best be provided by professional societies, trade associations, and other membership organizations. These organizations should be encouraged to be more active in determining needs and developing appropriate programs for their membership. Television and video are means of exposing manufacturers to specific problems and the solutions adopted by other firms. Particularly as the technology becomes more readily accessible, video conferences among owners and managers within a region or industry sector could be arranged to share experiences and lessons learned. Electronic networks that provide bulletin boards for direct exchange of information and sharing of approaches to common problems will be increasingly valuable as the needed technologies penetrate into smaller companies. Eventually, such networks could be used to organize cooperative purchases and bid opportunities as an effective means of creating a "community" among manufacturers. Focus groups that meet on a regular basis to address important sector issues are valuable to manufacturers. Continuous Improvement User Groups (CIUGs), organized by the Midwest Manufacturing Technology Center, are an example. These are groups of companies that hold structured meetings, facilitated by MTC staff, to share experiences, effective techniques, training, and information in implementing continuous improvement of company functions. The CIUGs serve as mutual support systems, encouraging relationships so companies learn to help each other. An assistance provider could serve as a neutral convener of groups of suppliers and their major customers (supplier-customer councils) to help resolve different standards of performance and criteria for vendor certification. 8 In a study for the Cleveland Advanced Manufacturing Program (Helper, 1992), the potential for networks was cited as very high, but the authors caution that their success depends on attention to a number of factors: well-defined plans for establishing the network, organizational support, the size and number of member firms, building trust among members, and availability of a champion who can articulate a vision for the network and who can be responsive to the perceived needs of the members.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers BARRIER 4: WHERE TO SEEK ADVICE The Barrier It is difficult for owners and managers of smaller companies to find high-quality, unbiased information, advice, and assistance. When companies need help with technical problems, when they want to replace production or design equipment, or when they want to upgrade the skills and talents of their work force, they are often at a loss for sources of assistance. Searching for help in the public sector often reveals a confusing, uncoordinated array of services—universities, economic development groups, technical schools, government agencies— "competing" for clients. "We didn't know where to begin when we started looking for a CAD system. There are hundreds of different ones out there and the vendors all said theirs was best." Today, smaller companies predominately need access to, and assistance in applying, off-the-shelf and best practice technologies, such as CAD, numerically controlled machine tools, inventory management, and shop scheduling. However, the number of vendors and products is overwhelming for an owner or manager who is unfamiliar with the technology. Inappropriate choices can waste precious resources and time, a waste that smaller firms cannot afford. Vendors are one of the most frequently cited sources for diffusion of technology and best practices among industrial firms. Smaller firms depend heavily on the knowledge of vendors for much of the information they receive about advances in manufacturing practice, but these sources are not always viewed as unbiased and concerned with the best interests of the customer. It is easy to be convinced that the solution to a problem is a technology fix. Many companies could benefit from assistance in understanding that "best practice" is not always technology based. "We've tried, unsuccessfully, to find affordable outside experts that can help us create worker teams and build so-called cross-functional skills." Consultants with the proper skills and expertise are expensive. Because their expertise is likely based on work with large businesses, their suggested solutions may be too costly and inappropriate for smaller
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers organizations. It is extremely difficult to justify sales calls on very small manufacturers. Experts for hire, many educational institutions, and other service providers in the private sector tend to concentrate on firms that will result in larger accounts and allow them to amortize their marketing costs more quickly. "We don't feel like we can get unbiased advice from the university (computer science) department because they are given equipment and software by major computer companies." Sometimes it is difficult for smaller manufacturers to work with universities because the company may not have staff that is comfortable with university researchers. A frequently cited reason not to work more with universities is that the schedules of the university often do not move quickly enough to satisfy the needs of industry. The training and educational needs of the small business may not match the services that the colleges and universities want to provide. "We want to be sure that (the assistance provider) understands our business before we start spending money and changing the way we do things. If they aren't able to convince my people out there on the floor that they know what they're doing, they're sure not going to convince me." Smaller manufacturers are often insecure about locating and selecting the correct assistance and service providers to help them make decisions that will involve expenditure of funds. They want to develop personal relationships and see demonstrated credibility of the individual service providers (field agents) before they are willing to accept their advice. "We believe that the government labs have some of the technology that could help us comply with some very tough EPA regulations concerning solvent-based paints, but we don't know how to get them to listen to us." Although there may be fewer opportunities for smaller manufacturers to apply leading edge or advanced technology from government laboratories or universities, there are situations where the skills and capabilities of the laboratories could prove critical to the survival of smaller manufacturing firms. Smaller firms usually have no research staff who could present their needs in a manner that would be appreciated by
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers the laboratory personnel and they have few mechanisms to demonstrate strongly the importance of their needs to outside researchers. By the same token, smaller firms are unable to participate in most government-sponsored consortia but they would likely benefit from knowledge of research results if they were translated into implementable efforts. "Our greatest disappointment has been the unavailability of skilled shop personnel to operate our equipment when the demand for our products has increased." Smaller firms in the same community as major manufacturers have less influence on the course content at local colleges and local technical schools. If their needs differ from the larger businesses, they are likely to have difficulty finding workers with the skills and training they need. "Our employees need hands-on training, but the cost for in-house education can't be justified for the few people directly responsible. . . ." Insuring "technology awareness," increasing understanding of how to improve product quality, meeting international standards of excellence, and raising the level of worker talents are difficult issues for smaller firms. Most recognize the importance of tackling these objectives, but the costs of gathering the right information, providing appropriate training, and getting certification to standards such as ISO 9000 are often prohibitive. In many cases, it means hiring extra people or diverting workers and managers away from production, which is just not cost justifiable for most smaller manufacturers. Opportunities for Resolution or Improvement The nature of the issues that confront manufacturers are more likely than not to be multifunctional. Situations that are perceived as technology problems may also require that financial issues, worker training, and other elements be addressed. For instance, improving production practices by introducing new machinery and equipment may require transforming the organization of work, which goes hand-in-glove with changes in management practices. Accordingly, the services provided by the organization called upon to help the client should be perceived as an
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers integrated system of assistance, if not providing all services, at least able to direct the client to appropriate help for each assistance need identified. The assistance and services available to smaller manufacturers often are not well marketed or coordinated in presentation, including those available from the private sector. The quality of these resources also tends to vary greatly and frequently are based on narrow technology fixes and the set of skills and interests of the assistance organization. Too often they are "hammers looking for nails." Manufacturing requirements planning (MRP), CAD, computer-integrated manufacturing (CIM), and statistical process control (SPC) are examples of technologies that reflect the solutions assistance organizations offer companies. These companies may not have the need for or the appropriate capabilities to use these technologies effectively. During the workshop discussions, it was evident that firms desire a "one-stop" source of unbiased information and assistance geographically close to the manufacturing community. A number of services such a one-stop source could provide were identified: Information on what services, public and private, are available in the community and how to use them is a clear need. A number of mechanisms could be developed to help companies connect with high-quality assistance by knowledgeably linking private and public sector resources with manufacturing clients. These include maintaining databases of consultants with relevant references and qualifications, establishing toll-free telephone numbers to provide a single initial point of contact for firms seeking assistance, and supporting electronic bulletin boards to notify service providers of opportunities in the manufacturing community. Field engineers are critical to effective assistance. They provide small companies with a strategic perspective on how they compare to competitors and what changes they need to make to remain competitive in the long term. Among other duties, field engineers 1) help managers define what they need to do next; 2) scope the work; 3) locate resources; and 4) coordinate projects and assess success. A reliable, trusted source of market and technology information would improve smaller manufacturers' confidence in their investment decisions. There are opportunities to help firms match their needs with the proper equipment by helping them determine their needs and by providing information to assess and compare available equipment and services.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Smaller firms with limited resources could benefit from project management services to coordinate and support (but not manage) contracted services between the manufacturing client and private (or institutional) sources of assistance. Smaller companies sometimes need specific expertise or technologies that are not available from private sources. Examples include CAD output conversion, access to special equipment that very small firms or start-ups are unable to afford, and very specialized technical questions. Industrial service providers can address these needs either by providing the needed service directly or by linking the client company with an appropriate source of expertise, such as a national laboratory or university. Education and training programs are often available from local vocational schools and community colleges, consultants, and associations, but smaller firms may not be aware of what is available or its quality. Examples include courses on ISO 9000 certification, CAD-CAM integration, and electronic exchange of business documents and product engineering specifications. Industrial assistance providers could identify and assess available programs, spur creation of new courses to satisfy company needs, and provide courses in cases where no other source is available, perhaps because of specific technical content. Improved linkages are needed among the various components of the technology development and user/manufacturing community. A neutral party such as a public technical assistance provider could act as interpreter and catalyst, communicating needs of manufacturers to vendors, suppliers, academic institutions, federal labs, and government agencies. BARRIER 5: SCARCITY OF CAPITAL The Barrier Operating capital and investment funds for modernization are difficult for small and medium-sized manufacturing firms to obtain. The financial community does not readily understand manufacturing and often perceives loans for new equipment as unattractively high risks. Smaller firms are unlikely to have the capabilities needed to put together proposals for funds in the format familiar to lending officers. The consolidation of banks, with some exceptions, has removed much of the decision making from the communities where many loans have tradition-
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers ally relied on the "known character" of management and owners of the companies in lieu of collateral. "The trick is to make enough money to pay for new technologies necessary to achieve quality required by customers." The growth in "outsourcing" engineering design and production by large businesses, which they had previously performed in their own facilities, can present smaller manufacturing companies with significant growth opportunities. However, working through the necessary economic justifications for making the investments in technology and people may be outside the capabilities of the smaller manufacturer. The companies may not have the planning and manufacturing know-how to meet such rapidly expanding demands, and they may have difficulty acquiring sufficient capital to meet their commitments. As they assume greater responsibility for product engineering, prior vendor and supplier experience, expertise, and resources may be stretched beyond their means to meet their expanded supplier roles. "You can always finance the hardware; the problem is that the bankers and financiers do not understand the soft costs [e.g., training, programming] needed to make the technology succeed." Tightened banking regulations have made banks skittish about investing in small companies, particularly for technologically advanced production machinery and equipment (All Street Journal, April 27, 1993). Even when financing is available for capital equipment, funds to develop the skills and competencies required to apply and operate such equipment are very difficult to obtain. "With the influx of large offshore manufacturers, we're afraid we'll lose the investment we've made in training [workers] because they'll take the higher paying jobs with large companies." The investment in worker training and upgrading skills and talents is seen by many manufacturers as an extremely risky venture. Other companies, generally larger businesses, are likely to hire the most highly skilled worker because they offer better benefits and sometimes higher salaries that smaller companies are unable to match (Wall Street Journal, April 19, 1993).
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Opportunities for Resolution or Improvement Although programs exist to help small firms access capital needed for improvements, they are perceived by the workshop attendees to be insufficient to meet the needs of smaller manufacturers. Significantly expanding such programs, however, raises issues regarding which firms should be helped and which should not, and criteria for choosing. The most efficient market strategy seems to be one of helping banks to understand better the investment needs of manufacturers and to recognize the opportunities available to them if they are willing to devote the time and energy to work with industry. Likewise, smaller firms need to appreciate the constraints and conservative nature of the banking community, which lead to the complex and rigorous process they must endure to acquire funds. The workshop attendees thought the role of assistance providers in this area to be one of facilitating better understanding and stronger relationships between providers and users of capital. Specific ideas included: Educational programs for manufacturers could help build their understanding of the requirements of financial institutions and help them develop justification for their capital improvements in the format and language understood by the financial community. A better understanding of the particular information needed by lending sources to make funding decisions could also lead a small manufacturer to new insights regarding the operation of the company. Educational programs for local financial institutions could strengthen their understanding of manufacturing technologies, including the whole chain of hardware, software, training, and maintenance needed for effective implementation, as well as technology trajectories and competitive trends in specific industries. Appropriate education could, for example, help overcome lenders' reluctance to accept advanced manufacturing technology as collateral due to the perception of a limited resale market for such equipment. Such programs could also raise lenders' appreciation of the importance of manufacturing in their communities. Assistance providers could facilitate creation of mutual loan guarantee networks among peer companies. Programs in some European countries offer models.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Other ideas discussed by the workshop participants related to broader government policy to raise the supply and lower the cost of capital for smaller manufacturers. Ideas such as the creation of a national fund to make equity investments in smaller manufacturers were discussed; similar funds to provide bridge loans and subsidies to encourage upgrading production equipment were also mentioned. IMPLICATIONS FOR MANUFACTURING ASSISTANCE This set of barriers to improved manufacturing performance and the ideas raised to help firms overcome them are familiar to the many organizations and companies striving to provide assistance to smaller manufacturers. The efforts of many assistance organizations, including the MTCs, educational institutions, and businesses have demonstrated ways to help companies successfully contend with most of these obstacles. In some cases, the ''solutions'' are prototypes, still in the embryonic and experimental stages of development. Some, such as flexible manufacturing networks,9 were first adopted in other countries but have been shown to be effective means for improving the performance of American firms as well. Still others have been deployed on only a limited scale and remain "islands of assistance best practice." In some assistance organizations a "project orientation" has been the favored approach for delivering services to client companies. The service providers answer technical questions, furnish the information needed to solve problems with production processes, and help select computer systems or train workers to operate new machinery. The project approach, however, is severely limited in the number of clients that can be helped, because the assistance is provided on a one-on-one basis. There are many opportunities for assistance organizations to leverage their assistance resources and offer help in ways other than one-on-one contacts. In fact, some of these may prove to be even better mechanisms for quickly improving the performance of smaller manufacturers than individually provided help. 9 Flexible manufacturing networks in the United States are still in the experimental stages of development and evaluation. It is likely to be several years before their success is substantively documented. See Piore and Sabel, 1984; Sabel, et al., 1987; Ruxton, 1990; and The Entrepreneurial Economy Review, 1991.
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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Other concerns, such as regulatory burdens and access to capital, can be addressed to only a limited extent by manufacturing assistance organizations. Effective solutions to these barriers will require participation by government and regulatory agencies, constituencies that have not historically perceived their role as contributing to the improved performance of smaller American industrial firms.
Representative terms from entire chapter: