3
Improving Manufacturing: Sources of Assistance for Smaller Companies

The previous chapter presented many of the problems facing smaller manufacturers: maintaining technological parity vis-a-vis competitors, learning about and adopting new business management principles and practices, justifying and locating financial support for growth and modernization, responding to the marketing opportunities and threats presented by the movement to increased globalization, and understanding an increasingly complex and expanding base of regulatory actions and constraints. This chapter describes some of the many institutions, agencies, programs, initiatives, and organizations that are intended to help manufacturers improve their performance in the areas of quality, cost, and responsiveness.

With some regional variation, assistance is available in both the private sector—consultants, equipment suppliers, customers—and in the public sector—educational institutions, state industrial extension services, and various federal programs. The availability of public assistance, which is usually dependent on funding by state and local government, tends to vary with the perceived contribution of smaller manufacturing firms to the well-being of the local economy. The best state programs usually help no more than a few hundred firms per year. There are no precise data available on the number of smaller companies buying private sector assistance (Clarke and Dobson, 1991). Based on the committee's discussions with company owners and managers, and a review of available surveys and other research, the committee is convinced that many thousands of smaller manufacturers could benefit from outside assistance to cut costs and improve quality and timeliness.



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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers 3 Improving Manufacturing: Sources of Assistance for Smaller Companies The previous chapter presented many of the problems facing smaller manufacturers: maintaining technological parity vis-a-vis competitors, learning about and adopting new business management principles and practices, justifying and locating financial support for growth and modernization, responding to the marketing opportunities and threats presented by the movement to increased globalization, and understanding an increasingly complex and expanding base of regulatory actions and constraints. This chapter describes some of the many institutions, agencies, programs, initiatives, and organizations that are intended to help manufacturers improve their performance in the areas of quality, cost, and responsiveness. With some regional variation, assistance is available in both the private sector—consultants, equipment suppliers, customers—and in the public sector—educational institutions, state industrial extension services, and various federal programs. The availability of public assistance, which is usually dependent on funding by state and local government, tends to vary with the perceived contribution of smaller manufacturing firms to the well-being of the local economy. The best state programs usually help no more than a few hundred firms per year. There are no precise data available on the number of smaller companies buying private sector assistance (Clarke and Dobson, 1991). Based on the committee's discussions with company owners and managers, and a review of available surveys and other research, the committee is convinced that many thousands of smaller manufacturers could benefit from outside assistance to cut costs and improve quality and timeliness.

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers PRIVATE SECTOR ASSISTANCE The private sector offers a number of resources that manufacturers can buy to solve problems, to modernize their production operations, and to upgrade the skills of their workers. Among these are consultants, suppliers of technology, trade associations and professional societies, and other miscellaneous service providers. While not providing direct assistance, the trade press and industrial expositions and conferences also serve as important sources of information on new technology and management techniques. Consultants Smaller companies report mixed results in working with consultants. The backgrounds and expertise of many consultants are primarily founded on principles relevant to larger corporations; they often fail to appreciate subtle but important differences in smaller organizations. Although some consultants specialize in working with smaller firms, a company may have difficulty locating a consulting source with the right mix of background and expertise. Executives in smaller firms may also have difficulty defining their problems or specifying exactly what they expect of a consultant. Many smaller companies may be reluctant to engage a consultant on a long-term basis, and those hired for short-term projects may have little or no follow-up responsibility. Furthermore, a small firm may simply disagree with or otherwise fail to implement the recommendations of the consultant. Consultants secure much of their business through "word of mouth" referrals among clients' peers. But small firms may not have a well enough developed peer network to find satisfactory consultants in this manner. Some manufacturing assistance organizations, including the Manufacturing Technology Centers (MTCs), have developed a cadre of third-party consultants and are able to help firms identify and select appropriate experts. Associations and professional societies often provide this kind of help as well, identifying consultants with appropriate experience and expertise in relatively narrow segments of industry. Selective use of consultants is a way for industrial assistance providers to broaden and extend their services, especially when their budgets or third-party funding allows them to absorb part of the consultant's fees and expenses that would be billed to the client. The

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers state of New York, for instance, invests several million dollars annually to provide matching funds to companies to hire consultants. Vendors and Suppliers of Technology Technology vendors and suppliers include machine tool builders and producers of capital equipment, sources of computer hardware and software, materials and component manufacturers, and so on. Many of these companies offer relatively extensive applications engineering assistance to their customers. The suppliers that offer these services, however, are likely to devote more attention to those companies that represent larger sales accounts. For example, when presenting the final report on an Air Force project that developed automation technology for small subcontractors, a senior R&D engineer with a leading machine tool company frankly admitted that his company preferred to market the technology to larger original equipment manufacturers (OEMs). The larger companies, he said, were more likely to purchase the products, and in greater volume, while the small firms would have difficulty raising cash to purchase only one or two units, and would generally be more skeptical of the new technology. Companies developing and marketing products and processes of interest to manufacturers obviously have an inherent interest in promoting their own merchandise and services to the exclusion of those of their competitors. Even second-tier suppliers, such as dealers and distributors, cannot be expected to recommend products and services beyond the lines that they handle. Although many suppliers will provide fairly substantial "proposal engineering" services while competing for a sale, fewer will follow through with sustained support and service after a sale to a relatively small customer. Most leading suppliers of factory management software systems also have active user groups. These groups constitute special-purpose associations, which provide opportunities for personal networking and for sharing experiences and information above and beyond the application of the common software product. Substantial differences in the availability of supplier services may exist from one region to another. Manufacturers in Chicago, for example, can examine many different makes and models of machine tools at dealers, distributors, and working installations in the immediate

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers metropolitan area. A similar company in Arkansas may need to travel hundreds of miles to look at the same array of equipment. In general, smaller manufacturers often need help finding the right equipment and vendors for their operations, as well as help implementing it; some industrial assistance providers are filling this role in various ways. For instance, the Great Lakes Manufacturing Technology Center (GLMTC) secures loans of equipment from suppliers and permits clients to try it at the GLMTC facility without the pressure of a sales environment. A similar concept is employed by "teaching factories" in several locations (see page 66). Supplier Chains Many smaller manufacturers are suppliers to large manufacturers of products such as automobiles, aircraft, computers and office equipment, appliances, machine tools, and other industrial equipment. These final product assemblers may spend 50 to 80 percent of final product cost on purchased inputs (Welch, et al., 1992). In such situations, the viability of the small firm will depend on the nature of its relationships with its large customers and on the strategies adopted by the large partners. Likewise, the purchaser can come to depend heavily on the performance of the companies constituting its supplier chain (Shapira, 1990b). As members of a supply network, smaller companies feel increasing pressure to improve significantly the quality of the products they provide, to shorten radically engineering cycle time, to increase product performance, and to improve shipment schedules for smaller lot sizes, all while continuing to reduce prices. In a study of relationships between major customers and smaller manufacturers, Kelley and Watkins found that close links between supplier firms and their customers help spur suppliers to adopt more advanced technology and that the efficiency of the smaller firms increased the more frequent and intensive their interactions with the technical and managerial staff of their customers. These interactions appear to augment the limited engineering and management capabilities of small organizations. A comparison of smaller firms within such a supplier network to counterparts operating outside estimated a 15 percent cost advantage for those that were part of the supplier network (Kelley and Watkins, 1992). The purchasing groups in many large companies have begun to change the historically adversarial relationships with suppliers. They now help suppliers understand their purchasing needs and meet their

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers requirements for cost, quality, and delivery. However, the manner in which these customer-led programs are implemented and the kinds and amount of assistance provided to suppliers vary broadly. Some limit their involvement with suppliers to periodic reviews of anticipated production and new product development plans, seeking input for improvements to products as well as presenting new opportunities for supplier participation. Others have comprehensive programs to help vendors and suppliers meet company mandated quality, delivery, and cost requirements (Moody, 1992). One attribute that most of the supplier improvement programs have in common is significant reduction in the number of firms from whom they purchase materials, components, parts, and subassemblies (Welch, et al., 1992). Unfortunately, the majority of these customer-led efforts address only the first-level suppliers and in most instances the assistance provided to suppliers addresses only the aspects of the business that are directly related to items they are buying. Other areas of the supplier's business, which might benefit from interaction with the customer, are unlikely to receive attention. And companies at the second, third, and fourth level do not, for the most part, receive much help from their customers. Many niche market producers do not fit into a supplier chain at all, so have no access to help from large companies. Professional and Trade Associations There are over 6,000 professional societies and trade associations in the United States, not including the many local and regionally based organizations. Virtually all of these groups are not-for-profit corporations, governed by boards elected from their membership. At the national level, most of these organizations have relatively modest operating budgets and a small paid staff; locally, there is typically no paid staff, but a rotating cadre of member volunteers who plan and implement local activities. Revenue streams are typically based on membership dues, meetings and conference fees, publishing sales, trade shows and expositions, and, in some cases, grants. Some associations also sponsor programs for group purchases of insurance and other benefits which return a royalty fee to the organization. Professional societies are organizations of individuals in a common occupational field or with common occupational interests. Members of these groups may be employed in companies of any size, and services and benefits of membership are usually aimed at the worker rather than

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers their employer. The Society of Manufacturing Engineers (SME) and the American Society for Quality Control are two large professional societies that address issues of industrial modernization and competitiveness. Trade associations are composed of company memberships, although in practice, especially among associations oriented towards smaller companies, relations are often confined to one (usually the owner or chief executive) or a few management personnel in the member firm. No two associations or societies provide an identical mix of benefits and services to their members, but there are a number of activities that are common to many: Meetings and conferences are perhaps the most common denominator of all membership organizations. Programs for these events usually focus on management education or technical subjects, but many participants believe that the greatest benefit of such meetings and conferences is the opportunity to meet and share experiences with their peers. A high level of informal networking often arises among participants at these events. Educational programs are offered in a wide range of forms, including seminars and tutorials, correspondence courses, audio and video cassettes, books, and informative articles in newsletters and magazines. Some associations and societies sponsor courses through local chapters in conjunction with community colleges or other educational institutions. Some groups offer scholarships to attract talented students to their field of study. The SME, for example, has been instrumental in gaining recognition of manufacturing engineering as a distinct engineering discipline at the university level. The SME and other groups also offer a variety of professional certification programs. Publishing is another common activity of membership organizations. Virtually all publish at least a periodical newsletter or magazine. Many produce directories of members that serve as marketing tools. Some publish technical manuals or reference materials appropriate to their fields. Some develop and publish standards, guidelines, or recommendations for technical practices. Publishing activities of these groups are often closely linked to related educational activities. Advocacy efforts of one kind or another are often a major function of associations and societies. These kinds of activities range from public relations "image" campaigns to active lobbying at both the legislative and regulatory level. Many membership organizations maintain a Political Action Committee to contribute to supportive candidates for elected office.

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Advocacy efforts are often the only evidence of membership groups seen by government officials and bureaucrats. While advocacy is the sole (or principal) function of some groups (including the highly visible National Association of Manufacturers), most groups recognize that these kinds of activities are only one aspect of being the voice of the profession or industry. Information services are another common benefit of membership groups. The data for these services are often gathered through membership surveys concerning wages and salaries, operating costs, safety, sales levels, technical or business practices, and so on. The Association for Manufacturing Technology operates a comprehensive information service for its member companies, staffed by professional research librarians. Even associations with less formalized information services will usually attempt to respond to the requests of members for sources of obscure standards or technical information. Books and Periodicals There are innumerable books, newsletters, journals, and other published materials concerned with changing and improving management structures, implementing lean production, uncovering foreign manufacturing secrets, adopting statistical process controls, developing worker teams, and applying total quality management. These are, in general, a basis for intellectually understanding the different means of achieving competitiveness. They provide guidelines for aspects of the problems confronting manufacturers but cannot be embraced as cookbook solutions to the problems that challenge companies today. In the abstract, the problems confronting smaller firms may be similar. Their proper solution, however, requires an awareness and appreciation of the particular constraints, idiosyncracies, and size of each company, adjusted for individual company strengths and weaknesses, as well as the particular characteristics of each industry. Effective application of the world-class manufacturing principles described in the literature therefore requires a great deal of intellectual effort and commitment by the managers of the company who know its situation best.

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers PUBLIC SECTOR ASSISTANCE Numerous initiatives have been undertaken at the federal, regional, state, and local levels to help manufacturers and business in general. For the most part, these initiatives have become overlapping uncoordinated programs, and the effectiveness of many programs has yet to be systematically evaluated or demonstrated. The programs typically operate on fragile financial underpinnings and often compete for funds to support assistance efforts. At times the manufacturing community can see only a crazy quilt of disconnected services that appear to be more reflective of the expertise and interests of the organizations offering the assistance than of the client demand from the private sector. State and Local Initiatives City and county economic development councils, with certain exceptions, have given less attention to retaining and increasing the success of firms already in the community than to recruiting new companies or new plants to the city or locale. Most states also have extensive efforts to increase the international competitiveness of businesses in their region and to attract new economic development. Many have gone so far as to open trade offices in other countries to lobby foreign firms that may be interested in establishing new facilities in the United States and to increase the amount of exports from firms within their state. By most measures state governments have made the greatest efforts to help manufacturers become more productive and competitive. With varying success, nearly all of the industrial states have launched programs that offer business practices and technical assistance to local firms. The majority of these efforts draw substantially on university science and engineering faculty to support technology transfer programs modeled after the Cooperative Extension Service supported by the agriculture community for the last 70 years. Others are designed to capitalize on the state's vocational-technical system and community colleges. A study of the state-funded technology assistance programs by the National Governors' Association identified 42 programs in 28 states (as of 1991) with total funding for fiscal 1991 of $83 million. About half of the programs are administered by universities or community colleges, and the other half by state agencies, quasi-public organizations, or

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers private nonprofit organizations. The staffs of these organizations tend to be small: the majority have ten or fewer professional staff who are generally technically educated with business experience. The 42 programs served a total of 17,500 clients in 1990. These organizations may provide technical assistance to all types of businesses, but the majority of their clients are manufacturing firms (Clarke and Dobson, 1991). State programs deliver services in a variety of ways. Most provide technical information in response to specific questions, problems, and requests from manufacturers. Some programs are supported by field agents that visit firms and deliver one-on-one assistance. The most frequently provided support is to improve a process or to solve a problem through use of an existing technology. The programs also help companies identify and select vendors and in some cases help write work specifications for the tasks to be accomplished (Shapira, 1990b). Some go so far as to manage projects for smaller firms that do not have the inhouse expertise. The programs also try to help firms maintain an awareness of recent technology developments, such as new software and computers or production machinery. They publish newsletters, host workshops, and conduct a wide variety of classroom courses on productivity and quality improvements. Machine tools and computer equipment are sometimes available for demonstrating new production methods and to train workers. Several state programs are discussed in more detail in Appendix B. Universities Universities offer a particularly rich source of technical and business practices assistance. Faculty and other members of the university staff are frequently available as consultants and contractors to private industry. When involved in state-sponsored technical assistance programs, faculty are more likely to focus on issues of advanced technologies in contrast to applying off-the-shelf, state-of-the-market technology, although the same is not true for engineering extension specialists. In addition, some university-based assistance efforts use engineering students as field agents, or assistants to field agents, working directly with local firms. These programs have found that, given proper training, students are an effective, affordable resource to assist both public and private service providers.

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Assistance from universities, however, is sometimes criticized for being geared more to the academic calendar and academic interests than to the needs of business clients. Faculty tend to focus on quite narrow aspects of particular disciplines and technologies, and to be intent on using summers to conduct research rather than to teach courses for local businessmen. Their orientation or approach to problems is often a scientific investigation with no sense of urgency and no immediate applications. A small business with a pressing problem that may be blocking achievement of quality levels or production goals does not want to hear that the issue cannot be addressed ''until the next semester.'' Other criticisms relate to faculty and students who lack a general understanding of real-world business concerns, especially issues facing smaller manufacturers. Some European engineering schools address this shortcoming by requiring professors to take periodic sabbaticals for relevant experience in industry in order to maintain their credentials. Technical Schools, Community Colleges, Apprenticeship Programs Two-year colleges have become a major source of job training and education for American manufacturing companies. In addition to day and evening degree programs, these institutions typically offer a comprehensive array of short courses geared to the needs of the community. In most cases, these colleges will customize a program on demand for some minimum class size (often 12 or 15 students). These customized programs can be presented at the business site or at the college. However, smaller companies may be at some disadvantage, since the minimum class size may represent a very large percentage of any one company's work force, and on-site programs may conflict with production demands. These colleges may also suffer the handicap of being oriented to a fixed academic schedule, but they have more flexibility in this regard than four-year colleges. Also, as a group, these schools generally have greater flexibility to select faculty with industrial backgrounds, since academic credentials may not be as important as practical knowledge and experience. Many two-year colleges have successfully worked with local industry to establish programs based on traditional, apprenticeship-type training and education. They offer credit towards a degree for apprenticeship classes, and, with industry support, provide facilities for hands-on demonstration of new, practical manufacturing technology. In some cases the community college has absorved tooling and machining apprentice

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers training that was formerly done privately by a local industry group. Community colleges in Michigan and Wisconsin, for example, have programs to develop advanced skills in machining, tool and die making, and plastic injection mold building. In many respects, these schools have taken up an educational role that was once filled by vocational-technical high schools and post-secondary institutions. Federal Programs An array of federal government initiatives assist small business. Firms, however, perceive these programs to be disjointed and sometimes redundant. Agencies of the federal government have, with some exceptions, viewed assistance to industry as a secondary mission. For instance, the Small Business Administration (SBA) addresses many general business issues that may be of interest to manufacturing firms, but its capacity and abilities depend on regional leadership and the variability of its services reflects frequently shifting priorities. The emphasis of the SBA tends to be on loan guarantees, start-ups, and minority business, with no particular focus on manufacturing. Federal efforts to help smaller firms have, in general, emphasized development of new mission-related technologies, supported the spin-off or deployment of technology developed in federal research facilities to the private sector, and increased research and development opportunities for smaller companies. For instance, all federal departments and some agencies now have Small Business Innovation Research (SBIR) programs providing set-aside funds to "strengthen the role of smaller firms in meeting federal research and development needs."1 Cooperative Research and Development Agreements (CRADAs) are another mechanism intended to link the research capabilities of government and universities more closely to industrial and commercial applications by sharing the costs of moving advanced technologies out of the federal laboratories. 1   The SBIR program, however, has not been utilized by many smaller manufacturers because of its academic, scientific-oriented proposal process. Greater importance needs to be directed towards the development of a user-friendly interface between small companies and federal agencies (Ruxton, 1989).

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Federal Laboratories The federal laboratories are required by legislation to transfer technology to the private sector. For instance, all of the DoE national laboratories now have full-time technology transfer staff and have begun to place some emphasis on reaching smaller firms. A National Technology Transfer Center has been established as an information clearinghouse on technology transfer opportunities in the laboratories and other federal facilities. A consortium of the technology transfer officers in the laboratories has been formed to share information, network, and direct small company clients to appropriate sources. Yet, the majority of successful transactions appears to remain with large corporations that are able to afford for an appropriate researcher to spend extended time at the laboratory with which they have partnered. Smaller firms usually do not employ such researchers and, if they do, cannot afford to be without them while they investigate possible applications of national laboratory technologies. Many observers have also cited a "cultural gap" between the laboratories and the manufacturing community, especially smaller companies. The dissimilarities are as great as they are many, but to name a few: Time horizons for projects in research laboratories may extend over several years; projects in smaller companies are typically very short. Laboratory employees tend to have advanced degrees; managers and owners of smaller companies often lack college degrees. Smaller companies are pragmatic: they must meet payrolls and deliver, when promised, quality products that satisfy customer expectations. Research laboratories are driven by "funding" to conduct research which may yield uncertain results. In the post-Cold War environment, reduced demand is resulting in accelerated outreach by the laboratories to smaller companies. For the laboratories to be successful in reaching smaller companies, however, they first must understand the needs of these manufacturing companies and make their capabilities better known among smaller firms. Because efforts to work with smaller companies are just beginning, mutual understanding of the benefits of the laboratories and smaller firms working together can be expected to increase with time.

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Department of Defense The Department of Defense (DoD) has a number of programs that are intended to encourage the development and adoption of new technologies in manufacturing process and product design. The Advanced Research Projects Agency (ARPA) sponsors leading-edge defense research in manufacturing among its many other fields of investigation. Most defense manufacturing initiatives, however, have been managed through the Manufacturing Technology Program, known more commonly as ManTech. All of the service branches plus the Defense Logistics Agency have ManTech programs that concentrate on helping the defense industry investigate the feasibility of production technologies considered too risky or DoD-focused to be undertaken by manufacturers on their own. This funding of research and development has been supported by DoD since 1947. One of the most acknowledged successes was the design and development of numerically controlled machine tools in the 1950s. Among its suppliers, ManTech spends approximately $150 to $200 million annually to promote shop-floor modernization (U.S. Congress, 1990). The focus, however, of ManTech and DoD in general has been in those areas of manufacturing that directly support the military mission of the Department of Defense—armament, protective apparel, and so on. A few ManTech programs have specifically addressed smaller companies at the subcontractor level.2 The Air Force Machining Initiative for Aerospace Subcontractors (MIAS) program set up demonstrations in a handful of smaller firms of shop management software and of untended machining. An exhaustive assessment tool, the Small Manufacturer's Improvement System (Service), or SMIS, was developed under the MIAS program. The Air Force intended that SMIS tools would eventually be commercialized. The developer of the system, however, never successfully commercialized the SMIS consulting activity, most likely because the commercial cost ($50,000) was seen as excessive by the smaller companies it was supposed to serve. The Navy ManTech Rapid Acquisition of Manufactured Parts (RAMP) program focuses on DoD subcontractors. The purpose of RAMP is to enable suppliers to make replacement parts on demand through automation. The project is closely linked with a multi-agency 2   The Air Force has noted that about 70 percent of a military aircraft is manufactured in companies of 100 employees or less (Ruxton, 1989).

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers task force developing the next generation of engineering software to describe manufactured parts. The Navy also has sponsored the Best Manufacturing Practices (BMP) program which evaluates operations, methodologies, and procedures of (primarily) DoD suppliers. Companies that believe that they have developed noteworthy methods are visited by an assessment team that, following a BMP-developed template, prepares a report which is circulated freely. Report results are also available from a database on a publicly accessible computer network. Periodic conferences sponsored by the Navy are held to discuss practices that have been identified as exemplary. The conferences are open to industry for a modest registration fee. Department of Commerce The Department of Commerce has several programs to assist smaller companies. Most programs concerned with manufacturing competitiveness are located in the Technology Administration, established under the 1988 Omnibus Trade and Competitiveness Act. The Technology Administration consists of three components: the National Technical Information Service (NTIS), the National Institute of Standards and Technology (NIST), and the Office of Technology Policy (OTP). NTIS and NIST both have roles in helping U.S. manufacturers improve their competitive capabilities. OTP has little immediate relevance to manufacturing competitiveness, since most of its energies are directed towards development of science and technology policy and removal of barriers to the commercialization of new technology (U.S. Department of Commerce, 1991). The National Technical Information Service was established as a centralized source of information on U.S. and foreign government-sponsored research and development results, business information, and engineering solutions. NTIS is expected to become a gateway through which industry can efficiently learn about markets and locate technical information. For instance, the NTIS Computer-aided Acquisition and Logistic Support/Concurrent Engineering (CALS/CE) Information Center provides a single source of public access to information on advanced manufacturing information technologies. Over the past decade, the National Institute of Standards and Technology has been the primary federal agency focusing on the technological needs of smaller manufacturers. The Advanced Manufac-

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers turing Research Facility (AMRF) focuses on development of new ways of machining and manufacturing components and products, sensors and control technologies, and software tools to link equipment from different vendors in an integrated system of shop floor control. Most of the AMRF work, however, is too advanced for current production environments and not generally supportable by the technical staff of most smaller companies (National Research Council, 1985). In addition to the AMRF, NIST has developed an entry-level program suitable for very small companies called the NIST Shop of the ’90s. During a one-day seminar, participants attend a mix of lectures, videos, and demonstrations of technology that can be implemented at relatively low cost by smaller firms. Although a one-day program has limitations, managers of small shops can seldom get away for longer periods. The program provides a good, if basic, overview and provides hands-on software demonstrations. Suppliers are prohibited from discussing prices or terms of sale during the program and are restrained from making overt sales pitches during their presentations and demonstrations. The State Technology Extension Program (STEP) is a NIST-administered grant program created by the 1988 Omnibus Trade and Competitiveness Act to improve the use of manufacturing technology, particularly federal technology, by smaller companies. The program has evolved somewhat since the first awards of $1.5 million were made in 1990 to help nine state programs establish mechanisms to access federal technology for smaller businesses. In 1991, awards were made to help eight states develop strategic plans for state-wide industrial extension programs. Six more awards were made in 1992 to help states implement such strategic plans. Federal funding in 1992 was $1.3 million. NIST also administers the Manufacturing Technology Centers (MTC) program, also created by the Omnibus Trade and Competitiveness Act of 1988, to help smaller manufacturing firms become more technologically competitive. A detailed discussion of the MTCs is the subject of Chapter 4. Finally, NIST manages the Malcolm Baldrige National Quality Award. In response to a rising national concern with product quality and its implications for the manufacturing competitiveness of U.S. firms, the Malcolm Baldrige National Quality Improvement Act was passed in 1987. The act called for the development of guidelines and criteria that organizations could use to evaluate their quality improvement efforts. It also provided for a Malcolm Baldrige National Quality Award to be given in three categories: manufacturing, services, and small business.

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers The Baldrige Awards draw attention to the systems aspects of achieving improvements in quality by adopting a management and overall organizational approach rather than investments in production technology alone. The evaluation criteria for the awards have been broadly adopted by many large businesses as a basis for measuring the performance of their suppliers (Garvin, 1991). National Center for Manufacturing Sciences (NCMS) The National Center for Manufacturing Sciences in Ann Arbor, Michigan is a not-for-profit manufacturing research consortium of approximately 180 small, medium, and large manufacturing companies. The organization, incorporated in 1986 to improve the U.S. machine tool industry, has an annual budget of approximately $200 million financed by manufacturers, the federal government, and philanthropists. It currently conducts a broad range of production-targeted research and technology transfer activities in support of industry. However, NCMS treats its research findings and internally developed assessment and educational materials as proprietary among its member companies and organizations. NCMS has recently begun efforts to establish a national network of some 150 "Manufacturing Application and Education Centers." It recently received $5 million from the Air Force to establish the National Center for Tooling and Precision Components (NCTPC) at the University of Toledo. NCTPC plans to place a teaching factory in a facility to be built by the university. Shared Manufacturing Facilities/Teaching Factories Shared manufacturing facilities, also referred to as teaching factories, are an increasingly popular concept among the various approaches to industrial modernization. The term "teaching factory" is applied to a variety of facilities, ranging from CAD demonstration centers at universities to flexible computer-integrated manufacturing facilities capable of full-scale part production. Typically, manufacturers and suppliers of state-of-the-market, off-the-shelf machines and equipment loan or donate their products to organizations that provide the physical facilities for the equipment, demonstrate its operation, and train users. Teaching factories offer smaller companies an opportunity to investigate

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers applications of the technology and evaluate its applicability to their business without purchasing the equipment. According to the Department of Commerce, there are now 16 teaching factories in operation or pilot operation throughout the United States (see Table 1); another 15 are in the planning stages. In some cases, the teaching factory is jointly owned by local small manufacturers; more typically, they are owned and operated by non-profit organizations, usually universities and community colleges. There is growing interest from profit-making companies who would sell access to the equipment and charge for the training provided. In addition to teaching basic operations on the equipment, the teaching factories usually permit clients to buy time on the equipment (sometimes at below-market rates) to perform actual production work for customers. In these situations, the employees of the small manufacturer operate the equipment at the teaching factory. When the teaching factory is located at a college or university, students or faculty also use it for research and educational work. The teaching factory concept is attractive because it offers smaller companies the ability to try new technology without the substantial risk of first making a significant capital purchase. By permitting employees to learn the new systems before the smaller manufacturer acquires its own, a smoother installation at the company can often be expected. Of course, it is presumed that successful clients of teaching factories will purchase their own equipment once they have demonstrated its effectiveness for their specific applications. Obviously this presumption is the incentive for the suppliers, who provide demonstration machinery in hope of selling the same equipment to clients that try it at the teaching factory. Smaller companies who have the opportunity to use the teaching factories as subcontracting sources may have little motivation to change their low-cost advantage by actually buying their own equipment and weaning themselves from the subsidy. The teaching factories themselves, in the absence of broad acceptance by smaller companies, may be reluctant to turn away the few repeat cash customers that take advantage of the available service. Thus, as clients subcontract for inexpensive time on available equipment, some centers have essentially become subsidized job shops. Another shortcoming of the teaching factory concept is the need to locate them in areas where the local company demographics are such that a finite range of production equipment is relevant to enough firms. Even for relatively generic technology like machining centers, the range of

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers TABLE 2 Centers for Shared Flexible Computer-Integrated Manufacturing/Teaching Factories. In Operation or Pilot Operation. 1. FLORIDA   Orlando - Valencia Community College 2. IDAHO   Boise - Boise State University 3. ILLINOIS   Rockford - Rock Valley College 4. ILLINOIS   Rock Island - Manufacturing Technology Consortium (Rock Island Arsenal) 5. INDIANA   Indianapolis - Electronics Manufacturing Productivity Facility 6. MARYLAND   Hagerstown - Hagerstown Junior College 7. MISSOURI   Rolla - DemMaTec, University of Missouri 8. NEW JERSEY   Blackwood - Camden County College 9. NEW MEXICO   Las Cruces - New Mexico State University 10. NEW YORK   Rochester - Rochester Institute of Technology 11. OHIO   Elyria - Loraine County Community College 12. PENNSYLVANIA   Bethlehem - Northampton Community College 13. PENNSYLVANIA   Meadville - National Institute for Flexible Manufacturing 14. PENNSYLVANIA   Monroeville - Micro-Teaching Factory 15. WEST VIRGINIA   Huntington - Robert C. Byrd Center, Marshall University 16. WISCONSIN   Kenosha - Great Lakes Composite Consortium

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers features and capabilities needed by companies can be extensive, and therefore difficult to accommodate in a teaching factory. The rate at which the equipment is updated can also be an important factor to potential users, but is dependent on the available budget or donations. These factors make the design, operation, and marketing of a teaching factory, particularly in the long run, very difficult and problematic. OTHER MODELS FOR COORDINATED MANUFACTURING ASSISTANCE Guidelines for structure, organization, governance, and operation of systems of assistance and technology diffusion are available within the numerous state and regional efforts as well as some recent initiatives by the federal government. An often cited model for a coordinated system of assistance is the Cooperative Extensive Service, administered by the U.S. Department of Agriculture and state land-grant universities. Cooperative Extension Service The Cooperative Extension Service (CES) is frequently cited as a model on which to base a new federal extension program for manufacturing industry. Established in 1914, agricultural extension has developed into a nationwide system employing more than 9,600 county field agents and 4,600 land-grant university specialists to transfer new agricultural techniques to farmers and to stimulate community development. One-on-one contacts between extension agents and farmers, publications, electronic media, and workshops and training sessions are among the methods used to disseminate information and provide technical assistance. In 1988, 30 percent of the system's $1.1 billion budget came from the federal government. States provided 48 percent of funding, counties supplied 18 percent, and 4 percent came from other sources. The experience of agricultural extension offers important lessons for an industrial extension service. For three reasons, however, it is neither possible nor desirable to build an industrial extension system based simply on duplicating the agricultural extension model. First, agricultural extension is by no means a perfect system. Agricultural extension has been criticized for focusing too much on costly chemical and mechanical technologies that favor larger agribusinesses, often with damaging social and environmental consequences. The system has also been faulted for

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers lacking coordination and strategy and for overbroadening its programs into such areas as youth education and suburban gardening. The growth of proprietary research in agriculture, especially in biotechnology, threatens to make obsolete the traditional extension model of public university research with free dissemination. Furthermore, as agricultural technology becomes more sophisticated, the generalist county agents who form the base of the system may increasingly lack the expertise to help farmers effectively. Second, conditions in manufacturing are usually much more varied and complex than in agriculture. For example, farmers in a given region tend to share common soil, water, crop, climate, and market situations. A single university-based extension delivery system can accommodate these needs. In contrast, smaller manufacturers in a region may have widely differing technologies, products and processes, material needs, and markets. No single approach to manufacturing extension is likely to serve all needs; rather, a variety of models and approaches may be justified, depending on the particular characteristics of the manufacturers and areas being served. At the very least, the agricultural extension model needs adaptation to be useful in the manufacturing sector. But it is also possible that other, quite different approaches to manufacturing technology dissemination need to be considered and tried. Third, it would be extremely difficult today for the federal government to establish a unified, national system of industrial extension in the same way that a national system of agricultural extension was founded in 1914. Current budget constraints are one obstacle. Another is the fact that many states have already initiated their own industrial extension and technology transfer programs to enhance the technological capability of smaller firms. These programs assist firms in various ways, including deploying technology, product development, work organization, and work force training. Japanese Kohsetsushi Centers The Japanese and several European countries have made particular efforts to improve the competitive circumstances of their smaller manufacturers. Their programs suggest a number of alternative approaches that may be appropriate means for helping firms locate necessary resources, assimilate new technologies, upgrade worker skills, acquire machinery and equipment, and access information concerning best practices.

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Learning to Change: Opportunities to Improve the Performance of Smaller Manufacturers Japan has a large majority of smaller manufacturing firms, and has more than twice as many enterprises with 20 or fewer employees as the United States. The economic and political importance of smaller firms has led to active government support of modernization programs for many years. To encourage adoption of new technology, government financial assistance has been available in the form of direct loans for operating funds or plant and equipment investment, favorable leasing arrangements or installment sales to individual manufacturers or cooperatives of manufacturers, and substantial tax relief that in 1984 allowed smaller firms the option of taking a first year depreciation of 30 percent.3 In addition to the system of financial assistance for smaller firms, Japan has a nationwide public system of support that encourages technology adoption and development. An important component of this system is the network of 170 Kohsetsushi centers, many founded in the 1920s and 1930s. The centers provide industrial-oriented research services, calibration and testing, technology demonstration and information, training, and problem-solving assistance for smaller Japanese manufacturers. There may be more than one center in each of the 47 prefectures, based upon the extent of industrial concentration. The centers typically specialize in the industries that economically dominate their region, not all of which are manufacturing. The Kohsetsushi also administer a national system of qualification and registration for private consultants that assist smaller firms. The Kohsetsushi program receives half of its funds from the national government and half from the prefectures, and the centers generally charge firms a nominal fee for consultations and assistance at the centers or for visits to the production facilities of the companies. The centers are administered primarily by municipal and prefecture governments, and because of their long histories of service are generally well known and used by local manufacturing firms (Shapira, 1992). The committee believes that the model that exists in Japan suggests several alternative approaches that should be examined when planning a national system of assistance to smaller manufacturing companies, but the Japanese framework is unlikely to be applicable to circumstances of U.S. companies without substantial modifications. 3   For further discussion of equipment financing options available to Japanese small and medium-sized companies, see U.S. Congress, 1990.

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