The Hollings Manufacturing Extension Partnership (MEP) traces its origins to the establishment of the Manufacturing Technology Centers Program in 1989.1 This program was developed as a part of the nation’s response to the perceived decline in position of the United States vis-à-vis Japan as a leading manufacturer of high-technology goods. Located within the National Institute of Standards and Technology (NIST), MEP has offered technical and business support primarily to the nation’s small- and medium-sized manufacturers.
Two decades later, the rapid rise of China as a global locus of manufacturing is once again raising concerns about U.S. competitiveness.2 To address these concerns, MEP is seeking to refine and adapt its mission to encourage product innovation and commercial development among the nation’s manufacturers. In its own words, it has begun a transition from “reactive” strategies to the “proactive pursuit of increased profits and overall growth.”3
This study, initiated at the request of MEP, seeks to illuminate the operation, achievements, and challenges of the program in its mission to support, strengthen, and grow U.S. manufacturing.4 Given that MEP intends to stimulate greater productivity and innovativeness in the United States among
1The Manufacturing Technology Centers (MTC) Program at the National Institute of Standards and Technology (NIST) began in 1989 with regional centers in three states—South Carolina, Ohio, and New York. The mission of these regional centers was to support the transfer of manufacturing technology to improve the productivity and technological capabilities of America’s small manufacturers. The number of centers grew rapidly to provide services to all 50 states and Puerto Rico, and in 1998, the program was renamed the Manufacturing Extension Partnership (MEP). In 2004, the program was redesignated the Hollings Manufacturing Extension Partnership in honor of Senator Fritz Hollings. Source SC-MEP at
2For a review of the current competitive challenges from China and other nations facing the United States, see National Research Council, Rising to the Challenge: U.S. Innovation Policy for the Global Economy, C. Wessner and A. Wm. Wolff, eds., Washington, DC: The National Academies Press, 2012.
3NIST, “The Future of the Hollings Manufacturing Extension Partnership.” Accessed on April 17, 2013, at
4See the Preface to this volume for the Committee’s Statement of Task.
The Hollings Manufacturing Extension Partnership
The Manufacturing Extension Partnership (MEP), administered by the National Institute of Standards and Technology (NIST) within the Department of Commerce, has sought for more than two decades to strengthen American manufacturing.
Mission. MEP’s mission is to “act as a strategic advisor to promote business growth and connect manufacturers to public and private resources essential for increased competitiveness and profitability.”a
Program Scale: The NIST-MEP federal budget for 2013 is $123 million. The total NIST MEP headquarters staff numbers some 45 people who focus on setting strategy, evaluating the needs and demands of clients, helping facilitate the development of tools, and bringing together the centers into a shared network. Currently, NIST funding is matched 1:2 by individual state centers, using funding primarily from state governments and client fees. The nationwide network includes some 1,300 staff supported by over 2,300 third-party service providers, and the overall budget for the MEP system was about $300 million in 2012.
Decentralized Structure: NIST-MEP works cooperatively with accredited organizations that include nonprofits, state government agencies, and universities to complete the MEP mission. In all, some 60 MEP centers are located across the country, with centers in every state. They vary widely in structure and operating strategy. Pennsylvania, for example, has seven centers; many states have only a single MEP center. California, which accounted for 13 percent of the nation’s manufacturing gross domestic product (GDP) in 2011, has two MEP centers serving the state. The work of these centers is further dispersed among some 300 field offices. The centers rely heavily on local partners to design and deliver services that are tailored to the needs of the manufacturing clients.
Evolving Focus: According to then MEP Director Roger Kilmer, “Part of our evolution was to change from offering a technology push, where we knew about which technologies work in a federal lab, to looking at what manufacturers really needed. It also meant learning to look at the entire manufacturing enterprise—not just the tech piece of it, but everything else: the financing, workforce development, marketing, and sales.”b From an early focus on off-the-shelf manufacturing technologies, basic technical assistance, and plant layout, MEP evolved towards “lean production” in response to demand from companies. The program continues to adapt with a new emphasis on growth and on innovation, reflecting the need for firms to be more proactive in an increasingly competitive world economy.
aNIST, “The Future of the Hollings Manufacturing Extension Partnership.” Accessed on April 17, 2013, at <http://www.nist.gov/mep/upload/MEP_ExecSummary72dpi.pdf>
bRoger Kilmer, “MEP’s Place in the Innovation Chain,” in National Research Council, Strengthening American Manufacturing: The Role of the Manufacturing Extension Partnership—Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2013.
small- and medium-sized manufacturers, it is important to ensure that MEP is configured in such a way that it can meet these challenges.
MEP SUPPORT FOR SMALL MANUFACTURERS
Small and medium manufacturers represent 98 percent of all manufacturing enterprises in the United States. They account for two-thirds of all manufacturing employment and employ nearly 11.3 million people, and contribute over half of the total value added by all U.S. manufacturers.5 But these small firms face unique challenges.
- Market Failures: Small manufacturers often confront failures in information markets due to difficulty in evaluating what information they need and the quality of the available consultants.6 Many small and medium manufacturers interviewed for this report said that they cannot attract the interest or afford the fees of private consultancies given their small scale, limited resources, and remote locations. In many cases, they observed that private consultancies do not adequately provide the type of services required for their scale of operation.7
- Distinctive Focus: While the United States has numerous public organizations engaged in applied research, notably in fields such as medicine, agriculture, energy, and defense, large segments of the U.S. manufacturing sector are often underserved with respect to technological support from the national research base. 8 These federal
5Susan Helper, Timothy Krueger, and Howard Wial, Locating American Manufacturing: Trends in the Geography of Production, Washington, DC: Brookings Institution, April 2012.
6For a review of market failures facing small manufacturers and the role for public policy, see Susan Helper and Howard Wial, Strengthening American Manufacturing: A New Federal Approach, Washington, DC: The Brookings Institution, September 2010. For a review of the role of MEP in addressing market failures, see Russell M. Frazier, “The Imperatives of Successful Policy Implementation: A Case Study of the Hollings National Institute of Standards and Technology-Manufacturing Extension Partnership (NIST-MEP) Program’s Implementation in Arkansas,” International Journal of Learning & Development, 2012, Vol. 2, No. 4; and Philip Shapira, “Manufacturing Extension: Performance, Challenges and Policy Issues,” in L. M. Branscomb and J. Keller, eds., Investing in Innovation, Cambridge, MA: MIT Press, 1998, pp. 250-275.
7These views were reinforced by MEP Center directors, including those in Pennsylvania, California, and Ohio, interviewed for this study in October-November 2012.
8A partial list of federal programs to assist manufacturing includes the Department of Defense’s ManTech Program, the National Science Foundation’s Engineering Research Centers and Industry/University Cooperative Research Centers, the Department of Energy’s Energy Assessment
programs do not focus as directly on providing technical and management advice to these small firms. MEP’s focus on small firms represents an important segment of U.S. industry, one that can contribute to enhancing the performance of the small companies that add to the nation’s productivity and employment, and one that can serve as a valuable component to the nation’s manufacturing strategy.
A series of studies have examined the characteristics of market failures affecting manufacturers, especially small- and medium-sized enterprises (SMEs).9 These studies highlight asymmetrical information availability and the presence of negative externalities which particularly affect small firms. As a class, small firms underinvest in research and development, innovation, and training not only because of limited resources but also because it is difficult for them to capture the full set of returns from such investments. Additionally, while small manufacturing firms have expertise in their current technologies, they may lack knowledge about new and improved technologies and methods. This may limit investment or lead to unproductive investments. Investment in new and improved technologies and methods also may be hampered by lack of knowledge about new markets, limited or weak networking connections, by limitations or the expense of private consulting expertise, or the short-term nature of demand. Where there is suboptimal investment by small firms in new and improved technologies and methods, this is likely to result in negative externalities for supply chains, regional economies, manufacturing jobs and wages, and overall economic performance. Expert and unbiased technical advice, as offered by the MEP, can help manufacturers diagnose their needs and make optimal choices. MEP services also address transaction costs which limit private market provision of information and guidance by undertaking front-end diagnosis, then referring companies to qualified consultants and private vendors.
In addition to market failure arguments, there are three other complementary rationales for manufacturing extension. First, “public” failure, whereby governmental institutions place disproportionate burdens (e.g., burdens of regulatory compliance) on small firms with limited managerial capability to address or where publicly funded federal research institutions or universities have expertise which is not oriented to or easily accessible by small firms. While
Centers, and the Department of Commerce’s Export Assistance Centers. At the state level, a number of technology-based economic development organizations also provide support for small manufacturing companies.
9Dan Luria, “Why Markets Tolerate Mediocre Manufacturing,” Challenge, 1996, 39, 4, 11-16; National Academy of Public Administration, The National Institute of Standards and Technology’s Manufacturing Extension Program, Report 1, “Reexamining the Core Premise of the MEP Program,” 2003; Susan Helper and Marcus Stanley, “Creating Innovation Networks Among Manufacturing Firms: How Effective Extension Programs Work,” in Scott Shane, ed., Economic Development through Entrepreneurship: Government, University and Business Linkages; Edward Elgar, 2006; Stephen J. Ezell and Robert D. Atkinson, International Benchmarking of Countries’ Policies and Programs Supporting SME Manufacturers, Washington, DC: Information Technology and Innovation Foundation, 2011.
ideally such government and public failures should be remedied at source, as a practical matter, given the inevitable complexity of government and its institutions, there is an ongoing need to find ways to help small firms directly navigate through these systems. In such cases, manufacturing extension agents can advise or serve as brokers to level the field for small firms. Among the array of publicly sponsored business services, the MEP is the sole federal program primarily focused on strategically assisting small and mid-sized manufacturers.10 For example, extension agents are able to advise manufacturers on more efficient ways to meet environmental regulatory requirements not just through “end of pipe” solutions but through reorganizing manufacturing operations, reducing materials use, and eliminating waste.
Second, there are strategic rationales for manufacturing extension, to ensure the retention of supply chains and capacity in certain key sectors (including defense) and to help firms address competition from firms in other countries which benefit from well-established public systems of technology and manufacturing support.11
Third, there is a cooperative technology rational for manufacturing extension and technology services where such services bring companies, universities, associations, and other organizations together in innovation networks, collaborations, and value chains to reduce transaction costs and coordinate and leverage resources.12
MEP can be divided into the headquarters, regional offices, and partners, including the MEP centers. There is also a national advisory board that provides strategic advice but is not operationally integrated into MEP. 13 The headquarters staff includes a director and deputy director, as well as senior staff responsible for system operations, program development, center operations, communications, strategic partnerships, and manufacturing policy and research. They are supported by an administration unit.
10Stone and Associates and the Center for Regional Economic Competitiveness, “Re-examining the Manufacturing Extension Partnership Business Model,” report prepared for the NIST Manufacturing Extension Partnership, 2010.
11Stephen J. Ezell and Robert D. Atkinson, International Benchmarking of Countries’ Policies and Programs Supporting SME Manufacturers, Washington, DC: Information Technology and Innovation Foundation, 2011.
12Henry Etzkowitz, The Triple Helix: University-Industry-Government Innovation in Action, Routledge, 2008; A. Schrank and J. Whitford, “Industrial Policy in the United States: A Neo-Polanyian Interpretation, Politics and Society, 2009, 37, 521.
13More detail on the Advisory Board as well as its annual reports can be found on the MEP website.
FIGURE 1-1 The MEP organization chart (June 2013).
SOURCE: NIST MEP.
According to MEP, its mission is “To act as a strategic advisor to promote business growth and connect manufacturers to public and private resources essential for increased competitiveness and profitability.”14
Because MEP is construed as a partnership between the federal government and local centers operated independently and funded in part both by federal and state dollars, NIST MEP has always sought to maintain a delicate strategic balance between encouraging centers to adopt what it sees as advanced services, and recognizing that its leverage is limited.
NIST MEP influences individual centers by evaluating them on terms designed by NIST MEP, with the implicit sanction of the withdrawal of funding. Yet, centers can only be influenced up to a point. They have other stakeholders locally—usually including the state in which they operate—and they have an overriding imperative to maintain a business that is sustainable over the long run. (As we shall see, this latter concern is of particular relevance in the context of NIST MEP’s Next Generation Strategy that seeks to encourage major changes in center operations and strategy.) While NIST MEP does sometimes decertify a center leading to a recompetition for the region, in fact,
recompetition as a sanction is rarely applied. Most recompetitions occur as a result of changes in state policy or an institution’s inability to meet matching requirements.15 While, in some cases, informal pressure is sometimes applied through direct contact by NIST MEP management, this appears to be neither systematic nor transparent.
The Role of the MEP Centers
NIST MEP partners with local organizations to provide services to local manufacturers. It currently accredits and funds 60 centers with about 370 field locations, with a total of about 1,450 nonfederal staff. The centers, in turn, contract with more than 2,400 third-party service providers.
The centers are operated by independent entities, and are not under the direction of MEP—hence the term Partnership in the program title. Centers operate at the hub of a network of relationships. As we will see in more detail below, these relationships can be a major strength for an effective center, leveraging resources on behalf of SMEs and providing a conduit for other organizations into the local population of SMEs. Currently, 17 centers are affiliated with universities and 4 are operated by state governments. The remaining centers are nonprofit organizations.
Most centers use external consultants to provide some services, but few rely on them heavily. Typically centers utilize consultants for 30 percent or less of work for clients, although some—like those in Oklahoma and Southern California—deliberately utilize consultants to the maximum degree possible.
Under growing pressure to enhance center revenue, centers have increasingly moved toward in-house delivery. This trend goes back to the early 2000s, but has accelerated: In 2011, third-party providers overall accounted for only about 20 percent of total hours (see Figure 1-3).
Most MEP customers are small- and medium-sized enterprises, ranging from small job shops focused on meeting the specific demands of existing customers to firms that seek to develop new products and new markets. In some
15According to the 2011 GAO Report, “Arizona MEP was awarded to a new operator because the center wanted to be a state-based center (it had previously been run out of the Maine MEP center). The Illinois center was awarded to a new operator because the previous operator could not draw down the full federal funds because it could not raise enough nonfederal funds to meet cost share requirements. Additionally, the center was not achieving required metrics after being notified during annual performance reviews conducted by NIST. Annual reviews of MEP centers are required. 15 C.F.R. § 290.8 outlines performance standards and other related requirements for MEP centers. The Pennsylvania MEP in Central Pennsylvania was awarded to a new operator in order to split an existing MEP service area into two distinct service areas.” See GAO, “Factors for evaluating the cost share of Manufacturing Extension Program to assist small and medium-sized manufacturers,” GAO-11-437R, April 4, 2011.
TABLE 1-1 List of MEP Centers (July 2013)
|Alabama: Alabama Technology Network|
|Alaska: Alaska Manufacturing Extension Partnership|
|Arkansas: Arkansas Manufacturing Solutions|
|California: California Manufacturing Technology Consulting|
|California: Corporation for Manufacturing Excellence (Manex)|
|Colorado: Colorado Association for Manufacturing and Technology|
|Connecticut: Connecticut State Technology Extension Program|
|Delaware: Delaware Manufacturing Extension Partnership|
|Florida: Florida Manufacturing Extension Partnership|
|Georgia: Georgia Manufacturing Extension Partnership|
|Hawaii: INNOVATE Hawaii|
|Idaho: Idaho TechHelp|
|Illinois: Illinois Manufacturing Excellence Center - Downstate|
|Indiana: Indiana MEP Purdue Technical Assistance Program|
|Iowa: Iowa Center for Industrial Research and Service|
|Kansas: Mid-America Manufacturing Technology Center|
|Kentucky: Advantage Kentucky Alliance|
|Louisiana: Manufacturing Extension Partnership of Louisiana|
|Maine: Maine Manufacturing Extension Partnership|
|Massachusetts: Massachusetts Manufacturing Extension Partnership|
|Michigan: Michigan Manufacturing Technology Center|
|Minnesota: Enterprise Minnesota|
|Mississippi: InnovateMEP Mississippi|
|Missouri: Missouri Enterprise|
|Montana: Montana Manufacturing Extension Center|
|Nebraska: Nebraska Manufacturing Extension Partnership|
|Nevada: Nevada Industry Excellence|
|New Hampshire: New Hampshire Manufacturing Extension Partnership|
|New Jersey: New Jersey Manufacturing Extension Program|
|New Mexico: New Mexico Manufacturing Extension Partnership|
|New York: New York Manufacturing Extension Partnership|
|North Carolina: North Carolina Manufacturing Extension Partnership|
|North Dakota: North Dakota Manufacturing Extension Partnership|
|Ohio: Ohio Manufacturing Extension Partnership|
|Oklahoma: Oklahoma Manufacturing Alliance|
|Oregon: Oregon Manufacturing Extension Partnership|
|Pennsylvania: Catalyst Connection|
|Pennsylvania: Delaware Valley Industrial Resource Center|
|Pennsylvania: Manufacturers Resource Center|
|Pennsylvania: Northeastern Pennsylvania Industrial Resource Center|
|Pennsylvania: Northwest Pennsylvania Industrial Resource Center|
|Puerto Rico: Puerto Rico Manufacturing Extension Inc.|
|Rhode Island: Rhode Island Manufacturing Extension Services|
|South Carolina: South Carolina Manufacturing Extension Partnership|
|South Dakota: South Dakota Manufacturing and Technology Solutions|
|Tennessee: Tennessee Manufacturing Extension Partnership|
|Utah: Utah Manufacturing Extension Partnership|
|Vermont: Vermont Manufacturing Extension Center|
|Virginia: GENEDGE ALLIANCE|
|Washington: Impact Washington|
|West Virginia: West Virginia Manufacturing Extension Partnership|
|Wisconsin: Northwest Wisconsin Manufacturing Outreach Center|
|Wisconsin: Wisconsin Manufacturing Extension Partnership|
|SOURCE: MEP. <http://patapsco.nist.gov/mep/centers-near-you/index.htm>. Accessed July 12, 2013.|
Examples of MEP Center Models
The MEP program has evolved to include several differing center business models. Current MEP cooperative models include:
Recipient is a nonprofit organization: The nonprofit organization partners with other organizations, including the state government; academia, including community colleges; economic development organizations; and consultants in the region. MEP center staff could be employees of the nonprofit or employees of the partner organization, where they are managed under a specific contractual arrangement.
Single recipient located at a host organization. As employees of the host organization, typically a university, staff may work on MEP and other projects. The center may also partner with other organizations in the state to secure additional staff resources, specialized services, and technical capabilities.
Single recipient located in a state government agency or foundation. This model applies to state recipients in Ohio, New York, and Kansas. In Ohio, the state recipient manages the performance of several state-funded nonprofit organizations. In New York, the state periodically makes competitive awards to 10 nonprofit organizations to serve the state’s manufacturers. In Kansas, the state Department of Commerce manages the federal and state funding associated with the MEP program.
cases, MEP centers work also with large companies such as Honda and Navistar to develop integrated supply chain initiatives that foster improvements for lower-tier small suppliers.
Discussions with center staff indicate that there are wide differences in attitude and in capability across the range of customers, and that one of the more difficult tasks for each center is to balance the need to serve the entire population with the need to generate sufficient client revenue to stay in business: The smallest firms typically produce minimal revenues and at the same time require (in aggregate) substantial expenditure of time and resources. More than three-quarters of U.S. small- and mid-sized manufacturing enterprises employ fewer than 20 workers, while under one-tenth are in the prime MEP target range of 50-299 workers. 16MEP customers range from those eager to grow and willing to adopt new approaches to those who are simply seeking to stay afloat in what have been hard times for manufacturing.
The total MEP budget is about $300 million. One-third of this is provided by the federal government, with the remainder coming from state and industry sources.17 The federal contribution in FY 2013 was $123 million, with more than three-quarters going directly to the centers.
TABLE 1-2 MEP Federal Budget
|Item||Millions of Dollars||Percent of Total|
|Support for Centers||11.4||9.3|
|Centralized MEP System Support||8.2||6.7|
|MEP Labor + Benefits||7.8||6.3|
|SOURCE: NIST Presentation of June 2013 to the MEP Advisory Board.|
16Calculated from U.S. Census Bureau, Statistics of U.S. Business, 2010 Annual Data.
17MEP. Private communication July 21, 2012.
FIGURE 1-4 MEP Federal budget, FY 1988-2011 (current dollars).
NOTE: Data is presented in current dollars.
The federal contribution has varied over time, although funding has increased from the recent low of $89.6 million in 2008, reaching $128.4 million in 2011, as shown in Figure 1-4.
THE IMPACT OF THE MEP COST-SHARE
Based on the congressionally defined MEP program cost-share formula, the MEP centers receive one-third of their operating expenses from federal funds. Centers are expected to match federal funds with funding from other sources, notably fees for services to clients and funding from state governments. To meet the nonfederal cost-share, centers draw on a variety of sources. These include:
- Fees for services provided by MEP centers;
- Cash or in-kind contributions from state and local governments;
- Cash or in-kind contributions from institutions such as trade associations, community colleges, and economic development organizations;
- Interest and dividends earned on nonfederal funds.18
18GAO, GAO-11-437R, “NIST Manufacturing Extension Partnership Program Cost Share,” p.6, April 2011.
According to MEP staff, Federal funding for MEP centers was $90 million in FY 2011. Centers generated $102 million from client fees, and raised a further $51 million in cash (and $3 million in in-kind contributions) from the states.19 (See summary table.) We note that there are discrepancies between these figures and data reported in the 2011 Government Accountability Office (GAO) report referenced below, although it is also apparent that the GAO figures themselves have been challenged directly by MEP staff.
|FY 2011-2012 Funding breakout by source of funding (Millions of Dollars)|
|Income from client fees||102|
|State funding (cash)||51|
|State funding (in kind)||3|
|SOURCE: MEP staff, private communication.|
State funding for the MEP has been under stress in recent years. In some large states—for example, California—state funding has been eliminated altogether. According to GAO, 7 centers reported no state funding in FY 2010, although 15 also reported that they received more than half of their funding from the states. 20 Some MEP centers have also reported that the recent downturn has made it more challenging to meet the required cost-share. According to the GAO, the number of centers reporting difficulties increased from 11 to 32 after 2008.21 The increasing need to rely on fees from clients is changing the dynamics of the program: Centers must ensure that their consulting business generates substantial and sustainable revenue. Pressure to switch to the Next Generation Strategy (NGS) with public funds limited and without clear prior evidence of market demand adds substantial risk (see Chapter 5 for detailed analysis of NGS).
The MEP cost-share has attracted increasing policy attention, including a recent if inconclusive analysis by the GAO.22 That report reviewed the origins of the cost-share and its evolution from a 1:1 basis to a 2:1 share that was passed in 1998 and identified a number of considerations to be taken into account. It did not make any formal recommendation with respect to the appropriate cost-share. The report did identify both positive and negative effects of the current cost-share.
Positive Effects of the Cost-Share. In response to open-ended questions about the positive effects of the current MEP cost-share, a significant number of
19MEP staff. Private communication July 6, 2013.
centers (14) reported that there were none. Other MEP centers did identify positive effects of the current 2:1 cost-share, suggesting that:
- Centers are encouraged to leverage resources and improve partnerships with other organizations, “ensuring that more investors are involved in manufacturing extension other than just the federal government.”23
- Some centers suggested that the need to collect client fees gives manufacturers a stake in the program, increasing buy-in and a commitment to making the partnership with the center more productive. Others pointed out that companies recognize value when they have to pay for services, with free services perceived as having low or no value.24
- The fees result in centers emphasizing services that are relevant to manufacturers, with an emphasis on results. A number of centers also argue that the cost-share helps them to avoid duplication of efforts with other partners within the economic development community.
Negative Effects of the Cost-Share. Notwithstanding these affirmative responses, the GAO notes that MEP centers cited more negative than positive effects in the current MEP cost-share. For example, about a quarter of the MEP centers reported that the current cost-share mechanism requires them to spend more time and effort seeking funds, establishing and maintaining partnerships, and accounting for in-kind contributions. Some centers have argued these administrative efforts are detracting from serving clients. A significant percentage of MEP centers reported that they are seeking projects outside their mission in order to obtain revenue-generating projects.
- The current match also encourages MEP centers to shift their focus to larger clients who can pay higher fees. Some 80 percent of the MEP centers reported that they are likely to shift their focus towards larger clients, e.g., over 150 employees, that can afford to pay the increased rates, with less attention to smaller companies that most need the services.
- A large majority of the MEP centers reported that they are focusing more on multiple projects with repeat clients. This runs directly
20GAO, GAO-11-437R, “NIST Manufacturing Extension Partnership Program Cost Share,” p. 10, April 2011.
21GAO, op. cit. p. 7.
22GAO, op. cit. The objectives of the GAO report were to (1) provide information on the various cost-share structures in the MEP program, (2) identify the effect of such cost-share structures on individual centers and the overall program, and (3) provide recommendations on how to best structure the cost-share requirement. At its conclusion, the study did not provide recommendations on how to best structure the cost-share but identified a number of factors to be taken into account.
23GAO, op. cit. p. 8.
counter to NIST’s emphasis on the need for centers to reach out to clients not currently served. Indeed, “almost all the MEP centers express concern about limiting how long they can serve existing clients.”25
- The current cost-share also pushes MEP centers to focus less on rural clients. Centers reported to the GAO that the high level of cost-share burdens their partners with paperwork and makes it more difficult to serve small, rural manufacturers.
Reflecting these concerns, the GAO reported that the majority of the MEP centers supported a reduced cost-share, with half supporting a 1:1 cost-share. The GAO notes that many MEP centers reported that “seeking out and accounting for in-kind contributions is burdensome and diverts resources from supporting small manufacturers.”26
A separate study, commissioned by NIST, also recommended that the cost-share requirements be changed to a 1:1 ratio.27 That review of the MEP business model noted that the MEP program was the only program at the Department of Commerce with a cost-share that exceeded a 1:1 match. Indeed, many of the Department of Commerce programs have no nonfederal cost-share requirement. It appears that few federal programs have a matching requirement that is as rigorous and as high as the MEP’s current ratio. The matching requirement also pushes centers to seek in-kind contributions, which involve considerable complexity in terms of definitions, monitoring, and management.28
While the benefits of the cost-share noted in the GAO report cited above are real, they would arguably be unaffected by the reduction in the ratio of the cost-share. Centers would still need to seek partnerships, revenue, and state support. There is an understandable concern that easing the cost-share could result in a decline in incentives for state support. At the same time, centers that are able to adjust their products and services to meet new or emerging state priorities may well be able to maintain continued state support. The annual federal contribution to each center has remained fixed for several years, and even with that predictability, it is worth noting that in some cases states have reduced or eliminated their contribution.29 In short, there may well be no automatic relationship between state support for the centers and the cost-
25Ibid. p. 9.
26Ibid. p. 11.
27Stone & Associates and the Center for Regional Economic Competitiveness, “Re-examining the Manufacturing Partnership Business Model,” Washington, DC, October 2010.
28For discussion of in-kind contributions see GAO, op. cit. p. 12, and Stone & Associates, op. cit.
29GAO, op. cit. p. 10. For example, Pennsylvania made dramatic reductions in its support for the MEP program during the recent economic downturn. See the presentation by Eric Esoda, Executive Director, Northeastern Pennsylvania Industrial Resource Center from the National Academies Symposium, “Diversity and Achievements: The Role of the Manufacturing Extension Partnership in the Midwest,” Akron, OH, March 26, 2012.
share, particularly given the growing emphasis on manufacturing and mechanisms to support it both at the federal and state levels.30
The GAO report and related analyses would therefore seem to suggest that the disadvantages of the current 2:1 cost-share outweigh the advantages of a system that appears to be too rigid, based on an outmoded formula, and one which inhibits the type of flexibility and responsiveness that would enhance the value of the program.
Changing the cost-share will require additional funds from NIST, but there is no reason to believe that these additional federal resources will lead states to reduce their level of support. Funding support from states for MEP centers is typically based on policy, except when fiscal considerations make this impossible. In addition, given the limited leverage that NIST has over the individual centers, we have no reason to believe that changing the match will tilt more control to NIST.
MEP’S EVOLVING ROLE
Since its establishment in 1989, the MEP system has continued to grow to serve U.S. small and medium manufacturers. It now reaches out to some 7,000 manufacturers a year, providing a variety of services, from short-term cost reduction through lean manufacturing to longer-term growth initiatives.
Reflecting the changing face of global competition, MEP’s role is evolving from an emphasis on lean production to a focus on enhancing the innovative capacity of small manufacturers. The MEP centers were created initially to transfer federally sponsored, state-of-the-art technology to firms. Later they delivered pragmatic assistance, appropriate to state and local conditions, with business services, quality systems, manufacturing systems, information technology, human resources, engineering, and product development—“the ‘soft’ business practices.”31 Today, the goal of the partnership is to increase the competitiveness and productivity of U.S. manufacturing by helping small manufacturers improve their production performance and grow their business through innovation in product development and production.32
Indeed, there is a need and opportunity for NIST MEP and the centers to play a bigger role in helping a variety of related organizations appreciate the value of manufacturing to communities, states, and country. The case of the
30See, for example, the discussion of Ohio’s support for innovation and manufacturing. National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2013.
31Philip Shapira, Jan Youtie, and Luciano Kay, “Building Capabilities for Innovation in SMEs: A Cross Country Comparison of Technology Extension Policies and Programmes,” International Journal of Innovation and Regional Development, 2011, Vol. 3 (3-4).
32 See Roger Kilmer, “MEP’s Place in the Innovation Chain,” in National Research Council, Strengthening American Manufacturing: The Role of the Manufacturing Extension Partnership—Summary of a Symposium, op. cit.
Northeastern Ohio MAGNET program is illustrative of the role of this type of public-private partnership in bringing together manufacturers, elected officials, industry and academic leaders, and philanthropic foundations and regional development organizations.33
To address these partnership goals, over the past few years, NIST MEP has made a concerted effort to encourage the MEP centers to develop a wider range of services focused on growth, in particular through innovation. NIST MEP is also seeking to realign its metrics to accommodate and reflect the introduction of these new services. Figure 1-5 illustrates some of the changes.
The changing orientation illustrated above is of course a considerable simplification. In practice, MEP activities have been less neatly divided, with overlap and accumulation of functions over time.
The red lines indicate changes in the tracking and evaluation system, with the adoption of a set of standardized metrics in the early 2000s, followed in FY 2011-2012 by the transition to the new CORE metrics now under way.
MEP Within the NIST Portfolio
In the context of U.S. manufacturing, the MEP program is relatively small at around $300 million, with a federal contribution in 2013 of $123 million. Even so, the program can serve as a valuable element in an overall
FIGURE 1-5 Evolution of the MEP program.
33See National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, op. cit.
national manufacturing strategy. As Figure 1-6 shows, NIST sees MEP as a part of a portfolio of programs to support manufacturing from basic research through development, demonstration, and deployment. Many of these foreign programs, described in Chapter 7 (and Appendix A) of this study, focus on Technology Readiness Levels 3 to 7 (with some variations across programs.) They are also substantially larger than MEP’s combined budget.
KEY CHALLENGES FOR MEP
As it evolves from an emphasis on lean production to a focus on enhancing the innovative capacity of small manufacturers, MEP faces a variety of challenges related to the nature of its mission and operations:
- Diversity of Clientele: The manufacturing sector is not homogenous. Small firms have widely varying needs and capacities. They generally do not invest in anticipation of emerging (i.e., not yet proven) technologies.34 There is also significant dynamism in the market with business failures as well as new firms being created. 35
- Operational Challenges: These include improving the efficiency of the program operations, expanding its scale and reach, measuring the program’s impacts, and its improving its transition to a new innovation-oriented strategy.36
FIGURE 1-6 NIST programs to support manufacturing.
SOURCE: NIST, June 2013.
34See Chapter 2 for a description of the diversity of manufacturing firms.
35In recent years roughly 7 percent of small businesses exit each year and about 5 percent are newly formed. (Census: Business Dynamic Statistics.)
36See Chapters 3 through 6 for a discussion of these operational challenges.
- Mission and Funding Challenges: Especially at a time of shrinking support by state governments, MEP centers need to derive revenue from SMEs in order to attract matching federal funds and remain financially viable. They need to address market demand while, at the same time, perform a public service in assisting companies to adopt new and innovative practices. This creates a tension between NIST MEP’s efforts to drive centers to adopt particular services and the demand for services by manufacturing companies served by MEP centers.37
At the request of NIST, an ad hoc committee of the National Academies has prepared a report that addresses two complementary tasks: an evaluation of the operation, achievements, and challenges of MEP and a review of a selected number of similar national programs from abroad. This consensus report brings together this work, with recommendations to improve the MEP program’s operations and impact.
Scope of the Study
As called for in the Statement of Task, the committee convened a major conference, held a series of fact-finding workshops, and commissioned research to review and document MEP’s “current achievements, challenges, and new opportunities.”38 Reflecting its second mandate “to identify and review similar national programs from abroad in order to draw on foreign practices, funding levels, and accomplishments as a point of reference; and discuss current needs and initiatives in light of the global focus on innovation,” the committee also visited and met with representatives of leading national programs from abroad that support applied research and manufacturing. The committee’s goal is to inform a wide array of stakeholders, from federal and state policymakers and NIST and other federal agencies to small and large manufacturers, academic researchers, and others concerned about the manufacturing challenge and the sustained effort of other countries, and identify steps MEP can take to enhance its ability to address this challenge.
Plan of the Report
This final consensus report underscores the value, limitations, and potential of the MEP program to support the development and manufacture of innovative products in the United States. This chapter reviewed the founding rationale and described the organization and funding sources of the program.
37See Chapter 2 for a discussion of the MEP cost-share and its impacts.
38Please see the Statement of Task in the Preface of this volume.
Chapter 2 explains why a strong manufacturing sector is important for the nation’s growth, employment, and national security. It describes the recent declines in U.S. manufacturing and its impacts, previews potential opportunities for “re-shoring” U.S. manufacturing, and discusses how MEP can be a valuable part of a larger national strategy to support manufacturing.
Chapters 3 through 6 of this report describe and assess the MEP program. Chapter 3 describes MEP’s focus on lean manufacturing services. Chapter 4 describes how MEP measures its performance, while Chapter 5 provides an analysis of outcomes. Chapter 6 describes MEP’s new innovation-oriented strategy that is based on an expanded view of its role in supporting manufacturing and also analyzes the challenges MEP faces in implementing this strategy.
Addressing the second facet of the Statement of Task, which is to “identify and review similar national programs from abroad in order to draw on foreign practices, funding levels, and accomplishments as a point of reference; and discuss current needs and initiatives in light of the global focus on advanced manufacturing.” Chapter 7 provides an overview of leading foreign programs to support applied research and manufacturing, revealing the significant scope and commitment of efforts around the world. This analysis is further deepened by a review, found in Appendix A, of five leading national programs to support applied research and manufacturing: Canada’s Industrial Research Assistance Program (IRAP), Germany’s Fraunhofer Institutes, Taiwan’s Industrial Technology Research Institute (ITRI), the United Kingdom’s Catapult program, and France’s Carnot initiative.
In light of the evaluation of the MEP program and the review of foreign programs, Chapter 8 of this report draws together the committee’s findings and sets out its consensus recommendations to improve MEP operations and impact and outline potential lessons for U.S. policy.