Extending Manufacturing Extension
The time has come to refine and strengthen the successful federal program to help small companies tap new technology.
At the start of this decade, U.S. efforts to help smaller manufacturers use technology were patchy and poorly funded. A handful of states ran industrial extension programs to aid companies in upgrading their technologies and business practices, and a few federal centers were also getting underway. Eight years later the picture has changed considerably. Seventy-five programs are now operating across the country under the aegis of a national network known as the Manufacturing Extension Partnership (MEP). This network has not only garnered broad industrial and political endorsement but has also pioneered a collaborative management style, bringing together complementary service providers to offer locally managed, demand-driven services to small manufacturers. That approach contrasts markedly with the fragmented "technology-push" style of previous federal efforts. Most important, early evidence indicates that the MEP is helping companies become more competitive. But to exert an even more profound impact, the MEP needs to pursue a strategic, long-term approach to ensuring the vitality of small manufacturers.
When proponents advanced ideas in the late 1980s for a national system of manufacturing extension, U.S. firms were facing stiff new competition from other countries. A wrenching decade of restructuring followed by strong domestic growth has boosted the competitive position of the U.S. economy. Yet most of the gains in U.S. manufacturing performance have occurred among larger companies with the resources to reengineer their industrial processes, introduce new technologies and quality methods, and transform their business practices. The majority of small firms lag in productivity growth and in adopting improved technologies and techniques. Indeed, in recent years, per-employee value-added and wages in small U.S. manufacturers have fallen increasingly behind the levels attained in larger units.
Industrial extension focuses mainly on these small manufacturers. There are some 380,000 industrial companies in the United States with fewer than 500 employees. Small manufacturers frequently lack information, expertise, time, money, and confidence to upgrade their manufacturing operations, resulting in under-investment in more productive technologies and missed opportunities to improve product performance, workforce training, quality, and waste reduction. Private consultants, equipment vendors, universities, and other assistance sources often overlook or cannot economically serve the needs of smaller firms. System-level factors, such as the lack of standardization, regulatory impediments, weaknesses in financial mechanisms, and poorly organized inter-firm relationships, also constrain the pace of technological diffusion and investment.
The MEP addresses these problems by organizing networks of public and private service providers that have the resources, capabilities, and linkages to serve smaller companies. Manufacturing extension centers typically employ industrially experienced field personnel who work directly with firms to identify needs, broker resources, and develop appropriate assistance projects. Other services are also offered, including information provision, technology demonstration, training, and referrals. Given the economy-wide benefits of accelerating the deployment of technology and the difficulties many companies face in independently implementing technological upgrades, the MEP is a classic example of how collective public action in partnership with the private sector can make markets and the technology diffusion process more efficient. For example, rather than competing with private contractors, as some critics feared, the MEP helps companies use private consultants more effectively and encourages firms to implement their recommendations.
The federal effort began when the 1988 Trade and Competitiveness Act authorized the Department of Commerce's National Institute of Standards and Technology (NIST) to form regional manufacturing technology centers. The first few years brought just a small increase in federal support; only with the Clinton administration's pledge to build a national system did the MEP take off. Under a competitive process managed by NIST, resources from the Technology Reinvestment Project--the administration's defense conversion initiative--and the Commerce Department became available. The states had to provide matching funds, with private industry revenues expected as well. Existing state manufacturing extension programs were expanded and new centers were established so that, by 1997, the MEP achieved coverage in all fifty states. In FY97, state monies plus fees from firms using MEP services matched some $95 million in federal funding. Congress has endorsed a federal budget of about $112 million for the MEP in FY98--more than a sixfold increase over the 1993 allocation.
MEP centers directly operate more than 300 local offices and work with more than 2,500 affiliated public and private organizations, including technology and business assistance centers, economic development groups, universities and community colleges, private consultants, utilities, federal laboratories, and industry associations. Through this network, the MEP services reach almost 30,000 firms a year. (Some two-thirds of these companies have fewer than 100 employees.) The program is decentralized and flexible: Individual centers develop strategies and services appropriate to state and local conditions. For example, the Michigan Manufacturing Technology Center specializes in working with companies in the state's automotive, machine tool and office furniture industries. Similarly, the Chicago Manufacturing Center has developed resources to address the environmental problems facing the city's many small metal finishers.
Originally, Congress envisaged that NIST's manufacturing centers would transfer advanced cutting-edge technology developed under federal sponsorship to small firms. But MEP staff soon realized that small companies mostly need help with more pragmatic and commercially proven technologies; these firms often also needed assistance with manufacturing operations, workforce training, business management, finance, and marketing to get the most from existing and newly introduced technologies. Most MEP centers now address customers' training and business needs as well as promote technology. In general, centers have found that staff and consultants with private-sector industrial experience are better able than laboratory researchers to deliver such services.
Most manufacturing extension projects result in small but useful incremental improvements within firms. But in some cases, much larger results have been produced. A long-established pump manufacturer with nearly 130 employees was assisted by the Iowa Manufacturing Technology Center to gain an international quality certification; subsequently, the company won hundreds of thousands of dollars in new export sales. In western New York, a 14-employee machine shop struggled with a factory floor that was cluttered with machinery, scrap, and work in progress. The local MEP affiliate conducted a computer-aided redesign of the shop floor layout and recommended improved operational procedures, resulting in major cost savings, faster deliveries, freed management time, and increased sales for the company. In Massachusetts, manufacturing extension agents helped a 60-employee manufacturer of extruded aluminum parts address productivity, production scheduling, training, and marketing problems at its 50-year old plant. The company gives credit to MEP assistance for tens of thousands of dollars of savings through set-up time reductions, more timely delivery, and increased sales.
Systematic evaluation studies have confirmed that the MEP is having a positive effect on businesses and the economy. For example, in a 1995 General Accounting Office survey of manufacturing extension customers, nearly three-quarters of responding firms said that improvements in their overall business performance had resulted. Evaluations of the Georgia Manufacturing Extension Alliance reveal that one year after service, 68 percent of participating firms act on project recommendations, with more than 40 percent of firms reporting reduced costs, 32 percent reporting improved quality, and 28 percent making a capital investment. A benefit-cost study of projects completed by the Georgia program found combined net public and private economic benefits exceeded costs by a ratio of 1.2:1 to 2.7:1. A Michigan study using seventeen key technology and business performance metrics found that manufacturing technology center customers improve faster overall than comparable firms in a control group that did not receive assistance. A 1996 study of New York's Industrial Extension Service (an affiliate of the MEP) also found that the business performance of assisted firms was improved when compared with similar companies that did not receive assistance. Finally, a recent Census Bureau analysis indicates that industrial extension assisted firms have higher productivity growth than non-assisted companies, even after controlling for the performance of firms prior to program intervention.
Challenges and issues
The MEP has achieved national coverage and established local service partnerships; most important, the early evidence indicates that MEP services are leading to desired business and economic goals. However, now that the MEP has completed its start-up phase, several challenges and issues need to be addressed to enable the program to optimize the network it has established and to improve the effectiveness of manufacturing extension services in coming years.
Strategic Orientation. Although MEP affiliates are helping firms become leaner and more efficient, lower costs and higher efficiency are only part of a strategic approach to manufacturing and technology-based economic development. A continuing concern is that although the number of small manufacturing firms in the United States is growing, their average wages have lagged those of larger companies. Part of the problem is that many small companies produce routine commodity products with relatively low added value that are subject to intense international competition. If these firms are to offer higher wages, they must not only become more productive but also find ways to become more distinctive, responsive, and specialized. These capabilities may be promoted by deploying more advanced manufacturing processes, initiating proactive business strategies, forming collaborative relationships with other companies, or developing new products. But to help small firms move in these directions, the MEP will need to adjust its service mix to offer assistance that goes well beyond short-term problem solving for individual firms.
For instance, to help more small firms to develop and sell higher value products in domestic or export markets, the MEP should increase services that focus on new product design and development, and develop even stronger links to R&D centers and financing and marketing specialists. Already under way is a "supply-chain" initiative that aims to upgrade suppliers of firms or industries that are located across state boundaries. The MEP should do more along such lines by supporting initiatives that help suppliers and buyers talk to one another. The MEP has sponsored pilot projects to offer specialized expertise in crosscutting fields such as pollution control or electronic commerce. Again, such efforts should be expanded to stimulate the adoption of emerging technologies and practices, such as those involved with environmentally conscious manufacturing methods, the exploitation of new materials, and the use of new communication technologies. These efforts should be coupled with a greater emphasis on promoting local networks of small firms to speed the dissemination of information and encourage collaborative problem solving, technology absorption, training, product development, and marketing.