The NIST Manufacturing Extension Partnership: Improving the Technological Capability, Productivity and Competitiveness of Smaller Manufacturers

More than two centuries ago, Alexander Hamilton, the first secretary of the U.S. Treasury, wrote that "not only the wealth, but the independence and security of a Country, appear to be materially connected with the prosperity of manufacturers." In 1791, when Hamilton wrote these word in his Report on Manufactures, the United States was an agricultural economy. His recommendations to build a strong manufacturing base and, in Hamilton's view, to fill a gaping hole of opportunity were largely dismissed.

History nearly repeated itself almost 200 years later. During the 1970s and early 1980s, many people were predicting that the United States was evolving toward a full-service economy, one rid of factories and assembly-line jobs. To these prognosticators, the anticipated extinction of U.S. manufacturing would be the welcome result of a natural economic progression. It took a sustained series of competitive challenges and plant closings in communities across the United States to expose the folly of this thinking. Today, I believe, the United States—along with much of the rest of the world—is reasserting manufacturing's fundamental importance to a nation's economy, its quality of life, and its security.

In my nation, this fuller appreciation of manufacturing as an engine of national prosperity grew out of the introspection and analysis that occurred during the 1980s and early 1990s. The health of many of U.S. manufacturing industries became a matter of great concern in both the public and private sectors and at all levels of government—federal, state, and local. Numerous studies called attention, in particular, to the declining competitiveness of small and medium-sized manufacturing enterprises. These companies make up the bulk of the nation's base of suppliers and they generate the great majority of new manufacturing jobs. Yet, as a study by the U.S. National Research Council reported, "Many of these small firms ... are operating far below their potential. Their use of modern manufacturing equipment, methodologies, and management practices is inadequate to ensure that American manufacturing will be globally competitive."

One result of assessments such as this one was the eventual creation of the Manufacturing Extension Partnership (MEP), a program in the U.S. Department of Commerce. The MEP is a nationwide network of extension, or outreach, centers that provide technology and business services to smaller manufacturers aiming to improve their performance and modernize their operations.

Manufacturing extension represents a variation on an earlier theme in U.S. technology policy. In 1867, when agriculture was the mainstay of the U.S. economy, federal funding was provided to establish in each state a college devoted to agriculture and the "mechanical arts." In 1914, this higher-education system was leveraged to benefit U.S. farmers. A state-based, federally coordinated extension service was created to disseminate the results of university research and to adapt these results to the needs and conditions of local farming sectors.

Since the end of World War II, federal investments in science and technology had been confined to fostering innovation in areas aligned with governmental missions, especially defense, and to supporting basic research. In contrast, manufacturing extension focuses principally on deployment—the diffusion and effective application of existing technologies.

This paper traces the evolution of the MEP network, describes its operation, reviews the program's performance to date, and concludes with a brief discussion of several technology issues that have the potential to significantly influence the future performance and competitiveness of smaller and medium-sized manufacturers in all nations.

From Pilot Program to Nationwide Network

Manufacturing extension efforts originated in a handful of states, some dating back to the 1950s. Federal involvement was initiated in 1989, with the creation of three manufacturing technology centers. By 1992, the pilot program had been expanded to seven centers, each supported with federal funds matched by state and local governments. In all, manufacturing extension services were accessible to about 5 percent of the nation's smaller manufacturers.

In 1993, the Clinton Administration set the goal of making these services accessible to all of nearly 400,000 smaller manufacturers in the United States. Today, the NIST Manufacturing Partnership encompasses more than 400 centers and field offices. Although a number of centers and offices have completed their start-up phase only recently, manufacturers in all 50 states and Puerto Rico now have access to extension services. This accomplishment is the result of a truly collaborative initiative, one involving federal, state, and local governments as well as non-profit organizations, universities and colleges, and industry groups.

MEP Extension Centers

Local resources serving local markets, MEP centers are selected through a competitive, merit-based process, and their continued funding is contingent upon successful annual reviews.

Typically, independent, non-profit organizations, centers serve as service-delivery nodes in a nationwide network of manufacturing and business experts. They offer products and services that meet the specific needs of the region's local manufacturers. Each works directly with area firms to provide expertise and services tailored to their most critical needs, which range from process improvements and worker training to business practices and applications of information technology. Solutions are offered through a combination of direct assistance from center staff and work with outside consultants. MEP centers are staffed by knowledgeable engineers and business specialists who typically have years of practical manufacturing or plant- management experience.

In addition to researching the needs and characteristics of the population of manufacturers in their service area, MEP center staff also are familiar with composition of the local business community and available local resources--technical, financial, and others. Because they can access geographically distributed resources and technical expertise through the MEP network, centers help small firms to locate and obtain otherwise difficult-to-find private- sector capabilities and services, which sometimes may exist in different regions.

MEP centers work with companies who are willing to invest in themselves—to expend time, money, and human resources to improve their business. Typical MEP clients include manufacturers who:

• have been unable to locate the proper resources or technologies they need.
• want expert, impartial advice in helping them evaluate alternative solutions.
• need help solving a specific problem, such as determining the cause of product defects, modifying plant layout to improve work flow, or establishing employee training.
• want assistance in reversing negative business situations such as sales decreases, loss of market share, or cost increases.
• want to implement new technologies or processes that will help establish them as market leaders.
• seek to improve their ongoing business operations for peak performance.

How Centers Help

Assessments: Many firms begin their relationship with an MEP center through an assessment of the company's current operations and opportunities for improvement. As part of this assessment, field engineers may review the manufacturing process, the plant layout, the inventory and materials flow, and the policies and procedures. Field engineers, also known as manufacturing specialists, then prepare an evaluation of the firm and its operations. These findings are reviewed with management and other key personnel at the manufacturing company.

As a result of the assessment, MEP manufacturing specialists may recommend a few simple, quick solutions, or a detailed plan of action. Both types of recommendations are designed to provide quantifiable, bottom-line impact on performance productivity, quality, profits or sales.

For some firms, these assessments are enough to get started. They may have the resources to implement the plan, or may incrementally pursue new initiatives or changes. Other manufacturers require hands-on assistance in implementing center-suggested actions. The MEP center can provide the solutions and the support.

Technical and Business Solutions: The degree and type of assistance provided to each MEP customer is based on the particular need of that manufacturer. For a firm faced with employee-relations and human-resource issues, for example, the MEP response may entail a management training program, a series of staff workshops, or revamping relevant policies and procedures all services managed by the center staff, either independently or through other experts. If field engineers identify inefficiencies in the physical layout of the plant, they may provide a number of options for reconfiguration and may guide the process for testing these alternatives. Other services may focus on quality improvement, new product development, new equipment needs, marketing and sales support, or capital investments.

Access to Resources: Sometimes, the technical guidance needed by a manufacturer is best found beyond the MEP center. That is when the value of MEP is most apparent. Through both its local and national network of partners, a center or field office can identify experts and resources from the region or across the country that can provide the particular assistance or knowledge that a client firm needs to take actions that will improve its performance. In fact, MEP provides small manufacturers with access to over 3,000 affiliated organizations, or partners, that are tied into the network. These partners include federal agencies, national associations, and other organizations.

Seminars and Training: Manufacturers share common problems and may seek similar kinds of assistance. Yet, companies often are not aware that other firms in their industry are confronting the same generic challenges and problems, and, more important, these companies may not be familiar with the resources available to address such issues. To help manufacturers improve their knowledge and capabilities, centers provide a variety of seminars and training programs. These seminars may address issues unique to a specific industry, such as metal forming or plastics. Educational programs also may provide information sought by many firms, such as preparing for ISO 9000 certification, implementing waste reduction programs, finding and hiring employees, or profiling the newest manufacturing technologies.

In addition, MEP centers facilitate interactions among local manufacturers and create opportunities for sharing resources and information. Regular events, including tours of local manufacturing facilities, breakfast discussions, and demonstrations of the latest industry innovations, give company owners and managers the opportunity to see state-of-the-art processes and discuss common issues with their peers.

MEP Results

Market Penetration: Since its very beginning as a pilot program, MEP has delivered information and technical assistance to more than 62,000 firms. Only within the last year, however, has every node—every center and satellite field office—become operational. Currently, established centers and field offices interact with about 30,000 firms a year. Each quarter, an "average" MEP center assists about 120 firms through a combination of initial visits, assessments, technical assistance projects, and training and education activities. More than two- thirds of the firms served have fewer than 100 employees.

The program's five-year goal is to increase the system-wide market-penetration rate to 10 percent, so that each year, more than 38,000 smaller U.S. manufacturers are capitalizing on the resources and capabilities of MEP.

Evaluation of Impact: Evaluation is a key element of all MEP programs and activities. Results are used to assess the effectiveness of services and their impact on the performance of client firms, and to help guide planning at both the center and network levels. By measuring short and long-term impacts, MEP also can assess economic returns on the federal investment in manufacturing extension services.

Surveys to assess the performance of client firms and to ascertain the impact of MEP services are ongoing. Results indicate that MEP services are yielding sizable benefits in terms of new sales, inventory savings, labor and material savings, and additional capital investment by client firms.

Independent studies also have yielded solid evidence of performance and economic benefits. An analysis by the U.S. General Accounting Office, for example, found that a substantial majority of firms using extension services, including those provided by the MEP, credited this assistance with helping them to improve productivity, product quality, customer satisfaction, profits, and other critical facets of their operations.

The Future

Results such as these indicate that manufacturing extension efforts are achieving their intended economic and company-level impacts, even during the formative stages of the young MEP network. However, there is much work to be done and even larger benefits and performance improvements to be gained. The relatively strong performance of the U.S. economy notwithstanding, the capabilities and competitiveness of the nation's smaller manufacturers remain as cause for concern. On the whole, smaller manufacturers still underperform their large counterparts and the gap is growing. For example, in 1967, large plants were about 25 percent more productive (as measured by value-added per employee) than small establishments. By 1992, the gap had swelled to 50 percent.¹

Even small increases in the productivity of small manufacturers can yield tremendous benefits. According to one estimate, annual productivity increases of just 0.1 percent, if sustained for five years among small and medium-sized U.S. manufacturers, would yield total savings approaching $7 billion, shared among the firms and customers. Manufacturing payrolls could increase by as much as $3.8 billion.²

Now accounting for 55 percent of the value-added content of finished products, smaller manufacturers are becoming more important. And among small manufacturers, effective use of modern technology is becoming even more critical to their performance and long-term survival. To date, the bulk of MEP assistance could be classified as remedial, helping manufacturers to implement technologies long considered to be standard equipment in modern plants. Tomorrow, the emphasis will have to shift to the more advanced end of the technology spectrum. Increasingly, manufacturers who do not adopt advanced tools and strengthen their capabilities will find themselves unable to compete in a global market. They will be weak links in an increasingly interdependent manufacturing sector.

For its part, MEP is entering a new organizational phase. Now that the framework of a nationwide network is in place, it is fashioning a more strategic long-term view, one that maximizes resources and effectiveness. Efforts must be directed toward ensuring that the whole is, indeed, far greater than the sum of its parts.

Elements of this strategy include creating an "integrated knowledge environment" that not only captures key information on customers, industries, technologies, competitive drivers, and service-delivery approaches but also facilitates center and systemwide learning. With this kind of intelligence, centers can customize and reapply existing knowledge in ways that are most appropriate and most effective for a specific company or a group of companies efficiency.

By networking and leveraging the capabilities of all extension centers, we aim to increase the collective intelligence of the system and, in so doing, optimize the performance of individual service-delivery nodes and that of the entire network. Obviously, this is a significant organizational challenge, not unlike the challenge of integrating and optimizing supply chains. Clearly, training of field engineers and other specialists must be a high priority, since they have primary responsibility for designing solutions intended to yield high returns on client firm investments and actions stemming from MEP recommendations and assistance.

NOTES:

¹Nexus Associates, Inc., Vital Signs: The State of Manufacturing in America (Belmont, Mass.: Nexus Associates, Inc., Nov. 1997).

²Matt Kane, Dan Luria, Jack Russell, and Chris Heye, "The Value of Manufacturing Extension Programs in America." In Manufacturing Modernization: Learning from Evaluation Practices and Results, edited by Philip Shapira and Jan Youtie (Atlanta, Ga.: Georgia Institute of Technology, 1997).