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David Blanchard

Quality Insider

Small-Scale Manufacturing

Being competitive in the global economy

Published: Monday, September 10, 2007 - 21:00

Not long ago, the economic outlook for small- and medium-size manufacturers in the United States looked problematic. The latest China-U.S. trade talks had ended with little progress on the key issue of the undervalued Yuan, and slow economic growth had led to a decrease in optimism among manufacturing executives. Chinese currency, which is expected to remain intentionally undervalued, creates an immense competitive advantage for Chinese manufacturers, which perhaps feeds the pessimism among industry leaders in the United States.

Professor Peter Morici, who teaches at the Robert H. Smith School of Business at the University of Maryland, explains, “China’s undervalued Yuan provides a 24-percent subsidy to exports, as measured by Beijing’s purchases of dollars and other currencies in foreign exchange markets to maintain an undervalued Yuan.” This mercantile policy, coupled with cheap Asian labor, lowers costs because of less-stringent environmental regulations, and explicit government subsidies gravely challenge the future feasibility of U.S. manufacturing.

On the other hand, there have been some promising signs. According to the Institute of Supply Management’s monthly report, manufacturing growth accelerated in May 2007 for the fourth consecutive month. The purchasing manager index (PMI)—which measures new orders, production, supplier delivery times, backlogs, inventories, prices, employment, import orders, and exports, among other factors—reached 55 percent, its highest level in the prior 12 months. A PMI above 50 percent means that the manufacturing sector is growing and expanding.

So, what can small- and medium-size U.S. manufacturers do to remain competitive and keep the manufacturing sector growing?

They should focus on what U.S. companies do best: Innovation and high productivity. In the past, manufacturing companies have confronted the surge in Asian competition by cutting jobs. After decades of downsizing, labor now accounts for only a small fraction of total manufacturing costs. Companies must now look at new and innovative ways to improve their processes, their workers’ productivity and, ultimately, their overall equipment effectiveness.

To improve their manufacturing operations, executives must first have a clear picture of what happens on the plant floor. It’s in this area that small- and medium-size manufacturers are falling behind.

While large U.S. manufacturers responded to the sharp rise in global competition by making large capital investments in the best and latest monitoring and lean manufacturing systems, small- and medium-size manufacturers weren’t able to keep up. Some of these manufacturers didn’t have the available human or capital resources to invest in new technologies, especially when increased competition had caused prices to fall. Others simply didn’t believe that they would see appropriate returns for their investment.

This reluctance may be disappearing. Executives at these smaller manufacturing facilities are starting to see the value of real-time data monitoring and analysis, and how it can help them run a leaner, more productive plant. Small manufacturers spread their overhead costs among fewer units and are likely to have capacity constraints. Therefore, they have to constantly work to reduce costs and increase their productivity. This means tracking the production processes in real time, fixing bottlenecks, reducing waste, and addressing problems immediately to avoid downtime. New data-monitoring systems can help small manufacturers achieve these goals with their existing infrastructure and resources.

Pittsburgh-based INTEG Process Group developed its Operations & Maintenance System (OMS) with these goals in mind. Adam Green, vice president of business development, spent several months analyzing the OEE requirements of small manufacturers to understand the challenges that they faced.

“We talked to many manufacturers and heard the same things over and over again—it is too complicated, too expensive, and it won’t work with my machines,” Green says. “So we went back to the drawing board and developed something that dealt with each of those issues.”

It seems that many small manufacturers are embracing manufacturing operation technologies of this kind. Phaedra Hise, author and contributor to Fortune Small Business, Forbes ASAP, and other publications, recently noted: “The best small American manufacturers are finding ways to compete on a global scale. They are applying creative tweaks to their manufacturing processes, improving efficiency, and lowering production costs. They’re relying on theories and technologies that were once the exclusive province of multinationals.”

Whether or not this trend will spread across the industry is yet to be seen. But one thing is clear—with China experiencing tremendous growth in its manufacturing sector, small- and medium-sized U.S. companies cannot afford to sit idle and waste time.


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David Blanchard