Summit ’18: Strengthening Small and Medium Manufacturers

Competitiveness depends on the backbone of American industry

Mike Russo of GLOBALFOUNDRIES welcomes attendees to the MForesight National Summit and highlights our new report, Manufacturing Prosperity.

From the halls of Congress and corporate boardrooms to town halls and shop floors, Americans are in widespread agreement that manufacturing matters. People want to see the growth of American manufacturing jobs. And people agree that our reliance on foreign suppliers — in fields from robotics to computing, from energy storage to advanced materials — puts our economy and security at risk.

MForesight’s new report, Manufacturing Prosperity, highlights an indispensable ingredient for the future of American industry: small- and medium-sized manufacturers (SMMs). Firms with 500 employees or fewer comprise over 98% of U.S. manufacturing companies. Speakers at the 2018 MForesight National Summit also highlighted the vital role these firms currently play in domestic supply chains, and will play in America’s economic future.

As Fred Keller, founder of Cascade Engineering, emphasized at the Summit, there are reasons why Germany — one of the world’s foremost manufacturing nations — cherishes its “Mittelstand” or small and medium-sized enterprises. They’re a diverse, resilient, innovative, and geographically distributed engine of economic growth. They are defined by a high-degree of personal “buy-in” from owners, investors, managers, and workers. Germany has long recognized that the Mittelstand are a hallmark of a healthy economy, and invests accordingly. German government support for innovation funding for SMMs totals more than $1.1 billion and support for manufacturing extension services is more than 20 times the amount funded in the U.S.

Fred Keller

The U.S. should also prize its small and medium-sized firms — as some OEMs do. At the 2018 Summit, Professor Willy Shih of Harvard Business School highlighted the success story of Toyota’s Georgetown, Kentucky plant, which sources from more than 350 U.S. suppliers, including 100 in Kentucky. Treating SMMs as a crucial part of healthy supply chains, rather than just another expense to be minimized, is important to the long-term success of U.S. manufacturing.

SMMs are often anchors in their communities and critical to agile supply chains; they rarely consider offshoring strategies and yet they compete directly with overseas producers. To maximize the contribution of SMMs, it is essential that they rapidly and effectively implement transformational technologies, collectively called “smart manufacturing.” These technologies will usher in a new era of flexible, responsive, and localized production, but they must be used. Both public and private sector decision-makers have a role in seizing these new opportunities.

Willy Shih

At the 2018 Summit and throughout MForesight’s Manufacturing Prosperity project, roundtable participants recognized the importance of existing federal and state programs that provide support of various types to SMMs. But there was widespread consensus that we can do better.

First, the public sector could help by providing loan guarantees and technical assistance to accelerate the pace of modernizing SMMs — including capital equipment and implementation of smart manufacturing technologies. In partnership with states and existing federal programs, such an initiative would spur investment in technology upgrades, favoring U.S.-made equipment to the fullest extent possible. This would help rebuild domestic equipment industries, including machine tools, sensors, analytical tools, and other key ingredients to smart manufacturing.

Second, the public sector could work to ensure that SMMs are taking advantage of existing opportunities. Already, multiple federal programs provide export assistance, defense contracting help, technical and managerial advice, and even help with R&D, but the programs are poorly coordinated and under-funded. With renewed commitment and funding, such programs could accelerate an essential process for American manufacturing: the re-development of diverse, geographically distributed “industrial ecosystems.”

Dean Kamen, Charles Wessner, Andy Bicos (L-R)

Third, there’s a straightforward option that could seriously boost expertise for U.S. firms: Create a program of industry fellowships to pay recent engineering and management retirees to work with the next generation of manufacturing start-ups and business incubators, as well as SMMs. Recent retirees are an underused resource. In some cases, they are moving abroad to coach foreign competitors. It’s time we start valuing America’s legacy talent and expertise.

Finally, a clear but potentially powerful option for strengthening small industrial players is to provide easier access to new product and process technologies created by academic researchers through development of simple technology licensing agreements. Currently, licensing technologies from universities can be prohibitively complex and expensive. But useful models for streamlining now exist — particularly at forward-thinking research universities. These models should be propagated across the country.

It’s easy to extol the importance of small and medium-sized manufacturers. But the question is: Will public and private sector leaders take steps to empower them? There’s now a strong menu of options for securing the future for these firms.

Let’s seize the opportunities.