Small U.S. manufacturers, once dismissed as the dusty underbelly of the economy, are quietly becoming one of the hottest sectors around. And you'll never guess what's behind the change: a little known, low-budget federal program.
Some of the leanest, fastest companies around are manufacturers. You'll never guess who's behind the change.
It was quality -- or lack thereof -- that first inspired Debbie Young to start a company in her parents' Plains, Ga., horse barn five years ago. And it was quality that nearly drove her to distraction four years later.
In the mid 1990s, when Young was general manager at a patio-furniture company in Atlanta, she was frustrated by her employer's inconsistent quality control. "The owners weren't interested in fixing that, so I left," she says. Confident she could do better, Young started her own company, Windham Castings, only to face quality problems of her own. The fully assembled cast-aluminum furniture Young ordered from Mexico wasn't up to her standards, so she spent vast amounts of time cutting up the tables and chairs, then welding them back together correctly.
By 1999, Young decided it would be more efficient to simply build her own permanent-mold foundry. That's highly atypical in her industry, but the numbers were persuasive: while her company's sales were doubling every year, ship times were long, repairs on imported goods were numerous, and investment in inventory was high.
The following year, Young opened the foundry with her brother, Walt, as cofounder and partner; the U.S. Department of Agriculture loaned them $852,000. More help came from consultants at Georgia Institute of Technology, who traveled with Young to Kansas City to visit Stahl Manufacturing, a working foundry. "Georgia Tech identified them as a leader in the industry," explains Young. The Georgia Tech consultants helped Young choose equipment for her foundry and then, back home, offered her advice on plant design and saw her through the start-up phase. "I didn't know anything about manufacturing," Young admits. "We had to be innovative and efficient, and we learned as we went."
Young certainly learned fast. In the past 18 months, Windham's labor costs have dropped by 10%, cash flow has improved dramatically, and ship times have been halved. During the past year, Windham's revenues grew by an impressive 60%, from $5 million in 2000 to $8 million in 2001.
Today, in the months after last September's terrorist attacks, Young's company enjoys a new advantage: "Made in America" means something again. Sure, patriotism is part of the equation, but we're also yearning to embrace "real" businesses once again. Suddenly, building your own factory seems a lot more admirable than setting up shop in cyberspace; it implies permanence and commitment. But pragmatism also comes into play. "People realize that because we have control over our supply, they don't have to invest in inventory," says Young. "If you're buying outside the country, you're buying container loads that you have to pay for up front. And who knows what's going to happen next?"
It's no accident that Young got up and running so quickly. She had help. Much of it came from Georgia Tech, which is home to the state's Manufacturing Extension Partnership (MEP). In fact, the Georgia program is part of a national network of more than 400 manufacturing extension offices. They're part of the National Institute of Standards and Technology (NIST), with support coming from federal dollars, matching funds from state governments, and consulting fees from companies like Windham. The MEP network's national mission: increase the competitiveness of small and midsize U.S. manufacturers by bringing them state-of-the-art technology and helping them institute best business practices.
It's a mission that makes as much sense today as it did in 1988, when MEP got started. Back then U.S. manufacturers were just starting to get hammered by foreign competitors. Today MEP's mission is critical for a more sobering reason: in the aftermath of September 11, the U.S. domestic capabilities are in the spotlight. Manufacturing, once the sector that the country looked to for innovation, now occupies center stage again. And MEP is helping manufacturers use the best of the technological advances to revitalize existing plants and create new ones in industries that can now only be imagined.
While manufacturers may lack the sexiness of their high-tech brethren, they have something even better: viable businesses that can be transformed with cutting-edge technology and sophisticated ideas, and CEOs who are in the game not for a quick buck, but for the long haul. Also, while many small manufacturers are now struggling to survive, unprecedented opportunities should arise for those nimble enough to respond to new market needs. Such opportunities are not limited to obvious industries like defense, pharmaceuticals, and security. Think, well, patio furniture.
In fact, for entrepreneurs like Debbie Young, MEP offers much more than the know-how of a few talented consultants. Through MEP, Young gained access to the collective knowledge of hundreds of experts nationwide, many of whom communicate daily with one another and with their mother ship at NIST headquarters, in Gaithersburg, Md.
MEP's broad scope is due largely to the unrelenting efforts of Kevin Carr, its national director. Carr joined MEP in 1989 as its second employee. A former civilian Navy worker who had done manufacturing and technology research for the Naval Weapons Center, Carr quickly became known within NIST as a promising, confident young man bristling with ambitious plans for MEP. Five years later, when MEP was still a sleepy program with just seven centers, Carr was appointed its director. He was then just 35, making him the youngest director on the NIST executive board by about 20 years. He was charged by the Clinton Administration with creating a national system of MEP centers within four years. "The task ahead of us was always much larger than the resources available," Carr recalls.
Roy Young hosted his daughter Debbie's company in his Georgia horse barn five years ago. Now he serves as the company's director of new product development.
Indeed, MEP's federal budget was a paltry $106 million yearly. But Carr grew MEP to 75 centers and 400 satellite offices in just three years, a full year ahead of schedule. His larger goal was to create a network of community experts who could help small manufacturers get the kind of advice they desperately needed to survive and prosper, but that was often too elusive or too costly. "The real treasure of what we're accomplishing is an integrated system of centers, not just dots across the map," Carr insists. "We recognized early on that it's easy to wind up with a lot of independent fiefdoms that run and operate without very much leveraging of one another's resources."
Traditionally, small manufacturing companies have been an isolated bunch. Many are insular family businesses; others are run by engineers or inventors who, while talented in their own areas of expertise, remain unaware of new technology and management techniques; still others are situated in rural areas with little access to peers. When MEP first hit the street, recalls Carr, its stated mission was to bring those manufacturers NIST-developed technology. "We had advanced technology in federal labs and thought we could push that into small firms," says Carr. "But we learned early on that these companies were several generations behind in technology." Indeed, while NIST was offering bleeding-edge technology, Carr found himself dealing with small companies that didn't even have a computer. Sensing a disconnect, he quickly backpedaled. MEP centers would be market-driven, helping small manufacturers get to the next level -- regardless of their starting point.
MEP's reach is still growing. Some 360,000 small manufacturers now operate in the United States, and more than 95% of them have all their facilities within this country's borders. Carr estimates that MEP serves about 7% to 8% of those companies annually. He'd like to increase that to 10%. But the percentages aren't nearly as important as the measurable results of MEP's involvement. For the last three quarters of 1999, the most recent period for which data are available, nearly 3,000 manufacturers reported that as a direct result of MEP's assistance, they were able to retain sales or increase them by a total of $1.4 billion. During the same period, those companies reported, the program helped them achieve total cost savings of $364 million. MEP's assistance ranged from quick advice on purchasing a new inventory-control system to redesigning an entire manufacturing plant. Much of it was offered at a fraction of what the manufacturers would have paid outside the MEP system.
To understand some of the ways MEP helps U.S. manufacturers, consider Kenway Corp., of Augusta, Maine, a $3.5-million maker of industrial pipes, tanks, and ventilation systems. A year and a half ago, Kenway CEO Kenneth Priest took a trip to Virginia that was destined to transform his second-generation family business.
Priest was searching for ways his company could gain a competitive advantage and add value to its products. He considered embedding Kenway's pipes with electronic sensors that would alert customers to leaks in the pipes, some of which were located in remote areas. Priest had a long-standing relationship with both the Maine MEP office and its then-project manager, Tobin McGregor. McGregor hooked up Priest with a visiting NIST scientist named Richard Parnass, who was looking for ways to bring technology from NIST's laboratories to companies like Kenway. In fact, Parnass knew of a Virginia Tech spin-off in Blacksburg, Va., called Luna Innovations, that had received federal funding to develop fiber-optic sensors. Perhaps, Parnass suggested, Luna's sensors could be used in Kenway's pipes.
"People realize that because we have control over our supply, they don't have to invest in inventory. If you're buying outside the country, you're buying container loads that you have to pay for up front. And who knows what's going to happen next?"
Priest was intrigued, and MEP's McGregor got cracking. Within a week McGregor had scheduled additional meetings at NIST and had done due diligence on Luna Innovations. Soon after, McGregor and Priest flew to Washington to meet with NIST, then drove five hours to visit Luna. "I had cold-called the company and said, 'Here's the deal," recalls McGregor. "So by the time we got there, they were ready to talk."
Later, when a strategic alliance between Kenway and Luna seemed imminent, McGregor suggested that he and Priest make a quick stop back in Washington to meet with a friend of McGregor's who was a patent lawyer. The friend helped them complete a patent search within a few weeks and file a patent application for Kenway's "smart pipes" -- a double-walled pipe with fiber-optic sensors -- just six months later.
Meanwhile, back in Maine, Nicholas Karvonides, the local MEP's vice-president for technology transfer and international development, used his network connections to find a midwestern consulting firm that specialized in market research for the chemical industry. "Others in the MEP system had used them," says Karvonides. "We have a pretty robust Rolodex." The firm, Taratec Corp., based in Columbus, Ohio, spent three months researching the market for smart pipes and came back with a thumbs-up report: stricter environmental regulations on heavy industry were increasing demand for sophisticated pipes like Kenway's. MEP also steered Priest toward two state agencies that ultimately gave him the funding for half of the $24,000 he needed to pay the market-research firm, file patents, and cover MEP's consulting fees.
Within six months of Priest's original meeting with Luna, his company had developed a prototype smart pipe. The pipe is now being tested by a large paper company in Old Town, Maine. "This can probably increase our revenue by 20% once it's fully developed," says Priest.
Priest has received help from MEP on the financial front, too. After McGregor and Karvonides coached Priest and a few Kenway employees on the art of grant writing, Kenway won a $100,000 grant from the Maine Technology Institute. "What people like Nick and Tobin have is the contacts to help us quickly move in a different direction," Priest says. "In a small company like ours, you sometimes have an idea; then you realize how difficult it is to pursue it, and you say, 'The heck with it -- I'll just keep doing what I'm doing.' But these guys can help open the doors to new opportunities." The result: innovation where you'd least expect it. We'll see more of the same as companies like Kenway gain access to sophisticated technology.
In fact, the Kenway project typifies the MEP way of helping manufacturers. Priest's initial meeting with Richard Parnass has spawned a web of relationships that extends far beyond the government program. MEP center directors are encouraged to forge ties with outside consultants, universities, trade groups, research-and-development programs, and economic-development organizations. Their success in leveraging those connections is actually one of several checkpoints in each center's mandatory two-year review.
When Priest starts seeing tangible results from his new venture, MEP in Gaithersburg will know about it, too. So obsessive is MEP about measuring results that Carr has an independent company survey the program's clients nationwide every quarter. Among the questions asked: Did MEP help boost revenues? Reduce lead time? Beef up employee skills? Cut costs? "I haven't seen a federal program that's been more aggressive in holding itself accountable to clear returns on investment," says Karvonides of the Maine MEP.
Lean, Mean, and Green
While MEP is adept at calling in reinforcements from hither and yon, the program also offers its own impressive stable of on-staff experts. Many are well versed in the particulars of what's called lean manufacturing, or "lean" for short. Lean manufacturing, which originated at Toyota, is essentially a method of identifying and eliminating shop-floor waste and inefficiencies. The MEP centers market lean aggressively. They often call on small manufacturers to sell them lean consulting services.
One such call was exactly what Pat Burns overheard three years ago. Burns is manufacturing-plant manager at Numonics Corp. (revenues: approximately $10 million), a manufacturer of collaborative communications devices, such as digital whiteboards, based in Montgomeryville, Pa. His ears perked up when he heard two men talking with his company's engineering manager. "They mentioned some buzzwords like value-stream mapping and cellular manufacturing," remembers Burns, who was then grappling with some thorny production issues. As it turned out, the two were Rich Stewart and Keith Ashlock from the Delaware Valley Industrial Resource Center (DVIRC), a MEP center, and they were not strangers to Numonics. In fact, Stewart and Ashlock had led Numonics through reengineering back in 1993 and later helped the company achieve ISO registration. Now, Burns thought, they might be able to help him as well.
Numonics had developed a computer peripheral -- an electronic pen -- that had a problem: though the pen was superior to its predecessor, manufacturing times were lengthy and failure rates were high. Ashlock and Stewart suggested a course of action to Burns, using lean-manufacturing methodology, to make improvements. Not long after, DVIRC began a series of four two-day training sessions in lean manufacturing for Burns's employees. Many of the workers were initially skeptical. "The company had never invested in this kind of training before, and it was totally new to them," explains Burns. So Stewart and Ashlock led Burns's staff through a "kaizen blitz," in which employees help break down the manufacturing process on paper, redesign it into work cells, and then go into the plant, move machinery around, and run products through their new system. When the changes were made, says Burns, "it was the employees' system," not one that been foisted upon them by management.
"In a small company like ours, you sometimes have an idea; then you realize how difficult it is to pursue it, and you say, 'The heck with it. I'll just keep doing what I'm doing."
The first manufacturing cells were up and running within three months, and Burns saw dramatic improvements within weeks. Production time for a single pen dropped from nearly 50 minutes to just 17. Failure rates were slashed from more than 45% to just 1.2%. Moreover, Burns says his training in lean manufacturing helped him analyze every aspect of production--a process that revealed an unexpected source of product failures. "We broke everything down and found out that the biggest failures were due to PC boards, a component that we don't manufacture," he says. "We went back to the vendor, and they corrected the problem."
Three years after that project with DVIRC, the cumulative effect of MEP's involvement is dramatic: Numonics can now produce and ship products the same day. The company also has reduced its inventory from $1.5 million to $800,000, cut 8,000 square feet of production space, and increased annual inventory turns from 5.5 to 9. While Numonics' revenues have been pummeled by the recession, the company remains profitable. "If it weren't for lean, I don't even like to think where we'd be," says Burns. "We'd be in the red, and our inventory would be through the roof." For all that, the initial project cost Numonics just $13,000, according to Burns.
Carr first became interested in lean manufacturing when the economy was booming and companies like Numonics were looking for ways to increase their capacity in cost-efficient ways. Carr knew that a handful of MEP centers were already running successful lean-manufacturing programs for their clients. So he contacted the Lean Enterprise Institute, a nonprofit training and research center in Brookline, Mass., to learn more. After that, Carr assembled teams from various MEP centers so that information about the lean program could be shared, picked apart, and standardized. He even appointed a "champion" to both develop lean manufacturing as a product for MEP centers and create a training curriculum. Carr's overall goal: ensure that a company in, say, California receives the same quality of assistance as one in Florida.
While manufacturers in today's tough economy still must operate efficiently, there's been a subtle change in what they need, say some in the MEP system. "Companies are stepping back and rethinking," says Ashlock of the DVIRC. "They're reevaluating their market strategy and their core competencies -- I'm seeing a lot more strategic planning." Carr says MEP is ready to respond to those changing needs. "Our approach to servicing clients is already evolving from point-to-point to enterprisewide. We're not just looking at a cell on the plant floor but the whole company."
To that end, Carr is pushing a new program called "360vu," which involves working with manufacturers on every aspect of their operations. Carr intends to actually brand the program, requiring centers to meet strict criteria before they're permitted to carry it. Already, 56 centers have submitted formal letters of intent to meet those criteria, and of those, 22 have been approved. Several companies have already benefited from the 360vu approach, even though Carr doesn't expect to officially launch the program until later this year.
The MEP network, often invisible to clients, is the organization's most powerful tool. That's exactly what Carr had in mind all along. Back in 1991 he spearheaded an Internet-based bulletin board for MEP center directors; the board has since evolved into a sophisticated Web site that lets individual MEP centers share information and ideas. For instance, when Brian Naylor, a field engineer at the Arkansas Manufacturing Extension Network, a MEP center, had a client who needed help selecting a document-control system, Naylor sought advice from MEP colleagues via the Web site. "It was a $25,000 to $30,000 investment, and the company had no way of evaluating the systems," Naylor says.
He posted a query asking for feedback on three or four systems, received half a dozen responses from MEP centers across the country, and passed the replies back to the client company. Gathering the data was quick, accurate, and, for Naylor, almost effortless. On its own, the client company might have needed weeks to gather the same information.
But MEP's network isn't only virtual. Among the Gaithersburg staff of 50 are half a dozen account managers who update the MEP center directors on what's happening systemwide and inform them of new products and services. MEP also holds several meetings for its staff: quarterly gatherings for the center directors; an annual networking and training conference for MEP employees nationwide that typically attracts 1,000 of the 2,000 workers; and what MEP calls small "working groups," in which specialists meet and brainstorm with their peers from other centers from two to four times a year. Also, the MEP centers have a trade association of their own named the Modernization Forum, based in Livonia, Mich., which coordinates professional development for MEP staff and sponsors an annual advocacy event called Hill Day.
At the most recent gathering, held last March, 160 people, including MEP employees and their client companies, knocked on Capitol Hill doors to plug their program and spread the gospel of manufacturing as the core of the new economy. "People tend to think that manufacturing is part of the old economy, but the opposite is true," says Forum president Mike Wojcicki. "The new economy is manufacturers who have transformed the way they do business just as much as it is Internet and IT companies. The Internet and IT are largely tools that make it easier for old-economy industries to create wealth in new ways."
But what small and midsize manufacturers now need most, perhaps, is a way to make sense of the new economic -- and political -- environment. While that requires a good bit of introspection, it also demands a constant supply of reliable information and advice from people with broad perspectives and widespread expertise -- people who can help turn a horse barn into a factory or transform a simple pipe into a high-tech wonder. It may not seem like the kind of thing an underfunded, virtually invisible government program ought to be able to do. Then again, we live in times when, for better or worse, just about anything is possible.
Donna Fenn is a contributing editor at Inc.
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DONNA FENN is the author of Upstarts! How Gen Y Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009), about ways Gen Y is changing the entrepreneurial landscape.