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Technology on the factory floor.

Technology drives an increasing number of American manufacturers, according to a study by NAM. But to maintain progress, legislators must design sound social, economic, and regulatory policies.

The factory floor will never be the same. According to a study by the National Association of Manufacturers, American companies are using technology to slash production errors, boost profits, and speed inventory turnover.

"Technology on the Factory Floor," produced by Auburn University's Paul M. Swamidass, Ph.D., is the first comprehensive measure of progress in hard and soft technology. It focuses not on macroeconomic indicators, such as productivity gains and export sales, but on processes in use and plans to implement new techniques.

NAM surveyed nearly 400 top managers at manufacturing concerns, compiling data on applied technologies, strategies, and obstacles to progress. The study reveals that American manufacturers are implementing computer-aided design and manufacturing, just-in-time inventory management, manufacturing cells, and flexible manufacturing systems. Perhaps most surprising is the fervor with which they have embraced such techniques.

However, the findings also raise critical questions about the government's role in facilitating technological advancement.


The success stories about CAD apparently have accelerated its implementation. Recently, Apple Computer thrust the technique into the spotlight with the release in 1991 of its successful PowerBook notebook computer. Apple says successful exploitation of CAD and CAM systems it developed in conjunction with Electronic Data Systems enabled it to introduce PowerBook and two Macintosh workstations well ahead of schedule. Prior to adopting the new techniques, Apple moved microfiche designs by mail between 13 locations worldwide. Its designs can now be retrieved, enlarged, rotated, edited, and printed via computer in real time.

Of the 12 technologies covered in the survey, CAD was used successfully most often. Half of all respondents already use CAD and, by their own assessment, have attained "extreme skill" in its application. CAD use was nearly twice as prevalent as that of the second- and third-most common technologies: material requirements planning (MRP) and computer-aided manufacturing. One-half of respondents aim to excel in CAD, which may be first among the new technologies to be universally adopted.


It's encouraging that 16.4 percent of participating plants have mastered potentially dicey JIT procedures. Caterpillar says that JIT--in conjunction with CAM, MRP, and other techniques--has reduced assembly time 65 percent and defects between 50 percent and 90 percent.

JIT's effectiveness and value consistently received high marks: With an average sales-per-employee of $175,000 per plant, JIT users in the survey ranked well above the $141,000 plant average. JIT users also reported a 4.4 percentage point lower average producer's cost-of-goods-sold, measured as a percentage of sales. Dr. Swamidass says plants skilled in JIT techniques reported "average inventory turns of 11.65 percent--the best for any group studied and almost twice the average for all plants." Though plants and vendors alike have experienced stress from reorganization under JIT, its benefits make it particularly attractive: Some 43.6 percent of manufacturers plan to excel in JIT. Ideally, short-term pain will result in long-term gain.


Cellular manufacturing systems process similar parts or part families in dedicated production areas. Manufacturing cells are a relatively new innovation and typically replace line- or job-shop production.

That 18.2 percent of plants cited the skillful use of manufacturing cells comes as a surprise. Meanwhile, nearly a third of all plants have plans to implement cellular manufacturing. As with JIT, successful reorganization along the lines of a cellular plan is clearly reflected in the bottom line. Dr. Swamidass found:

"Plants that predominantly used manufacturing cells instead of line- or job-shop production reported higher average profitability (i.e., average return on investment was 15 percent for all cell users versus 11.9 percent for all manufacturers). Manufacturing cell users also reported the lowest cost-of-goods-sold (57 percent versus 66 percent for the average plant). Plants using cells as a predominant means of production were about equal in size to the average plant. This can be interpreted to mean that a plant of any size could successfully use cellular manufacturing."

That nearly one-third of firms plan to switch from shop production to cellular organizational systems demonstrates, again, manufacturers' willingness to invest in new technologies.


In the past decade, the quality standard of U.S. manufacturers has risen sharply. When asked to list three areas in which they had attained world-class performance, participating plants cited high quality more frequently than any other objective. Only 14.5 percent of respondents, however, claimed to have mastered world-class quality-control measures.

Among operational goals, the attainment of zero defects was cited most frequently: Nearly two-thirds of plants called it a primary manufacturing objective. One-third claimed "significant progress" toward this goal, only slightly more than the 31.2 percent of plants that have advanced toward focused production.

The survey underscores some significant trends. Increasingly, American manufacturers employ high-tech hardware and innovative production processes, while those without systems in place have aggressive plans to implement them. Moreover, investments in advanced production technologies are boosting performance and the bottom line.


What do these conclusions mean for policymakers? Advanced manufacturing should be but one part of a strategy to secure a competitive advantage.

American manufacturers must also tackle problems and absorb costs related to labor, health care, regulation, litigation, social mandates, and a shortage of skilled workers. As successful as factory-based technology has been, we must remember that technology is only one means to an end. Policies on taxes, education, health care, and the legal and regulatory systems must also aim to make American industry more competitive.

To illustrate this point, let's look at two competitive obstacles: legal and regulatory costs.

Business spent $75.8 billion for legal services from outside firms in 1987--the most recent year for which statistics are available--compared with $38.8 billion in 1982. NAM estimates that these costs may have doubled again in the past five years, raising expenses to between $110 billion and $148 billion.

On top of these costs for legal services are significant costs for environmental regulations. According to the Commerce Department, business spent $51.6 billion in 1990 on pollution abatement. Private studies projected this figure would climb to $75 billion in 1992, and will likely top $100 billion annually once the 1991 Clean Air Act Amendments are completely phased in. If other regulatory costs were factored in, the compliance costs of federal regulations would exceed manufacturers' pre-tax profits.

Regulatory costs aside, manufacturers are hamstrung by workers unable to master advanced production technologies. An inadequate educational system is partly to blame.

Antitrust policy is another area that begs for modernization. A century after the enactment of the Sherman Antitrust Act, we still measure relevant market share only in domestic terms. Clearly, antitrust policies should reflect the realities of a global marketplace and the need for greater cooperation between the public and private sectors. While our international competitors use public-private partnerships to full advantage, we remain at each others' throats.


Of course, we can move to change federal technology policy directly.

Nearly everyone agrees: It's not government's role to direct industrial development or to pick winners and losers. Instead, NAM believes government should facilitate technological innovation and strategic thinking, work to mitigate distortions faced by U.S. companies in the international arena, and uphold free-market principles. Historically, manufacturers have proved more than willing to stay ahead of the technology curve--if government provides a favorable economic and regulatory climate.

Take investment in research and development. Industry spends approximately $75 billion a year on R&D--one-half the total investment in the U.S. Further, industry conducts about three-quarters of all R&D.

But a tax credit would encourage even more R&D. An incremental, 25 percent R&D tax credit was enacted as part of the Economic Recovery Tax Act of 1981. But this credit expired in 1985.

On a temporary, more restrictive basis, the credit has been regularly extended. Even given these limitations, most studies indicate the credit has stimulated corporate R&D. But certainly, it has been more exclusive and unreliable than business planners would like. A recent study by Harvard's James Hines suggests that restoring the 100 percent deductibility of expenses would result in a $2.2 billion annual increase in R&D.


Similarly, our nation lacks an investment tax credit. Over a five-year period, NAM research indicates, such a credit would boost GDP between $60 billion and $139 billion, depending on how it was structured.

Among the more productive government technology programs are industrial extension-type activities, which aim to bolster the productivity of small and medium-sized companies. Although Manufacturing Technology Centers and the State Technology Extension Program (created by the 1988 trade bill) are experiencing some teething pains, we are learning valuable lessons. Efforts in Congress to create a more structured national industrial extension network have considerable bipartisan support and are likely to become law in the next Congress.

In conclusion, manufacturing underpins America's economic strength. It is the principal generator of national wealth and the measure of our ability to compete worldwide.

"Technology on the Factory Floor" shows manufacturers have improved their bottom-line performance by investing in advanced production technologies and techniques. In the process, they have chalked up gains despite significant policy and economic limitations. Addressing these limitations--even some of them--and moving toward a comprehensive national technology agenda, would lend support to the manufacturing charge in the 21st century.

Dexter F. Baker is chairman of the Executive Committee of Allentown, PA-based Air Products and Chemicals, a major international supplier of industrial gasses and related equipment and chemicals, with annual sales of $3 billion. He was also the 1991-1992 chairman of the National Association of Manufacturers.
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Title Annotation:need for policies to support technology for manufacturing industry
Author:Baker, Dexter F.
Publication:Chief Executive (U.S.)
Date:Jan 1, 1993
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