If your company decides to find new customers in new markets, you will inadvertently commit yourself to new products and services. This is an opportunity.
That said, new processes may be just as important as new products. Ron Davis, CEO of Davis Tool, saw the writing on the wall as commodity job shop parts were sourced more and more from Asia. Davis Tool decided to change their strategy by offering quick turnaround on custom or low volume jobs. Davis knew that many of their customers were operating on a just in time basis and could not live with the uncertainties of using foreign suppliers as long as the deliveries were quick.
To support the new strategy required adopting the new process of vertical integration. Davis now offers machining, fabrication, nickel plating, anodizing, laser cutting, tool design, Solid Works, Pro-Engineer, powder coating, painting, and engineering design from one location. This strategy allows Davis to offer very quick deliveries and gives them control of most processes. The result of the new strategy is that they have reduced their flow time (average time a work order is open) from 40 days to 17 days.
In his 2006 report on innovation1, Joel Popkin says three main inputs are used to create economic wealth. The first input is the nation’s stock of knowledge. R&D is the main ingredient for the growth of knowledge. The second is its stock of tangible physical assets such as plant and equipment. The third is human capital—the nation’s labor force and its level of training and education. Productivity links these inputs to economic output.
- The Popkin report makes the point that U.S. manufacturing innovation is at risk, and there are some critical warning signs:
- Outsourcing is transferring American R&D to foreign countries.
- The US share of global trade is shrinking.
- The manufacturing sector is experiencing a broad shortage of skilled workers and young people are generally not interested in manufacturing as a career.
- U.S. growth in R&D has averaged only 1 percent since 2000.
Most people don’t realize that manufacturing’s leadership position in innovation and high value products is what will sustain long term economic growth, productivity gains, and the standard of living of most workers in the economy. Our innovation edge is what creates the real wealth of the nation and it supports many other parts of the economy. Most of the R&D that feeds this innovation in our economy still comes from manufacturing (not services).
Popkin concludes that, if the innovation process goes offshore, America will lose much of its capacity to generate wealth and that decline in long term economic growth is assured. So the secret to improving innovation is to focus on growing manufacturing.
(1) US MANUFACTURING IS AT RISK, Joel Popkin and Kathryn Kobe, the Council of Manufacturing Associations and the Manufacturing Institute, February 2006
Mike Collins is the author of Saving American Manufacturing. His website is www.mpcmgt.com.