October 2006 | Commentary | Viewpoint

U.S. Manufacturers: Have Logistics, Will Prosper

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For generations, small and medium-sized manufacturers have been vital to the innovation and productivity of America's economy.

These manufacturers—defined by the National Association of Manufacturers (NAM) as those with fewer than 500 employees and fewer than 2,500 employees, respectively—underpin our nation's success in international markets, and play a critical role in the future of America's manufacturing sector.

Together, small and medium-sized companies represent more than 99 percent of the nation's manufacturers, according to a recent report from NAM and The Manufacturing Institute (TMI).

They also account for 40 percent of the value of U.S. production, and employ more than 8 million people, finds the report, a comprehensive look at the state and future of U.S. small and medium-sized manufacturers.

Small and medium-sized manufacturers boast competitive strengths, but they also face many challenges. Companies are under pressure to cut costs and improve quality, while introducing new and improved products to the market.

What can these companies do to remain competitive in the international manufacturing arena? Businesses must look to refine logistics and other internal management practices as part of necessary strategic planning. Implementing an effective logistics strategy is critical for manufacturers to adapt to market demands.

U.S. companies established global manufacturing leadership by bringing a pipeline of new, innovative products to market. But today, America's economic position faces opposition from rapidly growing economies around the world.

Competition from Abroad

To maintain our leadership position amid a competitive global marketplace, U.S. manufacturers must control costs along their entire supply chain. Utilizing lean manufacturing to eliminate unnecessary production steps is one method of cost control.

Just as important, however, is the ability to streamline logistics processes, which enables manufacturers to:

  • Focus on innovation and production rather than waste countless hours resolving materials management problems.
  • Offer fast turnaround time.
  • Take orders for small production runs that would be uneconomical for buyers to contract overseas.

Best Practices: Strategies for Success

An effective logistics strategy is critical to manufacturers' success in today's global market, and should complement the practices that shape the company's overall business plan.

When developing a logistics strategy, companies should keep these nine best practices in mind:

1. Stay in touch with customers, talk to them about their needs, and look to them for new product ideas.

2. Differentiate products and services to better define and develop a competitive advantage.

3. Go global. Develop export markets.

4. Ensure that your activity-based cost system helps your company contain cost increases, focus on which activities are consuming the most resources, and highlight non-value- added activities.

5. Explore how experts from a manufacturing extension partnership center can help you with your plan.

6. Monitor your company's viability and competitiveness on a daily, weekly, and monthly basis with a set of key performance indicators tailored to your company's particular business challenges.

7. Weigh both quantitative and qualitative factors when making capital investment decisions. Strike a balance between staying on top of technology and making investments you can't afford. No company has unlimited resources.

8. Speak out about manufacturing issues to your government representatives at the federal, state, and local levels.

9. Stay abreast of legislative, regulatory, and policy developments that affect your business through the general media; business publications; and industry, trade, and professional organizations including the NAM and the TMI.

Don't Forget Marketing and Culture

In addition to a detailed logistics plan, today's manufacturers must also address key internal management issues.

Here are six additional best practices to consider:

1. Devote the necessary time and energy to marketing. Develop a distinctive product and marketing strategy, and expand and diversify your customer base.

2. Look for a long-term relationship with a banker who is willing to take the time and effort to understand your company.

3. Invest at least three percent of your payroll in employee training. Get involved with Workforce Investment Boards, government-sponsored training programs, and local educational institutions such as community colleges that offer training in manufacturing skills.

4. Appoint a majority of outsiders with relevant and diversified business experience to your board of directors or board of advisers. Look to those outside experts for opinions and advice; welcome their challenges.

5. Develop a plan for management succession. Start estate planning early, and continually keep abreast of estate tax laws and regulations.

6. Constantly look for opportunities to delegate; empower your employees at all levels; and create the right corporate culture for a high-performance workplace.

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