A report released by The National Association of Manufacturers (NAM) and The Manufacturing Institute (TMI) reveals important information about small and midsized manufacturers for supply chain executives. The report shows that these companies are vital to the future of America's economy by leading innovation and productivity. For small and midsized companies, and their supply-chain partners, the report offers insight on how to compete in the global marketplace.
The NAM/TMI report, "The Future Success of Small and Medium Manufacturers: Challenges and Policy Issues," was sponsored by RSM McGladrey, the leading professional services provider to small and midsized companies.
NAM defines small manufacturers as companies with fewer than 500 employees and midsized manufacturers as those with fewer than 2,500. Together, small and midsized companies represent more than 99 percent of the nation's manufacturers. These companies account for 40 percent of the value of U.S. production and 60 percent of manufacturing employment.
Small and midsized manufacturers now compete in a dynamic global marketplace, where the role of each link in the supply chain is critical. Companies must have an effective understanding and utilization of supply chain management to achieve their business objectives.
Supply Chain Management and Manufacturing Innovation
Despite advances by growing economies such as China and India, the United States is still the world's leader in manufacturing innovation and technology. America's manufacturers have suffered a profit squeeze as foreign competitors continue to drive down world prices and structural costs continue to increase. However, the nation established its leadership position in manufacturing by utilizing the latest technology and design techniques to develop products, and small and midsized companies continue to prioritize innovation as a strategy to remain competitive among international manufacturers.
Small businesses average more than twice as many innovations per employee as larger corporations. The new products and processes developed in manufacturing contribute significantly to U.S. competitiveness, economic leadership and the current high standard of living. Small and midsized companies face a much higher risk factor as well. An estimated 10 percent of small businesses fold each year. Therefore, manufacturers must develop a business plan that preserves the inventive spirit that distinguishes them from competitors — but do so without sacrificing profit margins.
A supply chain that adapts to changing market demands enables manufacturers to focus on developing core strengths rather than on areas such as logistics and inventory. In addition to innovation, the report identifies flexibility, speed to market and proximity to customers as practices that are key to the success of small and midsized manufacturers.
Another key observation in the report for supply chain managers is the increase in small and midsized manufacturers that are now exporting. More than 62,000 small and midsized manufacturers export. Although the number of these manufacturers that are exporting has increased, many are still not fully exploring this opportunity. Ninety-five percent of manufacturers that export are small and midsized companies, but they account for just 15 percent of U.S. exports of manufactured goods.
When most manufacturing businesses start up, they concentrate sales efforts in known markets based on current users and supply chain partners. As they grow, they often overlook profitable sales opportunities outside the United States. Many companies are now broadening their scope of business by recognizing the growth potential that exists in exporting.
A logical reason to export as part of a business strategy is additional sales opportunity, exposing the company to the competitive pressure of world markets and motivation to manufacture products that can be used internationally. Also, recent studies have shown that exporters — small and large — pay higher wages, enjoy higher productivity and have stronger staying power than similar companies that do not export.