How to Avoid a CAD-tasrophe

23 Mar, 2006 By: Tom Murphy

NAM/TMI report advises best course of action for small and midsized companies

Small and midsized companies represent more than 99% of U.S. manufacturers and are a driving force in the nation's economy. A new report from NAM (National Association of Manufacturers) and TMI (The Manufacturing Institute) documents the critical role these businesses play, particularly in leading innovation and bolstering the economy through competitive product development.

NAM defines small manufacturers as companies with 500 or fewer employees and midsized manufacturers as those with 2,500 or fewer. Together, small and midsized manufacturers account for more than 40% of the value of U.S. production and 60% of total U.S. manufacturing employment.

The NAM/TMI report, The Future Success of Small and Medium Manufacturers: Challenges and Policy Issues, was sponsored by RSM McGladrey, a business services provider to midsized companies. As an executive manager of RSM McGladrey, I understand the impact small and midsized manufacturers have on our economy. Additionally, I have spent 25 years in the industry, giving me a practical perspective on the challenges companies face in securing a competitive advantage in a dynamic global marketplace.

Striving for Success in a Global Economy
Innovation, flexibility, speed to market and proximity to customers are identified in the report as successful practices for small and medium manufacturers. These key factors add to the complexity of today's manufacturing operations. It's crucial for companies to quickly develop new innovative processes to maximize production of manufactured goods. However, because innovation is almost always accompanied by significant risk, small and midsized manufacturers must develop a business plan that mitigates the risks associated with innovation in order to achieve success.

Another key point emphasized in the report is the increase in the number of small and midsized manufacturers that now export products. According to the report, more than 218,000 small businesses export -- nearly triple the number from 10 years ago. Many small businesses are now indirect exporters, serving as subcontractors or suppliers for larger companies that export. Exporting can be a lucrative business practice on a global scale if carefully managed.

One of the most important points highlighted in the report is the need for a strong knowledge base in the manufacturing industry. Today's manufacturing plant requires a diverse skill set, including an understanding of computer hardware and software, analytical skills, decision-making capabilities and the ability to interact with people.

Small and medium-sized manufacturers have made significant progress in their adoption of CAD/CAM, robotics and nanotechnology. Because the U.S. educational system does not focus on these technical skills, successful employee training is critical to the growth of any company. The report recommends investing at least 3% of a company's payroll in employee training.

In addition, as more long-time employees retire from the manufacturing industries, the knowledge base is rapidly decreasing and a shortage of skilled workers is emerging. Small and midsized companies can reap long-term benefits by taking the time to implement a results-driven training program that is compelling, efficient and effective.

Avoid a CAD-tastrophe
Manufacturers need the latest cutting-edge software, including CAD/CAM software, to face the challenge of overseas competition. To remain industry leaders, it's essential that small and midsized manufacturers establish differentiations that allow them to offer added value to stakeholders to secure competitive advantage. The report points out best practices to lead to this success, including these three:

Appoint a diverse board of advisors. Appoint a majority of outsiders with relevant and diversified business experience to your board of advisors, look to those outside directors or advisors for opinions and advice, and welcome their challenges. A diverse board of advisors contributes to an increased level of innovation within a company. Including people with different business backgrounds broadens the scope of consumers that a company is able to target and increases the level of creativity that leads to product development.
Balance technology and cost. Make sure your investment decisions include the latest technologies available to maximize your profitability.
Monitor your company. 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. Listen to your audiences and value their feedback.

Follow these points of advice and rest assured your company will avoid a business CAD-tastrophe and move toward long-term growth and stable success.

For More Information
For a full-text PDF (1MB) of the NAM/TMI report or to learn more about RSM McGladrey, visit www.rsmmcgladrey.com.