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• A Revolution in the Making
  

  Digital technology is transforming manufacturing, making it leaner and smarter—and raising the prospect of an American industrial revival

  By John Koten

  On a dark and stormy night two weeks ago in Schenectady, N.Y., Ken Hislop was relaxing at home when his cellphone suddenly began buzzing in his pocket. It was an urgent text message—from the General Electric Co. factory where he works.

  Soon, a second message arrived. And then another, and another. The texts were being sent by tiny sensors embedded inside a series of machines, some of which look like enormous upside-down cement mixers. A violent thunderstorm passing through the area had caused something to go wrong.

  “I knew right away we’d lost power at the plant,” says Mr. Hislop, a manufacturing engineer. He quickly switched on his iPad and accessed animated schematic maps that signaled everything happening at the $170 million facility, which makes massive batteries for things like cellphone towers and power plants. Though the outage had been momentary, much of the equipment at the factory had to, in effect, reboot, and any blip could mean costly lost production time.

  “I was getting a first-person, real-time account,” says Mr. Hislop, who also could watch video of the storm from the plant’s roof. The information allowed him to ensure that the machinery restarted in proper sequence and that the sensitive battery material hadn’t been damaged.

  Welcome to the New Industrial Revolution—a wave of technologies and ideas that are creating a computer-driven manufacturing environment that bears little resemblance to the gritty and grimy shop floors of the past. The revolution threatens to shatter long-standing business models, upend global trade patterns and revive American industry.

  Impacts Big and Small

  For big companies, it means a swath of new tools to build smarter, leaner factories and explore innovative new products, materials and techniques that weren’t possible before. And thanks to plummeting prices, small companies have access to better, cheaper manufacturing equipment and design tools—giving even one-person startups the chance to create market-shaking innovations. Many people liken the era we’re in to the early days of computing, where upstart hobbyists in their garages came up with huge advances that changed the industry.

  “Manufacturing is undergoing a change that is every bit as significant as the introduction of interchangeable parts or the production line, maybe even more so,” says Michael Idelchik, who heads up advanced technologies at GE’s global research lab, located about 15 minutes away from the battery plant. “The future is not going to be about stretched-out global supply chains connected to a web of distant giant factories. It’s about small, nimble manufacturing operations using highly sophisticated new tools and new materials.”

  There’s no question that a coinage like the New Industrial Revolution sounds magisterial, given the profound impact that the original Industrial Revolution had not just on business but on living standards around the world. And there’s also no question that for all the big talk and big forecasts, many things will go on being produced using techniques that were all but perfected long ago.

  But the big label is far from unwarranted. The upheaval, still in an early stage, is accelerating now thanks to the convergence of a number of trends: the low cost and accessibility of Big Data associated with cloud computing; the plummeting cost of electronic sensors, microprocessors and other components that can be used to make machines more adept; and advances in software and communications technology that make it possible to manage manufacturing with a whole new level of precision and enable new forms of collaboration.

  A new wave of supercheap electronic sensors, microprocessors and other components means that facilities like Mr. Hislop’s need almost no human help to do their jobs and can collect huge amounts of data along the way. Managers can get instant alerts about potential problems or study the numbers to find ways to boost efficiency and improve performance.

  Flexible Fabricating

  At the same time, technological advances now allow manufacturers to invent new ways of fabricating things that represent an extreme departure from the classic production-line model. By far the most significant of these steps forward is additive manufacturing—a process of making a three-dimensional object of virtually any shape from a digital model.

  These exotic machines can use a range of materials—everything from wood pulp to cobalt—and create things as varied as sneakers, fuel nozzles for airplanes and, ultimately, even human organs. And a single piece of manufacturing equipment, rather than being custom-designed to perform a single function, can be programed to fabricate a virtually limitless array of objects.

  And, of course, that includes making more machines. On a tour of a laboratory of advanced manufacturing equipment that Autodesk Inc. is building on a pier in downtown San Francisco, Chief Executive Carl Bass points to some masking tape on the ground that marks the spot where a sophisticated computer-controlled milling machine will be housed.

  “The Japanese company Mori Seiki is making that in Sacramento in an automated factory,” says Mr. Bass, whose company creates computer-aided-design software. “The factory is so advanced that you almost don’t need to turn on the lights because the machines are doing everything, and what they are making is other machines.” In fact, a 3-D printer has replicated itself at a university in England.

  Still, manufacturers will have to navigate big new challenges in this era, too. For one thing, because additive manufacturing works from digital models of objects, companies are much more vulnerable to intellectual-property theft—the same way that easily copied music and movies have shaken the entertainment business.

  The Sole of a New Machine

  To get an up-close look at how the new technologies are already disrupting the old ways of doing things, consider Nike Inc.’s Flyknit shoe.

  As high tech as some sneakers may be in materials and appearance, almost all of them are still made on assembly lines that put a shockingly heavy emphasis on human labor. Workers sit side by side in enormous facilities, cutting material and stitching and gluing shoe components together. But, starting last year, Nike began making the Flyknit a whole new way.

  The company’s engineers modified a machine used to make sweaters into a shoe-making contraption that knits the entire upper portion of the shoe in a single cocoon-like piece that is then attached to the tongue and to the sole. As the shoe is stitched, proprietary software instructs the machine to alter the materials being used—a bit more polyester thread here, a bit more there—to add strength or flexibility where needed.

  Most important, it makes all these refinements at no added cost. The technology allowed Nike to make a shoe with just a few parts instead of dozens and with up to 80% less waste. “The Nike Flyknit is the world’s first mass-produced consumer product made using additive manufacturing,” says Maurice Conti, director of strategic innovation at Autodesk, which worked with Nike on the Flyknit project. “It’s a hugely significant advance, not the least because, once you start doing things this way it obviously takes a lot of the labor cost out of the equation.”

  The implications for this are as obvious as they are profound: Almost seemingly out of the blue, the reason for making shoes in low-wage countries begins to evaporate and the advantages of locating the machine closer to the customer—in part for faster delivery—begin to loom much larger. Already, Adidas AG is knitting a shoe, the Primeknit, in its home country, Germany.

  Last year, Boston Consulting Group published a report predicting that as much as 30% of America’s exports from China could be domestically produced by 2020. President Obama gave a nod to this hope in his State of the Union address in February when he said that the popular additive-manufacturing technique called 3-D printing “has the potential to revolutionize the way we make just about everything.”

  Last year the president proposed a $1 billion addition to his fiscal 2013 budget to create a network of as many as 15 manufacturing-innovation institutes around the country. One is already up and running in Youngstown, Ohio, the setting of the Bruce Springsteen song about the rise and fall of the steel industry. Three more are in the works under the supervision of the Department of Energy and the Defense Department. Congress has yet to approve spending for the others.

  Not So Fast

  But the jury is out on whether a boost in manufacturing will create a resurgence in U.S. manufacturing employment, which peaked at around 19.5 million in 1979 and today totals around 12 million, according to the Bureau of Labor Statistics. (Economists attribute the recent modest increase in U.S. manufacturing employment to a rebound in the business cycle, and have found no evidence yet of an employment rebound connected to advanced manufacturing or the return of jobs from overseas.)

  Almost certainly, it won’t mean creating jobs the old way—building large factories that employ thousands of people. The real opportunity is in the growth of highly specialized, highly advanced microfactories and in legions of small entrepreneurial ventures making old things in new ways, as well as producing new products and custom-made items. An important sign of the times: the largest U.S. maker of 3-D printers, 3D Systems Corp., introduced a slick push-button model for $1,299 last year—putting it within range of the smallest businesses and home users. Kits to make a printer powered by software from the open-source RepRap project run as low as $400.

  Experts envision bike shops that print custom frames and assemble bikes on demand; made-to-order shops or websites that offer one-off or personally designed jewelry; and more sophisticated production shops that crank out all manner of high-end products. Already, a company called Bespoke Products, a unit of 3D Systems, is making artificial limbs. Another, Organovo Holdings Inc., is using 3-D printing to create human tissue for use in medical labs. At a recent conference, the company showed off a piece of raw meat it had made in a printer. Over time, this “democratization of manufacturing,” as some refer to it, is expected to accelerate, and one day could mean that your local auto dealer or maybe even your neighbor (or you) will be able print out a replacement part for your car or make you a new cup holder sized perfectly for that enormous thermos you carry around.

  New Ways of Making

  Additive manufacturing may bring other changes that are just as dramatic as “factories” run out of somebody’s garage. Additive manufacturing makes it possible to create designs or structures that weren’t feasible using the two traditional ways of making things: milling (sculpting material out of a solid block) and casting (pouring liquid material that hardens into a mold). Both of these techniques are greatly enhanced by mass production because quality typically rises and costs fall as volume increases. Making a lot of something also means it’s not so painful to discard defective units.

  But additive manufacturing enables the creation of materials with multiple parts and moving components without assembly. And because the process is entirely controlled by computers, following precise digital instructions, the very first piece that’s manufactured is just as good as the last one. The incremental cost of producing a part becomes strictly a function of time and materials.

  All of which means manufacturers can scan further afield for inspiration. Designers and engineers at General Electric have begun looking at ancient objects and prehistoric bird skeletons, and delving anew into topology, for inspiration on new forms of design. Their thinking: Centuries of making things under the constraints of old methods may have caused their predecessors to discard innovative structures simply because there was no practical way to produce them through milling or casting. But what was impractical in the past may be quite feasible today.

  There’s another big change playing out that isn’t so obvious but could have a huge impact on the world of manufacturing. The rise of the 3-D printer has coincided with the digitization of the physical world through the use of 3-D scanners and, increasingly, two-dimensional photos that can be stitched together digitally using software to create precise 3-D renditions of anything made of atoms.

  That affects everyone who works with manufacturers and who participates in the creative process: designers, engineers, materials specialists, machine makers and supply managers, among others. It’s much easier to collaborate on a model if it is stored on a computer, because lots of digital hands can be working on it at the same time.

  “The big untold story in all of this is the way the digitization of manufacturing compresses everything—from the early design of a product to its final assembly,” says Ping Fu, who founded a company called Geomagic that makes 3-D modeling software and is now in charge of strategy at 3D Systems. “Everyone can now work together simultaneously. The software makes it possible, and you get much better results than when all of these activities were being done in different silos.”

  Still, this new environment leaves manufacturers facing big new challenges, as digital files of physical objects show up in huge numbers on websites like Thingiverse and Physibles, and manufacturing instructions appear online, too.

  “I give a lot of speeches about this topic to manufacturing groups, and people are usually quiet during the Q&A,” says Christine Furstoss, who oversees a staff of 450 engineers and scientists working on materials, energy strategy and processing technology at GE’s research center. “But afterward, they come up to me in private and want to talk about how frightened they are. People get a glimpse of how this could change the game in their business, and they are just not sure what to do about it.”

  The Road Forward

  For an idea of how the New Industrial Revolution might play out on a large scale, look at GE. Its footprints are everywhere in the advanced-manufacturing community. It is a highly visible participant in the federal government’s efforts to boost additive manufacturing, as well as university programs focusing on the topic. Partners include the Massachusetts Institute of Technology, Amazon.com’s Web-services department and the Defense Advanced Research Projects Agency, which are collaborating with GE on a new crowdsourcing platform for product design and development.

  The company also is latching onto the technique in-house. For instance, it is making a big bet on additive manufacturing as a way to create engine parts that weigh less, cost less and employ more intricate designs. Last year, it bought one of the largest additive manufacturers in the U.S., Morris Technologies, and plans to use the company to make the sophisticated fuel nozzle for its next-generation jet engine, the LEAP. (The Morris family has a long industrial pedigree: It once supplied steel tubing to the Wright Brothers’ bicycle shop.)

  The new nozzle will be 3-D printed as a single part rather than assembled from 18 pieces, and it will be up to five times more durable. GE is also running its own 3-D metal printers, testing the procedure out on as many parts as possible for both the LEAP and the GE 9x, its next-generation 777 engine. This week, GE plans to announce a major investment in an another new additive-manufacturing factory that will mass-produce ceramic engine shrouds.

  All told, the company projects it will spend $3.5 billion on aviation-related advanced manufacturing in the next five years and will produce 100,000 end-use parts for its engines annually by 2020 using additive techniques.

  One of GE’s most creative initiatives is an arrangement that will begin to make its more than 30,000 patents available to inventors and entrepreneurs who use the website Quirky—which employs crowdsourcing to evaluate ideas for products. “It’s a whole new paradigm for innovation,” says Ben Kaufman, the founder of Quirky, an industrial-design company in New York.

  Starting this month, inventors and their ilk will be able to sift through the first 200 of GE’s patents posted on Quirky, with more than 1,000 expected to be available by the end of the year. People who think they can use the technology without infringing on GE’s own use will be able to click a button and begin a process enabling them to license use of the patent for whatever application they’ve dreamed up.

  GE’s efforts also offer a look at how data can be leveraged in this new era. One of the take-aways from a visit to GE’s battery plant back in Schenectady, located adjacent to a parcel that housed Thomas Edison’s machine works, is the sheer volume of data it generates—information that allows plant engineers to continually improve the production process and head off problems before they become serious.

  The company can trace a product’s entire genealogy, from containers of dirt, sand and salt to a bank of high-tech batteries supporting a nation’s electric grid. The data not only improve quality control—if a defect shows up at any point, GE can trace it back to its original source—but in the end give GE a powerful competitive weapon that’s virtually impossible to duplicate.

  The Schenectady plant, nestled in a valley alongside the Mohawk River, is so extensively networked and connected, in fact, that it might just as easily be thought of as a single machine rather than a collection of them. And, of course, because it is so automated, it doesn’t require a whole lot of human assistance. GE’s Schenectady campus once had so many employees it was given its own ZIP Code, 12345. Yet even when it reaches full production—GE expects its output to exceed $1 billion in annual sales by 2020—the showcase battery plant won’t employ more than 450 people.

  Mr. Hislop, who confesses to using his iPad to check in on the factory during a recent camping trip, describes his experience on the night of the storm in the tones of an anxious parent. Yet in the midst of the howling winds and thunderclaps, the technology meant he could remain intimately in touch with everything that was happening across town. Despite the beating the plant was taking, he says he felt “reassured.”

  Source: The Wall Street Journal, June 10, 2013 (http://online.wsj.com)

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• CCBC’s Fab Lab a Resource for Small Maryland Manufacturers
  

  By Emily Kimball

  Manufacturing may conjure up images of massive warehouses and assembly lines, but a small workshop at the Community College of Baltimore County Catonsville demonstrates a simpler approach.

  A laser cutter, a 3D printer, a router and various other tools line the walls of the Fab Lab Baltimore, a joint effort of CCBC and the United States Fab Lab Network, which opened in 2011. The lab and its creative network are available to anyone upon completion of a four-hour training course.

  The Maryland Advisory Commission on Manufacturing Competitiveness on Thursday explored the lab and spotlighted its potential to help entrepreneurs and small manufacturers create custom product prototypes.

  “Maryland manufacturing is very diverse, and in order to meet the needs of that diverse population, resources like this are very important, so we need to make more people aware of them,” said Jeff Fuchs, chairman of the commission. “People can bring their ideas here, without a lot of capital and without a lot of effort on their part, and get connected with some of the tools to make their ideas a reality, and maybe turn those ideas into a business.”

  The commission, which was appointed by Governor Martin O’Malley in 2012, toured the lab following a roundtable discussion on the influence of community colleges on Maryland’s manufacturing workforce.

  Lab users, which include students, designers, artists, makers and inventors, are almost entirely self-directed. Building materials may be brought in or purchased in-house. 3D printing is priced at $10 per cubic inch of plastic, one of the lowest prices in the Baltimore area, according to lab manager Kelly Zona.

  The high-tech production tools don’t have to intimidate, Zona said: “We’ve had 7-year-olds comes in and use these machines, just to give you an idea of how accessible it is.”

  On Thursday, lab user Todd Blatt was using an engraver to print a map of J. R. R. Tolkien’s Middle-earth on a stretch of leather. Blatt, the founder of Custom 3D Stuff, has made a living out of creating customizable manufactured items. The lab offers him a unique and affordable opportunity to test new techniques, he said.

  “They have machines here that I could never afford on my own because of the expense,” he said.

  Zona said she judges the lab’s progress by its growing number of users and its “success stories.”

  Makers of prototypes for hair clips, an adjustable curtain system and a pop-up shop display have each pushed their products to market. Perhaps the most successful prototype produced at the lab was a camera lens cap holder called CapGorilla—with the help of a Kickstarter campaign, hundreds have since sold in 24 countries.

  “A large part is the educational aspect. Many people don’t realize they can come to a place like this and use these resources to make their visions a reality,” Zona said.

  Source: MD BIZ News, May 28, 2013 (http://mdbiznews.choosemaryland.org)

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• Small Business Manufacturing Is Up. One Reason: Reinvention
  

  By Joshua Sophy

  Small business manufacturing is growing, according to a recent analysis. One big reason for the growth is the ability of small manufacturers to reinvent themselves to take advantage of new industries and new business opportunities.

  The PayNet Manufacturing Index found that American manufacturing by small businesses is up 48 percent since 2009. While it still hasn’t rebounded to pre-Great Recession highs, the trend overall is significantly upward since 2009. See chart above (black line is the full index – green line reflects the industrial machinery sector).

  PayNet’s index measures investments by small manufacturing businesses in property, equipment, tools and business units. In other words, small businesses in manufacturing are investing again – a positive signal.

  Manufacturers of industrial machinery and equipment are one category of manufacturers fueling this resurgence in an area of the economy that has been losing jobs since the 1990s. Companies manufacturing equipment like gas compressors, carburetors, tools, and industrial fans fall into this category. They did better than manufacturers as a whole.

  PayNet President William Phelan said with the release of the new data, “This sector is the biggest example of the resurgence of U.S. manufacturing. The process of re-invention and recreation is core to business right now and surviving companies have figured this out.”

  Instrument manufacturers make up another category showing positive gains since the 2009 recession lows.

  One sector that has not seen growth is small manufacturers in the printing and publishing sector. They appear to be a casualty of the digital age. There’s less need for book binding and other traditional printing technologies, PayNet points out.

  PayNet also notes that these investments by small business manufacturers are driving productivity increases of 15%. Small businesses are “producing more manufactured goods for the same level of capital.”

  PayNet is based in Skokie, Illinois. It was founded in 1999 and maintains a large proprietary database of small business loans, leases and lines of credit encompassing over 20 Million contracts. The company also publishes the Thomson Reuters/PayNet Small Business Lending Index. PayNet recently launched a Small Business Delinquency Index.

  Source: Small Business TRENDS, May 6, 2013 (http://smallbiztrends.com)

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• Survey: Optimism Grows Among Small, Midsized Manufacturers
  

  By MDM Staff

  Prime Advantage, a buying consortium for manufacturers, recently released its annual CFO survey results, which found that small and midsized manufacturers anticipate ongoing revenue growth despite the ups and downs in the business environment.

  Only 5 percent of the companies surveyed feel the U.S. economy will contract this year and over half feel the economy will expand. Nearly all CFOs (96 percent) believe U.S. manufacturing will expand or stay the same in 2013.

  The level of optimism among CFOs about their own companies increased this year. Seventy-two percent of respondents rated their optimism about financial prospects of their companies as moderate to high, which is 10 points higher than last year (which was a record high). Executives are more optimistic about the business outlook for their key customers, with 73 percent of respondents forecasting moderate to rapid growth (up from 59 percent in 2012).

  Fifty-one percent of respondents feel more optimistic about the economy this year compared to last year, when 67 percent felt more optimistic about economy. At the same time, the level of optimism about U.S. economy has risen from the previous year to 36 percent (in 2012, only 26 percent of respondents felt this strong).

  When asked to cite the top potential threats to economic growth in the U.S., executives named healthcare reform, the U.S. budget deficit and European fiscal conditions as the biggest hurdles to the growth and stability of the U.S. economy.

  To address current economic conditions, U.S. manufacturers would support simplification of the business tax (91 percent), balancing the U.S. budget (78 percent) and reducing regulations (72 percent) as the most desired government actions.

  Priorities

  As companies actively explore new markets, they are also increasing investment in R&D. Fifty percent of companies plan to increase spending for new product development, the highest percentage since 2009.

  Cutting operational costs and developing new products and services, the top priorities of 2012, retained their positions for 2013. However, long-term strategic planning was replaced by seeking new markets for products and services, which moved 29 points up to the third position from the seventh position it occupied in 2012.

  More companies than a year ago are planning to increase the number of domestic employees in 2013, as indicated by 49 percent of respondents (up from 41 percent in 2012). Three in four companies are planning to increase wages and salaries this year. This is in contrast to 2011, when 72 percent of companies expected to add employees. Steady corporate employment plans have also appeared in other recent industry surveys, such as BofA’s 2013 CFO Outlook and Duke/CFO Magazine CFO Survey.

  Companies are still struggling with finding skilled labor. Seventy percent of respondents indicated that the low level of skilled employees in the area is the main reason for difficulties in filling positions. Sixty percent of companies that were actively hiring indicated they had open positions for which they were having difficulty finding qualified labor.

  Nearly half of U.S. manufacturers (46 percent) indicated they engaged with local educational providers in order to train workers (up from 19 percent in 2012). Other short-term solutions to these challenges are setting up training for new employees (63 percent of the votes) as well as re-training existing employees (58 percent). As a long-term solution, companies indicated working with local economic development and government leaders, increasing funding for vocational education options, getting more involved with the K-12 program, and developing better training programs in manufacturing and technical areas.

  Top Concerns

  External concerns facing U.S. manufacturers for the most part remained the same. One in three companies in the survey named customer demand as the top external concern; two-thirds included it in their top three concerns. Price pressure from competitors was the second leading concern, selected by 61 percent of manufacturers. The cost of non-fuel commodities, a long-time third concern, was replaced by the federal government agenda, selected by 36 percent of manufacturers (up from 21 percent in 2012).

  Ability to maintain margins, the chief internal concern of 2012 and 2010, retained its top position again, selected by 71 percent of respondents. The cost of healthcare, the leading concern of 2011, has moved up to second place, as 55 percent of respondents have included it in their top three concerns, up from 38 percent a year ago.

  The Prime Advantage Group CFO Survey was conducted in March and April of 2013 using an online survey platform. Prime Advantage surveyed a cross-section of finance executives from its member companies consisting of industrial manufacturing firms representing more than 25 different industries with annual revenues ranging between $10 million and $4 billion, of which the majority ranges between $20 million and $500 million.

  Source: Modern Distribution Management, April 25, 2013 (http://www.mdm.com)

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• The Case for Making Small U.S. Manufacturers a Priority
  

  By Harold L. Sirkin

  When people think of manufacturing, they typically envision large publicly listed companies that make cars, aircraft, home appliances, electronics, medical devices, and so forth. They rarely think about the thousands of small manufacturers around the country—many of them “mom and pop” operations—that make products ranging from guitar amplifiers to flight display systems.

  Some 250,000 manufacturers in the U.S. have fewer than 500 employees. Studies show these smaller businesses produce more innovations per employee than large manufacturers. And truth be told, it is generally from these small companies that the jobs of the future will spring. Indeed, as David Rocks and Nick Leiber observed last summer, smaller manufacturers have been leading the “reshoring” wave that my colleagues and I have been writing about.

  More important, many of these smaller companies are critical to the success of the big guys, supplying parts and components across a wide range of industries.

  Unfortunately, the needs of small businesses often are overlooked or shortchanged. As researchers at the Center for American Progress have observed: Small and medium-size manufacturers often have great difficulty obtaining the financing and venture capital they need to “restructure, grow, and scale up,” while their access to bond markets is constrained by “high borrowing and transaction costs.”

  Washington’s solution to all this: a proposed 8 percent reduction in the Small Business Administration’s noncredit technical assistance programs for the current fiscal year.

  Contrary to popular belief, the average U.S. manufacturing business, according to the Bureau of Labor Statistics, has fewer than 50 employees—a number that has remained relatively stable for years. Indeed, of the approximately 259,000 manufacturers in our country in 2010, only a handful had more than 10,000 employees, the Census Bureau reported. Just 3,449 had 500 or more.

  Still, according to the government’s “Profile of U.S. Exporting Companies: 2009-2010,” a report and survey published by the International Trade Administration, small and midsize manufacturers with fewer than 500 employees accounted for a third of U.S. export value. Such companies run the gamut, manufacturing everything from bells to whistles, both literally and figuratively.

  Bevin Bros. Manufacturing, for example, has been producing bells in East Hampton, Conn., since 1832. If you ever wondered who supplies the thousands of Salvation Army bell-ringers around the country, that’s Belvin. The company’s 180-year-old factory was destroyed by a devastating fire last May, but the sixth-generation, family-owned business resumed production in October.

  Another “mom-and-pop” manufacturer is the American Whistle Corporation in Columbus, Ohio. The 57-year-old company is the only manufacturer of metal whistles in the U.S., according to its website. Number of employees: 10.

  If you’re a fan of pop music, you’re undoubtedly familiar with Fender and Gibson guitars, two iconic brands, whose makers are headquartered, respectively, in Scottsdale, Ariz., and Nashville, Tenn. If you’re a performer, you may use a Swart amp, “hand-made in the USA” by Swart Amplifier in Wilmington, N.C.

  In addition to the big-name car companies we’re all familiar with, the U.S. has several niche automakers, including Devon Motorworks, Fisker Coachbuild, and Shelby American.

  The point is: Thousands of products made in America—from automobiles to amplifiers—are made by small manufacturers. Like their much bigger, better-known brethren, these companies are indispensable to our economy.

  Executives at larger companies should be invested in small manufacturing’s success, since their own success often depends on them. Government, investors, and lenders also need to make small manufacturers a priority. Without them, job creation and economic growth would likely come to a standstill.

  Source: Bloomberg Businessweek, April 9, 2013 (http://www.businessweek.com)

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• How Small Manufacturers Are Filling The R&D Gap
  

  By Meribah Knight

  While a recent study showed that private investment in research and development plummeted in the Chicago area over the past decade, small metal manufacturers say they ’re allocating more resources to research than ever before.

  But their efforts are harder to measure than those of large companies like the old Motorola Inc., which cut a lot of jobs from its R&D lab, or firms focused on stacking up patents. Research at small fabricated metal and machinery firms usually focuses on finding more efficient ways to make components. Local executives say their large automotive, utility and telecommunications customers increasingly outsource component assembly and depend on subcontractors to do such research.

  “Now they are relying on us to develop what the product and process will be for them,” says Steve Kase, president and CEO of Aurora-based automotive and telecommunications parts maker Ask Products Inc. and chairman of the Tooling and Manufacturing Association in Park Ridge. “They are asking us to become the experts because they cannot afford to have an expert in every component technology.” For instance, Ask Products recently was tapped by a large utility to make a connector capable of splicing two types of cable.

  At Fusion OEM, a low-volume contract manufacturer in Burr Ridge, President Craig Zoberis says the decline of in-house R&D at bigger companies allowed his business to flourish. “The first thing they cut was research and development, and then they outsourced it,” he says. “That was good. It opened up a market opportunity.” The 11-year-old company, which has 48 employees and brought in $8 million in revenue last year, has seen a 57 percent jump since 2009 in the revenue coming from original equipment manufacturers seeking Fusion ’s research services.

  Three months ago, Chicago-based Transco Products Inc., a component supplier for the nuclear industry, hired a manager to develop a comprehensive plan for research and development at the 100-employee company. “We are looking at growing that investment because we see it as critical to our company ’s growth,” President and CEO Ed Wolbert says.

  The research investment study, performed by the Chicago Metropolitan Agency for Planning, used patent applications as a key measurement. But smaller firms say they tend to introduce new research in the marketplace and innovate on the factory floor rather than in the lab. At Transco, Mr. Wolbert says, patents almost always take a back seat to competing in the marketplace. “For intellectual property reasons, we want to have patents, but that is not our final deliverable. Our final deliverable is a product to our customer.”

  Rather than adding up patents, small and mid-sized firms point to the research-and-development tax credit as a more accurate measure of their efforts. “I think it ’s kind of shocking to say that R&D has fallen so much,” says Walt Snodell, chairman of Aurora-based Peerless Industries Inc., a manufacturer of audiovisual mounting solutions. “The real question is how do you measure it?” At Peerless, the company ’s investment in R&D went up 20 percent in 2012, according to the company ’s tax filings. For Transco, R&D is about 6 percent of its nonproduction budget, according to the filings. The company aims to increase that amount to 12 percent over the next five years, Mr. Wolbert says.

  CMAP researchers acknowledge that their tools are imperfect. “There is informal R&D that is really hard to measure, and maybe the official statistics don ’t get to it as well,” says Garett Ballard-Rosa, an assistant policy analyst at CMAP.

  Some companies are creating formal R&D departments. Three years ago, Rockford-based Eclipse Inc., a manufacturer of industrial burners with 750 employees worldwide, realized it needed to grow its new-product sales by doing more with new technology. The company laid out a plan to hire scientists and engineers and invest in new equipment like a three-dimensional printer for rapid prototyping. Eclipse has approximately 20 people and is recruiting Ph.D. candidates in mechanical and chemical engineering. Kim Droessler, director of product development, says he plans to get the department up to 35 people by the end of next year.

  “We were struggling to make R&D a priority many years ago, but now it is one of our top three initiatives,” he says.

  Source: Crain’s Chicago Business, March 16, 2013 (http://www.chicagobusiness.com)

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