SMB Manufacturing Sector Profile

Small and Medium-Sized Manufacturers

Small and medium-sized manufacturers [ <500 employees] are an important sector of the U.S. economy. They are the source of more cited patents than large firms, making them on average, more technically important than large firms in terms of contribution to innovation.

Small and medium-sized manufacturers provide the primary supplier base for large domestic manufacturers.

Success Drivers

Key success drivers for SMBs are:

• Increased integration of their supply chain
• Easier access to technology and capital
• Modernization and process efficiency

Issues for SMB Manufacturers

Specific issues faced by small and medium-sized manufacturers include::

• Small client bases - highly dependent on the expected revenue from each client
• Small management teams - struggle to meet all the demands on them
• Efficiency - SMB manufactures have been forced to become leaner, meaning reduce resources in legal, marketing, and human resource. This makes them more exposed to potential litigation claims arising from increasingly complex liabilities related to products and services, workforce issues, federal regulations, and corporate issues.
• Limited capital for improvements - capital is typically dedicated to operations; with limited access to capital for improvements such as equipment upgrades, facility expansions, marketing and sales force expansions, or the incorporation of new technology.
• Survival focus - focus on day-to-day operations, rather than planning future growth.
• Succession planning -no mechanisms in place for transferring knowledge from retiring employees, to a smaller pool of talent from the next generation of senior managers.
• Workforce education - Lack of education of entry-level production personnel - without the basic reading and writing skills required for the jobs.
• Lack of trained production workers
• The rising cost of health insurance - increasing each year, by up to 50 percent with health services decreasing
• Globalization - difficult for small manufacturers to provide effective service overseas.
  Computer industry mostly in Asia - it now takes up to 4 days to visit one customer, making it more difficult to compete with local manufacturers
• Vendor consolidation by large vendors - forcing small manufacturers to change from being component suppliers to being systems suppliers
• Profits from government organizations are typically tight - the SME becomes extremely vulnerable to program changes or cancellations. They do not have the infrastructure to support the loss.
• Cashflow - delays in receiving payments causes problem when large wage bills must be paid
• Thin Margins - intense competition generates pressure to bid low. Thin margins mean greater risk, and overruns.

SMB Manufacturing SubSectors

Small manufacturing issues require an understanding of the markets for their products. This is particular true in the increasing number of niche manufacturing sectors, including:

• Commodity Product Manufacturing - the manufacture of products such as office ancillary equipment and houseware products. Commodity product manufacturers sell to the end user, wholesalers, distributors as well as to larger manufacturers that incorporate the product or service into their own products or services. A large proportion of this sector is moving to low-cost markets.
• Job Shop Manufacturing - the machining, molding, and stamping of basic parts.
• High technology manufacturing - high end products such as optics, materials, biotechnology, sensors, and medical devices. High-technology manufacturers often supply components or systems to larger enterprises.

Next: Contract and Outsourced Manufacturing

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