Statement of

Raymond G. Kammer

Director

National Institute of Standards and

Technology

Technology Administration

U.S. Department of Commerce

Before the

House Committee on Science

Subcommittee on Technology

September 23, 1999

Chairwoman Morella and Members of the Subcommittee, I am very pleased to be here to share with you some of the work the National Institute of Standards and Technology is doing to improve the competitiveness of America's smaller manufacturers.

For nearly a century, NIST has been working with companies of all sizes and with industries of nearly every type to develop and apply technology, measurements, and standards. In fact, as you well know, Congresswoman Morella, the importance of manufacturing is singled out in the report for the 1901 legislation that established my agency and we have it engraved in stone on the wall of our main lobby. The quote reads: "… no more essential aid could be given to manufacturing, commerce, the makers of scientific apparatus, the scientific work of the government, of schools, colleges and universities, than by the establishment of the institution proposed in this bill."

Manufacturing is critical to the nation's economy. Overall it provides nearly 20 percent of the nation's GDP, 17 percent of all jobs and 24 percent of all wages.

Since smaller manufacturers -- those with 500 employees or less -- make up almost 99 percent of all U.S. manufacturers, produce more than half of our value-added goods, and employ about 12 million Americans, they are both the foundation and the future of American manufacturing. It is clear that it is in the best interest of the United States to promote a strong and healthy base of small manufacturers.

As you know, 1999 has been declared the "Year of the Small Manufacturer" by the Secretary of Commerce and endorsed in a resolution by the National Governors' Association at their February 1999 meeting. In addition, President Clinton declared this week, the week of September 19-25, 1999, as Small Manufacturing Week.

To raise awareness of the technological needs of the nation's smaller manufacturers and to gather first-hand perspective, NIST, in partnership with the National Association of Manufacturers and the Modernization Forum, brought together more than 150 smaller manufacturers from across the country in the first National Manufacturing Summit held yesterday here in D.C. I am pleased that Jerry Jasinowski, President of NAM, is here today to deliver the findings from the Summit -- and that two small manufacturers involved in the Summit are here to discuss technology related needs first hand. Also I would like to thank the Subcommittee for sponsoring an exhibit from the summit in the foyer of the Rayburn Office Building.

I would like to quickly touch on some of the areas highlighted at the Summit.

· Electronic Commerce (eCommerce) - eCommerce can provide small manufacturers with a tool to improve productivity; find and retain new customers, suppliers, and other business services; and expand operations into new markets. Many casual observers simply equate eCommerce with on-line sales. However, small manufacturers who take full advantage of the potential of eCommerce use it to interact with customers, suppliers, the public, and external support functions such as payroll, utility services, and employee training.

· Workforce - The ability to attract, retain and effectively engage talented and productive people is a primary force influencing business strategy and business success. These "people practices" issues are as relevant for small manufacturers as they are for Fortune 100 companies. Indeed, small companies face numerous challenges in implementing effective people strategies and linking them to their business strategies.

· International Trade - Exports are a critical component of America's economic health; nearly 11 percent of the nation's GDP in 1997. The vast majority of American manufacturers who export are smaller enterprises with fewer that 500 employees. Many smaller firms do not have a strategic plan for exporting and do so on an occasional or sporadic basis.

· Sustainable Manufacturing - As we enter a new millennium, increasing global demand for consumer products and decreasing reserves of raw material are driving changes in manufacturing. America's smaller manufacturers have a great opportunity to adopt new technologies that improve performance while limiting consumption.

An agency of the Commerce Department's Technology Administration, NIST occupies a unique niche in the nation's technology infrastructure. It is helping to build an essential foundation for technological progress and industrial growth through technical services and tools, and industrial modernization assistance, quality and performance improvement efforts, and risk-sharing incentives that motivate U.S. companies to pursue next-generation manufacturing technologies.

Many of the programs at NIST serve as resources to improve the technological advantage for the nation's manufacturing sector while partnering with industry to ensure the project meets the customer's needs.

Manufacturing Extension Partnership

A NIST program that provides assistance to small manufacturers is the Manufacturing Extension Partnership. MEP is where the "rubber meets the road" in providing hands-on assistance to the nation's 385,000 smaller manufacturers. Over the last two decades, these small firms have generated about three-fourths of all new manufacturing jobs and account for 55 percent of all value added in manufacturing.

Yet, many smaller manufacturers have been slow to adopt modern production technology and business best practices. Productivity growth has trailed that of their larger counterparts, creating a gap that threatens future competitiveness. Many factors, from limited investment capital to lack of information to pressing day-to-day demands on management, underlie this widely recognized weakness in a strategically important part of the nation's industrial base.

Until very recently, however, this problem drew only a small, fragmented response. Through the MEP network of local extension centers, each one linked to public and private organizations with complementing expertise, smaller manufacturers now have access to comprehensive sets of technology and business assistance. MEP centers have provided services to more than 77,000 smaller manufacturers. About half of these client firms employ fewer than 50 people, and nearly two-thirds employ fewer than 100. By the year 2001, MEP anticipates that affiliated centers will be delivering technical assistance to 10 percent of the nation's smaller manufacturers each year.

Created to fill the gaps in providing the technical and business services needed to improve the competitiveness of smaller firms, MEP currently has more than 400 locations serving smaller manufacturers in all 50 states, the District of Columbia and Puerto Rico. To help provide these services, MEP partners with a broad range of organizations, including state and local governments, other federal agencies, industry, non-profit groups, and educational institutions.

Even though MEP is still maturing, it quickly is becoming recognized as a vital federal-state partnership that is helping thousands of small firms improve competitiveness, increase profits, and enhance productivity.

Philip Shapira at the School of Public Policy, Georgia Institute of Technology, recently said, "Systematic evaluation studies have confirmed that the MEP is having a positive effect on businesses and the economy."

Here are the results of some of these studies:

· The U.S. Census Bureau surveyed more than 4,400 firms served by NIST MEP centers in 1997. These companies reported an increase in sales of $236 million, a reduction of $31 million in inventory, and a savings of $24 million in labor and materials. They also invested more than $193 million in modernization and created or retained 6,755 jobs.

· An analysis by the U.S. General Accounting Office found that a substantial majority of firms using manufacturing extension services improved their productivity, product quality, customer satisfaction, profits and other critical facets of their business.

· A five-year study of 1,559 MEP client companies by the Center for Economic Studies at the U.S. Census Bureau found that a conservative estimate in the growth of value-added per employee at MEP client firms is $2,334 as compared to $508 for non-clients.

· Many compelling accounts of MEP's contributions come from individual centers. For example:

-- The California Manufacturing Technology Center recently reported a return on investment of 294% during a three-year period. The center also reported that as a result of collaborations in 1998, 131 clients created or retained more than 1,300 jobs, increased revenues by $56.3 million, and created tax benefits totaling almost $34 million to local, state and federal governments.

-- A study of the New York MEP found that the state's $5.3 million investment in the program generated an additional $227 million of value-added income in the state between 1995 and 1997 and created 2,600 jobs.

While these data are impressive, nothing brings these numbers to life like the stories of the small manufacturers who have worked with MEP centers to improve the way they do business. Here are a few:

¨ Red River Hardwoods, located in Clay City, Kentucky, was having a serious problem with a clogging dust collector which frequently halted production for up to two hours a day. Terry Field, president of the 55-employee lumber mill, turned to the Kentucky Technology Service for help in correcting the problem. After implementing changes to the dust collection system recommended by KTS, Red River Hardwoods cut production downtime by more than 50 percent, increased production capacity by 25 percent and saved approximately $15,000 a year.

Field said, "The Kentucky Technology Service … worked closely with my firm to resolve a problem … This type of technical service must be available to small companies at an affordable price for us to remain competitive and grow."

¨ Mar-Mac Wire, Inc., located in McBee, SC, manufactures quality wire products for a variety of industries. But, the cleaning process of stainless steel wire was creating a hazardous waste that was expensive to dispose. A field agent from the South Carolina Manufacturing Extension Partnership asked the Oak Ridge National Laboratory for help in evaluating the waste. The recommendation was an inexpensive filtering procedure which would remove the hazardous chromium particles and save the company $250,000 in disposal costs.

¨ The Montalvo Corporation of Portland, Maine, makes tension systems for equipment in the converting and packaging industries. Because the company relies heavily not only on its manufacturing and servicing equipment, but also its business computer systems, Montalvo asked the Maine Manufacturing Extension Partnership for help in determining whether it was at risk from the year 2000 computer problem, also called Y2K or the "millennium bug." AThanks in large part to the MEP Y2K tool, we are now as confident as we can be that the Year 2000 bug will not interfere with our operations,@ said Ed Montalvo, president and one of the company=s managing directors.

Since its modest start in 1989 as an experimental program, MEP has evolved into a productive force for industrial modernization. It maintains its local focus, while realizing economies of scope and scale in the design and content of technical assistance programs and resources. Funded with federal, state, and local dollars, all MEP affiliated centers- are non-profit organizations. All MEP centers are locally staffed and operated--organized to be responsive to the particular technical needs of an area's manufacturing sector.

As the federal partner, NIST concentrates on making the whole greater than the sum of its parts. For example, NIST works to strengthen system capabilities in areas strategically important to smaller manufacturers. Right now, MEP is galvanizing resources and expertise to help smaller manufacturers, like the Montalvo Corporation, effectively tackle the "millennium bug." Through its Y2K Self-Help Tool, which is available in English, Spanish, and several other languages; a help center and a web site; as well as informational and educational materials, MEP is helping thousands of small businesses address this potential problem. Through an alliance with the U.S. Department of Agriculture, the U.S. Small Business Administration, and others, MEP is helping not only small manufacturers, but any small business avoid Y2K problems. MEP's reach and impact have been impressive, demonstrating what a federal-state-local-private sector partnership can accomplish.

Other network-wide MEP assistance includes:

Sustainable manufacturing. With affiliates across the country, the U.S. Environmental Protection Agency, and other partners, MEP is developing and testing tools that will help small manufacturers reduce waste, emissions, and inefficiencies as well as the burdens of complying with environmental regulations. In center-conducted assessments, difficulties encountered when responding to environmental regulations and permitting requirements often rank among the top challenges cited by manufacturers.

Technology and the workforce. In MEP's assessment of challenges facing smaller manufacturers, workforce training is second only to the constant requirement to reduce costs while increasing quality. Human resources projects now account for 10 percent of all MEP technical assistance activities. MEP staff and affiliates are working with the U.S. Department of Labor, community colleges, and other organizations to further build system-wide capabilities to help firms upgrade worker skills and devise high-performance workplace strategies most appropriate for their businesses and workforces.

Anticipating needs and challenges, MEP also is designing new initiatives to help smaller manufacturers acquire the capabilities necessary to compete successfully in the 21st century. Current trends indicate that the supply-chain optimization efforts of major original equipment manufacturers will be especially critical to the long-term performance and business health of smaller manufacturers.

MEP is working with smaller manufacturers to help them gain the organizational, logistical, and operational skills required to perform effectively and profitably in the emerging era of supply-chain-centered competition.

Measurement and Standards Laboratories

In every industry, firms of all sizes and types rely on a portfolio of supporting, generic technologies that are integral to a company's manufacturing capabilities. These indispensable tools range from tables of scientific and engineering data to statistical quality-control methods to measurement techniques for ensuring that one coordinated measuring machine's micrometer is calibrated with another machine's micrometer.

NIST is a key supplier of such infrastructural technologies and services. The results of NIST research lead to industry-accepted test and measurement methods, process models, interface standards, and other useful tools. In industries ranging from electronics to radiopharmaceuticals and from chemical processing to aerospace, these tools contribute to effective operations and quality products. The capabilities that they support often set the technical limits on what can be accomplished on the factory floor, in the research and development laboratory, or with suppliers and customers.

For example, we distribute about 350 NIST-developed Standard Reference Materials, the equivalents of certified "rulers" that firms use to check the accuracy of their own measurements. In manufacturing SRM's support motor-vehicle production at nearly every step of the process, from the manufacture of sheet metal, windshields, tires, and transmission gears to final assembly.

In the optical-fiber industry, technical contributions made by NIST's Measurement and Standards Laboratories serve as the basis for more than two dozen standardized measurement methods that U.S. producers credit with helping them to maintain their world-leading market share.

NIST's technical assistance helps manufacturers build capabilities that underpin their competitive performance. Consider our work with American Superconductor Corporation, a small but rapidly growing company in Westborough, Massachusetts. Up against the likes of Germany's Siemens and Japan's Sumitomo, this 220-employee firm is positioning itself to be a major player in the emerging global market for wires, energy-saving motors, and other products made with high-temperature superconductors.

Discovered in the late 1980s, this class of ceramic materials conducts electricity without resistance--even at relatively high temperatures. But the materials are hard to work with, which has confounded commercial development efforts. They're extremely brittle and minute flaws can disrupt current flow. Exacting materials-characterization techniques and quality-control measurements are a must.

American Superconductor turned to the NIST laboratories to help it make highly accurate measurements of the crystalline texture of the superconducting ceramic. The company wanted to make these advanced measurements with a relatively ordinary piece of equipment that it already owned. Our researchers met the challenge. They developed measurement techniques and special analysis software that quickly made optimal use of data obtained with a conventional X-ray diffractometer.

Measurement needs are growing and diversifying in every area of manufacturing. In precision manufacturing, a label that applies to a growing portion of the discrete parts industry, dimensional tolerances are shrinking to ever-smaller fractions of a split hair. Meanwhile, the shapes of parts and products are growing more complex. In the continuous-process industries, manufacturers must continuously raise the threshold for levels of selectivity and specificity. In fact, all manufacturing industries are being driven to improve processes, reduce waste, and raise quality. At the same time, emerging technologies present tantalizing prospects for novel products and processes, but they also introduce new measurement challenges that must be overcome before these opportunities can be fully realized.

Today, we are putting greater emphasis on the infrastructure needed to support advanced computing and communications technologies and, just as important, the capabilities that they enable. This includes what some are calling E-Manufacturing.

One thrust of this wide-ranging work is developing prototype standards, tests, and other tools for interoperability. Tools that enable the almost myriad elements of information technology, the hardware and the software, to work together efficiently. This is a critical need.

Consider, for example, that lack of interoperability costs the U.S. automotive industry alone about one billion dollars a year--and that's a conservative estimate. Part of the solution to this costly problem is an international standard called STEP, which stands for the Standard for the Exchange of Product Model Data.

NIST has worked for over a decade with hundreds of firms and thousands of people from around the world to develop STEP. It's a new kind of standard, designed to evolve and grow with the needs of industrial users of information technology. STEP enables direct computer-to-computer exchanges of a growing variety of product data--all the way from design to after-sale support, even recycling.

Elements of STEP have been adopted by makers of design software, and the manufacturers who use the standard are realizing significant benefits, from major improvements in the reliability of data exchanges to substantial savings in the purchase and implementation of computer-aided manufacturing systems. Small manufacturers are a vital part of this equation.

At NIST's National Advanced Manufacturing Testbed, teams of researchers have worked to solve measurement and standards issues that impede companies and industries from making the most of their information technology, individually and collectively.

The NAMT is a distributed, multiproject testbed built on a state-of-the-art, high-speed computing and communications infrastructure--the research counterpart to the distributed and virtual enterprises envisioned for 21st-century manufacturing. It links people--as well as specialized facilities and resources--at sites around the country as they tackle process-specific challenges and opportunities. Though focused on specific problems and needs, all NAMT projects have been aimed at modular solutions that are integratable elements of larger systems. Now, NIST is moving ahead with planning the next incarnation of this testbed to best meet the information technology-driven needs of U.S. manufacturers, including small manufacturers.

In consultation with industry, NIST is stepping up efforts in key technology areas likely to have a major impact on future manufacturing capabilities. On behalf of U.S. industry, it also is intensifying and broadening its technical activities in the international standards arena, which greatly influences the ability of the nation's manufacturers to sell their products in foreign markets. These are concerns for U.S. manufacturers, regardless of size, as we move into the next century.

Advanced Technology Program

The rapid pace of innovation and change in the global economy has affected every aspect of business, nowhere more so than manufacturing. What was good enough yesterday is not good enough today. The NIST Advanced Technology Program helps deliver the innovations that U.S. manufacturers need to stay competitive.

Since its start in 1990 as a small experimental program to promote "commercializing new scientific discoveries rapidly" and "refining manufacturing practices," the ATP has promoted innovation in industry processes and technology, including important advances in manufacturing.

The ATP helps bridge the gap between the laboratory and the marketplace and stimulate partnerships among companies of all sizes, universities and the whole R&D enterprise.

· An early ATP award to the Auto Body Consortium sparked a landmark R&D project that brought together the initiative and talents of eight small and mid-sized suppliers to the auto industry and two universities, with matching funds from General Motors Corp. and Chrysler Corp. The consortium developed a suite of innovative processes and tools that improve the quality of vehicle body assembly. The results are being implemented in auto plants around the country and independent analysis done by CONSAD Research Corporation estimates savings to consumers and car makers of up to $650 million annually on maintenance which will stimulate a multi-billion-dollar increase to the U.S. economy.

· Another ATP project coordinated by the National Center for Manufacturing Sciences brought together nine companies ranging in size from very small to large to develop new drive and control technologies for machine tools - the machines that build other machines. Lest this sound rather ordinary, I might point out that no fewer than three individual developments from this project have received "R&D 100" awards for significant technological innovation. Just one innovation from this project can save the auto industry more than $6 million annually in producing a single part. Multiply that by many parts and many industries.

· Other ATP awards have allowed a small innovative company called Autospect to develop a unique - and badly needed - technology for measuring the thickness of wet paint on metal; enabled the Ingersoll Milling Machine Company to develop a new class of light-weight, high-precision machine tools; and made it possible for small Saginaw Machine Systems, Inc., to develop a high-performance control system for machine tools that dramatically improves machining accuracy.

At a time when companies are concentrating more of their research and development efforts on the predictable, the incremental, the nearly immediate; at a time when - as the Council on Competitiveness recently reported - "less and less" private-sector R&D "is spent on longer range research, the kind of research that ensure continued economic growth," the ATP encourages companies large and small to focus on the long term, to look beyond the next one or two product cycles and to invest the resources required to convert promising, but unproven, emerging technologies into new products and manufacturing methods.

ATP projects in manufacturing run the gamut from sheet-metal industries to electronics, and from the literal cutting edge - high-performance tooling - to sophisticated software to streamline and manage manufacturing enterprises.

Since 1990, the ATP has selected at least 58 R&D projects that could directly impact the future of manufacturing in the U.S. That translates to about $170 million in industry cost-sharing and investment in advanced manufacturing research matched by an ATP investment of about $164 million. Those projects involve more than 200 companies, universities, non-profit research organizations and federal laboratories. More than 70 of the participants are small businesses.

With industry, ATP regularly surveys the technology horizon for long-term opportunities that, down the road, may pay significant dividends in terms of U.S. competitiveness and economic growth.

Baldrige National Quality Program

NIST's Baldrige National Quality Program focuses on quality and performance excellence of American organizations, including manufacturers.

Since its creation in 1987, the Baldrige National Quality Program has played an important role in helping the United States regain its competitive edge and its world-class quality ranking among nations. But, the competitive race is far from being won. For manufacturers, in particular, quality now is a mandate, not an option. Companies worldwide recognize the competitive advantages achieved through quality and performance excellence. To attain and retain market leadership in the next century, U.S. companies will have to improve continuously.

Of the 34 companies that have won the Baldrige Award, 24 are manufacturers. These include some of the nation's largest firms, such as Motorola and Eastman Chemical Co., and smaller manufacturing businesses, such as Texas Nameplate Co., Trident Precision Manufacturing and Wainwright Industries. For all, the Baldrige Award process has proven to be an effective tool for continuous improvement.

Following the Baldrige guidelines continues to pay performance improvement dividends to firms that maintain their commitment to quality. Consider a few examples:

Since 1995, Texas Nameplate Company (1998 small business winner) has increased the number of orders shipped by 16 percent and raised its on-time delivery record from 95 to 98 percent.

Wainwright Industries, Inc. (1994 small business winner) has reduced its customer reject rate by 91 percent and cycle time by more than 90 percent. It used the Baldrige framework to drive more than 10,000 quality and process improvement suggestions implemented each year since 1994.

Nearly 25 percent of Eastman Chemical Co.'s (1993 manufacturing winner) sales come from new or improved products developed in the last five years.

Since winning the Baldrige Award in 1988, Globe Metallurgical, Inc. (1988 small business winner) has experienced a 204 percent increase in revenues and a 310 percent increase in profits.

Thousands of organizations use the Baldrige Award criteria to assess their own operations. Almost two million Baldrige Award criteria have been distributed and thousands more downloaded from the NIST web site. Annually updated and enhanced by leading quality and business experts, the criteria serve as very functional tools--as scorecards to size up performance and identify opportunities for improvement.

Further fueling the drive for quality improvement, the Baldrige Award has become a widely emulated model--the standard for performance excellence. Not only do more than 40 states have award programs, but also, more than 25 international quality awards have been established. Most resemble the Baldrige Award, including one launched by Japan in 1996.

NIST is mapping out ways to strengthen awareness of the award program and criteria among smaller manufacturing businesses and other similarly sized firms. As Texas Nameplate, Trident and Wainwright demonstrate, such companies can benefit greatly by implementing the Baldrige framework.

Conclusion

As I said at the beginning of my remarks, manufacturing is important to us at NIST. It is not only engraved on our wall, it is part of our heritage. For almost 100 years it has been our job to help the nation's manufacturers, both large and small, create and capitalize on technological opportunities. I am very proud of what we have accomplished and am excited about beginning our next century of service to American industry.

Thank you. I will be pleased to answer any questions.