As MEP focuses its services to support manufacturing clients to grow their revenue, adopt and deploy new technologies, develop new products, move into international markets, and improve their innovation capacity, it is worth looking at what we know about manufacturing firms and these issues. Fortunately the folks at Georgia Tech provide us with some information to fill these holes. They provide one of the better pictures of what the manufacturing landscape (albeit limited to firms in Georgia) looks like in their 2012 Georgia Manufacturing Survey .
The survey, done every two years, asked questions about the introduction of new products and services over the past three years (the typical measure used to explore innovation), what percent of sales these represented, other innovations, average return on sales, etc. It builds on the Community Innovation Survey (CIS) framework outlined in the Oslo Manual. Just under 530 manufacturers responded to the Georgia Tech survey.
*The needs of manufacturers are diverse. Marketing and sales is the top concern among Georgia manufacturers in 2012. However, items such as lean manufacturing priorities remain important for a slice of the manufacturers. Lean manufacturing was the second most common need or problem. Finding technical skills is also important and its importance increased since 2010. Energy cost management and quality assurance were also important problems for Georgia manufacturers in 2012. A smaller number of manufacturers expressed needs for product and the percent of manufacturers citing finance, management and leadership issues declined in 2012 compared to 2010. These trends are similar to what we have seen in our own MEP client survey over time.
*The most important finding from the survey is that innovation has a bottom-line benefit for companies and their employees. This is indeed the most important take away from the study. The chart below suggests that firms adopting a strategy of innovation have higher profitability and pay higher wages compared to firms adopting other strategies. Thus, there are returns for both employers and employees to innovation strategies. While the chart suggests that “innovation” pays, it is not clear that causality runs from innovation to profitability or if firms that are more profitable have the luxury to be more innovative.
*Just over half of the respondents (51 percent) reported introducing a new or improved good or service within their establishment over the 2009-2011 period. Forty six percent of the respondents reported introducing a new or significantly improved product and 14 percent reported introducing a new or improved service. These new or improved goods and services were split among being new to the market: 28.4 percent were reported as being introduced before other competitors and 23.3 percent were new to their facility but already available from competitors.
*However, the percent of sales that these new products and services represented was modest. On average, about 16 percent of total sales came from goods and services that were new to the market (the median was 10 percent) and sales from goods and services new to the firm (but not the market) represented about 17 percent of their total sales (the median was also 10 percent) based on new goods and services introduced over the last three years. The median was the same.
*Firms introduced a range of other improvements as well in addition to new goods and services, over this time period. Over half of the respondents (51 percent) introduced a new or improved process, nearly four in ten reported they adopted new or improved production technologies and techniques, 12 percent introduced new or improved logistics, delivery, or distribution methods, and 19 percent reported other improvements including improvements in purchasing, accounting, or maintenance processes.
*Firms also engaged in innovation activities focused on their organization. Over one in five reported new or significant changes in corporate strategy (22.8 percent) and roughly and same number implemented new or improved management systems. Thirty-two percent of the respondents reported restructuring how work was organized (33.1 percent), and over one in five reported changes in their relations with other firms including new alliances, partnerships, outsourcing, and subcontracting.
*Research and development expenditures represented about 1.2 percent of gross sales on average. Total R&D expenditures over the past 12 months was about $674 thousand (and the median was $72K). The average amount spent on in-house R&D was just under $247K (but the median was $30K), external R&D averaged about $29K (median was zero), acquiring machinery, software, and equipment averaged about $589K (median was $50K), and other innovation expenditures averaged about $112K (median was zero).
*Exports are small but a growing source of sales. The average firm reported that about 8 percent (the median was 1 percent) of total sales were exported outside the US in 2011 while about 7 and 6 percent of total sales were exported outside the US in 2009 and 2007 respectively. Of course, the median firm was much smaller. The median firm reported that 0.7 percent of sales were exported outside the US in 2009 and the median firm in 2007 reported no export sales.
*The average annual return (pre-tax) on sales over the last three years was 8.6 percent. They did not report a median but looking at the distribution, it would appear that the median average annual return on sales is about 6 percent. Over four in five firms reported positive (greater than zero) average annual return on sales. About 18 percent of the respondents reported average annual returns on sales of zero or less.
These data provide a look inside manufacturing firms and their activities relative to innovation, growth, and many other issues including sustainability practices, workforce investments, and the adoption of new manufacturing processes and tools, such as additive manufacturing. It is worth scanning this report to see how your firm stacks up or to see where things stand for a cross section of firms. Whether these can be generalized beyond Georgia is difficult to say, but they provide a potential benchmark for firms and MEP centers to consider.
Ken, I find this type of data very exciting as it goes a long way toward proving that in order to make money, one must spend it as long as they spend it on the RIGHT things such as innovation, technology, sustainability and workforce. This is what is driving the manufacturing resurgence.