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Georgia Manufacturing Survey Shows Value of Innovation to Georgia Companies as Outsourcing Continues its Impact

November 14, 2005 By ei2admin

A new study of nearly 650 Georgia manufacturing companies underscores the importance of innovation as a competitive strategy – at a time when international outsourcing continues to impact Georgia’s manufacturing community.

Average return on sales for manufacturers competing primarily through low price versus those competing primarily on innovation: 2002 vs. 2005.The 2005 Georgia Manufacturing Survey shows that companies basing their competitive strategies on the development of innovative products or processes enjoy higher returns on sales, pay better wages and have less to fear from outsourcing than do manufacturers relying on other competitive strategies.

Georgia manufacturers that rely on innovation for their competitive edge reported returns on sales 50 percent higher than companies that compete by providing low cost products – a gap that grew substantially since the last survey in 2002. Innovative companies paid workers a third more than the average Georgia manufacturer and were 40 percent less likely to lose work to outsourcing than were companies competing on low cost.

The survey of Georgia manufacturers, part of a periodic study begun more than a decade ago, was conducted by the Enterprise Innovation Institute and the School of Public Policy at the Georgia Institute of Technology.

  • Read the full text of the 2005 Georgia Manufacturing Survey

“Innovation, whether in products or processes, or in organization or services to customers, is one of the main paths through which manufacturers can become more distinctive, secure market premiums, satisfy customers, expand sales, reward workers and improve their bottom line,” explained Phil Shapira, a professor in Georgia Tech’s School of Public Policy and a study co-author. “Companies that do not continuously innovate will find themselves under increasing pressure from low-cost producers in the United States and globally.”

Impact of outsourcing and insourcing by primary means of competition.Offering innovative products gives companies a competitive edge that provides protection against outsourcing and allows them to charge a premium – which creates higher margins and allows higher wages, notes Jan Youtie, a researcher in Georgia Tech’s Enterprise Innovation Institute and another study co-author.

“If a company competes on the basis of innovation, that usually means only a few other companies are offering similar products,” she said.

After launching its iPod music player, for example, Apple Computer was able to charge a premium – and still commands a majority of the market. And Google has maintained a competitive edge by continuing to offer new products that build on its market-leading search engine, Youtie noted.

But innovation isn’t limited to products and processes. Companies can also compete using innovative marketing strategies and organizational approaches, she said. Aflac’s talking duck, for instance, provided a marketing innovation that helped the company stand out in the crowded health insurance market.

“The benefits to innovation are pretty much across the board for companies in quality of goods, variety of goods, market share, increased capacity, reduced time for product delivery, improved production flexibility – and reduced inputs of materials, labor and energy,” she noted.

But there are barriers to innovation that involve costs, capabilities and risks that may keep some companies away.

“It’s not just a matter of money,” Youtie said. “There are also issues with having qualified personnel to undertake the innovation, seeing the need in the marketplace, and overcoming a concern that innovative products cannot penetrate markets dominated by established companies.”

The relatively low priority placed on innovation doesn’t bode well for the state’s manufacturing community.

“Without more innovation in Georgia, manufacturers abroad will steadily out-compete us by having better products and more efficient processes,” Shapira warned. “This is a particular concern for Georgia’s base of small and mid-sized companies. While we have many excellent small firms in the state, we lack the large base of innovative, specialized and flexible small manufacturers seen in some other advanced industrial economies.”

Fewer than 8 percent of companies responding to the survey chose to compete on innovation. However, a much larger percentage applied innovation to products and processes that were part of other strategies. The survey found that nearly half of Georgia manufacturers had introduced a new or significantly improved product between 2002 and 2004. Branch facilities of companies headquartered outside the state had the highest rate of new product introduction.

Those new products can quickly become important. The average manufacturer introducing new-to-the-market products reported that those products accounted for nearly 20 percent of sales. Nearly 12 percent of innovators reported that their new products accounted for 50 percent or more of sales.

While innovation has traditionally been considered the business of large high-tech companies, Youtie noted that firms of all sizes – and in all technologies – can benefit. Traditional industries such as food processors can innovate in product packaging and marketing, while apparel and carpet firms might apply new finishes – perhaps based on nanotechnology – to differentiate their products.

Though small companies may lack the innovation resources and networks of larger competitors, they can often make decisions and implement changes more quickly, Youtie noted.

The study found that returns on sales ranged from more than 6 percent for companies competing on innovation to less than 4 percent for companies competing on low cost. The breakdown of competitive strategies chosen included:

 

  • Providing high quality products and services (53 percent);
  • Offering the lowest price (20 percent)
  • Adapting products to customer needs (14 percent);
  • Providing quick delivery of products or services (12 percent);
  • Including value-added services with products (10 percent);
  • Developing product innovations and new technology (8 percent).

 

The percentage of companies competing on the basis of low cost declined from 27 percent in 2002 to 20 percent in 2004. Youtie and Shapira speculate that’s because many companies using that strategy have simply gone out of business.

“Low price will bring in more sales for a while, but it’s hard to keep that up,” Youtie noted. “You have to compete with companies in countries with even lower cost structures.”

For decision-makers, the study’s implications are clear. “Firms, industry associations, universities and state and local policymakers all need to be involved in new efforts to stimulate many more of our small, mid-sized and larger industrial enterprises to invest in the innovative strategies that will help them not only to survive, but also to grow,” Shapira said.

Other findings of the 2005 Georgia Manufacturing Survey included:

 

  • 18 percent of Georgia manufacturers lost work to international outsourcing between 2002 and 2004. “Outsourcing is a real concern now, and I expect it will continue to affect Georgia manufacturers,” Shapira said. “Some of the firms that took part in our 2004 survey will not be in businesses in the state, or will have fewer employees, when we repeat our survey in 2007.”
  • About 12 percent of manufacturers gained “insourcing” work from facilities elsewhere in the United States. While that shows Georgia continues to be competitive within the nation, it raises concern if that competitiveness stems only from low wages, Shapira cautioned.
  • 48 percent of manufacturers identified concerns with human resources, up significantly from the 2002 study. While earlier surveys found concern about availability of skilled workers, more than a quarter of the 2005 respondents had problems finding workers with basic skills – up from just 11 percent in 2002. Despite the concern, however, 20 percent of the respondents made no investment in worker training.
  • Nearly 40 percent of manufacturers reported lean manufacturing concerns, an increase from 2002 statistics.
  • Nearly one in five companies reported concerns about energy costs and conservation – even prior to the recent storm-related energy cost increases.

 

The survey was sent to approximately 4,000 Georgia manufacturers that had 10 or more employees. Completed surveys from 648 manufacturers were weighted to reflect employment and industry distributions.

The Georgia Manufacturing Survey is conducted periodically to assess the condition of Georgia’s manufacturing industry. In addition to the authors already named, Georgia Tech School of Public Policy graduate students John Slanina, Jue Wang and Jingjang Zhang provided research assistance in the 2005 study.

The project was supported by the U.S. Department of Commerce’s NIST Manufacturing Extension Partnership, the U.S. Economic Development Administration, the Center for Paper and Business and Industry Studies at Georgia Tech, the Georgia Department of Labor, and the QuickStart Program of the Georgia Department of Technical and Adult Education.

Research News & Publications Office
Georgia Institute of Technology
75 Fifth Street, N.W., Suite 100
Atlanta, Georgia 30308 USA

Media Relations Contact: John Toon (404-894-6986); E-mail: (john.toon@innovate.gatech.edu)

Technical Contacts: Jan Youtie (404-894-6111); E-mail: (jan.youtie@innovate.gatech.edu) or Phil Shapira (404-894-7735); E-mail: (ps25@prism.gatech.edu)

Filed Under: Georgia Tech News

Study Praises Georgia Tech’s Economic Impact & Technology Transfer

April 12, 2005 By ei2admin

An economic development study conducted by the State of Connecticut ranks Georgia Tech among the nation’s elite institutions for generating economic development through university transfer of technology.

Technology Square is shown to be key component in bringing research to the marketplace.The study, released by Connecticut Governor M. Jodi Rell, has far-reaching implications for job growth, economic development and education. The study examined successful university-based technology transfer and commercialization initiatives throughout the United States.

The report – Accelerating Economic Development Through University Technology Transfer – notes several factors that help states position their universities as centers of innovation and business growth, including strong academic leadership and research capabilities, availability of early stage capital, commitment to and support of entrepreneurship programs, and the existence of infrastructure such as innovation centers, incubators and research parks.

Georgia Tech was one of nine universities selected as a case study for the report.

The report states that, “Georgia Tech is one of the strongest universities in terms of its relationship with and assistance to industries of all sizes and its strong role in statewide economic development.”

According to the report, “Perhaps what is most remarkable about the Georgia Tech model of technology-based economic development is how intertwined it is with state and local economic development initiatives. When one examines the economic development initiatives linked to the university, it is difficult to readily discern which initiatives are State of Georgia and which are Georgia Tech.

Moreover, the level of private sector involvement in helping shape and direct these initiatives is stronger than in almost any institution in the country. Georgia actively solicits industry input through advisory boards and councils at its colleges and research centers, and this has helped shape the institution’s curriculum, R&D focus, and service orientation as well as encourage direct industry involvement.”

The report acknowledges that there are certain issues that must be worked through by institutions in regards to balancing academic life with the corporate need for commercial confidentiality. It cites Massachusetts Institute of Technology, Stanford University, Carnegie Mellon University, and Georgia Tech as institutions that appear to have found a balance between achieving academic excellence and pursuing technology transfer and commercialization goals.

The report notes the importance of having early stage capital and a good incubator system. Sam Florance, director of the Gateways Program at Purdue University, agrees. “We have found that those firms (in Purdue’s Research Park’s incubators) that don’t receive support in the early stages face a long, hard road. For those firms that do receive management, resource and technical support, they have about a 90 percent chance of a five-year survival.”

The report praises the Advanced Technology Development Center (ATDC) as one of the premier incubators in the country, and the Office of Economic Development and Technology Ventures is also highlighted in the case study. “It is widely recognized as one of the strongest, if not the strongest, university-based economic development program in the nation,” the report said.

Other universities selected for case studies include: Carnegie Mellon University, Massachusetts Institute of Technology, Purdue University, Stanford University, University of California-San Diego, University of Pennsylvania, University of Wisconsin -Madison, and Washington University (St. Louis).

The study was conducted by Innovation Associates, of Reston, Va. on behalf of the Connecticut Technology Transfer and Commercialization Advisory Board of the Governor’s Competitiveness Council.

Filed Under: Georgia Tech News

New Designs for Profitability Help Put Elite Back in the Black

January 31, 2005 By ei2admin

The Southeastern Trade Adjustment Assistance Center (SETAAC) helped Elite Formal Accessories recover from foreign import competition and a sales drop precipitated by the Sept. 11 terrorist attacks.A little over three years ago, preparations for the International Formalwear Association’s annual trade show were underway in Las Vegas. Management and sales representatives from Elite Formal Designs Inc. arrived a day early to prepare displays of their latest designs in cummerbunds, ties, vests and other tuxedo accessories manufactured at their Davie, Fla., factory.

The date was Sept. 11, 2001.

The ripple effects following the terrorist attacks in New York and Washington were felt in Nevada, where the suspension of air travel forced cancellation of the trade show. Also grounded were the hopes for a banner sales year at Elite, putting the company’s very survival in jeopardy.

“The IFA show is where we present our new line for the coming year to our customers and where most of our orders for the coming year are generated,” explains company treasurer, Jo Knorr.

Elite Formal Accessories is a family-operated business founded in 1985 by Jerry Parness, who serves as president. The company specializes in the design, manufacturing, marketing and distribution of tuxedo accessories under the Bill Blass, Jean Yves and Bracci labels. Elite’s accessories are sold to retail outlets, primarily men’s merchandisers and formalwear rental shops.

Without the trade show mainstay in 2001, sales fell by more than 40 percent. On top of that, “we had just expanded our plant because our sales had been growing so much,” Knorr adds. “We had to adjust.”

Fallout from the 9/11 attacks also made the company more vulnerable to pressure from the recession and “the effects of imports that have been devastating the apparel industry,” says Parness.

Once back in Florida, Brian Parness, the founder’s son and Elite’s chief financial officer at the time, began hunting on the Internet for programs that could help them weather the impending difficulties.

His search turned up the Southeastern Trade Adjustment Assistance Center (SETAAC), a non-profit organization based at Georgia Tech’s Enterprise Innovation Institute.

SETAAC provides technical and management assistance in manufacturing, sales, marketing, and information systems to help companies improve their productivity and competitiveness. Drawing upon funds available through the U.S. Department of Commerce, SETAAC can provide 50 percent of the cost of implementing improvements.

Once Elite’s eligibility for assistance was certified, SETAAC staff prepared a comprehensive company profile that identified Elite’s competitive strengths and weaknesses, and included information about the company’s sales and marketing, financial posture and productivity.

More to the point, the diagnostic report outlined several projects to boost the company’s bottom line. Elite’s management selected four of the ideas for implementation.

“For each project, we provided the names of three or so qualified consultants who could perform the actual implementation work,” says Mark Hannah, SETAAC project manager. “Elite would interview each of the prospects and pick the one they’d be most comfortable working with.”

Given the imperative of introducing new designs to the marketplace, the first order of business was a new-product photograph shoot for Elite’s catalog. SETAAC funding was the most important aid in producing this bread-and-butter sales tool because “it meant that we didn’t have to pull money from somewhere else in the company to do it,” Knorr says.

The next project involved an upgrade of Elite’s materials resource planning (MRP) software to reflect the availability at any given moment of inventory items for sale, as opposed to items still technically on site but already sold and packed for shipment.

The adoption of lean manufacturing methods was another SETAAC recommendation embraced and implemented by Elite’s management. The factory floor layout was changed so products move more efficiently through the manufacturing process, leading to a 2.7 percent reduction in labor costs.

“We’ve also eliminated a lot of bottlenecks,” Knorr says, “but when they do occur, we’re able to easily identify and remove them.”

In the past, during periods of peak demand, Elite outsourced work it could not handle alone. The SETAAC report concluded that outsourcing is more expensive than in-house production. The efficiencies and increased capability gained from lean manufacturing techniques have allowed Elite to virtually eliminate its outsourcing.

Better customer service is another benefit, according to Knorr. Thanks to both the MRP software upgrade and streamlined production methods, the company can ship a larger number of complete orders and in less time than before, she notes.

The most recent and final project involved implementation of an electronic data interface (EDI), which allows customers to automatically order and track merchandise online, a common and often preferred practice in the retail business. The system opens up new business opportunities for Elite.

“This is a whole different area we’re going into,” says Knorr, “and it’s part of the reason sales have jumped about 20 percent higher this year than last.”

This past season Elite posted its first profit in three years, and the coming year looks promising, Parness notes. “There’s still room for improvement, and we’re looking forward to improving our areas of production, EDI, advertising and marketing.”

Jon Goldman, director of marketing, attributes the company’s rebound to the ways in which Georgia Tech’s technical assistance have complemented the company’s commitment to personalized service.

“The members of our sales team travel the country visiting our customers individually,” he notes. “So while we’ve adjusted some of our processes technologically, we’ve also kept the character, honesty and one-on-one rapport that characterizes our sales approach. It has blended well with the help Georgia Tech provided.”

Knorr adds: “We’ve put in a lot of hard work and a lot of sacrifice to get us where we are, but SETAAC and Georgia Tech deserve a lot of the credit too. Quite simply, we could not have done it without them.”

For more information about Georgia Tech assistance in trade adjustment, contact Mark Hannah at 404-894-4407 or (mark.hannah@innovate.gatech.edu).

Research News & Publications Office
Georgia Institute of Technology
75 Fifth Street, N.W., Suite 100
Atlanta, Georgia 30308 USA

 

Media Relations Contact: John Toon (404-894-6986); E-mail: (john.toon@innovate.gatech.edu).

Technical Contact: Mark Hannah (404-894-4407); E-mail: (
mark.hannah@innovate.gatech.edu).

Filed Under: Georgia Tech News

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