Seminar on Industrial Modernization:
Policy, Practice and Evaluation - 1998

Evolution of Flexible
Manufacturing Networks

Prepared by:
Lakey Broderius,
City Planning Program,
Georgia Institute of Technology

Prepared for:
Dr. Shapira,
PubP 8600, Winter 1998,
Seminar on Industrial Modernization

A crucial part of evaluating technology diffusion methods or industrial modernization methods is examining the designs of the programs promoting technology diffusion. Clearly, these programs or services can lend themselves to better the technology diffusion process or further contribute to the inequities from uneven or biased distribution. Evidently, industrial extension services have been the typical course for most states for many years. Yet, there are obviously problems with this system; though many state and local governments continue these programs as their only method of technology diffusion.

The concept of industrial modernization and how to deal with it is considered an elusive one by many planners and policy makers. It is sometimes hard to distinguish whether one industrial structure is failing, temporarily not working, or transforming into a new entity. Ruigrok and Tulder observe, "North American and European observers have long regarded restructuring as a temporary stage during which the industrialised economies had to adjust to lower growth and a changing international setting with some ‘new’ players. . ." The industrial restructuring debate is further complicated by comparisons and adoptions of commercial best practice models which are frequently mistaken as an industrial structure.

History of Industrial Modernization

There are many factors which expedited the latest shift in industrial structure during the 1970s. This shift was away from a mode of industrial structure which had been in dominant existence since the early twentieth century. There was essentially a revolt by workers against the assembly line mentality of work and production. Concurrently, there was a rise in the price of oil and other raw inputs that increased the cost of production significantly for many businesses.

The formerly dominant mode of industrial structure for at least half a century was called "Fordism." Fordism refers to the modern institution of mass production and the various elements involved. Fordism was introduced by Henry Ford through his development of the first moving assembly lines at the beginning of the twentieth century. Mass production served to displace the predominately craft based type of production which had been the leading industrial structure at the end of the nineteenth century.

There was a clear change taking place in modern capitalism’s industrial structure by the end of the 1970s. As Sayer and Walker point out, "mass markets had begun to break up as consumers tired of standardized products; labor resistance had built up; industries met inherent technical barriers, such as line balancing problems and the system was too rigid to cope with the uncertainty of the recession." In addition, the world was realizing they had reached a point where all the economies of the major industrialized nations had become inherently joined, whether this was a desired attachment remained to be seen.

The world economy at this time entered a state of increasing inflation and growing unemployment. Many governments reacted with the same policies they had used for other recessions in the past. However, these policies did not work because there was a fundamental shift in the way the international economy was operating. This failure in economic policy was caused by the globalization of production.

The new global economy presented many opportunities and dilemmas to the major industrialized countries around the world. The trading systems were now on a global scale, and out of the control of one national government. The economies of each country were now inextricably tied together. The decisions of one nation greatly influenced the options available to another. There appeared to be a resurgence of many social problems of the past which Fordism had previously appeared to solve. These problems signified the end of Fordism, a major shift in worldwide industrial structure.

There are many competing theories about the next industrial structure, which include simply the end and failure of Fordism, with no replacement industrial structure feasible, and the belief that networks of all sizes will be the new system of business. The most prominent in line to be the successor to Fordism is flexible specialization. Flexible specialization is characterized by a large number of customized products being manufactured in small units by skilled staff working on a variety of different tasks.

Definition of Flexible Specialization

Flexible specialization is a strategy explained by Piore and Sabel as "based on flexible, multi-use equipment; skilled workers; and the creation, through politics, of an industrial community that restricts the form of competition to those favoring innovation." This strategy goes along with the overall post-Fordist argument that mechanization of mass production equipment has driven consumers to demand more unique products. "Firms are supposedly becoming more responsive to changing tastes, and to the tendency for consumer products to support the construction of personal identities."

"The Northern Italian region of Emilia-Romagna (‘Third Italy’) has served as the role model for flexible specialisation." The history of this area is rich, in the sixteenth century Emilia-Romagna was the center of silk production. It is now known for the diverse mix of cottage industries in the area. "The competitiveness of these industrial districts lies in their flexibility - first, in terms of labour, since they rely largely on family members rather than employees, and second, in terms of innovativeness and entrepreneurship based on artisanal skills."

The Emilia-Romagna region in northern Italy is a SME dominated economy. "In the industrial districts interfirm networking is developed to something of a fine art, but so, more interestingly, are the institutional support mechanisms." The emergence of the groupings of firms has been uneven, as well as their distribution throughout the region, over time. "This process is a market-led phenomenon but the other element driving the new phase in the districts is a product of direct policy intervention geared to helping firms deal with market pressure."

How does one determine whether an industrial system works for a corporation, a region, a country, an economy, or whether it works universally for the entire business world? This is a hotly debated question around the globe. However, some common key characteristics seem to emerge as clear evidence signaling a change in industrial structure. All the characteristics seem to bear a common theme. These industrial modernization characteristics include development, design, production, distribution, and management.

The nature of research and development is a very telling sign in any industry. Clearly, this is where the innovation and technological advances are made. Any changes made in the development stages of a product will impact the entire process of production, distribution, and even marketing. Integrating new technology, of any kind, is a key notion in development which creates a permanent change in the structure of the industry. Any changes in research and development directly affect the design process of the product. Engineers and designers will have more access and latitude to configure a breakthrough product when the research and development phase has provided a solid foundation.

Obviously, changes in the beginning of the process will affect the intermediate and final steps. New technology, again, plays a critical role in changing the production and distribution processes. The way a product is produced is a considerable issue found at the core of industrial modernization. The movement away from the mass production mechanization of Fordism is the clearest evidence of a change in the structure of industry today. When the production process of a good changes, it usually follows that the manner of distribution must change. However, distribution itself is also a distinct indication that the nature of an industry is changing, especially with the seeming shift in the priority of customer satisfaction.

Flexible Manufacturing Networks

The key to successful industrial modernization is a well thought out and thriving technology diffusion method or program. The flexible manufacturing network allows different alliances to be developed for different customers or market segments in order to optimize the mix of firm resources and achieve a competitive advantage. Flexible manufacturing networks are the alliances among small and medium-sized enterprises which have demonstrated the ability to retain the advantages of speed and flexibility of the smaller companies and still attain the advantages of size and resources that the larger firms are afforded.

Flexible manufacturing networks (FMN) generally link several firms so that one firm’s weakness is remedied by another’s strengths. FMNs come in many shapes and sizes. One example occurs when firms which perform a series of steps at different stages of production can integrate their production systems for specific customers to better serve these customers and increase their competitive edge in the marketplace.

Another type of FMN happens when firms who produce competing product lines link up in order to allow the lowest cost and highest quality producer of each product within the line to concentrate on only one product. Thus, customers’ orders are directed to the member of the alliance who specializes in that product, allowing each alliance member to increase their competitive advantage in the marketplace while reducing their competition within the alliance. The final result is that the entire system increases its capacity to provide products of excellent value for their customers.

Economic Development Planner’s Role

The economic development planner’s role in all of this is to aid in developing networks of small manufacturers which can compete globally and collaborate locally. The economic developers’ work in this area is beginning to be noticed. "Instead of seeking big public subsidies to recruit multinational firms to their areas, they are after modest government grants to promote the smaller and medium-sized local manufacturing firms that typically bolster local economies rather than enrich distant stockholders."

Flexible manufacturing networks are a very interesting entity. The entrepreneurial spirit they possess is not always in agreement with the necessity of sharing and cooperation within a FMN. As a matter of fact, this is a portion of the reason the public sector had to enter the picture in the form of technology diffusion programs in order to establish, encourage, and enable flexible manufacturing networks to flourish.

Small and medium-sized enterprises have always had a very loose cooperation, but not what could be termed a network per se, within the same industries in an effort to ban together for the exchange of information. As Niels Christian Nielson of the Danish Technology Institute points out, "But the scale, speed and scope of development is so rapid in today’s intensely competitive global economic setting, he argues, that small firms can falter, losing market share and profitability, unless they join together for technology advice, market information and export expertise."

As was pointed out in the above discussion of the Emilia-Romagna region, the need for government intervention through both policies and programs is very important for the success of a flexible manufacturing network. "The networks owed their innovative performance to extensive knowledge sharing and joint development that substituted for the cooperation within a hierarchy (i.e. a single large firm)." The cooperation found within a corporate structure must be coordinated through a network and is much more easily facilitated through government intervention than through SMEs trying to independently forge relationships.

Case Study: National Institute of Flexible Manufacturing

Some programs in and of themselves seek to make the direct connection between technology developer, producer and user. One such program is the National Institute of Flexible Manufacturing, which started in 1989. "By natural inclination, they have little use for government and even less for their local competitors. But in the face of international competition that has forced them into a life-or-death struggle to modernize, a handful of these precision metal cutters are engaged in a cooperative experiment that could change the way small manufacturers in the U.S. relate to one another and how government delivers services to them."

"The National Institute of Flexible Manufacturing established a shared manufacturing facility in Meadville, Pennsylvania in a converted racquetball court. The facility contains some of the world’s most sophisticated computer-run technologies for precision metal cutting. By renting time in the common facility, independent tool and die shops in the region are not only learning how to use these technologies but are also turning out better products for their customers, and they are doing it in less time and at less cost on equipment that they would not otherwise have been able to afford."

Matthew Coffey, president of the National Tooling & Machining Association, pointed out, "These manufacturers will get to use equipment they could in no way use or explore unless they are in a buy-sell relationship with a vendor. This way they can explore the technology without any pressure on them." Clearly, this program is a prime example of a direct connection in which technology diffusion can take place.

The National Institute of Flexible Manufacturing was started with $441,000 which was collected through state and federal grants. The bulk of the budget is financed through user fees, which include worker and management training along with the rented machine time. Dave Porreca, chief executive of the institute from 1989 to 1993 said, "The manufacturers come in and out of here on a job basis. We teach them the programming and new techniques for running this equipment on an unattended basis. We’ve turned the manufacturing function into a service function."

Economic Development Tool

The idea of flexible manufacturing networks supports this claim. In essence, FMNs turn manufacturing industries into service networks. The only way in which small and medium-sized manufacturing enterprises are able to compete in the global economy is through collaboration. The competitive advantage achieved through this cooperation allows each firm to focus on best serving their customer base, which will eventually lead to a larger customer base, and thus, a larger market share.

"The role of manufacturing per se is shrinking: Most companies primarily produce a chain of services and integrate these into a form most useful to certain customers . . . As manufacturing becomes automated, the major value added to a product increasingly moves away from the part where raw materials are converted into useful form . . . and toward (factors such as) the perceived quality that service activities provide." The industrial modernization of global proportions taking place presently is simultaneously revolutionizing all nations’ competitive positioning.

Many economic development experts argue that the establishment of networks would make more effective use of the scarce resources of state and local governments. As Richard Hatch, director for the Center for Urban Reindustrialization Studies at the New Jersey Institute of Technology, stated, "Networks enable a government with restricted resources to deal with a large number of firms in a brief time. . . How do you bring them (manufacturing companies) up to world-class standards in a half-dozen years? Twenty percent won’t do it and will fade away. Twenty percent will do it for themselves and really don’t need help. But the vast middle of firms need help to understand world markets, the changing world economy, the vast array of new technologies that are out there and the training that needs to take place."

Cooperative Learning

The technology diffusion efforts through networks is supplemented with the learning that takes place within networks and between firms. The firms are working together and are thus, more apt to help one another in learning the new applications for the new technologies and most productive uses. In fact, it is interesting to note that the "impetus for the National Institute of Flexible Manufacturing came not from state government or consultants but from a local executive, Harold Corner, president of C & J Industries."

This local businessman was attempting to bring his small family-owned firm into the world of modern manufacturing when he realized it would actually require a complete transformation of his organization. This transformation included upgrading worker’s skills and management skills, not to mention the new and expensive equipment. This is precisely how the idea of the Institute of Flexible Manufacturing evolved. The final concept allows the member companies to share the costs of training and equipment with the others.

Quite possibly the most important function of the Institute is the knowledge and expertise it affords the companies who are then able to use the experience to become a stronger and more successful manufacturing firm. "When a company has built enough expertise and need to afford the equipment on its own, they can go into the technology marketplace knowing their capital investment won’t be a bet-the-company decision." After all, the overall objective of any industrial modernization and technology diffusion program must ultimately address the quality of life issues, such as labor force skills and wages, educational attainment, home ownership and other factors constituting the social infrastructure.

Community Development

The main reasoning behind industrial modernization is to create better communities for every person to live in, regardless of income level, work skill level or educational attainment. Obviously, the greater these levels, the better for both the community and the individual. But, the industrial modernization program must be working to raise these same levels to create a more equitable environment and efficient economy. The direction for the new industrial modernization program must be moving towards leveling the playing field for all firms to compete within and function at their true capacity.

Using flexible manufacturing networks for community development will serve to boost the capacities of small firms while increasing the community’s assets. While public agencies, academics and business interests all hold the same view, that small firms should form networks in order to become more competitive in the new global economy, there is not a set procedure outlining exactly how to go about doing that. The FMN model seems to be the best prototype put forward to date.


The National Institute of Flexible Manufacturing has proven to be a successful example. According to Stan Shelly, the current president of the Institute, it is still thriving and helping local companies learn new technologies. The economic development benefits to the local community are multiple. The small firms within the community that are able to network also serve to strengthen the social fabric of the community. Networks offer communities an opportunity for a more secure positioning against newly unleashed forces of the global marketplace.

The industrial district of Third Italy illustrates the importance of network economies’ need to be supported by both public and private institutions. "For example, in Emilia-Romagna, local government not only helps form financial consortia but also works with trade associations to create real service centers for small firms; these study production innovations, analyze market trends, and obtain product approval in foreign markets."

Possibly the most crucial factor affecting the success of flexible manufacturing networks is the social cohesion within both the community and within the network. All members of the alliance must understand the importance of each member firm and the role they play. The network is only as strong as the relationships between the member firms. The economic development planner able to facilitate and monitor the inner workings of the network will be the most successful. Success in this situation is judged by the flexible manufacturing network serving as the catalyst for quality of life improvements for local communities, which is possibly the most important factor of a local economic development strategy.

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