Robotics Institute
School of Computer Science, Carnegie Mellon University


Accelerating the Diffusion of Production Management Innovations Among Small to Midsized Enterprise
Via Electronic Marketing

Donald W. Kosy

December 1996


This report presents the results of an exploratory study of factors affecting the diffusion of production management innovations among small to midsized manufacturing firms (SMEs), and argues for several market-oriented extensions to current government programs that would help reverse declines in real wages in this sector by accelerating innovation diffusion. The principal production management innovations introduced in the US over the last 30 years include manufacturing resource planning systems (MRP II), just-in-time systems (JIT), theory of constraints/optimized production technology (TOC/OPT), and finite capacity schedulers (FCS). According to published surveys, the adoption levels for these systems among SMEs is no more than 40-50%, compared to an estimated 75-95% for large firms. Based on a 1993 National Research Council study of smaller manufacturers and a detailed evaluation of available systems, it is hypothesized that most SMEs are psychographically 'late adopters' of these kinds of innovations and that this, as well as economic factors, accounts for their low adoption levels. In particular: (1) SMEs as a group have a more conservative attitude toward innovation than larger firms; (2) they are less aware of potential benefits to firms their size; (3) incentives to adopt are weaker compared to the perceived cost; (4) they have relatively few opportunities to learn from, or be influenced by, positive peer experience; and (5) vendors don't create the kind of scaled-down low-cost packages and marketing approaches that fit this size enterprise until the higher profit, large enterprise markets have been saturated (if then).

The federal program that is most clearly focussed on innovation diffusion, and involves the broadest spectrum of small to midsized manufacturers, is the Manufacturing Extension Partnership (MEP), administered by the National Institute of Science and Technology. Although this program has been extremely effective (including an economic benefit to surveyed client firms of eight times federal investment in 1994), it is currently relies on a labor-intensive approach that severly limits the number of companies that can be helped with available resources. Six new ways to pool, package, and disseminate expertise electronically are proposed, aimed specifically at late adopters, that would shift parts of the consulting and education currently performed by MEP field engineers to interactive software. In addition, it is suggested that the MEP program establish a liaison with technology vendors to stimulate them to repackage their offerings to better match the needs of the late majority market. Synopses of production management concepts and of the evolution of MRP systems are given as appendices.

78 pages

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