Idea in Brief
Managers often don’t appreciate how important manufacturing is to the product-development process.
Because of this, they make sourcing and factory-investment decisions largely on the basis of financial criteria that focus too much on cost. The result has been an exodus from manufacturing in the United States that has seriously eroded the capabilities domestic companies need to turn inventions into high-quality, cost-competitive products.
This article provides a framework that can help managers understand when R&D and manufacturing are integral to innovation and should be located near each other.
The framework examines two dimensions:
The degree
to which information about a product design can be codified and separated from the manufacturing process.
The opportunities
for improving the manufacturing process.
Too many American companies base decisions about how to source manufacturing largely on narrow financial criteria, never taking into account the potential strategic value of domestic locations. Proposals for plants are treated like any other investment proposal and subjected to strict return hurdles. Tax, regulatory, intellectual property, and political considerations may also figure heavily in the conversation. But executives, viewing manufacturing mainly as a cost center, give short shrift to the impact that outsourcing or offshoring it may have on a company’s capacity to innovate. Indeed, most don’t consider manufacturing to be part of a company’s innovation system at all.
