Mr. ROE. Thank you, Dr. Jolley. We appreciate your hosting us today, and we thank you for your statement. Our first panel, on Manufacturing Sciences and Quality, will be Dr. Roger Nagel, the Harvey Wagner Professor of Manufacturing and Engineering, Lehigh University, Dr. Nagel. And we have Mr. Samuel Kramer, Deputy Director, National Engineering Laboratory, National Bureau of Standards. Mr. Kramer is here. Mr. Francis Jackson, director of quality management planning, Eastman Chemical Division, Eastman Kodak Company; Mr. Ed Alkire, director of quality and safety, industrial gas division, Air Products and Chemicals, Inc.

We want to welcome all of our witnesses to the hearing. And the first witness to testify will be Dr. Roger Nagel of Lehigh University.

Now, you know we-I know there is some constraint on time, but I do not want to-I want to have the advantage of our full testimony so we can discuss hopefully and have a chance to review.

STATEMENT OF DR. ROGER N. NAGEL, HARVEY E. WAGNER PROFESSOR OF MANUFACTURING SYSTEMS ENGINEERING, LEHIGH UNIVERSITY, BETHLEHEM, PA

Dr. NAGEL. Thank you very much. It is my privilege and pleasure to be here this morning and to make some remarks that I hope will qualify issues where I can help in providing an understanding of what I consider the importance of manufacturing and manufacturing R&D to the Nation.

I want to summarize what I will say, by suggesting that I think we need to understand better the impact of the manufacturing economy or the manufacturing sector on the United States, and that it really is a critical factor in affecting the standard of living of our country.

I will then try and discuss some of the factors controlling the health of manufacturing and that sector by responding to questions you asked me about education, our vision of the factory of the future, technology transfer and applied R&D, fundamental R&D and the role of United States R&D vis-a-vis its global competitors.

And finally, I will close with some remarks where I think the government should take action or do things to facilitate action. I might summarize that by saying, I think the government needs to act to foster the health of manufacturing in a widened self-interest with the United States. By manufacturing, I want to clarify that I do not simply mean the production facilities of the various companies and their factories; but rather, we mean the manufacturing companies of the entire enterprise that is involved with manufacturing. And it is important to focus on the fact that the whole company is really where our attentions are and not just in the production section. In fact, one of the lessons we have learned is that one cannot separate and isolate the various components of an enterprise, by saying the manufacturing is okay, but engineering needs help, etc.

There is a danger that people loosely make an analogy in the change that took place from a farm economy to an manufacturing economy in the past in saying, well we are simply evolving from

maybe a manufacturing economy to a service economy where there will be more jobs in the service sector than there are in the manufacturing sector and that is going to have a similar impact.

Well, one has to be very careful there. We retained the farm economy by automating the farm. And so 3 percent of the nation now does the work that used to be done by 90 percent. In the manufacturing sector, there is evidence that we are losing manufacturing industry. That is very different than retaining it. Automation will in fact help us to take steps to regain and maintain competitiveness, but automation of the workers' muscles is not the only thing that we need to do. And as I will say later on, we need to work on augmenting man's brain and making him more powerful with the appropriate new technologies that are coming into place. Now, let me say one more thing about popular myths in terms of changing from a kind of a manufacturing sector to a service sector. Steven Cohen and John Zysman put a book out called "Manufacturing Matters," 2 and I will summarize the important points that they made, is that there are 20 million jobs in the manufacturing sector; but they are tightly and intimately linked to 40 million jobs in the service sector; the accountants, the people who serve food, the people who provide the very services to those companies. If we change from being a manufacturing sector by having those companies go overseas, than 60 million jobs are at stake, not just 20 million. As we lose portions of industries, we lose larger proportions than the statistics might say.

Dennis Swyt of the National Bureau of Standards did a study of the pattern of the work force, suggesting that if we look at four categories of worker, engineering and technical professionals, manufacturing and administrative workers, service sector workers, and production workers, that one can then look at how the shift in each of those categories has been taking place over time, and the only one of those categories that is growing at an increasing rate is engineering and technical professionals, which suggests that we are not switching to an economy of a lot of "Hamburger Helper"-type people in the service sector, but rather to people with more training in engineering and technical professional areas, which agrees with our notion that competition is going to be based more and more not on automation or the things that man did with his muscle, but rather in augmenting the things that man does with his brain. The intellect and the power of people in the engineering and technical profession will be the basis on which we compete successfully and maintain a manufacturing economy, or in fact we'll see it shift overseas.

I do not want to spend a lot of time right now on the importance of the Department of Defense in manufacturing and how they are based on each other, because that has been the subject of many other forums. Let me simply say that I do feel that manufacturing is very much dependent currently on the support it gets from the Department of Defense and vice versa, and that right now I think we have some challenges to restore the health of the industrial

2 Stephen S. Cohen and John Zysman, Manufacturing Matters: The Myth of the Post-Industrial Economy (New York: Basic Books, Inc., 1987).

base to make our confidence in DOD's ability to respond to surge mobilization and other mandates more comfortable.

If I have in your mind established the criticality of manufacturing for the United States, let me now look at some of the factors that affect its health. I will try to mention education, tech transfer and R&D, if you will. I am concerned that right now there is not enough demand for the graduates of our educational institutions in the manufacturing systems area. That if that demand were to reach the heights and levels that it should reach in order to be making our industries more competitive, that we probably do not have the instantaneous capacity or ability to put out that number of graduates. So we suffer both from not realizing we need more of something, and therefore, not building the capability to provide it. There are, of course, exceptions, and we hope that Lehigh and some of the other institutions that are acting as exceptions right now, will be multiplied through our sister institutions.

I want to say a few words about the special program we instituted at Lehigh in this direction to give you some feeling for the kinds of difference between programs designed in this area and others. It is unique because:

It is interdisciplinary; it combines the efforts of people in several departments and in fact several colleges.

It is unique because full-time employees are assigned to Lehigh to get a degree as an important thing for them to do for their company. It is unique because of the informal activities as well as the formal ones that combine to create an atmosphere of team work and cooperation which is required in modern manufacturing.

It is unique because our goal is not technology alone but to deal with systems that are made up of people, machines, information and technology in an appropriate balance. And that is a new realization of recent times.

We like to think that everything that is good can be measured, and we can see how good it is from those measures. And early measurements of the placement statistics and the recruiting statistics of this program, and the companies that are willing to put money up just to do it better, indicate in fact that we are doing the job that needs to be done more often and to be cloned, if you will. You asked that I talk about the "Factory of the Future." I would like to do so just briefly, because I think the factory of the future is only one component of the enterprise of the future. But it is a mistake again, to look at the obvious technologies like robotics and computers which you can touch and feel, and not understand the changes that are taking place in the entire enterprise.

There will be and there must be tight linkages and new organizational structures between the production capabilities, engineering, marketing sales and service. Those things are taking place, and we need to overcome the inertia of the old way of doing business to be able to accept and utilize technology to its fullest.

There has been a recognition that there is more technology available than we are successfully implementing. Therefore, there has been a lot of focus on shortening the time of technology transfer and putting aids in place for that. The state of Pennsylvania started the Ben Franklin Program which spends a lot of its energies and efforts in the technology transfer area. I believe that is a good

program, because it allows companies and industry to partner, choose their emphasis area, and then the government's money, in this case the state's money, is used to leverage what industry and the university feel they could do effectively together. The state measures the success of that in terms of new jobs or jobs retained, new products, new processes and the competitive health of the companies effected in the state of Pennsylvania.

This success is not unique to Pennsylvania, and is being replicated by other states and is in fact being looked at as the way of organizing the Hollings Center, not only the Ben Franklin Program, but other models are being used there. In my mind the notion of "We must do something about technology transfer" is widely recognized by the three communities involved; academia, industry and the Government.

Models are being tried, and the scale up that is needed is being put in place. But what is missing from that opportunity is the funding of centers of excellence, to have the Lehighs of the future ready when this time comes again. There is a lack of funding for basic creation of organizational entities at lots of other universities, and for strengthening the ones that exist. There is also a lack of appropriate R&D funding. The future things that we can do 5 or 10 years from now are not being seeded at the rate that we are going to need them to be seeded, if in fact we get over the notion of being able to transfer technology and put it in place. And so, I am worried that there is not a understanding of the appropriate mix of funding that is required.

You asked me to comment on the general status and health of manufacturing systems, research and development. I think there are three areas in which we do that research and development.

The first of those I call the component technologies. And it is the research we do into fundamental materials and the processes to transform those materials in a way that we control them. In that area I have to say that in the old days we relied on established practices and procedures and did not perceive the need for scientif ic understanding as much as we should have. And so there has been a lack of knowledge available now that computers are able to take advantage of that knowledge; and we are behind in the basis on which to create models for the rapid introduction of new technologies. It is an area that we are catching up on, and there are pockets of excellence and things happening, but much more is needed.

The second area is the one that I call information integration, and is based on computers and data bases and networks and artificial intelligence. Here we have maintained a position of leadership, but we are not out there alone. The importance of this to manufacturing technology and manufacturing enterprises is recognized by global competitors, and we are at least being challenged for a position of leadership. But I believe we are still strong in that area, and it is an area that we need to continue to nurture and develop. The third area is an area that is much newer in the areas of research and development, and it is one that combines engineering and business into looking at organizational issues, technological issues and the strategy to bring technology and organization into place to make an industry more competitive. The reason it is so

new is that it brings together people that used to not talk to each very much. Lehigh and other places where business and engineering faculty work together are considered to be unique, and we are making progress at all those institutions, but not nearly enough or rapidly enough. I do not feel able to judge how we stand in that particular component of competition with what is going on overseas except to know that we are not alone in knowing we need combine those forces.

I do not see any reason why the United States cannot be a world leader in competitive manufacturing enterprises. It simply means that we have to make some changes in the way we do business, and the way we measure things, and the way we choose our partners. And there is evidence that is beginning to happen.

I would like to close out my testimony with the role of the Government. I think you need to foster the health of the manufacturing economy out of enlightened self-interest, because the standard of living of our people depends on it.

There are some places where the Government could be an impediment to progress. And that deals with a lack of consistency. People do not want to make decisions when they think the Government is going to change the ball game or the rules. So a lot of publicity about the tax changes and the R&D support and things of that nature are substance counterproductive just because the game is going to change and people will wait to make decisions until the game changes, and then they do not know how long it will stay the

same.

In some cases, I think the lack of a Government advocate for the manufacturing sector hurts us. There is nobody whose responsibility is to make sure all the Government is focusing on the R&D needs of manufacturing or even on setting an agenda for manufacturing or on coordinating.

I think there is some positive things that you can do, and you should do immediately. And one would be to declare a priority for education in the engineering and technical profession; to make that a national priority. To see that more of our undergraduates look to majoring in these areas, and to provide incentives for our graduate students, particularly American graduate students, people who live and work in the United States when they graduate to go to graduate school by making more and not less loans and fellowships available. I think it is wrong to have tax disincentives for graduate education, and we have been doing that and correcting that too slowly to my mind. Suddenly taxes on tuition and stipends were questioned, and we still have taxes on tuitions. The whole attitude that it is not for the person, I think we need to do it for the nation. Not to get a graduate student a benefit to be able to go to school, but we need more American graduate students in these areas for the nation itself.

Finally, I think the Government has an agenda to set. That is the R&D agenda for manufacturing is something that should be set by the U.S. Government in some agency and that they should coordinate better and increase the amount of R&D funding. In various ways, I have reviewed frequently Government R&D funding and find it to be not coordinating and frankly not enough to make impacts that I think are required.