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September 1, 2005

The Talent Crunch

A falsely negative image has led skilled workers and managers to shun manufacturing.

The June 15 report of the Federal Reserve’s “Beige Book,” a periodic commentary on U.S. economic conditions, should have left America’s manufacturers breathing a sigh of relief. The widely watched report found expanding business activity in all 12 Fed districts in the second quarter of 2005. After the post-9/11 downturn and worries that high oil prices would stifle production, the economic news for most regions appeared robust. The “Beige Book” revealed that even in Cleveland, located in a state where June’s unemployment rate was pegged at 6.1%, a full percentage point above the national average, “manufacturing firms had difficulty obtaining qualified applicants for job openings.”

Cleveland, as it turns out, isn’t alone. In fact, if there’s a downside to the “Beige Book” findings, it is that a feared shortage of skilled manufacturing-sector workers already has arrived. Indeed, throughout the United States, manufacturers say they’re having trouble finding qualified applicants for open positions. In Wisconsin, companies like Mayville Engineering Co., about 50 miles northwest of Milwaukee, are desperate for welders. And welders also are a problem for Manitowac Tool & Machining, also in Wisconsin, which just completed a 45,000-square-foot expansion.

The problem, in essence, is that the metals industry and the rest of North American manufacturing must recalibrate itself to create products that leapfrog those produced by low-labor-cost nations. But as they accomplish that, the demand for highly skilled workers becomes more and more critical. At the same time, finding that talent has become far more difficult.

Jerry Jasinowski, formerly of the National Association of Manufacturers Manufacturing Institute, says nearly 36% of 3,000 companies polled by the trade organization have “good jobs going unfilled due to a lack of qualified applicants.”

Stacey Jarrett Wagner, director of workforce initiatives at NAM’s Center for Workforce Success, concurs, saying that in particular many small to midsized companies are struggling to find adequately skilled machinists, operators, crafts workers, distributors and in some cases, even scientists and engineers.

A LEADERSHIP SHORTAGE

This new struggle to find talent stands in marked contrast to the much-publicized national decline in manufacturing employment and output. A breathtaking three million manufacturing jobs have been lost over the last seven years alone. Nationally, the percentage of manufacturing jobs to total employment stands at a scant 13%.

Meanwhile, studies focused on productivity, technology and demographics point to a projected demand for 10 million new skilled workers by 2020. And complicating matters greatly, some 77 million baby boomers will start retiring in the next five years, taking valuable on-the-job skills and knowledge with them.

The talent shortage is not just limited to factory workers, but includes supervisory personnel, middle managers and eventually company leaders. “Like other traditional industries, manufacturing is going to face a major leadership shortage in the years ahead,” says David DeLong, research fellow at the MIT AgeLab and author of Lost Knowledge: Confronting the Threat of an Aging Workforce. “Many baby boomers who have spent entire careers in these organizations are leaving with incredible amounts of hard-to-replace technical and managerial knowledge.”

Simply retraining younger workforce entrants doesn’t always work either, because knowledge once lost may never be recovered. DeLong cites the case of NASA, which lost both the blueprints and the human and structural knowledge to build the Saturn V rocket. “U.S. astronauts went to the moon six times between 1969 and 1972,” he says, adding that the rocket and the people who built it were retired by the mid-1990s. “All the talk about going back to the moon seldom mentions that we have to start over learning how to build the rockets that got us there.”

To be sure, companies can’t rely on their aging workers forever. DeLong strongly advises that companies undertake succession planning not only at the senior level but also throughout the organization. In 250 interviews for his book, DeLong uncovered a number of companies that fortunately recognized the need for succession planning, particularly for employees with complex duties.

In one case, a retiring software engineer in an engine-manufacturing company maintained the software for the manufacturing line. He was the only person who knew how to bring the system back up when it shut down, something that occurred approximately six times a year. Costing out the shutdowns at $80,000 per event, the company figured that this individual’s knowledge was worth approximately $480,000 per year. “There was an urgent business imperative to transfer knowledge,” DeLong says. The company quickly decided to invest in training a successor before the engineer retired.

RECRUITING CHALLENGES

Many companies currently have workforces divided into two distinct groups: older and younger employees with few workers falling in between, what DeLong calls a “bifurcated” workforce. At one metals refining company, for example, DeLong says 40% of the workforce has less than two years’ experience and 60% has more than 25 years of experience, positioning them at or near retirement. “A lot of these organizations have been out of the recruiting market for a long time, and they’re going to be in serious trouble if they don’t figure out how to attract and retain today’s younger and mid-career employees.”

Peter Hallock, executive recruiter at Stanton Chase International, is sanguine about the availability of senior managers. But he is less confident about mid-level managers. “Small to medium-sized companies are able to attract senior level management, but find it harder to attract middle management,” he says. Candidates fear that many of these companies will transfer their operations offshore and they will be out of a job. Additionally, many of these companies are located in manufacturing towns that job candidates find unappealing.”

Ace Clearwater Enterprises, a parts manufacturing subcontractor with clients like Lockheed Martin and Boeing, is located in Torrance, California, about 15 minutes from the Pacific Ocean and 30 minutes from Disneyland. Still, says Kellie Johnson, president and CEO of the company, “We have plenty of open positions.”

As a small, nimble firm, with only 175 employees, Ace has run into recruiting hurdles. “We recruit from local universities such as University of Southern California, and found the three best candidates for an engineering position were all foreign,” Johnson says. “The top candidate, needed an H1-B visa, [granted to immigrant workers with technical skills that cannot be found in adequate amounts in the United States], and we just couldn’t afford to go through the process of sponsoring a new recruit.”

 

 

MANUFACTURING’S IMAGE PROBLEM

Johnson, granddaughter of a welder who founded Ace Clearwater, blames the skills and talent shortage on manufacturing’s negative image and a lack of technical training in schools. “There is such a misconception about manufacturing,” she says. “Parents and teachers want something better for their kids.”

So Johnson has made a dedicated effort to generate excitement about manufacturing at the grassroots level. She readily captures the school kids’ imaginations, talking of how the parts her people design and make are now being used on Mars.

In addition to external education, Johnson strongly advocates employee development. Calling her workforce a “precious resource,” Johnson has created cross-training programs within Ace Clearwater, allowing workers to take any number of jobs around the company. “At first people were afraid to share,” she says, but then, “they trusted that management was leveling with them.”

PACKED CLASSROOM

Search long enough and you’ll find others who are optimistic about the manufacturing sector and its potential to captivate a new generation of workers. H. Kent Bowen, professor of Technology and Operations Management at the Harvard Business School, believes manufacturing is far more dynamic than declining employment numbers suggest. “Ask yourself, why is Toyota looking to build its eighth automobile plant in the United States? It’s called satisfying customers and making money.”

The next generation of students may be catching on. In 2004, Bowen taught a course called “The Operating Manager,” which was packed with 110 eager students. Over the years, he has seen a number of graduates—some of whom started out in consulting or investment banking—switch over to manufacturing. “People who have the right skill for operations find an incredible satisfaction in running and growing a small company,” he says

MANAGEMENT BY MALLAN

Make Things Happen Through People. After Muscle Shoals, Alabama-based Wise Alloys was taken over from Reynolds Metals in 1998, the new management team, headed by majority owner and Chairman David F. D’Addario, knew there needed to be a change in management culture. In 2004, parent company Wise Metals Group hired former management consultant Randall R. Powers, as the new president and CEO, to revamp the group’s management operations system. Reynolds possessed “a different, larger corporate culture,” Powers says. “Then Wise took it over, and the new management wanted to be fast, agile and responsive to customer needs.”

In the 1990s, market forces caused the company to reduce its workforce by one-third. By 2003, Wise Alloys was searching for skilled workers, and Powers was brought on as an operations consultant. He sees clearly that workforce development creates a competitive advantage. “When you aren’t creating talent, employees are more concerned about job preservation instead of performance.”

With constant training and open communications, Wise Alloys’ new operating system has increased productivity, extended product lines and enabled forays into new markets. In May 2005, the factory clocked the best performance in its 60-year history. “Some people here are having so much fun, it’s unbelievable,” he says.

Tap Into Educational Resources. Behlen Manufacturing Co. is a Nebraska-based manufacturer of livestock equipment. In 2001, management at one of its facilities in Oregon realized that changes in customer demands and raw-material price hikes were forcing the company to streamline production. “We needed to deliver small lots in a very short time, and we identified Lean Manufacturing as the way to get us there,” says manager Clint Morrison. “Employee buy-in was essential for the project to succeed.”

Lean manufacturing processes focus the plant’s resources on adding value to customer demand, while eliminating wasteful activities. At first, the facility partnered with a local community college. Soon, management realized it needed a hands-on program. Behlen applied to the Oregon Department of Community Colleges and Workforce Development to bring in trainers.

The program, administered through the Oregon Manufacturing Extension Partnership, cut turnaround time. “Before we instituted Lean, our order-to-invoice time was up to 14 days; now it’s under five days,” Morrison says. Behlen also decided to level the load so the plant doesn’t hire workers during peak times and lay them off when it’s slow. “People have higher job satisfaction,” says the plant manager. “We now have a jump on our competitors. It’s considerably helping the bottom line,” he says.

Make Manufacturing “Cool.” Research by the National Association of Manufacturers (NAM) in 2002 shows that American youth are “turned off” by manufacturing and that our national education system provides fewer technical training opportunities, especially as an alternative to a four-year college degree. NAM and its affiliated Manufacturing Institute partnered with a number of organizations, including the American Association of Community Colleges, to launch an awareness and economic development campaign called “Dream It. Do It.”

The “Dream It. Do It.” campaign includes advertising spots, a Web site (www.dreamit-doit.com) with career descriptions, a career quiz and school search. The campaign will include events such as job fairs and skills competitions throughout the country.