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April 30, 2012

Manufacturing and the Skills Gap

For several years now analysts have been predicting that some manufacturing now done abroad is going to return to U.S. soil. The reasons for these predictions have been fairly straight forward: international wages (especially in China) are rising; oil prices continue to be high (making the transportation of goods more expensive); and natural and climate-related disasters are disrupting global supply chains at an increasing rate. Nobody predicts that all overseas manufacturing will come home. If it makes sense to make things closer to consumers in the U.S. it also makes sense to make things closer to consumers overseas. This post, however, is not about the chances of manufacturing returning from overseas, but is about the workforce and skills that will be needed if manufacturing does return.

In previous posts, I've pointed out that, even if manufacturing does return to U.S. soil in some significant way, the jobs that return won't be like those that were lost or involve the same number of workers. A year ago, the editorial staff at Supply Chain Digest wrote about trends involving manufacturing jobs ["US Manufacturing - is the Glass Half Full or Half Empty?" 24 March 2011] The article reported:

"As Rex Nutting of MarketWatch recently noted, at one point, during World War II, more than a third of all American workers were employed in a factory. That share has been falling steadily ever since, and now only 9% of workers have a factory job. Factory employment peaked in 1979 at 19.6 million; it’s now down to 11.6 million, even as output has soared since that time. As just a comparison, consider what happened in the agricultural economy. The US produces far more agricultural output today than it did 100 years ago, when farming jobs represented almost 40% of the labor force. Today, just 2.6% of US workers are found in farming. The same thing has been happening in factories. According to the Bureau of Labor Statistics, American factories are producing 57% more output by value today than they did in 1987, but they are doing so with 33% fewer workers today. The average US factory worker on average is connected to more than $180,000 of annual manufacturing output, triple the $60,000 in output per worker in 1972, using constant dollars. That trend shows no sign of letting up in the long term. Manufacturing productivity rose by 6.7% in the US last year, though since the output growth was even higher, 112,000 manufacturing jobs were added in the US last year."

New manufacturing plants are highly automated and people required to operate them must be highly skilled. Technology is designed to save labor. That's the rub. As Emily Maltby reports:

"[According to a study conducted by Catherine L. Mann, professor of global finance at Brandeis], among the technology-intensive manufacturing firms, ... jobs contracted 34.3% in the 2001 to 2009 period. [Michael] Dell, [founder of Dell Inc.], acknowledges that technology can eliminate the need for some jobs. He points to the transformation of the agriculture industry in the U.S., which was once labor-intensive and is now much more efficient despite having fewer employees. 'Every time a certain machine is created, there is job displacement,' he says. 'There's no question jobs have to evolve. We have to march forward and advance skills.'"

A couple of months after the staff at Supply Chain Digest wrote its article, Peter Coy wrote, "The only hope for American factory workers to save their jobs is to be so skilled and productive that they can justify the pay multiple they earn vs. their counterparts in South Korea or China or Mexico." ["The Case for Making It in the USA," Bloomberg BusinessWeek, 5 May 2011] Interestingly, Coy pointed out that "roughly half of GE's manufacturing jobs, as well as overall revenues, are outside the U.S." Earlier this month, however, General Electric announced that it was investing a billion dollars "to bring back to Louisville, Kentucky, hundreds of jobs that had been outsourced to Mexico and China." ["GE takes $1bn risk in bringing jobs home," by Ed Crooks, Financial Times, 2 April 2012] Crooks reports:

"'Reshoring' production is a strategy being tried by many American manufacturers, as rapid wage growth in emerging economies and sluggish pay in the US erodes the labour cost advantage of offshore plants. The US has added 429,000 factory jobs in the past two years, replacing almost a fifth of the losses during the recession."

GE is not alone in its decision to reshore jobs. Coy reports that "blue chips such as Caterpillar, Ford, and NCR have all announced that they are returning some manufacturing from abroad, even as they continue to expand abroad." He reiterates, however, that "a renaissance in U.S. manufacturing output does not necessarily imply a hiring binge; efficient companies might just do more with fewer people." Given the trend towards reshoring, Stephen Gold, president and CEO of Manufacturers Alliance for Productivity and Innovation (MAPI), an executive-education and business-research organization in Arlington, Va., writes, "The question is, will the employees be ready for manufacturing? According to a majority of top-level executives, as of right now the answer is a resounding 'no.'" ["Providing 21st-Century Skills for 21st-Century Manufacturing," IndustryWeek, 14 March 2012] Gold continues:

"As the latest skills-gap survey by the Manufacturing Institute and Deloitte shows, despite continued high national unemployment rates, more than 80% of manufacturers say they are experiencing a moderate to severe shortage of skilled production workers. By some estimates, 600,000 manufacturing positions remain unfilled due to companies' inability to find people with the right skills. That's because the changes in manufacturing processes over the past decade have been dramatic. The typical shop floor today has more computers than people. Those computers are hooked up to machinery requiring a level of technical sophistication that would leave even the most ardent teenage video-game enthusiast in the dust. In fact, the employees who operate this advanced equipment are more technologically savvy and typically know more trigonometry and calculus than most American citizens, including the policymakers who are stumping on their behalf."

By most accounts, the biggest obstacle to increasing manufacturing in the U.S. is the skills gap that Gold discusses. He asks, "Given the challenge of not enough workers entering the workforce with sufficient knowledge and skills, what are manufacturers doing to bridge the skills gap with the employees they're currently hiring?" He goes on to discuss some of "the ways that American manufacturers are training their employees." They include:

  • In-person classes taught by internal instructors as well as in-person classes taught by outside instructors.
  • More emphasis to enhancing skills for working as part of a team. In addition, companies are changing their training programs to give more emphasis toward enhancing the capacity to think through the logic of a process.
  • More emphasis on having engineers gain a capacity to understand the needs of customers.
  • More emphasis on having production employees obtain multiple course certificates at a technical school or community college.
  • Paying for bachelor's degree programs for production employees.

Gold reports that with companies now realizing the value of human capital "there is a significant evolution occurring in how American manufacturers recruit and train employees of various levels. With STEM requirements in the business world outpacing the education system, companies are developing innovative ways to compete against each other and the rest of the world to maintain a competitive workforce." Having read the Manufacturing Institute and Deloitte study, Derek Singleton, an ERP Analyst for Software Advice, adds his two-cents about what can be done to decrease the skills gap. ["Three Ways to Overcome the Manufacturing Skills Gap," 6 March 2012] He writes:

"Much of the recent coverage around the manufacturing skills gap has focused on its root causes, which are by now familiar: baby boomers are retiring, shop floor automation is increasing the technical skills required in manufacturing jobs, and youth are disinterested in pursuing a manufacturing career. Whatever the causes, we now need to work together as a nation to overcome the skills deficit."

He suggests the three following ways to shrink the gap:

  • Strengthen educational partnerships;
  • Invest in corporate in-house training programs; and,
  • Energize the workforce of tomorrow.
  • He discusses each of his recommendations beginning with strengthening educational partnerships.

    "Technical colleges (and other parts of academia) are perfectly positioned to equip a new manufacturing workforce with the right skills. There is already an extensive network of schools that partner with manufacturers to teach relevant skills. These partnerships need to be strengthened. One such partnership is the Society of Manufacturing Engineers' collaboration with Tooling U – an online training program that provides curricula for everything from CNC machining to welding. Tooling U partners with colleges, trade associations, media groups and industry to develop training programs that align with the skills manufacturers need. Since its inception, Tooling U has helped 100,000 individuals revamp their skill set to find jobs at roughly 1,200 companies. Partnerships like those developed at Tooling U need to grow in number and size because they are proven models for workforce development that can have an immediate impact on the skills deficit."

    President Theodore Roosevelt once stated, "Far and away the best prize that life has to offer is the chance to work hard at work worth doing." There is no work more worth doing that creating something for others to use. Around the world, including in the U.S., we see young people with college degrees but no employable skills. We need to stop emphasizing degrees and start emphasizing skills. Singleton next discusses investing in in-house training programs.

    "The success of programs such as Tooling U prove that manufacturers can make a difference when they get involved in workforce training. Manufacturers that are serious about hiring the right people should implement their own skills training programs. We have a model that shows that training in-house is highly effective: the Training Within Industry program. Hugh Alley, President of First Line Training, pointed out in a recent conversation that this program helped train two million women and eight million men after WWII. According to Alley, firms that use this program usually achieve close to a 25 percent reduction in the time it takes to train an employee. Over the last three decades, however, in-house training and apprenticeship programs have steadily declined across the industry. Many of these programs were cut for budgetary reasons. A recent study of UK manufacturers suggests that domestic manufacturers should bring these programs back. Semta – a UK manufacturing association–analyzed the value of apprenticeship programs to manufacturers. Roughly 80 percent of surveyed UK manufacturers said that their apprenticeship program makes them more productive. Furthermore, 83 percent stated that they will rely on apprenticeships to fill future work needs. While it may be difficult to find workers with the exact skills to match job openings, manufacturers can train people with the right aptitude. Investing in a talented individual can limit staffing problems and pay substantial dividends for manufacturing productivity."

    Historically training programs are the first things to be axed during economically difficult times. That is a very short-sighted action that has long-term consequences. Singleton's final discussion involves energizing the workforce of tomorrow.

    "Solving the workforce needs of today does little good if the next generation is disinterested in working in manufacturing. In the longer-term, manufacturers will need to get youth interested in manufacturing by exposing them to it in a fun, engaging way. One example of this is a Tampa Bay program called STEM Goes to Work. The program takes students on manufacturing facility tours. While there, students get to talk with manufacturing employees, management and CEOs. They learn about manufacturing careers and what it takes to land one of those jobs. According to Janet Bryant, Director of Corporate Development at iDatix, the tours also incorporate a fun element. For instance, when students visited a gear manufacturer, they were given a challenge to build workable gears out of Styrofoam. Here in Austin, National Instruments gets young people interested in manufacturing and engineering through their Lego Mindstorms project. Lego Mindstorms features a combination of lessons and competitions where students are tasked to build simple robotics. While these kinds of projects don't develop manufacturing-specific skills directly, Reut Schwartz-Hebron of Key Change Institute notes that they 'help foster critical thinking ability, which ultimately makes it much easier to learn manufacturing skills later in life.'"

    We need to re-instill in rising generations the honor they should feel about holding any meaningful job. Of course, they should also expect to receive adequate compensation for their skills and effort. President Bill Clinton once stated, "I do not believe we can repair the basic fabric of society until people who are willing to work have work. Work organizes life. It gives structure and discipline to life." Even people who are willing to work must have the skills they need to fill the jobs that are available. Thomas Carlyle once wrote, "A man willing to work, and unable to find work, is perhaps the saddest sight that fortune's inequality exhibits under this sun." The days are long past when willingness to work alone was sufficient. Today Carlyle would probably write, "A man with the right skills who is willing to work, and unable to find work, is perhaps the saddest sight that fortune's inequality exhibits under this sun."

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