There’s no skill shortage at these companies and the temps are happy too.

Two frequent challenges I hear about from manufacturers is the skills gap and the need to become more agile in an increasingly demand driven world.

These challenges are often approached as separate problems within a company. HR is working on improving the company’s recruiting and retention efforts. Operations is focused on process changes such as shrinking batch sizes and reducing changeover times to increase agility.

Recently I noticed a pattern in my customers who were experiencing above average results in both of these areas. These companies are in a perfect storm of HR and operational challenges and their only way out was to dramatically redefine how they manage their workforce.

This perfect storm of challenges consists of a customer base composed of retailers who are driving smaller, more frequent shipments to reduce their own inventory costs and risks. Secondly, these manufacturers’ products are seasonal so they have significant volume variations at different times of the year. Third, the demand for their products is driven by the weather and therefore completely unpredictable from year to year. Finally, they each face significant foreign competition keeping prices and margins low.

Let me share with you two of the many techniques they employ to stay competitive and profitable in spite of this tough environment:

One difference I noticed from the typical manufacturer was that there is an overt effort to design the process around the skills of the people rather than just production efficiency. They separate higher skill operations and lower skill operations. They do this to manage their skilled workforce challenge. The skilled employees are difficult to replace and as a result must be kept employed permanently. During the slow season these skilled employees staff both high skill and low skill positions. During the busy season the skilled lines have the ability to ramp up capacity based on the number of people on the line. The skilled employees then move to this line as required and temporary employees backfill the low skill lines. The operations on the low skill lines are designed so each can be learned in just a few hours.

But even with this ability to flex up and down, the delta in product demand is such that the company doesn’t need 40 hours a week from the skilled employees during the slow season. How does the company retain the skilled employees when there’s only 32 hours of work for months on end? One company employs banked hours. This allows the company to use overtime during the busy season without incurring increased costs. During the slow season employees take the banked overtime off. The benefit to the employees is that the company employs them full-time and pays them a steady paycheck year round. Rather than feasting during the busy season and then fasting during the slow season, the employees are paid regularly which has helped with their personal budgeting.

A second technique one company employs is to look beyond traditional temporary workers. While some companies have filled their temporary ranks with employees that have no better option, others have found a better way. One company has a plant in the Midwest. Their busy season occurs in the fall and winter. This turns out to be the same time that local farmers have some time on their hands. I don’t think anyone can argue that there are harder working and more innovative employees than farmers. The farmers also enjoy the change of pace in terms of regular hours and the ability to work indoors. This symbiotic solution has benefitted both employees and employer while controlling labor costs and inventories.

In these companies, HR and Operations work very closely together to create a blended workforce that provides for the agility to ramp up and down as demand requires but also provides a desirable workplace for both skilled and temporary employees. Manufacturing pays some of the highest wages of any industry. If you are having trouble hiring and retaining skilled or temporary employees, it might be time to rethink who you are hiring and how you are managing them.

Building competitive advantage through your local community college

While it may seem that the headlines are mainly driven by U.S. based companies, the skilled employee shortage is worldwide.

This was confirmed in a global benchmark study completed by IDC this April. Companies in countries around the world are facing a skills shortage.

To help understand the relative size of the issue between countries, the chart below documents the response to the question posed to manufacturers in 11 countries around the world: “Is a shortage of skilled production workers impacting your production?” The shortage is having an impact ranging from 20% to 60% of manufacturers around the world. This is an opportunity for manufacturers that are competing globally to gain an advantage over their domestic and foreign competitors. By ensuring a skilled workforce is available to your company, production will be impacted less and costs will be lower than a competitor that staffs inefficiently.

While everyone acknowledges the problem, finding a solution is difficult. There are two reasons for this. As a trend it’s large, but at the individual plant level it’s rarely the binary effect of someone is working today and retiring tomorrow without any plans to cover their job. There are many ways to temporarily handle labor shortages. Overtime goes up, production might slow, temporary workers with the right skills might be hired at a premium, or production might be outsourced to another company. None of these are desired outcomes, but it’s what happens.

When the problem becomes acute enough, companies are acting to address the shortage. One company I spoke to realized the average age of their skilled production employees was in their mid fifties. To ensure those skills and techniques that were developed but not documented over the past 30 years weren’t lost, they developed a plan to video tape each operation for training purposes. This wasn’t too popular with the union employees until assurance were made that this wasn’t an effort to ship the current jobs offshore.

The second reason is that a skilled labor shortage isn’t a traditional supply chain problem. Skilled employees are a result of unorganized choices and opportunities that individuals, schools and manufacturers all make. As a whole this results in a labor pool from which companies recruit. Because the lead times of developing skills are long and companies can’t guarantee they will receive the benefit of investing in a student over a long period of time, they are forced to recruit from a free market of which they have very little control. This makes the labor supply chain very different from a material supply chain where long-term contracts can be put into place and relationships can be developed over time to improve efficiencies.

But for the most part, this labor market works. As the demand for different types of jobs ebb and flow the different components of the market adjust to slow down the creation of some skills and increase the production of others.

The challenge with manufacturing jobs is that the technology and improvements in process have shrunk the market of jobs while at the same time increased the requirements in terms of skills required to perform the job. This means that companies have less time than ever to train employees for increasingly skilled jobs and are more dependent on the free market to supply these skills.

At the same time, the labor market has led the other partners in this labor supply chain (individuals and colleges) to redirect their investments and efforts to invest in other types of careers. Unfortunately the market and supply chain is not very efficient. Four years after the Great Recession of 2008, the supply chain is not reacting as quickly as one might expect.

  • Too many students are selecting business majors and colleges are encouraging it because with high student to faculty ratios and no labs to support, it is a profitable degree to provide. The problem is that the students are studying less. Additionally, with no consensus on what that degree means, students are less marketable.  The Default Major: Skating Through B-School
  • In 2011 the first ever survey evaluating the availability of courses in community colleges found that 32% of respondents were not able to take their desired course because the roster was full. And this wasn’t just the popular courses that always fill up first; 28% of students were turned down for recommended Math and English courses. (The Pearson Foundation Community College Student Survey, conducted online by Harris Interactive)

Creating an inventory supply chain that is flexible and responsive to the end market is considered a competitive advantage. Since the nineties, creating a high performance inventory supply chain has been the focus for the majority of manufacturers and retailers. Yet when it comes to the labor supply chain, progress has been slow over the same period of time.

This is an opportunity for the Human Resources department to create a competitive advantage for their company. The good news is that all the entities in the supply chain want the same thing. And that makes it much easier to obtain cooperation. Colleges want to graduate students that will be productive. Students want high paying jobs. Your company wants a steady flexible supply of labor. Your opportunity is to create your own labor supply chain by working with government and colleges.

There are a number of ways to approach this but here are two examples.

You can partner with a college that has recently been awarded a grant and influence how that grant is spent. For example in New Hampshire, Nashua Community college was recently awarded a grant that they want to put to work to build the skills for advanced manufacturing. If you are in New Hampshire,  reach out to NCC and make sure these are the skills your company needs.

The Department of Labor has a number of resources to identify grants that have been awarded in your area or industry.

More jobs to open up at Nashua Community College for new work readiness program

“We want to create a skilled workforce that will help the advanced manufacturing industry thrive.”

You can go even further like Toyota did in Kentucky and build an employment program that has the college deliver site specific training to ensure employees are productive the moment they step up to a workstation.

Collaboration between Community Colleges and Automotive Companies Results in New General Maintenance Mechatronics Curriculum

One of these AMTEC-aligned initiatives is based on a relationship between Toyota Motor Manufacturing and KCTCS system member Bluegrass Community and Technical College (BCTC) in Georgetown, Kentucky that has resulted in a paid internship program for high school graduates who get accepted into an Advanced Manufacturing Technician Program.  Students who are accepted into this program spend three days at the Toyota plant and two days studying under the community college’s Associate in Applied Science Degree program in Industrial Maintenance Technology. As noted on the program’s website “the courses of study are identified by Toyota as the most critical courses necessary to become a top flight multi-skilled maintenance technician in an advanced manufacturing operation.”

To be successful in developing your labor supply chain you are going to need solid information about your requirements and what you can deliver in return. It’s going to require investment and therefore ROI for your company and your company’s partners. This doesn’t mean a conversation with supervisors about what they need next year. It requires a rigorous study of what skills are required at your company. If you are lucky and have a workforce management system in place you’ll be able to use “Big Data” techniques to analyze the supply and demand and have factual information. For example you can look at trends in age, leave accruals, tenure, turnover, absenteeism and overtime relative to the skills and certificates that your employees have to understand current demand and supply. You can also look at production forecasts and new product or plant investments to forecast future requirements. And don’t forget to talk to plant management and engineering about automation plans so that you know about future decreases in requirements as well. Having this data in hand will make you a better partner to the rest of your labor supply chain and ensure their ability to respond meets your demands.