Beyond reshoring: Why restarting plants and hiring workers are just as crucial
Even as the reshoring of manufacturing jobs gains momentum in the U.S., other issues still face the industry as it looks to grow in the coming years. Patrick Van den Bossche, the Americas Lead Partner of A.T. Kearney’s Strategic Operations Practice, talks about the skills gap and the issue of restarting closed or underutilized plants that need to be addressed to take full advantage of the resurgence in manufacturing.
PE: The top issue facing Plant Engineering readers is the lack of a skilled workforce. Based on your research, how do we mobilize our workers to meet the challenges and skills needed for modern manufacturing jobs?
Van den Bossche: Dependence on traditional recruitment channels will clearly be insufficient to meet the staffing challenges. To successfully recruit both short- and long-term job seekers, manufacturing needs to be reinvented as an attractive career option. It requires that private, public, and educational sectors take preemptive steps by working together to increase the awareness, interest, and positive perception of manufacturing jobs. It also means that recruits need to be willing to look beyond the “bad rep” that manufacturing has acquired over the years.
Efforts need to address not only new college graduates, but also high school students before they decide on their college majors and career paths. Once recruits are hired, they will need to be trained, and companies need a strategy and plan for training them before they start on the shop floor. Currently employed workers need to be open to being retrained with new skills. Also, in some cases, older workers may need to be retrained in their old skills because manufacturing activity has been absent from the United States for so long that in certain areas the knowledge base has been lost.
Perhaps the biggest challenge is to retain people, especially the Gen Y workers. Unlike earlier workers who spent lifelong careers with one company, this generation has no qualms about switching jobs or careers…frequently. To counter this trend, companies must have robust career progression plans and mentor programs in place, and they must invest in employment incentives that go beyond compensation.
PE: What factors do you see as driving the migration of manufacturing jobs to the U.S.?
Van den Bossche: A number of macroeconomic factors have tipped the balance in favor of domestic manufacturing. Among them, for example, are the appreciation of China’s currency vs. Western currencies, labor rate inflation in China, increased concerns about supply interruption and product adulteration, and in the U.S., falling energy costs due to prospects of shale gas.
Also, the U.S. Economic Development Administration, part of the Department of Commerce, actively encouraging companies through its “Make It in America” challenge, has provided incentives to both domestic and foreign companies to shift manufacturing back to the United States to create jobs and increase the country’s competitiveness on the international stage.
PE: Many former low-cost manufacturing countries, China in particular, are seeing pressure on manufacturing jobs. What are the unique pressures in the U.S. that would slow manufacturing job growth, and what common pressures do all countries have in 2013?
Van den Bossche: In the U.S., there are already more manufacturing jobs available than there are skilled workers to fill them. In 1970, 25% of the U.S. workforce was in manufacturing-related activities. Today, this figure has dropped to less than 9%, according to the Bureau of Labor Statistics. As a result, the Manufacturing Institute’s 2011 Skills Gap Report noted that as many as 600,000 U.S. manufacturing jobs remained vacant across the country due to shortages of skilled workers. A more recent survey of more than 800 U.S.-based manufacturers indicated that 90% of them face a shortage of skilled production employees.
It’s only logical that the competition for talent that can manage and operate manufacturing assets will heat up as companies look to bring back their operations. As a recent IndustryWeek Salary Survey shows, this competition is already starting to result in significant upward pressure on salaries for manufacturing managers. This year’s survey marked the first time since 2008 that the average manufacturing manager salary has breached the $100,000 level. The same pressure can be expected at lower levels of the manufacturing ladder, as the rise in open manufacturing positions further exceeds the overall availability of talent.
Similar issues exist also in emerging markets where there are plenty of “common” low-skilled laborers, but as higher value-add activities have moved to (India and China for example), the demand for higher skilled workers, not just in manufacturing but also in sales and the services sectors, etc., has outgrown the availability of those types of workers, either because of the sheer volume of demand (China) or because those that have the skills prefer to work elsewhere ( IT and services, in the case of India). This is one of the main reasons why in emerging markets compensation levels are expected to increase significantly in years to come and, ironically, it’s also one of the key drivers for manufacturers to look at returning to the U.S.
So the common challenge across most countries will be to make sure that the size and skillset of their (manufacturing) labor force keeps pace with the demands of ever more efficient, more complex manufacturing operations.
PE: You’ve suggested that manufacturing had been neglected for a decade. It now seems to be making a comeback. What’s driving this manufacturing renaissance, and what needs to happen to keep it growing?
Van den Bossche: Back in 2001, when China joined the WTO, the cost proposition of that nation, with an abundance of workers, low-cost labor, attractive government incentives, and a huge potential domestic market, was a big driver for companies closing their U.S.-based operations and moving eastward. In the eight years following, exports from China to the U.S. virtually tripled. During that period, according to the Organization for Economic Co-operation and Development, while companies have been investing in efficient, state-of-the-art technology for their overseas manufacturing facilities, their existing U.S. plants have not benefited from similar capital flows into new or upgraded equipment and, as a result, the U.S. is sitting on a relatively old machine base.
Similarly, the domestic U.S. manufacturing workforce is also aging. According to the Economics and Statistics Administration, the average age of this workforce is close to 45 and it’s estimated that 10% of the current manufacturing workforce will retire in the next 3 to 5 years, leaving behind a serious skills gap.
Nonetheless, manufacturing in many ways has always remained the cornerstone of the U.S. economy and, globally, the U.S. is also still the largest manufacturing economy, producing more than 20% of all manufactured products across the globe. So when the trends listed in your earlier question started to emerge, companies figured that “coming back” would be relatively easy and several big-name manufacturers announced their intent to return.
But we’re not seeing the big return just yet. In 2012 industrial production and capacity utilization started off the year strong, fell over the summer, started to pick up in the fall, but then fell more recently, back to early 2012 levels and, overall, industrial production still remains well below its pre-recession levels. So, even though the intent is there, U.S. manufacturing companies will need to work hard to overcome the constraints they face due to the aging assets and workers.
Aging assets will require significant commitment of capital to build new plants or make targeted investments to extend the life, and increase the productivity, of existing assets. The aging workforce will force companies to think more strategically about recruiting, training, and retaining talent. Government may also need to play a part by initiating or maintaining programs that proactively drive the “Make it in America” agenda through the provision of investment incentives, appropriate education, and other measures.