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Posts Tagged ‘manufacturing employment’

We’ve beaten this drum before, but as purveyors of manufacturing technology solutions ourselves, we’re always looking for events to cheer in the world of manufacturing, especially in the U.S., and here’s another.

A recent article in Bloomberg Businessweek points up once again the gradual trend toward repatriating manufacturing jobs back to our own shores.  In it, editor Matthew Philips quotes Harry Moser, former head of a large machine-tool firm and now founder of the Reshoring Initiative, a “group of companies and trade associations trying to bring manufacturing jobs back to the U.S.”

Moser likes to highlight how, in the move to offshoring, many companies neglect to look at the TCO (total cost of ownership) factors inherent in these decisions.  Using data compiled from a small but representative group of manufacturers, Moser presented evidence to President Obama at a White House meeting that, when measured on price alone, U.S. firms on average are 108% higher than their Chinese counterparts.

But, when TCO is factored in, including 28 additional factors like intellectual property risk, distance from suppliers, shipping costs, and the negative impact of separating engineering from production (among others), that differential shrinks to a mere 12% higher.  And in many cases, total cost at the U.S. producers was actually lower than in China.  As Moser notes, “The U.S. is a lot more competitive than people realize.  In the last few years, firms got caught up in outsourcing without thinking through the costs.

Add to all this the very important factor of oil prices, which in ten years have gone from $23 a barrel to well over $100 as of this writing, and the economic advantages of in-shoring become compelling.  At the same time, as this blog has noted earlier, Chinese wages have risen 15% a year during that time.  Meanwhile, measured against a basket of currencies over the same period, the U.S. cost of factory labor in dollars actually fell 11%.  Granted, labor is but one component in pricing, but the divergent trends can bode well indeed for manufacturing employment.

And on top of all this, through automation and improved consulting services companies have gotten better at reducing inventory and adopting just-in-time strategies, while the so-called “global” supply chain has started to look increasingly risky (think tsunamis, meltdowns and floods in Asia for starters).

Still, as the article notes, we should not expect a hiring frenzy any time soon.  “It’s a marginal improvement, not a tidal wave,” says Daniel Meckstroth, an economist for the Manufacturers Alliance for Productivity & Innovation.  Around thirty years ago the U.S.boasted 20 million manufacturing jobs; today that figure is about 12.  Meanwhile, manufacturing productivity increases on average by about 4% a year.  Doing the math, that hiring frenzy is not likely.

But happily, the trend is certainly moving in the right direction.

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Many of our clients, most of whom are engaged in manufacturing and distribution, struggle with issues of employment, wage-competitiveness, off-shoring, and the like.  Thus, we use this blog from time to time to discuss other (non-software) topics of interest to employers, including this post, and the one that precedes it.  We may be all about software at PSSI, but we’re just as much about addressing customers’ needs, from the on-topic to the sometimes off-topic.  If it helps improve the productivity of our industrial base — and especially our customers’ — then we want you to know about it!

Read on…

[This is a follow up article to our prior post about Rolls Royce, and its penchant for creating and keeping jobs in HIGH-wage countries, contrary to the many stories we’ve all heard about off-shoring of jobs.  Rolls has worked to keep both jobs and intellectual property in the U.S. and Europe by hiring local workers, but has decried the lack of skilled labor available.  Below, we highlight a longer article in the WSJ that touches on the myths and realities of finding skilled workers.]

Those who follow employment trends and the current disastrously high unemployment rate in the U.S. of 9%+ officially, and much higher unofficially, may be interested in the thoughts of Dr. Peter Cappelli of the Wharton School of Business, who shared his thoughts in the October 24th edition of the Wall Street Journal.

Cappelli states that the problem companies are having finding skilled labor is a failure not of government or schools, but of businesses themselves.  In his article Cappelli makes the claim that perceptions about a lack of skilled labor are pervasive, but wrong.  The problem, he says, is an illusion.  Rather, many times it boils down to the fact that “employers can’t get candidates to accept the jobs at the wages offered.”  Cappelli opines that this is an affordability problem, not a skill shortage.  A real shortage, he states, means “not being able to find appropriate candidates at market-clearing wages.”

He goes on to say that there are plenty of folks out there who could step into jobs with just a bit of training, including recent grads without much experience.  Despite employers’ complaints, college students are pursuing more vocationally oriented course work than ever before, but American companies don’t seem to do training any more.  Unlike in Europe, apprenticeship programs have largely disappeared, he states.  And the training given to an average new U.S. hire these days can be measured in hours, not days, weeks or months. 

Employers will argue that they train workers, only then to have another employer hire them away for higher wages.  Cappelli puts forth a way forward that includes:

  • Working with education providers, like community colleges, to be partners in the process
  • Bringing back aspects of apprenticeship with graduated wages over time
  • Promoting from within: Two-thirds of all vacancies in recent years, states Cappelli, have been filled by hiring from the outside, apparently wasting valuable in-house resources

Cappelli believes his prescription provides for both the self-interest of employers as well as the interest of society as a whole – and that the answer lies within.

[PostScript: Cappelli received, he says, “an avalanche of reader response” to his article.  For his follow-up comments and the full text of the article, go here.]

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For those, like us, with a vested interest in the future of manufacturing, here’s a new phenomenon bound to get your attention.

Rolls Royce, already operating with high-wage plants in the UK, Germany and Singapore, runs a profitable marine operation in Alesund, Norway where, according to a recent article in the Wall Street Journal, a can of soda costs $4, a pair or jeans sells for $150, and the average job at that plant pays nearly $54 per hour.

Is this a sign that mature, or some would call “post-industrial” countries like the U.S.and those of Europe, can prosper at a time of competition withChina and their ilk? 

Apparently.

Rolls Royce believes that its brains and skilled labor force can still outpunch the output of low wage countries like China.  And they’re putting their money where their mouths are.  But there is a challenge – no surprise here — finding the talent to hire when competing against software companies, banks and the like, and at the same time facing a shrinking pool of science, engineering and math students.

According to the Page One article in October 20th’s Journal, fewer than 10% of the more than 6,000 recent applicants at its nuclear power divisions had skills and backgrounds appropriate even to reach the interview round.  Rolls is willing to pay all right, but “the skills we need to build our business just aren’t there” according to the unit’s HR director.

So what’s a giant industrial company to do?  In Rolls Royce’s case, they are training hundreds of apprentices every year, partnering with dozens of universities worldwide.  As the company points out, “developing skills while containing costs is walking a tightrope.”  Still, unlike GE, Airbus and others, Rolls is determined to keep high wage jobs and the know-how that goes with them at home – or at least, in Western countries.  While GE and others outsource or joint-develop in low-wage nations, Rolls Royce prefers to keep those jobs at home, saving intellectual property even as they save hometown jobs.  They want to keep those high-value engineering jobs close to home, and the related intellectual property out of the hands of future would-be competitors.

How does this play in the market?  Rolls may “not be very good on cost per man hours, so we have to be better on technology,” according to a design manager at that ship division.  Turns out, preserving even a limited number of high-end manufacturing jobs, and stemming the jobs exodus, has the domino effect of creating about three more jobs at nearby suppliers and services.  Thus, preserving even a limited number of US and European high-wage jobs can help stem the vicious cycle of the jobs exodus.

But the challenge will remain: finding educated workers.  Rolls is working hard to do the training necessary go get there.  For the sake of so many Western jobs, we can only hope their efforts and those of companies like them will be enough.

[For a timely follow-up to this article, in our next post we’ll look at a later Journal article that points out some myths and flaws in the perceptions about a lack of skilled workers…]

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The Wall Street Journal recently reported good news for those of us in the Great Lakes area (i.e., Indiana and Michigan, at least).

It appears that since the crisis that landed General Motors and Chrysler in bankruptcy court, U.S.automakers have been consolidating and expanding assembly operations once again in Michigan – profitably.

Between 2008 and 2010 Detroit’s big three automakers closed a total of 14 plants – but only one in Michigan.  According to the Journal (June 23, 2011) “New labor contracts made it easier for auto companies to shed idle unionized employees at isolated plants and shift production to areas like Michigan with a concentration of factories.”

By the start of this year, GM had increased its Michigan based production capacity from 30% a decade earlier to 37% today.  While overall auto industry employment in Michigan is down dramatically from it’s peak (of over 300,000 jobs) in the late 90s to just over 100,000 more recently, at least the trend is now rising once again over the past two years. 

Still, even with rebounding auto sales, experts note that it may take a decade or more for Michigan to reach its lofty employment levels of 2000.  Total employment has fallen 17% in the past decade, and in the auto industry, the decline is a whopping 63%.  Auto industry jobs are now 3% of the state’s labor force, less than half what they were a decade ago.  There’s still a long way to go.

Still, the trend is positive.  In recent months all three of the big three American auto makers have announced more plant expansions and new jobs inMichigan.  Thanks to a return of manufacturing, last year the state showed a nearly 3% growth rate, and payroll and tax receipts are actually on the rise. 

Think what you will of the auto bailout, but the fact is, an awful lot of jobs were saved, (not to mention how many more would have been lost) and it’s meant a resurgence in manufacturing and a return for the auto makers to profitability.  No telling whether they’ll squander it again, but for now, the trends are positive. 

And around these parts, that’s news we can live with.

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A tack away from our many ERP and software related articles, to a topic of current interest just a tad off the beaten path…

A recent article in the Nov. 15th issue of  Newsweek entitled Stars of the Recession points out some characteristics of the current recession that make “this time different.”

For one, the job losses of the current recession – with unemployment continuing to hover around 10%, and often worse here in the industrial belt – are mainly concentrated in three sectors: construction, manufacturing and finance. 

On the upside, this leaves plenty of other sectors untouched, and some, like education and healthcare, are growing, and showing every indication of continuing to grow, for the foreseeable future.  Likewise, export-oriented businesses are booming, as is technology in some sectors, and most anything to do with commodities and agriculture (you’ll note recent news reports about the impending increase in many food products).

The link among so many of the areas doing well these days: overseas markets, particularly, the article notes, emerging markets.  These markets are demanding more of everything from energy to foodstuffs.  Their growth moves those on the lowest socio-economic rungs to a higher rung that often affords them the ‘luxury’ of a regular meal, and often, the means to move about, or even relocate. 

Here, we’re talking nations like China, India, Brazil and a host of other (often Asian) nations whose populations are large, often growing, and upwardly mobile.

Goldman Sachs reports that seventy million new consumers are joining the emerging-market middle class every year!  And they want the goods we produce.  Meanwhile, their governments are busy buying infrastructure: roads and airports and bridges, not to mention factories.

Not all of this, however, means U.S. manufacturing employment will grow.  For one thing, automation and technology have enabled U.S. manufacturers to do vastly more with fewer workers.  That’s not changing – probably ever.  McKinsey Global Institute reports that for the last two decades, virtually all the U.S. increase in employment has come from the services sector. 

What you have is fewer workers producing more goods, supported by service specialists and leading to employment increases in those service sectors.  Manufacturing has not been a net creator jobs for some time. 

In the last analysis, that’s because manufacturing is simply getting… more efficient.  That’s not a bad thing, necessarily, it’s just requires an adjustment to our thinking.  Of course these days… what doesn’t?

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