The talent supply chain [Industrial Management]

EXECUTIVE SUMMARY

The U.S. economy has high unemployment. At the same time, manufacturing companies are looking for skilled workers. There are many short-term and long-term ideas about how to remedy this situation. In this classic supply and demand paradox, a supply chain analogy can help businesses and organizations solve the problem. A decades-old solution, internships, might be part of the answer in managing the talent supply chain for future innovation.

One of the current economic problems in the United States is high unemployment. At the same time, there are reports that some companies, manufacturers in particular, are having difficulty finding employees who can satisfy the skill requirements of the "new manufacturing."

Dale Gehring, chairman of the Association of Manufacturing Excellence (AME), highlights this need in the summer 2013 issue of Target, the AME publication: "In the face of high unemployment, there are more than 600,000 unfilled positions in manufacturing. What accounts for this contradiction? There has been an erosion of the support structure and pipeline into needed skilled manufacturing positions."

In the same issue, AME President Paul Kuchuris reinforces the need with these comments: "As baby boomers retire, our next generations available workforce is dramatically reduced. In addition, the complexity of manufacturing jobs continues to increase."

Manufacturing jobs today are far different from those of a century or even a decade ago. They are not the dirty, boring and sometimes hazardous jobs that many associate with the labor intensive, automobile assembly lines of the past. Many of todays manufacturing jobs, such as heavy lifting, welding and painting, are handled by robots. In addition, operators are now programming and monitoring automated equipment. These jobs require knowledge of computers to go along with an active and agile brain. Manufacturing workers are being asked to combine physical skills with mental skills to do a more complete job.

Short-term approaches

A number of approaches have been used to try to fill the need for skilled workers. Offshore outsourcing is a strategy used by many U.S. companies to achieve lower product costs. In some cases, it also has alleviated the need to find workers in the U.S. to fill manufacturing positions. Inasmuch as companies performing outsourcing work still use labor intensive workers instead of investing in automated equipment, this approach is offering less economic advantage as wage rates are increasing rapidly in the Asian countries that are most predominant as outsourcing sites. As the economic advantage of outsourcing diminishes, reshoring or nearshoring movements are becoming more prominent alternatives for some companies. These trends cause the need for skilled workers to re-emerge.

Another approach that indirectly reduces the worker shortage is importing workers from other countries. In some industries, especially in agriculture and service operations, lower level jobs have resulted in immigration issues, with an inflow of workers who don't have adequate legal status in the United States. At the higher level of professional workers, many students come to school here and stay on in a temporary status until they become citizens or return to their native countries. For the last several decades the "brain drain" of many top international students to the U.S. has been an excellent source of talent to fill the professional pipeline. However, as the economies of developing nations have advanced, the advantages of staying in the U.S. have shrunk, and more of these professionals are returning to their home countries.

A more permanent approach is to retrain workers who have been displaced by outsourcing or automation so they can perform the new jobs in manufacturing. While a desirable objective, the question is who pays for the retraining and wages for those being retrained. Is it solely the responsibility of the hiring company? If so, many small manufacturing companies might be stretched to do the retraining. Is it the responsibility of workers to finance their own retraining? If so, should they have assistance from the government? Or should the government assume the responsibility for seeing that workers are retrained? Whatever the approach, it raises the questions: What kind of retraining is appropriate? Are displaced workers receptive to retraining? What should they be retrained to do?

Long-term perspective

Supply chain managers deal with the issue of matching the supply of products and services to meeting customer demand. Could the same reasoning be applied to matching the supply of workers with the demand? How would it work? How do we determine the demand? How do we provide the supply of employees needed to meet the demand?

First, a demand forecast is needed by the type of employee skill required. Tn a supply chain, this is analogous to determining which products a company wants that would satisfy its demand. The forecast system also must be flexible to adapt to changing conditions. One of the authors remembers that engineers, at the time of his graduation,were in short supply.At that time, the market was reacting to conditions, not anticipating what would be needed and then acting to meet the need.

An even more demanding challenge is finding the right methodology to use in preparing such a forecast. Should it be a ground up" approach, compiled by asking individual companies what they expect their needs to be, or should it be a top down" approach, starting with a macro level of total need and then breaking that down into skill categories? Neither approach is an easy thing to do. A more difficult question to answer is: Who should do the forecasts? The government or private companies? If private companies, how do they get paid? Should it be a single company, appointed by the government, or should it be a competitive situation? These are all good questions with no simple answers.

As we have seen with the evolution of manufacturing in recent decades, the trends toward mass customization, speed to market, and lean thinking have permeated the way companies manage their human resources. The need for flexibility, even agility, in staffing by determining specific skills needed, using innovative talent acquisition methods, and assuring relational commitment between workers and companies, is changing rapidly.

Assuming we could develop a forecast, there must be capacity to meet the demand. We have an existing structure with K through 12 public and private schools, community colleges and the university system. As an oversimplification, high schools can meet trade skill requirements, community colleges can provide more technical skills, and universities can provide professional level skills. All are in place, along with an increasing number of online schools. Should the public schools be told what they should teach, or should they be allowed to adapt to the changing needs of the marketplace?

Each of the authors spent a number of years in industry before entering the academic world. We recognize that institutions of higher learning, such as state university systems, don't always encourage or support rapid change. Does this mean the responsibility to be flexible rests only with private, for profit schools? As in supply chains, the educational system must have the right capacity suitable to provide students with the skills needed.

Even if we have the right programs, do we have the right content within the programs? In many business schools, the production/operations management courses are taught by instructors trained in quantitative methods, the successor to the operations research (OR) field that emphasizes modeling, simulations and optimization techniques. These are important, but should the curricula include more HR (human relations) to go along with the OR? Companies are moving toward the need for holistic thinking in areas like strategic management, integrated systems, process improvement, change management and risk management. How do we combine hard and soft skills in the educational system? The movement to the increased uses of online classes offers new opportunities but brings new challenges in "getting it right."

To summarize the problem, product characteristics of the demand are changing rapidly. As with many product groups, the desire for mass customization has grown significantly. Many of our existing educational systems are mass production operations that are going through incremental improvements to produce the variety and quantity olnewworkers to meet a diverse and dynamic demand. So how much change is possible, and how last can our educational systems change to match supply with demand?

Or if we use demand management techniques, how much can the demand be modified to accept workers who must then be customized within the company? Assessing this lack of fit between the current supply (available workers) and demand needs (skilled jobs) and then finding the best means of closing that gap are challenges confronting much of industry and government today.

In manufacturing, as the characteristics of demand evolved, many companies found that incremental improvements could not keep up and enable the companies to remain competitive. Systems began to migrate from mass production of standard products in push systems to more customization from pull type systems. Labor and talent demands seem to be following the demand trends of many products. Perhaps we need to look hard at changes in the supply side systems that will move us toward customization and speed by developing more pull processes.

Assuming that we have an educational system that can provide the forecasted skills needed, we then must face the question of inputs for the educational system. Is there a sufficient number of incoming students to fill each of the educational tracks? In recent years, the manufacturing industry has not been thought of by enough students as a place they would like to work. In fact, many potential manufacturing hires have been turned off by what they perceive as a confrontation with mathematics and other arduous and boring subjects. Recent attempts at packaging STEM educational initiatives are a good start, but they require time to become effective and still might need supplemental aid. Other industries or professions, especially in the services field, have done a better job of attracting students; unfortunately, many do not prepare students for a career in manufacturing.

There are a number of ways to get the word out to prospective manufacturing employees. They include using endorsements by present students, providing incentives to choose manufacturing studies, and even using social media to get the message to the target audience. Career counselors in the educational institutions could point out the benefits of a career in manufacturing. But manufacturers must inform these counselors about what the industry needs. Rather than mandating what students must study, we need to promote "want to," not "have to."

Interim approach

We have raised a number of issues that have no easy, or definite, answers. There are a number of programs addressing many of the needs. We don't have a disruptive innovative idea, but maybe it's time to consider whether traditional patterns of change are likely to close this gap or if more radical innovation is appropriate.

There is one program that we believe has potential to fit within existing infrastructure and practices and, at the same time, provide significant help in matching supply more closely with demand for manufacturing employees. That is the program of internships.

One of the earliest forms of internship programs was the engineering co-op program, which has been used for more than 50 years. Typically, when interviewing teams responsible for hiring full-time professionals saw a candidate coming in with co-op experience, the team would get very excited. Interviewers and company hiring managers almost always found higher value in the co-ops. So much so that a much higher percentage of interviewed co-ops received job offers than raw college graduates, and the new hires received significantly higher starting salary offers. This occurred mostly from the time frame of the 1970s through the 1990s.

During this period, engineering was one of the primary college disciplines using a formal internship program for college students. One of the authors observed this firsthand by using the industrial engineering co-op program at Northeastern University in Boston as a source for most of the industrial engineers hired during his time in the area. The perceived differences in value were real, because performance rankings of the young professionals with co-op experience in their first few years of service also tended to be higher, and the companies received an added benefit in increased retention and lower attrition.

Today, many college disciplines are now encouraging, if not requiring, internships to graduate. In most cases, these internships have very specific academic requirements for the student and employer and involve documented hands-on work in the discipline. When these requirements are met, the college awards credit hours toward graduation and the internship is documented on the student's transcript and permanent records.

Companies are finding internships are a great investment with high returns. According to the National Association of Colleges and Employers (NACE), the cost of recruiting a new college graduate was $5,134 in 2011. The total compensation package (salary and benefits) the first year can be $60,000 to $100,000. Many companies send all of their new college hires to multipleweek training programs on how to use the company's business systems and then shadow them with senior mentors. This additional training adds to the direct employee costs and requires other company resources to support and mentor the new employee as he or she becomes a fully productive employee. The total company investment is typically in the tens of thousands of dollars until the new hire is fully productive.

The Bureau of Labor Statistics indicates that, on the average, new college graduates spend 18 months in their first job. In August 2012 Forbes reported that the average worker spent 4.4 years on a job, but the expected tenure of the workforce's youngest employees, known as the millennials, is about half that. Conservatively, the average new college graduate hired will leave the job after an average of two years.

There are also some less tangible benefits of hiring college graduates who have interned with your company. If they already have spent 10 weeks (a semester or summer) in your operations, they already have some training and would reach fully productive status several months sooner than a new graduate who has not interned with you. Students mature rapidly with internships and develop more realistic expectations of the work environment. Companies can better understand what new college graduates are capable of and how they can best develop into fully productive employees. Both parties can assess whether there is a good fit between the individual and the company and whether a longer-term relationship is appropriate.

Many other benefits can be named, but the bottom line is that employers are giving internships increasing attention and placing increasing value on these experiences. However, a more important benefit of internships is that both the employee and company know a lot more about what they are getting. With internships, mutual satisfaction with the relationships is generally higher and worker retention is significantly higher, and therefore employee turnover is correspondingly less. Workforce stability often is correlated to business success.

A talent supply chain approach

Now expand the analogy to the broader problem of the talent supply chain. To fill all of the current and forecasted skilled labor needs, two major raw material supply sources must be considered: the new graduates from different levels of the various educational systems and displaced workers who lack the skills necessary to meet the new demand.

We must move from looking at the problem of one of mass producing skilled workers to one of a highcapacity job shop where the gap in skill fit can be assessed on almost a personby-person basis so that specific transformation operations can be performed to close that gap. Internships are a great way for assessing those gaps at the individual worker level with the specific company need. Finding the best fit sources of labor, perhaps adjusting the job design (demand management) and then designing/specifying the appropriate transformation (skills training and education) to close the gaps in a more customizable format is now appropriate.

What are your most available labor sources that could possibly, with appropriate education and training, meet your needs? Can you bring segments of those groups into your operation in internships to assess and design a customized solution? Can you employ internships to evaluate a workers fit with the job needs before committing to full-time permanent hire? Can you use internships to assess your own demand characteristics and modify the demand to help close the gap in transformational needs? Businesses need to challenge both educational institutions and themselves to manage the talent supply chain for future innovation. *

These are all good questions with no simple answers.

Rather than mandating what students must study, we need to promote "want to," not "have to."

Businesses need to challenge both educational institutions and themselves to manage the talent supply chain for future innovation.

Sam K. Formby is an assistant professor in the Walker College of Business at Appalachian State University. Prior to entering academia, he spent 28 years in industry with several large international companies. He has extensive experience in managing process improvement projects. His major areas of research are human performance, project management, and operations and supply chain management.

Richard E. Crandall is a professor in the Walker College of Business at Appalachian State University. He has CFPIM, CIRM and CSCP certifications from the Association for Operations Management (APICS). Prior to joining ASU, Crandall worked as an industrial engineer and in management positions for manufacturing and service companies. He is co-author of Vanishing Boundaries, How Integrating Manufacturing and Services Creates Customer Value and Principles of Supply Chain Management. He writes the Relevant Research column for the APICS magazine.