The Critical Importance of People
A vibrant automotive industry carries with it a number of new problems.
A vibrant automotive industry carries with it a number of new problems. Good problems, but nonetheless issues which have to be dealt with. Compared with the situation five years ago, when all were looking to scrub capacity, overhead and lean out R&D capability as volumes plummeted, we’ll take the current industry pace anytime.
What could possibly be the issue today? Volumes are strong and margins are more reflective of an industry which is seeking long-term sustainability with new products and technologies that are engaging the consumer. Success has its issues. Leading the list is the challenge of finding talent. The problem has several facets and complications. Skilled talent in the trades is in short supply. Organizations such as AutoHarvest, SAE and several manufacturing associations have highlighted that the search for machinists, tool & die makers, pipefitters, programmers, and a host of other positions has and will hold U.S.- and Canada-based organizations back from taking full advantage of future manufacturing
In past columns we have outlined the increasing drive by OEMs and Tier 1 suppliers to have their supply base located closer to the final point of assembly, thereby cutting inventory, logistics and reaction time. Outside of the cost of capital and strain on a supplier’s infrastructure, establishing new facilities has also exasperated the talent issue. Growth in new locations in areas which do not have a strong automotive talent farm system is constraining that growth. Several in the economic development field point out that availability of an employable labor force is the number-one issue related to the establishment of new facilities, expansion of current ones and even “maintenance” to continue the life of existing facilities.
In fact, every region has this as the number-one priority for sustaining and growing their automotive footprint. State governors pitching their region for new investment hear it every day: “Do you have the right people at the right price to enable success?” Employment stability, the impact of indirect and tertiary spinoff jobs (one direct job equals more than five spinoff positions) are the lures for states and counties to focus more of their efforts to solving this issue. Rich incentives in the form of land procurement or infrastructure support, sales/property/income tax abatements and other forms of support to attract new investment are still important, though without an ample supply of trained, employable labor, investment and resources are wasted and not competitive.
Better municipalities and regions understand that the labor pool is a critical issue and are addressing it. In fact, it is the new differentiator. A company which can expand with the right talent in place will encounter lower turnover costs, increased quality and a more productive workforce. Each state or province is working on several levels with educational institutions to prepare future workforces and retrain current ones. Affiliations with local universities, community colleges, private training organizations, and even high schools are critical to long-term success. It is a moving target, though. Employees who are flexible to adapting to new situations and are capable of increased decision-making are the new norm.
Recently, one OEM operating in the southern U.S. wishing to add a production shift to meet demand encountered tremendous issues in finding the right people. Out of thousands of applicants, only a handful were deemed strong possibilities. Combine this with the requirement for their nearby suppliers to raise production volumes through increased employment and one quickly understands the gravity of the issue.
Going forward, OEMs will look elsewhere (even abroad) if they cannot efficiently replenish their labor supply. As things get better, the demand is all the greater, so people are key to providing what manufacturing companies need.