Two articles – September 25’s Throwing Money at a Talent Problem Won’t Solve It and October 15’s America’s ‘Green Economy’ Is Now Worth $1.4 Trillion—recently caught my attention.
The first discusses how “leadership has fallen behind” in training and adapting to a changing workforce, a topic that is very much relevant to small- and medium-sized manufacturers (SMEs).
Larger original equipment manufacturers—at least progressive ones—tend to be better at recognizing the importance of and investing in new technologies. They also have more resources to provide the necessary training for their employees in working with these new technologies. And, it must be said, such training makes employees more competitive in the job market should they be displaced from their current employment.
SMEs, on the other hand, are hard-pressed to invest in new technologies. Why? New technology is usually expensive and SMEs are less likely to have the financial wherewithal to purchase it. As a result, they do not have a business case to justifying the training their employees for advanced technology jobs.
I’ve written on this issue before. I find it interesting that while OEMs consider adoption of new technology—and employee training—important toward becoming world class manufacturers, their sourcing and supply management practices are a prime reason why their SME suppliers can’t afford to invest in either technology or employee training.
You might ask “How can this be?”
The answer is that OEM purchasing departments typically operate under the premise that the only impact they have on their company financials is through improving year-to-year material variance. Because of this, they focus their efforts on first finding suppliers offering the lowest piece-price and second, once a supplier is embedded in the OEM’s supply base, imposing severe annual piece-price-reduction goals. I might add that, at least in my experience, these goals are usually double or triple those they set within their own operations.
It is good for an OEM to expect supplier waste reduction and, even better, to help facilitate it. However, the OEM focus on piece-price reduction – and remember, piece-price reduction isn’t necessarily based on cost reduction -- all too often results in their SME suppliers becoming more anorexic than lean. In other words, they reduce cost in infrastructure areas they shouldn’t in order to be able to maintain their business with customers. Anorexic, indeed!
OEMs need to understand that if they don’t put the work in to develop lean performing supply chains, they can’t achieve world-class-manufacturer status. And, as I said in last week’s article, it is a “dirty little secret” in the supply management community that OEMs buying similar parts usually pay comparable prices for them, meaning that a sole focus on piece-price seldom delivers a competitive advantage.
Anyway, that first article makes several important training related insights, including;
- While the federal and state governments have, over the years, invested billions of dollars in job training, the investment hasn’t adequately prepared people for jobs of the future.
- As a result, displaced employees can’t compete in the high-tech job market and when displaced often have to take lower-paying service sector jobs: i.e. McJobs.
- Employers can’t find enough employees with skills-of-the-future to hire.
The article goes on to point out that although the workplace has and is changing dramatically due to new technologies, education and workforce development programs have “remained remarkably unchanged for decades.”
The solution, the author posits, is that technology-driven economy immersion training programs, like those offered by Manufacturing USA’s Lightweight Innovations for Tomorrow (LIFT) Learning Lab, are more effective than the traditional model. I agree, but I also wonder whether governmental entities will both work to induce SMEs to invest in new technologies and then support a revamping of industrial training so that it is more focused and effective?
Neither will happen if we do things as we’ve always done.
The second article provides a successful example for how this can be done. Namely, by federal and state governments getting involved in the emergence of industries-of-the-future, as they did with green energy. In that case—through federal and state subsidies to both the companies involved in the production of green energy products and the subsidization of customers who generate their own energy—governmental support has helped develop a burgeoning industry that employs tens of thousands of workers.
I have firsthand knowledge of the green-energy success story. Five years ago, my wife and I installed solar panels at our home. At the time, the payback in lower utility bills was estimated along the lines of 5% a year, taking into account the governmental subsidies. In our actual experience, the energy savings have been double that initial estimate, resulting in a 10% return. And, since the time we installed our solar panels, the cost of systems similar to ours has reduced by up to 75%, meaning the payback time is much shorter, usually in the lower single digits of years. In fact, I was recently at a SME that had installed solar panels along the entire side of the factory, and was told that the payback would occur in less than three years. All of the above have occurred in spite of the fact that industry and consumer subsidies have, for the most part, have been significantly reduced or eliminated altogether.
Similar stories can be told about wind generation; electric cars, etc. So the question—at least from a user’s viewpoint—is no longer a political issue of whether one believes in the free market and/or the need for green energy but rather, “Will the investment yield a satisfactory return?
So there are two questions, as I see it:
- Were federal and state government subsidies in solar power—and for that matter in the total green energy industry—a good investment for the country?
- Has this helped preparing our citizens for jobs of the future?”
Data from the article answer both of these questions in the affirmative. The authors cite statistics that say about 9.5 million Americans, or about 4% of the workforce, are employed in a “green economy” and that economy generates $1.4 trillion in annual revenue, or about 7% of U.S. annual GDP. These employees had to be trained in their green-energy jobs, and this training has prepared them for sustainable employment.
I know that there are those who don’t think government should have any involvement in industry, as described above. I’ll point out that many having this opinion don’t seem to question the investment tax credit program, which is a type of government involvement.
Along those lines, I doubt that the positive impact of green energy on our overall economy would be anywhere near what is cited above if industry hadn’t received governmental help. So we need to ask ourselves: Will the United States stick to free-market theory, or will it do what is practical to ensure this country remains competitive in the worldwide economy?
Paul Ericksen is IndustryWeek’s supply chain advisor. He has 38 years of experience in industry, primarily in supply management at two large original equipment manufacturers.