Working Hard to Avoid the Labor Shortage
Jill Schildhouse is a writer for Inside Supply Management®.
March 2006, Inside Supply Management® Vol. 17, No. 3, page 22
As skilled labor becomes the most valuable business commodity worldwide, organizations should think now about how to secure their future workforce.
At a Glance
The main points covered in this article are:
The sky is falling! The sky is falling! Well, not quite. Perhaps Chicken Little would have been more accurate had he prophesized, "The number of skilled workers is falling!"
For years, forecasters have warned of a changing work environment highlighted by a severe labor shortage. This is due to the retirement of baby boomers, a lack of skilled and experienced replacement workers, technology and increasing globalization resulting in the outsourcing or offshoring of jobs.
Forward-thinking companies have taken note of these predictions and are contemplating the future impact on all levels of their organizations. These companies are finding solutions to cope with the inevitable labor shortage by better predicting their future workforce needs, implementing plans to recruit and retain top talent and training their existing workforce. Don't let your organization be the one that fails to take this warning seriously — smart planning today will ensure a bountiful workforce for tomorrow.
Preparing For the Future
The most severe shortage of skilled labor in history is nearly upon us. And a quick glance at information provided by the U.S. Bureau of Labor Statistics further enforces the cause for concern:
- More than 25 percent of the working population will reach retirement age by 2010, resulting in a potential shortage of nearly 10 million workers.
- In 1978 our workforce rate (combination of a job retention rate and an earnings gain rate) was 3.5 percent. By 2008 it is projected to be 1 percent.
- Employers estimate that 39 percent of their current workforce and 26 percent of new hires will have basic skills deficiencies.
Companies large and small are faced with the challenge of predicting their future workforce needs. "We have a hard time predicting the demands of next month, so predicting things as subjective as workforce needs is really difficult," jokes Stu Reed, senior vice president, Integrated Supply Chain, Motorola Inc., Deer Park, Illinois. "But we achieve this in a couple of ways. First, we are working now to define the supply chain professional of the future — literally, in terms of the career path and the necessary skills to get to my job, if you will. Second, we have partnered very aggressively with key supply chain schools in North America and internationally.
"We validate our model with them and let them know what type of graduates we need for them to provide us."
"It's to their advantage, because from that they get the curriculum of the future. Third, we link to other industries by having benchmarking and transformation discussions. Academia is an excellent conduit in bringing together varying industries, which allows us to validate whether it's something just systemic within the wireless technology industry, or whether it's across supply chains in retail, wireless, mass manufacturing, etc."
Another helpful solution to the labor shortage exists via the outsourcing of non-core business functions, whereby organizations will find that they can make do with less of their own manpower. "Companies are learning to pay attention to their core value-added and concentrating on the talent needs for those areas," says Tucson, Arizona-based William V. Fello, of Korn/Ferry International, whose consulting practice specializes in placing senior supply chain leaders across a variety of industries.
Recruiting and Retaining Top Talent
According to Development Dimensions International Inc. — a global human resource consulting firm based in Bridgeville, Pennsylvania — one-fifth of this country's large, established companies will be losing 40 percent or more of their top-level talent in the next five years. During the same period, the replacement pool of 35 to 44-year-olds will decline by 15 percent. This is why it's imperative for companies to have proactive, as opposed to reactive, hiring practices in place now — before they find themselves in an emergency-driven panic.
With more job openings and less skilled applicants than ever before, workers may find themselves in the comfortable position of being able to job-hop to their heart's (or bank account's) content. While this practice can cost companies thousands in search, hiring and training dollars per employee, the total cost of losing an employee is immeasurable. Just think of all the institutional knowledge and long-standing supplier relationship-specific expertise that is lost when a high-level supply manager leaves your company.
One way to retain your valuable employees is to engage and challenge them in order to ward off boredom. "There's something we call intrepreneurship, which is giving people emotional ownership over a small piece of the organization," says Joyce L. Gioia, CSP, CMC, president, The Herman Group in Greensboro, North Carolina. "When things go well, they feel a sense of accomplishment. People want to see how their individual contribution makes a difference to the bottomline. Part of creating meaningful work is providing challenging work, opportunities to learn and grow, and giving people good coworkers."
The costs of recruiting new talent are increasing through higher wages and competitive benefits packages. Think beyond hiring bonuses, company-paid cell phones and PDAs to concierge services and nap rooms. Even if you are able to nab a desirable worker, it doesn't guarantee a successful outcome. Sadly, statistics show that the failure rate of newly hired or promoted senior managers can be as high as 60 percent.
Our higher-education system provides another solution to recruiting skilled labor. Patrick Penfield, director of the Supply Chain Management Executive Program at the Whitman School of Management at Syracuse University, believes that we will feel the effects of a labor shortage as soon as this year. He suggests that one way for companies to recruit is by taking part in internship programs. "That's where you develop a minor-league system," Penfield says. "You bring students in from good supply management schools, work with them from an internship standpoint and see if these are the folks you want. It's a win-win situation; if you like them, hire them. This helps fill spots quickly when the need arises." Additionally, Penfield says that companies that have formed a relationship with the universities supplying those talented students will see more qualified graduates submitting résumés.
Education Gets an A+
Students who pass their internships with high enough marks to be considered for full-time hire upon graduation likely majored in a degree specific to their chosen field. And this very tailored education is of great interest to all professions, including supply management. "When the baby boomers graduated college, there was no degree in supply chain management," says Gioia. "Because it's now more prevalent, we're graduating a crop of young people who actually have a leg up on the folks who graduated years ago."
The increase of universities offering undergraduate- and graduate-level degrees in supply management is a testament to the demand for educated professionals in this field. The Supply Chain Management Executive Program at Syracuse's Whitman School of Management, for example — the oldest in the country, founded in 1919 — has seen a 15 percent to 20 percent increase over the past three years.
"Because we are a top-10 program, students see that we get a lot of recruiters on campus — and these big-name companies have helped push our program in the right direction," says Penfield. In fact, in mid-November 2005, Syracuse University held its first supply chain career fair. "The demand was so great, we had to limit the fair to 25 companies due to the size of the facility," Penfield explains. "Three hundred students attended looking for internships and job placement from such Fortune 500 companies as Merk, Pfizer and American Standard." Last year, the university placed five of its supply chain graduates with NASA and another six with Elizabeth Arden.
While educational institutions seem to be adapting positively to the needs of large U.S. corporations, education also plays a large role in the available workforce around the world. The global business environment has led to a global battle for talent. Promises of greener paychecks have traditionally caused foreign workers to move to the United States for the right job opportunity or to attend university. U.S. companies have benefited from these foreign-born employees educated in this country, who often find U.S. employment upon graduation. However, research shows that the United States might be losing its edge for attracting foreign students — and this should alarm U.S. employers who rely heavily on skilled foreign workers. Visa challenges, security issues, rising tuition costs and improvements in education overseas are the main reasons for this decline.
A world of no business boundaries also means that employees experienced in working abroad are highly sought-after. "There is a scramble for people with experience in moving plants and supply bases to low-cost regions," says Korn/Ferry International's Fello. "The more experience you have in dealing with Eastern Europe, China and Asia, the better."
Aside from hiring individuals who understand how to get business done in other countries, an understanding of the significant cultural differences is another important issue. "Multinational companies are really going to have to come to grips with the cultural differences between, for instance, how people from India might react versus people from Asia/Pacific, let alone how people within different Asia/Pacific areas, like Singapore or China, might react to the same thing," says Reed.
Generations Working Together
While we just learned that cultural differences must be addressed in the workplace, the issue of ageism is another factor businesses must learn to effectively handle. Just as not all baby boomers attended Woodstock, work 80 hours a week or buy red sports cars on their 50th birthdays, not all Generation Xers are spoiled, iPod-toting, non-voting slackers. While these clichés might seem silly all strung together, these stereotypes exist in the business world and may prevent the generations from working together effectively.
While Reed says that Motorola is blessed with a hot industry and has seen no signs of a labor shortage, he explains that it's hard to manage the balance of new and old workers: "Supply chain is a relatively old function. But as academia makes it into a new profession, the learning of those new people might outpace the knowledge of those with great experience within the company. It makes for a tough balance — managing and developing internal talent versus going externally to schools or other companies that might have had better professional training."
Younger generations, however well educated, still have a lot to learn about the business world — things their predecessors perfected decades ago. "They are lacking experience and require more structure and supervision," says Gioia. "They are also inexperienced in people skills. Generation X and Millennials (see the sidebar above for definitions of each generation) have not had the opportunity to spend a lot of time building relationships to work together. Gen X in particular don't like teams. When they came home from school, nobody was waiting for them. This latch-key generation had to take care of themselves and became fiercely independent."
On the plus side, Generation X and Millennials offer much-desired technological know-how. "This generation fits interestingly into supply management because so much of it is now computerized," Gioia points out. "They can relate to that much better than older folks who are accustomed to interpersonal relationships and less of the technology that's applied today."
If you're feeling gloomy as the idea of a bleak labor forecast settles in, take comfort in knowing that the labor force participation rate of older U.S. workers is increasing. This means that older workers are not simply rolling over and retiring. Some are cutting down to part-time consultancy, while others remain full-time employees. While this may be due to improved health and greater longevity — or an unfortunate financial effect of the recent economic dark days — it is good news for many companies who cannot afford to lose these valuable assets.
While specific industries are sure to feel the effects of a skilled labor shortage earlier that others (such as healthcare and engineering), eventually this phenomenon will not be so discriminating. The companies that will succeed in this battle for talent will be those that heeded the predictions of workforce forecasters and took proactive measures to protect their most valuable assets — their people.
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