CHART OF THE DAY: Manufacturing Output and Employment

I am sure you have seen something in the news about President-Elect Trump's negotiations with the United Technologies owned Carrier Corp to eliminate or at least reduce Carrier's plans to close and/or reduce manufacturing operations in Indiana, and shift production, (and create jobs), in Mexico.  After a bunch of back and forth, (and back and forth), and some finger pointing from both sides, it does appear that Trump's efforts will at least for the time being, keep some of these operations and jobs in the USA.

I don't really want to get into the politics part of this story, but rather want to present some data (from the fantastic St. Louis Fed FRED site), that reminds us that companies packing up and moving manufacturing operations from the US to other, less-expensive places is only part of the reason why US manufacturing jobs continue to be pressured. 

Here's the data showing US manufacturing output, (left axis, and indexed to 2009) and US manufacturing employment (right axis) - then some FREE comments from me after the data.

Apologies if some of the fine details of the chart are a little hard to read, but the key things I think to take away from this data are these:

1. Manufacturing employment has been on a steady downward trend since 1980s, with the steepest declines starting in around 2001 (which coincides with an increase in offshoring activity to China and other places); and then again during the financial crisis and recession of 2008. But with the exception of recession-driven dips, manufacturing output has been increasing since the 1980s and is now near its pre-financial crisis level.

In other words, US manufacturers have continued to increase output, and pretty dramatically post-recession, while employing fewer workers.

2. So while outsourcing and offshoring are at least partially to 'blame' for the loss of US manufacturing jobs, those causes can't be the only or even probably the primary driver of manufacturing job loss. Increasing output, with fewer workers means one thing - improvements in manufacturing productivity that have to be attributed to technology, automation, robots, etc. US (and global) manufacturers are simply getting better and more efficient at producing goods, particularly electronics, cars, even steel. Technology gains will continue pressure organizations to 'keep up' with competitors and seek to reduce labor costs via automation.

3. While Mr. Trump's efforts with Carrier probably should be commended, we also should not be beguiled that these kinds of one-off decisions are likely to cause any kind of meaningful or lasting turnaround in the long-term trend of manufacturing job declines. As fast as a thousand ot two jobs might be saved by the application of political pressure, it is also extremely probable that technology/automation will jump in to ratchet up the continued pressure on manufacturers to get even more productive.

Finally, maybe it is time that we start to look a little differently about manufacturing jobs as somehow 'better' or more desirable than other types of jobs. There will always be manufacturing in the US, but as these trends show, it will almost certainly continue to decline as a percentage of the labor force.

Technology-driven shifts in aggregate employment just happen. How many farmers do you know, if you get my meaning. We have to learn as a country and as individuals, to adapt.

Have a great week!

Work and the next wave of industry transformation

I like reading stuff from McKinsey and the other Tier 1 management consultancies out there like BCG, Bain, Booz Allen and the like. Sure, sometimes they are a little behind trend, try to place names (and the ensuing trademarked models and frameworks) on general business conditions or trends, and can be accused of being kind of a relic of the 80s and 90s, and out of touch with the modern age of technology and business.

But they still do, reliably, churn out some snappy graphics that make for interesting blog fodder, so that is probably why I still love them. 

Case in point, from our pals at McKinsey the below graphic that they call the 'Industry 4.0 Digital Compass', which "consists of eight basic value drivers and 26 practical Industry 4.0 levers. Cross-functional discussions that will help companies find the levers that are best suited to solve their particular problems." These are the big trends that are impacting manufacturing, (and really all kinds of industries), like digital technologies, the internet of things, the increased use of business intelligence tools, and advances in robotics and other forms of automation, and some ideas of how these trends will be applied in business.

Take a look at the chart, paying particular attention to the slice called 'Labor', as that is the section I want to dig into next:

Remember, in this diagram, the items in the inner circle, ('Labor', 'Time to Market', 'Quality', etc.), represent 'value drivers' for the firm, i.e., things that can be exploited to make more profit.  The items on the outer ring represent 'levers' that the savvy CEO or CHRO can pull to unlock that value. Let's take a look at McKinsey's four 'Labor' levers for a second and see what, if anything, they might mean for work, workplaces, labor, and HR.

1. Human - Robot Collaboration - For hundreds of years many management and leadership ideas centered around trying to find ways to get people to work better with each other and to more effectively collaborate. These efforts, largely, have had mixed results. After all, the other guy is either a buffoon, or is not motivated, or doesn't have the right skill, or is an egomaniac - #amirite? So instead of trying to 'fix' annoying people so that they will be able to collaborate better, the next phase of technological transformation will focus on making us work better with the robots. This is a noble idea, and likely spells trouble for many of us. While we will remain buffoons, unmotivated, unskilled, and egomaniacal, our robot co-workers will suffer none of these conditions. 

2. Remote monitoring and control - Let's take this one very literally and assume this means increased digital monitoring of workers and workplaces, probably through advances and increased adoption of wearable technologies. These will gain traction in many industrial settings as even today wearable technologies from companies like Wearable Intelligence have created incredibly powerful and productivity, (and safety) enhancing applications for manufacturing and field workers. In fact, the McKinsey piece references a trial of a Virtual Reality technology by the company Knapp AG that allows workers to find, identify, and take stock levels of items all via the wearable VR headset. These are extremely interesting and exciting applications of wearable technology in the workplace and likely will ultimately become the lasting means of impact and significance for a wide range of Google Glass type devices.

3. Digital performance management - McKinsey (probably) isn't referring to the simple practice of taking very traditional HR-led performance management processes and documents and automated same. Rather, this is probably a trend, in combination with number two above, to leverage sophisticated tools and technologies to actually measure and improve performance. A great example of this is from the world of sports, specifically how the teams in the NBA have adopted a technology called SportVU Player Tracking, which users a battery of digital video cameras to create a massive data set of player movements, ball movements, and individual and team outcomes of every play in a basketball game. This massive data set, and the ability and technology to make sense of it all, has allowed coaches to better prepare team strategy, team leaders to evaluate player performance fairly and objectively, and players to learn how to become more effective on court. These approaches have relevance beyond sports into areas like agriculture, construction, and more.  It is about using data to make people better and organizations more successful and it is coming.

4. Automation of knowledge work - Now we are getting to something probably a little more near and dear to the minds and hearts of folks who are in HR. The first few trends, since this entire construct has a manufacturing/industrial context, are mostly focused on how technology can improve the work performance of front-line, field, assembly, and distribution workers. While many of these kinds of jobs can be augmented with tech, it is also true that the current limitations of robotic technology in particular make many of them still immune from complete automation. Robots for the most part still are not able to take on tasks that require highly variable movements, fine motor skills, and navigating safely in close, uneven, or unpredictable environments. But knowledge work has none of those physical barriers to automation. If the job primarily involves moving bits of information from one digital format to another, then the algorithms are probably not much farther behind than we think. 

Taken together, and as a part of the macro-level look at the future of industrial transformation, these labor and workforce trends seem to fit and make sense. Technology will change work in many different and subtle ways, but the undercurrent of all of them speaks towards a future with much closer integration between people and technology - often at a physical level. We will wear technology at work, be tracked in more ways than before, and have to interact with more forms of technology, like robots, than we might be comfortable with.

And the best, most forward-thinking HR professionals are thinking about and leading their organizations in these directions today. 

If manufacturing really returns to the US, it will be with far fewer humans

The return or rebirth or re-emergence of American manufacturing continues to be a desired if elusive goal. Medium or moderately skilled manufacturing jobs, long the foundation of much of the American middle class, have been on a long but steady decline over the last several decades. 

Check the below chart (from the New York Times) to see some data on the percentage decline in employment in various manufacturing sectors:

The data on job losses since 1990 show the most dramatic decreases in employment in textiles and apparel. Which makes sense just by thinking about how the vast majority of the clothes we buy and wear are made somewhere else. The history and reasons for this shift to overseas import of textiles and apparel are pretty well understood - manufacturers relocated operations and increased capacity in low and even lower wage places in the world - China, India, Bangladesh, and so on.

But as the recent New York Times piece "U.S. Textile Plants Return, With Floors Largely Empty of People" does a great job of documenting, even textile and apparel manufacturing can return to the United States, provided that the conditions whereby the American companies can  compete, chiefly increased automation thus reducing 'people' costs, are in place.

In the piece (which is kind of long, but you should read it all anyway), we see how textile plants in South Carolina are re-opening and even expanding their capacity as the advances in technology and automation, coupled with the logistical benefits of being able to produce where the customers want to sell, are enabling this rebirth or renaissance of sorts.

Except that the 'rebirth' requires many fewer people than in the heyday of American manufacturing.

From the NYT piece:

American manufacturing has several advantages over outsourcing. Transportation costs are a fraction of what they are overseas. Turnaround time is quicker. Most striking, labor costs — the reason all these companies fled in the first place — aren’t that much higher than overseas because the factories that survived the outsourcing wave have largely turned to automation and are employing far fewer workers.

But as manufacturers find that American-made products are not only appealing but affordable, they are also finding the business landscape has changed. Two decades of overseas production has decimated factories here. Between 2000 and 2011, on average, 17 manufacturers closed up shop every day across the country, according to research from the Information Technology and Innovation Foundation.

Now, companies that want to make things here often have trouble finding qualified workers for specialized jobs and American-made components for their products. And politicians’ promises that American manufacturing means an abundance of new jobs is complicated — yes, it means jobs, but on nowhere near the scale there was before, because machines have replaced humans at almost every point in the production process.

Take Parkdale: The mill here produces 2.5 million pounds of yarn a week with about 140 workers. In 1980, that production level would have required more than 2,000 people

It is a story I think we are going to continue to see - automation and robots and logistics are going to conspire to make 'Made in America' a more commonly seen tagline on all kinds of products.

But this new 'Made in America' will be far different than what many of us remember - when the colossus' of American manufacturing companies employed veritable armies of workers to churn out the products for the domestic and export markets.

It is amazing and incredible to read a story like the Times piece that describes just how some American manufacturers are coming back, and are on par competitively with anyone else in the world. But we also need to remember that just taking the one example from the Parkdale mill, what used to be the work of 2,000 is now the work of 140.

Those 140 jobs have indeed come back. 

There are 1,860 that are almost certainly never coming back.

Have a great weekend!

Insourcing and Building Internal Capability

Insourcing, the practice of returning previously externally contracted operations, processes, or other business functions back to internal management and control has been in the news quite a bit recently. The Atlantic has a great piece titled 'The Insourcing Boom' that describes several examples of what might be the start of an insourcing trend by US manufacturers. As the Atlantic piece describes, the manufacturing of products of all kinds, from dishwashers to elevators and even frisbees are being returned to US facilities for a number of reasons, primarily that the absolute cost advantage of offshore manufacturing has been eroding over the last several years.

In the manufacturing context the trend towards increased insourcing is certainly driven by costs as well as concerns about product quality and enhanced customer service. But these are not the only reasons and the only kinds of industries that have to think about the mix of what capabilities they need to maintain internally and what kinds of things they outsource. Even in the digital age, organizations that trade in information and data also have these kinds of decisions to make, and often, as we see in a recent example from the USA Today, the drivers are not cost or availability of resources, but rather an assessment of what kinds of capabilities are true differentiators for the organization.

For many years USA Today has run a popular Super Bowl related program called the Ad Meter, where members of the general public weigh in and rate the commercial advertising that runs during the game. The Ad Meter has grown since its inception in 1989 to become a really influential measure of relative success or failure of the high stakes/high cost world of Super Bowl ads. Last year USA Today partnered with Facebook to expand the reach and participation of the Ad Meter program, but for this year's game has elected to go it alone. USA Today's reasons to end this partnership, and essentially 'insource' this social element to the program are explained below:

USA Today decided not to repeat the Facebook partnership partly because it plans to expand the Ad Meter and related elements beyond the Super Bowl, Mr. Kramer said. "We want to do this ourselves because we're going to do a lot of these," he said. "We need to build the apparatus ourselves so we'd own it."

"Look, Facebook is great and we like working with them, but if you look at this organization today top to bottom vs. a year ago, we're a lot more digital," he said. "And we need to build that internally."

Not that complex, right?  If the capability, (in this case enhanced social engagement and expansion to more digital platforms), is considered core, essential, or otherwise what the future of the organization really rests on, then that capability must exist internally. It probably doesn't matter to USA Today if in 2013 that Facebook could exercise the program better, if USA Today can't eventually execute on their own, then well, there probably won't be much of a USA Today left in a few years.

I think in 2013 and the years after that we will see in organizations increasing tension and discussion about the relative balance of outsourcing vs. keeping capability (and talent) in-house. While it has become much easier to simply enter into external relationships with companies and individuals for the provision of services and functions, many organizations will have to ask themselves if they have moved too far to the outsourcing side of the pendulum.

What do you think? Has cost-cutting and the less risky decision to outsource capability in the last several years left organizations with a kind of self-created talent gap?

The Just in Time Workforce

Just-in-time or JIT is a concept from manufacturing, more specifically from the discipline of supply chain management that is designed to reduce a manufacturer's costs and increase efficiency by improving the flow of supplies and goods, reducing the amount of in-process inventory that is purchased and stored, and more effectively aligns production, (and production workers), with customer demand.Juicy

Essentially, JIT can be simplified as a process where component parts inventories are kept extremely low, production is raised or lowered to match ebbs and flows of customer demand, and the overall manufacturing process becomes more agile and less costly.  JIT has been around for a long time in the manufacturing world, but now, and as highlighted by a recent piece in the New York Times titled 'A Part-Time Life, As Hours Shrink and Shift, many of these concepts are bleeding into retail and service industries as well.

In the NYT piece, we learn how in more and more Part-time dominated workplaces like retail and fast or fast-casual dining, organizations and front-line managers are using JIT concepts, (enabled by more sophisticated workforce scheduling technologies), to better match and adapt the part-time worker's schedules to ever-shifting customer demand and conditions. Take a look at an example of near JIT scheduling from the NYT piece:

At the Jamba Juice shop at 53rd Street and Lexington Avenue in Manhattan, along with the juice oranges and whirring blenders is another tool vital to the business: the Weather Channel.

The shop’s managers frequently look at the channel’s Web site and plug the temperature and rain forecast into the software they use to schedule employees.

“Weather has a big effect on our business,” said Nicole Rosser, Jamba’s New York district manager.

If the mercury is going to hit 95 the next day, for instance, the software will suggest scheduling more employees based on the historic increase in store traffic in hot weather. At the 53rd Street store, Ms. Rosser said, that can mean seven employees on the busy 11-to-2 shift, rather than the typical four or five.

That sounds really cool, and pretty smart as well, no?  You could even argue that incorporating an external condition like the weather into financial, operational, and workforce planning is a perfect example of the latest buzzword 'Big Data'. Either way, for the managers and owners of the Jamba Juice it is a smart application of data, technology,and understanding of their customers to more efficiently meet demand, (and increase profits).

But unlike manufacturing components that sit on a shelf in a warehouse waiting to be uses, the JIT levers in this example are actual people, the part-time workers of the Jamba Juice that, again unlike spare axles or tires, have lots of other things to balance around their work making smoothies.  Other jobs, school, family obligations, child care - it could be anything, but in a world where their work schedules become less and less predictable, (more JIT), their challenges and stress levels naturally ratchet higher. 

Most of these folks, I would bet, are not just sitting at home checking the Weather Channel like their managers are, waiting to see if a 90-degree day might mean they'll get called in to work.

The point of this?

I suppose that in a world where data, technology, and the increasingly powerful combinations that are forming from the two that enable us to get better and better at utilizing resources of all kinds, that the actual Human resources get the same treatment as the other components of production.

Have a great week all!