Finding opportunities to enhance workforce investments
For years, there’s been an energetic political debate about U.S. manufacturing employment.
While low- to mid-skill production jobs were long a staple of the middle-class economy, less-restrictive trade policies, foreign currency manipulation and the recession all contributed to the loss of approximately 5 million domestic manufacturing positions since 2000.1
On the other hand, as most lower-skilled work drifted to overseas markets, domestic manufacturers aggressively invested in high-tech design and production operations. Some of those new functions have been automated, and the shift is expected to create 3.5 million new manufacturing jobs over the next decade.2 The need for employees to take on those new jobs, coupled with an ongoing shortage of applicants with strong technical training or skills, is causing manufacturers to reassess how to optimize their returns on workforce-related investments.
Given the continual rise in health care costs, it’s no surprise that 74 percent of participants in a 2015 National Association of Manufacturers (NAM) survey identified it as their top business challenge.3 While the health care discussion remains relevant and many actions are being taken by manufacturers to control these costs, there are other centers of workforce expense where manufacturing leaders should focus their efforts. The following review of three key areas—employee training, safety and engagement―illustrates how some companies have reaped positive returns on investment in those areas.
Linking training to return on investment
In an era of advanced manufacturing technology, training is clearly a necessary investment. However, with companies spending an average of $3,000 to train new hires and $1,500 per year to help current employees stay current on production techniques,4 many business leaders are taking a harder look at the value delivered by their chosen instruction methods.
To gauge the success of any training program, manufacturing leaders must establish specific cost/benefit measures to assess their return on investment (ROI). Training costs should include all internal salary and benefits expenses (or external consulting fees) as well as related program development, meeting, facilitation/instruction, technology and site costs. In manufacturing, delivered training benefits may include production targets (such as increasing the percentage of quality parts or product, or reducing scrap generated per day), human factors (such as increasing personal productivity or reducing employee absences and turnover), and safety factors (such as improving the use of personal protection equipment or cutting the number of workplace accidents).
Where have manufacturers generated solid ROI on their training programs? Following are real-world examples from large, mid-size and small companies:
- Waste reduction. In 2013, an $8 billion Georgia-based flooring manufacturer decided to design a training program to reduce the amount of waste being sent to landfills. As part of its single-plant pilot program, a facilitator with a background in sustainability spread sample waste stream items on a tarp, and asked line employees to help determine how those materials could be kept from going to landfills. Employees who came up with the most creative, useable solutions were then paired with the facilitator at other plants in a worker-centered twist on the “train the trainer” concept.5 Since that time, the training activity has been rolled out to dozens of the company’s manufacturing sites, and the effort delivered $6 million in waste reduction between 2014 and 2015.6
- Leadership development. A $470 million wholesale electrical supply distributor in Iowa is employee-owned, which helped pave the way for a successful emerging leaders training program. In this ongoing initiative, selected participants receive an initial assessment of their leadership skills before embarking on an 11-month series of training, job shadowing, mentoring sessions and project assignments. At the end of the program, participants deliver a summary presentation of their learning journey to company leaders. Since the program began, the ROI can be measured by personal growth and advancement: Half of participants advanced into a new or better job after each round of this leadership training program, and 90 percent subsequently served on company committees or other internal leadership roles.7
- Skills development. A $130 million precision metals manufacturer based in Pennsylvania was way ahead of the training curve, having launched its own competency-based apprenticeship program in 1953. The company currently invests about $55,000 annually (including on-the-job salary and benefits as well as classroom training costs) for each apprentice, teaching them to operate a wide range of equipment, such as commercial numerical control milling and turning centers, stamping presses and electrical discharge machining systems. To calculate training ROI, the company examines a four-year running average of training time versus direct labor benefits (time actually on the job), as well as the number of multiple machines apprentices can successfully operate. By those measures, the company estimated ROI for each graduate of a recent apprenticeship class at $137 in direct revenue for each dollar spent on training.8
Safety pays with investment, collaboration
Few topics will get a group of employees or business leaders more animated than the rising cost and complexity of the U.S. health care system. But those same groups often spend far less time considering thoughtful safety initiatives, which can reduce reportable incidents and related costs while improving productivity and workplace morale.
According to the most recent Liberty Mutual Workplace Safety Index, on-the-job accidents and injuries resulting in six or more days away from work cost U.S. employers about $62 billion in 2013, based on data collected by the federal Bureau of Labor Statistics.
While manufacturing plants are far safer than they were a generation ago, the combination of human activity and heavy equipment still poses risks. In fact, the Occupational Health and Safety Administration’s severe injury reporting program reported that manufacturing accounted for 26 percent of all injury-related employee hospitalizations in 2015, and an eye-opening 57 percent of amputations due to workplace accidents. In addition to the obvious costs, which may include workers’ compensation claims, medical bills and potential regulatory penalties for safety violations, OSHA estimates that indirect financial, reputational and productivity costs can add up to 4.5 times the direct expense of each accident.9
Due to these risks, an increasing number of manufacturers are choosing to invest in safety improvements. In a 2016 capital spending industry poll by Assembly Magazine, 24 percent of manufacturing respondents said they planned to invest in changes to increase safety or improve ergonomics. That’s a five-point rise in the past two years, and the highest overall percentage of firms making safety investments in the history of the survey.10
While training ROI is relatively simple to calculate by using a sound formula, “return on safety” investments often require a longer time horizon to judge results. Following are three examples of companies that have been rewarded for their commitment to safety programs:
- Real-time safety reporting. Nearly 30 years ago, the newly-appointed chief executive officer of a global fabricated metals manufacturer tasked the company’s information technology staff with building a real-time safety-reporting system, which would allow the company’s global metal processing locations to post all injury or incident reports within one day of occurrence. The system was also designed to capture root-cause analyses for accidents and resulting corrective actions. The safety reporting tool helped deliver powerful results, as the company’s lost-workday rate dropped from 1.86 to 0.23 and its market value ballooned from $3 billion in 1986 to $27.5 billion at the end of the CEO’s tenure in 2000.11 The culture change has remained intact, with the lost-workday rate in June 2016 now at 0.69.
- Employee-driven safety modifications. A 1,600-employee pipe and valve manufacturer in Pennsylvania has spent more than $2 million over the past two years on safety-related facility and equipment improvements. For example, the company used employee feedback to redesign the protective gear used around foundry operations, making it both safer and lighter. In addition, the business installed new cranes and other lifting equipment to prevent the need for any employee to lift more than 40 pounds, while also investing in an automated ladle relining system that eliminated ergonomic and safety issues facing workers who previously used jackhammers to do the job. Since 2008, this intensive safety focus has reduced the company’s annual reportable incident rate by 82 percent.12
- Workplace hazard reduction. A 125-employee packaging products manufacturer in Illinois started making safety changes after a voluntary OSHA inspection found a range of hazards, including missing machine guards, electrical system problems and subpar written safety and health policies. After working with OSHA to select and train an internal safety committee, the company launched a Stop, Think, Evaluate and Proceed (STEP) shop floor program that helped proactively identify workplace hazards and improve incident reporting. Since beginning this collaborative effort, the company has reduced its annual reportable injury rate by over 70 percent, and its total DART rate (days away, work restrictions and transfers) to 1.53. According to the Bureau of Labor Statistics, the average DART rate for similar businesses was 2.5.13
Better engagement, smoother operations
While some of the stock market and job loss wounds caused by the Great Recession have healed, scars remain on the level of commitment employees bring to their jobs. In fact, a recent Gallup national poll found that just over 31 percent of U.S. employees were engaged (meaning “involved in, enthusiastic about and committed to”) their workplace. Sadly, the manufacturing and production category finished dead last in this measure, with a mere 23 percent of surveyed workers saying they were engaged on the job.14
Aside from the obvious issues of higher absenteeism and lower productivity, employee disengagement has other substantial costs. In a collaborative study by Queens University and Gallup, companies with high disengagement levels were found to have 49 percent more accidents and 60 percent more errors or product defects than those with a highly engaged workforce. Those issues also extended to the bottom line, as low-engagement companies delivered 16 percent lower profitability and 65 percent average lower share price than firms with happier employees.15
How can a focused employee engagement effort drive solid ROI? Consider the example of a 140-employee iron castings manufacturer in Minnesota that used a combination of communication tools and incentives to engage its workforce on solving key production challenges. More specifically, the company wanted to shrink a lengthy window on order lead times, cut work-in-progress inventory and improve on-time deliveries. After investigating the issues, company leaders found a range of causes, but no existing system to make employees part of the solution.
To engage workers, the firm’s leaders communicated the key issues and reported the investigation findings in a company meeting. Then, the leadership established key performance indicators backed by financial incentives for improvement, and installed several digital boards on the shop floor to show real time progress against targets. Over time, the company’s average order lead window was cut from eight to two weeks, work-in-progress inventory was reduced from an average of 30 days to 18 hours, and on-time deliveries rose from an average of 85 percent to 99 percent.16
Take a closer look
When it comes to workforce investments, pay and benefits usually attract the most attention from both business leaders and employees. However, that view often leaves a considerable amount of value on the table, in the form of marginal returns on employee training, safety and employee engagement costs. By aligning those activities with specific ROI targets, you can easily calculate the value those investments are delivering to your company, while also making employees much stronger partners in the company’s success.
 Scott, R., “Manufacturing Job Loss: Trade, Not Productivity, is the Culprit.” Economic Policy Institute (August 11, 2015)
 “Top 20 Facts About Manufacturing.” National Association of Manufacturers
 “Shaping Up: Manufacturers Seek Flexible Health Care Options to Reduce Costs.” National Association of Manufacturers
 “2014 Manufacturing Skills and Training Study.” The Manufacturing Institute
 Freifeld, L., “Training Top 125 Best Practice: Zero Manufacturing Waste to Landfill at Mohawk Industries.” Training Magazine (November 17, 2015)
 “Training Top 125.” Training Magazine (January-February 2016)
 “Case Study: Oberg Industries.” MetalForming Magazine (May 2012)
 “OSHA’s Safety Pays Program.” (2016) Occupational Health and Safety Administration
 Cable, J., “NSC 2013: O’Neill Exemplifies Safety Leadership.” (October 3, 2013) EHS Today
 Sprovieri, J., “ASSEMBLY Capital Spending Report: Capital Spending to Increase.” Assembly Magazine (December 7, 2015)
 “Victaulic Honored as One of America’s Safest Companies.” Victaulic Corp. (December 22, 2015)
 “Essentra Specialty Tapes Achieves Safety and Health Excellence.” Occupational Health and Safety Administration (2015)
 Adkins, A., “Majority of U.S. Employees Not Engaged Despite Gains in 2014.” Gallup (January 28, 2015)|
 Cameron, K. and Seppala, E., “Proof That Positive Work Cultures Are More Productive.” Harvard Business Review (December 1, 2015)
 “Dotson Iron Castings: Impressive Performance Improvement Through Internal Employee Communications.” PDP Solutions
Cutting-edge digital technologies are disrupting conventional approaches to both production and workforce needs.
With much of the manufacturing workforce set to retire soon, companies that make work more personally satisfying will reap the rewards.