Digital Human Capital Management platforms for managing and transforming your workforce are not always on the radar of manufacturing executives, but they’re critical
to bringing your people along during your M4.0 journey. By Danny Smith
You may not be thinking about the technology available to support and enable your workforce because it’s outside of your lane – but you should be.
The workforce is often forgotten in the excitement and drive to find, test, and deploy new technologies for production. But humans are still critical to ensuring the success of your digital transformation projects, adapting to M4.0 technologies on the line, and continuing to drive successful operations. Labor, after all, is typically manufacturers’ second largest cost after materials and tends to be the most controllable expense managed by manufacturing leaders.
Viewed from the outside, the manufacturing sector continues to march along, despite recent contractions and warning signs. While optimism may be slipping from highs in 2018, slight growth was still being projected as recently as June1. With indicators trending down, why should manufacturing executives venture out of their comfort zones to investigate HR processes and systems? Because the warning signs have been here, and not getting involved may impact your ability to hit your metrics.
Manufacturing Needs Engaged Workers
Skilled workers are getting harder to find, and this won’t change anytime soon. But M4.0 demands different skills in the workforce than in the past. Tech-savvy, creative problem solvers are now in high demand. The skills gap in manufacturing has been increasing for many years. Baby boomers are leaving our workforce at ever-increasing rates, and millennial and Gen Z workers have been slow to fill the gap. Simply put, manufacturing just isn’t high on their list of preferred careers, with less than half saying they believed manufacturing offers fulfilling careers2.
Rather than entering manufacturing, STEM-educated millennial and Gen Z candidates are looking to high tech companies such as Google and Amazon, underscoring the branding problem facing our sector. Furthermore, by 2028 the gap is expected to widen to 2.4 million unfilled jobs – even with 75% of manufacturers willing to pay more3. The current slowdown in the economy will provide only temporary relief.
This is a significant concern for manufacturing leaders. Attracting and retaining a quality workforce continues to be identified by CEOs as their primary business challenge, according to Outlook surveys by the National Association of Manufacturers. One popular approach to filling this gap is to work our existing people more. Overtime continues to be the top method employed to keep production running at pace when roles are unfilled, which may lead to other issues; namely, low engagement.
Workers are less engaged now than ever even as they expect more from their jobs. According to a recent Gallup study, “How Millennials Want to Work and Live”, millennial workers are the least engaged with their jobs of any generation (only 29%) and Gen Z isn’t much better (32%).
“For the first time ever, managers will be able to proactively manage their second largest and most controllable expense [labor], versus having to manage it reactively.”
More concerning, both generations have a significant minority who are actively disengaged (16% and 18%, respectively), which the study describes as “more or less out to do damage to the company”. And this low engagement may be contributing to a particularly concerning trend. According to the U.S. Bureau of Labor Statistics, labor productivity in our sector has been trending downward lately.
On the positive side, there are clear indications that a more engaged workforce can impact the bottom line in a positive way. Organizations that score in the top 25% on employee experience report nearly three times the return on assets compared to organizations in the bottom quartile, and also report double the return on sales compared to organizations in the bottom quartile4. All of this points to the fact that if we work to address the underlying issues, we can achieve great things.
Current Efforts to Address the Gaps
Manufacturers have developed a number of strategies to deal with the workforce issue, including moving operations to other locations where the local conditions provide for more workers with the right skills. But given the current heightened uncertainty around trade and the longer-term commitments moving operations require, most continue to rely on their current workforce. Here’s two techniques manufacturers are currently employing:
Working the same people more. While working current employees more is not the only technique manufacturers are using to bridge the skills gap, it is the most popular. However, relying on overtime can be a mixed blessing. Workers love the extra pay, but too much can lead to burnout and low engagement scores. Finding the right balance is important.
Ramping up training. Many are investing in and/or expanding training programs to reskill their current workforce. Not only does this leverage a talent pool already in-house, it also provides a career path that can improve employee engagement. Be careful not to fall into the trap of thinking these efforts are one-and-done. Continuous people improvement is just as important as continuous process improvement.
A Digital Platform’s Benefits
What’s noticeably missing from efforts to solve the skills gap is a strategy that uses technology to support both skill-building and the primary mission of manufacturing — making products efficiently and effectively. The metrics haven’t changed, the bar is still high, and headwinds are blowing stronger. It’s time to find some leverage.
Most manufacturing executives don’t know a lot about modern Human Capital Management (HCM) platforms, and, frankly, probably don’t give the basics of workforce management much thought. This means that many often aren’t fully aware that the most important workforce management processes – like time and pay – are still done in very manual ways and in disparate systems. After all, when was the last time you took a close look at the workforce scheduler’s desktop when touring the factory?
It may (or may not) come as a surprise that spreadsheets are as common here as elsewhere in our organizations, and the norm is still disjointed, siloed systems that haven’t been updated in many years. To address the challenges of finding, engaging, and retaining workers, manufacturers should strongly consider a digital transformation of their people management systems, and partnering more closely with their human resources group to define requirements for these systems.
Time and Pay Are Basics
Most view pay as automatic, but this is rarely the case on the factory floor. There are constant problems driven by disparate processes, old systems, and ever-changing regulations.
Time and attendance (T&A) systems historically have been separate and distinct from payroll systems. This introduces a risk point: there are two systems of record and T&A data needs to be fed into payroll systems via integrations, assuming the T&A system is not paper-based.
Surprisingly, paper timecards are still out there, and spreadsheets are very common as well. Compounding this issue is that due to historical computational processing constraints, payroll is typically a batch process that happens periodically but with great time sensitivity.
A typical cycle: your T&A cycle closes every two weeks and your workers get paid the following week. If there are issues with the T&A system data – and there frequently are given the age of legacy systems and lack of automation in place to catch errors – corrections need to be made and the data retransmitted. But because of the batch pay cycle, there is a very short time to correct these errors and ensure your worker’s paycheck is correct and on time. Ask your payroll manager about the high stress wait-then-hurry-up life they live at work.
This is a big deal. Anecdotal evidence suggests most conversations between shop stewards and plant management are related to pay discrepancies. Studies back this up. Only 64% of respondents to a recent pay experience survey agreed that they received their pay on time and only 58% agreed they were paid accurately each pay period5.
Paying people correctly may not help with employee engagement, but not paying them correctly really damages morale and leads to very low engagement scores. It’s really table stakes but a shocking number of manufacturers don’t get this right.
“Most view pay as automatic, but there are constant problems driven by disparate processes, old systems, and even changing regulations.”
The best modern HCM platforms unify time and pay, eliminating separate systems of record, integration points, and the time crunch between committing time records and running payroll. This leads to fewer mistakes, less rework, and lower stress for the workforce and management.
Old and/or manual systems can also lead to compliance issues, which frequently end in fines from regulators. Modern HCM platforms automatically identify compliance problems with schedules, flagging versions of schedules that violate local laws, company policies, and/or collective bargaining agreements. Reducing compliance risk may not be viewed a hard cost benefit, but this should be considered at a minimum a smart risk-avoidance technique with quantifiable benefits.
One interesting result of unifying time and pay will especially please operational excellence and plant management teams: the ability to see your current labor expense (not standard cost, but actuals based on compliance) and future projections at any given moment. For the first time ever, managers will be able to proactively manage their second largest and most controllable expense, versus having to manage it reactively when they get actual payroll numbers a few weeks after the work took place. This feature provides a significant advantage that all plant managers will desire.
A modern HCM platform can help you execute your production plan efficiently and with minimal valiance by placing the right people in the right place at the right time, while adhering to rules, regulations, and agreements. And your management team will now have more time to focus on other issues since the labor plan will be automatically generated.
Embedded Learning Management
Most manufacturers have rudimentary learning management systems (LMS) in place, but they are typically stand alone and the compliance training content is outsourced. Examples include diversity awareness and anti-corruption practices. But as the need to continuously train new employees and reskill the existing workforce grows, an embedded LMS will become an increasingly attractive option for scale.
Embedded is the key word. This is how it works best: you create valuable and specific content that can help train, reskill, and transform your workforce for the needs of M4.0. The LMS will serve it up on demand, while connecting the content in learning paths that are attached to a worker’s performance goals, and, ultimately, compensation.
This holistic approach made possible by a modern HCM platform allows progress to be tracked in the context of the worker’s growth and allows for the worker to be proactive in their own development and advancement. This will increase employee engagement directly, especially with millennials and Gen Z workers who want to focus on building out their strengths and having an attractive career path.
Your LMS content can be leveraged in non-traditional ways as well. Imagine being able to engage with potential hires via real training videos that actually show in-situ what the job functions are, and even embedding training materials in the onboarding process to accelerate their ramp-up.
As digital natives, Gen Z workers have grown up watching and learning from videos. You can verify this by reviewing the number of views how-to videos generate on platforms like YouTube. Applying this to the overall employee experience will lead to more engaged workers. However, this only works if the LMS is embedded in the talent offerings of the HCM platform.,/p.
What to Do Next
Walk the factory floor with a sharp eye on your current systems and examine their impact on your ability to complete your primary mission: making product efficiently and effectively. If you find old, antiquated, and disparate systems (or manual processes), you need to attack these with the same zeal that has you engaging in digital transformations across your factories. If you find disengaged workers, investigate how many mistakes are made with their pay, or see if they can self-serve training materials that will help them develop and advance. Reach out to your peers in human resources and discuss your findings with them. Ask about their current plans for digital transformation (if any). Create a plan to work together on these issues.
It’s time you bring your people technology up to M4.0 standards, and keep your people positively engaged – or you may find that your workforce is your biggest limiting factor in realizing the full benefits of M4.0. Do your due diligence and run the numbers. You’ll find that investing in a modern HCM platform will provide a critical foundation for increasing workforce productivity, and that will pay for itself. M
Footnotes
1 NAM Manufacturer’s Outlook Survey Results Q2 2019
2 2018 Leading2Lean Survey
3 2018 Manufacturing Institute and Deloitte Skills Gap Study
4 2019 IBM Financial Impact of a Positive Employee Experience Report
5 2019 Ceridian Pay Experience Report