June 21, 2022 Labor Shortage Needs New Approach to Worker Retention

Manufacturers need to break out of the old paradigm as new approaches to training are the linchpin to human capital success.

By Shannon Gabriel, Managing Director, Leadership Solutions Practice, TBM Consulting

The assembly line was experiencing 65% turnover, a problem so severe that long-time veterans of the plant were reluctant to train new people. Why bother if new employees would exit as soon as training was completed?

Welcome to the challenging reality of the 2022 workforce shortage. While it’s a problem in almost every industry, it’s particularly acute in manufacturing. As of the first quarter, employment in domestic manufacturing was down 219,000 from pre-pandemic levels — this at a time when Industry 4.0 is supposed to be revolutionizing the sector through automation and IoT innovations and bringing manufacturing jobs back on shore.

While digital transformation is delivering productivity enhancements and new efficiencies, in many cases outmoding jobs that were dangerous and error-prone, it’s also creating new challenges related to human capital. Even jobs requiring more skill and attention to detail are harder to fill, partly because of the absence of training and development to build an adequate pipeline of talent. Meanwhile, labor-hungry companies are drawing workers from all corners — take Amazon’s sprawling warehouse operations that target many of the same candidates who would normally occupy key roles on shop floors. Moreover, the power and promise of automation lends to perceptions among the most attractive candidates, those seeking long-term careers, that it’s only a matter of time before today’s jobs become obsolete.

Success for HR teams demands manufacturers break out of the old paradigm. The natural tendency for employers is to double down on recruiting (i.e., do what isn’t working, only more of it). Many overlook another key component – the importance of training and development.

As the financial issues related to human capital become glaring to management — the high costs of turnover and the lost revenue from diminished production — the argument to invest in training may seem counter-intuitive or feel like throwing good money after bad. New approaches to training, however, are quickly becoming the linchpin to human capital success, driving productivity and improving retention. It is also becoming a differentiator to recruit the kind of employees seeking a career versus just a job. In the case of the aforementioned manufacturer, a strategic shift in emphasis on employee development helped the company reduce turnover to zero.

Reevaluating the Status Quo

The typical scenario for new hires is a recipe for failure. They shadow someone for a few days (in some cases, a few hours) and then it’s “baptism by fire.” The result is predictable: New employees become frustrated because they’re slower and make mistakes, and their experienced co-workers often are impatient creating tensions that fuel turnover. Other approaches do exist.

Teach through Empowerment
In some cases, it can make sense to create a separate line altogether until new hires can keep pace with regular production lines. This gives floor workers the space to “learn by doing” without the early pressure that implants indifference.

Break the Hierarchy
By placing dedicated trainers on the production lines, organizations can instill a sense of competency in the new hires.

Emphasize the Carrots; Not the Sticks
It’s also important for the most ambitious and capable employees to see a path for growth. Some manufacturers are creating specialized programs that identify workers within the company to train in higher-skill positions, like assembly.

Dedicated training programs aren’t typically in the playbook of manufacturers, who prefer measurable KPIs related to the manufacturing process to enhance productivity. While training efforts may seem less quantifiable, the math is compelling in hindsight: A fair estimate for hiring each worker is approximately $5,000. If training can reduce turnover from 50% to 25%, even a 100-person shop will see its savings alone pay for enhanced training. There are also the lost sales to add to the equation: If an average employee is responsible for generating $100,000 in revenue per year and turnover yields the FTE equivalent of five open positions, the revenue impact can reach $500,000.

Keeping team members happy and motivated

While training is critical for new employees, some efforts can have a ripple effect.  Starting pay, for instance, has become table stakes to attract employees, but can backfire when the compensation of tenured workers is overlooked.

But the most important retention factor is communication. It may sound too simplistic, but it’s the glue that keeps good workers in place. Many manufacturers, however, don’t have the infrastructure in place to facilitate transparency internally.

Workers want to know: What are the company’s goals and is it meeting them? How is their specific task tied into the bigger picture? And how can workers advance in their careers?

Purpose and goal-setting are absolutely critical to an employee’s commitment. Workers don’t want to feel like a cog in the machine. Good communication can help employees feel valued, but it takes consistent, concerted efforts to meaningfully engage with the workforce.

The status quo in hiring and onboarding doesn’t reflect the competitive dynamics in the marketplace and how human capital can be nurtured to build more resilient operations. Today’s job market requires more innovative approaches to identify a quality labor pool and a more comprehensive onboarding process. Good and consistent communication helps create the bond to retain talent.  Effective change requires management to rethink dated procedures and make an investment in time and resources to put new strategies in place.

Shannon Gabriel, spearheads TBM Consulting’s Leadership Solutions practice, working with clients on human capital issues that impact top-line growth and EBITDA and improving organizational change management, which affects morale and retention. Ms. Gabriel has more than 20 years of experience helping organizations solve their most complex human capital challenges, including HR strategy, talent/performance management, hiring strategy and execution, and supporting leadership development and succession planning. 

For more information on TBM Consulting, please visit www.tbmcg.com.

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