Even with the underlying uncertainty caused by the presidential election, West Michigan manufacturers remain generally optimistic about the year ahead.
Although proposed changes to international trade policies, health care regulations and a move toward isolationism have caused some concern, most executives believe the economy will continue to grow in 2017.
While the theme of struggling to find qualified workers has pervaded the recent economic recovery, manufacturers now say they’re fighting to retain the people already on their payrolls. Increased competition for talent from other manufacturers and other industries means workers are more likely to leave a company for even a slight bump in wages, they said.
For companies, that results in ever-increasing training costs stemming from employee turnover, costs executives worry will increase in the years ahead.
To discuss the challenges and opportunities manufacturers face, MiBiz convened a group of executives for a roundtable discussion. Participants along with this reporter, MiBiz Publisher Brian Edwards and Editor Joe Boomgaard were:
- Michael Davenport, president and CEO of Jireh Metal Products Inc., a Grand Rapids-based metal stamper
- Jeff Dolbee, CFO of ADAC Automotive, a Grand Rapids-based automotive supplier of interior and exterior plastic components
- Steve Dufon, vice president of sales and marketing at Fruitport-based Motion Dynamics Corp., a manufacturer of precision wire and springs for the medical device industry
- Tom Haas, president of Grand Valley State University
- Omar Hall, vice president of sales at NN Inc., a Tennessee-based automotive supplier that acquired Autocam Corp. in 2014
- Mark Kinsler, president of Trendway Corp., a Holland-based office furniture manufacturer
- Marc Schupan, CEO of Kalamazoo-based Schupan & Sons Inc., an industrial recycling and manufacturing company
- Bill Small, vice president of technical services for The Right Place Inc. and regional director of the Michigan Manufacturing Technology Center-West
- Simon Whitelocke, president of ITC Michigan and vice president of ITC Holdings Corp., the Novi-based electric transmission company that sponsored this roundtable discussion
- Tim Zajac, director of finance at Mann+Hummel USA Inc., a Kalamazoo-based automotive supplier of plastic injection molded air induction components.
Here are some highlights from the discussion.
What’s one mission critical trend or strategy that your company is pursuing in 2017?
KINSLER: One of the things that we’re really focused in on is (talent) attraction and retention. People will leave our plant for 25 cents an hour more unless they understand some of the other inherent benefits we have at the organization. We spend quite a bit of time on wellness programs, education and talking about financial literacy. Holland, Michigan has 3.5 percent unemployment. So beyond full employment, it’s a bear out there for talent as I’m sure everyone else in this room is having the same issue.
SMALL: That’s probably where we’re helping people the most. Because they have a shortage of skilled workforce, (it’s) trying to figure out ways to help them improve their processes and sometimes automate.
DOLBEE: We’re on a cycle where we are on the right programs and seeing pretty large growth. Our window out is one that says how do we fill what might be a gap in three or four years. Realistically, ours isn’t so much in skilled trades, because for every 10 unskilled, we need one or less on the skilled side. While they are hard to find on the skilled side, retaining unskilled is more critical. We’re experiencing upwards of 2 percent turnover a month. That’s 24 percent a year. The cost of continuous training is pretty high. We’ll hire 18 people today for the shop floor.
DOLBEE: Literally today. We are bringing in upwards of five to 15 (new workers) a day. We use a third-party service, which to be honest with you, I’m questioning because our difference between switching those providers over the last couple has been nominal, yet expensive. To my knowledge, we’ve gotten virtually nothing out of it.
I’ve heard similar criticism from manufacturers stemming from the fact that temp agencies are paid on placement, not retention. Is that the case here?
DOLBEE: We’re changing how they get paid. What they get paid for is basically a premium on the rate they pay the employees. You’re paying them for effectively an all-in wage and benefit plus an add-on to that for their service. When I look at the numbers, I ask our HR virtually every day: Why aren’t we going and doing this?
ZAJAC: We’ve typically had a fair pool of temporary people and we’re really discussing going to a direct-hire model because you just can’t keep those people. We’re really actively looking at that model. It’s a little more expensive, but if you don’t have 20-percent turnover, (the savings) adds up quickly.
DAVENPORT: We’re having an issue with the temp side to a point where we need to figure out how to do this internally. If you look at the temp market, you’re anywhere from a 35-percent to 45-percent markup. I’m not retaining those folks for any longer period of time, I’m not getting a higher-quality person, so we need to make sure we’re trying to do that ourselves. We’ve taken that onus on ourselves to increase our referral program.
Is this aversion to temporary employment agencies a theme evolving here? Do you all use temps to some extent?
DUFON: No, we hire direct. Our biggest issue, because of the nature of our business and the size of the products we make — we’re dealing with wires down to half a thousandth of an inch and coils that are four-thousandths of an inch in diameter. The skill level that you need for a person that can operate that equipment is high, and they need to have a fairly good mechanical working knowledge of what to do.
WHITELOCKE: We’re not a manufacturer but we support manufacturers through electricity, obviously. We have more on the engineering side, that’s where our shortage is in our industry. It’s an aging workforce that’s quickly retiring and we can’t find enough electrical engineers or enough folks to work in some of our fields, so we have actually gone down the path of hiring interns and co-ops and it’s been very successful.
There’s a lot of discussion about talent needs and we have a university president in the room. Tom, what’s your reaction to this?
HAAS: You represent a market that I’m particularly interested in. One of the areas that we can connect is through internships and co-ops. We have doubled down on our efforts to expand how we can support large and small industries. Particularly with advanced manufacturing here, we really want to provide you some good talent and in turn you’re helping me keep that talent right here in West Michigan. Internships, we’ve been talking about it with Talent 2025 (and) The Right Place for a number of years. Secondly, we’ve experimented with some folks, Autocam in particular, where we’re actually providing some space and opportunity for those who might be lower skilled but might have the desire to ratchet themselves up and we have those types of programs with the College of Engineering.
For the manufacturers here, are you getting what you want out of new engineers? Are there any gaps that universities might look to fill or different training that you need?
DOLBEE: Work experience. Traditionally, internships are over the summer. We’ve come to the thinking that we’d rather do a six-month on, six-month off (schedule) because they can have a bigger impact. If you get them for three or four months, the first month, especially if they’ve never been with us before, is largely unproductive. By the time they’re getting into some things, they’re done with their internship for the summer.
DUFON: Probably for selfish reasons, we’re proponents of the cooperative education. Our president graduated from GMI, our head of engineering graduated from GMI, I graduated from GMI. When we walked out, we had two and a half years of real-world experience. (If) you get someone from a four-year school who either hasn’t done an internship or hasn’t had any practical (experience), you might as well start at ground zero with them.
HALL: Not to interject personal experience, but I graduated from (the University of Michigan). I did semester after semester of internships, co-ops, and when I finished, I had an offer from Ford’s college graduate program. I decided to go a different direction, but that work experience, that co-op experience, the experience of making money — that’s huge.
What can universities do to promote the many so-called softer skills so that graduates are prepared for the working world?
HAAS: We hear from the employers of our graduates in the engineering, I.T., health professions and the like (that) they’re ready to work. That’s because we have a strong foundation in the liberal arts.
DOLBEE: I would say practical application of those soft skills is really important. That’s one of the things from my perspective that I’ve come to realize. The younger staff who have come in with some level of exposure in interacting with various functional groups in the business are much better off, simply because they’re not so nervous.
KINSLER: I’d say there are other ways to do it, too, as opposed to the traditional internship program. We’re currently using students out of Hope College’s Center for Leadership. What I liked about that program is they’ve teamed up with some retired executives that sponsor a group of kids and then they tackled a project for us. We give them a specific thing and they work for a semester. I have to tell you what I thought might be a one-time deal to accommodate some of the things they were working on, we’re on our fourth project now with them because the deliverables they give us have been amazing and surprising.
Moving away from talent, we often hear from businesses that uncertainty is the death knell of investment. The country elected an administration that’s already proven to be unpredictable. What’s your view going forward for 2017 and how the political situation is going to impact your business?
KINSLER: So far, so good. As far as what people’s perception of whether they’re willing to spend their capital dollars or not, the spigot went back on fairly fast. I think it would have went back on with Hillary. It was just the uncertainty of not knowing which industries were going to benefit from what policies.
DUFON: We saw something similar with the Affordable Care Act. The majority of our customer base are medical device manufacturers, and things slowed down until people realized that that’s going to happen whether you want it to or not. Once you got past the angst of its going to happen, then people started spending again and actually things are extremely strong right now. Our number of projects that we are quoting is up. The number of orders is up. The interaction with customers is up. I just think you take away some of the uncertainty and the free market is going to take care of itself.
HALL: I think from an automotive perspective, the industry was already projecting to be flat, and with the election, there hasn’t been much change to that. It’s still flat to less than 1 percent growth.
DOLBEE: In terms of the new administration, the uncertainty has some relativity to us because we’re building a new plant in Mexico right now. That happened well before the rhetoric started. We actually had our board members ask if we should call time out. I was aghast. If you made business decisions, particularly with this administration around what came through Twitter or what was spit out, then your decisions would be going all over the place. By 2020, 25 percent of the vehicles made in North America are going to be made in Mexico and that’s almost regardless of what Donald Trump does, realistically. The billions that are already being invested are not going to stop.
SCHUPAN: The first half of this year, I think, is going to be a challenge because people are still going to say, I want to see what my taxes are before I spend money. Most everyone I’ve talked to, business people are much more optimistic right now than before, and I think the second half of this year we can have a real positive growth. The first half, I’m still a little nervous.
What about the administration’s potential effect on trade policy?
DOLBEE: There are a lot of folks that are nervous about it. We’re putting $30 some million (in Mexico). In the end, the fundamental reasons of why we’re doing it are still there. Could that change? Could we go through some change to NAFTA that puts tariffs on goods coming across? But I guarantee you it will be a lot more than automotive that will be impacted by that. I just don’t see that as being realistic. Juxtaposed against a conservative Congress, I can’t see that happening realistically.
SCHUPAN: I look at commodities and what’s our relationship going to be with China. … Whether we like it or not, they’re a helluva trading partner. There’s a difference between free trade and fair trade. I’m certainly for fair trade but we have to be really careful with what’s going on right now.
How are you managing health care costs given the uncertainty of the Affordable Care Act?
WHITELOCKE: I think that most companies have tried to implement programs that really focus on prevention instead of treatment and reduction as opposed to increase. Putting things in like having incentives for wellness screening once a year, encouraging employees to do physical activity and some kind of contest with a prize or reward — whether or not it’s moving the needle is hard to tell sometimes, but it’s better to do something than nothing.
DOLBEE: We’re moving to the pocket book, meaning you’re going to have differentiated premiums depending on whether you participate in the wellness program or not. If you’re a smoker, you’re going to pay more. If you have high blood pressure and you’ve not done anything about that, you’re going to pay more.
HALL: We did something very similar to that and we also did something where if you enrolled on the internet and you actually filled out a health assessment and got a printout that you completed it, we gave you a discount on your health care.
SCHUPAN: We started a wellness program a long time ago. You talk about retention and recruitment – having programs like the wellness program, it is important. For us, it’s a huge cost. I know right now we’re looking with another company to put in our own clinic. We’re experimenting with that.
DOLBEE: That’s exactly what we’re doing in Muskegon because the availability of providers is one of the biggest issues we’re having.
KINSLER: It’s a lot to do with work-life balance. Our wellness program goes beyond the health portion. We’ve expanded it to mental, expanded it to the physical but also the financial piece of it. Trying to educate people about their different options and how they should be looking at and planning for their future.
On the commodity side, OPEC announced its intention to slash production, which has already driven up the price. How will that impact your business in 2017?
ZAJAC: We’re primarily plastics, so changes in the oil prices can make significant changes in our resin prices. It’s hard to say what’s going to happen, but it could negatively affect things if prices of oil go high and stay higher.
DOLBEE: Most long-term forecasts that I’ve seen, not any of them have showed substantial increases in the price of oil or natural gas over the next 10 years. It’s an abundance of supply. At the same time, you’ve had fuel economy going up. The demand side of the equation is going down at the same time the supply side is going up.
What are your outlooks for manufacturing in the state moving ahead as most economists predict that the bulk of growth will come from the service industries?
DUFON: I think we need to continue to diversify from an industry standpoint. I think there are a lot of other opportunities out there if we can figure out how we can bring those in. You don’t have the big dips because people can see the light. ‘OK, so the automotive industry is down, but some other industry is up.’
SMALL: The food processing industry, with this new Food Safety Modernization Act, they’re going to be really fighting for the employees as well. They’re getting more technically savvy in what they do, and I think that’s going to put a (talent) strain on all manufacturing.
SCHUPAN: The key is workforce. It’s hard to attract a company because who are we going to get for employees. Are you going to steal employees from someone else because that’s where we’re at. We have such an untapped number of people that don’t have the skills, so I think a lot of money needs to be spent there.
DAVENPORT: It’s really interesting to me that all of these things that we’re talking about are really interconnected. We talk about solving issues for our folks, making our cultures better, which ultimately impacts people staying. It has this domino effect. Some of these issues we should be dealing with as managers or leaders in organizations, making sure that our people are safe and secure and that they have upward mobility and opportunities, but we also have to deal with their families and their health and all of those things. I think time is just forcing you to, and if you don’t deal with it, you’ll die.