SwampFox

Where did my job go and will it come back?

FRANK PAULY, CLEMSON, SOUTH CAROLINA
864 654 0220
mriglobal@aol.com
(c) 2009 F. Pauly

The general topic of jobs is a popular media topic since the worldwide downturn has created concerns about what happened to jobs that were reasonably available. Job hopping was not easy, but jobs were available for most workers. The world has changed. People out of work want to have their paychecks and benefits restored, employers don’t want to hire anyone that doesn’t improve profit potential, local governments have social and tax concerns, foreign national governments want to maintain a balance of trade, and global suppliers want to maintain their markets.

For generations, manufactured products have been the backbone of the global economic balance, and many assume that will continue to maintain that position. What has changed is that people are a smaller and smaller component of the resources needed to produce the vast majority of products we see on the market today. Ever since 1956, when, for the first time, white-collar and service workers outnumbered blue-collar workers in the US, the definition of work has undergone radical change.

The perception that blue-collar jobs are lost due to transfer to foreign “cheap” labor regions are attributed to many factors, mostly false ones. The reality is that the vast majority of jobs, particularly in the manufacturing sector, are not transferred but eliminated all together. The old concept of why jobs are needed has been transformed from assessing “what benefit could an employer derive from hiring a new employee”, to one of “everyone is entitled to a paycheck so hire me”.

Our culture has changed in the last fifty years in regard to the role of people in the work force. We have been ignoring the question of whether anticipated employment created value over and above employment cost. Another way of saying this is that investment in new capacity probably won’t include any significant labor cost when compared to other factors involved in expansion of capacity.

Immediately after WWII, returning military personnel required a means of employment, and they went to work in factories, making “things”, many exported to rebuild war torn countries. This was, however, a relatively short-term advantage. These markets disappeared when Europe and Japan began to catch up and supply themselves with essentials. Thanks to the Marshall plan, many American companies were active in assisting foreign counterparts, or subsidiaries, to recover and become competitive, with a substantial amount of American money and technology. Today, the shoe is on the other foot, where we are running fast to compete with global competitors that won’t go away.

After WWII, typical costs billed as direct labor ranged somewhere between 50% to 70% of total cost of manufacture. With the onset and growth of automation, use of molded plastic parts, instant data transfer, electronic miniaturization, improved transportation capability, and cross training of employees, direct production cost attributed to labor of most manufactured goods is now less than 10%. If direct labor is a measurable component of manufacturing cost, the product is probably not competitive in the world market. Humans are obsolete in most modern factories, regardless of where that factory is located. Many manufacturers don’t have “direct labor” as an employment category any more.

Another result of the post war culture came from the GI Bill where education for anyone with military service got the opportunity for advanced education. For the first time in the history of the world, free advanced education was available to a high percentage of citizens, even those that came from a family background where advanced education had been an impossible dream. This created a new generation of thinkers, not laborers. There are now two to three generations beyond returning WWII military employees. The entrepreneurial spirit that came home with returning veterans has not carried through to today’s students.

Pay of a production worker in the past was based on how many good pieces per hour each employee finished. Rows of machines, each with an operator, producing many copies of a part to be added to an assembly were commonplace. Single function machines producing one piece at a time are now gone, replaced by small groupings of machines performing multiple tasks. Today a production worker in a profitable company tends several machines that operate through machine control centers. Highly trained technicians tend these cells. They spend working time insuring incoming materials are available, keeping the next machine grouping supplied with acceptable components, learning new skills, and insuring cell output is on schedule, and within acceptable limits. They also are the source of data about production output direct to senior management.

In the typical modern factory, cross-trained employees perform multiple tasks as a routine job assignment. Each employee has a unique skill inventory and no two employees have the same job description. In this environment, elements of individual employee job descriptions are shared in different combinations with other workers. Employees with the widest scope of skills are paid the most. This makes organization of employees into unions almost impossible. From the workers viewpoint, a union is not needed because the destiny of the worker is in his hands.

Employers need specialized education facilities, to train individuals in advanced and specific areas. Alvin Toffler, in his book Revolutionary Wealth, observes that “a fundamental shake up in the way increasingly temporary skill sets are organized to accommodate temporary purposes throughout the economy”. This is occurring in many industries, and will accelerate as the impact of globalization reaches more industries.

Distributed data processing capability with the growth of Personal Computer’s has eliminated virtually all middle management jobs. Starting in 1960’s, timely information became available to senior management that previously stayed on the production floor. This means the today’s shop floor operator has to be able to identify, collaborate to improve, and defend current trends and reported results to senior managers, rather than to a middle management consolidator or a local foreman. Uneducated production workers are challenged to fill this job requirement.

In the past, local production shops or office environments that employed several workers performing the same or similar tasks for a local customer were operated as a small business, sometimes within a larger organization. Today those same small companies supply larger customers, possibly thousands of miles away by employing a few skilled workers. Even small accounting firms serving individuals and small businesses use overseas data processors to prepare tax forms, cost reports, and paychecks for local customers.

In the office, executives use their portable desktop computer and cell phones to arrange meetings, write correspondence, collect and format data wherever they are, without a large office staff as support. The class of workers called middle management has disappeared, along with the blue collar employee. Office meetings have been transformed to a series of emails and answering machine messages between involved employees at any level.

In the last ten years, over 75% of new products introduced have a profitable life of less than three years, and are produced by highly automated processes, without any manual labor involved. Many high volume consumer goods are now produced with less than 1% ever being touched by human hands. Most of the 1% is taken to insure specifications are being met. The first person to touch the product is the consumer. This means investment in new production capacity is no longer based on labor availability, but access to raw materials and customers, competitive financing and tax structures. Advanced specialized training facilities for employees with high computational, charismatic, and communication skills can be a significant incentive.

Political focus on job creation is typically focused on tax relief, and welfare benefits. Politics has declining effect on corporations assessing additional production facility locations. Any prospective location of new production capacity is assessed on factors that usually lie out of the range of influence of industrial developers. Factors such as location of raw materials, and the associated costs of getting suitable quantities to a proposed plant location, location of a customer base, in many cases a regional or multi country one. Related distribution costs, and willingness of subcontractors to minimize total cost of supplying needed components, are all factors influencing a decision to relocate or expand. Transportation costs for incoming materials and outgoing finished products along with machine depreciation allowances have replaced direct labor costs and worker
availability as major factors in determining future location of production facilities.

Investment in new locations, when measured by operating cost per employee, has steadily grown, from $100,000 per new employee some 20 years ago to a level now approaching $250,000 per new job created. Many expansions are for increased R&D, customer support, or distribution facilities, with no production capability

There are a growing number of expansions in manufacturing that budget more that $1,000,000 per new job. A ten million dollar plant may only add ten new jobs. This means employees are fewer in number, but the ability to learn how to learn, be competent in reading, writing, and computing, be able to communicate, work in groups, and have strong self-management and motivational skills become strong advantages. These skills are typically not developed before students get into, and more significantly graduate from, college.

Production control has expanded from step by step component counts in the factory, to complete inventory management from raw materials to finished stock at the retailer. As an example, when today’s customer buys one piece of clothing, a production location somewhere in the world is automatically told to make a replacement, for that store’s stock. Before the customer leaves the store shippers, distributors, producers, advertisers, and corporate staff have been allocated their share of the sale price.

The world of manufacturing has expanded to reach virtually all countries. A typical product sold in our stores will have more than 75% foreign content. Even items labeled “Made in America” have differing definitions of what that label signifies. Rules defining “local content” vary widely from product to product. A basic concept is that a product is labeled to show country of origin when that product can be identified by a brand name.

Manufacturers import most raw materials, depend on foreign funds for loans to operate, and use foreign shipping capabilities. The growing reliance on motivated, highly educated and trained workers, many more skilled than our own workers, is a common global issue. Research and Development facilities are outsourced to foreign providers on contract, and a growing number of US companies rely on computerized network financial management, most of which is based outside our borders. Customer service and mail order processing is probably handled off shore.

Some examples in the automobile industry include: automobiles with American nameplates have transmissions from Mexico, engines from Brazil, sheet metal from Canada, tires from a variety of sources, and electrical components from Asia. One can buy a set of familiar US tire brands made overseas, or a foreign brand made in the US. Toyota claims the highest American content in their automobiles with 75%.

There is concern about foreign companies locating manufacturing capacity in the US. The same criteria about supplying customers, availability of raw materials, and a strong supply line capability exists for any location and any manufacturer. The discussion about foreign plants sending their profits back to their own country also is applicable to American facilities located in other parts of the world. When companies are located in multiple countries, the ability to assess where profits are maximized is only one aspect of a foreign presence. Exchange rates, tax laws, total distribution cost, language facility, management styles, and market potential are also factors to consider.

In balance, more American companies have a significant presence in foreign countries than foreign companies have here. Foreign companies locating here is a relatively new occurrence. Many American companies set up operations overseas, mainly in Europe, over 50 years ago. Ford, Kellogg’s, IBM, Hunt Foods, Heinz Foods, Wrigley’s and Stanley Tools are examples. GM has had a Buick plant in China for some time and recently sold their German Opal division they owned for over forty years. Both Ford and GM sell cars designed in Europe in the US. Ford’s recent success in the US market mainly resulted from cars previously sold in Europe that are now marketed here. Subsidiaries with different names are common and aren’t immediately identified as American. Only 30% of IBM sales are in the US.

After WWII, treaties and assistance policies made a global presence very profitable for American companies. The Bretton Woods treaty in 1944 made the dollar an immediate world currency, and isolated us from fluctuations in exchange rate impacts, particularly in energy costs. The Marshall plan gave American companies an immediate market as well as a foot in the door for a strong foreign presence. In 1947 the General Agreement on Tariffs and Trade (GATT) approved by 23 countries was implemented and controlled some 80% of all trade worldwide. This has subsequently evolved in 1992 into the World Trade Organization with 153 countries that account for 95% of all goods transported between countries. In the recent past has there have been significant transactions of oil and gas based energy between countries that excluded US dollar involvement. This means foreign countries don’t have to maintain a US dollar reserve anymore to pay for energy needs.

Probably the most significant event in post WWII trade was the formation of the European Union in 1992. This created the equivalent structure of the US but with about 20% more possible consumers. This has not been a smooth transition from outside perspectives, but for companies competing in the Global marketplace, this was a huge benefit. As an example, it is now more difficult to start up a satellite operation in the US than it is in Europe. With 50 state laws about employment, taxes, income, sales and property, and shipping logistics make the complexity of a foreigner trying to make a decision on a US location hard to rationalize. Add to this mix the requirements imposed by Federal Trade rules, ICC transport regulations, customs, and other federal government restrictions on environment. These were all minimized in the EU structure.

Cultural differences in expectations of what to expect in creation of jobs becomes a key competitive concern. From a workers, employers, and governments, varying perspectives we must be willing to change and accept the fact that global influences are becoming more significant every day. If the culture of a country is based on higher, or lower expectations of what is needed to compete in the global marketplace, then prevailing national objectives will have to be modified. Basic tenets or beliefs based on being exclusive and rejecting worldwide forces will, in the long run, prove disastrous. There is no such thing as a local employer any more anywhere. This may be a bitter pill to swallow particularly for those used to seeing America as number 1.

FRANK PAULY
616 Downs Loop
Clemson SC 29631
864 654 0220
mriglobal@aol.com

Director of Production Engineering Department overseeing 5 US and 2 International factories supervising 6 staff engineers.
Member of Technology transfer team for advanced technology to Brazil and Japan.
Project Manager of Corporate Facilities Department for start-up and expansion of operations in Singapore, Brazil, Europe, Mexico, and US.
Managing Director of 200,000sq ft factory startup in England from site selection, through design, construction, operational start-up and production. Resident in England for four years.
Ten years as Consultant with Automotive, Electronics, Printing, and Machine Tool clients in preparation of exporting products.
President, Manufacturing Resources International
ISO 9000 Lead Auditor through BSI registration.

BSME-IE University of Toledo
Master of Arts in Management of Organizations SWU Central SC

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