Producing more versus hiring more

April 17, 2012
By: Tim Heston

A few weeks ago Rob Olney, president of ETM Manufacturing, a contract metal fabricator in Littleton, Mass., told me something that exemplifies what makes people proud of American enterprise. But it also worries people who need a lower unemployment rate to get re-elected.

“[Since 2006] we’ve tripled our annual sales and less than doubled our personnel.”

Olney and other managers of successful fabricators--the “winners” emerging from the Great Recession--had good foresight in 2009 and 2010. They reduced waste, especially work in process, and invested in equipment that sped work flow and reduced lead time. They’re producing more with fewer people. The result: Sales are soaring; hiring, not so much, and (most significant) neither is overtime.

Mark Chadwick, a manager at St. Louis-based CR Metal Products, called this phenomenon “painless growth.”

So many companies haven’t rehired yet, and here’s the scary part: Their staff isn’t stretched, either. Some shop owners I’ve talked to didn’t lay off significantly during the downturn, and now they’re scooping up work from shuttered competitors. They bought new, more productive machines, and they’re working smarter, thanks to lean manufacturing, Six Sigma, theory of constraints, and other improvement methodologies.

And again, here’s the scary part: They haven’t had to hire either.

Of course some have hired, especially for those highly skilled positions--the welders, press brake brake operators, and CNC programmers. All the same, so many haven't hired back to pre-recession levels. They need skilled people more than ever, but they don’t need an army of them.

So why should the country promote manufacturing?  Well, here’s the glass-half-empty answer: Manufacturing really is the last big economic growth potential left standing. Information technology looked great until the dot-com bust; finance, housing, and construction looked great until--well, you know. Now we’ve got manufacturing churning along, leading the economy. It’s an old economic engine, but it’s the only one that’s really chugging down the tracks. Yes, manufacturing may not lower the unemployment rate dramatically in the short-term--but do you have a better idea?

Here’s the glass-half-full answer, one made by Gene Sperling, director of the president’s National Economic Council, at the Renaissance of Manufacturing conference, held in Washington last month. As Bloomberg reported, “[Sperling] argues that manufacturing deserves special treatment because it produces positive ‘spillovers’ for the economy. New research shows that when a factory locates in a country, the productivity of other plants in the country rises. Manufacturing also accounts for most innovation. And innovation tends to wither when it’s separated from production.”

Yes, that innovation requires people to design products and machine operators to make them. But it also requires distributors to distribute them and retailers to sell them (though thanks to Amazon and Walmart, perhaps not many anymore). It requires truck drivers and logistics managers. It requires ports. It requires bridges, roads, and other infrastructure. It also requires new plants.

Manufacturers may not hire phalanxes of the unskilled masses anymore, but making physical products (to put it in political terms) still takes a village.

Although the glass-half-empty view would satisfy the skeptic in me, I’m betting on the glass-half-full view. With uncertainty in China and Europe, no one knows what the next few years might bring. But considering the productivity boosts I’ve seen during the past three years on the small shop floor--where most of the manufacturing in this country takes place--I’ve got a feeling we haven’t seen anything yet.
Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
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