Local Manufacturers Discuss Strategies to Overcome Labor Shortage, High Taxes
Manufacturing is big business in Minnesota, contributing $48 billion annually to the state’s GDP. But high taxes and a lack of qualified labor are creating big challenges for manufacturers across the state. While the sector accounts for nearly 11 percent of the state’s workforce, that number could begin to shrink as manufacturers turn to automation to address the labor shortage.
“If we can fit a robot on it, we will,” says Tom Schabel, CEO of Alexandria Industries. “That’s not to displace labor; it’s allowed us to continue to grow our facilities because if you look across our plant, the workforce is aging. We can no longer rely on the general population or schools to produce what we need.”
Schabel, along with Eric Gibson, president of Monticello-based Ultra Machining Co.; Joan Schatz, co-president of St. Cloud-based Park Industries, and Jon Wikstrom, president and CEO of Eagan-based Cool Clean Technologies, shared how they are handling the talent shortage and how they are fostering innovation to keep their companies growing at TCB’s annual Manufacturing Forum. It was held Sept. 26 at the Nicollet Island Pavilion, moderated by editor in chief Dale Kurschner and sponsored by RSM.
Here are edited excerpts from the forum.
Q What is your organization doing to recruit talent?
Eric Gibson: We focus on apprenticeship programs. Students come from tech schools after their first year and spend the summer with us going through a 12-week rotation. We are also focusing on a youth apprenticeship program to introduce high school students to manufacturing.
Tom Schabel: We have a great relationship with the local technical college; about 60 percent of our employees are graduates from there. We also have an arrangement with the local high school, so there is a focused track on engineering and manufacturing. Another opportunity we’ve had with the school district is during the summer we hire teachers and guidance counselors to work for us to help them understand what a career path might look like in manufacturing. It may not be working as a machinist, it may be an accountant, an analyst or a programmer.
Jon Wikstrom: We primarily focus on internships. About 50 percent of engineers have come through internship programs. We also work with college MBA programs. For example, if we are considering a new business idea, students come in and help develop a business plan, as sort of a capstone project.
Joan Schatz: We have focused on branding ourselves as an employer. Our marketing and human resources departments are working together to create brand awareness, which has had a tremendous impact on people’s knowledge of Park and their perception of manufacturing. We have combined our branding effort with a much greater presence on social media. We do a lot on Facebook to convey what the Park culture is all about. We’ve also done a lot to partner with other manufacturers. The problem that we have isn’t so much about recruiting; it’s having an adequate pipeline of people who are interested in manufacturing, and filling that pipeline is beyond the capabilities of just Park.
Tom Schabel, CEO of Alexandria Industries, speaking to the audience.
Q What are you doing to retain your current employees?
Schabel: We spend a lot of time developing culture and defining our values. We start every communication meeting with examples of people living out our values within the organization.
We didn’t necessarily do this to retain employees, but we opened our own medical clinic in Alexandria. There is no charge to employees or dependents for an office visit, drugs or lab work, and you usually get in the same day. We’re just finishing year one, but it’s projected to save us $300,000 to $400,00 a year.
Schatz: At Park we want people to have the opportunity to grow professionally, but also personally. Last year, 28 percent of our workforce received some sort of developmental opportunity, either through a lateral move or a promotion. We also make sure they see the impact they have on our customers and the community. We’ve brought in customers to talk about how we have affected their businesses; it gives a lot more meaning to what our associates do on a day-to-day basis.
Q How is the lack of tax reform impacting your businesses?
Schabel: We are an S-Corp. and the distributions that come out are to pay taxes. It’s a hindrance to our growth. We have projects on the table that we would like to invest in, but we need to manage our cash flow.
Gibson: We are a pass-through entity as well, so 50 percent of every profit dollar we make goes back to state or federal taxes. When you take that much off the table, it’s hard for us to reinvest in the business. We have done a lot of lobbying efforts to help state legislators understand the burden that we are under in this state and the challenge it puts on businesses from a growth perspective, especially those of us who are capital intensive.
Q How are you encouraging innovation?
Schabel: We try to create an environment where it’s OK for employees to take a risk.
Schatz: We are creating an innovation function where we are pulling people out of their day-to-day job so they can focus on emerging technologies and explore how we might be able to monetize them. We have also started partnering with more local universities. It’s an easy, cost-effective way for us to prototype ideas to see if they would work in a real world application.
Gibson: I have my engineers and people on the floor looking for patentable opportunities and ideas to help us grow. It makes for an environment or culture of innovation versus just mandating or rewarding it.
Wikstrom: It’s important to remember that if something doesn’t work, it doesn’t always mean it’s a dead horse.