Voice of the Modern Manufacturing Economy Since 2013

The New Make vs. Buy Debate: How to Build a Workforce in 2015

Article by Kreg Brown August 17, 2015, 01:50 pm MDT

With Tim Heaton, Colorado Advanced Manufacturing Alliance.

In the manufacturing industry, the "make versus buy" decision is a choice executives must make daily. Simply put, it's the choice between whether to produce an item in-house, or purchase it from an outside source. Considerations include resources, capabilities, costs, product availability, and timing.

A similar discussion is now emerging at many manufacturing companies in Colorado and throughout the US as they try to find skilled labor to generate a workforce. They're realizing that they can't just flip a switch and revert to the pre-2008 talent pool, and they are starting to think about long-term strategies for meeting workforce demands. EKS&H has heard from countless manufacturing clients that the number one issue keeping them up at night is the availability of skilled labor -- from both high-tech and low-tech businesses.

This new decision concerns whether to "make" employees (train them in-house), or "buy" them (hire them after they receive education and/or experience elsewhere). Like the already existing make or buy question, this decision involves many variables.

Time, Skill, and Cost

The biggest factors manufacturers must consider to determine the right path for their needs are time, skills, and cost. Time can be a limiting factor if a manufacturer is on a trajectory for rapid growth. This problem, while good to have, may require skilled positions to be filled quickly – faster than individuals can be trained. For positions that require management or leadership aptitude, highly specialized skills, or expertise and/or certifications, training can be a challenge as a result of the long lead-time required. Hiring trainers, paying for external education, buying or renting additional space, and paying apprentices to attend trainings in place of work hours can be expensive. 

However, executives at manufacturing companies that have successful training programs in place point out that the cost and time are minimal when considering the return on investment (ROI). In addition, the costs of recruiting, lack of utilization while positions remain open, and having to train new hires on company-specific processes can be considerable. Many manufacturers even find that an internally trained employee can eventually fill the role of even high-level management and leadership positions over time.

Denver-based RK Mechanical, Inc. has been running an apprenticeship program for 20 years. Vice President Donnie Hirschfield summarizes benefits of the make model this way: "Many in the industry ask, 'What happens if you make the investment to train someone and they leave?' But the more important question is, 'What happens if you don't train them, and they stay?' Which will cost you more?"

Payoff

Companies willing to invest in the make model have the potential to reap great rewards. Rather than seeking out individuals with perfect skill sets, they can hire people whose values and goals are in alignment with the company, which ensures a workforce that's likely to stick around.

Wolf Robotics, LLC in Fort Collins, Colorado began its internship program 12 years ago, working closely with local schools including Colorado State University and the Colorado School of Mines. President/CEO Doug Rhoda explains the positive outcomes from the program: "Over the long term, employee capability is so much greater than what we can hire from outside. Trained employees understand the business from a foundational position and can more easily understand the needs and interests of the customer. Our interns end up being versatile and flexible, which is critical in a volatile business environment."

Strategy

Altough the make model has worked well for some companies, it might not make sense for all situations, or for all positions. Smaller manufacturers often don't have the resources to put into place a full-fledged training program, and some positions that need to be filled immediately require training that companies can't provide. Rhoda concedes, "The 'make' model doesn't work for every position, or if there's an immediate need. We have had to bring in expertise from the outside from time to time." To overcome the cost challenge for small manufacturers, collaboration is key. In these cases, economies of scale result in shared costs, which can be more manageable.

Getting Started

For companies that want to build their own training program, Rhoda advises, "Don't wait for government incentives or other factors to push you into it. You need to get started if you want to reap the rewards. Take the first step, whether that's reaching out to a local university, or talking with others in the industry. It won't be perfect initially, but you'll learn over time how to develop and mentor leaders."

Hirschfield concurs, noting that it's "mandatory" for manufacturing companies to engage in the "make" model if they want to succeed. He adds, "Companies can make it a win-win by offering added incentives to apprentices or interns. For example, we partner with Emily Griffith Opportunity School, and those who go through our program end up just 18 credits shy of an associate's degree, which they can finish at a junior college. They also get a raise in their hourly rate for every semester they pass."

Each manufacturer must tailor its program to suit its needs, and to attract the trainees who can fill them.

Conclusion

Shifts in the U.S. manufacturing industry have led to changes in the way manufacturers think. This change mimics that of other countries, such as Switzerland, where many in the manufacturing industry have pursued the make model for 30 years and have reaped benefits for more than 20. The change in mentality isn't just about training workers within one company but using them more efficiently throughout the industry. For example, a manufacturing defense contractor that had workers with a certain certification "lent" them to another contractor when it lost a contract to that company. This type of big-picture thinking benefits the industry as a whole. Companies in today's manufacturing climate need to be smart about how they approach the coming decades and consider how "making" employees might fit into that plan.

Reach EKS&H Audit Partner Kreg Brown at 303-740-9400 or kbrown@eksh.com, or CAMA President Tim Heaton at tim.heaton@co-cama.org

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