Industrial Impacts Episode 2: Labor Challenges
Industrial Impacts is the brand-new podcast by Cresa’s Industrial team in Denver, Colorado. In the second episode Matt Burton and Mike Statter talk with Nat Estes about one of the largest challenges facing industrial companies today, labor.
Nat’s background is in talent, HR and labor consulting. He heads up the labor analytics group within Cresa Consulting. As companies are expanding, relocating or just assessing where they stand, Nat helps them evaluate their current labor markets versus markets they might want to move into.It’s a complex discussion, but he keeps it simple by focusing on three broad buckets: the availability of labor, the cost of it and the competition, who are companies competing with in terms of talent.
What are some of the larger issues related to labor from the perspective of a manufacturing and distribution type operator?
Nat: From a manufacturing stand point what we’re talking about and what world we’re in. Nobody in the industrial world four-five years ago was thinking labor or where they could find staff first. Now it’s the first question they ask. In manufacturing and distribution, we’re talking blue-collar, hourly workers. And it is top of mind, can they find enough reliable staff to fill their operation and meet whatever the need is for their clients.
How do you see the economy as it pertains to labor availability and demand? Both nationally and here in Colorado?
Nat: Denver has seen a dramatic decrease in unemployment. Particularly in tech-driven industries. There has been an influx of west coast technology talent in terms of relocating operations or companies growing their software and engineering in Denver. But, since we’re talking industrial talent, we’re seeing Denver building like crazy and trying to get ready for the future state, which is more and more growth.
So, Denver is at a 70 percent employment rate, which is incredibly high, certainly in the last decade. The United States is at 61 percent. So, Denver is basically saying that our growth is not going to come from our current labor force, we expect our growth to come from inbound migration. So far the city and the region has been very successful in attracting that talent from elsewhere.
What is going to be interesting and what’s tough is that in the interim, when you have a 70 percent unemployment rate, how are you going to win the talent war? Frankly we’ve seen some firms say they are going to get out of Denver. They are going to find the Denver of the future. Those that are staying put, they are getting their HR team involved, they are getting their operations team involved, they’re getting high-level stake holders involved to set strategies for the next two-five years on how they are going to recruit and retain talent. So, the clients that are successful, they are the ones that have that team in place and are thinking through that strategy. And they are really thinking about it from those three strategies that we talked about. Whether they say it in that way or not. How do we pay our people? Who are we competing against and how can we build a culture and a workforce where people want to stay?
From a national perspective, many of the states are suggesting that there will be some sort of slow down in business activity in the next few years. From an antidotal perspective, the clients that we’re talking to, as we try to plan with them and think about the next expansion or relocation and growth strategy, two-years is about where they feel comfortable projecting. After the end of 2020, most people that we talk to are somewhat uncomfortable projecting past that. Comparatively, projects that were kicking off two to three years ago felt very comfortable projecting out five to 10 years of growth. I think we have now hit a point where there are a lot of economic indicators predicting a slow down ahead. And that is mirroring what we’re hearing from our clients. It will be interesting to see as the clock ticks down to the end of 2020 how the perspectives may change.
How are companies attracting the next generation of employees and keeping them engaged and interested?
Nat: This is the 64,000-dollar question as they say. Where you start in terms of retaining talent is that first level supervisor. There has been numerous studies and research done on why people leave organizations and most frequently whoever their direct supervisor is, is a direct indicator of whether or not they will stay or go. Pay levels are obviously very important. You need to be able, as an employer to understand what is expected in the market versus what you are paying. Not only just compensation, but also the benefits that are being offered. We do this sort of work with clients all the time, where we think about is offering certain medical or dental benefits more relevant in your market versus another. It comes up frequently. Also understanding compensation. Do you pay $12.50 in a market that has seen a dollar shift up to $13.50 over the past six months, and now your lagging behind? With today’s unemployment rate and the competitive nature of finding talent, that information is out there, and people are thinking about it, especially when there are more and more opportunities and places for them to work. So, get the benefits right and get the compensation right. Other elements for retaining talent especially in the industrial world are things like shift schedule. For what you are offering, is that what people who live in your market are looking for? We see some markets where the graveyard shift is actually pretty normal and it doesn’t come with an extra pay expectation, because of the nature of that particular community. The last one is who are you competing against. Are you across the street from Amazon? Are you a company that ramps up during the same period as them? Retaining talent in that environment is very different than being in a group of distribution centers that don’t have the brand recognition that Amazon does. So, thinking about that holistically, going back to the availability, cost and competition buckets. Understand where you are relative to your market, then you can start making the right choices in regards to retaining your talent.
Are you seeing companies take a proactive approach such an inserting themselves in high schools and colleges? With companies integrating more technology, they need a more highly skilled workforce. Do you find that to be the case?
Nat: The successful companies are absolutely taking this active approach. Particularly when entering a new market. When you are an established entity and you have a workforce, you probably have some sort of reputation among your employees and certainly an online reputation from things like Glassdoor. The ones that are going into a new market, they either have that online reputation that follows them, which could be a positive or a negative thing or they have to build a grassroots effort by partnering with local institutions whether that’s a two-year technical school or four-year degree program that can help you build your brand and reputation among potential employees. And there are government incentive programs that are focused on the up-skill of talent in local markets that are partnering with these universities as well. An institution may be missing some component, we’ll offer funds for you as a company to partner with the university to create a new program where individuals walk out with a certification. It’s not only applicable to you, but also to a larger number of employers that is now helping to up-skill the workers in the local area. It is a great strategy, one that because there is an administrative burden, some companies aren’t taking advantage of. But we think it is very valuable when we think about entering a new market and finding talent.
You can evaluate labor forces down to the county level. Can you spend some time explaining the tool you use?
Nat: So, our team in location strategy and business intelligence or “Valo” team partner on a lot of projects, one of which, is a tool that allows us to have these discussions with our clients live and on the fly. We are keeping track of trends in terms of labor competition, availability and cost at a county level. And while people cross county lines every day to go to work, we find it to be a very valuable starting point for discussion in understanding a potential labor market. So, with this tool we have information built in there that has helped us compare locations and say what is the cost of the type of labor that we’re looking for? How competitive is it? What are the metrics telling us? While we have this at the county level, it is not a perfect solution. In fact, it is not meant to be the solution, just the spark that puts the client in a position to ask the right questions. Our group can then help them solve problems at a very granular level and say at this particular site, in this submarket, what is it going to look like when we go to commence our operations and start hiring?
What types of positions are you seeing the most demand for? Which positions are the toughest to fill?
Nat: That is very specific to each market, but if we think about the industrial world, manufacturing and distribution the need for truck drivers is probably one of the most difficult roles to fill. Regional truck driving, people that do their job in a local market and are able to get home and sleep in their own bed is not as much of an issue, although it is still competitive. Long haul truck drivers are extremely difficult to fill and clients are trying to figure out how to handle it. So that’s number one, two is the advanced fork lift drivers. Warehouse workers that are certified to use cherry pickers as opposed to traditional fork lifts. As the industrial world in terms of the actual facilities are changing, they are going with higher ceilings, higher rackings, there are going to be new mechanisms and tools that are used to move products in and out of the warehouse so the certifications that come along with those and finding people that are certified is going to be number two in my mid for the next year or two.
Matt: I have heard clients locally bring up the issue with long haul truck drivers, so that’s just confirmation to hear on your end that others are dealing with that on a national scale as well.
Are you seeing more Vets entering the workforce?
Nat: It depends on the state and the employer. So, if we set the stage by asking what’s the labor market like today for industrial, blue collar talent? It’s very competitive, so if I’m in my client’s shoes, this is a workforce that matches the work ethic of the industrial world, so if a client is not trying to tap into this talent pool, they should be. Particularly in markets where they are putting their hands up saying it’s just too hard to keep people, we’re not having success in getting enough candidates in the door,to keep up with our demand. This is a very viable workforce. So, if I am an employer in a competitive market, I should be opening every door possible to fill my hopper with qualified candidates. Some clients are doing well at this and others are ignoring it.
Are you seeing companies modify or reduce their education requirements to get applicants in the door? Upon hiring are they offering education programs to employees?
Nat: We’ll use the 80/20 rule to answer this. For at least 80 percent of the jobs we’re talking about in industrial manufacturing and transportation warehousing, no. Because the requirements haven’t changed in terms of education level in quite some time. Generally speaking, for warehouse workers, a high school diploma is all that is needed. There might be some certifications that are coming out of a two-year degree program as more automation comes to the warehousing/ distribution world but right now, no. The requirements for the 20 percent are the automation technicians. Those engineering technician type of jobs where automation is driving the future growth of a company’s distribution process, then absolutely. And those are the companies that are having to go the extra-mile by partnering with education institutions or frankly having that in-house talent upskill offering where they are getting their employees where they need to be for the future of their workforce.
While companies may not be lowering requirements to get applicants through the door because the education requirements have stayed similar for these types of jobs, the employers or the staffing firms that are helping these employers find talent may reduce the requirements on something like back ground checks because depending on where you’re hiring this may increase your talent pool by 20 to 40 percent.
What aspects of the background check would cause that bump in potential employees?
Nat: Generally speaking our clients are in agreement that violent crimes on someone’s record within the past three to seven years is almost always a nonstarter. Drug screening is the second biggest component of the background check. There are companies that do not allow any type of drug offences, while others do. The third is theft in a person’s background check. Depending on what product is being moved or how the company’s history has been with theft they may or may not allow that within a certain time frame. The time frame is the last component. This changes from region to region but a seven-year background check is fairly standard. If that is reduced to three years, you can expect a labor pool increase of 15 to 20 percent. There are absolutely markets out there with a workforce that is not being tapped into as well as it be could because of the requirements of background checks. This is not necessarily a bad thing for some clients. They want to make sure they have a reliable workforce and using background checks is a way of doing that. But it could be challenging to those in the workforce who are maybe under employed trying to get back in a full time or part-time capacity.
Have you seen a shift in the way companies are viewing drug testing as it relates to cannabis?
Nat: Well it is still federally illegal. So from that standpoint, when you are a company that operates in multiple states and jurisdictions you are probably going to set a policy that is consistent across all of your facilities. Are there companies that have said, “we’re not going to drug test.” But are there operational risks by running that type of policy, certainly. It also depends on what roles are performed within the four walls of the facility. I would say this is a Denver focused podcast, so there is definitely a shift in the culture in certain parts of the country. And this is where employers are trying to figure out how to embrace it or modify their policies that allows them to have a workforce that is happy to work where they are and also doesn’t shut off a potential group of the workforce due to the requirement.
I can’t say I was expecting to end on a cannabis question.
Matt: Well we are in Colorado. I can’t say it comes up all the time, but it’s certainly comes up. And labor is definitely the biggest issue that we’re coming across. We talk about implementing real estate strategies with business objectives in mind as companies grow, downsize, optimize etc. and labor is the hold up every single time.