Changing regulations, more governmental oversight, rising costs and a shrinking labor pool are pushing precasters to find new ways to effectively manage key challenges in 2015.
By Bridget McCrea
The national economy is rebounding, the construction market is active, and projects that were mothballed during the recession are coming back to life. To respond to this brisk business pace, precast manufacturers are bidding on new work, hiring additional staff members and scaling up their operations to accommodate new projects. But in an environment where skilled workers aren’t easy to come by, and where regulatory/compliance requirements are becoming increasingly cumbersome, precasters face some key challenges.
So what really are the biggest stress factors that precasters are dealing with right now, and how can they effectively tackle these issues in today’s competitive business environment?
Strong economy = new challenges
Precasters aren’t the only ones grappling with a host of new and ongoing challenges. On a positive note, a survey conducted by the National Association of Manufacturers found that U.S. manufacturers finished strong in 2014. More than 91% are optimistic about their company’s outlook for 2015, and a majority are forecasting both increased sales and higher employment.
But despite a stronger economic outlook, 72.7% of those taking the survey said the United States is on the wrong track. When asked which policy actions they would like to see pursued by the Obama administration and the new Congress, 82.8% cited reducing the regulatory burden.
Respondents were also asked about their current primary business challenges. A majority (77.1%) cited rising health insurance costs as their top challenge. In the manufacturing sector, businesses see benefit costs rising an average of 6.3% over the next 12 months, with health insurance premiums anticipated to increase 9.5% on average in 2015. More than 83% of manufacturers taking the survey said their health insurance premiums rose by 5% or more, with 50.9% indicating that their costs rose by 10% or more.
Another pressing issue for manufacturers is the business climate. According to the Industry Week survey, businesses would like policymakers to enact comprehensive tax reform and address rising regulatory burdens. In addition, workforce development challenges remain top-of-mind for many manufacturers, with 56.7% listing attracting and retaining workers as a primary challenge.
National Precast Concrete Association members interviewed for this article echoed these survey results and singled out regulatory burdens, finding skilled workers, climbing health care costs and more stringent compliance requirements as the top four challenges that are currently creating sleepless nights for managers and owners.
At Norwalk Concrete Industries of Norwalk, Ohio, John Lendrum, president, said recruiting, training and retaining high-quality employees are ongoing challenges.
“Precasters are competing for a shrinking labor force,” said Lendrum, who credits the recovering economy and lower unemployment rates for creating the challenge. “At the same time, our products are becoming more complex and detailed. As a result, we need more hands-on skill in the production plant.”
The problem, said Lendrum, is that most of the construction industry is fighting over the same shrinking pool of skilled laborers. This issue is universal across most of the job market. Between November 2014 and January 2015, for example, U.S. businesses added more than 1 million people to their payrolls – the most impressive three-month stretch in 17 years, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey.
Also hampering precasters’ chances of finding skilled workers is the fact that younger workers who are interested in such positions are getting harder to find. “They used to be abundant, but they’re just not out there anymore,” Lendrum said. “As a result, we have to work really hard to attract the younger set with higher wages, faster-paced job advancements and more training which, in turn, equates to higher expenses for the precaster. It’s a real challenge.”
To work through this challenge, Lendrum said Norwalk Concrete has aligned itself with technical high schools and community colleges in the area. “We’re trying to make an early effort of attracting younger workers and bringing them into the fold,” he said.
To do that, Norwalk Concrete Industries offers internships to students interested in the precast manufacturing field. Concurrently, the company is reaching out to older workers – namely those who already have some experience in the field and who are now embarking on a second career and/or looking for part-time work. Through that effort, the company has been able to fill positions in less labor-intensive areas of its operations such as quality control.
Brent Dezember, president of StructureCast in Bakersfield, Calif., is also hard-pressed to find good help to fill his company’s ranks. The issue first surfaced in 2014 – the year the company doubled its workforce to accommodate new demand being generated by the economic recovery. He said StructureCast recently started an intensive, in-house training program to help employees step up their individual skill levels. To make that training more enticing for employees, the company added a merit system that tracks and rewards progress.
“In some cases, it’s a challenge just getting skilled workers to show up (for work),” Dezember said. “So we’re stepping up our internal efforts to make sure the folks we hire have solid training and incentives to be here.”
Addressing regulatory burdens
Labor woes aren’t the only thing keeping precasters’ stress levels high right now. Operating in an increasingly stringent regulatory environment and having to comply with a litany of new requirements are also challenges.
In the online article “2015 Regulatory Challenges Burdening Manufacturers,” Manufacturing Industry Advisor highlights some of the key regulatory issues that manufacturers are facing, including tax reform, trade policy, skilled workforce policies and increased administrative activism. “Now more than ever, U.S. manufacturers are faced with regulatory challenges that burden their businesses and impact U.S. competitiveness in the global markets,” it said.
Here’s Manufacturing Industry Advisor’s take on each issue:
- Tax Reform. The last Congress started the important spadework on federal tax reform, but this work has not yet borne fruit. Manufacturers should stay engaged in and attuned to these issues as they progress, especially those with global footprints and attendant tax issues.
- Trade policy. Interest and momentum continue to build around the pending trade talks with Asia and Europe. Manufacturers should anticipate and try to weigh in on the development of these agreements and policies as legislative and industry association figures work through the process.
- Talent/immigration/skilled trades. Increasingly, federal, state and local governments are looking at ways to help employers fill the skills gap in the manufacturing sector. This is a big and long-term issue, exacerbated by demographics, with no quick or easy solutions.
- Increased administrative activism and resultant litigation. The NLRB (union election rules and other areas), the EPA (Clean Air Act/greenhouse gas issues and Clean Water Act/navigable waters issues), the SEC (conflict minerals reporting) and OSHA (enhanced reporting) are all impacting manufacturers who do business with federal contracting agencies. Expect this regulatory activism to continue in 2015.
Lendrum sees increased government regulation as a key challenge for precasters, and points to expenses like rising health insurance costs as a growing burden for companies like Norwalk Concrete.
“It’s basically a never-ending battle to see where the next unfunded mandate, license fee or other financial hit will come from,” said Lendrum, whose company has taken measures to combat the challenges on several fronts.
When it comes to health care insurance coverage, for example, he said his company is doing more preventive care with its employees and getting them more involved with their health care choices.
State by state
In some cases, precasters are grappling with state-specific regulatory burdens. In California, for example, Dezember said workers’ compensation is becoming a bigger issue for companies like StructureCast, which must comply with the state’s workers’ compensation experience rating system.
This merit rating system is intended to provide employers a direct financial incentive to reduce work-related accidents. An experience modification, for example, is expressed as a percentage and compares the loss or claims history of one company to all other companies in the same industry that are similar in size. Generally, an experience modification of less than 100% reflects better-than-average experience, while an experience modification of more than 100% reflects worse-than-average experience.
“We’re running into a lot of owners and builders who are putting limits on the type of experience modifications you need to be able to work on their sites,” Dezember said. “We install everything we make, so it’s definitely an issue for us.”
To manage this challenge, Dezember said StructureCast recently upped its safety program to include daily huddles, monthly barbecue events, lessons in first aid, and ongoing discussions about the importance of safety in the plant, on the road and at the job site.
“We spend four to five times more time on safety now than we did five years ago,” Dezember said. “It’s not a bad thing, of course, but now that an experience modification above 100% excludes you from a lot of work, it’s a necessity to stay in business.”
Compounding this challenge is an increasingly demanding customer and a payment process that’s becoming harder and harder to manage. Pre-recession, for example, Dezember said StructureCast’s invoices were typically paid in the 45 to 55 day range, on average. During the recession, that time frame rose to 75 to 80 days and has yet to return to normal.
“It’s not dropping back yet,” Dezember said. “In some cases, large contractors pay within two weeks, because they want workers to show up and get the work done. But on the other side of the coin, the amount of working capital we need now versus five years ago has doubled.”
To manage these challenges efficiently, Dezember said StructureCast has adopted a lean manufacturing mentality that allows it to continue performing quality work and on a consistent basis.
“We’re running just about as lean as you can get right now,” Dezember said. “We’re not adding to our management ranks, so everyone just has a bigger workload to deal with.”
Nose to the grindstone
When Armen Alajian, president at ARTO Brick and California Pavers in Gardena, Calif., looks around the current business climate, he sees a mix of opportunity and challenges. And while business has certainly picked up since the Great Recession, he says some of the newer issues are equally as onerous as having little or no business in the pipeline.
To manage the ebbs and flows, Alajian said precasters should focus on their core competencies and try to avoid overloading key team members with too many tasks or projects. “Don’t give your team too much to do, and help your people understand that fires will come up,” Alajian said. “Just have them direct their energy to a handful of tasks that can be managed effectively instead of trying to hit everything at once. Then move on to the next issue and address it.”
For precasters that need effective solutions right now, Chris Cameron, director of business process solutions at Philadelphia-based supply chain operating network provider Elemica, said recognizing that the labor market problems are here to stay is a good starting point. “It’s just something that manufacturers are going to have to embrace and learn how to deal with effectively as the economy continues to improve,” said Cameron, who advises precasters to explore technology applications as a way to work smarter, better and faster in spite of the rising challenges.
“While the manufacturing industry isn’t readily known for being on the cutting edge of technology, there are definitely some applications out there that can help companies more effectively deal with challenges while continuing to grow and succeed,” Cameron said.