Case Study
The Problem: Magnetech wants to triple its work force. But with manufacturing waning, skilled workers are very hard to find.
From: Inc, January 2005 | Page 38 By: Patrick J. Sauer Photographs by: Andy Goodwin
Don't tell John Martell that manufacturing is dying in the United States. His company, Magnetech Industrial Services, is thriving, with eight locations and revenue of $25 million. Founded in 2000, the company, based in South Bend, Ind., specializes in making, servicing, and repairing industrial magnets and electric motors of all sizes. It's precisely the sort of old-school industrial production that has been headed overseas for years, and Martell is proud that he's been able to keep 170 skilled laborers gainfully employed and his company on the upswing in the face of tough economic conditions.
Martell, 49, frequently walks the 25,000-square-foot factory floor of his South Bend headquarters, where 22 of his workers, all of them members of the International Brotherhood of Electrical Workers, strip, test, and remanufacture engines for clients ranging from steel producers to city governments. But Martell began to recognize something worrisome -- Magnetech, it was increasingly clear, had a labor problem. No, the workers were not restive, nor were pickets lining up outside. Instead, too many of his employees were gray-haired veterans of the industry. Eventually they'd be retiring. And it was less than clear where he'd find the next generation of industrial workers to replace them.
Martell's fears were confirmed last spring when he and his management team did a quick, informal study of the workers at all eight locations -- four in Indiana and others in West Virginia, Ohio, Wisconsin, and Alabama. The result: At least 80% of the employees were well into their 40s. "We have an issue," Martell realized.
And it was a big one. Martell had major plans for Magnetech. While other U.S. manufacturers have been downsizing and moving operations offshore, Martell saw revenue hitting $100 million by 2007 -- a feat that would require tripling the company's work force. The question was where he would find the next generation of workers. Back when American manufacturing was robust, most new workers came through union apprenticeship programs. After graduating from high school, mechanically inclined kids who weren't college bound were brought on by the industrial locals to learn alongside journeymen.
To say that things have changed since then would be a major understatement. Manufacturing job losses totaled 257,000 in 2003 and more than 3 million since 1998. A scant 13.5% of U.S. workers belong to a union, and many of the apprenticeship programs have faded away. At the same time, technological innovations require more training than in the past -- putting Magnetech in a Catch-22 that it didn't create but that nobody else was going to solve. "There is a Rust Belt mentality that says, 'It'll die,'" says Martell. "We want to show that there is a future in industrial manufacturing."
With no union apprentices to hire, Martell has found most of his new workers through word of mouth or newspaper ads. He also woos skilled laborers from competing firms. But those tactics are short-term fixes at best. Too often Magnetech has been relying on workers who may be skilled in one part of the job but do not understand the entire process -- precisely what a strong apprenticeship program teaches.
All of which led Martell to ask himself: If Magnetech was going to sink resources into recruiting workers, wouldn't it make at least as much sense to invest in an in-house education program of its own? If the unions were no longer training apprentices, perhaps Magnetech would have to do it itself.
The Decision
In April 2003, Martell decided to refocus his energies into creating the next generation of Magnetech workers himself. His first step was to hire education and training expert Mark Melnick to design a fully credentialed, in-house apprenticeship program.
The curriculum, known as the Magnetech Motor Repair Apprenticeship Program, took about six months and $30,000 to develop. Here's how it works: Apprentices must log 8,000 on-the-job hours, including 800 off-the-clock evening hours in the classroom. While working alongside experienced journeymen, students earn about $12 an hour and receive raises every six months they're in the program. Once completed, apprentices will have reached journeyman status -- earning about $20 an hour -- a designation that is transferable across the country and generally ensures higher wages and greater employment opportunities. What's more, participants will be close to an associate's degree upon graduating, and Melnick and Martell hope some students go on to finish college.
All credentialed industrial apprenticeship programs must be approved by the Department of Labor. Magnetech finally got the go-ahead from the Feds last August and will begin officially in January in South Bend, with about six students. Martell will introduce the program to his other facilities over the next two years. Eventually he hopes to train as many as 10 apprentices a year at each of his locations.
The apprenticeship program already is boosting morale on the shop floor, Martell says. "With all the negatives and shrinkage in the industry, it's hard for the employees to be excited about what they're doing," he says. "Now the attitude has changed." Indeed, Martell was stunned by the number of Magnetech workers, many of them with years on the job, who were interested in becoming apprentices themselves to earn journeyman status. In fact, he initially signed up too many current employees and quickly changed course to include a better mix of older and newer employees.
The program will cost Magnetech between $3,000 and $4,000 a year per student. Will it solve the company's labor problems? Martell thinks so, though he admits it will take a few years before he sees results. "I'm confident it will be a long-term solution once we get committed applicants," he says.
In the meantime, education and training have become an official part of Magnetech's business plan. The company, in conjunction with nearby Vincennes University, has begun offering accredited courses such as Basic Machine Control and Pneumatics and Advanced Hydraulics to local manufacturers. It's currently less than 1% of total revenue, but Martell and Melnick want it to grow -- to further diversify Magnetech's business but also to help prove that U.S. manufacturing is far from a dying industry.
Otto Taylor, an electrical worker for more than four decades, helped develop Magnetech's curriculum and is thrilled to see a return to the old union apprenticeship approach. "Someone has to put their foot down before we become a third world country ourselves," says Taylor. "Magnetech is going about it the right way. John Martell could build an empire."
The Experts Weigh In
Can Magnetech create a work force from scratch?
Magnetech deserves all the credit for setting up this program. But what is lacking is broad-based federal and state government support so that apprenticeship programs can succeed. Manufacturing is skilled labor -- not the stereotype that it's for those who aren't smart enough to go to college. In Germany, manufacturing often attracts the best and brightest; people serve as apprentices and then go on to study engineering and it's viewed as a positive because they have hands-on experience. In that sense, Magnetech is a pioneer.
Harley Shaiken, professor of education and geography, University of California Berkeley
It's encouraging that John Martell is doing this because it's proactive rather than reactive. Improvements can't come just from the state governments; it has to be a public-private collaboration. Magnetech is recognizing its role in economic development, creating its own demand-driven model by educating workers to match the skill sets the company needs, which will build worker loyalty. This is an awesome program. I hope other Indiana manufacturers and other industries will follow suit.
Le Anh Long, research director, Indiana Economic Development Council
No customer will keep giving contracts just to protect jobs, so companies have to look at saving on total costs. Investments in streamlining, such as premium tools and new technologies, might ultimately be a better solution for Magnetech. It has to evolve as quickly as the global marketplace and consider what the company will look like in 25 years. Pricing is the bottom line, and efficiency is the way to remain competitive. I wonder if Martell is willing to admit that his work force could become obsolete in 10 years.
Laura Roberts, CEO, Pantheon Chemical, Phoenix
Copyright © 2004 Gruner + Jahr USA Publishing. All rights reserved.
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