The Human Factor in Supply Chains

1. The Human Factor in Supply Chains December 6 – 7, 2007 Rob Handfield Co-Director, SCRC Bank of America University Distinguished Progressor

2. Agenda • The Role of Humans in the Supply Chain • Skilled and Semi-Skilled Labor Shortages • Supply Chain Management – the Impending Talent Crisis • Succession Planning: An Agenda for Change

3. #1 Trend: Growing importance of demographics, labor and people • #1 Challenge: How to attract, retain and continuously develop people • #1 Impact: The current blue collar labor environment has forced industry to do more with less, to become flexible and accommodating, which has led to increasing costs. • Retail Industry Leaders Association (RILA) roundtable of senior executives discussed the most pressing issues facing the industry: • Performance Management • Schedules and Payroll • Recruiting Source: http://www.mhia.org/summit2007/

4. The Need for SCM Talent The CPO’s Strategic Agenda “Enhancing team skills and promoting collaboration is the #1 priority for Best in Class organizations.” And they have to learn how to “sell and market to end users.” Aberdeen Research, Nov, 2006 A Striking Correlation Between Purchasing Excellence and Financial Performance with Collaborative Skill and Behavior as the Critical Differentiator. “The Talent Factor in Purchasing” The McKinsey QuarterlyMarch 2007 4

5. Full-time workforce Healthy supply of skilled and unskilled labor Stable financial markets Long product and project life cycles with long-term resource planning initiatives Guaranteed jobs for life Career paths predictable and viewed as a natural progression in the company Loyalty to company viewed as an indicator of career safety Healthy supply of engineering and supply chain talent Increasing use of temps to manage highly season items Shortage of skilled and unskilled labor Volatile financial peaks and troughs lead to unpredictable job planning Projects curtailed at short notice – associates assigned to short-term projects and hired as consultants when required Postponement and seasonal stocking Unpredictable career paths Individuals may switch jobs up to 10 times in a career Shortage of technical skills Shortage of supply chain talent Humans in the Supply Chain A New World for Talent Management OLD WORLD NEW WORLD

6. Skilled and Semi-Skilled Labor

7. Workforce Demographics • - • Whites will continue to predominate (76 percent of 18 to 24 year olds), but their growth rate lags that of African Americans and Hispanics. • The growth rate of African Americans(21 percent) and Hispanics (23 percent) is almost four times more rapid than Whites (6 percent).

10. Aging Workforce vs. Supply • In 2000 there were 114 young males for 100 older males, • but by 2015 this will decline to 85

13. Shortage of Trades • "One of the welding industry's biggest challenges is attracting young talent, which is attributable in large part to its tarnished image. Many people still associate welding with black and white photos of tired welders covered in scuffmarks and dressed in soiled clothing. But the welding industry has undergone dramatic changes with the advancement of technology, and is no longer confined to the dark and dirty setting reminiscent of last century's industrial era. Despite this, the image problem continues to exist and parents, instructors and counselors have been hesitant to introduce students to the industry.” • Dennis Klingman, American Welding Society, Education Committee chairman.

15. Is there a labor force to keep up with the demand for projects?

16. Responses and Labor StrategiesAdvanced Labor Sourcing Strategies

17. Proactive Labor Management Over the next two to three years, we will need 500-600 welders. We are working with a trade school in Port Arthur Texas, and are recruiting experts to run our welding school. We run 50-60 people through schools such as pipefitting and pull them out of junior colleges. In Texas, we pulling kids out of the hayfields who straight out of high school! They are getting 23 bucks an hour plus 65 dollars per diem on top of it

18. Other solutions for unskilled labor: • Develop a plan • Cast the widest possible search net, including targeting areas with high unemployment rates (Detroit, New Orleans) • Consider untapped groups, such as stay-at-home parents, disabled, seniors who want to work part time • Scout out young candidates (job fairs at local schools) • Be proactive with job training, and partner with community colleges • Promote from within whenever possible, by helping unskilled employees move up, while building loyalty • Keep up with technology to boost productivity

19. Supply Chain Management Talent Filling the Pipeline

20. National Science Board Observations (2006) • ……“a troubling decline in the number of U.S. citizens who are training to become scientists and engineers, whereas the number of jobs requiring science and engineering … training continues to grow.” The board further observed: • … if the trends identified in Indicators 2006 continue undeterred, three things will happen. • The number of jobs in the U.S. economy that require science and engineering training will grow; • The number of U.S. citizens prepared for those jobs will, at best, be level; • The availability of people from other countries who have science and engineering training will decline, either because of limits to entry imposed by U.S. national security restrictions or because of intense global competition for people with these skills.

21. The Tightest White Collar Markets Fields Source: BLS, the Kiplinger Letter vol. 84, no. 45 • Health workers • Mechanical, electrical, computer engineers • Physicists, chemists • Accountants and pilots • Database administrators and systems analysts

22. Results from a Recent Set of Interviews Capability to Deliver Value Through SCM…. …..Depends on Human Resources Available to Engage!

23. Supply Management Salaries

24. Experience is Valued…

25. “Our biggest challenge is: What will we need in 5 to 7 years – and what do we need to do in 2007 that will get us where we need to be.? Many of our executives are 50 today and we need to be able to be able to create a set of identifiable requirements tied to the roles – even at a high level – and begin to develop a strategy around these requirements. We need to understand where we will be lacking in competencies- and begin to estimate which roles we don’t even know today we will be seeking to fill based on attrition retirements, etc.

26. “….succession planning requires talking candidly about what qualities are missing…..it’s sort of like a married couple trying to calmly discuss who the perfect replacement spouse would be.” “….if senior ranks are thin, it’s because so few companies have the foresight to ask managers to take on cross-functional assignments. They let them rise to the tops of their silos – and retire.”

27. IACCM Study (n = 80) Thanks to Tim Cummins and Katherine Kawamoto from IACCM for the survey posting and analysis.

28. IACCM Survey on Succession Planning • What percentage of your staff will retire in the next 5 years?

30. Do you have a program in place for succession planning in SCM?

31. Is succession planning a topic of discussion in your company?

32. Approaches to Developing Talent

33. Future Recruiting

34. Approaches to Developing Talent High Potentials Within SCM Organization (40%) BU Subject Experts (25%) LOW HIGH Industry-Specific Knowledge and Competencies General Business Universities (10%) SCM-Focused Universities (25%) LOW HIGH Supply Chain Competencies and Knowledge

35. Observations • There is an imminent dearth of talent that will occur both in SC management and skilled/unskilled labor in the next ten years that companies are unprepared to deal with. • Most companies have NOT spent the time thinking through their succession planning and talent pipelines, and in many cases, have not even had the discussion! • A targeted approach needs to be developed that explores multiple avenues for talent development.

36. Questions to Consider • IF growth from within WILL BE the primary source of succession planning: • What roles and mentors are established to create supply chain leaders? • What performance measures are being used to motivate people to aspire to these roles? • What approaches are in place to retain talent and before they are picked off? • What career path planning approaches are in place to drive success in these areas?

37. SCM Career Paths Supply Chain Operations Leadership Operations SCM MBA Recruiting Executive Recruitment Direct Hires Future Careers Divison, SBU President College Interns Internal Transfers Rotational Programs M&A Mgmt Enterprise/ Bus Strategy Source: “The Future of Supply Management: Organization and Talent, P. Carter and J. Carter, SCM Review, November 2007.

38. Best Practices in Succession Planning • Monitoring Future Needs • Identify pools sorted by division or business units • Talent Assessment • A semi-transparent process – using a core set of competencies to establish a standard of comparison for assessment (fewer is better!) • Used to identify high-potential employees, and call out individuals with capabilities who can take on leadership roles in the business. • Use Technology to Integrate Data • Web-based systems to organize data that is accessible to all divisions. • Developmental Activities • Spend time creating stretch opportunities, and use temporary assignments as part of action learning assignments to cultibate experience • Offer mentoring, coaching, and action learning along with university-based exec ed programs. • Measure Performance • Assess individuals on the basis of performance, corporate values, and perceived potential, including “learning agility” – ability to learn new material and adapt to new situations. • Track percentage of openings filled from within over time ( should be 75-80%), number of cross-functional assignments, diversity. Source: “Choose Tomorrow’s Leaders Today, Robert M. Fulmer, PhD, Pepperdine University.