Navigating the Skills Shortage: Implications for the Future of Manufacturing

11 May 2023

Image Credit: Tom Claes via Unsplash

 

The 2020s represent an exciting decade for manufacturing. Manufacturing jobs are reshoring, the sector is expanding, and technological advancements mean that manufacturing is fast becoming a space of digital connection and smart processes.

However, an expanding sector is caused by a greater demand, and to meet this demand, manufacturers must recruit for more jobs. The jobs are there – though, it seems, the workers are not. Deloitte estimates the U.S. manufacturing industry alone could experience a shortage of up to 2.4 million workers by the end of the decade. The conditions are ripe for a skills shortage crisis: baby boomers are retiring, students are graduating without the requisite skills, and younger people are increasingly showing a lower desire to enter a career in manufacturing.

The need for increasingly skilled workers is a result of the incredible pace of innovation in the sector, as more and more specialized machinery requires a more specialized labor force. Manufacturers are having to fork out ever more on payroll, owing to increased overtime due to unavailability of others to do the job, and the higher salaries commanded by specialized employees.

The shortage is having a real effect on businesses already. Losses in profitability are felt immediately: each quarter a business cannot fill an open position, they lose an average of $14,000, and the overall skills gap is responsible for an 11% loss in annual earnings for the average producer. Market opportunities may be lost due to the inability to meet demand, and less time can be spent on research and development, causing a business to lag even further behind at a time where innovation is key to staying competitive.

The potential implication is stark: action must be taken, else a business may be driven to extinction altogether.

How well manufacturers adapt to this changing landscape will depend principally on their ability to do three things: 1) ensure their senior workforce passes down their knowledge to newcomers; 2) upskill and accelerate the training of the upcoming labor force; and 3) begin their transition into an IoT-driven, autonomous workplace.

Join us on this long-read as we examine the state of the workforce, the reasons behind the skills shortage, and actionable steps that businesses are already taking in order to mitigate a crisis – and give them the best chance of surviving into a new landscape of training, human resources, and technological innovation.

 

The State of the Workforce, 2023

The state of the workforce in 2023 presents a challenging talent shortage, particularly in manufacturing and technical fields. Businesses are struggling to find skilled workers, leading to intense competition and the need for higher wages. Manufacturers recognize the importance of digitalization, but face difficulties implementing a solution.

Nearly half of US employers are already reporting difficulties in finding people to fill roles: those in production, operations and maintenance in particular. Deloitte expects there to be more than 2 million manufacturing jobs left unfilled by 2030 in the US alone, robbing businesses of their opportunity to grow healthily and meet the demand of their customers.

The truth is, workers seeking to apply their specialisms are looking to industries other than manufacturing, and as such, there is vast competition in recruiting between manufacturing and other industries. Employers must thereby offer incentives, i.e. a higher wage, in order to attract such talent. In 2016, manufacturing workers in the US earned 20% more than workers in other industries.

Even when positions are filled, the problems do not end there. Employees must work longer hours in order to address the lack of skilled staff, and as a result, employers must fork out higher overtime costs: to reflect their higher earnings, workers in manufacturing also clock 17% more hours than those in other industries.

And in a market where highly-skilled technicians are gold dust, more effort (and more capital) must be expended in order to retain them. In line with the higher cost of living, wage increases must be implemented at more frequent intervals – else face steep turnover rates, at which point a business is back to square one.

Second, it’s not just changing human trends that will shape the future of work – it’s the machines, too. Automation is an area of innovation that businesses are increasingly citing as critical for their future. In a study conducted as part of Sage’s Digital Britain research among a sample of British firms, six in ten manufacturers cited automation as a key trend affecting the skills landscape in their businesses, with half citing wider digitalization.

In the United Kingdom, among manufacturers surveyed in Sage’s research, manufacturers consistently cited technology as being critical to their operations, yet 47% believed that there was underutilization of technology. Of these, 33% quoted difficulties in learning skills for new technologies as the roadblock.

The integration of automation and digitalization presents both opportunities and obstacles, with businesses acknowledging the importance of technology but struggling to adapt.

 

Causes of the Skills Shortage

Of course, one of the top causes of a skills shortage in manufacturing is because, nowadays, as with any “Industrial Revolution”, the positions available require more skill. Advances in technology, techniques, and workflow are transforming the way work is done in the industry. As such, these roles demand a more skilled and specialized workforce to keep up with the pace of innovation.

In fact, in a survey from the Institution of Engineering and Technology (IET), 71% of UK manufacturers experiencing skills shortages stated that this was due to missing engineering/technical skills.

Similarly, it is simply the case that the manufacturing industry is growing, and therefore an organic growth in the workforce is expected along with it. The steady reshoring of manufacturing jobs, particularly in the United States, is prompting something of a renaissance of a home-grown manufacturing workforce – by 2025, Deloitte estimates that there will be an additional 700,000 jobs created from this fertile economic ground.

Then there is the question of the more senior workforce going into retirement. Even the youngest of the baby boomers, still the most experienced generation, are approaching their sixties, with the majority firmly past retirement age. As they leave the workforce, they take their rich experience with them, making the talent pool less and less equipped to deal with complex challenges that may only be solved through decades of knowledge.

Last of all, it is increasingly shown to be the case the younger workforce are becoming less and less attracted by a career in manufacturing. in a poll conducted in the US by Simutech, 61% of teenagers saw  manufacturing as a dirty or dangerous environment. In the same vein, while uptake of STEM university degrees is increasing among most demographics, vocational courses in engineering and production are on the decline, with apprenticeship attainment falling by 40% in the period 2003-2013 in the United States. Such courses are crucial to every type of manufacturing firm, since although highly-educated senior engineers play an increasingly important role, there is still a strong need for shopfloor technicians to maintain and troubleshoot daily operations.

 

Solving the Generational Shift

To be clear, attitudes among manufacturers show that bridging the skills gap into the future will be a tricky task. Of those UK businesses surveyed in Sage’s Skills Survey, just 17% agreed that assuring their business of the skills it requires for 2030 will be easy, compared to 62% who agreed.

Broadly speaking, there are three main areas of improvement that companies must get right if they are expected to survive into the next decade or two. These are: retiring, rehiring, and retaining.

Retiring

 

First, let’s cover the most immediate threat to manufacturing’s talent pool: the outgoing workforce. While the pace of technological innovation is difficult to fathom, and the generational turnover will take its inevitable course, the senior workforce has much to pass down to their apprentices. Decades of experience in the space mean that they have developed their own, nuanced approach to work, which is difficult to capture in a set of manufacturing instructions. They have already seen, and adapted to, transformation in the industry, and know best how to modernize ahead of the next wave of transformation. The sheer wealth of experience means that there is scarcely an issue they’ve not seen before, and they know best how to adapt their thought process when an unexpected issue occurs.

A solution must therefore be found by way of the older generation passing knowledge to the younger generation. One approach is to foster an environment of mentorship in the workplace: soon-to-retire workers should be encouraged to share best practices with their younger colleagues, and to explore more rigorous modes of training than instruction sheets.

To this end, retirees should be encouraged and incentivized to take up roles in further education. Those who are approaching retiring age who no longer wish to be part of frontline operations could continue to contribute to the industry’s longevity by entering the teaching force. Some strides have already been taken to encourage this pipeline, with the UK Government proposing the creation of a Workforce Industry Exchange scheme. This would incentivize soon-to-retire workers, and even those who have already retired, to take up teaching positions to ensure that their wealth of knowledge does not go extinct with the cessation of their labor.

Rehiring

 

As one workforce leaves, another enters, and Human Resources has its work cut out to ensure that an appropriately-skilled workforce is hired. In the immediate term, businesses are scrambling to attract lower-level workers, apprentices, and skilled tradespeople, a trend that is unlikely to end soon. However, looking toward the future, investment will be in graduates and mid-senior level managers, with a drive toward tightening and streamlining operations such that the business can adapt to having fewer lower-level technicians on the shop floor. More on this later.

Retaining

 

Another task for HR is the question of employee retention. Firms are prioritizing leadership and management hires, since there are many complex gradients of change happening simultaneously: digitalization, greenification, and new ways of working post-pandemic. The growing demand for flexible and remote working means that managers now have to respond constructively to employees’ requests, lest they leave for the competition or “quiet quit”.

 

Restructuring: The March Toward an IoT-driven Future

 

Addressing the manufacturing sector’s escalating skills shortage requires more than just refreshing the workforce.

A more innovative approach involves merging human expertise with Internet of Things (IoT) technologies to enhance adaptability and efficiency. In order to survive into the future, businesses must employ a fourth R: restructuring.

As innovation in workflow management accelerates, manufacturers need skilled workers who can appropriately leverage these technologies in production, allowing for adaptability amidst adversity.

Thus, the push towards digitalization, aided by industrial IoT—a fusion of analytics, machinery, and human capital—becomes paramount. This integration facilitates smarter maintenance, fosters advanced machine learning, and enables robust automation capabilities.

The culmination of these elements equips manufacturers to achieve their growth objectives and secure a competitive edge, despite the ongoing skills shortage.

The Industrial Internet of Things (IIoT)

 

A business’s ability to adapt to the inevitable need to digitize their operations will be a key determining factor in its success to navigate the skills shortage.

In manufacturing, the principles of Internet of Things (IoT) must be applied, where each device can talk to other devices and use their network of sensors to report on the status of every intricacy of machines in the production line. As the network learns from such experience, it has the data to run accurate simulations detached from the physical apparatus (a so-called “Digital Twin”), and diagnose and address issues before they cause costly machine failure.

Using the same principles, more accurate predictions about anything from tool wear to an end-product’s physical properties can be made, improving customer relations and increasing the likelihood of sticking to production schedules.

With machine learning woven into a manufacturer’s production line, recommendations about servicing and maintenance can be made with a high degree of accuracy and cost-efficiency. When it comes to stock and inventory management, more accurate predictions about inventory volume, and smart market tracking for stock renewal, can help to trim the fat off operations and achieve an Agile, yet lean, production line.

Automation: The Catalyst for Success

 

Depending on the size of the operation, there are still numerous tasks that are performed manually, which puts a bottleneck on productivity and puts minds to mindless tasks in a time when the focus should be on innovation.

With the above data-driven foundation, less human time is spent on general maintenance and upkeep, since machines themselves can keep an eye on their status and alert floor workers when action should be taken to prevent imminent failure. This in turn fosters a safer environment for workers, particularly in the midst of a global health emergency, and machine downtime is reduced significantly.

Leveraging an automated production line means viewing the process as one system, and challenges a traditional serial approach. Not only can a business connect together all the machines in a singular factory, but managers can now stand back and gain an overview of their entire production, even if it is distributed across multiple sites.

 

A Path Through The Skills Shortage

The manufacturing sector stands at the cusp of a transformative decade. An evolving landscape, driven by an ageing workforce, rapidly advancing technology, and a growing skills gap, demands a comprehensive strategy that bridges the talent shortfall while investing in the future generation of talent. A robust approach to this impending challenge requires a blend of respect for the invaluable experience of our retiring workforce, strategic recruitment and retention strategies, and an accelerated integration of smart technology into the workplace.

The imminent retirement of the youngest baby boomers, with their wealth of embedded knowledge, will unquestionably leave a void in the industry. However, this transition also provides an opportunity for the next generation to step into these roles, equipped with the skills and capabilities to navigate the ever-evolving technological landscape.

In the interim, the onus is on manufacturers to adapt and invest in internal training and development programs to create the workforce they need now. The integration of the Internet of Things (IoT) and automation into manufacturing processes is not just an add-on, but a critical component to staying competitive in the future. These technological advancements are not only revolutionizing the industry but also serve as a catalyst for success in the face of a growing skills gap.

The road ahead may be steep, but with the right support and strategic investments, manufacturers can balance immediate concerns around labor shortages with the development of the next generation of talent. The future of manufacturing depends on the sector’s ability to adapt, innovate, and invest in the right people and technology. If tackled head-on, these challenges could lead to a brighter, more productive future for manufacturing, shaped by the harmonious coexistence of man and machine.