Lessons from the factory floor Part 1: These labor pains aren’t temporary

One of the dominant themes in the business world has been the labor shortage. There are too many open jobs and not enough workers to fill them. At the beginning of the summer, for instance, 9.6 million U.S. jobs went unfilled, with the number of openings exceeding unemployed workers by 3.6 million. 

As time goes on, it is becoming abundantly clear that anyone who thought labor market pains were simply a symptom of the pandemic was badly mistaken. Workers are gaining more leverage in the workplace, demanding higher compensation, and better working conditions.  One-third of executives surveyed for the 2023 AlixPartners Disruption Index, meanwhile, said their workforce lacks the necessary skills, and ~40% say filling the talent pipeline will be a challenge for the foreseeable future.

The trend could reach a crisis level in manufacturing as the appetite for domestic production capabilities – including semiconductors and electric vehicles – grows amid supply chain kinks, geopolitical tensions, and a nearshoring surge. Manufacturing-related construction exceeded $100 billion in 2022 and is continuing to snowball in 2023. Dozens of major factory builds and upgrades are underway.

But just because the factories get built doesn’t mean the workers will magically come. Over half of US manufacturing workers plan to leave their jobs this year alone.  Of the 4 million new U.S. manufacturing jobs that will likely be needed over the next decade, half are projected to go unfilled.

Breaking down the problem

Researchers and employment experts have been identifying a growing skills gap for decades. However, much of the concern has centered on an insufficient level of know-how needed to compete in emerging fields reliant on tech innovation or specialized math, science, or engineering expertise.

While addressing these concerns is a high priority, a renaissance of U.S. manufacturing activity represents an additional and somewhat unique problem for the economic future. Understanding this specific environment is essential if executives are going to apply the variety of tools – ranging from digital transformation to data analytics to bespoke HR strategies – needed to meet the challenge.

Below are several reasons manufacturing companies face a skills mismatch and labor shortages on both the hourly (direct and indirect) and salaried levels. In subsequent articles, we will lay out a roadmap for short-term upgrades and long-term sustainable success.

1) Manufacturing has an image problem

Let’s face it: factory work is too often cast as a low-tech and undesirable career path. Politicians have long touted the need to invest in a domestic manufacturing base and the “good jobs” this would entail, but society’s treatment of the sector does little to reinforce that conviction.

This shows up in the industry's attraction and retention performance. Three-quarters of those surveyed by the National Association of Manufacturers (NAM) said getting qualified people interested in coming to or staying in the sector is a problem on par with those presented by supply chain headaches. NAM has launched a new social media and marketing campaign to address the issue.

Much needs to be done to address concerns about compensation, job security, career trajectory, and employer willingness to upskill their workforce. There are also issues related to perceptions about the work environment, including cleanliness, safety, and comfort (e.g., working in extreme temperatures), which contributes to the belief that hourly factory jobs are less desirable than more flexible gig jobs. Demographic shifts related to geographic preferences must also be addressed by manufacturers, who tend to recruit from the Midwest or small towns.

2) Knowledge transfer is insufficient

Roughly 25% of the manufacturing workforce is over the age of 55, a substantial share of whom will retire before many of the factories currently under construction will open their doors. A recent survey suggests that the bulk of these older employees have not shared enough information with those who will assume their roles once they are gone. Many of these older employees were accelerated out of the workforce during the pandemic, making a focus on this upcoming transition even more critical.  

3) Wage gap is pronounced, schedules are inflexible

Manufacturing jobs require a diversity of skills but can often be obtained without a four-year college degree. There is a wide chasm among the annual earnings of those with bachelor’s degrees or higher and those with some college or less training. Upward mobility can be achieved, but employers cannot abandon apprenticeship models, training opportunities, skill development, and similar initiatives.

At the same time, even as widespread wage increases have been implemented for the hourly ranks, salaried compensation is not keeping up even as there is a need for capable middle management. In fact, there is a tendency to use/apply an obsolete pay scale. An outdated model also applies to job scheduling – today’s workers, heavily influenced by the work-from-home trend – often see starting on night or weekend-shift and mandatory overtime as a restrictive and undesirable situation.

4) Hiring, onboarding processes are outdated

Middle-market companies are responsible for a third of all U.S. private-sector jobs and 60% of new jobs created but often have leaner HR departments that follow an operational path rather than a strategic roadmap. In manufacturing, this can lead to woefully insufficient onboarding procedures, including basic oversights like not receiving access cards, or not activating accounts, or not receiving an adequate view of the value and expectations of the job. As an example, a recent walk-through at a factory resulted in a conversation with an operator who joined two weeks prior. After being asked how he enjoyed his job and where he sees room for improvement, the operator said he still had not received an employee badge and had to borrow an ID to re-enter the building, as well as depend on others to enter the building in the morning. This results in under-skilled/ underinformed/ unengaged workers, poor promotion and succession planning, and a culture of workers who view themselves as job “switchers” rather than “stayers.”

5) The pandemic caused bad behavior

Finally, Covid-19 wasn’t only detrimental to people’s health. The pandemic also negatively affected manufacturing culture at a time of dramatic demand swings, substantial changes to working behaviors, and pronounced shifts in employment patterns, including the attrition that came because of the “Great Resignation.” Below is a list of bad behaviors that need undoing:

• Coaching and feedback are insufficient.
• Training is being ignored.
• Purchasing discipline is lacking.
• Preventive maintenance has lapsed.
• Bad hires were made to fill open spots.
• Premature promotions are routinely made, which too often results in the removal of a good worker from the floor and the creation of a poor manager.
• Rapid and routine turnover is accepted as the status quo – using HR as a massive labor funnel rather than individually monitoring the pulse of the workforce and sniffing out the root cause of turnover.

Rebuilding a performance culture from plant floor to C-suite

We believe change starts at the top and must be consistently driven through the organization, from the CEO’s office to the entry-level employee. The focus cannot be singular or short-term. To win with salaried employees, direct hourly workers, and indirect hourly staff, skills, retention, recruiting, and work design, all need to be addressed simultaneously.

Some solutions come straight out of the latest strategies being taught to aspiring HR hopefuls, while others require an organization-wide adoption of new technologies, including artificial intelligence. Addressing challenges holistically by focusing on performance lifts that reduce labor dependency builds a more sustainable approach.

The statistics don’t lie: The vast majority of employees – especially in manufacturing circles – are open to being retrained and would rather stay and be upskilled rather than keep switching jobs and losing out on upward mobility, leadership development, and job satisfaction. Company executives, meanwhile, need to see it as their responsibility to boost the capabilities, retention and morale of their existing workforce and create a compelling reason for a new generation of workers to join.

Stay tuned for a roadmap to accomplish this objective.