The following is the first in a series of articles on various issues discussed in the 2013 Indiana Manufacturing Survey, conducted by Katz, Sapper & Miller and Indiana University’s Kelly School of Business, in partnership with the Indiana Manufacturers Association and Conexus Indiana. To read subsequent articles, visit Katz, Sapper & Miller’s manufacturing blog.
Concerns over a skilled workforce and related skills gaps in today’s manufacturing industry are all over the national news. But does this impact manufacturing in Indiana, a state with an abundance of workers with manufacturing backgrounds? As a manufacturer in Indiana, do you need to worry?
The results of the 2013 Indiana Manufacturing Survey would suggest that you do. In fact, the survey found that long-term workforce planning was the second-highest concern for manufacturing companies when setting the corporate strategy (second only to labor costs). The majority of this concern is over the middle management and skilled labor market. There seems to be little concern over the ability to fill senior management positions, which reinforces the need for skilled laborers in manufacturing.
What is the real impact of this shortage of skilled workers?
First, the cost to produce a company’s product increases. When a company doesn’t have enough skilled workers they tend to rely heavily on the skilled workers that are available. This will likely lead to a significant amount of overtime for these workers as the company attempts to fill its orders. This overtime can lead to burnout since the skilled workers must put in extra hours to make up for the shortage. The skilled workers are then likely to leave the company due to burnout. Now the company is not only shorthanded, it also has to cover the costs of training a new employee … if they are able to find one.
In addition to increased production costs, the survey found that an insufficiently skilled workforce directly impacted a company’s ability to implement new technologies. As a company has to focus solely on getting its product made with a constrained workforce, it does not have the time or ability to focus on new technologies that could actually improve the production process. This creates a downward efficiency spiral. In the same vein, the survey found that achieving productivity targets and implementing quality improvement processes are also being impacted by the lack of skilled workers.
The survey also found an interesting correlation between the Indiana manufacturing workforce and onshoring, another topic widely discussed in current manufacturing news. When asked how important various factors where in making a decision to onshore production (for production that was currently offshored), the U.S. labor market (skilled workforce) did not receive any votes for “very important.” Yet when respondents were asked what their reasons were for offshoring, an overseas skilled labor force was noted as very important. This shows that if Indiana manufacturers are bringing production back to the United States, it is not because of a skilled workforce. If it is returning to the U.S., it is due to other factors such as reduced total “landed” costs – i.e., customs/duties, transportation and warehousing.
In all the doom and gloom related to the skilled workforce shortage, there are efforts being made across the country to improve the labor market. Many companies are now providing their own training programs, versus relying on the traditional vocational programs that are state-funded. And Indiana is now looking abroad to see how other countries are filling the skills gap. These efforts should yield positive results, but the true burden will lay on the manufacturers themselves to support these efforts.
Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.