As Henry Ford used to say, “Time waste differs from material waste in that there can be no salvage. It is the easiest of all wastes and the hardest to correct.” Ultimately, we are all facing challenging times, but those responsible for manufacturing firms have in many ways borne the brunt of trying to manage a sense of normalcy and meet demand while struggling with the economic and physical limitations presented by COVID-19.

While it is difficult to think about the future amidst everything we have to manage today, the reality is this: not a few months before COVID-19 began to spread across North America, unemployment was at record low rates. Wages were also rising and skilled labor was less available than ever before at that time.

While we can see the skills shortage persisting through this pandemic, the absence of even unskilled workers and the growth in total labor costs will only be worse once the pandemic is over. Why is this the case? Because demographics are shifting to such a great extent that there is simply no way to overcome them in the short term. As older workers age out, there are fewer workers to replace them, and ultimately this means that failing to make the necessary preparations for a smaller workforce will only mean 2020 and, yes 2021, will have been wasted.

What is the root of the coming labor shortage?

Ultimately, the root of the coming labor shortage is a lot deeper than any of us realize. In the early 1970s, the global rate of population growth peaked, about the same time that energy prices spiked and baby boomers entered their prime consuming years.

While overpopulation has long been a concern for some, the wild swing in global population that we are currently experiencing – which includes broad demographic decline in both developed countries and many emerging markets, as well as record-high old-age dependency ratios – means that work must be more productive than ever. 

The decline in fertility rates – caused both by choice and by economic conditions – also means that ultimately the labor supply will be more stable as baby boomers more fully recede from the workforce. However, the labor market of the future will be much more specialized and offer workers plenty of options. With choice among jobs to do, skilled talent will gravitate to only the most attractive employers, meaning that higher turnover and reduced consistency will become a fact of life for all but the most attractive – and costly – employee incentive programs. 

The first baby boomers began reaching retirement age in 2010. While immigration has in parts held up overall labor shortages, the age of the manufacturing workforce has increased with fewer total workers present to replace them. Source: Pew Research.

Why is the skills gap so persistent?

In many ways, the skills gap started with the investment we’ve had in the “Knowledge economy”. As more jobs were sent to ample labor supplies overseas, domestic production focused on STEM and arts education, high-value-added automation and limited vocational and career-oriented training.

While North America has long been paying a price for this, the fact that so many skilled workers are now leaving the workforce will eventually leave us with almost nothing of the skills capacity that was known in the 1950s or 60s, when North America served as the world’s workshop and an engine for post-war growth.

At the same time, making up this gap is a matter of 20 or 30 years of good policy – something manufacturing firms don’t have time to wait on. So, instead of waiting on the world to change, adopting the right solutions is the best first step to augmenting labor capacity and hedging against skills risk.

In line with the retirement of baby boomers, the number of manufacturing job openings increased throughout the 2010s with little moderation towards the end of the business cycle. Source: Tulip.

How can manufacturing firms adapt?

Incorporating automation is critical to adapting to limited skilled labor supply. Adding robotic, machine capacity, efficiency gains and waste reduction all allow you to better set profits according to your price in the market. 

Ultimately, automation is what allows us to overcome skills gaps in a variety of ways: it increases the productivity of existing labor, mitigates the effects of any specific labor shortage, improves the quality and safety of jobs and hence reduces the net total unit labor cost.

Since we are currently at the bottom of a labor and economic cycle, identifying the most challenging aspects that came at the top of the last cycle are critical because – as we all know – by the time we see the economy fully swinging again, it is already too late to invest in the automation we needed without failing to meet existing production demand and ultimately lose profitability and productivity when it was most ready for the taking.

Unit labor costs have risen in an unprecedented way, in line with the absence of skilled labor. identifying opportunities to automate while maintaining flexibility are key to attaining future growth. Source: St Louis Fed.

Why is flexible manufacturing as important now as when times are good?

Flexible manufacturing systems essentially respond to changing demands without adding high incremental costs for automation. Cobots, adaptable materials handling systems, data-driven decision making and some Industry 4.0 practices can help manufacturing firms small and large alike become more agile in responding to demands. 

Ultimately, what happens to us is not always under our control, but controlling what we can control gives us the best chance at success. That means flexible manufacturing is important to adopt as both the economy eventually picks back up and changes to meet new demands. The effects of the pandemic, for instance, have driven up the demand for durable goods as lifestyles change – and will likely continue to change – even as the pandemic is subdued. 

So, now is the time to assess where you most need to invest, doing it in a way that doesn’t tie you to one type of product, but better processes. Without making use of this time, many of the trends that have been holding back manufacturers for a decade or more will only have gotten worse, and the time of low demand and pandemic challenges will have passed in such a way that it cannot be salvaged.

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