The Bottom-Line Costs of a “Perfect Storm”

Over the next few years, manufacturers of varied sizes could lose millions of dollars from their bottom lines due to looming retirements, according to a new report. Filling the talent void will be expensive, but failing to have an adequate replacement pool will be financially catastrophic.



While other nations have prepared to fill manufacturing and engineering jobs between generations seamlessly, a high number of workers reaching traditional retirement age coupled with a lost generation of factory workers have combined to create what many experts are calling “a perfect storm” in the United States.

The issue is aggravating a costly skilled labor shortage for manufacturers, to the point that the need to replace lost skilled workers has grown from a concern to “a wholesale crisis in just three short years,” according to Advanced Technology Services Inc. (ATS) in its latest benchmark study.

The ATS study, based on a survey of 100 senior manufacturing executives representing companies with revenue between $10 million and $1 billion, reports that 81 percent of respondents overall say they would be affected in some way by the shortage, up from 68 in 2005.

This looming retirement of skilled workers without an adequate replacement pool is forecast to hit U.S. manufacturers’ bottom lines big time. In fact, some of the nation’s largest manufacturers could lose more than $100 million from baby-boomer retirements over the next five years.

The shortfall of skilled workers will cost companies an average $52.2 million from their bottom lines and, even more, $100 million for the nation’s largest companies who report more than $1 billion in annual revenue.

If 40 percent, as forecast by industry experts, of their skilled labor force were to retire by 2013, they would each lose on average $52 million from recruitment and training costs and lost productivity, according to the Illinois-based maintenance outsourcing firm.

Of companies with more than $1 billion in revenue, 44 percent say they could lose as much as $100 million, compared with 46 percent reporting the same in a 2005 study.

“As manufacturing becomes more sophisticated, technical and precise, and as an entire generation of experts retires, we are recruiting the cream of the crop to do more than fill the gap, but to give manufacturers an edge,” Owens noted in an ATS statement. “Those skills are particularly critical in maintaining plant assets and for keeping the factories running better, particularly during an economic downturn.”

There are a few reasons why we have fewer manufacturing workers today than historically, not the least of which are 1) we haven’t valued education and innovation to create and grow new jobs for the future, and 2) the influx of automation and resultant productivity improvements require fewer workers to do the work required.

The rest of the world has caught up with, and in many cases even surpassed, the U.S. for fostering engineering skills. These countries have tremendous numbers of young engineers and other highly qualified workers coming out of schools at two to three times the rate in the U.S.

“Today’s youth doesn’t see manufacturing as a glamorous business career to pursue,” ATS President Jeffrey Owens wrote in the white paper Workforce Trends: Tools for Taking Control of Today’s Skilled Labor Shortage (free registration required). “Many perceive manufacturing jobs as low-tech, which in fact, couldn’t be further from the truth.”

The workers of yesterday have been displaced by higher paid, more tech-savvy workers. According to the Hudson Institute’s recent book Workforce 2020, “Automation will continue to displace low-skilled or unskilled worker.” In fact, the Hudson Institute predicts that the new skilled labor force will be more highly skilled and better paid than at any other time in U.S. history.

Yet a survey by Plant Engineering magazine last year determined that the biggest future need to automation is finding qualified, trained personnel.

Of nearly 800 respondents (PE readers), 45 percent noted that the top issue in automation is “people related” — or finding trained workers to operate automation assets — ahead of making a business case for automation (32 percent) and the functionality of equipment (23 percent).

So, while today’s manufacturing plants use more sophisticated technology than most office buildings, the question remains: Who’s going to operate it?

Resources

Companies Expect Shortfall to Cost an Average of $52 Million
Advanced Technology Services, Inc., June 10, 2008

Workforce Trends: Tools for Taking Control of Today’s Skilled Labor Shortage
Advanced Technology Services, Inc.

The Changing Role of the Plant Engineer
by Bob Vavra
Plant Engineering, Nov. 15, 2007

Workforce 2020: Work and Workers in the 21st Century
by Richard Judy and Carol D’Amico, 1997

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Comments:
  • drv
    June 27, 2008

    Many companies have contributed significantly to the loss of key employees by requiring early retirements. The reason for doing this? Reputedly, in order to save money for the cost of health plans. One company that I worked for was devasted by the loss of their highly trained and highly experienced primary personnel. An illustration of the limited intelligence of management personnel.


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