Skills Shortage Threatens Future Earnings and Growth Prospects of U.S. Manufacturers, According to a New Report from Accenture and The Manufacturing Institute
Study Calls on U.S. Manufacturers to Take Lead in Training; Perfect Job Candidate May Not Exist
U.S. manufacturers may be losing up to 11 percent annually* of their earnings as a result of increased production costs stemming from a shortage of skilled workers, according to a new study from Accenture and The Manufacturing Institute.
The scale of the issue is illustrated in the study, “Out of Inventory: Skills Shortage Threatens Growth for U.S. Manufacturing,” in which 39 percent of the 300 U.S. manufacturing executives surveyed described the shortage of qualified, skilled applicants as “severe,” and 60 percent said it has been difficult to hire the skilled people they need. In addition, more than 50 percent of respondents said they plan to increase their production by at least five percent in the next five years.
Furthermore, as the report notes, when manufacturers are unable to fill roles, overtime, downtime and cycle times increase; more materials are lost to scrap; and quality suffers. More than 70 percent of the respondents reported at least a five percent increase in overtime costs, and 32 percent reported an increase of 10 percent or more. As manufacturers used overtime to maintain base production levels, 61 percent said their downtime increased by at least five percent, as they lacked enough people to run and maintain the equipment. Cycle times also increased at least five percent at 66 percent of the respondents’ companies.
“The skills shortage facing U.S. manufacturers is apparent from this report and its severity can be measured in dollars,” said Matt Reilly, senior managing director, Accenture Strategy, North America. “U.S. manufacturers’ plans to increase production and grow manufacturing roles over the next five years are positive indicators, but are likely to exacerbate the problem. Given today’s limited pool of relevant talent, companies may have to forget the notion of the perfect candidate. Instead they should look for more generalist skills in candidates and develop them to match the specific work that needs to be done.”
“It’s getting harder to tell the workers from the managers in today’s plants. Production workers, engineers and managers all spend a significant part of their day using advanced technology to configure, control and monitor processes,” said Blake Moret, senior vice president of the Control Products and Solutions business at Rockwell Automation, and chairman of The Manufacturing Institute’s Board of Trustees. “While these skills are in high demand, the number of qualified people who have them is small. Manufacturers will need to invest in training to develop a highly skilled production workforce that supports the advanced technologies that are essential to modern manufacturing competitiveness today.”
To mitigate the skills shortage, the manufacturers tend to spend more on average for training new hires as opposed to existing employees, with 55 percent spending at least $1000 per new hire as compared to 42 percent who said they spend at a similar level on training for existing employees. However, the study found no correlation between spending on training and impact on skill shortages.
Successful companies, according to the report, spend training dollars as part of an overall strategy designed to address critical skill shortages, with clear objectives set for the short-, medium- and long-term. Based on Accenture’s ongoing research, the report suggests that manufacturers:
- Maintain a current inventory of in-house skill sets and regularly map that against current and anticipated skill needs to inform talent strategy as well as training investment decisions.
- Adopt and apply statistical analysis and reporting that correlate training programs with key business and operational metrics.
- Take advantage of digital technologies to make skills training available to employees on a self-paced basis, anytime, anywhere.
- Incorporate nationally-recognized, certified training programs to build standardized skill sets.
- Engage with educators at colleges, community colleges, trade schools and high schools to build a pipeline of future skilled workers, influence curricula and lend employees to help teach specialized skills to potential manufacturing recruits of the future.
“Skill-building programs offered by professional organizations offer an avenue for manufacturers seeking to certify their people in specific skill sets,” said Jennifer McNelly, president of The Manufacturing Institute. “Nationally-recognized certification programs provide an opportunity for manufacturing employees to grow their capabilities.”
About the Study
To complete the 2014 report, Accenture and The Manufacturing Institute surveyed more than 300 executives from a diverse set of U.S. manufacturing companies with average annual revenue of $100 million. Building on the survey responses, they also interviewed a subset of manufacturers, representatives of The Manufacturing Institute and the National Association of Metalworking Skills, as well as economists and industry specialists at the U.S. Department of Labor. Learn more at www.accenture.com/ManufacturingSkills.
*The 11 percent potential loss in earnings before interest, taxes, depreciation and amortization (EBITDA) was calculated based on the following data: a potential 9 percent reduction in revenue due to a decreased production capacity estimated by calculating the Overall Equipment Effectiveness rate with the average respondent’s reported 8 percent increase in cycle time and 10 percent increase in production downtime. In addition, the average respondent reported a 12 percent increase in overtime cost.
About The Manufacturing Institute
The Manufacturing Institute (the Institute) is the 501(c)(3) affiliate of the National Association of Manufacturers. As a non-partisan organization, the Institute is committed to delivering leading?edge information and services to the nation’s manufacturers. The Institute is the authority on the attraction, qualification and development of world-class manufacturing talent. For more information, please visit www.themanufacturinginstitute.org.
Accenture is a global management consulting, technology services and outsourcing company, with approximately 289,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$28.6 billion for the fiscal year ended Aug. 31, 2013. Its home page is www.accenture.com.
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