Labour shortages in the manufacturing industry- is there a solution?

Soaring energy costs, inflation and interest rates continue to have a massive impact on business and the economy but recruitment and retention of staff remains the number one challenge for employers across all sectors. Certainly, competition for people and talent…

Richard Higginbottom, Senior Audit Manager

Blog15th Aug 2023

By Richard Higginbottom

Soaring energy costs, inflation and interest rates continue to have a massive impact on business and the economy but recruitment and retention of staff remains the number one challenge for employers across all sectors. Certainly, competition for people and talent has never been more intense.

With economies starting to recover and consumer spending inching closer to pre-pandemic levels, manufacturing companies around the world are taking steps to return to full production levels. However, the current supply chain disruptions as well as the global labour shortage are major factors hindering this recovery. There are ten million manufacturing jobs across the globe remain vacant due to the skills gap.

Why is there a labour shortage in manufacturing?

There is no easy answer when it comes to explaining why there is a labour shortage in the manufacturing sector. Instead, it’s a combination of issues, some of which were brought on by the pandemic and some that had been plaguing the industry for years.

Some potential reasons for today’s labour shortage in manufacturing:

  1. Side effects of COVID-19
  • Lack of stability
  • Mental health support
  • Workplace safety concerns
  • Desire for flexibility
  1. Low wages in the industry
  2. Negative perception of industry
  3. Lack of gender diversity
  4. Ageing workers
  5. Higher demand for tech-related skills

So what can be done?

To meet an increasing customer demand with limited labour availability we must consume fewer labour hours for each unit produced and do so in a repeatable manner. Many manufacturing companies, especially those that have grown organically over long periods of time, have significant opportunities to rethink their approach to creating value.

Below are some potential ways to create more value with fewer people:

  1. Lay the groundwork for machine learning and artificial intelligence.

When employee turnover is high and skills are limited, we need to invest more heavily in building the capability for machine learning. Where possible, focus on setting up a closed-loop system to measure process output parameters and adjust inputs to meet specified requirements.

  1. Implement real-time data visualisation tools.

Far too often, team members are flying blind and don’t have the metrics readily available to know if they are progressing according to the plan. Build a system that provides regular feedback and visualises team performance in a way that clearly shows if the current approach is meeting expectations.

  1. Increase the level of automation on the factory floor.

Analyse the potential for cobots (collaborative robots) or lightweight automation solutions to reduce the amount of effort required by the team member. This approach has a dual benefit: It can reduce labour time and it can broaden the workforce able to perform the work.

  1. Invest in automated warehouse management.

Look for ways to standardise the part flow and delivery lanes when moving materials through your factory. This will enable automated material handling solutions to reduce the amount of manual transportation. In turn, this will free up labour, reduce the chances of material being placed in non-designated areas and decrease time spent searching for misplaced inventory.

  1. Digitally transform your finance function

Manufacturing companies that grow rapidly often outrun their existing software and face a skills shortage. In the face of complex and voluminous accounting needs, these issues lead to performance issues and higher cost of processing. By resolving these issues and building a highly efficient finance department, manufacturing companies can achieve up to a 50% reduction in the cost of accounting and can significantly reduce the volume of labour hours required.

The magnitude of digitally transforming your finance function, together with the time and cost involved, can make it tempting to try and make do with what you already have. However, this usually results in outdated systems, workarounds, and poor efficiency.

One good way to start your transformation is to talk to your accountant, they should be able to advise you on industry specific technology, best practice, and appropriate controls for your business.  Another good option is to have your accountant conduct a systems and process review to highlight any issues with your existing finance function and suggest worthwhile improvements.  Even if you’ve already changed your finance function, an independent review of your new system, through sample checks and system interrogation, can be a good way to identify further improvements and ensure you’re getting the best from your investment.

With automation and process standardisation, manufacturing firms can also improve their revenue recognition capability, which can further translate into strategic cost reduction, insightful data and tax savings.

By planning ahead and seeking professional advice, digitally transforming your finance function can reduce reliance on labour hours, enhance operational capabilities, add significant value to a manufacturing business and help to achieve wider goals.

Final Thoughts

Labour is in short supply. Fortunately, there are innovative, proven solutions out there to help secure the future of your enterprise. These solutions do require a different approach and learning a new skill set. However, investing the time and resources to implement new technologies can really move the needle for your manufacturing organisation.

AAB can play a vital role in helping manufacturing companies adopt automation, streamline processes and build a highly efficient finance & accounting department. We would love to show how we can do the same for you. Please get in touch with Richard Higginbottom, or your usual AAB contact if we can help.

By Richard Higginbottom

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