Read Time: 5 Minutes
Word Count: 1404 Words
Key Takeaway: Economic and labor shortages impact large and small companies alike The larger companies have more ability to flex and absorb it than do small companies. Our robot can help your machine shop thrive.
Labor shortages continue to vex managers trying to hire adequate staffing levels. Those labor shortages are impacting the supply chain. Heat treating processes that took five days in 2019 can now take five weeks. The reason? No one wants those dangerous and dirty jobs.
Competitive wages are also a challenge. A worker can flip burgers for about the same pay as working in a heat-treating center. Not only is flipping burgers much easier, but free French fries is also an added bonus. Fast food shifts tend not to be as long as manufacturing or processing shifts.
The Beveridge Curve tracks the relationship between open positions and unemployment. In the first quarter of 2022 there were roughly two open positions for each person on unemployment. Those labor shortages are not evenly spread across industries or geographies. Some industries felt that worker shortage much more than others.
Those labor shortages are simply a person count. It does not take into account if the person available to work has the required skills to do the job that is open. Yes there is a labor shortage. The bigger issue is that in addition to the labor shortage, there is a “skills gap.”
If you look at the numbers year over year for the month of April, you’ll get a sense of the scope of the challenge.
In April 2021 there were 865,000 job openings in manufacturing. Manufacturers hired about 428,000 people, leaving roughly 51% of the open positions unfilled.
In April 2022 some 996,000 manufacturing jobs were open. Manufacturers hired roughly 506,000 people, leaving about half of the jobs unfilled.
If you follow the trajectory of the Beveridge Curve, things are not likely to dramatically change in the very near future. The Beveridge Curve is named for creator William Beveridge and it plots unemployment and job openings. The factors are closely related and impact each other.
Jobs across the entire spectrum of roles go unfilled. More than just the low-end positions, middle management, engineering roles and more are also hard to fill. You’ve probably experienced some of that in your shop.
Companies are concerned about the unfilled positions. They are also highly focused on keeping the employees that they currently have. The “Great Resignation” or the “Great Reshuffling” has record numbers of people re-evaluating their work/life balance. With employees walking away from work in record numbers, employers are doing more to keep the people they have.
The unfilled position trends can be exacerbated by population trends. Illinois is one of the states that lost a seat in the House of Representatives based on the decrease in population. Illinois was not alone in the lost population problem. Many of the states losing population are in the manufacturing belt. Michigan, Ohio, Pennsylvania, didn’t lose population, but had negligible growth. Given the margin of error in the census, these states population are fundamentally flat.
If your governor is trying to attract more businesses and especially adding manufacturing, and the population isn’t growing to fill the additional jobs, that will prevent companies from moving to your state. Why move to a state where you are likely to have trouble finding talent to fill the roles? You are already moving from an area that didn’t meet your needs, why move to one just like it?
With the exception of Texas, states gaining population are not heavy in manufacturing. Utah, Idaho, North Dakota were the fastest growing states over the past decade. None of those states showed a population increase of more than 2%. Despite their growth rates, they aren’t heavily invested in manufacturing.
Like the studies around customer acquisition that point out it is cheaper to keep existing customers than to go out and get new ones, the same formula holds true for employees. It costs much less to keep existing customers than it does to replace and recruit new ones to fill positions that have experienced churn. The cost of employee turnover has been placed at roughly 150% of the annual wage for the position that has turned over. Ouch!
What Are Companies Doing to Keep Employees?
On June 15, 2022, the Wall Street Journal ran a story on Caterpillar leaving Illinois for Texas. This comes on the heels of Boeing announcing their relocation from Chicago to Arlington, Virginia.
The article sited comments from Nicole Wolter, chief executive of Wauconda, Ill.-based gear maker HM Manufacturing Inc. Ms. Wolter said Illinois has high costs that make it hard for her company to operate and for her workers to pay their bills.
As of June 14, 2022, Illinois has the fourth highest gas price in the nation. That is according to AAA. Rather than having pizza parties to celebrate and maintain morale, Ms. Wolter said she has started giving out gas cards to employees instead.
Ms. Wolter is also a National Association of Manufacturers board member. Ms. Wolter said it makes sense that Caterpillar would look elsewhere for growth. “I’m sad but not shocked,”
Gas cards can help with employee retention in the short run, but long run, that is not a sustainable solution for either the company or the employees.
Inflation has hit manufacturers hard. Inflation has come in two forms. Wage inflation is one aspect. The labor shortage is one of the key factors driving wage inflation. In the first quarter of 2022, the Bureau of Labor Statistics reported that wages increased 11.6% which took the annual wage inflation rate to 7.2%. That was the fastest wage growth in 50 years.
For the same time period, productivity dropped by a record setting 7.5%. The combination of wage inflation combined with a productivity drop can be devastating to manufacturing bottom lines.
The cost of raw materials has also increased at dramatic rates. You are probably familiar with the increase in the cost of cold rolled steel. Prior to the pandemic, cold rolled steel traded at between $500 to $800. By July, 2021, that same ton of steel was trading at around $1800. In June 2022, the price of a short ton of cold rolled steel was set at $1180. That represents roughly a 35% decrease compared to the highest price.
While cold rolled steel has dropped in price from the historic highs, at $1180 it is still more than double the pre-pandemic price of $500. Cost of goods sold is still eating into your pricing structure and your bottom line.
You may budget more in your product price variance line item, and you can negotiate hard with your vendors, the impact can only be so much.
While you can’t control the cost of goods, you can control your labor costs. That is where you need to focus. Controlling your labor costs will help make your margins fatter than the chips you are making. With such strong inflationary pressure on wages, if you can control labor costs how, it is the gift that keeps on giving.
Our purpose-built, machine-tending robots will run 75,000 hours without a lot of maintenance or repairs. You are paying someone for 2080 hours a year. Once you’d paid for the robot, all of those labor hours are fundamentally free.
While the focus of this article is about controlling costs. However, the real benefits of purpose-built, machine tending robots extends far beyond the cost savings.
What is the value of being able to quickly respond to customer rush orders? Whether it is a potential new customer or a long-time valued customer, the ability to respond to rush orders and not have it dramatically impact your operation is huge.
We have a customer who was running at near capacity. They had a potential new customer inquire about a rush order because the machine shop that customer normally used couldn’t do it. Our customer had a robot and were able to run that rush order during the first week because they ran it in “lights out manufacturing.”
They programmed the robot to run right before they left for the night. When they came back in the morning that run was complete. Three days of running lights out and they shipped the order.
In a world of supply chain disruptions and other uncertainties, this machine shop looked like a super hero because they were able to quickly respond to a customer request.
Adding a purpose-built, CNC machine tending robot is an answer to the question, how do I find certainty in uncertain times?
To start your discovery process, contact your RoboJob-USA account executive.