How To Prepare For A Manufacturing Labor Shortage

Shailendra Sahay

Leading studies project significant labour shortfalls in Europe between 2020 and 2030. In fact, the same studies estimate that labour supply has already started to shrink in Germany, Poland, Spain, and Russia. From 2020 to 2030, workforce contraction will accelerate across many countries, with Germany‘s labor supply shrinking to an estimated 37 million in 2030, which would roughly imply a shortage of 8 million workers in Germany.

Per Statistisches Bundesamt (2016), the industrial machinery and components industry in Germany has the highest average age of employed workers among European peers (20% are older than 55). As of now, this industry has more than twice as many positions available than job-seeking engineers, and up to 90,000 engineering positions are expected year over year. That means the industry is looking at a shortage of 84,000 to 390,000 engineers by 2029.

Why is this happening in this industry? There has been a consistent high demand for personnel—the number of employed engineers increased from 815,000 in 2005 to more than one million in 2014. However, the supply of workforce is getting constrained. The dropout rate for engineering students is more than 50%. Moreover, only 75% of those who graduate start in engineering-related positions.

This labour shortfall can have serious consequences on manufacturing industries in Germany. Even now, the average time to fill an available position is 126 days. This could lead to wage inflation and an unhealthy war for talent, which could in turn adversely affect the overall productivity and profitability of the entire industry.

How can companies prepare for this challenge? Here is a three-pronged approach:

1. Improvement of the macro situation, which must be government-led

  • Increase the number of top universities providing a high-quality engineering education
  • Retain more labor in the market by encouraging part-time employment, increasing retirement age, etc.
  • Encourage immigration of qualified personnel

2. Effective utilization of personnel through process digitization

  • Recognize that engineers work in a complex environment.
  • Take note that the nature of the job involves many administrative tasks such as dealing with external suppliers or procurement departments
  • Automate end-to-end data handling and providing better decision support to increase productivity and available capacity by 20%–30%

3. Better engagement with employees

  • Build a culture of learning, mentoring, and knowledge retention within the organization
  • Attract the best talent by building a brand and being recognized as a leading employer
  • Retain talent by helping employees grow and building an environment of trust and deep engagement

With the right technology, software, and tools leading industrial manufacturing, companies across the globe can prepare for the new age of workforce scarcity by:

1. Allowing engineers to focus on innovation by digitizing most of their daily activities:

  • Use innovative processes that enable digital capabilities
  • Integrate manufacturing engineering with electronic and manual management of bills of materials
  • Visualize manufacturing processes digitally based on harmonized product data (digital twins)
  • Leverage the Internet of Things to establish an intelligent asset network, drive predictive and prescriptive maintenance, and increase product quality
  • Collaborate with suppliers and other partners more efficiently
  • Use simulation and analysis to enrich engineers’ capabilities to evaluate implications
  • Provide up-to-date information to engineers on mobile devices, with the option of mobile-based instructions

2. Attracting, retaining, and building the best workforce in the industry:

  • Enable industry-leading recruiting practices to identify and source talent from a diverse labour pool
  • Build a strong learning and development platform to quickly ramp up new hires and drive continuous learning of existing talent
  • Inculcate a culture of teamwork and performance to develop the best products for customers
  • Drive strong employee engagement to reduce turnover and sustain competitive advantage

The economic impact of process digitization is too huge to ignore. Per leading publications, the German economy misses out on €3.5 billion in additional economic value due to lack of available workforce. Moreover, organizations must prepare for future challenges. A company with approximately 500 engineers would stand to benefit in the range of €10 to 15 million annually from process digitization, because of improved productivity and savings on recruitment, new-hire training and onboarding. The time to act is now.

This blog was written in collaboration with Christoph Meier (SAP) and was originally published on the SAP Community.

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For additional comments or feedback, co me: @shailendrasahay

Shailendra Sahay

About Shailendra Sahay

Shailendra Sahay is part of the Industry Value Engineering team at SAP, working with customers to help them prepare for the digital economy. He is based in Vienna, Austria.