If your manufacturing company struggles to recruit and retain quality workers, you’re not alone. Widespread skills gaps and rising fringe benefit costs mean that tens of thousands of U.S. manufacturers are facing a critical labor shortage. A possible solution is to offer workers higher pay. But before you up the ante on compensation, read this.

Labor Crisis

Recent surveys indicate worrisome trends in the manufacturing sector. The skills gap and need to attract and retain a skilled workforce continue to be manufacturers’ main concerns, according to a July 2019 report by the Manufacturing Institute (MI), “The Aging of the Manufacturing Workforce: Challenges and Best Practices.”

“Manufacturers face a workforce crisis with more than half a million unfilled manufacturing jobs today and 2.4 million jobs that may go unfilled by 2028,” said Jay Timmons, chairman of the board of the MI. Currently, approximately 25% of the manufacturing workforce is over 55 years old. Meanwhile, the industry is having trouble attracting enough new, younger workers with the right skills and qualifications.

The MI’s findings were confirmed by another study released by the National Association of Manufacturers (NAM). The 2019 National Manufacturing Outlook and Insights report reveals that manufacturers consider the labor and skills gap to be their greatest barrier to growth, with 52% citing it as an issue.

Unfortunately, there’s no silver-bullet solution. Many companies are trying to retain older workers past their scheduled retirement date. But you may also want to review your compensation packages to remain competitive in today’s tight labor market.

To determine the best compensation solution, work through the following five steps.

Five Considerations

1. Support your corporate culture. Ultimately, your culture determines how, and how well, your plant operates. Think about what you can do to attract, motivate and retain employees who will support your business plan and help you reach organizational goals. What role might compensation play in reaching these skilled and dedicated workers?

2. Pick best behaviors. Drill down to the specific types of behavior you want to reward. Is performance the sole or main driving force behind pay increases? Do you also want to reward other qualities, such as attendance and loyalty? What about unusual talents that set certain workers apart?

Increasingly, manufacturers are paying employees for having job-related skills, instead of based on “traditional factors” such as tenure, education or years of experience. Think about how you can allocate compensation dollars where they’ll be the most effective.

3. Monitor the competition. It’s not just what you’re willing to pay workers, but what the competition is offering. How are your main competitors compensating workers? If they’ve raised pay rates or introduced new benefits that are giving them an edge in the labor market, you may need to follow suit.

Don’t limit your competitive research to fellow manufacturing companies. These days, workers, particularly younger ones, frequently cross industries when searching for a job. If you hope to lure someone working in the construction field, for example, you may want to offer flex-time benefits. An ex-service member, on the other hand, may seek a well-defined “employee value proposition” that maps out the skills he or she will acquire and the pay raises associated with mastering those skills.

4. Build it into your budget. Crunch the numbers with your financial advisors to determine what your budget can handle. Even if you can afford to pay higher compensation now, you need to ask whether it’s in your company’s best interest over the long term. If you decide to hold pay rates steady, you may still be able to attract workers by offering low or no-cost benefits, such as extra time off or childcare options.

5. Regularly review your compensation plan. Whatever you decide to do about compensation, it isn’t a get-it-and-forget-it proposition. Closely monitor the impact of any changes (or lack of changes) in your compensation model. Are you receiving more job applications, or are employee tenures rising? Is the labor market starting to shift to favor employers? Trends and developments require that you review and possibly tinker with your pay formulas.

Manufacturing Day Is Here!

Manufacturing Day is an annual event organized by the National Association of Manufacturers and supported by other industry groups including the Manufacturers Institute and the National Institute of Standards and Technology. This year, it kicks off on Friday, October 4, 2019, with local activities continuing throughout the month.

The awareness-raising event encourages manufacturers and educational institutions to open their doors to students, parents, teachers and community leaders. Students can learn about careers in manufacturing and the skills manufacturing companies are seeking. You can find activities in your local area by visiting the Manufacturing Day website.

Can You Afford It?

The labor shortage is real, and no manufacturer can afford to bury its head in the sand. Offering a more attractive compensation package may help your company. But before you publicize the decision, talk with your financial advisors to make sure you can afford it.

Even if your manufacturing company has been successful at selling its current line of goods, it’s probably not smart to keep producing the same products indefinitely. Now, in fact, is an excellent time to expand your product offerings. With global competition ramping up, the manufacturing market is only becoming more crowded and less certain. By anticipating customer needs, you can fortify your position and help ensure continued profitability.

4 Reasons to Consider Expansion

You probably know your market inside and out and take pride in the fact that customers are satisfied with your current products. Unfortunately, this may not be good enough. Here are four reasons to consider product line expansion:

1. Life cycle limits. Most manufactured goods have a limited life cycle. If your company makes products that have already passed through the introduction, growth and maturity stages, they’re probably on the decline. Products enter the decline stage when they no longer meet customer needs or their performance pales compared to new goods on the market — particularly if those new products rely on improved technology.

To avoid being left behind, stay on top of technological developments and upgrade accordingly. If you haven’t turned out version 2.0 or 3.0 of your flagship product yet, it’s probably time to do so.

2. Different market sectors. Expanding your product line enables you to tap new markets and service new industries. A men’s dress shoe manufacturer, for example, could expand its product line to include casual footwear. Or the company could customize existing products for a different target market, such as adolescents. Market research can provide insights into what products consumers or business customers are demanding and what they’re willing to pay.

3. Customer needs. Customer needs change over time, requiring manufactured goods to change with them. Encourage input from customers by distributing surveys and tracking comments on your website and social media accounts. Make sure you follow up and respond directly to customers with suggestions, concerns or complaints. And before you start investing money in new products, be sure to assemble focus groups where you provide potential customers with product previews.

4. Customer loyalty. A solid list of repeat and long-time customers is a hallmark of a successful business. With an established customer base, you can add products or variations of existing products without putting much additional stress on your marketing budget.

Research the purchase history of existing customers to identify products that competitors are currently supplying. For example, a manufacturer of construction equipment can develop new products that offer greater variety and innovation to crews in the field.

Secrets of Success

Let’s say you’ve decided to pursue product line expansion. How should you go about it? For starters, do your due diligence. Solicit customer feedback to ensure a market exists for proposed products.

Also make sure any proposed products make sense from a financial standpoint. Given operational or supply chain constraints, can you make goods cost-effectively? What kind of gross margin and break-even point are you looking at? Will you need to invest in new equipment to make the new products, or do you have excess capacity to handle the orders with your existing equipment? Likewise, are your existing distribution channels up to the job or will you need to hire sales representatives or build a new e-commerce site?

It’s also important to address macroeconomic factors. Everything from sluggish consumer spending to rising interest rates to foreign tariffs could make launching a new product now difficult.

Make sure you keep an eye on the competition, too. Clothing manufacturers have long used competitors as a resource by modeling new designs (with tweaks) on already-successful ones. Sometimes, jumping on current trends is easier and less expensive than attempting to create new ones.

Creative Solutions

Many manufacturing companies begin to decline because they keep producing the same products they’ve made “forever.” To remain competitive, monitor customer trends and technological advances and respond with goods that are desirable in today’s marketplace.

Look for creative solutions — even those outside your field. For instance, an aerodynamic design or stitching technique that works for making sports equipment might be co-opted by a furniture manufacturer. At the very least, investigate any promising new ideas, regardless of their origin.

The manufacturing sector ranks third in terms of days lost due to workplace injuries, according to the National Safety Council (NSC). This isn’t surprising considering many manufacturing workers operate heavy machinery and are exposed to a variety of physical and environmental hazards. In some cases, technology has helped manufacturers reduce the incidence of workplace injuries. But there’s still a long way to go. Fortunately, your company can reduce safety risks by implementing and enforcing safety precautions and properly training both supervisors and workers.

The Occupational and Health Safety Administration (OSHA), which enforces employment safety laws, says that companies can reduce lost work by almost 50 days a year by focusing on workplace safety. To ensure you’re doing everything you can, focus on five areas:

1. Equipment Use

Most workplace injuries can be traced to the misuse of equipment — including heavy machinery and tools. For example, accidents often occur when equipment is used for purposes other than its intended use. They’re also more likely if equipment isn’t kept in good operating condition or is stored improperly.

To minimize these risks, insist that workers use equipment only as intended and as they have been trained. Be sure to penalize any infractions of this rule. In addition, regularly clean equipment with industrial vacuums and other appropriate tools. Even a little dust can potentially cause fires and explosions under certain conditions. Also store equipment and tools in the right place and position. Equipment with electrical components should be kept in the “off” position when not in use. And if a piece of equipment isn’t functioning property, require workers to report it immediately so that it can be repaired or replaced.

2. Fire Hazards

Aside from the obvious risk to workers’ health and lives, workplace fires can lead to devastating financial losses. Imagine how profitability would suffer if you had to shut down operations to clean up, make structural repairs or even replace entire buildings.

If your plant uses combustible materials, house only the amount you need for the job. Extra stores could possibly turn a containable fire into a towering inferno. Also house flammable materials in secure, fire-resistant areas when not in use. Combustible waste from current operations should be temporarily stored in metal bins and discarded daily.

Finally, to minimize threats to human life, make sure everyone in your company complies with fire safety codes by keeping doorways and walkways clear and emergency exits clearly marked.

3. Slip-and-Fall Accidents

Slips and falls are common workplace incidents. Employees might take a tumble while working on ladders, using staircases or walking on slippery floors or uneven surfaces. Even a simple fall can require months of recovery and cause permanent physical injury.

Some common-sense measures can prevent most of these incidents. For example:

• Keep your facilities’ aisles clear.
• Clean up (or cordon off) spills immediately.
• Install anti-slip flooring in any parts of your plant where liquids are frequently used.
• Perform regular inspections of floors for loose boards, holes and protruding nails.
• Replace damaged or inferior flooring as soon as possible.
• Ensure that ladders and similar equipment are safe and in good working order.

4. Flying Objects

You should pay as much attention to hazards above workers’ heads as those below their feet. To prevent injuries from falling objects, install nets, toe boards and toe rails under parts and equipment. Require employees to store heavier objects on lower shelves and avoid stacking objects in heavily trafficked areas.

Also train workers in how to safely move objects without causing back injuries. In general, they should bend their knees and keep their backs straight when lifting. No stooping or twisting! If employees use forklifts to move objects, they should ensure that the workspace is clear of people who could be struck if the object fell out of the bucket.

5. Personal Protective Equipment (PPE)

Some workers consider PPE a hassle and may enter workspaces without proper protection. Stand firm on this point and require workers to always wear:

• Safety glasses when operating machinery that may cause flying particles or when working with caustic chemicals,
• Steel-toe boots where heavy materials could be dropped or a worker’s foot might be run over by a vehicle,
• Gloves when hands are exposed to cuts, abrasions or puncture wounds, or when working with hazardous materials,
• Ear protection when noise levels are 85 decibels or higher, and
• Hard hats if overhead objects could fall and result in head injuries.

If a worker refuses to don PPE, or only complies some of the time, take disciplinary action. Of course, the carrot works just as well as the stick. Praise and reward workers who always wear PPE and comply with other safety procedures without having to be asked repeatedly.

No Guarantees

Taking these precautions won’t guarantee an injury-free workplace. However, these steps can minimize risks and reduce potential liability. You owe it to your workers and the future or your business to prioritize safety.

In the current political climate, just about the only thing manufacturers can be certain about is continuing uncertainty. Everything from changes to foreign trade policies, to new tariffs, to military actions threaten to disrupt smooth operations in the manufacturing sector.

To complicate matters, there’s no clear timeframe for when (or if) events will transpire. Already, manufacturers are coping with the rising costs of raw materials and subsequent pushback from customers with long-term contracts. For example, your firm may have been forced to find cost-effective alternatives or make certain concessions.

So what’s the forecast? For most manufacturers, it’s “wait and see.” However, you can take several steps now to weather the storm and minimize potential economic damage. These steps can also help position your company to benefit from any favorable conditions that may arise.

Business Benefits

Review the following to determine whether they may benefit your business.

1. Negotiate and renegotiate.

Even if the goods your company produces aren’t directly affected by tariffs, you may be hurt indirectly by extra costs associated with materials like steel and aluminum. Take this into account when hashing out contracts. For instance, build higher supplier costs into new customer agreements.

For agreements already in place, see if the other party is willing to renegotiate Then consider a long-term arrangement that provides pricing you think you can live with. Incorporate clauses into the contract that provide protection if additional tariffs are imposed.

2. Analyze profit margins.

Thorough analysis is necessary to help prepare your company for possible tariffs and rising materials cost. This involves deciding which costs your firm can absorb and which ones you can pass along to customers. Of course, you might also be able to find a satisfactory middle ground.

To help offset unexpected expenses, locate opportunities for efficiencies or cost rationalizations that customers will be able to tolerate. If a customer has an existing contract that provides price escalation clauses or limits, further renegotiation may be required.

3. Explore alternate sources.

You might be able to avoid disruptions by tariffs if you can find alternative sources for supplies and materials. And be prepared to move quickly when warranted. This may include modifications to existing systems and processes to accommodate new business relationships. Have your professional advisors guide you concerning the logistics and legalities.

4. Get into “the zone.”

One way to cut costs may be right under your nose: Take advantage of free-trade zones (FTZs). These are areas where goods can be landed, stored, handled, manufactured or reconfigured, and re-exported under specific customs regulation. Generally, these goods aren’t subject to customs duty.

FTZs usually are organized around major seaports, international airports and national frontiers.

There, your business can produce products and export them to a U.S. customs territory or foreign destination, thus bypassing potential tariffs.

5. Join the club.

Be aware that you’re not facing these complex issues alone. To share thoughts and possible solutions, participate in trade compliance groups that focus on issues such as inventory and supply chain strategies, resource alternatives, and multiple data sources. Consider how your association can present a united front.

And if you can’t find a group? Start one yourself.

6. Find an exclusion.

Your company may be eligible for an exclusion retroactive to the date a tariff becomes effective. Contact the U.S. Commerce Department to request exclusions for aluminum and steel tariffs and the U.S. Trade Representative for China tariffs. The Commerce Department has been willing to provide exemptions from the 25% tariff on steel and the 10% tariff on aluminum imposed in 2018.

7. Assess imports.

Whether a product will be affected by a tariff depends on its classification. Therefore, misclassifications in borderline cases can result in unnecessarily higher costs. In addition, if imports of materials are currently subject to a low tariff or have no tariff, you might be able to stockpile those materials now. A CPA can review your company’s books and may be able to help you avoid unpleasant surprises.

Don’t Wait

In any event, it doesn’t make much sense to just sit back and wait for the other shoe to drop. Be proactive about protecting your manufacturing company’s interests.

Information is power. And today’s manufacturers are more informed — and powerful — than ever before. Owners and managers can assemble volumes of data, ranging from real-time information gleaned from machines and RFID readers on the plant floor to regular input from customer service and sales staff.

But data collection is only part of the story. Once you have all this information, what do you do with it? In broad terms, data analytics can be used to improve your business processes, refine operational efficiency and even transform your existing business model. Increasingly many manufacturers are investing large sums in analytics technology.

Upsides of Analytics

Let’s take a closer look at three specific ways analytics are likely to benefit manufacturers:

1. Enhanced cost efficiency.

Manufacturers have made great strides in reducing costs by implementing lean manufacturing and Six Sigma programs. Such approaches have enabled many companies to improve yield and quality while reducing variability and production process waste.

Nevertheless, certain manufacturing niches — for example, chemical and pharmaceutical companies — typically still experience significant variability due to production volumes and the complexity of their processes. These niches may need to take a more granular approach to identifying and correcting process flaws. Analytical tools, including ratio analysis and statistical trends, can help. Specifically, manufacturing managers may focus on historical processing data to understand relationships and patterns, then use the analysis to optimize production.

Companies may “slice and dice” real-time information from the plant floor, as well as performing sophisticated statistical assessments. For example, a biopharmaceutical manufacturer that produces two batches of a specific substance using identical processes might experience a yield variation of 50% to 100%. Such broad variability can affect both quality and quantity. However, the company can use targeted data analytics to identify key variables and enable it to eliminate waste and reduce production costs.

2. Improved productivity.

Data analytics can uncover unexpected or overlooked opportunities to maximize production efforts. Even if a manufacturer has been in business for decades and has seemingly exhausted opportunities for greater efficiency, management may find room for improvement by exploiting the information now at its disposal.

Management consulting firm McKinsey points to a mining company that discovered, from data collected from environmental monitoring and control systems, a positive correlation between worker productivity and oxygen levels in mine locations. Recognizing this factor, the company altered the oxygen levels in its underground mines, thereby increasing average yield by 3.7% over a three-month period. On an annual basis, this simple modification boosted profits by roughly $10 million to $20 million — without requiring any incremental capital investment.

3. Higher customer satisfaction.

For most companies, customer satisfaction is a top priority. However, before you can meet the needs of customers and earn their long-term loyalty, you must obtain information about customer practices and preferences.

Online surveys or questionnaires can be used to collect data from customers, and then the results can be analyzed and shared with members of the management team. It’s important to identify similarities and differences between customers. Although you can’t satisfy all of the people all of the time, you can adapt enough to meet the needs of most customers and engender broad support for your brand.

For example, German automaker BMW uses big data to analyze input from manufacturing outlets and dealerships around the world. Before full production of a car begins, BMW tests its prototypes, identifies any problems through analytics (a single prototype might have more than 15,000 data points) and makes necessary adjustments. As a result, BMW enjoys a reputation for manufacturing luxury cars that include features that customers appreciate (like laser cruise control and in-vehicle infotainment systems) and that cost less to produce and require fewer repairs.

Surviving and Thriving

Manufacturing is a competitive industry. Surviving and thriving requires your company to seize opportunities and implement reasonable cost-saving measures. It’s critical that you collect and analyze data — and use it to change your production processes, as necessary. Talk to your financial advisor and consult technology experts about how your company can profit by using the latest data analytics tools.

The manufacturing industry is at a pivotal point in its history. Recognizing the significance of this juncture, the Manufacturing Leadership (ML) Council recently released its Critical Issues Agenda for 2018/2019, titled The Journey to Manufacturing 4.0.

The result of extensive research, consultation and refinement involving more than 1,000 members, this agenda identifies key issues facing the industry. Manufacturers of all shapes and sizes are advised to take note.

Real Challenges

The modern manufacturing plant, featuring robots doing jobs previously performed by humans and workers on the floor communicating electronically with supervisors in remote locations, may seem like something out of The Jetsons. Yet the challenges are real. Even with cutting-edge technology, manufacturers face pressure to be more innovative, nimble and cost-effective.  

In fact, the evolution of advanced digital and analytical technology is forcing manufacturers around the globe to rethink the normal rules of competition, revisit how work is performed, and revise how companies are structured and managed. This fresh approach is what the ML Council calls Manufacturing 4.0 (M4.0). 

Make no mistake: Manufacturers will need to pay tolls along the road to Manufacturing 4.0. Firms must invest time, energy and capital to implement advanced technology and best practices. 

Cost is likely to be the biggest obstacle for many small- to mid-sized companies. Pilot programs may require you to revisit your budget and raise additional capital. And your firm may need to make tough decisions regarding strategic investments, such as launching new products, purchasing new assets and making strategic acquisitions. You simply  don’t have the resources to do everything at once. Your CPA can run financial projections and create decision trees to help you determine which alternatives to pursue today and which to table for future years.

Features

M4.0 goes a step beyond previous iterations of the new technology-driven manufacturing sector. The new regime is characterized by:

• Production and supply networks that are increasingly data-driven, automated, modular, agile, sustainable, predictive and rapidly reconfigurable to meet changing demands and competition.
• Products that are smart, customized, connected and self-diagnostic, and that provide a rich platform for new revenue streams.
• Supply chains that are visible, traceable, risk-resilient, responsive and constantly analyzed in real time.
• Enterprises that are cross-functional, collaborative and highly-integrated, often surrounding a single digital thread that stretches from design to deployment.
• Leaders and employees who are highly engaged, digitally savvy, customer-centric and ready to meet new challenges and grasp emerging business opportunities.

Such a massive transformation doesn’t come without substantial effort. Manufacturers must identify and master various technological, organizational, cultural, workforce and leadership aspects. With that in mind, the agenda is designed to help manufacturers align their thoughts with practices. 

Opportunities to Grow

The agenda covers five specific manufacturing areas.

1. Factories. Both large and small manufacturers need to recognize and embrace the potential of new and evolving production models, materials and technology. This will help them create cost-efficient, responsive, flexible, transparent, connected, automated, and sustainable factories, production models and business plans.

The agenda spotlights:

• M4.0 guidelines, maturity models and transformation frameworks that can help manufacturers move from current production models (often based on legacy systems) to a future state of digitally-enabled production readiness.
• End-to-end digitization and analysis of manufacturing and engineering processes and functions in both centralized and distributed production networks.
• Cybersecurity risk management.

Such cybersecurity includes preventive measures and cyberattack response strategies that minimize vulnerabilities of highly networked production platforms.

2. Culture. Manufacturers of all sizes need to transform traditional operations so that their culture becomes collaborative, innovation-driven and cross-functional. This will drive growth, new product and service development, operational efficiency and success.

The agenda recommends:

• Cross-functional processes and integrated organizational structures that harness multiple sources of data to drive innovation, facilitate faster and better decisions, reduce time-to-market and enhance competitive agility.
• Collaborative innovation cultures and platforms that leverage the ideas and resources of employees, suppliers, external partners, customers, academics and “‘the crowd” to create new products, improve business processes and spawn innovation.
• Best-practice approaches in deploying integrated M4.0 technology and platforms, such as digital threads, that enhance collaboration and integration to help deliver new ideas and improvements faster across the enterprise.

3. Technology. Manufacturers must learn how to identify, adopt and scale promising technology. This will result in greater speed and efficiency while opening the door to new business models and improved customer experiences.

The agenda covers:

• The impact of artificial intelligence (AI), machine learning and cognitive analytics on the industry’s future.
• The latest developments in related transformational technology, including the Internet of Things, 3D printing, modeling and simulation, collaborative robotics, augmented and virtual realities, 5G networks, block chain and other emerging technologies.
• Best practice approaches for selecting and deploying new technology in a manufacturing enterprise while implementing standards and architectures that support open systems.

4. Next-generation leadership. It isn’t just the machinery that’s changing. Manufacturers must be more collaborative, innovative and responsive to disruptive change. Leaders will adopt new behaviors, structures, cultures, value systems and strategies. And they’ll consider ways to attract and engage the talent and skills of both the current workforce and the next generation of employees.

The agenda pinpoints:

• Effective leadership role models, behaviors and mindsets that define a successful profile for tomorrow’s manufacturing leaders.
• Employee transition, development and engagement strategies for an inclusive, diverse, multigenerational, multicultural, multinational workforce that interacts with AI and collaborative robots (“cobots”) and whatever else is developed in the future.
• Identifying, attracting, and encouraging talent and skills for the next-generation manufacturing workforce.

Effective next-generation leaders will adopt new working cultures, change value systems and develop better ways to collaborate with educational and community organizations. 

5. Sustainability. This new vision provides an opportunity to leverage new analytical insights and more flexible production platforms. It maximizes resources, achieves major efficiency gains, drives revenue growth and minimizes environmental impacts. To successfully engage with others, manufacturers must become more transparent about their environmental and socially responsible practices. 

The agenda recommends: 

• Products designed for easier reuse, remanufacture, refurbishment or recycling.
• Production strategies that streamline production processes to increase efficiency and reduce costs and waste.
• Holistic, sustainable manufacturing business models supported by collaborative cross-sector partnerships and deeper community engagement that can create a circular manufacturing economy. 

Seize the Future

What does all this mean for your company? Manufacturers must embrace the future or risk being left in the dust. As you set your budgets and goals for 2019, review the ML Council’s agenda and consider ways you can leverage emerging technology, innovative business strategies, sustainable practices and other opportunities to grow your business agenda. Visit the ML Council’s website [Insert: http://nammlc.wpengine.com/about-us/#critical].