The looming labor shortage will affect all players in the global supply chain, but there are measures you can take today to improve your competitiveness tomorrow.

Amid much hand-wringing about the “skills gap” in the manufacturing sector, there’s been less discussion about a much larger issue: the looming labor shortage in industrialized nations. Furthermore, it would be wrong to assume that your organization will fly under the radar of this global trend, because supply chains—from local to global—are becoming increasingly connected.

Everyone will be affected


The old phrase, “think global, act local” applies to this global trend because labor issues affect all of our lives. Consider the retail supply chain, with its low margins and ever-increasing competition. To meet consumer demand for safe, high-quality products at the lowest prices, retailers place stringent demands on CPG brands and manufacturing partners, who in turn require their suppliers to operate at peak efficiency.

For instance, a supplier of contract manufacturing or packaging service, for instance, faces the daily struggle to plan and manage labor and avoid charging extra for their services amid notoriously inaccurate sales/demand forecasts, chaotic schedules and inaccurate inventory data. Competitive and marketplace realities often preclude the supplier’s ability to charge for unplanned overtime and other labor-related costs—if the company wants to keep its contract. In addition to temporary labor, supply-side firms are turning increasingly to automation and information technology to reduce labor requirements.

Beyond the skills gap, labor shortages from local to global will only exacerbate the challenges. Meanwhile, those retail stores at the front end of the supply chain must deal with ongoing labor shortages amid projected hikes to minimum wages locally, nationally, and globally.

Research findings:



It’s not like we shouldn’t have seen this trend coming. Not long after the millennium, an article in Pepperdine University’s Graziadio Business Review suggested that a systemic labor shortage was developing:

A systemic labor shortage occurs when the overall number of new job openings exceeds the number of qualified new entrants in a national economy for a sustained period of years. By definition, systemic labor shortages spread across a wide range of occupations and skill groups. Systemic labor shortages have been recorded historically when nations transition from wartime economies to peacetime economies, when widespread health problems or plagues devastate an economy, or when major innovation cycles such as the Industrial Revolution transform work organizations. Today, national and global demographic changes are a potential catalyst for a long-term systemic imbalance.

According to the Employment Policy Foundation (EPF), a systemic labor shortage is expected to transform the workplace over the next 25 to 30 years as the gap between baby boomers and entrants of college-educated workers widens due to the boomers’ mass retirements. If the U.S. economy continues to grow at three percent per year—the economy’s consistent average since 1948—the workforce will have to increase by 58 million employees over the next three decades if the same rate of productivity is maintained. Yet, if the current population trend continues, the number of workers will only increase by 23 million. This trend would create an overall U.S. labor shortage of 35 million workers.

Yes, the problem is global

Studies project major labor shortages in Europe in the coming decade, and indicate that the labor supply has already started to shrink in Germany, Poland, Russia, and Spain. This contraction will accelerate between 2020 and 2030, a period by the end of which Germany, for example, is estimated to face a shortage of eight million workers.

So what we’re experiencing now is more than an evident “skills gap;” it’s the tip of a growing iceberg, one that will rise to the fore as companies look to their futures. The question of the day (and year and coming years) is how to effectively plan for this labor shortage.

The Worker and the Workplace

There is, of course, no right answer to that question. Regardless, planning must take both the worker and the workplace into consideration. The first of these is driven by human factors; the latter considers how to apply technology to better empower labor underemployment (i.e., eliminate wasted or non-value-added labor).

In a recent Washington Post column, Robert Samuelson speaks to two models that may compete for labor’s future:

  • A less secure labor market as is seen in terms like “freelancers,” “contingent workers,” “independent workers,” and “the gig economy.” In this model, workers no longer have long-lasting career jobs or loyalty to a particular company, but have developed their working lives as constant adaptation to change.
  • A return to the postwar employment model, where demographics drive companies to see experienced and competent workers as prized resources and try to stabilize them for the long term with better wages and benefits.

Samuelson says he doesn’t know which of the models will triumph, but that he knows two things: one, market power is swinging from companies to workers; two, the business cycle compounds this effect. Consequently, companies will compete for workers as aggressively as they compete for markets, and their approach to workers (both as employees and as assets being competed for) must change appreciably.

Seven tips you can use today

To get started, the online labor marketplace recruiter.com cites seven planning steps that anyone responsible for organizational staffing should take in light of the coming labor shortage.

  • Educate yourself. Many leaders and managers have very little understanding of the crisis ahead. In fact, some aren’t even aware of it at all. Do some reading on key concepts like the war for talent, the aging workforce, the skills gap, and the inevitability of global competition.
  • Calculate business impacts. Work with your CFO to calculate and understand the business impacts of position vacancies.
  • Integrate recruiting into your business processes. It’s important for managers to realize upfront that no one will be exempt from labor shortages. Furthermore, some industries will be hit especially hard in the upcoming war for talent. It’s critical that you integrate great recruiting and retention into every business, measurement, and reporting process.
  • Forecast your talent needs. Develop a process for forecasting your talent needs. Work with budgeting, sales forecasting, and strategic planning to get some idea of where your business is going and what your talent needs will be in the next 18 months.
  • Prepare for increased turnover. Assume that your turnover rates will increase dramatically. Put someone in charge of retention tools and efforts, but make all managers accountable for turnover. Focus on the turnover rates of top performers. Further, if you are well known as an employer of choice, it is especially important that you prepare retention and “blocking” strategies to minimize the damage from competitors’ raids.
  • Identify your talent competitors. Companies within commuting distance may compete with you for talent and non-product-specific jobs—even if they aren’t competing with you for the same customers or in the same industry. In general, your talent competitors are different from your product competitors.
  • Look ahead. Monitor the indicators that tell you when competition for talent is increasing so that you won’t be surprised. These include changes in the unemployment rate, job growth rates, economic growth rates, low employee engagement scores, changes in the number of applications received, changes in the time-to-fill for your own jobs, and increasing numbers of vacancies and levels of turnover at talent competitors.

While these planning tips focus on hiring and retention of labor, another tactic is to free up your existing labor from non-value-added work to improve productivity and foster innovation. This is more of a structural (i.e., a workplace) approach, and is particularly important for empowering highly skilled members of the labor force, such as analysts or engineers.

By moving forward with process digitization from organization end-to-end, you will free up this staff from administrative work (e.g., manually dealing with procurement or external suppliers) while improving their ability to see across the company to communicate better, respond faster, and facilitate collaboration by knocking down historical silos.

Finally, as the new talent being sought is part of a generation that has never known anything other than digital ways of doing things, they’ll be more attracted to a company where paper-based processes are obsolete. The tools that are driving the digital revolution (e.g., the IoT, AI, virtual reality, big data analytics, mobile, and social applications) not only move your company ahead, they make it more attractive to the workers you’ll need to drive it forward.

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Matthew
Written By
matthewb
PUBLISHED
Nov 13, 2017

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