Ongoing workforce challenges make productivity critical for manufacturers

The labor market, cooling but still tight due to familiar staffing challenges, continues to compel middle market businesses to invest in technology and optimize workforce strategies to ensure labor productivity.

“It’s essential that firms attempt to get out ahead of the curve and identify the proper mix of labor and investment capital to create the conditions under which they can grow, anticipate and meet future demand,” says Joe Brusuelas, RSM US LLP’s chief economist.

The Q4 2023 RSM US Middle Market Business Index survey captured the latest evolution of those dynamics by aggregating the responses of 403 senior executives across a range of middle market companies. It was conducted by The Harris Poll for RSM from Oct. 2 to Oct. 20, 2023.

Firms continue to optimize other workforce strategies through human capital management. Those include recruitment and retention tactics—such as remote or hybrid work, wage increases and other compensation offerings—talent experience initiatives that align with business objectives, and assessments of their physical workspaces.

Steady economic growth over the past three years, coupled with long-running demographic changes in the American workforce, has manifested as stubborn staffing challenges for middle market businesses.

Sixty-six percent of MMBI respondents expected their organizations’ overall hiring levels to increase through the ensuing six months. That’s the greatest seasonally adjusted percentage in any quarter since the MMBI survey began in 2015.

Contrast those hiring intentions with the fact that two-thirds of respondents said they anticipated some degree of difficulty staffing open positions over the next 12 months. That is down from 83% in the same period a year earlier but still represents a sizable majority.

“You can see the expectations—they’re going to hire more and they’re keeping up with demand,” Brusuelas says. “But we’re short a significant number of workers, so firms have to address that core reality.”

Nearly four years after remote work took hold as a coronavirus mitigation measure, the flexibility for employees to work outside of traditional offices is now entrenched as a tactic by which companies strengthen recruitment and retention efforts.

Employers with remote workers were asked in the survey about the actions they are currently taking or considering to solve staffing challenges. The most common were:

• Allowing hybrid work (65%)
• Establishing remote work policies/expectations (46%)
• Sourcing talent from a broader geographical area (45%)

In the manufacturing sector, offering flexibility to employees can look different for roles on the factory floor versus white-collar positions.

“For production line employees, you can’t really say, ‘You only need to show up on-site two days each week,’ so there’s still some of that friction there,” says Jason Alexander, an RSM principal and leader of the firm’s industrials practice.

Because of that, it will be important for manufacturers to not only enable flexibility for roles where it makes sense to do so, but also emphasize the critical role of factory floor work.

“It’s about making sure people in other parts of the organization understand the importance of the work happening in the manufacturing facilities and how best to support those people in their roles,” says Alexander.

Ensuring that employees across all operations feel valued is especially critical amid various workforce pressures. Manufacturers also need to think more intentionally about their succession planning and knowledge transfer process as older employees retire, Alexander says. That’s one area where technology can be an asset; digitizing processes can allow smoother transitions as employees move into new roles.

In terms of factory operations, technologies such as digital simulations will also help manufacturers become more efficient. Digital twins, for instance, can help businesses run various supply chain scenarios so teams can better prepare for potential changes in demand.

“Having technologies to help you analyze and run through all those scenarios in a more efficient and effective way, that will help companies ultimately make better decisions,” says Alexander.

Business leaders recognize technology investments are crucial to combating staffing challenges and supporting the productivity of their workforce. Two-thirds of executives surveyed in RSM’s MMBI report expected to increase capital outlays over the ensuing six months. That’s the greatest seasonally adjusted percentage in any quarter of the report since 2015.

Of the 57% cohort of respondents who said they were planning or considering investment in automation or IT in the upcoming year, a whopping 85% said they were doing so to increase the efficiency or productivity of employees.

As manufacturers navigate technology’s increasing role throughout their organizations, the impact on their workforce will be significant. The dynamic and fast-paced environment created by today’s advanced technologies—from intelligent robotics to big data and the industrial Internet of Things—will require the current workforce to adapt. It will also require companies to be more intentional and creative in attracting and retaining talent.

We expect this will bring a renewed emphasis on cultivating new skills for an environment where analytics increasingly drive business decisions and humans more commonly coexist with robots. Manufacturers will need to reassess and update their training and workforce development strategies to keep pace with this industry shift. Companies will also need to have a clear understanding of which core offerings to focus on and which might make sense to outsource.