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Friday, September 29th 2006

15:02

Productivity Gains In Danger

The National Association of Manufacturers (NAM) released two reports that, taken together, point to a worrisome trend.

The first report "The NAM Annual Labor Day Report" points out the correlation between manufacturing output, productivity and employment. They have tracked these three measures since 1950 and found that employment is related to output less productivity. In other words, as long as our productivity is increasing we can produce more with the same amount of people. Seems pretty obvious. Although manufacturing productivity has been increasing faster then ever before (3.8%), the last four quarters have shown that the output is rising even faster (5.8%).

This has caused increasing employment in the manufacturing sector. These new manufacturing jobs are also higher paying and have been increasing in real hourly compensation (10% since Q4 of 2001). So far, so good, but we also need to be increasing productivity. Another downside is that health care and energy costs are consuming a larger amount of living expenses and this is leaving less disposable income.

The second report is the "2005 Skills Gap Report - A Survey of the American Manufacturing Workforce" was produced in cooperation with Deloitte and The Manufacturing Institute. This report found that more than 80% of the companies surveyed reported being unable to hire people with the necessary skills.

The survey concludes "Skills shortages are having a widespread impact on manufacturers’ abilities to achieve production levels, increase productivity, and meet customer demands." Engineers and scientists are in short supply and we are graduating fewer and fewer as the foreign universities graduate more and more. The survey points out "Also worrisome is the finding that 90 percent of respondents indicated a moderate to severe shortage of qualified skilled production
employees
, including front-line workers, such as machinists, operators, craft workers, distributors, and technicians."

You might wonder what impact this is having. Well, the Skills Gap Report concludes that "83 percent of respondents indicated that these shortages are currently impacting their ability to serve customers. Specifically, the survey found that skill deficiencies are causing difficulties for manufacturers in terms of their ability to maintain production levels consistent with customer demand (56 percent), to achieve productivity targets (43 percent), and to achieve or maintain target levels of customer service and satisfaction (33 percent)."

In order for manufacturing to survive we must keep up the innovation in products and processes and continue to improve our productivity. This can only be done with a highly educated and motivated workforce. This will require many changes in training and workforce environment. What do you think they might be?

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