Booming industry taxesskilled labor supply
By Agatha Ciancarelli -- Purchasing, 7/16/1998
With the unemployment rate down at 4.3%, the rising shortage of labor is causing more headaches for buyers. According to a recent survey conducted by Purchasing Magazine, 69% of purchasing professionals attribute problems in supplier performance directly to skilled labor shortages in the U.S. economy. John Stewart, corporate director purchasing with JLG Industries Inc. in McConnellsberg, Pa., says that, "some manufacturers have indicated a 2% unemployment rate and only marginal people available."Understaffing, use of new or poorly trained employees, and rising use of temporary workers have all contributed to a deterioration in supply availability, product quality, and general service levels, buyers say. "Quality levels have been affected by the inability to hire competent people," says purchasing agent, Charles Lovelace with GT Products in Ann Arbor, Mich.
Few industries are immune to the skilled-labor shortage, according to the survey. While all regions of the U.S. are experiencing difficulties, the problem appears most severe in the Midwest where manufacturing is highly concentrated. Buyers say they have most frequently experienced labor-related quality problems with suppliers of both raw materials and manufactured goods (especially makers of plastics, electrical components, and metals). Skilled machinists are particularly difficult to find. Ditto for experienced customer-service personnel.
The senior buyer for an automotive supplier says the labor supply problem is not related to the end product. "It is people not products that affect the labor market. Good, experienced workers are able to cross over to similar but different product lines."
Kevin Parker, a buyer with Machine Co. based in Kansas, interprets the shortage as a result of changes in today's society. The number of educated adults in the United States has risen over the last few years. "In today's workplace, recent college and high school graduates want white collar jobs at desks behind computers. Skilled laborers are harder to find," says Parker. For this reason, Robert Hinton, purchasing manager with MTR Ravensburg says a good strategy for overcoming labor supply problems will be to "work with schools to get young adults interested in these fields."
Small consequences
While troubles associated with labor shortages may be annoying or inconvenient, few purchasing professionals fear serious economic consequences. Indeed, 81% of the buyers surveyed say they are not seriously concerned with the issue. After all, the existing problem of skilled labor shortage stems from a combination of a strong, productive economy, a very low unemployment rate, and higher educational background, three factors which make it difficult to complain. Most would probably agree with Federal Reserve chairman Allen Greenspan when he says: "The consequences for the American worker have been dramatic and, for the most part, highly favorable. A great many chronically underemployed people have been given the opportunity to work, and many others have been able to upgrade their skills as a result of work experience, extensive increases in on-the-job training, or increased enrollment in technical programs."
Only 17% of buyers say suppliers have been forced to refuse new business due to labor shortages. However, some feel that suppliers should be refusing jobs more frequently instead of extending leadtimes and delaying deliveries. Says Lovelace, "We have had to change some suppliers because they could not keep up with the demand." It seems that in trying to keep up with the strong growth, suppliers often "miss delivery dates due to an upsurge in orders and a lack of employees," says George Vlahos, buyer with Formax in Mokena, Ill.
A majority (54%) of the buyers surveyed, believe that suppliers will maintain production at adequate levels despite rising pressure on employment costs. With the economy so strong, many suggest that suppliers will make up in volume what they lose to rising labor costs. "[Suppliers] will be able to absorb the costs to a point and will work lower margins through volume," says JLG's Stewart. Still 43% of respondents worry that suppliers might well opt to cut output in the future if they can not pass rising employment costs through to customers.
Focus on training
To overcome labor supply problems buyers say companies need to use training programs supplemented by temporary services. "They should be training existing workers for higher-scale positions while bringing on new personnel and training them for entry-level positions," says one buyer.
Buyers also suggest that some suppliers could afford to put together better wage and benefit packages to attract personnel and maintain product quality. Carren Golman, purchasing manager with The Wine Group in Ripon, Calif., says, that while "suppliers are offering customers incentives for long-term contracts and forward planning," they are not "addressing poor service due to staffing problems." Communicating more honest leadtimes and cutting back on production are other ways of ameliorating the problems associated with the labor supply crunch, buyers say.
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