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Author's profile photo Shailendra Sahay

How To Prepare For A Manufacturing Labour Shortage

Per leading studies, significant labour shortfalls are projected in Europe between 2020 and 2030. In fact, the same studies estimate that labour supply has already started to shrink in Germany, Poland, Spain and Russia. From 2020 to 2030, workforce contraction will accelerate across many countries, with Germany‘s labor supply shrinking to an estimated 37 million in 2030, which would roughly imply a shortage of 8 million workers in Germany.

Per Statistisches Bundesamt (2016), the Industrial Machinery and Components industry in Germany has the highest average age of employed workforce among European peers (20% older than 55 years). As of now, this industry has more than twice as many positions available than job-seeking engineers. And it is expected that up to 90 thousand engineering positions need to be filled year over year. With all this fact, this industry is looking at a shortage of 84 thousand to 390 thousand engineers by 2029.

You may wonder why is this happening in this industry. This is because there has been a consistent high demand for personnel – the number of employed engineers increased from 815,000 in 2005 to more than one million in 2014. However, the supply of workforce is getting constrained. The drop-out rate for students in engineering courses is more than 50%. Moreover, only 75% of those who graduate start in engineering related positions.

This labour shortfall can have serious consequences on the manufacturing industries in Germany. Even now, the average day of vacancy to fill an available position is 126 days. This could lead to wage inflation and unhealthy war for talent, thus potentially having an adverse effect on the overall productivity and profitability of the entire industry.

So, what could companies do to prepare for this challenge? The solution hinges on a three-pronged approach:

  1. Improve macro situation (which must be Government led):
    1. Increase the number of top universities providing high quality engineering education
    2. Retain more labor in the market by encouraging part-time employment, increasing retirement age, etc.
    3. Encourage immigration of qualified personnel
  2. Effective utilization of personnel through process digitization: engineers work in complex environment. However, the nature of the job involves many administrative tasks, such as when dealing with external suppliers or the procurement department. By automating the end-to-end data handling and providing better decision support, the productivity/ available capacity can be increased by 20 – 30%.
  3. Better engagement with employees:
    1. Build a culture of learning, mentoring and knowledge retention within the organization
    2. Attract the best talent by building a brand, and getting recognized as a leading employer
    3. Retain talent by helping them grow and by building an environment of trust and deep engagement

SAP has been working with leading industrial manufacturing companies across the globe, and can bring in the best practices with the right technology, software and tools to help companies prepare for the new age of workforce scarcity:

  1. Allow engineers to focus on innovation by digitizing most of their daily activities:
    1. Use innovative processes that enable digital capabilities
    2. Integrate manufacturing engineering with electronic and manual management of bills of materials
    3. Visualize manufacturing processes digitally based on harmonized product data (digital twins)
    4. Leverage internet of things to establish an intelligent asset network, drive predictive and prescriptive maintenance, and increase product quality
    5. Collaborate with suppliers and other partners more efficiently
    6. Use simulation and analysis to enrich engineers’ capabilities to evaluate implications
    7. Provide up to date information to engineers on mobile devices, with the option of mobile app based instructions
  2. Attract, retain and build the best workforce in the industry:
    1. Enable industry leading recruiting practices to identify and source talent from a diverse labour pool
    2. Build a strong learning and development platform to quickly ramp-up new hires, and drive continuous learning of existing talents
    3. Inculcate a culture of teamwork and performance to develop the best products for your customers
    4. Drive strong employee engagement to reduce turnover and sustain your competitive advantage

The economic impact of process digitization is too huge to ignore. Per leading publications, German economy misses out on €3.5 billion of additional economic value added due to lack of available workforce. Moreover, as an organization, it is must for you to prepare your company against future challenges. SAP estimates that a company with approximately 500 engineers would stand to benefit in the range of €10 to 15 million annually from process digitization, because of improved productivity and savings on recruitment, new-hire training, and ramp-up. The time to act is NOW.


The above blog was written in collaboration with Christoph Meier (SAP).

To know more on industry leading insights, please download the latest Whitepaper for IM&C.

For any comments or feedback on the blog above, please use the ‘comments’ feature below, or reach out to me @shailendrasahay

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      Author's profile photo Tim Clark
      Tim Clark

      Interesting stats and trends, Shailendra. Thanks for sharing!