A Senior Moment For Manufacturers

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By: Isaac Brown, Landmark Ventures

Every day, I ask an exec at a manufacturing company what keeps him or her up at night. Dark matter and ball lightning don’t pop up on the list as frequently as I would like. But there is one thing that almost all of them say: My skilled technical workforce is retiring too quickly. The people who can operate industrial systems are retiring at an alarming rate. Digital vendors have begun emerging with solutions for this problem – but it’s a race against time to see whether they can plug the gaps before the tribal knowledge of that generation evaporates, only to be replaced by a generation of Instagrammers who can’t change a tire. Let’s get to the root of this problem…

I’m going to rely on a report called “The Aging of the Manufacturing Workforce: Challenges and Best Practices” by The Manufacturing Institute, a partner org of the National Association of Manufacturers. This was the best report I found with no obvious corporate sponsor nor overt commercial bias. The methodology was to survey over 300 National Association of Manufacturing member companies, with good diversity in terms of company size and manufacturing vertical. The survey was collected in Q1 2019. All the quotes below come from that report, though I read about a dozen other reports to gather my thoughts (this one is also really good and appears unbiased).

Many of studies on the aging workforce approach the topic inversely – they instead focus on the idea that there is an unprecedented amount of old people, who are in fact retiring later than they used to. “By 2030, one in five Americans will be 65 years or older. By 2035, for the first time in U.S. history, retirement-age Americans will outnumber Americans under 18… In 2016, the median age of an American worker was 42.0, compared to 40.8 in 2006 and 38.3 in 1996.” So on and so forth, the point is that people are living longer and working until later in their lives.

This notion seems to clash with the idea that our skilled industrial/technical workforce is retiring problematically – but there are unique reasons why this poses an existential crisis for manufacturers. I don’t want to paraphrase too much since this report did a great job consolidating these ideas, so I’ll just share three insightful excerpts below:

“The manufacturing workforce is already older—and aging faster—than the overall U.S. labor force. The median age of a manufacturing worker rose from 40.5 in 2000 to 44.1 in 2018 compared to a median age of 39.3 in 2000 and 42.2 in 2018 for the total U.S. labor force. The manufacturing workforce is older in part because the industry itself has existed for longer than many services industries that have emerged in recent decades, and in part because of a more concerted effort on the part of manufacturing employers to retain their older workers by encouraging them to delay retirement. However, manufacturing often struggles more than other industries to attract younger workers. Research and anecdotal evidence from the interviews conducted for this study show that this stems from a combination of 1) younger people’s perceptions that manufacturing work is dangerous or behind-the-times; 2) a declining emphasis on vocational education and apprenticeships over the last several years; and 3) a geographic mismatch between younger talent, who often prefer to live near large, growing cities and manufacturing offices and factories, which are often located outside large urban centers.”

“Due to the technical nature of manufacturing production work, the manufacturing sector suffers acutely from labor shortages in an environment of population aging and labor market tightness. This effect is deemed the manufacturing “skills gap.” A 2018 study conducted by Deloitte and The Manufacturing Institute estimated that 2.4 million job openings in manufacturing—accounting for half of all open positions—will go unfilled between 2018 and 2028 as a direct consequence of the skills gap. Compounding the skills gap and labor shortage issue is the fact that manufacturing, unlike many other industries, demands a wider variety of skills from its recruits because manufacturing requires both highly skilled and lesser skilled labor on the production side, and salaried labor on the management and administration side.”

“Overall, many firms worried that their older workers will retire before passing on their full body of knowledge to the next generation. This concern is particularly acute for firms whose cultures tend to rely on passive information transfer and interpersonal connections to share knowledge. In such instances, firms may not have a playbook for institutionalizing and preserving such information, and knowledge may be lost when older workers depart. For this reason, many firms place great emphasis on knowledge transfer and, specifically, on mentorship and apprenticeship programs.”

After a solid breakdown of the problem, the report focuses on how manufacturers are strategizing to mitigate the issue, but with surprisingly little attention to using technology-based solutions. One part of the survey asked the following question: “What is your company doing to address the potential changes related to an aging workforce? Check all that apply.” The option selected most frequently (66%) was: “Developing a strategy for onboarding new talent”. After that, 62% selected “Encouraging mentorship or apprenticeship programs”. Farther down the list was the only technology-related option, selected by 42%, and the option was: “Increasing deployment and use of labor-saving technology” – which to me seems to be implying industrial automation.

I was surprised to see that there wasn’t an option more along the lines of “Leveraging a digital platform to facilitate knowledge transfer”, and the lack of that option on the survey probably indicates a lack of manufacturers leveraging digital platforms to solve this problem. There are perhaps 500 IoT platforms on the market, and Crunchbase tags more than 1,000 startups in the blockchain space – that is WAY too many for those disillusioned, over-invested tech sectors. Why are there not hundreds or thousands of startups solving the industrial knowledge transfer problem?

To summarize, there are unique aspects of the manufacturing sector that exacerbate the retiring workforce issue (compared with other sectors). This could have real ramifications over the next decade or two, and the proposed solutions are not very progressive – onboarding new talent, mentorship for knowledge transfer, delayed retirement, etc. Hence there is a massive opportunity for the digital solution vendors that can solve this problem, and this type of solution is a “need to have”, not a “nice to have”.