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Employee retention in the manufacturing industry is a critical subject and indicates the gap between employee demand and employee turnover in the industry.
Although employee demand has been on a steady rise since the pandemic, the US has seen a pattern of voluntary separation from work at the rate of 8.3 percent with over 63 million workers leaving companies.
Employee turnover in manufacturing industry is at an ever high. Studies suggest that employee demand is so high that more than 2.5 million jobs may not be filled until 2028. Even though there is a high demand of employees and a low unemployment rate of 4 percent when compared to 10 percent in 2010, the turnover in the industry has been high and is attributed to many reasons.
In this blog, we will explore various reasons why employees leave their jobs and what strategies employees can adopt to reduce employee turnover and improve retention.
The manufacturing workforce landscape
In the global front, employee demand has been steadily growing in the manufacturing front. There is a need for talented and skilled employees who have good experience and come from decent educational backgrounds.
The manufacturing industry also faced a slump in recent times, only growing marginally but at a slow steady pace since the closure of the Covid era.
The US market has seen a sudden drop in the employment market with rising demand but a poor hiring trend in the market. With output from production companies increasing, there is a rise in demand for skilled employees but poor supply in the market.
Employees are also moving jobs and are passively looking for better jobs that have better pay, overall compensation and benefits and a positive work atmosphere.
The unemployment rate in the manufacturing and production industry is at 3.2 percent in the US and there are more than 640,000 job openings which is higher than last year. This upward trend suggests that even though there is a demand in the industry, the job openings have been rising which denotes the lack of employee retention and a scope for improving work culture, environment and other factors to improve employee retention within companies.
Identifying retention challenges
Studies and research suggests that there are many different reasons that affect the retention rate and the attrition rate in the manufacturing industries.
Each employee that leaves an organization costs an employer around 100 to 150 percent of an employee's salary to replace the same employee when it comes to technical jobs. For employees at a higher pay grade, it can cost one to two times of an employee's annual salary.
A survey on the manufacturing sector companies found that employees who had a good employee engagement and positive work culture had ‘engaged employees’ with 70 percent better productivity and 70 percent better turnover than the rest of the disengaged workers.
Here are the common factors that lead to high turnover rates in the manufacturing industry:
1. Career development opportunities
A study on employees in 2019 revealed that the majority of employees left for career development (17 percent increase from previous years). This is because of how companies do not provide learning and development opportunities, promotions and career expansion opportunities, all of which can be taken up by the management to help employees.
2. Employee engagement
Employee engagement is one of the top concerns for employees in todays’ era. When employees are engaged, they are less likely to leave their workplace. It was found in studies that 52.6 percent of companies had any employee engagement at all. Rewards and recognition programs are an effective way to promote healthy employee engagement in the manufacturing industry.
3. Company culture
A workplace that has good compensation and positive work culture along with programs for employee appreciation retains employees by 93.5 percent for 5 years tenure or more. A good company culture promotes positivity and good faith amongst employees.
4. Poor employee compensation and benefits
Employee compensation and employee benefits are key to employee retention in the manufacturing industry. Hourly wages of production and supervisory employees rose by 5.5 percent. The wages are also considered to rise an additional 3.9 percent to help compensate employees better.
5. Manager issues and issues with teams/ peers
Employees who had conflicts in the workplace, micromanagement from employers or managers and jealousy or poor coordination at work had a reduced drive and engagement at work. 29 percent of employees in the manufacturing sector faced conflicts of some or the other type within the workplace which causes tension and disengagement.
Competitive compensation and benefits
A study carried out by the manufacturing institute in collaboration with Colonial life revealed that finding the right skilled workforce has been a challenge for a long time and even with high demand in the market, 93 percent companies’ positions will remain unfulfilled due to competition in the manufacturing space.
83 percent of companies amongst these have increased their compensation to remain relevant and competitive in the market including benefits to employees, higher wages, perks and incentives to attract a skilled workforce.
The right compensation structure that both fits the budget bills of the company and improves job satisfaction, meets employee standards and expectations is a hard balance to strike.
By establishing a good compensation structure and clearly communicating the monetary and non monetary benefits of working with a given manufacturing facility, employee retention can be improved drastically.
Some strategies that manufacturing companies can make use of to provide good compensation and benefits to retain employees are:
1. A well rounded compensation structure
Industry standard wages and a little extra can go a long way of showing how much one values their employees. Provide retirement, pension fund and other monetary benefits attached to wages as well for a well rounded compensation.
2. Offer various benefits along with flexibility
Insurance benefits are becoming more and more sophisticated and therefore choosing attractive plans that cover employee aspects such as health, dental, vision, accidental benefit, family care and employee assistance programs.
3. Monetary and non monetary benefits
Not all employees take monetary benefits as the only ones worth considering - there is a whole lot of non monetary benefits that makes employee lives easy in the manufacturing sector such as paid offs, paid vacations, opportunity for additional trainings and certified programs, flexible shifts and work hours, reward programs etc can all be a great way of compensating employees.
One of the best case studies of a company that has a well established compensation and benefit system and has retained manufacturing employees through it is Denso - an automotive parts manufacturing facility.
The company has come up with attractive compensation packages that focus more on retention of employees rather than attracting new employees.
They have put in place a 20 hour week shift to provide flexible hours which is most popular among employees. They also have other benefits such as free transport for employees, free meals, child care facilities, education assistance for career development etc.
Training and skill development
Training and development is closely associated with employee turnover rates and attrition within organizations.
With career development and lack of training being the number 1 reason why employees left their jobs, providing opportunities to improve their skills, continue their education and investing in employee growth opportunities has become paramount. In a study, it was revealed that 74 percent of employees would be willing to retrain so as to remain employable and relevant in the industry.
In the manufacturing sector employees expect to be enrolled in continual training that help them with their jobs and with career development that can bring them closer to their goals in life.
Many companies in the world and especially in the US are providing growth opportunities by investing in the employees providing them with:
- Education opportunities
- Certified programs
- Workshops for skill development
- Online courses
- Completion of education and further education etc.
Companies are also expected to provide a clear career path and have career goal achievement meetings that help in establishing where the employee stands in their career goals.
Many companies and their HR teams are using a goal attainment meeting at 90 days of joining and annually to help employees in knowing where they are and where they can get to.
A solid case study of a company that utilizes this approach is Ketchie - a precision engineering manufacturing company. The company offers 4 day workweeks and a range of benefits to employees to retain them, one of the being the feedback system with focus on employee goals.
Safety and workplace environment
A ‘safety first’ approach towards employees shows that employees value them and care for their wellbeing. In a study, it was found that employees in the manufacturing industry had 300 work related fatalities each year and over 400,000 non fatal injuries were reported on average.
Safety in the workplace also is linked with compliance and factory audit requirements and therefore, manufacturing facilities must ensure that these guidelines are met so as to keep employees safe and retain them better.
Workplaces can have multiple hazards that are linked to serious harm and injury when not taken care of. Some example of employer responsibility towards safety of employees are:
- All water, fire and fall or injury prone areas should be clearly marked.
- Employees should be given protective gear, masks and PPE kits wherever applicable based on the type of facility.
- Employees should be given medical care, access to first aid and medical insurance to help them with any medical related emergencies.
- Large facilities should also have an in-house medical team.
- Regular audits must be conducted to ensure compliance to labor laws.
Safety at work is a key parameter for employee retention. 75 percent of employees in the US have reported that their workplace did not have the expected level of employee safety measures. 81 percent of employees believe that their physical safety is of utmost importance when choosing a workplace.
This means that employees who choose a company and stay with a company need to know that it is safe for them. Including medical care and medical insurance in the compensation is only scratching the surface of what employees expect from companies.
- Ensuring a safe and healthy workplace
- Addressing workplace hazards and concerns
- The correlation between safety and employee retention
Employee engagement and recognition
Employees who are engaged in their workplace have exceedingly high quality of life and better performance at work than those who feel disengaged. Companies who take active efforts towards rewarding and recognizing employees have engaged workers whereas those who do not, may have ‘quite quitters’ - which is a major problem in the brewing.
The manufacturing industry today is termed ‘ The Great resignation’ era where more and more people are changing jobs and leaving their employers for better ones. Millions of people have now quit their jobs since the beginning of 2021 looking for jobs that are worthwhile. Some strategies that manufacturing companies should adopt are:
- Having a great workplace culture
- Positive growth culture
- Diversity and inclusiveness
- A well rounded compensation
- Rewards and recognition programs
- Plenty of perks and benefits etc.,
These are all some tips to be devised carefully and effectively to ensure employee retention.
- Employers must be able to celebrate employee success and mark important achievements and milestones of employees to make them feel special and valued.
- Employee contributions should not be overlooked and recognition both in the formal and informal way must be carried out.
- Small to big rewards in the form of commissions and incentives, bonus, cash rewards, gift cards, tokens of appreciation, honor certificates and badges should all be incorporated in some ways.
An example of a great reward and recognition system that is being used in a manufacturing company is that of Trussway - a manufacturing company that utilized an employee reward program reflecting on employee wellness.
The company offers a plan that helps valuable employees to manage their retirement by putting in place a transition system to delay retirements, an effort to retain skilled employees.
Their suggestion and idea contest calls for great ideas from employees with a cash award of 1000 USD to 2500 USD for winners. They also have a safety first approach towards employees that helps in cutting down on turnover.
Data-driven retention strategies
Employers can utilize trustworthy and predictive data to check on employee turnover and retention rates so that companies can identify the areas where they need to work on potential risk factors that are causing them the churn.
Losing out on trained and skilled employees can cost 13 to 23 percent of annual compensation apart from other risk factors such as losing out on stakeholders, accounts they dealt with and clients they handled.
Using data drive strategies and predictive models, HR teams can analyze what causes employees to leave and come up with risk mitigation programs. Some facts and strategies of data drive retention approach are:
- Many major companies are now using various softwares and tools to record employee behavior, mood, engagement levels, stress levels, workload, peer relationships etc to analyze their retention tendency.
- Data collection and research organizations such as Gartner have been helping companies collect data in the most unconventional ways to analyze employee behavior and the turnover of employees in the manufacturing sector.
- Use of exit interviews is critical to understand what causes employees to leave and use the feedback and data to help create better and effective retention strategies
- Using the right selection model such as data driven recruitment helps in retaining employees as most people quit because they find that their jobs do not cater to their long term goals.
- Glassdoor research suggests that most people start looking for jobs in January which can help employers to place special employee attention to help mitigate attrition risk.
- Use of stay interviews and an associated retention/ stay bonus and a regular method of employee engagement survey can help in increasing employee retention.
An example of a company that uses data driven employee retention using predictive analytics is Continental - an automotive parts manufacturer. The company's Mexico factory had a very high turnover forcing the use of predictive analysis and data driven models to understand how to hire the right employees, predicting employee turnover and mitigating risk through various strategies including action plans, surveys, follow ups, diversity and inclusion etc.
Conclusion
Employees are the most valuable resources of a company and in the manufacturing sector, employees are far more valuable than any other industry because of their high demand and specific skill sets.
This is why companies should look into investing money in the growth and development of their human resource, which ultimately helps in keeping employees engaged, happy and retained in the workplace.
