Supply chain issues and worker shortages are putting pressure on the manufacturing industry. These problems can raise costs and reduce profits, making it harder for manufacturers to stay in the black. Manufacturers need to find new ways to stay profitable.
COVID Recovery
The pandemic has been difficult for the manufacturing industry. The 2021 State of Manufacturing Report from Fictiv shows that 95% of survey respondents say the pandemic has had long-term impacts on their business.
Recovery is happening. According to Deloitte’s 2022 manufacturing industry outlook, the industry is set to experience 4.1% GDP growth in 2022 as demand rises and COVID recovery and vaccination efforts continue. While this is good news, labor shortages and supply chain issues are threatening operation efficiency and margins.
Worker Shortages
Many businesses have been having trouble finding enough workers to maintain operations. The U.S. Bureau of Labor Statistics (BLS) says that more than 4.4 million workers quit in April 2022. This is an increase from April 2021, when about 4 million workers quit. In the manufacturing industry, around 354,000 workers quit in April 2022, up from 294,000 in April 2021.
Hiring new workers as other workers quit or retire has become challenging, especially for skilled jobs. By 2030, Deloitte says that the U.S. manufacturing industry is expected to have 2.1 million unfilled jobs.
When jobs can be filled, the expected wages may be much higher. BLS says that wages and salaries increased 4.7% in the 12-month period ending March 2022.
Supply Chain Troubles
Supply chain issues have been causing problems since the start of the pandemic. While many people have noted empty shelves at stores, components and materials have also been impacted.
Consumer Reports says that the global microchip could last until 2023 or 2024, and it’s been impacting vehicle production. In 2021, auto manufacturers produced 1.7 million fewer vehicles compared to 2019, and that’s despite high demand.
Material shortages can lead to higher prices. According to the NC State University College of Natural Resources, lumber prices reached an all-time high of $1,686 per thousand board feet in May 2021 due to lumber shortages. That’s an increase of 406% compared to May 2020, when the cost was only $333.
According to the 2021 State of Manufacturing Report from Fictiv, 94% of respondents say they are concerned about supply chain issues, and 47% say that supply chain management overhead costs are too high.
Cyberattacks on Manufacturing
Supply chain issues can have many causes, including shipping problems, natural disasters and labor shortages. However, cyberattacks have been a growing threat, and the manufacturing industry has become the number one target.
The FBI’s 2021 Internet Crime Report shows a troubling increase in cyberattacks in 2021. The Internet Crime Complaint Center received 847,376 complaints in 2021, up from 791,790 in 2020. Losses increased from $4.2 billion in 2020 to $6.9 billion in 2021. In 2021, there were 3,729 complaints involving ransomware, with losses of more than $49.2 million, and these attacks have been growing more sophisticated.
According to the X-Force Threat Intelligence Index 2022 from IMB Security, manufacturing was the most attacked industry in 2021, a distinction that used to go to the financial services industry. In 2021, 23.2% of all attacks that X-Force remediated targeted the manufacturing industry. Ransomware was the most common type of attack, accounting for 23% of all manufacturing attacks.
Bolstering Your Bottom Line
Demand is high right now. This means that manufacturing companies have an opportunity to boost profits and recover from pandemic setbacks. However, supply chain issues and labor shortages are increasing costs and making it difficult for manufacturers to reach their full potential.
Manufacturers need new strategies to improve their profit margins. One area that’s often overlooked is workers’ compensation rates. Many manufacturers are overpaying for workers’ compensation due to common errors.
There’s a good chance you’re overpaying. To find out, you can request a no-risk work comp premium audit. We can identify errors resulting in overpayments, and we may also be able to give you recommendations to help you lower your costs in the future. Even better, we work on a contingency-fee basis, so you don’t pay anything unless we recover funds for you.
There are considerable profits to be made in manufacturing right now, but you need to make sure your overhead costs aren’t taking too big a bite out of those profits. Contact us to get the ball rolling on a work comp premium audit.
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