This article is an update to Automation and the talent challenge in US consumer packaged goods, first published in April 2019.
Across the United States, manufacturing companies in most sectors are struggling to find enough personnel to make, pack, and ship their products. Manufacturing job openings have been increasing steadily since 2010 and have grown even more rapidly after the COVID-19 pandemic. Meanwhile, the number of manufacturing employees has remained stable. Today the openings remain high: double the amount of average prepandemic levels (Exhibit 1).
This environment doesn’t just create headaches for HR departments. Talent shortages have a range of unsavory knock-on effects. In 2023, turnover rates—traditionally high across manufacturing jobs—reached 36.6 percent, on average, in the manufacturing sector.1 That increases training and supervision costs and makes it more challenging to achieve consistent levels of quality and productivity. Labor is getting costlier, too. Manufacturing labor rates have been rising steadily since 2010, and the pace of labor cost inflation has also picked up in the years since the COVID-19 pandemic (Exhibit 2).
Time for an automation reboot
The manufacturing sector is no stranger to automation, but historically, few manufacturers have used the approach to target labor shortages. Instead, companies tend to look at automation to improve quality or to address specific health and safety issues.
We believe that attitude may need to change. A smarter, more flexible, and more holistic approach to automation could be a powerful way to address talent challenges. As research from the McKinsey Global Institute has found, when applied at scale, modern automation has two distinct effects on labor and skill requirements. On one hand, it can significantly reduce the number of the low-skill roles companies find hardest to fill, while eliminating many of the tedious, repetitive, and strenuous tasks that drive high labor-turnover rates. On the other, extensive automation can change the nature of the workplace, easing recruitment and retention by creating new technical roles with pay, opportunities, and working conditions that compare favorably with options in other sectors.
A new approach to automation is now possible thanks to technological advances. Modern robotic systems and automated machines are cheaper, more capable, and easier to integrate than the systems of the past. Robots have decreased in cost by more than 50 percent over the past 30 years, for example (Exhibit 3). Meanwhile, the development of “cobots” (collaborative robots) means companies can now introduce robotic systems safely alongside human workers on the same production lines. Together, these and other developments make it possible for companies to automate more tasks while investing less time and money in the purchase and integration of new equipment.
Decreasing robot prices make the ROI increasingly more attractive, too. From the 1980s to the 2020s, the typical observed ROI was within five to eight years, whereas today, manufacturing companies can expect the payback period to be one to three years. Robot installation and programming costs also tend to be lower than hiring and training shop-floor operators.
Automation for the people
Long-running recruitment challenges were a major motivator for one global consumer packaged goods (CPG) firm’s decision to invest in seven high-speed, automated food-processing and packaging lines. The new system improved productivity—measured as volume produced per employee—by more than 70 percent in the processing areas of the plant, and by almost 280 percent in filling and packaging. The change also allowed the company to consolidate production of a major product range from four separate plants into one.
Equally important, the new manufacturing system was the key to a transformation in the company’s talent management approach. The company worked closely with government authorities, media, and the local community college to recruit and train a new cohort of staff with the technical skills required to operate and maintain its new high-tech production lines.
Success factors
Given the benefits, why aren’t more companies ramping up their automation efforts? That’s because automation at scale is not simple. Beyond the technical challenges, companies also need to overcome significant economic and cultural hurdles. Our observation of companies that have taken this journey already has revealed several factors that can be decisive in determining the success of automation efforts.
Successful companies tend to do three things well: they develop a robust, holistic business case for their automation investments; they adopt agile methods to accelerate technology development and implementation; and they invest in their people to nurture the right capabilities and culture.
The business case
With margins under pressure, manufacturers need to be confident that investments in new technologies will pay back. The business case for automation projects needs to be carefully constructed and rigorously tested. A robust business case should consider the full range of benefits expected from the project, including improvements in productivity, throughput, and quality—as well as potential impact related to health and safety, staff training costs, maintenance, and employee turnover. One significant hidden benefit of automation, for example, is its ability to bake in productivity gains that are otherwise dependent on the specialized skills of individual employees, and therefore vulnerable to loss if key personnel leave their roles.
Companies need to be smart about their cost assumptions, too. Our observations show that the costs and time to design and program a robot continue to decrease, thanks to advances in agile and simpler, less time-consuming, low-code (or no-code) robotic programming. However, the prices the companies pay for system integration services have remained stable. A zero-based approach with a “should-cost” model will help when talking to equipment vendors and systems integrators. This will help to ensure that companies are squeezing the maximum possible value from their automation decisions, not simply accepting a solution that provides savings over existing manual methods.
Agile implementation
Companies sometimes fall into the trap of seeing automation as a single big-hit project. They expect projects to be long in the planning, disruptive in implementation, and to deliver all their benefits from the moment the system is switched on. In practice, many modern automation applications are smaller, faster, and more flexible. They work best when companies treat them as an ongoing process, with equipment installed quickly and then evolved and adapted to deliver increasing value over time.
New greenfield installation represents an opportunity to push further into the automation. A new site often provides some more time for commissioning and making it work to specification. In effect, an installation at a brand-new site can reduce risk when compared to a brownfield site.
Another tactic, targeting a process bottleneck or specific issue with automation, can be highly effective. At one company, a manual inspection process was limiting attempts to boost production speed at a bottling plant. To address the issue, the company installed machine-vision technology that could check labels and fill levels on every bottle. As well as addressing the throughput issue, the new system also increased quality: problems are now identified as soon as they occur, allowing operations and maintenance staff to take immediate action.
This agile approach requires a different way of working, with automation teams and frontline operators working closely together to optimize new systems. But it also delivers bigger benefits over the long run, helping to build people’s skills while revealing additional opportunities to improve manufacturing performance over time, as familiarity with equipment capabilities and limitations grows.
Change management
It is a well-established, but still underappreciated, maxim that people are the most important part of any automation system. Even where labor shortages are a primary driver for automation investments, manufacturing companies need to address the skills implications of new equipment and processes in a systematic way. Automation will create new roles, but it will also have significant implications for existing personnel.
Frontline jobs will change, perhaps beyond recognition, and staff will need training and support through the transition. Experienced production personnel have a wealth of knowledge that the organization needs to retain as new equipment and processes are introduced. A comprehensive change management program is essential to help employees adapt to new, highly automated manufacturing environments. The most successful organizations take a highly structured approach to change management, incorporating four core elements: role modeling by frontline leaders and senior managers; consistent communication to develop understanding and conviction; tailored training and capability building; and measurement and reinforcement through appropriate KPIs and incentives.
Routine tasks most likely to be automated
While automation is increasingly possible at all stages of the value stream, the routine end-of-line activities like palletizing and depalletizing, material handling, and goods receiving are the most likely to be automated. McKinsey’s Global Industrial Robotics Survey in August 2022 found that more than 80 percent of surveyed companies are either likely to adopt, or have already adopted, automation in those use cases.
Quality control—commonly enabled by vision, laser, and pressure sensors—will also continue to be an automation candidate in the coming years. This technology helps to build quality into the product through in-process error proofing and parameter checking. Automating quality control in this way can reduce human errors and improve the accuracy and speed of inspections.
Automation can also serve as a gateway to more informed decision making, through big data analytics and real-time performance monitoring and control. Robots generate real-time data that could be added to the existing data stack and augment the digitization journey. Manufacturers could use real-time information to identify and mitigate problems before they arise, increase traceability, and gain competitive advantage by using the data to further optimize their manufacturing process.
To see if automation could be a solution to their own manufacturing labor recruitment and retention challenges, manufacturing companies should begin by asking a few simple questions:
- Where in my manufacturing operations are vacancies and staff turnover rates the highest?
- Where do labor shortages and high staff turnover rates create additional costs and risks for our manufacturing operations—for example, through additional training costs or the loss of critical process knowledge?
- How many manufacturing operations tasks could be automated using currently available technologies?
- How would automation change the roles of manufacturing personnel? What impact would those changes have on skills, job desirability, and potential labor pools?
