2007 Annual Manufacturing Survey - Labor Pains

Food safety remains the top concern in our sixth annual Manufacturing Trends Survey, with labor issues and energy also topping the worry list.

By David Feder, Managing Editor

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Other concerns mentioned include expanding customer base, marketing, transportation issues, taxation and staying competitive in the market of ideas.

Globalization also was an issue that has some processors worried. This included everything from competition from plants overseas (which have the advantage of cheaper labor costs) to sourcing ingredients from overseas markets to fluctuations in currency exchange. The globalization issue also raised concerns over regulatory issues with cross-border exchange of goods and ingredients.

Regulatory concern wasn't just an international issue. Morphing domestic policies were an oft-mentioned concern in this non-ranked category - so much so that we'll likely include it in next year's list.

Taking what they're giving

Having conducted the survey during the closing weeks of a contentious election that saw immigration concerns shoved into the limelight might be one reason labor issues rose to the second position. Last year's survey was taken in the midst of an energy crisis, so it was no surprise energy came in second in our 2006 report. Since the energy situation didn't abate completely, the gap between second and third place was narrow (see graphic).

Still, after food safety, labor is what's on everybody's mind - enough to bring it back up from its uncharacteristically low 2006 showing of fourth place, and back to where it was in our 2004 and 2005 polls. Some of this has to do with confidence in the food processing economy. Nearly half of respondents (43.7 percent) say they will increase their workforce, and another 35.3 percent will maintain the force they have in place. Of the 17.4 percent reducing the number of employees in their plants, about two-thirds (12.1 percent) will let nature take its course and do so by attrition.

Within the subject of labor issues - which touched upon everything from illegal immigration to health insurance costs - "finding and keeping good workers" topped the list of pressing issues for 2007, mentioned by 42.1 percent of respondents.

We added some nuances to this year's survey, delving deeper into the make-up of that workforce. Asking respondents to compare staffing levels with those of three years ago, answers were nearly identical for each of three broad job categories we specified: engineering, R&D and management (graphic). About one-quarter say staff for those groups was larger than in 2003, and about 45 percent report levels are the same.

Staff reductions for those three job titles were markedly different. According to 14.2 percent of processors, engineering staff is smaller, only 8.9 percent saw R&D staff levels drop, yet nearly a quarter - 22.6 percent - say management staffing has declined.

When we asked about salaries and benefits, only 7.4 percent say they will be cutting payroll. More than four in 10 (43.2 percent) plan on handing out raises in 2007. A solid 40 percent will keep those things status quo.

Regarding labor, we asked the timely question, "How would stricter immigration laws/control affect your facility?" Whereas more than half (53.7 percent) claim "not at all," 36.9 percent say they will be at least somewhat impacted. One respondent echoes the sentiments of a number of processors by commenting, "Restrictions on immigration will reduce the available labor pool and make recruiting more difficult."

"Food and beverage companies have historically had high turnover in some of the lower paid positions," says Grant Thornton's Manning. "The role of Hispanic workers in this industry continues to increase and may actually provide some stability at certain position levels."

Several are worried by the possible combination of immigration restrictions and a jump in the minimum wage. As for wage issues in general, about 21 percent see wage increases - or just staying competitive within the supply-and-demand mechanics of keeping workers - as their main labor issue of the coming year. Not that all management begrudges laborers a fair wage. As one manufacturer replied, "We anticipate wage increases but we're not opposed to them. Our long-term planning has anticipated them."

Cooking with gas and going green

Energy woes may have been slightly less evident than last year, but energy costs are still high and processors know it - 42.6 percent report their energy costs went up more than expected compared to 2005; another 9.9 percent say "much more" than expected.

In fact, 90.7 percent are "somewhat" to "very" worried about the cost of energy. Although less than 9 percent of processors were "severely" impacted by energy costs last year, almost three in four were moderately impacted - one company so much so it is "relocating to an area where the environment reduces energy costs."

Because of the energy squeeze, two-thirds of processors are taking steps in energy conservation. One-third are conducting energy audits. Energy recycling through redirection is being employed by 22.2 percent, and 18.2 percent are seeking alternate energy sources. About 9 percent are looking at cogeneration.

Interestingly, more than 28 percent are putting their mouth where their money is and negotiating with their energy providers (it never hurts to ask).

Environmental concerns were big in 2006, too. Two-thirds of processors find environmental issues to be very, or even extremely, important. Almost a third say they are "aggressively recycling and/or reusing" resources.

Almost half (47.5 percent) are recycling more than they did in 2005, and almost as many are recycling about the same amount. Stumbling blocks to recycling range from space and safety considerations to regulations and labor cost. But the majority of folks who want to recycle but can't cite the lack of companies willing to collect or purchase recyclable materials. All told, only 7 percent of processors responding say they are not recycling at all.

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