How Can Your Organization Create Capacity in a Constrained Labor Market?

Phrases like “a tight labor market” and “the great resignation” have become commonplace in the post-pandemic world. Early retirements, enhanced unemployment benefits, and an array of other factors since the height of COVID-19 lockdowns have challenged businesses’ ability to grow headcount and create enough capacity to meet demand. Put into numbers, currently there are five million more job openings in the US labor market than unemployed workers, a deficit that has continued to grow since mid-2021.

This phenomenon has disproportionately impacted America’s manufacturing sector where the newfound pleasures of working from home or a “hybrid” work model are hard to implement within a factory. There are signs the industry is beginning to fill more positions with recent job reports showing positive trends, however, two million fewer Americans are participating in the labor force today compared with pre-pandemic levels. This deficit continues to hamper the ability to fill open roles.  Specifically, a lack of skilled trade labor has left industrial companies struggling to grow revenue in the face of increasing demand.

Our experience in the last year has reaffirmed the notion that labor shortages continue to be a primary barrier to EBITDA (earning before interest, taxes, depreciation and amortization) generation among industrial companies. We believe manufacturers will have to deploy additional levers, outside of adding headcount, to successfully increase capacity and grow revenues. In this paper, we cover seven capacity improvement levers that Alvarez & Marsal has leveraged successfully to create capacity in a constrained labor market. We examine this case through the lens of a mid-market, private equity-owned capital equipment manufacturer in midwestern United States that A&M has supported over the last year.

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