The Great Skill Shortage

Domestic capital investment is holding up: US manufacturing technology orders ran $681 million in March, up 31.5% on the year.¹ For the American firms building truly differentiated photonic and electro-optical components, demand isn’t the interesting variable. They can source a connector, a cable, or a sensor from a growing supply base. What they can’t source is the experienced person who decides how the assembly goes together and configures the process to make it repeatable, and like many industries, there are fewer of those experts being created than there are retiring.

Anecdotes from the front line

Raise your hand if you’ve heard this before: the scarcity isn’t in the physical manufacturing capacity, it’s in the people to get it right. Differentiation derives from engineering judgment and build discipline, so most constraints turn out to be a hiring problem of one form or another.

• A maker of optical sensing modules centralizes design authority in one engineer. He’s 34 years in and never wrote down why the third revision of the housing fixed a thermal drift problem. The company knows this but doesn’t know what else isn’t documented. It has tried twice to hire behind him; a role needing optics, mechanical, and some electronics expertise, but both shortlists only came up with two names each.

• A photonic assembly manufacturer whose yield depends on who is on shift. BLS counts about 96,900 electrical and electronics engineering technicians nationally, growing 2% over the decade against roughly 8,100 openings a year — nearly the whole pipeline is replacement rather than growth.² It trains from scratch now and assumes 18 months before a new technician touches a customer build.

• A module builder whose bill of materials is largely imported and whose differentiation is entirely domestic. Trade uncertainty is what manufacturers cite most often now — 70.6% in NAM’s first-quarter survey, against 44.7% for workforce.³ But requalifying a foreign sub-component is engineering work, out of the same bench that should be designing next cycle’s product, and there is neither the budget nor the talent base to add engineers.

Is the moat the product or the people?

Great question and it probably depends on the obsolescence timeline for the products. A differentiated component with a measurable performance advantage and a designed-in position at three instrument OEMs looks like a wonderful business. But if the time horizon for upgrades is sooner rather than later, the advantage shifts from “the product” to “the ability to create the next product.”

The optimistic case is that the latter is really a documentation and training problem, and documentation is tangible: build records, design-of-experiments history, better fixturing, and tooling that captures what a good technician does. The pessimistic case is that the judgment itself is the product, and judgment transfers slowly if at all. Deloitte and the Manufacturing Institute put the decade’s need at up to 3.8 million new manufacturing employees, roughly 1.9 million of which could go unfilled.⁴ That doesn’t tell you which case is right, but it does suggest the stakes are rather high.

What to watch next

We’re naturally drawn to manufacturers where the performance advantage is measurable and the customer has designed it in—hard to build, harder to copy. The challenge facing differentiated photonics manufacturers isn’t all that different in kind to what’s facing other technically complex manufacturing businesses, but the skill sets aren’t interchangeable. So if you’re an owner, how are you approaching this challenge? Partnerships with schools to develop talent? Better documentation of processes and systems? Prayer? If you’ve found a way, we’d like to hear about it.