Leon Gettler
Business Journalist

Leon Gettler is an independent journalist, author and public speaker

Leon Gettler
Business Journalist

Leon Gettler is an independent journalist, author and public speaker

Manufacturing has had a challenging few years, but great challenges have led to a leaner and more efficient industry.

Activity across the Australian manufacturing sector fell sharply in June, following a brief expansion in May, with the Australian Industry Group’s Australian Performance of Manufacturing Index dropping 8.1 points to 44.2. As a rule, readings below 50 indicate a contraction in activity.

But there are some good signs. The lower dollar seemed to support exports, led by food, beverages and wood and paper products. However, metal product and machinery and equipment were down, reflecting the progressive closure of the Australian automotive industry.

Add to that the announcement by Nissan that it intends to close its parts warehouses later this year, resulting in the loss of 58 jobs primarily in Melbourne’s south east. The closure is part of the company’s plans to outsource its warehousing and logistics operations to CEVA Logistics.

Clearly the impact of the wind down of the automotive supply sector is still working its way through the system.

Overlooking a manufacturing site

Overall picture

Mark Goodsell, the NSW director and manufacturing director of the Australian Industry Group says the figures are patchy, with some positives like the falling Australian dollar.

“It’s mixed picture – there’s no unambiguous broad trends,’’ Goodsell says. “There’s good news here and bad news there.

“The dollar is a positive, government infrastructure spending in NSW is a positive, general recovery in consumer sentiment is a positive. But investment is a negative, mining is coming off and it’s not being replaced to the same degree.

“People have money and people have retained earnings but unambiguously good investment opportunities are what’s needed.”

Impact of the falling dollar

He says the falling dollar has really improved the outlook for manufacturing.

“There is consistent optimism that the dollar seems to be changing the fundamentals a bit,’’ he says.

“There is… a sense that it’s easier now to compete with imports and some local large companies are starting to look at sourcing locally as opposed to assuming that imports will be cheaper.

“The feeling is that the dollar has a bit further to fall. It’s just been a bit stubborn. It’s got into the 70s and bounced around so it hasn’t been a consistent direction but if you stand back and look at the trend, it is certainly a lot easier doing business when the dollar has a 7 in front of it than when it’s beyond parity.”

Greater efficiencies

What’s also helping, he says, is that manufacturers who have survived the global financial crisis have come out of it more efficient.

“You’ve got a lot of companies that have been through that period and have leaned out and become a lot more efficient,’’ he says.

“If you are having to compete at parity or above, you just learn to do things a lot better. You might automate some processes, you might outsource some work that didn’t make much sense, you try to increase your productivity, you got rid of functions that weren’t adding any value. There’s no free ride.

“You might be applying lean manufacturing, getting the waste out of your processes. There has been a lot of interest in lean over the last year or two.”

And the changes to manufacturing have been significant, with the modernisation of processes including distribution and the role of M2M technologies playing a significant role.

“The other thread is people are understanding you have to be in your customers’ pocket, you really have to understand what your customers’ needs are, where they’re going and understand their problems and how your products can fix their problems.”

Greater competition

Mark says manufacturers are now facing a more competitive market as a lot of overseas companies have set up operations here.

“A lot of companies are selling in Australia who have never sold here before,’’ he says.

“When Europe tanked and the US tanked, a lot of companies looked to see who was buying and came here. The competition is a lot more intense. You have more competitors when you are trying to sell something.”

So for manufacturers, looking to find efficiencies and understanding where economic trends are pushing their business is more important than ever.

Outlook

If the dollar continues to trend down, things will continue to pick up, according to Mark. While the automotive wind down is still being felt, the bright spots are in food, building and construction and capital spending in mining. And that is a good sign for manufacturers.

Still, it won’t be a boom time – the margins just aren’t there anymore.

“It’s harder work than it used to be. The margins aren’t as impressive as they used to be. Most companies are saying they’re not getting the margins they were getting pre-GFC.”

Looking to increase efficiencies in your manufacturing business?

Learn how M2M could benefit you here.

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