Is Australian Manufacturing Doomed?

I have been very fortunate recently because several key ERP software companies have invited me to present at their events. While undertaking some research and preparing for these presentations, I have come across some interesting and, in some cases, disturbing data.

Productivity Growth in Australia

Firstly, productivity growth in Australia has reached some very disturbing levels.

To quote Paul Bloxham, Chief Economist at HSBC, who spoke at a recent breakfast I attended:

Productivity in Australia is really quite dismal. We used to pay workers a 2% wage rise; now we pay 4%. We do that to get 2% less output than we did. So, we are paying people more to do less.

Paul Bloxham

This is accompanied by manufacturing’s contribution to the Australian GDP, which has been reducing since the 1980s, as shown in the chart below. This does not paint a rosy picture of manufacturing in Australia.

It therefore makes perfect sense that the Federal Government is preaching the “Future Made in Australia” policy they have come up with.

Alas, I believe it will not produce the real benefits for manufacturing in Australia they expect. However, at least the state of our manufacturing industry is on the government’s mind.

Productivity growth in Australia was -2% for the past twelve months. This becomes more concerning considering the impact of inflation. While the government has been espousing how the rate is coming down, I have no confidence that the recent budget will provide the environment for that decrease to continue.

The government’s IR law changes make the IR landscape more difficult and expensive, and their energy transition policies make the costs of electricity and gas, key cost inputs for all manufacturing, continue to increase instead of reducing, as they promised. 

While small, the recent increases in inflation seem to indicate they have got this all wrong, especially when you consider that improving productivity is the number one way to combat inflation. 

This means that businesses cannot rely on the government to assist. I appreciate that most of you reading this never have relied on the government to help anyway. So, what can we do about this? 

Look for opportunities to increase productivity. They may come in any of the following ways:

• Automation, in the form of installing machinery and process automation on the shop floor.
• Robotics. By adding robots to your factory floor, you can undertake manual activities. I have one client trialling robotic forklifts to move products from the end of a production line into their warehouse.
• Implement new software that has the ability to combine these two. Connecting automated machinery or robots and automating processes via software workflows can be extraordinarily beneficial.
• Apply Artificial Intelligence tools. AI promises much but has yet to deliver a lot in real terms, but it should remain on your radar for opportunities.

As you may have seen on my recent LinkedIn posts, I was in Sydney twice and Melbourne once for different software vendor trade shows/conferences. Attending such events allows me to make new and renew old relationships with each vendor and their team. 

Knowing who is who in the zoo is a value I bring to the table when clients engage me to work with them. There was a constant theme amongst all the people I spoke with, both from the software vendors’ staff, to clients and prospects of each vendor. That theme was executives are more cautious with their investment decisions of late. Executives are asking for more details to help build confidence that they are making the right choice and are taking a much longer timeframe to make those decisions.

While understandable, if your business case is right and the investment is in productive assets like those mentioned above, the quicker you can get underway, the quicker you will deliver those benefits. The quicker you deliver those benefits, the greater the gap between you and your competition will be. 

The time for action in productivity-improving initiatives is now!!

Inventory Optimisation Offer

Thank you to those who took advantage of the inventory optimisation offer in my last newsletter; I look forward to working with you on such an exciting and important project. There is nothing like releasing cash back into a business.

For those who may have missed it.

We have a proprietary approach to an inventory policy audit, focusing on generating inventory policy improvements for our clients. The process involves extracting key data from your existing ERP system, analysing it, and providing a report recommending what changes need to be made to your existing configurations.

The goal is to reduce stock-outs, dramatically improve capital utilisation by releasing cash back into the business, and dramatically improve customer service (DIFOT) levels. 

We were reducing the cost of the audit process by 25% for work commenced or undertaken in September, but those slots are now filled. However, if you want to understand what dramatic changes can be made in your business, reach out for a confidential chat, and if we arrange a project to start before November 2024, I will honour the discount.

© David Ogilvie