The International Union for Conservation of Nature (IUCN) recognises the conservation status of threatened species under three sub categories: critically endangered, endangered, and vulnerable.
If we were to apply the same categorisations to the Australian manufacturing sector (or ‘species’) – it was endangered for the period of the GFC around 2009-10. However, it appears that the sector is bouncing back as shown in the Australian Industry Group’s Performance of Manufacturing Index PMI chart below.
So, what is the current status of Australian manufacturing – is it endangered or vulnerable? Can this sector survive in the long run?
While the graph above and other reports are optimistic about the Australian manufacturing sector’s future performance, there are some key factors to consider when looking at its future potential.
Australian manufacturing labour costs are much higher compared to other economies, as per a report published by the Reserve Bank of Australia (RBA)2. Based on this RBA report, Australian labour costs increased by around 80% in Australian dollar terms over 1997-2012. This could only be offset through labour productivity to maintain competitiveness against cheaper imports.
Based on a report published by The Guardian, the Multifactor Productivity (MFP) for the manufacturing sector has declined by 3.7% in recent years.
What is MFP?
MFP is a measure of economic performance that compares the amount of goods and services produced (output) to the amount of combined inputs (including capital) used to produce those goods and services. This drop in MFP is not good for the survival of any sector.
Australian manufacturing productivity is poor when compared with global competitors, with Australia being 25% less productive than the average global manufacturing competitor’s activity.
With these critical cost, productivity and efficiency factors – Can the Australian manufacturing sector survive under these conditions moving forward?
Businesses always operate under challenging conditions. It has always been a survival of the fittest game.
While there are old and new approaches to improve productivity, it seems the most prudent way forward is the use of the tested methodologies of Operational Excellence (OpEx) (such as Total Quality Management, Lean and Six Sigma) to address the root causes of low productivity and improve it.
However, while OpEx concepts may come across as simple and intuitive, it is a journey that requires careful navigation to make the most of it.
There are three levels that most businesses go through to deploy OpEx methodologies successfully – situational, systemic and strategic. It is vitally important to understand the pitfalls and challenges within each maturity stage, to advance to the next stage as effectively and efficiently as possible.
1. The situational level
At this stage of implementation there’s still much to do to establish the best approach and determine the critical areas to improve (often challenged by varying levels of buy-in across the business).
TIP: Contain implementation to a small critical area. Win the hearts and minds of the employees in this area by asking them, “Why can’t we get 100% everyday”? Categorise problems into themes and introduce solutions to address them.
2. The systemic level
Having learnt how to improve one critical area, it is now time to start looking to the broader business. The main challenges at this stage are likely to be constrained resources and having enough people experienced in the process.
TIP: Get the leadership team to really understand the full process, from vision to strategies to execution. The OpEx journey should be transitioning from being managed by a few individuals to the entire leadership team. It should start to feel like, “This is the way things are done around here.”
3. The strategic level
At this stage the entire supply chain is re-inventing itself based on the tools, processes and concepts mastered in the previous level.
TIP: Innovation is the key at this level, as continuous improvement is well embedded. Processes must now getting closer to the customer’s needs and wants. Process improvement is now an end-to-end supply chain model.
Manufacturing is an important sector to the Australian economy. Unfortunately, many indicators and news articles sadly remind us that it has definitely passed its heyday.
The GFC and the shutdown of the car industry nearly pushed this ‘species’ to critically endangered status. However, Australian manufacturing is showing resilience and survival skills.
It is time to realise that poor productivity is still threatening the survival of Australian manufacturing and that our aim should be to use the OpEx concepts to eliminate this threat all together.
Western Sydney Manufacturing LAB
Ishan is an Operational Excellence Expert, Speaker and Author. He is passionate about helping businesses to unlock hidden capacity for business growth. Ishan has a distinct advantage to deliver transformational change with his experience in multi-national companies, working with teams in six different countries, for nearly two decades. Ishan was a special guest speaker at one of our Western Sydney Manufacturing LAB events – a forum for individuals and businesses to network, exchange ideas, share experiences, make connections and access services that could lead to new strategic working partnerships. It’s a collaborative initiative between St.George, Coleman Greig Lawyers and William Buck aimed at bringing together business leaders, industry bodies and innovators to discuss initiatives and opportunities that will benefit manufacturers.