RISING interest rates have reduced consumer confidence and with it, consumer consumption.
This reduced spending is impacting the manufacturing industry and, together with high input costs, increased competition from imports and uncertainty over global economic performance, this has resulted in growth forecasts of 1.5% in 2008 (IBIS Manufacturing in Australia – January 2008).
While this figure does not compare to days gone by, there remains a positive outlook for the industry in the long term.
Categories such as food, printing and coal are on the up, as Australian manufacturers become more savvy when it comes to adding value to their products.
However, manufacturers can still improve their competitiveness on the world stage. By focusing on three main areas - technology, finance and the environment – companies can put themselves in the strongest possible position to face the ongoing challenges.
Technology
Investing in – and upgrading - innovative technology and equipment is critical to a manufacturers’ success.
This area should receive constant investment to ensure a strong competitive advantage and the foundation for expansion into other areas.
This is particularly relevant to local food manufacturers who have a reputation for providing extremely high standards, primarily due to the level of automation they have introduced.
One of our clients and Australia’s largest producer of packaged fruit and vegetables, SPC Ardmona, recently purchased a specialist optical sorting system to automatically detect defects in production line fruit.
Not only is this improving yields and reducing wastage, it is also giving the company the opportunity to move into other product lines.
As the first Australian company to use this technology, SPC Ardmona has put itself ahead of the competition and is on the right track to remain competitive with its overseas counterparts.
Finance
Investment in the right technology is made even more possible when you have the correct debt structure in place.
By structuring cash flow around your capital base, you can ensure you have sufficient funds in the long term to invest in the necessary equipment, technology and property to give your company the edge it needs.
Access to finance for funding business development and expansion can be an issue for businesses in any industry.
Often, by looking at ways to create more value manufacturers can reap the benefits of a healthier balance sheet.
For example, one of our customers in the wine industry began bottling its own wine instead of sending it overseas. This has increased its returns and given it more cash flow to continue investing in the right areas of the business.
At a time like this when the cost of funding is rising and lenders are becoming more risk averse, it can pay to have a financier who has an in-depth understanding of your business.
This industry expertise means a financier gets to know your capital expenditure requirements and help you ride out the peaks and troughs of your business to ensure you reach your growth objectives.
The environment
The manufacturing industry has a crucial role to play in driving sustainable practices to address the world’s environmental issues.
According to the World Business Council for Sustainable Development, (‘Changing Course’ report - 1992) “a company seeking to become eco-efficient should strive to…reduce the energy intensity of its goods and services…maximise the sustainable use of renewable resources [and] enhance the recyclability of its materials…”
In the wake of the Government signing the Kyoto agreement, these areas have become a critical part of any manufacturing organisation.
More than that, though, is the pressure companies are facing from their customers who are increasingly demanding their suppliers embrace sustainable practices and reduce their carbon footprint.
Becoming a ‘green’ company can offer real benefits, not just for the environment as a whole, customer goodwill and employee engagement, but also in the form of substantial cost savings.
Through our Ecomagination initiative, GE has worked with a number of customers to assist them with carbon planning.
With office electricity use and company vehicle fleets in the top four emitting factors for any business, GE has the ability to leverage its Lighting and Fleet businesses to provide expert consultation and service to our customers.
GE itself has saved over $200m in emission reducing projects with its manufacturing plants around the globe by refitting lighting and power sources.
By concentrating on having the right technology, the right finance and the right environmental initiatives, manufacturers can keep ahead of the game and become, or continue to be, a stand out growth performer in this industry.
*Kerri Thompson is MD, Equipment Finance, GE Commercial Finance.