Heading into our first recession since the early 1990s; Australian manufacturers have a right to feel a little dispirited. The lockdown at the beginning of the pandemic and subsequent localised hotspots have disrupted supply lines, closed businesses and caused untold damage. By Joe Wrightman, managing director at ECI Software Solutions.
Looking at the picture with a wide-angle lens isn’t much better. Manufacturing has seen its share of the total Australian GDP diminish over time from nearly 30 per cent in the 1960s to approaching 5 per cent at the end of 2019.
But it’s not all doom and gloom. There are reasons to be optimistic. Many economists expect the economy to kick back into gear and return to growth in the third quarter of 2020. And many expect our recession to be shallower than that of most other rich nations around the world.
For example, in June, Deutsche Bank economist Phil Odonaghoe pointed out that in Q1, Australia’s GDP shrank by 0.3 per cent, which compares well with the average of 19 other “rich” countries evaluated at -2.9 per cent.
More promising still is that our political leaders see manufacturing as critical in not only getting through our current crisis, but also restoring and growing the economy on the other side.
Manufacturing adds value to the economy by combining raw materials with skills and capital investments. There’s a growing realisation that we all need a strong manufacturing industry to ensure a balanced economy which will offer resilience and independence, especially as we weather economic storms, such as the one we are in.
This is a position that Prime Minister Scott Morrison is coming round to. He has recently spoken of safeguarding “economic sovereignty” and a resurgence in local manufacturing. Others in the government are calling for supply chains to be re-evaluated and for niche manufacturers to be given more focus.
The manufacturing industry is complex and so innovation is key. Customers have varying service requirements, and businesses change and grow. Now, more than ever, to keep up with wildly changing demands the manufacturer must be flexible and efficient.
How can an independent manufacturer be ready for the post-pandemic future and leverage its particular strength in a competitive environment?
An Enterprise Resource Planning (ERP) system integrating workflows, inventory management, customer service, quoting, invoicing, accounting and analytics is now arguably an essential item to meet the challenges ahead and prepare the industry for renewed growth and a more domestic approach. Here’s why.
Even when global supply chains are running optimally, manufacturing is a complex business because each individual manufacturing operation consists of many different business functions. Manufacturers need to be able to give customers accurate cost estimates, manage complex projects that include multiple phases, keep costs to a minimum and cycles short, deliver product on time and on budget while maintaining a positive cash flow, and providing customer service.
The ability to tie everything together to see the entire picture creates manpower, time and monetary efficiency. All vital right now.
Make duplication the enemy
Using ERP, customer and project data is entered once. From here it can then progress through all phases of the project, rather than having to be rekeyed at each stage. This not only speeds up processes, it reduces errors.
Job management allows jobs to be scheduled and parts produced per specifications. Receiving, accounting and inventory information can also be fed in, further eliminating multiple data entry.
Real-time information needs to be received across the life cycle of the project. Needed information usually includes: customer and employee contacts, employee management including timecards, estimates and quotes, order management, scheduling, shop floor entry, inventory and warehouse management, warranty, accounts receivable and payable, shipping, and general ledger.
With every function integrated in a single system, stakeholders across the business can see the complete picture of current jobs and plan their schedules more precisely. Those on the shop floor know which new jobs are coming up, everyone can see the job status of a particular project and their part in it, and anyone can answer customer inquiries about a particular job.
Minimising costs & shortening cycles
Reporting can help certain business activities to be analysed and understood. Manufacturing variances can be identified which can help monitor the accuracy of bills of material.
Raw materials can be more efficiently utilised and actual costs measured against the standard, creating a snapshot of the result. When jobs are compared, variances are identified. Then materials, processes and techniques can be adjusted as needed.
Overall, manufacturers can continually tighten standards, reduce costs and improve efficiency, leading to shorter cycles.
Maintaining positive cash flow
Reporting, again, is vital. Knowing a true picture of the business allows inventory to be maintained at appropriate levels so that an excess of cash does not end up committed to inventory. It also allows you to know how much a job will cost to produce. The impact of pricing and sales increases relative to expenditures can then be predicted.
Providing excellent customer service
With more domestic business predicted, customer service will be critical to securing long-term relationships. Customer service is mostly about providing customers the information they need in a timely manner. A fully integrated system allows any employee to check the status of a job and answer a customer’s questions.
In addition, a system that gives companies self-service access to their information online is a win-win situation. Customers get the information they need when they need it, without having to depend on someone else to give them that information. Likewise, the company is able to provide good customer service without having to devote specific staff or time to the task, improving efficiency.
Times are tough; but there is a silver lining. The Australian market may be sheltered from the worst effects of this economic storm and policy-maker rhetoric is lining up in support of the Australian manufacturing industry. With every crisis comes opportunity and this may well be a once in generation opportunity for Australian manufacturers.
The question is: Is your business ready?