As the world grappled with supply chain disruptions and delays as a result of COVID-19 lockdowns and restrictions, manufacturers found themselves dealing with long delays and shortages of critical goods and products.
Peter Jones, managing director and founder at Prological says this revealed a vulnerability in just in time principles, which has presented an opportunity of re-imagining manufacturing in Australia.
Manufacturers around the world have been following a just in time principle for their operations. Simply speaking, just in time is an inventory management method in which goods are received only as they are needed.
This method gained significant traction during Global Financial Crisis (GFC). Out of necessity, businesses learned how to run on a much leaner inventory as budgets were tightened and expenses cut.
After the GFC, many organisations throughout the world continued to follow the principles of just in time – largely because it worked.
However, just in time only works on the assumption that everything is working perfectly all the time. As soon as COVID-19 started to rip through China, Europe and the US – many Australian manufacturers were faced with long delays and significant shortages of critical goods.
As the global aviation industry reached a near standstill, there was no air freight capacity into the country. With 60 to 65 per cent of air cargo usually carried on passenger aircraft – the price of air freight started to rise exponentially. At the same time, the global shipping industry was also facing significant delays alongside freight costs growing exponentially.
These delays and disruptions not only impacted manufacturers in Australia, but also retailers – as Australia is also an importer of finished goods.
There are many stories across the industry of major manufacturing companies’ entire global operation coming to a standstill because of a shortage of one small component in their second or third tier supply chain.
As an example, a European manufacturing company based in Northern Europe worked with a German electric motor company to source their motors. The German company outsourced the manufacturing a silicon rubber O-ring to a small manufacturer in Northern Italy.
As Northern Italy become one of the first regions in Europe to go into a hard lockdown, the small but significant O-ring forced this manufacturing company to pause much of its global manufacturing operations.
It’s likely that this European manufacturer had no idea that their O-rings were made by a small manufacturer in Northern Italy until the moment they could no longer source them.
We’ve seen the same stories globally, and there are many similar anecdotes here in Australia. What this has done is highlight the importance of knowing your 2nd and 3rd tier supply chain partners well. But it also offers an opportunity for Australian manufacturers to become more self-reliant by manufacturing onshore.
If you are a manufacturer based in Australia: what do you need to do to rethink your operations and look at manufacturing locally?
Not all manufacturing in Australia is commercially viable – but there is a significant profile that is.
The profile consists of high value goods that can be manufactured using automation and COVID-19 has presented the ideal time to re-look at your supply chain and think about bringing manufacturing of this nature back onshore to boost efficiencies and opportunities.
A fundamental part of this journey is to re-think the size of your market opportunity. Traditionally in Australia, we tend to think of our market reach as the 30 million people who live in Australia and New Zealand and a little beyond.
When we look to manufacturers in Europe and Asia – they see the world’s 7.5 billion people as their market and its imperative that Australian and New Zealand businesses start doing the same.
Once you start to think bigger about who your potential customer is and where they are based – manufacturing in Australia becomes a much more viable option, especially when you consider the cost of exporting from Australia. KPMG’s Quay Conclusions 2019 report revealed in 2018 61 per cent of containers exported at Port Botany were empty and 39 per cent were full.
Now is a good time for leaders in the Australian manufacturing industry to re-think their market and become a truly global brand. Once you start to think your customer base is the 7.5 billion people in the world – then manufacturing high-value goods in Australia just may become an attractive opportunity.
The federal government is also supporting Australian manufacturers with a number of funding initiatives. This includes a new $800 million grant program to encourage collaboration on major manufacturing projects in Australia.
I urge businesses to have a look at what is available and what they are eligible for and seize this opportunity of re-imagining manufacturing in Australia.