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Manufacturing is on the rebound. After a tough few years in the wake of the Global Financial Crisis, the industry is starting to find its feet again. Ai Group’s Mark Goodsell gives Mike Wheeler the good news.
Impressions can be deceiving and sometimes inaccurate. Take manufacturing. Those on the periphery would say the manufacturing industry has never recovered from its heyday in the 1950s and 1960s. Anecdotal evidence would appear to back up this assertion – cheap overseas imports, the bottom falling out of Australia’s car industry, struggling against an at-times booming dollar, and trade deals that don’t seem to find any traction in a world where traditional high-end manufacturing countries are struggling to take on the emerging markets of Asia, all point to struggle street for local manufacturing.
While some figures give an impression of a downturn in the industry, other reliable sources state otherwise.
At a recent IICA event held at Weidmüller Australia’s head office in Huntingwood in Sydney’s west, the Australian Industry Group’s (Ai Group) manufacturing director Mark Goodsell painted a very different picture. And he has the numbers to back it up. Ai Group’s Performance Manufacturing Index (PMI) is one measure of how the sector is tracking, and for the past two years there is nothing but good news. If the index is under 50, then it indicates manufacturing is contracting. Over 50 means it is expanding. For the past two years it has been over 50, the longest unbroken period of growth in 15 years. At one stage during the height of the Global Financial Crisis the index hovered just above 30, so there has been a dramatic change since that time.
So why the growth and what is driving it?
“The heavier industries have certainly struggled,” said Goodsell. “There are fewer smelters, blast furnaces and traditional steel fabricators. But food processing has grown and is now a third of manufacturing. We have strong growth in other consumer areas like vitamins, health products and cosmetics, with many companies exporting heavily to Asia. Off the back of that, packaging is also doing well. In some product lines the packaging is more valuable than the product. Building products are also doing well and even machinery and equipment manufacturing.”
There has also been a shift in the mindset of manufacturers. They have become smarter and have started thinking outside the norm when it comes to developing a business strategy. Then there is exporting.
“Exporting is back on the agenda. Some of our most successful manufacturers export almost all of their product,” said Goodsell. “Some companies are also reshoring work they previously did in Asia, as technology takes the labour cost out and lead times become more important to customers. Also, many manufacturers find they make as much money out of services off the back of their products as they do from manufacturing the products. This trend to servitisation is being accelerated by digitisation under the label Industry 4.0.”
While Goodsell is confident about the state of the Australian manufacturing sector (another couple of figures he pulls out are that the country is at 80 per cent of manufacturing capacity – another high – and employment has grown by 50,000 people in 2018), there are a couple of thorns in the rejuvenated sector’s side that need addressing.
“Our industry base was partly framed on the historical fact that we were a cheap energy economy,” said Goodsell. “We have lost that advantage. Although energy prices appear to have receded from their most recent peak, they are unlikely to return to previous low levels. However, we should aspire to regain an energy advantage. There is no reason the new fundamentals of energy can’t favour us as much as the regime based mainly on fossil fuels did – if we can lock down consistent national policy settings.”
The other issue is something that can also be addressed – skills.
“Many manufacturers report that they are already missing out on opportunities because they can’t get skilled staff,” he said. “In some cases it’s a broader issue and they have a hard time getting even semi-skilled or unskilled labour, or school leavers for apprenticeships. It may be a wider problem that the education system is not keeping up. It may be due to community perceptions of the industry.”
Then there is the total mindset that needs to be looked at – especially once the skills issue
has been addressed and a new generation of manufacturing experts enter the workforce.
“I heard at a recent meeting of manufacturing managers that the traditional manufacturing people like to be hands on,” said Goodsell.
“The next generation have to be comfortable running plant from an iPhone. They have to trust technology and the data it produces, especially when it conflicts with their eyes and ears.”
Over the past few years Goodsell has seen some changes that give him cause for optimism. Work is going on under expert leadership to advance standards, innovation, cyber security, work and education. Then there is the Industry 4.0 higher apprenticeship project, which is
a joint venture between the Ai Group, Swinburne University and Siemens. However, he still has a few concerns about the uptake of the latest technologies and fears some companies – especially SMEs – might get left behind.
“The progress in embracing Industry 4.0 has so far been confined to a relatively small number of leading firms, both domestic and multinational,” said Goodsell. “Embracing 4.0 has stretched the gap between these leaders and the majority of businesses.
In many cases, these businesses embracing Industry 4.0 are the usual suspects, Goodsell said.
“These are companies that are proactively on the lookout for opportunities to improve and develop their businesses. These businesses self-select, they are switched on, are aware of the latest developments, and they allocate time and resources to working on their business. Most tellingly, they seek knowledge that their competitors don’t have – including by collaborating with our world class research community. They are also more generally aware of various policies, programs and measures available to support industry development and innovation.”
Goodsell is measured about the future, which he said can be best described as “cautiously optimistic.”
“I think everybody who thinks deeply about it concludes that there can be a bright future for manufacturing in Australia, though it is not inevitable and it will be different to the past,” he said.
“Australia is making great strides, but there is much more to be done within our organisations and supporting institutions. The skills, the standards, advancing and diffusing technology and business models – there is plenty to get on with.”