By Ryan Pollett, National Leader, Manufacturing & Wholesale Partner, Audit & Assurance, BDO
There’s no doubt that the past few months posed challenges for Australia’s manufacturing sector. As the economic, health and social effects of COVID-19 disrupted the operations and supply chains, it also highlighted manufacturers’ ingenuity and ability to innovate and collaborate to overcome these challenges.
For many manufacturers, one significant challenge was the overnight shift in consumer needs and sudden growth in demand for certain products. However, we witnessed manufacturers meet this challenge head-on, as many in regional areas rapidly scaled up production and others pivoted their business. Even now, companies like Woolworths are reshoring essential items such as nappies to meet Australia’s needs.
The pandemic has also enabled conversations about manufacturing supply chains and the future and importance of Australia’s manufacturing industry. Overall, the Australian experience for manufacturers has been remarkable in identifying a clear roadmap for the future especially as we adopt Industry 4.0.
It is this ‘future’ of manufacturing that was a prominent element of our discussions at a recent BDO webinar on the Australian manufacturing experience, where we discussed topical issues including supply chains, collaboration and resilience. As such, I will be sharing many of these insights in this article highlighting the top seven learnings from COVID-19 for manufacturers.
I would also like to thank our three panellists who joined me on the webinar and shared their great insights into the sector, Michael Sharp, National Director of Industry, AMGC; Kieran Heinze, Supply Chain Risk Practice Lead from Infosys Portland, and Kamal Prasad, Technology Advisory Partner at BDO.
1. Harness the power of collaboration
“When we were first impacted by COVID-19, we had manufacturers reaching out to us to say, how can we help?” says Michael Sharpe, Director of Industry at AMGC.
The rallying together of manufacturers during this crisis is a proud moment for the sector, with the AMGC having a front-row seat in connecting Government, manufacturers and industry together.
At the peak of COVID-19, the AMCG played a fundamental role in ensuring that manufacturers were able to respond quickly through their Manufacturers Response Register. This register allowed manufacturers, universities and the greater industry to share and leverage their capabilities and is still in use today.
“We knew long before this current crisis that we needed to break down the barriers between our researchers and industry. In response to COVID, we’ve seen some great projects that we’ve been able to co-fund and it demonstrates how research can be put into action…I see that the universities and local industry are collaborating to take new products to the world right now,” says Michael.
Michaels says that AMGC was able to assist during COVID-19 in three key areas:
- Advice on making workplaces safer
- Bringing Australian manufacturers together to create a complete local supply chain for critical needs – such as hospital beds – which has now opened up export opportunities for Australian manufacturers
- Providing advice on go-to-market approaches for companies that we’re pivoting to meet new demands.
The AMGC plays a large role in fostering collaborations and it hopes that the acceleration of collaboration from COVID-19 continues well into the future. This includes the uptake of another initiative – the AMGC’s learning academy – which was set up last year.
“…The Learning Academy, is a portal that connects manufacturing organisations with industry, and focuses on a collaborative effort to help their business grow,” says Michael.
“We’ve been able to interview our members and let them share their stories about how they are transforming their business to become advanced manufacturers.”
This includes export opportunities, digital transformation and connecting manufacturers with university researchers, and other organisations.
Overall, Michael prefers to talk about manufacturing industry as a ‘capability’, and this was demonstrated in their ability to pivot quickly at the start of the crisis, and the power of collaboration across the sector.
2. Ask yourself – what hasn’t gone to plan?
The panel agreed that a strong feature of manufacturers’ response to COVID19 was adaptability and ‘good old Aussie ingenuity’. Yet, while there’s been some great outcomes in the sector, Kieran Heinze, Supply Chain Risk Practice Lead at Infosys Portland, cautioned that being prepared for another Black Swan event is critical.
He says, from a supply chain risk perspective, manufacturers need to be asking themselves now – what hasn’t gone to plan?
“The Australian community, the Australian manufacturing community and industry, more broadly, really did band together to overcome some of those short-term challenges. But, the reality still remains that we’re part of a global community, and while we can talk about onshoring and different manufacturing activities; in a globalised world, the reality is we’re always going to have some level of exposure to offshore influences – whether that’s the production of raw materials or unfinished goods that are then developed into finished goods, manufactured or assembled in Australia,” says Kieran Heinze.
Kieran says the exposure and impacts of a globalised world are difficult to overcome. Australia’s inbound supply chain and its flow-on effects need a rethink.
“The heavy reliance on China from a PPA (Production Process and Product Approval) supply chain perspective when we had a supply shortage, overlaid with a demand event was the perfect storm…”
Citing the toilet paper shortage in Australia, Kieran says that in Australia’s small ecosystem, manufacturers had to find the balance of varying demands and ramping up production; while taking into account artificial demand and whether they would be ok with decision-making that could result in holding leftover inventory.
3. Prepare yourself for possible futures
Kieran says on the flip side of Australia being able to pivot and adapt quickly was, (and while not universal), a general lack of preparedness for future scenarios. He says, many manufacturers were taken by surprise and were suddenly under pressure to come up with multiple plans and implement them concurrently.
He says, at a national level we need plans in place that address all sources of risk – not just from a global pandemic – stating that the pandemic may be a catalysing event for any number of possible futures.
“…From a national perspective, I think the takeaway is we need to be more prepared at every level of business and industry – right up to government level – so that we’re not coming up with the plans and then having to execute them at the same time. Everybody’s busily working now to protect themselves from supply shortages from the next global pandemic. But, I don’t think that’s going to be the source of risk,” says Kieran.
“I think PPE and medical devices has shown, that it’s a critical part of the supply chain or Australia’s demand-supply chain. I think the Australian Government needs to do some analysis to understand what are the critical parts of the Australian supply chain, that would have the biggest impact on the Australian public – that exist from a risk perspective?”
“…They need to take a risk-based approach to map the whole value chain into Australia and understand where that risk is coming from, and then apply policy settings that adjust that risk.”
Kieran also adds that this could include working with offshore partners and allies that we have trade agreements with.
4. Build yourself a bigger buffer
At a micro level, Kieran says there are several increasing threats to supply chain, such as geopolitical tensions.
“We’ve got increasing geopolitical tensions, and we need to be cognisant of all of those and understand the impact that it’s going to have on the supply chain well before it happens – and have a plan in place to execute when it is time to do that,” says Kieran.
He explains that businesses need to understand where they’re carrying risk if they’re reliant on inbound raw materials or unfinished goods. This applies to both international reliance, and domestic sources – which border closures during the pandemic have highlighted.
At a national level, this involves looking at all the leading indicators in the market and considering onshoring the most critical parts of your supply chain. However, for everything else, unless you’re going back to raw products, the best you can do is build yourself a bigger buffer – such as finding multiple suppliers in various locations.
5. Take a ‘risk first’ approach
Kieran says manufacturers should take a ‘risk first’ approach.
Taking a risk first approach to everything doesn’t mean being risk-averse, but understanding what your risks are, and making decisions that are aligned with your risk threshold. As a practical starting point, manufacturers need to be mapping their supply chain, to understand what their supply chain looks like to overcome some of these issues going forward. This includes:
- Understand exactly where your supply chain is coming from, including raw materials. This means ensuring visibility of the end-to-end value chain not just primary and secondary suppliers.
- Acknowledge that the biggest risks can come from the smallest sources. Risk is not always in your greatest spend or your biggest suppliers.
- Know that a supply chain is just a machine. Conducting a failure modes and effects analysis is a powerful, yet underutilised tool to assess your supply chain. Look at the various moving parts and influences on your production plant and perform this analysis on each part so you can be assured that it can keep running.
- Assess the likelihood and effect of future failure in plants and equipment by undertaking a severity occurrence and detection test overlaid onto your supply chain.
6. Mitigate risk through data
Kamal Prasad, Partner of Technology Advisory at BDO, says that historically, inventory acted as a buffer for the unknowns of supply chains. However, now with digital technologies and collaboration across the supply chain, these inventory issues can be effectively overcome.
One area Kamal says came to light as a result of this crisis, was the importance of data and its analysis to understand and respond to supply chain issues during these unprecedented times. He explains that predictive and inventory analytics played a critical role in helping clients and organisations make better and more informed decisions more quickly.
He says, during the pandemic, from the demand side, buying channels and buying behaviours suddenly shifted as consumers moved from in-store to online, and panic buying increased. This affected businesses abilities to meet and even deliver on these demands as many did not have scalability, inventory or delivery infrastructure.
On the supply side, disruption in supply chains had a substantial flow-on effect, due to the global interconnectedness affecting lead times from days to weeks.
The longer lead times combined with changes to demand and risk on the supply side led to a greater imperative to share information, collaborate and respond.
According to Kamal, if we are to learn from these experiences going forward, analytics and data integration must play a big role in replacing inventory with insights.
“…In the network of manufacturers and network of supply chains, I believe it’s not going to be around who owns what part of the value chain – it will be who own and orchestrates collaboration,” says Kamal.
7. Invest in innovation
We all agree that innovation is critical for success and Kamal is no different as he explains that innovation is the key to supply chain robustness with technology and digital capability being critical drivers.
“Investing in smart sensors, future technology, and digital – I believe in these innovations but only when they come together, that’s where the real magic will happen,” says Kamal Prasad, Technology Partner at BDO.
He says, when looking at the historical factors that weakened manufacturing capabilities in Australia, it came down to two factors:
- A lot of Australia’s innovations plateaued out and our value proposition got commoditised
- Australia’s manufacturing technology development stagnated, reducing our global cost competitiveness
Kamal says digital is where the future of manufacturing is and where Australia has the opportunity to harness the opportunities.
“Digital is going to play a big role, where we can bring all these concepts of sensors, robotics, and Industry 4.0 together and drive quicker commercialisation of new products and services,” says Kamal.
Part of this comes down to manufacturers needing to upgrade their data capability.
During COVID-19, data – or lack of – led to decisions made based on the gut-feel, rather than real-time information. Upgrading their data capability is only one part of the issue. Kamal says changing organisational mindsets in their approach to data and technology will be key.
“…How do we click the reliance on data and insights into the DNA of organisational decision making? This will be the question that the industry has to consider,” he says.
Kamal says collaboration, data-driven decision-making and culture transformation are key to transforming the future of Australian manufacturing.
We hope these learnings from our webinar on the Australian manufacturing experience give you some food for thought. If you are interested in coming along to our next webinar in the series, please make sure to register at our Rethinking Manufacturing webinar series page.