Australian manufacturers are no strangers to disruption. They have proven their resilience and agility through many market cycles, and broad industry confidence about the next 12 months suggests this time is no different.
According to the latest Manufacturing Insights Report, 72% of manufacturers nationwide are targeting higher production volumes in the next year. That’s supporting expected revenue and profit growth for around three in four.
However, there is also widespread recognition of the challenges ahead, with many lingering from recent years. Chief among them is rising operating costs, with most forecasting further increases. Supply chain issues and their impact on cash flow and capacity are also widely reported.
CommBank head of manufacturing, Maria Christina, said, “The industry’s responses are already well underway. Not only are manufacturers directly addressing each challenge but are directing investment to ensure their operations are more efficient, productive, and sustainable.”
Examining these responses and tactics can be instructive for business leaders keen to navigate their organisations through uncertainty and reveals why manufacturers remain optimistic.
Overcoming persistent supply chain issues
Beyond rising operating costs, manufacturers are still feeling the impact of supply chain disruption. In fact, 92% of decision-makers say supply chain issues are either restricting capacity or holding back growth.
In turn, supply chain issues are adversely affecting cash flows for 86% of manufacturers. This is exacerbating capacity constraints and prompting decisive action to improve liquidity.
As a result, the top tactics being employed include:
- Tackling supply chain issues: The most common strategies are to adopt technology to monitor the supply chain more effectively and increase materials and inventory on site. That’s followed by increasing and onshoring operations and suppliers.
- Easing cash flow constraints: Manufacturers are most likely to be increasing prices and pushing out supplier payment terms. Most are extending or increasing financing facilities, including asset and trade finance.
Seeking technology-driven efficiencies
Manufacturers' top-rated priority for the year ahead is investing in new technology. Given higher production targets, this reaffirms the connection between technology and enhanced operational performance in manufacturers’ minds.
In another step up this year, 87% of manufacturers signalled their intention to lift technology budgets. Those that can streamline operations, drive scale, improve collaboration, and enhance the customer experience are all earmarked for investment.
Over the next two years, spending on emerging technologies will also rise, firmly embedding innovative digital solutions across the sector. The fastest-growing areas include next-generation ERP systems, the use of autonomous vehicles and machines, and artificial intelligence.
The adoption of many emerging technology and data-driven applications is already widespread, with efficiency again the top driver. However, as this investment continues, commensurate cyber security processes and safeguards will be needed, with the research showing relatively few have protocols in place.
“The most common activity manufacturers are undertaking is implementing rigorous access and password policies, but that’s only the case for 36%,” Maria said.
“Just under one in three have a cyber-security policy that is regularly updated, which is essential when bad actors are constantly finding new ways to exploit vulnerabilities.”
Positive impact, better business outcomes
With sustainable manufacturing a long-term feature of the industry, it’s no surprise that 88% now see it as an important part of their business strategy.
The top initiatives that manufacturers intend to introduce include:
- Sustainable supply chain: implementing sustainable procurement processes among supply chain partners.
- Circular economy: circular practices such as operational waste reduction, recycling, and reuse in the production cycle.
- Natural resources management: Lowering energy usage and reducing or recycling water.
A large majority recognise that sustainable practices can help improve their competitive position and ability to meet stakeholder expectations, and around half believe their financial position can benefit. That’s supporting activity across the environmental, social and governance spectrum, with manufacturers indicating there’s more to follow.
To explore the latest Manufacturing Insights Report and the strategies and tactics topping decision-makers’ agendas, visit the CommBank Foresight special report.