How manufacturers are responding in a high-cost economy

The challenge for Australian manufacturers in 2026 is not just one problem. Instead, it’s multiple of them at once.

“There are numerous structural shifts happening simultaneously,” says Sarah Lalor, General Manager Specialist Sales, CommBank. 

“It’s not necessarily different challenges to usual, but it’s more that the challenges are presenting themselves all at once. This means manufacturers are also needing to adjust and adapt to these challenges, considering both a short- and long-term perspective.”

Data from the CommBank Insight Series 2026: Manufacturing Signals report shows Australian manufacturers are simultaneously dealing with: 

• Demand volatility: after a contraction in 2024, manufacturers returned to modest growth of 1.2% in 2025.
• Energy and geopolitical shocks: March 2026 marked the third monthly decline in output as manufacturers shifted their focus from growth to risk management. 
• Labour shortages: 30% of occupations, particularly technicians and trades, are in national shortage.
• Supply-chain disruption: shipping delays are up by 10–14 days and the resulting inventory stockpiling is lengthening cash conversion cycles.
• Rising costs: since COVID-19, there has been a 45% increase in input cost inflation.
• Technology transition: technology adoption has become an essential, as 80% of manufacturers have invested, or plan to do so, in AI.

Amazingly, the period of the pandemic was simpler in its nature for manufacturers, says Elizabeth Huxley, General Manager Working Capital, CommBank.

“We know manufacturers are increasingly having to navigate a complex and changing environment with labour, energy and inflation key themes being prioritised across the industry,” she says.

Huxley has observed that the strongest manufacturers aren’t waiting for conditions to improve. They’re changing how they operate now.

Productivity: Redesigning work

The McNab Group is a construction business responsible for various types of major developments, from warehouses to shopping centres, office buildings and high-end apartments.

CEO Kunjan Ganatra is no stranger to the challenges faced by manufacturers, both within the broader business group and within McNab Group’s battery business Powershift, which leases batteries to construction and other work sites that previously relied on diesel-powered generators.

In Queensland right now, in the drive toward the Olympic Games, there is a major acceleration of activity around infrastructure, logistics and construction, says Ganatra.

“For the past five decades we’ve been able to throw labour at accelerating outcomes,” he says. “That labour is not available anymore.

“The final piece we’re working on is robotics at the front end of manufacturing and building,” he explains. “Our remit is how do we, over the next five years, build and manufacture fundamentally differently? That’s through ‘delabouring’ – not losing labour but making technology, automation and AI actually step in to take up part of that workload, so it’s balanced with the current resourcing that exists in the market.”

As a result, McNab is shifting its focus to making its people more productive by upskilling them and ensuring they have everything they need, including digital and AI-driven tools, to help them do their work better. 

McNab is investing in training and development, a win-win for the organisation and its people.

“Tech and AI will complement our workforces,” says Ganatra. “They won’t take over, but we need to create an environment where robotics are a partner to deliver an outcome differently, while also delivering safety and quality.

“We’re moving the workforce up the value chain to really focus on the value-add piece.”

“We’re moving the workforce up the value chain to really focus on the value-add piece.”
– Kunjan Ganatra, CEO, McNab Group

The company is also developing new ways of building, including working on a prototype of a modular, six-storey building.

Such modern methods of construction can offer sustainability benefits: shortened project timelines and off-site construction can reduce emissions and waste. They are also less labour-intensive, can be largely produced in a controlled environment – potentially adding to consistency, quality and safety – attract new workers and increase the organisation’s capacity to produce what its clients require.

“The industry’s productivity has actually gone backwards over the past five years,” says Ganatra. “So, we’ve got demand going through the roof, but productivity going the other way. The impact these new methods can have is huge.

“We’re spending a lot of time doing research and discovery, and partnering with organisations in economies that are well advanced on some of these productivity objectives. We don’t have to have all the answers; we can bring different solutions into the market by partnering with businesses that do.” 

“We don’t have to have all the answers; we can bring different solutions into the market by partnering with businesses that do.”
– Kunjan Ganatra, CEO, McNab Group

Automation and AI: Complementing, not replacing

To achieve its technology goals, McNab has set up a dedicated team called Robotics, Automation and Data.

It is, among other things, creating apps to better forecast the impact of changing weather patterns on building schedules, putting sensors on hoists to enable greater productivity planning and developing predictive maintenance programs for vital pieces of machinery to reduce downtime.

“We are not a tech or an AI business, so we’re investing in startup businesses,” says Ganatra. “One example is Bedrock. They’re in the space of autonomous civil work equipment, where you basically keep big yellow equipment operating overnight, so you’re getting a different level of productivity. We’re backing those types of businesses, so we can bring those learnings into the group.” 

“Technology is on the mind of every customer we talk to,” says CommBank’s Huxley. 

The most successful adopters of technology in manufacturing aren’t replacing expertise, she says. Instead, they’re combining technology with experienced people to push employees toward higher-value and more engaging work, improving productivity at the same time.

Sustainability is now core to commercial strategy

In the new, more challenging manufacturing environment, sustainability is gradually shifting from a reporting exercise to a core component of commercial strategy, says Lalor.

“What often starts as a reporting requirement can quickly become a source of real operational insight” she says.

“Once businesses are measuring emissions, they get visibility they didn’t have before. That’s usually where the easy wins surface first.”

Ganatra agrees, saying sustainability must consider both environmental and economic outcomes.

“Some of the businesses we’re seeing do sustainability best are those that deliver the right outcome for community and environment, while having commercial impact,” he says.

The Powershift part of the McNab business is an excellent example. In an environment in which organisations are encouraged and sometimes required to reduce carbon emissions – and in which fuel prices are at record highs – using batteries for cleaner, smarter temporary power requirements on work sites can make commercial sense.

There’s also a strong link between sustainability and capital, says Lalor. "The same data businesses are capturing to manage energy costs and meet procurement requirements or mandatory climate reporting, is what broadens their access to sustainable finance."

"The same data businesses are capturing to manage energy costs and meet procurement requirements or mandatory climate reporting, is what broadens their access to sustainable finance."
– Sarah Lalor, General Manager Specialist Sales, CommBank

Cash flow matters more than ever

It’s too easy for manufacturing businesses to “go with the flow”, says Huxley, by accepting that the way they managed cash flow over the past few years is the way they should continue doing it this year.

“Businesses may wish to consider pausing and asking themselves if they’re now spending more in their supply chain than they were before,” she says. “Is your supplier in China demanding that you pay them sooner? Does freight cost more now? Is cash going out the door sooner, but you’re waiting longer for stock?”

“Businesses may wish to consider pausing and asking themselves if they’re now spending more in their supply chain than they were before. Is your supplier in China demanding that you pay them sooner? Does freight cost more now? Is cash going out the door sooner, but you’re waiting longer for stock?”
– Elizabeth Huxley, General Manager Working Capital, CommBank

These issues all illustrate why cash flow matters.

The 2026 CommBank Manufacturing Signals Report says manufacturers are experiencing inventory stockpiling, longer cash-conversion cycles and greater capital working costs.

“At the same time, there’s so much value sitting in their balance sheet,” says Huxley.

The cash flow challenge isn’t simply about funding growth. It’s also about understanding where cash is becoming trapped within and around the supply chain.

Options come from strong balance sheets

Along the same lines, Ganatra says cash is king.

“We follow very clear practices and principles of having more-than-adequate cash reserves and balance sheet strength to not only create certainty but also chase the right opportunities,” he says.

CommBank’s research found that manufacturers are increasingly focusing on preserving the strength of their balance sheets, finding ways to more closely manage cash conversion and positioning themselves financially for long-term growth.

“Strengthening your balance sheet isn’t just about being able to lend against it,” says Huxley. “It’s also about making the right decisions in uncertain times.”

“Strengthening your balance sheet isn’t just about being able to lend against it. It’s also about making the right decisions in uncertain times.”
– Elizabeth Huxley, General Manager Working Capital, CommBank

The required norm today, says Ganatra, is to build resilience into every part of a business, from people to processes to technology to finances.

Manufacturers doing this, while also treating sustainability as a commercial opportunity, are positioning themselves for comfortably rapid growth when conditions improve.