Australian Manufacturing – tales from the frontline

In recent months I have met with manufacturers in western and southern Sydney, Albury, Wollongong, Newcastle, Geelong and Brisbane. At every meeting, I am asked what I am seeing and hearing in the industry.

Ai Group’s July Australian PMI®, which has just been released, reflects the definite uptick I have felt growing in the spirit of local manufacturing over the past six months. The July result records the first increase in manufacturing sales for over a year, a continuing recovery in exports, and suggests a slight easing in margin pressure. At 50.4 points, the index shows the sector is stable, and the three-month moving average figure records gentle improvement since the start of the year.

Given the headline pressures from mining and auto, there must be some good things going on out there to produce this result.

That’s a general observation and not everyone will share the sentiment, so it would be great to hear what you are seeing and hearing. It coincides with the fall in the dollar, with a feeling of better competitiveness against imports, and a renewed interest in exports, including to the US.

There are marked differences between and within regions. Regions that were hit by the coal price fall two years ago are finding it tougher, although that depends on your exposure to mining. Companies who diversified, including out of region, seem to have it easier.

Mining is spending money, but it’s moved from their capital to their operating budget as the equipment installed in the huge wave of investment starts to wear. Miners are also hungry for cost saving ideas for their operations.

The housing, food and health supply chains are the strongest. Commercial building and infrastructure are patchy across the states, as is government spending more generally.

It’s hardly surprising that in the face of shifting markets, one of the most profound changes I hear about is in the way companies find new business. Almost every manufacturer I have met in the last two years has changed their sales or business development function in some way. How?

Some have deepened their business development capability. By simply putting on more sales staff, or increasingly, by investing in the capability to dig out customer problems and integrate that intelligence into their design and engineering functions, rather than relying on more traditional stand-alone sales skills.

A lot of SMEs have engaged their first sales person ever. Some of them say they never needed a salesman before, because work “just sort of rolled in” – but not anymore. Often the owner did sales, to save a salary, but that model is starting to show its limitations.

I have been struck by the number of companies who say they are finding new business in strange places. That’s probably a good sign, reflecting a capability to ask the right questions and have an open mind about where opportunities might lie.

However, different sectors are a different sell. Industrial supply chains are different to consumer sectors. Defence has its own rules, as do most other government customers. Aerospace and health have their own quality expectations. Most sectors have their differences in how you get in the door and understanding them is as important to success as the quality of your offering. Companies have even been burnt by differences in business culture and practice between regions within Australia, particularly if they have built their business only within one region.

In some sectors you have to travel a long way to get business next door. The OECD assessed in 2013 that 70% of world trade was stuff being moved from one stage of value adding to the next. You may make the world’s best piece of kit, but in many supply chains a customer is the next stage of production or a turnkey system maker, even if the final destination is the consumer, company or project down the road. If the customer is now more often offshore, selling requires different skills, the capacity to understand new business cultures and a passport.

Industry stalwarts are disappointed that long relationships with customers don’t seem to count any more. That’s one of the sadder truths of a hyper-competitive world. A long relationship may have got us in the door previously, but it is what we learned while inside the door that now counts.

Those that seem to have done best tell stories about learning to deeply understand where their customer is going. None of that is rocket science, but some firms seem surprised when customers change tack or drift away. And that is particularly the case when their customer is government, who can be frustratingly opaque about their intentions.

Returning to the Australian PMI®, this single index is a powerful way to focus on the overall state of manufacturing. Behind it are thousands of stories.

So, what are you seeing and hearing? Share your thoughts below, or at Ai Group’s new LinkedIn Manufacturing Group.

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Mark Goodsell is the NSW Head and National Lead – Manufacturing at Ai Group. He has a background in industrial relations in manufacturing but has been engaged in industry advocacy across all the major policy areas impacting on the sector for over 20 years. He is Executive Director of the Australian Advanced Manufacturing Council (AAMC), Chairman of Industry Capability Network (ICN) NSW, a member of Safe Work Australia and the NSW Skills Board.

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