Why manufacturing is on the cusp of leading economic growth post Covid 19.
As our economy struggles under the crippling weight of the Coronavirus businesses are scrambling for more secure manufacturing and supply chain solutions.
Recently we saw the concept of 'demand risk' to supply chains (a sudden surge in demand that catches manufacturers and retailers by surprise), play out very starkly in our own homes with a severe shortage of toilet paper. A situation that at was at first the 'butt' of many jokes and viral memes soon became a real point of concern in many Australian households. However, with most of the domestic supply of toilet paper being made here in Australia, manufacturers have been able to rapidly increase production to manage the surge in demand.
Another example of a local manufacturer being able to fill the gap is Med-Con, Australia's only medical mask manufacturing company. Med-Con is in the process of ramping up production from 2 million masks per year to a potential 50 million masks in response to the current desperate shortage of PPE. Although Med-Con has been operating in Australia for decades, it was supplying masks to less than 3% of Australia's medical industry prior to the crisis.
The trend of "off-shoring" - sending work overseas - hit manufacturing across the developed world decades ago, and in most cases it was inevitable, as it was not economically viable to compete with Asia.
In Australia today a sizeable percentage of goods and components that retailers, and our remaining manufacturers rely on, are sourced from overseas. With the dramatic Covid 19 slowdown in Chinese manufacturing impacting Australia, we are seeing many manufacturers and assembly plants unable to continue production. The resulting disruption to our domestic supply chain is contributing to shortages of essential items and putting more jobs at risk. The Coronavirus has served to highlight the fragility of staking so much of our supply chain on products from overseas, particularly China in this case.
So where does this leave us, not just in the short term, but more broadly? In a few months' time we will begin to see the climb back to recovery and 'business as usual'; but is the old way of doing things really our best option to secure our nations supply chain and bolster our economy (or the greater world economy) in the long term?
The founder of Harvey Norman, Gerry Harvey called on treasurer Josh Frydenberg to give one year interest-free loans to Australian manufacturers who can compete with importers, so they can expand their businesses. "This will give them a little bit of a chance to get going. They'll employ people, they'll pay taxes. It'll be much better for the Australian economy," he said. "If they can grow their business then that's a wonderful thing for Australia."
Moving the location of business operations is always challenging but does offer many opportunities to apply Lean principles, increasing operational efficiency in the new location:
Securing and stabilizing the supply chain
Reducing the length of the supply chain between production and customers
Less inventory in the supply chain, less handling, less storage facilities
Faster movement through the supply chain, faster delivery
Removing time differences, speeding up communication and problem resolution
Improving environmental factors with less product miles, better controls, and infrastructure for managing by-products and waste
Upgrading processes, combining moving to new facilities with
Investment in robotics, automation, or other capital equipment
Training and re-organisation of the workforce
Reducing waste in the processes
Over the last 3-4 years we have seen an economically successful trend in the US and some European countries such as Germany to bring manufacturing facilities back to their own countries. With innovation, automation and a general trend towards Industry 4.0 the labour component as a percentage cost of a manufactured product is becoming smaller. Re shoring is now seriously on the table in Australia.
The shock we have all felt and witnessed firsthand with the Coronavirus will drive economic growth through manufacturing here in Australia.
References:
ABC News. 2020. Australia's Only Medical Mask Factory Increases Production From 2 Million To Up To 50 Million. [online] Available at: <https://www.abc.net.au/news/2020-03-27/inside-australias-only-medical-mask-factory/12093864> [Accessed 2 April 2020].
Associate Professor William HoOperations Management, U. and Ho, A., 2020. The COVID-19 Shock To Supply Chains. [online] Pursuit. Available at: <https://pursuit.unimelb.edu.au/articles/the-covid-19-shock-to-supply-chains> [Accessed 2 April 2020].
Blog.thomasnet.com. 2020. Top 6 Benefits Of Local Sourcing. [online] Available at: <https://blog.thomasnet.com/top-6-benefits-of-local-sourcing> [Accessed 2 April 2020].
Business News Australia. 2020. Coronavirus Slams The Brakes On Australian Manufacturing. [online] Available at: <https://www.businessnewsaus.com.au/articles/coronavirus-slams-the-brakes-on-australian-manufacturing.html> [Accessed 2 April 2020].
Ft.com. 2020. Companies' Supply Chains Vulnerable To Coronavirus Shocks. [online] Available at: <https://www.ft.com/content/be05b46a-5fa9-11ea-b0ab-339c2307bcd4> [Accessed 2 April 2020].
idea, H., 2020. Coronavirus And The Future Of Manufacturing | Freelancer.Com.Au. [online] Freelancer.com. Available at: <https://www.freelancer.com.au/articles/starting-your-business/coronavirus-and-the-future-of-manufacturing> [Accessed 2 April 2020].
National Industry Insights Report. 2020. Transport And Logistics. [online] Available at: <https://nationalindustryinsights.aisc.net.au/industries/transport/transport-and-logistics> [Accessed 2 April 2020].
