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As the year comes to a close, Australian manufacturers are considering both the present and the future. For Australian manufacturers to thrive in this ‘new normal’ digital transformation will be critical, as BDO’s National Leader, Manufacturing & Wholesale, Ryan Pollett and Executive Director, Digital & Technology Advisory, Kane Stavens discussed on the most recent episode of our podcast, ‘In Business with BDO’.
Emerging challenges for Australian manufacturers
Due to the wide-ranging impact of COVID-19, Australian manufacturers have found several disruptions demanding a response. Households have changed their spending habits, shifting the economy of supply and demand. Logistical challenges introduced during the early days of the pandemic have also persisted, especially regarding delays and breaks in the overseas supply chain.
Imports are experiencing delays, and air freight costs have increased due to the lack of passenger flights to carry goods. Manufacturers have felt forced to shift from just-in-time ordering of only the raw materials they need, when they need them, to just-in-case ordering of surplus. Management of health and safety has also become a major consideration, with positive tests in factories potentially leading to shutdowns.
Other risks for businesses include a rebalancing of financial priorities, combining caution due to cash flow problems with the need to spend and stock up. Cyber security vulnerabilities have also arisen due to the rise in remote working. As reported in The Australian Financial Review,
of the attacks identified in the first half of 2020, e-crime accounted for 82 per cent of interactive intrusions, up from about 70 per cent in 2019.
Traits that allow manufacturers to pivot effectively
Operations during the pandemic have shown what types of manufacturers are best equipped to adapt and survive in difficult conditions. Helpful factors of these businesses have included:
- Flexibility and ingenuity in operations, allowing companies to produce items outside their scope.
- Collaboration and communication, with teamwork enabling businesses to create essential products such as ventilators, hand sanitiser and personal protective equipment on short notice.
- Robustness of supply chains, as supply chains with redundancy and resilience held up best during the crisis.
- Data use and analytics, enabling teams to make informed decisions, even as consumer demand changes quickly.
Technologies allowing companies to adapt and thrive
Becoming a forward-thinking manufacturer can mean getting in touch with the set of transformative digital technologies known collectively as Industry 4.0. Relevant additions include:
- Process automation features: Automating features across the value chain allows firms to shift their operations quickly based on incoming data, with adjustments happening automatically.
- Connected devices and sensors: More sensors in a factory can provide the data necessary for automation, analytics and machine learning, as well as visual inspections and quality assurance while production is ongoing.
2020's impact on manufacturing evolution
The difficult experiences inherent to operating during a pandemic have increased the speed of Industry 4.0 uptake, along with process changes. Companies have become more customer-centric, for example, accelerating a trend that began in the pre-COVID-19 era. Customisation and collaboration with other organisations, government and industry bodies, or even end consumers, has transformed the way we think about manufacturing in Australia.
Getting 'bang for buck' from digital transformation
Manufacturing businesses balancing international market demands while operating in a lean cost environment, have to consider how to ensure digital initiatives provide return on investment.
Mapping processes from end to end is a key practice in this regard. Once organisations gain access to data from across their entire value chains, they are able to drill down into that data to find the exact points where inefficiencies are entering the equation. Having isolated these issues, companies can solve them on a granular, targeted level.
Preventing cyber risk amid technology modernisation
Amid an ever-evolving cyber threat landscape, manufacturing leaders must commit themselves to dealing with new issues as they emerge. Since there is no way to entirely prevent risk, businesses must never become complacent.
One of the most effective ways to circumvent threats is to build a comprehensive response plan. Even the most prevalent and threatening attack types, such as ransomware, can be overcome when there is a remediation strategy ready to go, such as restoration from frequently made backups.
Prevention, detection and training measures should be parts of cyber security plans, and companies should revisit their tactics frequently to reflect the latest threats. From the increasing use of common systems such as email to a general complacency regarding technology, the risk factors associated with the remote-work era are worth considering.
Incorporating government aid
Recent government programs, including the federal Modern Manufacturing Strategy, have acknowledged the role of marketing innovation in the Australian economy. From direct grant programs to energy cost cutting, deregulation and employment law, there are many opportunities for manufacturers to enhance their innovation with government assistance.
The creation of collaboration hubs and colocation spaces for manufacturers is another factor that can encourage innovation and export growth. The government's strategy is focused on five years of careful spending boosting six facets of Australian business:
- Resources, technology and critical minerals
- Food and beverage
- Medical products
- Recycling and clean energy
Maintaining resilience and sustainability
To not just improve their operations but hold onto their gains, manufacturers can look to key indicators to maximise value while minimising risk. These include:
- Supplier production levels and lead times
- Changes in accounts receivable times
- Equipment maintenance occurrences and times
- Transportation delays or costs
- Changes in staffing and work practices
- Variations in quality control
- Stock levels, inventory and turnover
- Changes to customer demand and purchasing behaviour.
Anticipating upcoming challenges and opportunities
Manufacturers that have seen their processes change now realise there is no going back. The coming years will see more openness and integration between links in the supply chain. Greater efficiency and an open data model are coming to the value chain, bringing along the risks inherent to greater technology use.
Becoming agile and innovative are key goals of Industry 4.0, so companies must balance this rising flexibility with advanced risk management. Other opportunities include greater engagement with international markers enabled by the Modern Manufacturing Strategy, while challenges include a talent gap, as well as the spectre of trade disputes.
An increasing commitment to sustainability and the circular economy reflects both an opportunity and a challenge. Access to capital, while it has been a challenge in recent years, may become easier as investors gain interest in technology-forward manufacturers.
Preparing for the unknown
Thriving in the difficult but dynamic and exciting manufacturing market requires preparation and commitment from manufacturers. Making a careful assessment of present operations is a vital first step, along with developing flexible strategies for what comes next. Organisations should remember that resilience isn't one piece of technology or one strategic priority, but an organisation-wide philosophy that involves a combination of the right people and right information.
Listen to the full podcast episode to hear these insights in greater detail and learn how manufacturing will cope with the challenges of 2020 and the future.