Investment into innovation encouraging stability in manufacturing

In addition, the accelerating pace of new technologies being introduced, combined with COVID-19 disruption and the Government’s substantial industry support, many manufacturing business models have been fundamentally challenged for the better.

As a result of Grant Thornton’s analysis of 2021 financial data from over 100 Australian manufacturing businesses, we identified the top 10 per cent of manufacturing performers who improved on all performance metrics in 2021 as shown in the chart below. The industry successfully maintained profitability of 10 per cent demonstrating its incredible resilience – even through the difficulties of COVID-19. 

Investments in Plant & Equipment and Capital Spending remained steady even during a period of contracting sales at the beginning of the COVID-19 pandemic. These investments are paramount to manufacturing businesses in order to maintain and expand their servicing capacity. Sales results showed a clear rebound which sets the scene for a strong recovery in 2022.

The need for local manufacturing was emphasised by the COVID-19 pandemic, and in response the industry’s benchmarks have held steady. To build on this momentum, the sector should invest in skills, and we need trade policies that support domestic manufacturing making it more attractive to produce goods on-shore.

The findings showed 2020 sales results went up reflecting a clear rebound from COVID-19. This sets the scene for a strong recovery in 2022.

The Government made a significant investment with the $1.3bn Modern Manufacturing Initiative, but the resounding opinion was the program did not reach enough manufacturing businesses and did not provide enough money. If the Government could assist the manufacturing industry through local procurement, reduction in energy prices, and improved freight and supply chain stability, then the industry could set up a strong launch pad for manufacturing to continue to grow and reclaim its share of the Australian market.

As the country eases restrictions, the manufacturing industry is recovering; especially given current trends in the market, such as supply chain and logistical challenges, rise of economic nationalism, and customer demands for customisation and personalisation.

Supply chain challenges impacting shipping lead times and the cost of imported goods, combined with an element of economic nationalism, has provided ample opportunities for local manufacturers. However, we caution that Australian manufacturers must remain competitive and continue to innovate – global supply chains will have increased capacity in the near future and imports will return to compete aggressively with our domestic products. Whilst a trend towards buying Australian-made and supporting Australian businesses has been evident during the pandemic, this will not sustain at any cost to consumers.

For Australian manufacturers to remain competitive, a relentless, laser focus on margins and efficiencies in delivering domestic products is critical. Despite the amount of cash in the economy over the last 12 months driven in part by record government stimulus, coupled with strong local demand, there are headwinds that are likely to emerge over the coming year for Australian businesses. These range from inflationary pressures, rising input costs, shipping and warehousing, and most notably wages growth – which is already evident and likely to appear in the June quarter economic figures. We recommend rigorous short to medium forecasting to allow for the impact of these headwinds so that businesses are best prepared and can adapt as needed.