It’s do or die for Australian manufacturing

Our manufacturers have a second chance to succeed, but to stay afloat they will need to totally reinvent the wheel.

For generations Australian manufacturers have been plagued by high labour costs plus bad work and management practices.

But, if we are good enough, we now have a second chance. In the new generation of manufacturing techniques that are sweeping the world labour costs are much less important, and so if we can overcome our management problems we can participate, albeit it will not be that easy.

The global growth targets that the G20 set in Brisbane will in part come from the new generation of manufacturing, which will also deliver better energy efficiency. This is the final in my five-part series on some of the implications of the G20. I have isolated the remarks of Dr Roland Busch of Siemens on the new manufacturing era in the attached video.

Unfortunately, big swags of Australian manufacturing have been destroyed and those that are left will need to understand the new rules, or they too will go.

The last generation of better manufacturers basically automated the manufacturing process as much as they could with extensive use of robots etc. The next generation of manufacturers must go much further, because they will need to use cloud-based systems that take the product all the way from design to the consumer (via the shelf, showroom or website). But also integral to the process will be exact monitoring of end-user demand so that production is tailored to consumer or end-user demand. And, in many products, the ability of consumers and end users to influence what happens in the design-production system will be incorporated into the total systems.

And so, in modern motor manufacturing there will be thousands of different variations that people can embrace. In the food industry, the manufacturing process needs to be linked to the anticipated and actual demand coming from supermarket shelves. In all these processes, the labour involved is usually highly skilled and better paid. Our education system produces these sorts of people. But we need executives that have the ability and who are prepared to button our operations into global supply chains that have zero tolerance for non-performance.

Toyota had planned to mould Australian suppliers into such a network, and all that was required was someone like Joe Hockey or Tony Abbott ask them to stay. Government money to Toyota was not an issue, but it came at a time when the Coalition government was very inexperienced and Abbott and Hockey blew the opportunity. They wouldn’t do it today.

Those motor and other suppliers who can survive the absence of motor assembly in Australia will do so if they link into global networks.

But the same principle will apply to our food industry. Food manufacturing was decimated by bad union and management practices. The new food manufacturing plants must adopt this latest model for manufacturing and be integrated into consumer demand in Australia and Asia. When a Chinese consumer buys, say, long-life milk or baby milk it must trigger action in the processing plants in Australia.

Part of Australia’s problem will be that our executives have come up in an era of labour confrontation and will find it very difficult to adapt to this new flexible high-technology managing. And if unions are to be involved, then they must stop their old “the boss is the enemy” approach or they will quickly destroy everyone’s jobs. There are no doubts the unions also played a major role in motor’s decimation, because they did not understand that the game had changed.

Of course, the same efficiencies we are seeing in manufacturing can also be applied in the service sector, particularly in health and education. If we are truly going to export our services to China, then we can’t export the current highly inefficient systems. We will have to modernise, and in the process we will substantially reduce our costs and lift the level of service.

This concludes my five commentaries inspired by the G20. The others were:

Australia’s power infrastructure debacle; November 21

The looming age of low-cost global energy; November 20

Costello’s chance to set the investment record straight; November 19.

The dairy industry must not waste the FTA opportunity; November 18.

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