PRODUCTIVITY SPECTATOR: Light the fuse for a manufacturing explosion

Australia's numbers on productivity pale in comparison to our US counterparts. It's time we adopted the obvious, and not so obvious, measures needed to engage our workforce and fire up our industries.

Productivity Spectator

This is an edited version of a speech
given by Incitec Pivot managing director and chief executive director James Fazzino, at the American Chamber of Commerce in Australia, on July 26.

"It was all started by a mouse”. It’s a quote from Walt Disney. To me, it makes the point that greatness can come from simple ideas. And as we all know in business, simple is hard.

Walt went on to say this about the impact of his most famous creation: "Mickey Mouse popped out of my mind... at a time when the business fortunes of my brother Roy and me were at the lowest ebb and disaster seemed right around the corner.”

"..at the lowest ebb and disaster right around the corner”. It sounds a little like the current challenge for Australian manufacturing, doesn’t it?

I’m musing about Walt Disney because my family and I have just spent a week at Disney World.

What I saw impressed me immensely. For example, the system for conducting enormous crowds of people onto rides quickly and efficiently; even the way they manage their trash by eliminating double handling. The productivity lessons were everywhere.

At Incitec Pivot, we are embedding productivity continuous improvement with our 5000 people and I suddenly wanted to turn all of our fertiliser and explosives manufacturing plants into Disney World! But more about productivity later.

I am talking about Disney World because I strongly contend that for Australian manufacturing to have a future, all of the players – government, industry and workers – need to learn from the United States.

I am the head of a large Australian company that operates around the world. I am proud to be the head of a team involved in manufacturing. We make things. We make fertilisers and explosives for two great global industries – agriculture and resources.

But manufacturing is a sector under substantial pressure in Australia and at the centre of public debate. It is the national "BBQ stopper” and productivity is the logical sub-text. To paraphrase, our colourful former prime minister, Paul Keating, the pet shop’s resident galah is talking about manufacturing these days.

But why should we care about manufacturing? In short, manufacturing is the sector of the economy which can grow full-time employment, create exports, replace imports, underpin technology and skills development, stimulate regional development and in general, significantly contribute to the economic activity of the nation, and the prosperity of all Australians.

However, we read in the media each day of the tragic loss of jobs, including recently at Ford, and the stormy seas for Australian manufacturing such as the high Aussie dollar, high input costs, the war for talent, and the cost of running and of constructing manufacturing plants.

So what should we do? In two key areas of challenge, it is appropriate to compare Australia and the US. They are productivity and 'government vision' as it relates to access to energy at a price to make manufacturing viable.

Let me begin with productivity.

Australia is falling behind in labour productivity – that’s output per hour worked – in the manufacturing sector. A recent PwC analysis indicated that manufacturing productivity grew by an average of less than 2 per cent each year during the first decade of this century.

Let’s compare that with productivity in the US. A recent report by the Business Council of Australia found that Australian resources projects are 40 per cent more expensive to deliver than projects in the US Gulf Coast. Australian labour near cities is typically 35 per cent less productive than in projects near cities in the US Gulf Coast and in remote locations, 60 per cent less productive.

Regrettably the productivity debate in Australia is mired in ideological polemic about driving down workers’ wages and conditions. In reality, there is a new workplace paradigm. The workplace of the future will focus on the people in the business who actually drive the commercial value.

So how are we, as Australia’s biggest chemical manufacturer, facing the productivity challenge? In Incitec Pivot, we have the concept of "my 50 per cent”. In other words, what is our contribution to solving the problem? Our 50 per cent is to focus on the controllables. The two big controllables for companies like us are strategy and execution. No surprises there.

While I don’t want to dwell on strategy, the right strategy is critical for every company and for Incitec Pivot, it is about leveraging the industrialisation of Asia, in particular China.

Let’s move to execution. Look at the great companies. They all have great safety records.

The next step is about our people. People provide the only sustainable competitive advantage in any business; a competitive advantage that cannot be copied or replicated. Our competitors may copy our manufacturing plants and our logistics but they cannot match the knowledge and skills of our people. It is said that: "Battles are sometimes won by generals; wars are nearly always won by sergeants and privates.”

For the past three years, we have been investing millions of dollars in developing our leaders at all levels of the organisation; not only managers and supervisors but anyone who demonstrates energy, drive, initiative. More than 20 per cent of our 5000 employees have participated in leadership development programs, including me.

The rationale for this is based upon research over many years which shows a clear link between leadership and outstanding companies. Outstanding companies are those with a fully engaged workforce – that is, employees who put in discretionary effort. This is not about asking people to work harder but to engage them in the day-to-day decisions which impact upon the results of their work. In our case, it’s through a program, being implemented globally, called BEx – Business Excellence.

It all began with a visit to smalltown USA… a place called Simsbury, Connecticut, where we have a factory producing detonators. I have visited Simsbury many times and I am continually inspired by the people at the plant and their individual commitment to continuous improvement. They are constantly challenging the status quo in ways that are both large and small.

Not surprisingly, the plant is a winner of the prestigious Shingo Prize for Operational Excellence in Lean Manufacturing. I’m sure that many of you have heard about Lean. The best known example is the Toyota Production System. The basis of Lean Manufacturing is that every employee, whatever their nominal role, is empowered to question every process, identify every aspect of waste or inefficiency, and to standardise new procedure. I asked myself the question: "How can we harness the same collective commitment of all 5000 of our people in the Incitec Pivot Group?” After all, they are the people who know where to make improvements in product quality, in logistics, in operational efficiency.

We’ve taken the Simsbury example, refined and are using it to generate the next wave of productivity improvements within the organisation.

It's turning Incitec Pivot on its head where the shop floor, farm field and mine bench is recognised as the place where value is created in the business and the role of leadership – including my role as chief executive – changes from managing people to supporting those who add the value. That’s why leadership development at all levels of the organisation is so important.

Even at this early stage, we are seeing examples where BEx is being adopted to produce results. Plants on opposite sides of the world are prime examples. Our Gibson Island fertiliser plant in Brisbane created a benefit of about $2 million during a maintenance shut late last year. At our ammonium nitrate plant at Cheyenne, Wyoming, the teams running the nitric acid plants created a production increase providing a $1 million year-on-year benefit.

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