PRODUCTIVITY SPECTATOR: Shifting up in a two-speed economy

A relatively new retail indicator shows just how bad Australia's two-speed economy is for the food manufacturing sector, but smart manufacturers are turning to supply chain technology for efficiency gains.

Productivity Spectator

There’ll be plenty of data on the desks of the RBA board today as they gather the facts ahead of Tuesday’s rate decision.

A relatively new indicator but a forward looking one, suggests that in the retail sector, things are heading off the boil, at least in the non-mining economy.

The AFGC CHEP Retail Index tracks pallet movements around the country, and as a result is a pretty good indication of what purchasers are planning. According to the index, growth in the June quarter is likely to be 2.1 per cent, a slowdown from the previous quarter. It particularly highlights the two-speed economy.

Retail is forecast to grow by 10 per cent in the booming west and by 4 per cent in Queensland and the Northern Territory. In the South, it’s a far gloomier picture. Victoria will only see 2 per cent growth, while NSW and South Australia are unlikely to see much growth at all.

The Australian Food and Grocery Council, which partnered with CHEP on the report, says that the slowing conditions will add to the pressure on manufacturers who have been hit by rising costs and a squeeze on price by the major retailers.

As Robert Gottliebsen points out in his article today (Derailing Australia's gravy train), that could mean we are looking at a wave of job cuts. In the food sector, we have already seen a number of manufacturing plants close down and ship operations offshore.

The AFGC says that manufacturers are turning back to their supply chain for productivity and efficiency gains. That means a greater emphasis on technology and data analytics as we featured last week (How to win a food fight, April 24).

Other smart companies are not just looking at their own supply chain but also where they fit on the supply chain path themselves.

Jan Vydra at Australian Fresh Leaf Herbs used his background in logistics to analyse the path from producer to consumer and realised that a huge market gap existed because the traditional process of sending raw produce to greengrocers was filled with inefficiencies. Herbs were being sent in bulk to wholesale markets, subject to the vagaries of spot pricing, and became damaged due to the extra handling steps required.

Vydra analysed each step along the supply chain and worked out that by addressing customers’ pain points, he could not only grow his revenue (up 2000 per cent in five years) but also reduce his costs by eliminating areas of stock loss from overhandling.

He also applied new technology to how his workforce picks, packs and ships the product. His 40 staff members are equipped with iPads that deliver customer orders in real time, eliminating paperwork from the packing shed, and reducing the amount of mistakenly packed produce to less than 10 per cent. Jan Vydra says he has increased his packing capacity tenfold, without having to add more staff. Watch the video above to see how easily his mostly Vietnamese staff use the technology.

Taking the time to analyse the steps in the production process can drive big gains in productivity. For a tremendous account of how effective it can be, it’s worth reading "My week at a private equity bootcamp” that appeared in Businessweek last week. It explains how private equity firms turn around struggling manufacturers using the Japanese Kaizen technique for continuous improvement.

Next week on Productivity Spectator, we’ll be looking at how a service firm used something similar to eliminate paperwork and saved $180 thousand in overtime alone, while delivering far superior customer outcomes.

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