Transforming Australian manufacturing: it's all about the customer
Much of the press related to manufacturing in Australia in recent times has presented a negative spin on the challenges facing Australian manufacturers, especially since the announced demise of car manufacturing. Much of this press has centred round issues of competition with emerging economies, and the old argument that Australian labour costs are too high.
This editor has long been of the opinion that these arguments are old-fashioned and short-sighted. One only has to look at the success of German manufacturing, despite its labour costs being considerably higher than in Australia. It is also not true that all Australian manufacturers suffer from these problems - there are many manufacturers here and in New Zealand that have had the foresight to diversify their business interests and adopt modern innovative approaches to business that have allowed them to not only survive, but to grow and export their products successfully.
Recently, ProcessOnline spoke with John McGuire, global industry director manufacturing at Aurecon, about how the connected world we live in will influence the success or failure of manufacturing in Australia. McGuire will be presenting the keynote address on Day 1 of the ACI Connect Conference and Exhibition, 12 August, Sydney Olympic Park.
According to McGuire, never before in history have world markets, economies and people been connected as we are today. New channels to market are being created on the back of new technologies and buyer behaviour. Free trade agreements are also opening up new export opportunities, but these can only be leveraged by those businesses that are able to respond.
“What we have today is a cohort of change led by technology and the internet. Not only have the costs of robotics and automation technology fallen, making them more affordable for manufacturers, but there are enormous trends in consumer behaviour that are affecting the way consumers buy manufactured products,” he said. “Consumers are shopping online more than ever - and they are more informed than ever before - so they are interested in knowing more about the products they buy so they can make informed choices. In fact, they have more choice now, and those manufacturers that understand this and effectively leverage this knowledge - collecting and using data to adjust to the needs of their customers - have an advantage over their competitors that will not only keep them in business, but even thrive and expand.
“For example, next to our Australian goods on our supermarket shelves we also have imported goods that are often a little cheaper - often in the form of ‘no-name’ brands,” he added. “But modern consumers are not just interested in price - they want to know about whether the cheaper product is as good. If they know that an Australian food product was made from fresh produce picked only last week, and that the imported product may be a year old - or if they are clearly informed of the enormous difference in carbon footprint of an imported product as compared with the local product - then they will be more inclined to choose the Australian product.”
Carbon footprint, fair trade and support for Australian farmers are all things that interest Australian consumers today.
“But guess what - most manufacturers today already have the instrumentation and data acquisition technologies in place to monitor their raw energy and product consumption, and have information on hand about their supply chain,” said McGuire. “It really now comes down to providing that information in a simple-to-understand way to the consumer. Information like this can be seen as added value that makes the product more attractive.”
What this means for manufacturers is that they must connect or disappear. Manufacturing is highly susceptible to disruption, and the convergence of technology, demand, customer access and efficiency, each superimposing in a synergistic way, is a disruption that offers the chance to shape the future and supercharge manufacturing businesses in ways not dreamt of a decade ago - but ignored it will disrupt it negatively.
“What I am talking about is the need for positive disruption - a change in the business mindset of manufacturers that allows them to disrupt their business in ways that open them up to new ways of engaging with their customers,” he said.
John cited the example of car manufacturer BMW. Seeing the long-term trend away from fossil fuels and the need to develop new electric vehicles, BMW was faced with the challenge of overcoming the weight disadvantage of batteries, in which longer range afforded by more batteries is offset by the added weight. This led them to reduce vehicle weight by moving to all-carbon fibre construction, the upshot of which is that their entire manufacturing process had to change - no more welding and painting for example, and new technologies for forming strong, lightweight car bodies.
“Now you might see this as an enormous disruption, with added cost of development, to a well-understood manufacturing process - however, it led them to better consumer research about what their customers actually need,” he said. “They discovered that the average city car owner drives less than 100 km per day, and that in highly populated cities, their biggest challenge is often not how far they drive, but where they can park their car when they get there.
“So now they knew two things about their customers that is changing their business model and allowing them to innovatively expand into new business opportunities. For one, they now know they can make a smaller electric car that only needs to travel 100 km without recharging. Not only that, but - leveraging today’s connectivity - they are developing a system of parking space sharing and rental that will inform the driver of available parking in-car,” he continued. “Not only that, they are going into the car park business themselves, but in a new way - dynamically renting available unused space as commuters move about - vacating their home space means that it can be rented for a few hours to someone else.”
BMW is a good example of an innovative manufacturer that uses data and intelligence about its customers’ needs to find new opportunities, and at the same time to provide that same data back to their customers in ways that help them in return.
But what about the upstream supply chain that is not serving the end consumer directly? Perhaps the processing industries or upstream manufacturers may feel that these issues do not affect them. According to McGuire, they could not be more wrong.
“Innovative, consumer-facing or exporting manufacturers will demand more efficiencies and better information from their supply chains,” he said. “The drive to innovation will flow upstream. Those raw product processors and upstream suppliers will need to innovate in the same way in relation to their customers - the downstream manufacturers. In the same way that consumer-facing manufacturers will need to understand consumer behaviour and needs, upstream suppliers need to in turn keep up with what those manufacturers need from them. It’s not just about understanding the needs of your direct customer, but also about your customer’s customer, or your customer’s customer’s customer.”
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