Australian manufacturers set to expand production: report

Monday, 20 May, 2024

Australian manufacturers set to expand production: report

CommBank’s latest ‘Manufacturing and Supply Chain Insights’ report, based on a survey of manufacturing, wholesale trade and distribution businesses, reveals that 61% are targeting a moderate or significant uplift in production levels in the next year. In contrast, only 6% predict a decrease, with the remainder holding steady.

Production forecasts are robust in Western Australia and Queensland, with 71% and 67% anticipating an increase, respectively. Victoria and South Australia both showed forecasts of 58% while New South Wales was at 54%, according to the report.

At a national level, most businesses are also forecasting revenue and profit growth in line with rising output. This is reflected in business optimism, with 83% expressing confidence in conditions over the next 12 months.

However, as businesses strive for growth, they face persistent challenges. According to respondents, cost-related factors, driven by energy prices (80%), inflation (74%) and interest rates (72%), are set to be the highest-impact issues this year.

Around two in three also say changing customer preferences will have an impact in 2024. That follows reports that the top-rated shifts in customer behaviour last year were expectations for lower prices (32%) and faster delivery (31%).

CommBank’s National Head of Manufacturing and Wholesale Trade Maria Christina said that while elevated costs and customer expectations have increased the focus on productivity, a shortage of skills, labour and outdated equipment is holding businesses back.

“While manufacturers and distributors have been tested by economic uncertainty and labour shortages, most report healthy capacity utilisation rates — which measures the percentage of potential output that is being realised. In fact, more than half say utilisation is running above 85%, which is a testament to the resilience and innovation of Australian manufacturers,” she said. “To grow capacity in step with expected demand in 2024, businesses are doubling down on investment in technology and equipment, and upskilling employees. These initiatives help optimise operations and the workforce in pursuit of productivity.

“The government’s newly announced Future Made in Australia Act will seek to support the efforts already underway. This could also help the domestic sector respond as many downstream customers gravitate to local or regional suppliers.”

With the top goal of improving productivity, 81% of businesses are planning to increase technology investment in the next 12 months. Among the emerging technologies set to impact the industry most, those enabling supply chain efficiencies and artificial intelligence and machine learning top the list.

The potential benefits of artificial intelligence are widely recognised, with two in three saying it improves demand forecasting and inventory management and makes the supply chain more sustainable. Still, 62% face integration challenges and 60% say a lack of skills makes AI difficult to fully leverage.

Many manufacturers and distributors are also advancing their sustainability journeys with almost two in three having advanced sustainability initiatives. 37% have adopted renewable energy or on-site generation, with a further 43% planning to follow. Should those intentions materialise, the current average proportion of renewables in the energy supply mix will increase. According to businesses, this is currently 33% of total energy usage across the supply chain.

The report is based on a survey of 464 respondents that, for the first time, combines decision-makers from both manufacturers and distributors to evaluate trends across the supply chain. Fifth Quadrant conducted the online quantitative survey on behalf of the Commonwealth Bank between late January and the end of February 2024.

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