The AME and Professor Samson identify innovation as the “Ultimate competitive Advantage”

The Vernier Society was represented last night at a dinner hosted by the ‘Association of Manufacturing Excellence (AME) Australia’; an organisation, albeit somewhat larger, with the same passion for the sustained future of Australian manufacturing as the Vernier Society.

ame

The excellent evening was held in Port Melbourne where the guest speaker was Professor Danny Samson of Melbourne University who gave an insightful speech into his current research on Innovation across Australia.  Professor Samson’s (“just call me Danny”) research has covered 2000 companies who completed a 150 question survey to determine how the companies approach innovation; not just in the traditional product development function but across the whole organisation.  Danny and his team are now analysing the mass of data collected and he gave the AME a snap shot of the first results, demonstrating that when innovation is successfully applied across the whole organisation, it can result in up to 30% improvement in bottom line performance.

Danny’s work identified a matrix of 9 areas of performance that benefit from a more innovative approach:

dannysamson

  • Strategy and Leadership
  • Human Resources and Training
  • Culture and Communications
  • Customer focus
  • Embracing risk and change
  • Sustainability focus
  • Management of innovation and processes
  • Knowledge and Technology (IP)
  • Operations and Partnerships

By analysing the data into the top 25% of companies who lead in innovation against the bottom 25% of respondents who lag in innovation, Danny articulated to the audience through a series of graphs how this volume of data can be mined to identify gems of learning that justify the shibboleth of “Innovation as the Ultimate Competitive Advantage”.  The presentation and the Q&A session that followed clearly demonstrated that there is a lot to be understood and learned from Danny’s work and so it was not surprising that most of the guests left their business cards to get a copy of the initial report, which is sure to be a tempter to a whole series of learning reports.

The evening was concluded with an informal networking session and left the guests appreciating the work of the Victorian Chapter of the AME in setting up this fine evening at the equally fine Mardos Restaurant, but most importantly the need to continue the fight for manufacturing leadership in this country and the important role that the AME, the Vernier Society and Innovation must play in this mission.

Engineering & Manufacturing Influence News – Issue 14 August 2013

 

vernier-logo-taglineEditorial

Thank Goodness it is over with; no more of those tedious and destructive adverts for political parties in a campaign that must be looked back upon in time as the lowest point in Australian politics. Read more

Engineering & Manufacturing Influence News – Issue 13 July 2013

EDITORIAL:

The message from the last 12 newsletters has been that manufacturing continues to decline with regular reporting of factory closures and moves offshore.  Underpinning this has been the losses in the automotive sector culminating with the 2016 closure of Ford and the continuing rhetoric from Holden that reduced labour costs are essential to any kind of future.  It is uncertain whether the recently announced additional funding is the right action and so this month we ask members for their views through a simple survey on what should happen to the car industry so that we can form a comprehensive Society view.  Another strong theme throughout the last year has been the need for manufacturing to innovate and focus.  Featured in the last edition was the Manufacturing Monthly’s Endeavour Awards that demonstrated how  some companies are rising to this challenge and this month’s companies news continues this success with companies like Joy Global, Leviathan Design and Thales showing innovative ways of fighting for a new manufacturing future.

Often, when economists and academics talk about the challenges of the economy, their words are couched in specialist, obtuse language that is just as confusing, so it was good to hear Warwick McKibbon, Professor of Economics at ANU explain on ABC’s “Lateline” (6th of August) what is wrong with current policies.  Without taking a political stance, (which VVS also tries to do), he explained academic’s role is to point out poor policies and there has been more of these in the last five years of government.  Speaking primarily on the just announced rate reduction he argued that this shows the economy is weak and the RBA is really trying to correct for wrong policies.  The basic problem is that the country has high ‘input’ costs in energy, labour, regulation and environment controls; in addition the political uncertainty, as well as the adjustment in the resources industry is adding to the slowing economy.  We are simply a too high cost economy.  What rate reductions only do is cause people to save more (the retirees who rely on savings) and cause fixed income people to become poorer.  There is political incoherence with random policies and changing regulations adding to uncertainty and reducing risk taking.  If businesses and therefore people are successful their taxes go up.  McKibbon said there is a real lack of vision for real infrastructure improvement that raises productivity.  While China’s growth is changing; incomes in China are still only 15% of the US and still offers opportunity.   There is too much regulation, not just in IR but in the environment.  There needs to be greater flexibility in the labour market and a reduction in the Federal and State bureaucracy to free up the economy to take advantage of the global market growth.

THIS MONTH’S GENERAL  NEWS

Paul Gollon of Macquarie University writing for the ‘Conversation’ reports that one year on from the ‘Fair Work Act’ review, many of the 53 recommendations have still to be implemented.  The system was said to bring in a more collaborative workplace but has not brought the required results, despite union rhetoric to the contrary.  According to the ABS, in 2007 there were 135 disputes that resulted in a strike and in 49,700 working days being lost.  In March 2013 the number of similar disputes has reached 218 with 289,500 working days being lost.  This is despite union membership being at only 13%.  One blogger responded to suggest that it is almost impossible today to ‘performance manage’ employees out and even if this is achieved, the likelihood is that they will, using the abundance of ‘no win – no fee’ lawyers, tie the company up in expensive litigation.  The blogger suggests this is leading to an increasing reliance on casual labour where the structure is not so punitive to employers.

A recent report by the Grattan Institute (CEO John Daly spoke to the Vernier last year) suggests that the country’s manufacturing sector has performed with resilience through the mining boom, worth $400b in the last decade and will benefit from the reduction in exchange rates that occurs at the end of a resources boom.  The study based on 16 countries whose exchange rates came down at the end of their resources boom and found that “within 3 years, manufacturing exports on average as a share of GDP had risen by more than a third”.  However, the report has been treated with some scepticism in other quarters, suggesting that once a manufacturing sector dips below 5% of GDP it is lost forever.

The ‘West Australian’ reports that the Chairman and MD of Alcoa Australian, Alan Cransberg has said that Australia’s industry has become “fat, lazy and happy about the fact that we are good at digging holes’.  He said that the cost of doing business in Australia was a major concern.  His comments were made as research was released that showed Australia’s unit labour costs had gone from 85% of the USA in 2000 to 241% today.  Alcoa’s Victorian smelters are under review as Port Henry and Portland sites are among the countries most expensive.

A report in the ‘Australian’ suggests that China’s labour costs will overtake US by 215 and Australia’s productivity decline in manufacturing is even more pronounced.  While in 2000 china’s labour costs were 30% of the US this advantage is quickly being eroded with US manufacturers taking the advantage of cheap shale gas to “reshore”.  China’s wage growth is creating an increasingly consumptive Asian middle class predicted to increase from 600m in 2010 to a billion by 2015.  This increase in China will drive the need for low cost manufacturing to other ASEAN countries like Thailand and the Philippines as well as Bangladesh and Pakistan. .

According to an RMIT-MGI survey, the percentage of manufacturers in family business is contracting noticeably.  A decade ago manufacturers made up 40% of all family businesses but there has been a sharp decline to around 20%, according to the latest survey, driven by the GFC. In addition, the Business Spectator is predicting that manufacturing employment will continue to decline but will focus either on high technology products or products that are too hard to bring in from overseas like bricks and beer.

At a recent Leaders Summit in Melbourne, Austrade’s Philip Bourke told the audience that Asia poses both a threat and a significant opportunity to Australian manufacturers.  By 2025 it is estimated there will be 2 billion people living in urban areas (about 50% of the world’s population) and about 50% of these will be living in Asia.  This will transform Asia, increasing their desires for mobility, health, food, leisure, infrastructure and education.  Bourke argued that Australia still has a place in terms of value add technology and the design of higher end goods.  “At Federation, Asian trade with Australia was less than 10 per cent of our total trade; now it’s about 70 per cent and Asian countries make up eight of our top ten major trading partners,” he said.  In line with Labor’s Asian Century Whitepaper in October pointing to innovation in advanced manufacturing, and assisted by a transformation of organisations like Austrade, Australia is in the right place at the right time, moving from the tyranny of distance to the power of proximity.  “Austrade is in 15 countries; have 11 officers in China and 11 in India,” he said.  Recently, Austrade has also opened offices in Mongolia and Western China to support mining, manufacturing and other penetration opportunities into those growth areas.  But he warned that is Asia is not one market; its many markets and all are different.

Reuters reports that the British manufacturing sector recorded its best monthly result since March 2011, and China also registered growth in July.  The July Markit/CIPS PMI survey gave an overall result of 54.6 for July, following June’s 52.9.  Any result above 50 indicates growth, and below it reflects contraction.  While at the same time Australia July index has fallen to 42% falling June’s figures that had risen close to parity.

The British newspaper the Telegraph reports that increasing numbers of British businesses are looking to bring their manufacturing operations back home from overseas. This trend is emerging as labour costs in Asia are rising and the latest consumer tastes require shorter, more flexible supply chains.  This push is supported by local business leaders lobbying for increased government support.  Business leaders are pushing for more local production and suggesting that import substitution is just as important as growing exports.  This view is endorsed by an increasing campaign to “Buy British”.

COMPANY NEWS

Futuris, the Victorian based but global car seat manufacturer and presenter to Vernier earlier in the year has now been sold to California based Clearlake Capital for an estimated $69m.  Clearlake currently manages approximately $1.4 billion of equity capital, and Clearlake’s founding principals have led over 70 investments totalling more than $3 billion of capital in sectors including business services, communication, consumer products/retail, defence/public safety, energy/power, healthcare, automotive, industrials, media, and technology.  Dexter Clarke who presented to VVS has just been promoted to the company’s Chief Financial Officer.

JOY Global, manufacturer of Mining Machinery has just opened its first Australian remote access facility on the University of Wollongong’s innovation campus.  This facility allows the company, through large Video wall screens to track all of the company’s data on their actual equipment at the mining sites and will house all Joy’s sales and service information.  Wollongong was chosen because of their links to major mining corporations.  Joy global see mutual benefit in R&D collaboration with the University and increases their ability to attract graduates to the industry; as well as providing a modern and stimulating environment for their team.

Editor’s note – This proves the value of collaboration and of the merits of proposed Innovation Centres.  

Melbourne Company Leviathan Design has designed manufactured and installed a complex cell of 7 ABB robots to bond metal trim and plastic columns to a glass panel to form a door outer assembly used in free standing household cookers manufactured in Adelaide by Electrolux in 14 seconds.

Editor’s note – another Victorian company I have never heard of before, based in Rowville – have a look at their quite novel website.

Launceston-based car parts manufacturer ACL Bearings will be closed by receivers by next June with 136 workers eventually losing their jobs.  ACL has been operating under receivership since 2009 when 110 workers lost their jobs and since then the workforce has reduced by a further 55 people.  ACL Bearings supplies components such as engine bearings and gaskets to the automotive industry and exports around 75-80 per cent of its products.

Archer Enterprises, a maker of precision stainless and titanium components to fine tolerances have been commissioned by Green energy company Granite Power to produce the front end assembly for their Waste Heat Recovery demonstration model, impulse turbines after Archer assisted Granite Power with the original design.  Archer based in NSW and in business for over three decades are a one-stop provider of fail-safe performance-critical products to global OEM’s and market leaders concerned with safety, asset protection and critical/essential-service applications.

Carbon Revolution, (formally CFusion) who has made “the world’ first one-piece carbon fibre wheel” a leader in this technology, want government assistance to invest in a new facility in Geelong.  The facility would create an extra 300 jobs by 2017 and add to their existing plant at Waurn Ponds.  The more expensive high performance wheels are 40-50% lighter than aluminium and offer according to the Deakin university between 3 and 8% reductions on emissions, were developed using a previous grant of over $1.8m through the Federal governments Green Car Innovation Scheme.  Switzerland’s Ronal Group, who make light alloy wheels and shower enclosures, has a minority stake in the company.

 Military vehicle manufacturer Thales Australia is to offer Victorian manufacturers opportunities to play a role in the manufacturing of the company’s Hawkei protected vehicle.  Around 20 SMEs, many from Victoria, met with Thales representatives to discuss options for the manufacture of the Hawkei’s fabricated sub-frame, vehicle components and assemblies.  Thales is segmenting the Hawkei supply chain work into around 30 major work packages. The company wishes to join with suppliers who can work in partnership with the company to meet specific quality, cost and technical requirements.  The work packages to be offered include work related to HVAC systems, Pneumatic systems, Hydraulic systems, Bonnet assembly, plastic components, and power pack dressing.

And finally, a Shakespearean thought from the Editor on return from the motherland.

What irony, as in my absence as I stood before the Tower’s famous Gate, a colonial Queen was executed; oh how Machiavelli turns in his grave.  The resurrected black Prince is robbed of a bloodstained, vengeful sword as minister’s with unusual integrity, fall on theirs.  A new army is formed from depleted ranks, why even the minstrel Cameron is recalled to the fight.  But surely, the might of the enemy cannot be withstood.  Nae, can this modern day Henry V recreate a political Agincourt as “his few, his happy few, his band of brothers (and now to be politically correct sisters) and ne’er so vile, shed their blood”?  Yet only two days in I cry; “that he which hath no stomach to this fight, let him depart, his passport shall be made”.  Flee, fly, drive, set sail, I say for anywhere; why even PNG by boat seems more appealing than the next month in Australia!

Engineering & Manufacturing Influence News – Issue 12 June 2013

ISSUE 12, May 2013

EDITORIAL:

This edition, issue 12, of the Vernier Newsletter signifies a year for the society attempting to promote the message that a vibrant manufacturing industry is vital to the future of Australia.  In the first edition the editorial subject was the introduction of the carbon tax.  12 months on it seems it has neither lived up to the doomsday predictions of the Coalition nor been the revenue raiser that justified the associated tax changes outlined by the Labor government.  At the ABC Press Club this week, Greg Combet laid out the argument for Labor’s policy on climate change being a roaring success and decried Tony Abbott as a complete climate change sceptic.  There seems no doubt that the world’s climate is changing and as the majority of scientists believes carbon to be the main source of pollution we cannot stand by and do nothing.  At the same time and equally important the world is running out of traditional energy sources so this alone should justify action.  However, the problem seems to be that all the information is spun to create the maximum political effect.  Take Minister Combet’s presentation.  Emissions from electricity generation have dropped 7.4% over 12 months seems impressive at first glance but what does this exactly mean?  Does it mean that this can be used as a trend and so electricity will be pollution free in 20 years?  And all this reduction came about in the last year because of the introduction of the carbon tax?  Researching the confusing information on total electricity generation it seems that total production since 2000 has risen nearly 20%, so the emission reduction does not even keep up with increased pollution.  Then there is the new wind farm built in Victoria with all the manufacturing in Australia according to the minister.  The turbines are produced by a Danish company Vestas, who do have a facility in Australia but as far as research shows, it is on level 12 in a building in St Kilda Road – seems a difficult place to manufacture such large components?  Then renewable energy is up 30% but 30% of what?  Research suggests it now provides 9.6% of total production.  Pleasing that it has increased by 3% absolute but comparing relative and absolute demonstrates how facts can be spun.  The success of AJ Bush’s project must be pleasing for them but did they not realise before that methane gas was being produced or could or would they not fund the project without grant assistance?  Either way the provision of grants for alternative energy projects seems eminently sensible, so there should be some concern over the coalition’s plans to scrap the whole program but will we get the truth from either party?

Talking of truth; this month saw the inevitable announcement of the closure of Ford manufacturing.  The newsletter does not feature any of the facts of this as it has been covered in separate Vernier articles specifically on the automotive industry. The question is though – how long has the government really known about the inevitable closure of the plant?  It is unimaginable that Ford had not made their intentions clear to the government several years ago and the anecdotal evidence from third parties is that there have been implicit signs in Ford’s behaviour for a long while now.  Secrecy was not unexpected and even the timing of the announcement can be seen as political but the interesting role in this is the one of the unions.  Are they not now just another political party as the new set of electoral advertisements shows?  The political aspirations of Kerney and Howes would seem to testify to this fact.  The role of the unions and their hold on the Labor party is certainly not good for the country and the latest bill (see below) has been passed takes industrial relations back to the 1970’s.  It will be fascinating to hear next month’s speaker on industrial relations because the power of the unions is absurd and something has to change if we are realistically to compete in this globalised world!

Finishing on a bright note; it was good to attend the Manufacturing Monthly’s Awards Dinner that coincided with Austech last month.  While the show’s attendance numbers reflected the declining state of Australian manufacturing, the dinner at least showed that there are quite a number of Australian companies who can produce excellent results. It shows that once the inevitability of globalisation is accepted, Australian manufacturing companies that demonstrate hard work, innovation and most importantly good leadership can succeed, even in an economy burdened with over regulation, excessive taxation, low productivity and high wage rates.  Good on you Aussie companies!

Monthly news

Manufacturing Monthly Endeavour Awards

Congratulations are in order to one of our latest members and co-founder of ANCA as the company not only took the “Exporter of the Year Award” at the recent Manufacturing Monthly Award Dinner but the top prize of “Australian Manufacturer of the Year”.  Many who were at the dinner and know ANCA see this as the justified culmination of many years work growing the Bayswater based CNC grinding Company into an international leader in its niche market.

On the night a total of 14 awards were presented to Australian manufacturers following a keynote speech from Sue Morphett of Manufacturing Australia who endorsed a proposal originally raised by Dow Chemical boss Andrew Liveris and reported previously in the Vernier newsletter that the federal government should allow industry to access the nation’s abundant gas resources at competitive prices to negate the expected rise of international natural gas prices.  One of the most pleasing issues of the night was that many of the awards seem to be won by companies who clearly saw innovation as the driver for success rather than let gloom and defeatism overwhelm a total industry struggling to transition to a new global manufacturing economy .  This fact was endorsed by opposition Industry spokesperson Sophie Mirabella who said there are no silver bullets and it needs a lot a lot of hard work ahead to turn manufacturing around.

Expert questions value of automotive industry to wider manufacturing sector

A former Vernier Speaker and past Chairman of the Automotive Industry Authority in the Hawke/Keating government Bill Scales, in an opinion piece in the AFR headlined by “Government must step back from manufacturing’s ‘death spirals” argues quite rightly that Ford’s strategy over many years to focus predominantly on the Australia/NZ market was never going create the volumes necessary to sustain automotive production in this country and so it should have been no surprise when Ford announced its closure.  He further posits that this is a good example for public policy in Australia in that governments should not provide company or industry specific assistance as it cannot guarantee that the strategic direction or intent of the government cannot be guaranteed to be in concert with the individual or company strategy.  Scales goes on to say that ‘we’ should not introduce policies that imply that some industries are better than others for our economy.  “There is no logical reason why the manufacturing elements of the automotive industry are more important than mining, tourism or the arts”.  He further argues that the so-called ‘positive spill offs’ from vehicle manufacturing on the rest of manufacturing and the broader economy as a whole are illusionary.  He concludes that if governments really want to help industries compete in this complex world; we need sound fiscal and monetary policies; labour markets that operate efficiently, a world class education system and world class social and economic infrastructure.

While this conclusion cannot be disputed, some of the previous points are certainly debatable.  70% of the world’s tradable goods are manufactured.  Many improvements in the quality of life are driven by innovative manufacturing, one only has to look at the advances in automotives to justify that point.  Infrastructure transports vehicles and the futuristic views are of guided vehicles, cars that fly, robots that perform daily tasks – these are the leading edge innovations of the promethean future.  There are several leading industries that will drive the future and an automotive industry is clearly key to many countries.  But investment has to be in an industry of the future, not the current strategy model displaced by Holden.  In addition, world class companies do create positive spill offs.  Swinburne University, of which Scales is Chancellor, leads in lean manufacturing training built upon the philosophies and methods derived from Toyota, probably the world’s leading manufacturer in efficient manufacturing.  There are industries that are vitally important and manufacturing – the process of making things – is absolutely one; just as tourism, the arts and education are equally vital.  Surely, it is the role of government to invest in key industries for the future but this investment has to be to support a well thought out future not as currently for political purposes.

Climate Change – one year on

The Minister for Climate Change, Innovation and Industry, Greg Combet addressed the ABC Press Club this week to report on the “Clean Energy Future – one year on.” Before turning the presentation into somewhat rambling and slightly desperate party political broadcast complete with the usual scathing attack on the coalition party policies, Mr Combet did manage to give some facts on the Australia’s position and the success of its implementation.

  • Australia is the 12th largest economy and the 15th largest polluter in more than 190 nations as well as the largest polluter per capita among advanced nations.
  • Emissions in the National Electricity Market are down 7.4%
  • Renewable energy generation is up almost 30%;
  • Generation from Australia’s seven most highly-polluting power stations is down by 14 per cent.
  • The Clean Energy Council estimates that 24,300 people were employed directly in Australia’s renewable energy industry at start of 2013
  • Top 370 companies in Australia have to have a permit for every tone of emission they produce.
  • AGL opened MacArthur Wind Farm in Victoria, largest in southern hemisphere – saves 1.7m tones of greenhouse gas emissions every year – $1b investment – all 140 wind towers were manufactured in Australia
  • More than 1m households have installed Solar systems under Labor’s scheme compared to only 7,472 rooftop solar systems in 7 years under Howard Government.
  • More than 220 clean technology projects are now underway at manufacturing plants under clean Technology Investment Programs – involve $338m of investment
  • Example – AJ Bush and Sons, one of Qld largest meat industry employers invested $12m to capture methane previously released into atmosphere.  This has cut energy costs by 46% and emissions by 64%.

Independent’s kill off Labor’s IR changes

The AFR (5 June) reported that independents Rob Oakeshott and Tony Winsor declared they would not support the controversial IR changes proposed by Labor’s Bill Shorton.  These included plans to reintroduce limited arbitration for deadlocked Greenfield resource projects.  The MP’s agreed only to support the family friendly parts of the bill and did not want to get in the middle of an election stoush as the Liberal’s formally opposed amendments to strike out provisions to designate employer lunchrooms for meetings between workers and unions and the provision that would have made the employer responsible for the costs of transporting union officials’ to remote sites as well as proposals to see bullying complaints referred to Fair Work Australia.  The BCA CEO Jennifer Westmacott had said that the independents were right to knock back amendments that “would have wound the clock back 30 years”.  Postscript – Astonishingly the following day 6th AFR reported that following amendments the bill had been passed with support of the independents.  This means that union meetings will be held in lunchrooms even though the vast majority of the workforce using the room may not be members and employers will be responsible for union costs to get to isolated sites!

Unions Advertising Campaign

At the same time the AFR announced a series of adverts to be ran by the ACTU starting with the State of Origin Rugby broadcast in the lead up to the general election that would focus on a campaign against ‘insecure work’ such as part time and casual jobs and short term contracts.  The ACTU Secretary has refused to say how much the ads would costs but said it was substantial.  The affiliated unions are already running a $2 levy on members in the run up to the elections, which is expected to raise $4m.  The theme, which is bound to be controversial and run close to the rules for election advertising, is said to be focused on employers and underpins a message of the unions standing up for a better life for all workers and their families.

News in brief:

  • The AIG’s Performance of Manufacturing Index, which is a summary of 200 companies rose in May to 44% compared with the April figure of 37% but as the index works on a nominal score of 50 as the line for expansion or contraction this score records the 23rd consecutive month of contraction.
  • The AFR ran an article showing that US manufacturing activity has shrunk to a four year low.  It stated that manufacturing is really stymied by slow corporate spending and government spending cutbacks.  The article claimed that manufacturing will grow at a modest pace this year but is unlikely to accelerate in the coming months.  Figures were released last week that showed US GDP rose 2.4% annualised for the first three months of 2013.  At the same time MM reported that China’s manufacturing index for May had reduced slightly from the previous months figure and was just showing a slight contraction of purchasing managers confidence.  However, in a separate report the NZ manufacturing index actually rose into positive territory in May perhaps boosted by the decline in the $ assisting export orders
  • Panasonic the Japanese conglomerate has announced the reduction of 5000 jobs from its Automation and Control division.  The cuts which will be largely from its overseas facilities are said to be as a direct result of the company making a near $Aus 8b loss last year which is said to demonstrate the increased competition the company is facing in its core markets as well as the costs of its recent purchase of Sanyo.  While Panasonic has shed around 20% of its workforce in recent years it still employs over a 111,000 in its automation division and a total of 293,000 across the whole company.
  • “Australian Made” has announced a new website and product directory that features thousands of Australian manufacturers.
  • The “Victorian Carpet Company”   based in Castlemaine Victoria has announced it will close with a loss of 21 jobs.  This follows last year’s reduction when the company shed over half its workforce.  The CEO said it was a continuation of manufacturing moving offshore in the industry.
  • There has been adverse reaction from the major gas companies Santos and Origin to the proposal by Manufacturing Australia to reserve gas, at competitive prices for domestic use.  The idea has also received scant support from the government.  The argument put forward is that the gas would remain in the ground  – talk of slowing the industry will slow the economy.
  • Boart Longyear has slashed over a 1000 contract mining jobs in reaction to the downturn in capital and mining exploration spending globally.  These losses reflect the continued downturn in the mining industry sector a spokesperson said.
  • MM reports at least one Labour MP wants to re-introduce tariffs to protect the Australian automotive industry.  The MP who seat covers Holden’s SA plant suggests that the high $ requires special attention through the reintroduction of temporary tariff measures.

Australian Automotive Industry Paper 2 – Vernier Society May 2013

The Australian Automotive Industry

Paper 2

Automotive industry is vital to Australia’s future – but it requires a whole new mindset!

Yet another announcement of job cuts at Holden has lead to ex Ford leaders announcing that further reductions will inevitably create a domino effect on the supply base as it tries to fight the reduction of scale and the increase of costs.  These views support the economists who believe free market pressures should just be allowed to play out and government subsidies could be far better spent in other areas of the economy such as university spending as suggested on Q&A recently..  While SA unionist’s march for manufacturing and construction, Michael Filazzola, Director and GM of Global Purchasing at Holden’s publically attempts to justify, the economic benefits of the continued support for the industry.  Is the money, said to be over $4.5b from 2008 to 2020 really going to save the automotive industry?  Is it time to give up on manufacturing all together and move to a service driven economy?  This paper, on behalf of the Vernier Society, argues that an automotive industry is vital for the whole of the manufacturing sector, but it is not this current industry.  It is an industry with a future, of the future that will lead the manufacturing sector of the future.

The industry is a vital sector in manufacturing

The view that the industry should be left to free market forces is easy to understand.  The industry produces gas guzzling, mediocre quality, dated models in a high cost, low productivity environment and Labor’s justification of jobs at any price just seems another form of union patronage.  The GM Holden’s Chairman’s statement that, “Our current agreement with the Federal Government does not include minimum employment levels. [The assistance] is designed to generate the capacity to build things… and jobs flow from that.” (Manufacturers Monthly 10/4/13) makes job protection just a chimera rather than reasoned and justified economic benefit.  Death seems inevitable so let’s find a better use for the palliative money.

Yet there are strong arguments for, as Shakespeare says, ‘not going easily into this grey dawn’.  First is the market potential.  According the CEO of Renault in 2012, while the current world market is 600m cars he forecasts demand will rise to 3 billion by 2050.  The second is that 75% of the world’s trade is in manufactured goods; innovative products drive the world economy and leading industries like automotive drive innovation.  Then there is the state of the current economy in Australia and the recognition that the industry does employ about 47,000 jobs across the sector.  While the economic rhetoric  on the relativity of Australia’s financial support per capita is confused, the conclusion as Filazzola points out is that virtually all of the 15 countries in the world that produce automotives heavily sponsor their vital industry, including Germany who it could be argued to have the most vitalised and envied car industry of any country.     Our industry without continued financial support will die.  The Vernier Society believe a successful automotive industry is vital to the future prosperity of Australia.  However, the current state and the real challenges facing the current industry must be acknowledged by all the players; the government, the car companies themselves, the unions, the employees and the public.  What has to be accepted for certain is the industry has to dramatically change to sustain.

The argument for subsidies

Holden, Toyota and Ford each face their own particular challenges in the global market, let alone in Australia.  Domestic car sales are dropping and as Filazzola rightly states, over the last couple of years there has been a structural shift in the small car market but this cannot all be blamed on the high dollar.  It has a significant contribution but environmental issues, city congestion and a younger purchasing demography are additional pressures for change.  One only has to look at the car profile in the UK and the US to see the compact has changed the middle market and certainly two of the three makers have been slow to react.  At the same time, reliability has played an increasing role and increased warranties have been a clear market penetration strategy for new entrants.  Quality across the higher end market has also played a significant role and as Filazzola admitted in 2009, Holden’s plans to develop the Middle East export market had been affected by their quality problems.  The domestic market share will inevitably continue to reduce and result in even further job losses.  The writing is on the wall for Ford in 2016 if both anecdotal evidence and lack of visibility in the current debate is an indicator.

What does the loss of 47,000 jobs from the auto industry mean to the economy?  There are those like John Daley from the Grattan institute who says that traditional supporters of manufacturing, like Vernier, should not be concerned because job losses will be replaced by newly created jobs as the economy adapts to a more service based economy.  Curtin University’s labour market economist stated in the AFR recently that 1000’s of jobs are lost and created in the market every week and while the loss of 50,000 jobs may sound a lot, it will be barely noticed as far as the unemployment rate goes.  This sounds rather preposterous; because the beach has ebb and flow tides each day, high storm tides don’t do any damage?  Tell that to the seawall!   What is also not fully appreciated in this argument is existing skill levels.  In the 2008 Bracks Automotive Report it was acknowledged that nearly 50% of the employees had no formal qualification and while government funded training has been utilised, the challenge of transitioning to new skills and industries is severe.  At the same time, automotive companies cannot and should not guarantee employment.  All businesses need to manage their bottom line and their productive cost base and companies must ensure their revenues and cost ratio’s are at least maintained.  The discussions between the government, the unions and the companies were confidential but it is incredulous to believe that the automotive companies did not clearly state that these subsidies in no way guaranteed jobs.  The outcome was not job security.   The makers got continuation of necessary subsidy support, the unions got increases pay rates and the Labor government got silent compliance for a false message that endorsed their political rhetoric.  Bandaging the patient will only prolong the situation; only major surgery and lifestyle change will save life.

The case for change

Manufacturing across a wide range of sectors drives the world economy.   Michael Porter’s ‘Competitive Strategy’ analysis states that companies need to differentiate in one of three areas; cost, service or innovation.  The emerging nations are the leaders in a cost  commodity strategy, as was shown initially by China and SE Asia and now as companies like IKEA are showing production will migrate to new lowest cost economies.  So we have to compete with service and innovation.    The automobile is a relatively high priced necessity of life; nowhere more so that Australia with its huge land mass.  While Australia has a small share of the current sales market, the growth potential is enormous.  By 2050, car sales will grow to 3 billion with much of that growth, right on our doorstep, as part of the Asian century.  The economic share of this capability alone is staggering.  The automotive industry is a major contributor to our economy.  Holden alone put $32b into the Australian economy over the last 12 years.  It provides nearly $5b of added value to the economy, employs around 5% of the total manufacturing workforce and most importantly over 20% of the R&D investment in manufacturing.  Transport is the future.  In every futuristic movie made, innovative transport is ubiquitous, on auto guided highways or flying between skyscrapers.  Spaceships reach for the stars, shuttles make routine visits to neighbouring planets.  The future is an automated world of alternative energy sources.  The climate change debate shows that we need to start moving towards alternative energy sources and so the hybrid, the electric or other forms of power sources are the future differentiators and these require radical and highly innovative thought about the whole industry.  Other countries have already got this message.  Every month a new book preaches the need for high cost countries like America to lead a manufacturing renaissance.  For real innovative success one only has to look at the Swiss achievement in a manufacturing economy driven by leading edge products.   South Australia has already recognised this with the bold recruitment of leading academic on innovation, Goran Roos, to head their new manufacturing initiative.  Australia’s future must include a thriving manufacturing sector with automotive a major component.  However, it will require a much changed industry.  We need to build a new innovative model for our future automotive industry; the current one is atrophied.

How do we change?

Our current situation is like asking someone in the street for directions only to be told “Oh if you want to go there I would not start from here”.   But this is where we are and so to have a futurist leading automotive industry we need to do three things.  First have an honest assessment on the current state of the industry; secondly create a vision of where we want the industry to be in the future and finally develop a plan to get from where we are to this future vision.  Each of these tasks requires radical thinking by experts from all the aspects of the industry and will require time and an in depth evaluation with honest and realistic admissions.  This analysis must take a radical approach, traditional thinking will not take the industry to where it needs to be.  This is the approach we must take to building a new automotive industry.  Sinecures like increasing government purchases of Australian made cars, waiting for the dollar to fall, iterating design rather than innovating it, are not sufficient.  We need to follow the Tom Peters old management maxim- if it not broke, break it.

Effectively, no real decisions on the industry can be made until after the election in September.  One of the first steps would hopefully be to appoint an expert taskforce to set out a ten year roadmap for the industry.   In a year we need to have the blueprint action plan.  This would seem to fit with the current horizons establish under the current regime and so existing support financial plans will need to stay in place even with a resignation to further labour losses.  A new innovative model for the automotive industry needs to be conceived on a number of building bricks.  The leading edge types of product being produced and the research technologies required to support this edge; the radical production processes that can produce cars at relatively competitive prices and support the total productive competitive advantage and a totally new industrial climate with a new paradigm in management and worker collaboration instead of the old adversarial industrial relations division.  All of this has to be underpinned by a government that clearly understands such industries need judicious and targeted government support.

What are some of the broad brush strokes that should be considered in this new age?  The vehicles of the future will not be solely oil powered, so research and development into new forms of power has to be a priority.  It would seem that investing in a dedicated Centre for Automotive Power Innovation in accordance with the Labor Manufacturing plan would be and ideal way to start.  It would also seem that identifying a leading university and TAFE institute to develop knowledge and skills for the future industry should be given impetus with appropriate incentives.  As electronics is already a crucial, competitive differentiator in today’s car and all of this technology is outsourced overseas, there is going to have to be major technology partnerships set up with the world’s leading companies.  While this sounds easy, the issues around intellectual rights will be extremely complex and these types of joint venture will new considerations.  Government has to do more that passively make funds available as with the latest funding  for Innovation Centres; the government has to direct funding to specific organisations and technologies.  It has to force collaboration.  This is an area currently that Australia is not good at.  Government has to have the courage to direct spending in collaborative technologies but this requires a level of courage not seen in governments of either persuasion.

The second major area of change is in the total automotive process.  Currently manufacturing is driven by scale.  But the new industry will not have scale and so will require a new process concept based on some form of cellular production with tiered suppliers much more integrated into the total process, both by Geographics and status.  Tiered suppliers will share in the total process rather than the current methodologies where hierarchical power, forces pricing pressures down the tiers and futures are only proportional to the length of contract.  There will need to be a new level of integration rarely seen in the current processes.  This extends the concept recently put forward by Manufacturing Focus’s Mark Fusco, based on collaboration projects that already exist in other countries with companies sharing facilities and resources.  Productivity is another key driver in manufacturing and while there it is suggested there has been recent improvement in this area; Australia does not have a good record.  Australia’s industrial relations climate is a major deterrent and while management performance must also be improved as leading economist Saul Eslake recently suggested in the AFR, this is a chicken and egg argument as to which came first?  A new management – worker paradigm cannot wait until we have a new industry as further job losses will just enforce traditional divisions.  A new industrial relations climate needs to start now.  One way would be to scrap the current EBA system and introduce management/worker boards on the lines of what happens in Europe.  These boards work together without third party unions to negotiate across a whole range of productivity issues.  With a more enlightened attitude from all sides Industry, Unions and Government could then work together on the bigger strategic issues.  Finally, what role should government pay in this?  The almost ubiquitous cry from businesses is the need to reduce the regulation of industry and the automotive industry must surely benefit from taking positive action in this regard.  Of course, the folly of the carbon tax with its increased costs for no benefits must be addressed.  The Alternative energy fund should be focused on to the industry in recognition that car pollution is a major issue.  Utilising Australia’s natural energy resources to assist the industry as Dow Chemical’s Andrew Liviris’s suggests would again provide further assistance to a new industry.

A brave new world

These are but a few suggestions from a society of passionate manufacturing people who believe that both a manufacturing industry and an automotive industry are crucial to the future prosperity of this country.  One of the Victorian Government’s new principles is collaboration and much of this paper builds on a new regime of collaboration within the industry.  It also relies on a new form of positive and supportive government.  The existing automotive industry is heading to the extinction cliff edge and we will lose much more than an automotive industry, we will lose the bedrock of a manufacturing industry that will never to able to be replaced.  But it requires action not complacency.  As the CEO of the CPA Institution stated at their launch of building a ‘Competitive Australia’ the government’s plan for another innovative and key manufacturing industry, ‘Fast Rail’, took 32 months to produce a plan that will take 65 years to implement while China actually planned and built theirs in just 38 months!  It requires a quantum change of mindset to create this brave new world.

Automotive industry is vital to Australia’s future – but it requires a whole new mindset!

Yet another announcement of job cuts at Holden has lead to ex Ford leaders announcing that further reductions will inevitably create a domino effect on the supply base as it tries to fight the reduction of scale and the increase of costs.  These views support the economists who believe free market pressures should just be allowed to play out and government subsidies could be far better spent in other areas of the economy such as university spending as suggested on Q&A recently..  While SA unionist’s march for manufacturing and construction, Michael Filazzola, Director and GM of Global Purchasing at Holden’s publically attempts to justify, the economic benefits of the continued support for the industry.  Is the money, said to be over $4.5b from 2008 to 2020 really going to save the automotive industry?  Is it time to give up on manufacturing all together and move to a service driven economy?  This paper, on behalf of the Vernier Society, argues that an automotive industry is vital for the whole of the manufacturing sector, but it is not this current industry.  It is an industry with a future, of the future that will lead the manufacturing sector of the future. 

The industry is a vital sector in manufacturing

The view that the industry should be left to free market forces is easy to understand.  The industry produces gas guzzling, mediocre quality, dated models in a high cost, low productivity environment and Labor’s justification of jobs at any price just seems another form of union patronage.  The GM Holden’s Chairman’s statement that, “Our current agreement with the Federal Government does not include minimum employment levels. [The assistance] is designed to generate the capacity to build things… and jobs flow from that.” (Manufacturers Monthly 10/4/13) makes job protection just a chimera rather than reasoned and justified economic benefit.  Death seems inevitable so let’s find a better use for the palliative money. 

Yet there are strong arguments for, as Shakespeare says, ‘not going easily into this grey dawn’.  First is the market potential.  According the CEO of Renault in 2012, while the current world market is 600m cars he forecasts demand will rise to 3 billion by 2050.  The second is that 75% of the world’s trade is in manufactured goods; innovative products drive the world economy and leading industries like automotive drive innovation.  Then there is the state of the current economy in Australia and the recognition that the industry does employ about 47,000 jobs across the sector.  While the economic rhetoric  on the relativity of Australia’s financial support per capita is confused, the conclusion as Filazzola points out is that virtually all of the 15 countries in the world that produce automotives heavily sponsor their vital industry, including Germany who it could be argued to have the most vitalised and envied car industry of any country.     Our industry without continued financial support will die.  The Vernier Society believe a successful automotive industry is vital to the future prosperity of Australia.  However, the current state and the real challenges facing the current industry must be acknowledged by all the players; the government, the car companies themselves, the unions, the employees and the public.  What has to be accepted for certain is the industry has to dramatically change to sustain.

The argument for subsidies

Holden, Toyota and Ford each face their own particular challenges in the global market, let alone in Australia.  Domestic car sales are dropping and as Filazzola rightly states, over the last couple of years there has been a structural shift in the small car market but this cannot all be blamed on the high dollar.  It has a significant contribution but environmental issues, city congestion and a younger purchasing demography are additional pressures for change.  One only has to look at the car profile in the UK and the US to see the compact has changed the middle market and certainly two of the three makers have been slow to react.  At the same time, reliability has played an increasing role and increased warranties have been a clear market penetration strategy for new entrants.  Quality across the higher end market has also played a significant role and as Filazzola admitted in 2009, Holden’s plans to develop the Middle East export market had been affected by their quality problems.  The domestic market share will inevitably continue to reduce and result in even further job losses.  The writing is on the wall for Ford in 2016 if both anecdotal evidence and lack of visibility in the current debate is an indicator.

What does the loss of 47,000 jobs from the auto industry mean to the economy?  There are those like John Daley from the Grattan institute who says that traditional supporters of manufacturing, like Vernier, should not be concerned because job losses will be replaced by newly created jobs as the economy adapts to a more service based economy.  Curtin University’s labour market economist stated in the AFR recently that 1000’s of jobs are lost and created in the market every week and while the loss of 50,000 jobs may sound a lot, it will be barely noticed as far as the unemployment rate goes.  This sounds rather preposterous; because the beach has ebb and flow tides each day, high storm tides don’t do any damage?  Tell that to the seawall!   What is also not fully appreciated in this argument is existing skill levels.  In the 2008 Bracks Automotive Report it was acknowledged that nearly 50% of the employees had no formal qualification and while government funded training has been utilised, the challenge of transitioning to new skills and industries is severe.  At the same time, automotive companies cannot and should not guarantee employment.  All businesses need to manage their bottom line and their productive cost base and companies must ensure their revenues and cost ratio’s are at least maintained.  The discussions between the government, the unions and the companies were confidential but it is incredulous to believe that the automotive companies did not clearly state that these subsidies in no way guaranteed jobs.  The outcome was not job security.   The makers got continuation of necessary subsidy support, the unions got increases pay rates and the Labor government got silent compliance for a false message that endorsed their political rhetoric.  Bandaging the patient will only prolong the situation; only major surgery and lifestyle change will save life.

The case for change

Manufacturing across a wide range of sectors drives the world economy.   Michael Porter’s ‘Competitive Strategy’ analysis states that companies need to differentiate in one of three areas; cost, service or innovation.  The emerging nations are the leaders in a cost  commodity strategy, as was shown initially by China and SE Asia and now as companies like IKEA are showing production will migrate to new lowest cost economies.  So we have to compete with service and innovation.    The automobile is a relatively high priced necessity of life; nowhere more so that Australia with its huge land mass.  While Australia has a small share of the current sales market, the growth potential is enormous.  By 2050, car sales will grow to 3 billion with much of that growth, right on our doorstep, as part of the Asian century.  The economic share of this capability alone is staggering.  The automotive industry is a major contributor to our economy.  Holden alone put $32b into the Australian economy over the last 12 years.  It provides nearly $5b of added value to the economy, employs around 5% of the total manufacturing workforce and most importantly over 20% of the R&D investment in manufacturing.  Transport is the future.  In every futuristic movie made, innovative transport is ubiquitous, on auto guided highways or flying between skyscrapers.  Spaceships reach for the stars, shuttles make routine visits to neighbouring planets.  The future is an automated world of alternative energy sources.  The climate change debate shows that we need to start moving towards alternative energy sources and so the hybrid, the electric or other forms of power sources are the future differentiators and these require radical and highly innovative thought about the whole industry.  Other countries have already got this message.  Every month a new book preaches the need for high cost countries like America to lead a manufacturing renaissance.  For real innovative success one only has to look at the Swiss achievement in a manufacturing economy driven by leading edge products.   South Australia has already recognised this with the bold recruitment of leading academic on innovation, Goran Roos, to head their new manufacturing initiative.  Australia’s future must include a thriving manufacturing sector with automotive a major component.  However, it will require a much changed industry.  We need to build a new innovative model for our future automotive industry; the current one is atrophied.

How do we change?

Our current situation is like asking someone in the street for directions only to be told “Oh if you want to go there I would not start from here”.   But this is where we are and so to have a futurist leading automotive industry we need to do three things.  First have an honest assessment on the current state of the industry; secondly create a vision of where we want the industry to be in the future and finally develop a plan to get from where we are to this future vision.  Each of these tasks requires radical thinking by experts from all the aspects of the industry and will require time and an in depth evaluation with honest and realistic admissions.  This analysis must take a radical approach, traditional thinking will not take the industry to where it needs to be.  This is the approach we must take to building a new automotive industry.  Sinecures like increasing government purchases of Australian made cars, waiting for the dollar to fall, iterating design rather than innovating it, are not sufficient.  We need to follow the Tom Peters old management maxim- if it not broke, break it.  

Effectively, no real decisions on the industry can be made until after the election in September.  One of the first steps would hopefully be to appoint an expert taskforce to set out a ten year roadmap for the industry.   In a year we need to have the blueprint action plan.  This would seem to fit with the current horizons establish under the current regime and so existing support financial plans will need to stay in place even with a resignation to further labour losses.  A new innovative model for the automotive industry needs to be conceived on a number of building bricks.  The leading edge types of product being produced and the research technologies required to support this edge; the radical production processes that can produce cars at relatively competitive prices and support the total productive competitive advantage and a totally new industrial climate with a new paradigm in management and worker collaboration instead of the old adversarial industrial relations division.  All of this has to be underpinned by a government that clearly understands such industries need judicious and targeted government support.

What are some of the broad brush strokes that should be considered in this new age?  The vehicles of the future will not be solely oil powered, so research and development into new forms of power has to be a priority.  It would seem that investing in a dedicated Centre for Automotive Power Innovation in accordance with the Labor Manufacturing plan would be and ideal way to start.  It would also seem that identifying a leading university and TAFE institute to develop knowledge and skills for the future industry should be given impetus with appropriate incentives.  As electronics is already a crucial, competitive differentiator in today’s car and all of this technology is outsourced overseas, there is going to have to be major technology partnerships set up with the world’s leading companies.  While this sounds easy, the issues around intellectual rights will be extremely complex and these types of joint venture will new considerations.  Government has to do more that passively make funds available as with the latest funding  for Innovation Centres; the government has to direct funding to specific organisations and technologies.  It has to force collaboration.  This is an area currently that Australia is not good at.  Government has to have the courage to direct spending in collaborative technologies but this requires a level of courage not seen in governments of either persuasion.

The second major area of change is in the total automotive process.  Currently manufacturing is driven by scale.  But the new industry will not have scale and so will require a new process concept based on some form of cellular production with tiered suppliers much more integrated into the total process, both by Geographics and status.  Tiered suppliers will share in the total process rather than the current methodologies where hierarchical power, forces pricing pressures down the tiers and futures are only proportional to the length of contract.  There will need to be a new level of integration rarely seen in the current processes.  This extends the concept recently put forward by Manufacturing Focus’s Mark Fusco, based on collaboration projects that already exist in other countries with companies sharing facilities and resources.  Productivity is another key driver in manufacturing and while there it is suggested there has been recent improvement in this area; Australia does not have a good record.  Australia’s industrial relations climate is a major deterrent and while management performance must also be improved as leading economist Saul Eslake recently suggested in the AFR, this is a chicken and egg argument as to which came first?  A new management – worker paradigm cannot wait until we have a new industry as further job losses will just enforce traditional divisions.  A new industrial relations climate needs to start now.  One way would be to scrap the current EBA system and introduce management/worker boards on the lines of what happens in Europe.  These boards work together without third party unions to negotiate across a whole range of productivity issues.  With a more enlightened attitude from all sides Industry, Unions and Government could then work together on the bigger strategic issues.  Finally, what role should government pay in this?  The almost ubiquitous cry from businesses is the need to reduce the regulation of industry and the automotive industry must surely benefit from taking positive action in this regard.  Of course, the folly of the carbon tax with its increased costs for no benefits must be addressed.  The Alternative energy fund should be focused on to the industry in recognition that car pollution is a major issue.  Utilising Australia’s natural energy resources to assist the industry as Dow Chemical’s Andrew Liviris’s suggests would again provide further assistance to a new industry.

 

A brave new world

These are but a few suggestions from a society of passionate manufacturing people who believe that both a manufacturing industry and an automotive industry are crucial to the future prosperity of this country.  One of the Victorian Government’s new principles is collaboration and much of this paper builds on a new regime of collaboration within the industry.  It also relies on a new form of positive and supportive government.  The existing automotive industry is heading to the extinction cliff edge and we will lose much more than an automotive industry, we will lose the bedrock of a manufacturing industry that will never to able to be replaced.  But it requires action not complacency.  As the CEO of the CPA Institution stated at their launch of building a ‘Competitive Australia’ the government’s plan for another innovative and key manufacturing industry, ‘Fast Rail’, took 32 months to produce a plan that will take 65 years to implement while China actually planned and built theirs in just 38 months!  It requires a quantum change of mindset to create this brave new world.

Engineering & Manufacturing Influence News – Issue 11 April 2013

ISSUE 11 – April  2013

EDITORIAL:

Last month’s Renishaw presentation certainly demonstrated why there is so much belief in innovation being the solution to Australian Manufacturing malaise.  Mike Brown’s presentation on Renishaw’s latest product in additive machining gave a very good insight into why there is so much interest in this new and emerging technology.

Yet again the future of Australia’s automotive industry dominated the news over the last month.  Holden’s announcement of a further 500 job losses seems to fly in the face of the government’s insistence that the purpose of financial handouts was to protect jobs.  In addition, the news about the success of the imported Mazda 3 must add to the public’s confusion about whether the industry can really survive even with the subsidies.

The government’s approach to funding the Gonski reforms by removing funding from the university system must also, in an indirect way, cast a shadow on the future of manufacturing.   With the teacher’s union running funded adverts in support of the proposals, it would be easy to believe that Gonski was the total solution to lifting our school performance rather the reality that its purpose is only to identify the extra funding for the system.  To this editor it seems to put the cart before the horse; what are the actions that need to be taken to really lift the standards of education in this country?  These need to be clearly defined, planned and costed before a budget should be approved.  In addition, we have the ludicrous situation of removing money from our tertiary university sector to pay for Gonski.  The recently announced, aspirational plan from the Business Council of Australia for Australia to be a top 5 country in the next 10 years may be widely ambitious but it should really be seen as cuckoo if we are not prepared to invest in the real source of a country’s prosperity – its total education system.  While we may have 6 universities in the top 100, we need to have at least 1 in the top 20 to demonstrate our real educational leadership.

The other significant issue is the collapse of the carbon price in Europe to $3 a tonne.  It makes Australia’s inflated $23 a tonne look stupid and yet another huge cost disadvantage Australian industry has to withstand.  It seems that what Labor described as a courageous and world leading action is now shown by the rest of the world as nothing more than a foolish act of self sacrifice.  Adding insult to injury, the PM has recently announced that despite the resulting further drop in revenue that will result, the compensation payouts will continue! It will also be very interesting to see how the first grants from the $10b alternative energy fund, which are announced in July, will affect this debate.  
Car Industry Update

The announcements by the two ex-Ford Chairmen expressing doubts about the long term future of the automobile industry and their suggestion that the demise of one would probably have a domino effect on the whole of the supply industry because many suppliers are geared to all three companies is of concern.  This pronouncement by Ford without promoting the need for further Ford funding could suggest there will be an inevitable announcement of Ford’s closure by 2016.  Holden have also been actively publicising the value of, and the necessity for, the current subsidies to continue while Toyota has again, in true Oliver Twist style, asked for more; at least under the guise of developing a new car.  The Herald Sun has been running articles that support the union’s insistence on the government’s mandatory purchase of Australian built cars for its own fleets, while an interesting letter in the Age asked whether Holden’s announcement of building the fastest road car in Australia, the GTS, was good publicity for how our tax dollars are being spent.

Switzerland proves innovation is a driver

Just as it was announced that Swiss robot manufacturer ABB had won a contract to supply 2,400 robots to BMW, the AFR ran an article declaring that while the Swiss Banking giants UBS and Credit Suisse had shed 10,000 employees over the last 10 years, the country’s manufacturing sector was still going strong.  The country has an unemployment rate of 3.1%, the lowest of the top 10 European economies and for a nation of only 8 million people is increasing employment numbers in manufacturing companies that make electrical equipment, airline seating, toilets and drugs.  For a country renowned for its banking and insurance industries, this sector only employs 152,000 people compared to an industrial sector that employs 588,000 people.  “Switzerland is like a Silicon Valley for the manufacturing industry” quotes one expert.  “Given the high cost base, no Swiss manufacturer would survive, if it were not world leading or top quality.”  According to the AFR, pressures to stay ahead have pushed Lantil textiles to lead in air cushion aircraft seats and drug-maker Novaris and watchmaker Swatch to top the global rankings for 2012 patent applications.  Universities such as Zurich’s ‘Swiss Federal Institution of Technology’ and a pro- business regulatory environment have helped make Switzerland a home for research hubs of US companies like Google and IBM.

This Month’s Manufacturing  News ( thanks to Manufacturers Monthly)

  • Manufacturing activity has improved this last quarter but is still running negative.
  • BAE Systems is set to lose 450 more jobs after losing a land maintenance contract from the Department of Defence.
  • Manufacturing Focus’s MD Mark Fusco (a consultancy company) has proposed that Australian automotive manufacturers should consider sharing facilities and resources as with successful examples set by Daimler Chrysler in the US and Mitsubishi and Volvo in Holland.
  • Boeing plans to cut back 1700 jobs worldwide following down turns in production.
  • Deakin University expects to lose up to $16m of funding over next two years and this could affect projects in the Geelong area, including the Future Fibres R&D Centre and the Advanced Manufacturing Cooperative Research Centre.
  • Visy have just built an $86m new facility on the Gold Coast as part of their expansion plans into Asia.  The facility will produce 1.6 billion aluminium beverage cans and 600 million steel food cans.
  • The AFR reports that the country’s universities spend $280m on meeting the compliance requirements of federal and state governments according to Universities Australia submission to the Federal Opposition’s Deregulation Taskforce.
  • The AFR reports that AWU National Secretary Paul Howes has stated that an “Accordstyle” emergency summit of government, business and unions was needed to save manufacturing and Australia has to decide between market forces or temporary government assistance.
  • Chanticleer in the AFR has reported that recent studies show Australia is the world’s most expensive offshore exploration and production location.  It is three times more expensive than the US Gulf Coast and slightly more expensive than Norway.

BOOK REVIEW

“Producing Prosperity – Why America needs a manufacturing Renaissance” by Pisano and Shih, Harvard, Library of Congress 2012.

Another insightful book from two Harvard Professors who argue passionately for America not to give up on its’ manufacturing sector.  As the authors clearly recognise in their very first line, there are now quite a number of books on why manufacturing matters to America.  As with many academic researchers they have to find a new emphasis for why it is so important (and of course to give their book a new edge) and so Pisano and Shih develop the idea of an ‘Industrial Commons’.  In the past, this was common land in the middle of a village where villagers met and grazed their animals, shared ideas and built a collective and collaborative spirit.  The authors see the “industrial commons” in their words as exerting a powerful gravitational pull on the location of industries and innovation (and how conversely the absence of an appropriate commons creates a chasm).

Their argument for manufacturing’s importance, as with Vernier’s argument and in fact all who believes in the prime importance of manufacturing, is built around two highly relevant facts drawn out in the first pages of the book.  In 1950, manufacturing represented 27% of US GDP and employed 31% of the American workforce.  By 2010, manufacturing was only 12% of GDP and employed 9% of the workforce.  When you blend this with the fact that 75% of the world’s trade is made from manufactured goods, how can manufacturing not be seen to be so vital to the economy?

The ‘Industrial Commons’ is the focus for innovation, the ability to take a product from concept development to market.  Future innovations, along with high productivity are the key drivers of economic success and growth.  Again the message is consistent with others who believe innovation is the key and Pisano and Shih emphasis the important point that if you lose manufacturing you lose this ability to innovate.   Their argument is very much about this collective ‘commons’ and in many ways endorses the recent Australian policies of clusters and collaboration.  While they support the free market, they believe this does not preclude judicious government support.  They also make the strong points that management policies are instrumental to this process and that the short sighted polices of separating design and manufacturing and looking at short termism in results, rather than long term building are all issues that have to be readdressed.

While there is no specific reference to the automotive industry in America they use a number of references to the automotive industry to endorse their points.

  • If a prime industry like automotive declines many core capabilities will also atrophy.
  • Electronics now comprise about one third of the cost of materials and labour to produce an automobile and most of this technology and manufacture is now based in Asia.
  • Product quality is a key differentiator in the auto market.

They also raise another interesting point about those who (particularly economists) seek salvation in a post industrial world, in a knowledge work world.  Rather than service intensity being a direct driver of growth per capita; causality should be seen to run the other way, where greater wealth and development tend to drive greater consumption of services.

Overall the book is an easy and challenging read that all Vernier members should consider to endorse their passion about industry and manufacturing.

OTHER NEWS:  Australian Soccer Transfer News

While the Australian Soccer League transfer period does not official start until the 14th of May and closes on the 14th of September, there is already a lot of transfer speculation around a whole series of high profile changes.

One of the most predicted moves will be the coach of the Australian national team Jose Gollard, who is almost certain to move on after a very disappointing and taxing term.  But Gollard is expected to quickly find another national side after interest was expressed by Greece, Spain and Cyprus.  The head of the Greek Soccer Association when asked why the strong interest in a coach whose side were known to score a lot of own goals stated, “Our latest style is boring and we want to return to the old ways.  The Greek fans like a game with plenty of goals, regardless of who scores them.  Life is much better even to lose 9-0 than make a 0-0 draw.”  On a much distorted phone link to Wales, the Welsh Soccer Association was asked about utilising their former countryman seemed to suggest they were quite happy with their current mascot.  There is also speculation about a reasonable fit with the Russian national team, but owner Vad Putitin said that he preferred a more balanced style rather than the Australian style of playing everybody wide on the left.

It is also clear that many of Gollard’s backroom staff and players will also be moving on or retiring.  It is widely speculated that now badly injured but previously star striker, K Hudd, who made the 07 shirt so popular in the club shop, will retire and start a new career in films.  He is being tipped to star in a remake of the old TV favourite “The Clampits”; the hilarious story of a very successful Sydney family, forced to pack up and move back to Rural Queensland.  Another star, Bruce Springswan will join the coaching ranks of the new team OECD where he is highly regarded.  When asked about this move, Bruce said that he saw this as a logical move for such a talent.  Asked about the need to improve player’s skills and tactics at his new club, he said that while these could be regarded as important, the first thing the club must have is a new, well insulated sports hall.  There is also a lot of speculation about specialised ‘striker’ coach Bill Longon who is the originator of the successful game plan “Fair Play Australia” where the creative players of the opposition are stifled by over marking. He is surprisingly being considered for a role in the next series of TV soap “Footballers Wives”.  Star player Tan Plebiscite is however, expected to quickly find another club.  The ability to miss a so many easy goals but still look extremely arrogant and condescending is seen as a real advantage in the modern game.  One of the games veteran coaches Doug Macaroon is being linked with a return to his native Scotland but this has been squashed by both Rangers and Celtic.  Speaking through an interpreter, the club spokesperson’s said that the style of playing the man and not the ball was no longer relevant to the modern game.  The legendary Iron Man of English Soccer coaching, Sir Alex Thatcher who fired Macaroon in the 70’s said that this style was probably still only appropriate for emerging soccer counties like Australia and Macaroon would be better staying put.  Some of the other players expected to move on are Garrett Oil and Asian star Yuen Wong.  So far there is no interest at all in Oil but a few clubs who appreciate Wong’s communication skills on the pitch are concerned about him affecting the character of the dressing room.

There is also speculation about some of the leading names in Australia’s feeder club “The Green Old Woods”.  Coach Bob Milne’s style of playing with 11 centre forwards has been described by some as ‘forward thinking’ but without a win all season it is unlikely this will result in a high profile appointment.  One player who has definitely had offers to move to TV work is GOW’s player Sam Handsome – Old, well known for shooting wildly whenever the goals are in sight.  While it would be a big gamble to throw him in as a soccer pundit, both channel 7&9 see SHO as an ideal weather person.  One insider said “with SHO doing the forecasting there will never be any complaints when we missed getting the weather right!”  Finally, because of the high number of players who left under Gollard’s abrasive style, there is a buzz around that some could be tempted to take over after his departure.  Two names are being strongly mentioned; one is a past player with the cash rich Health Services team and while able to inject new funds into the club, his past disciplinary record may be a negative but a name highly tipped is Nick A.G. Noxon.  However, when approached for a comment NAG said that a comeback was out of the question.  “All that training and pressure was just too much for my body to take.  After all, with my payout I can now live the high life for the rest of my life – no I do not miss it one bit”.  The great Liverpool hero once said “Soccer is not about life or death, it is much more important than that”.  Seems like for Australia’s main players there will be a lucrative life after soccer death!

Plans for Australian Jobs – Vernier Society Analysis

The Labour Government’s  “Plan for Australian Jobs”.

The Prime Minister has announced the promised “Plan for Australian Jobs” that follows the report of the Non – Government Taskforce issued in September of last year.  The PM announced the plans at a visit to the Boeing Facility in Melbourne, one of the few successes of component manufacturing still remaining in Australia.  Said to be a $1b investment in the future of manufacturing jobs in Australia, the heavily repetitive document, seemingly more desiring of volume than articulation, has received a rather muted response in the national press and from the opposition.  This paper outlines the major initiatives in the plan and then critically examines whether these actions are going to achieve the rejuvenation in manufacturing that is still essential to Australia’s future prosperity.

Reminder of the Taskforce findings:

  •  Meeting current pressures by helping with investment and industry participation, to reduce the risk of loss of jobs and core manufacturing capabilities.
  •  Lifting productivity growth and reducing business costs via economy-wide proposals in transport infrastructure, broadband, energy, regulation and taxation reform.
  • Improving the benefits flowing to Australian manufacturing from our research investments including through a new platform for systemic collaboration with innovation hubs and stronger networks.
  • Building a cohort of medium sized world competitive firms and improving SME competitiveness through a new SME Strategy that targets SME capability.
  • Forging of a shared competitiveness culture through a new national partnership for workplaces, focused on the capabilities of managers and workers.

Plan Details

In line with recent rhetoric from the government, the paper outlines that creating and supporting jobs are the central objectives of the government’s economic policy and through this plan $1b will be invested in productivity, prosperity and jobs.

The three main policy frameworks of the plan are:

  1. Backing Australian Firms to win more Business at Home
  2. Supporting Australian Industry to win new business abroad
  3. Helping Australian Industry SME’s to grow and create  new jobs

It is said that these policies will complement the 5 pillars of productivity identified in the ‘Asian Century’ paper of skills and education, innovation, infrastructure, tax reform and regulatory reform.

1.  ‘Winning more work at home’

The main actions are the introduction of a new ‘Australian Industry Participation Authority’ that will be established to help firms seeking work on large domestic projects and in global supply chains.  In addition, they will legislate through a new Australian Jobs Act to extend Australian Industry Participation (AIP) to give fair chances to Australian firms.  All projects with capital expenditure of $500m plus will be required to implement AIP plans as to how Australian firms are to be given opportunities to win appropriate work.  For projects above $2b that applies for concessions, they will be required to embed AIP Opportunity officers within their procurement teams.  It is believed with these actions of enhanced industry participation, productivity and growth through building scale will increase competitive advantage.  According to the costs summary table, this part of the initiative will cost $98.2m although it appears the current expenditure is already $58m and so additional expenditure will be $40.2m.  (Author’s note:  apologies that sum of these allocations may not be totally correct but the report’s figures are not easy to interpret).

Strengthening Australia’s Anti- dumping laws – $27.7m will be invested in a new system for investigating and applying remedies where dumping is injuring local producers.

Improve management and workplace skills with a $12m investment over 4 years to establish the ‘Centre for Workplace Leadership’.  This not for profit entity will demonstrate how effective leadership is critical to workplace productivity.

2.  ‘Supporting Australian Industry to win new business abroad’

The three main initiatives in this framework area are:

‘Industry Innovation Precincts’

Creating up to 10 ‘Industry Innovation Precincts’ to drive collaboration and innovation in areas where Australian firms can globally compete.  The precincts will be business led and focus on areas of scale competitive advantage and emerging opportunities and networked nationally through a new ‘Industry Innovation Network’.

The precincts will be governed by industry led boards with representatives from business, the research sector and others including service providers who can provide advice and assistance in certain areas.  The precincts will have flexibility in the projects and services they deliver.  A competitive ‘Industry Collaboration Fund’ (with funding building to $50m/year) will be administered by a new ‘National Precincts Board’ which will have at its power additional funding options.  Firms located nationally will benefit from the precincts activities through a national technology platform, ‘Industry Innovation Network’ and through ‘innovation Brokers’ who will link industry with researchers and business services.  The first precinct announced is the ‘Australian manufacturing and Materials Precinct’ at Clayton, Victoria (AMMP) which embraces the Synchrotron.  The second one is the private Kraft lead food precinct headquartered in Melbourne.  The total expenditure announced on Precincts is $504.4m with $238.4m allocated to the precincts and $236.3m allocated to ‘Industrial Transformation Research Programs’ (ITRP), which are research grants administered under the Australian Research Council (ARC)

Providing new support for SME’s with high-growth potential in such precincts through ‘Growth and Leadership Development’ (GOLD) initiative where potential high growth firms will be offered advanced integrated services as a ‘one-stop shop’.  The service will be delivered by Enterprise Connect, AusIndustry, Commercialization Australia and other service providers.  GOLD will offer access to a range of capabilities including:  skills and technical expertise through the existing ‘Researchers in Business Scheme; Design through a new Design Solutions initiative, Management Skills Improvement through extending leadership capabilities and marketing through associated government bodies.

Improving efficiency and streamlining costs to position Australia as a world leader in clinical research and the commercialisation of new medical technologies with $9.9m allocated to specific clinical trials.

3.  ‘Helping SME’s to grow and create jobs’

The main initiatives are:

Creation of ‘Venture Australia’ to facilitate the growth of new knowledge based and innovation driven businesses in Australia, to increase industry competitiveness and to attract new investment to Australia based on our areas of strength.  This will have an allocation of $350m.  The government will match $ for $ investment taking only a return on the long term bond rate.

Government will be a customer to innovative firms through their purchasing power for requiring delivery public services.  The ‘Enterprise Solutions Program’ will fund innovation to develop solutions for future government requirements through improved practices, products and services.  The government will spend $27.7m over 5 years on this program.

Enhancing ‘Enterprise Connect’ services to a wider range of SME’s.  Eligibility will be extended to professional services, information & communication technologies and transport & logistics sectors.

R&D tax incentives will be restructured into a new tiered structure with the third tier of very large companies with an annual Australian turnover of $20b under the non-refundable 40% R&D tax offset.

Press Response

Immediately following the announcement, the AFR ran an article that gave the reactions of the major players.  At a speech to the AWU Conference, Prime Minister Gillard defended the R&D cuts to large corporations as financially responsible and in line with “Labour Values” arguing that the big companies have the financial and market incentives to innovate without government support.  The Australian Industry Group welcomed the changes but expressed reservations on the R&D cuts to large businesses.   The Minerals Council of Australia expressed concern on the plans to embed public servants in companies as “unnecessary, unwarranted and inefficient”.  The CEO also expressed concern on the reduction of incentives affecting overseas views of Australian tax arrangements.  The Greens described the changes as toothless and demanded mandated use of Australian goods and services.  The Australian Chamber of Commerce & Industry  CEO appeared to be in general agreement but questioned value for money and whether it would offset damages done to industry by other policies.  The supportive AWU described the package as a “game changer”.

Peter Roberts in a comment column in the AFR described the initiative as a ‘flawed innovation plan’.  He questions the local content rules, quite rightly stating that at the end of the day no one is forced to buy Australian.  He praised the $350m of venture capital to be made available as a market based model where previously the direct investment model through “Commercialization Australia” had bureaucrats picking winners and so moving to a market based approach is more desirable.  Roberts also praises the new industry innovation precincts that are modelled on the successful German ‘Fraunhofer Institutes’.  Again it is a move towards private incentives for the precincts as demonstrated by the first centre set up by Kraft Foods at Ringwood opened earlier this month driven by the private sector rather than government initiative.  Roberts does criticize the removal of the R&D concessions as ‘punishing success’ and also asks the important question of whether there is a need for two more government bodies, an industry innovation Network and an Australian Participation Authority to administer all this?

Vernier Comment

This plan cannot be found wanting in all areas and some moves, particularly the Venture Capital Fund should be applauded but there is much in the structure that feeds the Labour model.  Julia Gillard consistently argues that all their policies are based on ‘labour values’ and are focused on creating jobs.  But yet again the jobs created here in the first instance are bureaucratic, with the two new authorities in an area that is already overburdened with numerous government bodies.  The administrative challenge to avoid duplication must be real with so many similar authorities and support units.  The labour ideology of centralized government is still under writing this plan where as the Liberal principle of the need for smaller government from a cost and an effectiveness perspective has more appeal.  The idea of embedded AIP Opportunity officers is just another level of cost to an organisation.  Companies are only going to buy local content if the value proposition is correct for them and this package does nothing to correct many of the structural costs incurred by business and the economy in Australia.  Ensuring that both the company managing the project and the Australian companies capable of delivering goods are aware of each other’s plans and capabilities is essential but at the end of the day such decisions are quite rightly made on product performance, price and delivery and installing bureaucratic checks does nothing to ensure Australian firms compete against these key criteria.

The innovation Precinct Concept is not new with Silicon Valley of the 1970’s as an early successful example.  In addition, the UK government have just announced a similar program called ‘Catapult’ and the US’s ‘National Network for Manufacturing’ while Victoria’s previous example at Port Melbourne did not succeed.  The idea of focusing innovation into specific areas is certainly a good idea, although what is important is to make sure the industry area is progressive and well niched.  The first Precinct at Clayton, the AMMP, is already up and running but its website would suggest that they are focused on research areas rather than a specific industry.  It is again unfortunate that this initiative creates yet another top heavy bureaucracy with tiers of boards.  In addition, the complexity of ways of obtaining funding through the myriad of options must be very confusing and limiting to start up organisations.  The other question is whether with today’s technology, a cheaper and better solution would be to create ‘virtual precincts’.  The Kraft food precinct in Ringwood is good but to extend the concept to a ‘food’ niche would surely involve companies geographical separated and raises the question of would not using ‘virtual precincts’ utilizing the potential of the NBN not be nearly as effective solution at a much more effective price?  Of course, the infrastructure investment of $200m plus will be more attractive to construction unions support than a virtual solution.

The plan to remove the R&D grants from large companies is a short-sighted and bad idea.  Highly successful British entrepreneur Sir James Dyson said in Sydney recently that “it is just crazy to steal or take money from big companies”.  It seems that the government just wants to penalize large companies, not only with this but with the focus on the mining companies with the MRRT and the ubiquitous Carbon Tax.  There seems to be a belief that big companies are just easy pickings.  It may be that the government is playing ‘Robin Hood’ taking from the large to feed the Small SME’s but there is a danger that this myopia will affect global strategies and turn once large companies in Australia, into large international companies with small companies in Australia .

The consistent message of late that innovation is the key to a resurgent manufacturing sector seems to be partly addressed by these initiatives.  The need for industry and academia based R&D to become more closely linked is laudable but it is difficult to see whether academic organisations have really understood that they need to be strongly commercially focused.  One of the other key messages in this plan is that while creating a better environment for SME’s to flourish, the government believes that new entrepreneurial managers need a new level of training to maximize their potential;  hence the proposal for “Centres for Workplace Leadership”.  Submissions for the provision of this Centre closed at the end of January and is to be in operation by the end of March 2013.  With such a short reaction time I really struggle to understand how and where the visionary thinking has occurred to identify and develop the transferable knowledge and skills the manager of tomorrow needs in his ‘toolbox’.   I cannot help thinking this was a loaded solution just waiting for an engineered question?  The other question is whether organisations like ‘Enterprise Connect’ are going to have the skills to expand to deliver to a wider audience.  Does the organisation have the consultants with the depth of global experience to turn small SME’s into potentially large and successful companies remains to be seen.  My personal experience is they help small inefficient companies become more efficient small companies.

What is not in the plan?  Well for the unions to describe it as a ‘game changer’ would automatically to suggest to this sceptical author that they see no pressure for collaborative change in the plan.  While the Gillard Taskforce proposed a new level of cooperation and collaboration between employers, workers and unions; the recent changes to Fair Work Law just increase the gap between management and unions by increasing the already wide influence of union officers.  The Industrial Relations arena still seems to be so emotively dangerous for the Coalition for potentially losing votes that one can only hope they are just playing safe and will start to make sweeping changes after their expected and almost demanded victory.  The other issue is the reduction in bureaucracy that is required and this plan seems to move in the wrong direction.  Cutting government red tape, a more appealing tax regime and a realization by the unions and the populace that our industries operate in an increasingly challenging world environment and so all ‘enshrined rights’ should be up for review, is sorely missing in any Labour plan.  But let’s see the Coalition plan please.

Engineering & Manufacturing Influence News – Issue 10 March 2013

ISSUE 10 – MARCH 2013

EDITORIAL:

Last month’s Futuris presentation certainly demonstrated that there are success stories out there for Australian Manufacturing and so this month’s edition, with its updated format (if a new format is good enough for the AGE) I have tried to balance the good news with the bad, although the late news of Shell’s proposed closure of its Geelong refinery is another large piece of bad news particularly with the continuing uncertainty of Ford’s operations beyond 2016.

Sue Morphett, the new Chair of ‘Manufacturing Australia’  a lobby organisation formed by nine companies, Bluescope Steel, Amcor, Boral, Brickworks, CSR, Incitec Pivot, Rheem, Allied Mills and Capral made her first statement this month.  MA’s charter is to create and retain Australian Manufacturing jobs by growing the industry and working with governments and stakeholders to address the challenges faced through innovation, good policies and workplace flexibility without supporting protectionism.  As reported below Ms Morphett says the top 3 priorities are utilising the country’s energy advantage, restricting anti-dumping (a subject at the heart of some of its members) and investing in manufacturing.  The appointment of a person who moved Bonds production off shore seems a poor one at first glance, and her cause cannot have been helped when this month CSR announced the closure of two of its NSW factories (see below).

This month we have seen the Labor Government create another internal crisis that surely makes every voter wish the election was next week.  At the same time Bill Shorten pushes through IR changes, which while unlikely to be passed because of the turmoil, attempt changes (as reported by the AFR) to enshrine penalty rates in law, require employers to consult with workers before changing rosters and to allow the FW Commission to handle workplace bullying complaints.  Many papers have reported this government is taking industrial relations back to the 1970’s.  While other advanced economies appreciate society is now 24/7, this government seems trapped in its incestuous relationship with the union movement who plan to run member funded adverts in line with the election.  Of course, these are bound to raise the spectre of a return to ‘Workchoices’, which is still the Achilles heel of any coalition Industrial Relations policy.  At the back of this newsletter I have reproduced the coalition’s recent industry policy statement by Sophie Mirabella which lacks any statements in this crucial area.  I also recommend an excellent article in the Weekend Australian’ this week by Judith Sloan that shows the reality of Labor’s and Wayne Swan’s management of the economy.  As many economists are forecasting serious economic issues within a three year window, maybe a recession is the only thing that will get Australians to appreciate that we have had it too good for too long!

This Month’s Company News (All articles thanks to Manufacturers Monthly)

Geelong’s Shell refinery is up for sales says owner Royal Dutch Shell.  An estimated 450 jobs are at risk if a buyer is not found by the end of the year when it will be converted to an import terminal requiring only around 50 jobs.  Shell report the facilities performance is ‘border-line’ when compared to the Asian mega- refineries.

Queensland Company Ferra Engineering who specialise in the design, assembly and testing of aerospace structures and sub-systems has signed a $60 million deal with multinational aerospace and defence giant Boeing to manufacture its Joint Direct Attack Munitions Systems (JDAM).  Queensland Premier Newman said “This Queensland aerospace company began as a two-man operation in 1992 and has grown to become a great Australian success story with more than 130 employees”.

CSR Subsidiary, Glass maker Viridian will close 2 factories in Western Sydney with a loss of 150 jobs.  One factory’s production will be absorbed by another NSW factory and the other by either the company’s Dandenong facility or imported. CSR blamed the strong Australian dollar, weak building demand and an expensive environment, with “increasing energy and manufacturing costs”.  Viridian is predicted to make a pre-tax loss of $37-39m.

Australian scientists at the University of Western Australia have helped develop a new ‘super material’ by harnessing the properties of ‘nanowires’ that is twice as strong as high strength steel.  Using the new method researchers have made materials twice as strong as high strength steel with strain limits five to ten times higher than the best steels currently available.  The new material opens the door for a range of new applications, and its potential for the medical and electronic industries has already been underlined.

Priority Engineering Services, an engineering and manufacturing business that works across the automotive, mining, metal stamping, materials handling and process control sectors, based in Adelaide has collapsed, leaving 120 employees out of work despite receiving a $200k grant last year.  The owner stated that while the company had been actively vying for contracts that could have doubled its workforce, it simply ran out of time.  However the site could re-open under new owners and so the existing workforce have been advised to sit tight and await developments.

Australian audio manufacturer RODE Microphones says that companies have to stop whinging about the $ and accept the economic situation – a different mindset is involved.  The company conducts 90% of its business offshore and last year won the Large Advanced Manufacturers Award for NSW Exports.  RODE Microphones adapted to the dollar by increasing its brand marketing, boosting its efficiency with new machinery, and restructuring its management.

ASIC data has shown company insolvencies for the last 12 months at record highs at 10,632, with the carbon tax blamed by some for contributing to the number.  “For companies which have exposure to energy, and other factors which are affected by the carbon tax in a significant way, the carbon tax and the costs related to it are having a significant impact on the ability of these companies to continue,” Todd Gammell of HLB Mann Judd told News Limited.  One example is Penrice Soda, the only maker of Soda Ash in Australia shut its factory with a loss of 70 jobs to concentrate on imports mentioned the Carbon tax as the last straw.  The NSW government has meanwhile claimed that the carbon tax has cost the state $580 million in increased energy prices, $355 million in stranded carbon costs to electricity assets and a $237 million hit to the state’s budget.

Australian manufacturers such as Pact Group and Amcor are embracing business social media to attempt to break down silos within their companies and become more competitive.  600 of Pact’s employees use ‘Salesforce’ (CRM Software) Facebook-like Chatter tool to get answers to workplace questions.  All businesses need to be nimble and responsive today and this helps to break down silos a spokesman said.

Global consumer giant the Breville Group Ltd will buy and market environmentally-friendly juicer bags by Melbourne based Cardia Bioplastics as accessories for the company’s market-leading Juicer juice extractors.  The bags made in China from renewable sourced resins will provide clean and green bags for US based Breville.

Port Adelaide firm MG Engineering has delivered the first of three 25-tonne, 5 storey high masts in a $3.25m contract for the Air Warfare Destroyer program.  The masts will house significant elements of the Aegis Weapon Systems and navigational radar.  MG Engineering has hired an additional 12 production staff to undertake the AWD mast work over a two-year period, taking their total staff to 45.”

OTHER NEWS

In a recent speech, the new ‘Manufacturing Australia’ Chair Sue Morphett said the 3 priorities for Australia should be:

1.  Capitalise on Australia’s energy advantage.  As an energy and resources superpower our domestic energy policies fail to capitalise our advantage by creating a domestic gas market that enables value adding manufacturing alongside gas exports.

2.  Restore fair trading conditions by further improving Australia’s anti- dumping regime to ensure a more level playing field with our overseas competitors.

3.  Invest for manufacturing growth.  Get over the perception that manufacturing is a ‘sunset’ industry and as other advanced economies are doing, increase manufacturing capacity through deliberate, smart investment.  Infrastructure, better industry links for R&D, industry linked training, increasing flexibility in our manufacturing workplaces and strengthening regulations that stimulate demand should be the priorities.

Quarterly figures from the Australian Bureau of Statistics show that the manufacturing sector lost 30,800 jobs in the most recent period. While the ABC reports that 100,000 new jobs overall were created in the quarter to February.  Despite this news, manufacturing continued to shed jobs, with yesterday’s Westpac-Australian Chamber of Commerce and Industry showing the sector’s output shrunk for the quarter, and investment was weak.  “Plant and equipment and building intentions were both scaled back again during the past three months,” read the report.  At the same time Manufacturing in the UK shrunk by 1.5% in January, the fastest decline since June 2012 has created fears of another recession, its third since the GFC.

SA Premier Weatherill has listed advanced manufacturing as a pillar of his Economic Statement.  He stated that innovation and engagement with Asia were both necessary for achieving success, as was the role of the SA government in its economy.  “We must make choices about backing the businesses that are inventing the new products, designing the new services and taking them to the world,”  “South Australia has always worked best when we have had strong government working with strong business.”  The manufacturing sector employs 73,000 in the state.

An International Business Times report points out that one of the advantages of expanding globally is that companies with off-shore factories can adjust production levels to accommodate changing sourcing strategies.  Most of the goods imported to the US are relatively low-value-added, low-margin products such as toys, clothing and apparel while US exports high-value-added manufacturing products that are used to produce these imports.  “The relatively low-value-added toys, apparel and plastics that the U.S. imports from China contain inputs from high-tech machinery, aircraft and chemicals that the U.S. has exported to China.”  Labour cost is, of course, one of the crucial factors to be considered when deciding on production location. However, the report says, issues such as transport costs, time to market and flexibility also need to be factored into the decision.  Also, the gap between labour costs in the US and China is steadily decreasing.  In a separate report it is forecast that US manufacturing is set to outperform GDP growth in 2013-14.

Austrade has identified automotive and aerospace as two manufacturing sub sectors that are positioned well for Indonesia’s growth story and is currently seeking expressions of interest from advanced manufacturers and others for the plan, which will provide $1.5 million a year worth of grants worth between $20,000 and $300,000 a year. Funding is open to member-based groups hoping to develop new relationships in countries such Indonesia.  “Automotive is one of the booming sectors in Indonesia at the moment. Indonesia is set to become the the biggest automotive market in ASEAN,” said a spokesperson.  Last year the Australian Automotive Aftermarket Association pointed out the huge opportunities available to auto parts makers, for example in in-car entertainment, wheels, oil and other products. Their research predicted that the country’s car sales are to increase by up to 50 per in the next half a decade. Four-wheel drives and SUVs are categories tipped for especially strong growth.

Holden Australia’s chairman Mike Devereux revealed that the company had received $2.2 billion worth of assistance since 2001, a figure which he defended as representing a good return for taxpayers. For the $150 million a year you get $2.7 billion of economic activity generated by having Holden make things in this country. It is 18 times the investment,” he said.  He also stated that a local car making industry would be ‘absolutely impossible’ without government assistance.  At the same time Nissan and Hyundai brands have outsold Holden for the first time in Holden’s 65 year history.

BOOK REVIEW

“Travels with Epicurus” by Daniel Klein

This is a whimsical look at growing old from a philosophical perspective as Klein, a septuagenarian and author of over 25 books, takes a nostalgic tour of the Greek islands, the birthplace of classical philosophy.  Along the way he studies the attitudes of the senior citizens on the island as they meet to discuss life, food and beautiful women.  The book is an easy read (available from Bayside Library so most likely others) and is full of tales and stories of Aegean life, including one of a wealth Greek-American tourist out walking when he comes upon an old Greek sitting on a rock sipping ouzo and staring at the sun setting over the sea.  Behind the old man is an untended olive grove with the ground littered with fallen olives.  When asked whose is the grove the man replies “Mine”.  “Don’t you gather them?” the American asks to which the old man replies “Only when I want one”.  “But if you picked the olives at their peak you could sell them.  There is a big market in America for olives you could get a good price for them!”  “What would I do with the money?”  Well, you could build a big house and hire servants to do everything for you” was the American reply.  “And then what would I do” asked the old man.  “Well you could do anything you wanted” was the reply.  “You mean like sit here and drink ouzo!”

Engineering & Manufacturing Influence News – Issue 9 February 2013

ISSUE 9 – FEBRUARY 2013

MANUFACTURING IMPORTANCE TO AUSTRALIA

EDITORIAL

This month’s main speaker is Dexter Clarke from Futuris.  The timing is opportune as the company, maker of car seats and trims, has announced recently that it has doubled, over the last 18 months, its output from its plant in the port city of Hemaraj in Thailand.  The plant is located in an industrial estate sometimes known as the “Detroit of the East”.  So this month it will be pleasingly to hear a success story in the Australian Automotive industry.

The ”Initiative” presentation this month will give an overview of the New Gillard “Jobs plan for Australian Manufacturing”, which is said to be a $1b investment in our manufacturing future.  While some of the ideas are interesting, it is hard to believe that this is the panacea to all our issues.  The focus is on jobs – but what jobs and where will the money come from?  This question will become increasingly predictable in this election year as both parties make promises filled with financial funding uncertainties.

The other big issue that has dominated the last week is the push from the PM to “Put foreign workers last”.  Then there was the claim from militant Maritime Union that they are insisting on unprecedented guarantees that companies servicing the offshore oil and gas sector will only employ local workers under new four year workplace agreement (AFR 26/2).  One could not help smile at the coalition’s point that the PM’s major advisor is himself on a 457 visa. Union leader Paul Howes, when probed on their enforcement of this point on ABC TV recently, repeatedly cited incidents of rorting of the visa system by unscrupulous bosses and claimed that the government’s, for want of a phrase “Give us a job” site for people wanting jobs in WA, had over 37,000 names yet new 457’s were being employed.  The ‘Lateline’ reporter pointed out that it was fine to want a job but how many Australians had the skills that were required against the jobs available?  Howes repeatedly ducked the question, with the suggested aplomb of a man who has his own name on a jobs wanted list.  It has been pointed out that many of the 457 jobs are in our hospitals and care service and were well paid roles and skilled roles, necessary to support a system that would otherwise collapse.  While 457 jobs in manufacturing are in a minority, one factor that seems to be overlooked or too explosive to mention is, and I speak from firsthand experience, that the productivity of overseas workers is higher than the Australian worker.   While some workers may not have the level of skills required initially, this is compensated for by industriousness, a willingness to learn and perhaps no sign of the Australian ‘mentality’ that is seen in some local workers.  Of course, these overseas workers will work hard and may not know or get their full entitlements because job security is so vital to them but the nationality of the worker is not and should not be the only choice an employer is mandated to make!

The Jobs Situation

Mining Job losses

Even the mining industry is not immune from job losses with the Queensland mining company CQMS Razer announcing it will cut another 60 jobs next week following the 20 people that were removed at the end of last year. (MM Feb)

Telstra cuts 700 jobs

Telstra confirmed on 21/2 that it was cutting nearly 700 jobs from Sensis as part of a restructuring that aims to accelerate the transition of the faltering directories unit to a fully digital media business which will create another 50 positions.  These losses occur as Telstra posts record half year profits of $1.6b. (AFR 22/2)

Boral further restructure

Following Boral’s 700 employee redundancies announced in January, the company today announced it was amalgamating its construction materials and cement into a single division with the loss of one senior executive (MM Feb)

SA dependent on manufacturing (MM Feb)

A leading economist has stated that the SA economy with 70% of its exports coming from the manufacturing sector is heavily dependent on the allocation of the forthcoming federal defence contracts.

Half defence jobs go overseas via bid process

The AFR reported (25/2) that the federal government was outsourcing defence jobs to overseas manufacturers while imposing new requirements on mining companies to use local content.  The article states that local content has fallen from 80c to 53c and the average contract value was lower in value than contracts awarded to Britain, US and European based companies.  The DMO manages 170 defence projects worth of $100b.  However the Australian Strategic Policy institute said “given the globalisation of defence industry, it’s inevitable that work will increasingly go offshore”.

600 Jobs on line at Electrolux – (AFR 8/2)

One of the two remaining large whitegoods manufacturing plants in Australia is under threat.  Electrolux Home Products with 600 staff at its refrigeration plant at Orange NSW is seeking a $50m plus investment from its Swedish partner .  A request that has sparked a company review .  The CEO said this is not a review based on lack of profitability or productivity but by the Australian board looking for new investment.  The challenge is that Orange will compete for investment with 30 Electrolux plants worldwide including lower cost locations like China.  While the Orange plant is under question, the Adelaide Oven factory cannot cope with the backlog of orders for the new and first 90 cm wide oven.  Electrolux have up to 40% of the Australian market – The CEO said “we should stop apologising for Australian made – if you are doing it today you must be doing a bloody good job”.

Industry No to apprentice wage rises

The ACTU along with manufacturing unions are arguing before Fair Work Australia (FWA) that a first year apprentices wage should rise to 60% of an adult’s wage.  The article did not make clear what the current comparative rate is but the case is being watched by business and unions for wage claims of almost 500,000 trainees and apprentices across the country.  The ACTO argue that the increase would stop the high dropout rate and provide an adequate living wage, while the employer associations argue that it would lead to a substantial decrease in apprenticeships being created and so increase the skills shortage.

Other News this month

Coalition rules out changes to industrial Relations

Joe Hockey announced in Queensland recently that the coalition have ruled out both major industrial relations changes and intervention to lower the dollar.  Hockey said productivity is more important than cutting wages.  “We can compete with higher wages provided our output per work is globally competitive” the AFR reported from his speech. “Australia’s standard of living must not go backwards.  There is no national benefit in cutting wages”.  With regard to the high $ Hockey argued that a forced reduction would create higher prices for consumers at a time with many households are under extreme financial pressure.

Academic offers solution for new global companies and praises ANCA

In a recent interview with “Smart Company, UTS Professor and recent advisor to the government, Roy Green has said there has been a recent growth in what he calls “micro-multinationals” who are well suited to Australia’s current challenges.  Some companies will die off, Green claimed, but others with niche offerings and an international focus could adapt.  Either those who produce very bulky items difficult to import or those that are agile and specialised to producing products that operate in niche markets both locally and internationally.  “Micro-multinationals “are those that have a global mindset and are not limited to the domestic market. Examples of such companies were given as ANCA, fabric maker Textor and electrical accessories brand Clipsal.  Vernier’s recent speaker and ANCA co-founder Pat Boland stated that ANCA’s plant in Thailand is able to sell into China under a free trade agreement between the two countries.  This means that there must not be such an agreement Australia and China (apparently such agreements with China are rare) so machines will be more expensive when shipped from Australia.

Government tells manufacturing the solution to current pressures

Gillard in a radio interview, as reported by Manufacturers Monthly says that manufacturers can still survive even with the high $ by making changes to make their businesses in order to stay profitable.  “The competitive disadvantage of the high Aussie dollar is obvious but we can still manufacture things, provided we’re at the forefront of innovation and quality,” she said.  “We can still be a country that manufactures things. But we’re going to have to do it differently.”  The PM’s comments echo Industry and Innovation Minister Greg Combet as reported in the Australian that while the government was committed to supporting manufacturing jobs, business models have to change to become more competitive.  “Industries and businesses that succeed are going to be those that develop new technologies, new processes, that innovate, that apply technology to their manufacturing processes, for example,” he said.  “the manufacturing sector also need to take a leadership role in finding new technology … Industries and businesses that succeed are going to be those that develop new technologies, new processes, that innovate, that apply technology to their manufacturing processes,” Combet said.

Successful UK Entrepreneur questions Australian tax incentives (MM Feb)

Inventor Sir James Dyson (of vacuum cleaner fame) was in Sydney last week as part of a promotional tour for the company’s new Airblade product stated that Australian tax laws do not encourage entrepreneurship through limiting tax breaks for inventive organisations.  The AFR report Dyson as saying “You have very inventive people and very good universities … but if they [government] think 45% tax relief for start ups in Australia is going to help – it won’t.  It’s too small.  We [Britain] are getting more than double that, the French gives more than that.  It just isn’t enough”. Dyson also questioned funding effectiveness. Having to apply for funding where some civil servant ultimately makes the decision is wrong because they are not equipped for the right decisions.  “You should back people who have ideas and want to do them and the way to do that is through the tax system”.  As reported by the Australian newspaper the Airblade was a result of 3 years research by 125 engineers and through 3,300 plus prototypes.

Engineering & Manufacturing Influence News – Issue 8 January 2013

ISSUE 8 – JANUARY 2013

EDITORIAL

Welcome to the first 2013 edition of the Vernier Newsletter.  In a period when many manufacturers are enjoying their short summer breaks, we have at least had one good piece of news from the government and that of course is the date for the next election.  In the same presentation made to the National Press Club on Wednesday, the PM also announced that the long waited action plan for manufacturing built on the report from her Taskforce, which we reported on back in September, will be issued shortly – a document and more importantly, the actions to be taken to re-boost manufacturing.  A plan that I am sure Vernier members will be interested in and one we will explore in detail in future newsletters.

Job Losses

Of course, not even the summer break could keep further manufacturing job losses out of the news.  The Australian ran a piece on 17th of January that listed the losses over the last two months:

  • Boral axe 700 management and office jobs
  • Bluescope cuts 170 jobs to downsize in Victoria
  • Boral sheds 90 production jobs at cement plant
  • Santos cuts 100 jobs in SA

Latest on the car industry

Then following on from our extensive feature on the future of the car industry in Australia we had (AFR 16/1/2013) the headline “Car makers gear up for more cash” suggesting that both Toyota and Holden could seek extra financial assistance  on top of the estimated $1 billion they have each received over the last decade.  Holden sparked the controversy (according to the report) in an interview with their CEO that the Port Melbourne Engine Plant that makes the V6 engine and employs around 320 employees, is under threat as the commodore production starts to wind down.  While there is a commitment to build engines to 2016, it would seem inevitable that in these fuel economy conscious times larger engines are going to decline in sales.  Significant in the article was the fact that Ford did not join the bandwagon, perhaps suggesting as was argued in our analysis, that the plants future is even more uncertain.

American Manufacturing is starting to see the light.

One of the most interesting articles of the month was in last Friday’s AFR Review section entitled “Offshoring Comes Home” written by Charles Fishman.  The article described the encouraging reversal of manufacturing in the US as companies start to bring manufacturing jobs back from overseas.  The main company focused was GE who in 1951 built a huge Industrial Park in Louisville Kentucky which at its peak in 1973 employed 23,000 people produced  60,000 appliances a week across a range of white goods  to feed the explosion of the United States consumer economy.  However, the intervening years saw a gradual reduction in people employed and amidst the height of its labour battles GE’s CEO Jack Welch suggested that the site would be completely closed by 2003.  By 2011 the people who made appliances was down to 1863.

But in 2012 a new assembly line was opened in one of the 6 huge shopping mall sized buildings – the first new assembly line in 55 years!  The line started to produce cutting edge, low energy water heaters – a product that had previously been made in GE’s Chinese contract factory.  Pretty soon afterwards, another line was opened in another building producing French-Door style refrigerators – replacing a model previously made in Mexico.   In 2013 there is a plan to start producing stainless steel dishwashers.  The site also has new plastics manufacturing facilities to make parts for these appliances.  The current CEO Jeff Immlett has stated that outsourcing is “quickly becoming mostly [sic] outdated as a business model for GE”.  To support this GE are putting $800m in this park in the belief that they can make money from the initiative.

In 1979 at its peak, America employed 19.6 million people in manufacturing but the growth of China and globalisation has seen that steadily decline.  None more so than in the first decade of this century where factories lost jobs 7 times faster than before.  But GE is bucking that trend.  At the heart of this change is the Geospring Water heater with a small heat pump that uses 60% less electricity than normal heaters.  One of GE concerns was that producing this in China exposed their innovation to knock off and so this was one of the reasons to consider bringing it home.  Not only that though; oil prices are now 3 times what they were in 2000 increasing shipping costs, The US natural gas boom has made energy prices in US more attractive and Chinese wages are now 5 times more than they were in 2000 and are expected to keep rising by 18% per annum.  In addition US unions are changing their attitudes from the previous fractious dispositions (The park was known in the 80’s as Strike City) and the lowest wage is now $13.50 almost $8 lower than what it used to be.

The other thing that has occurred with the new water heater line is that it has been redesigned by a multi-functional team from across the plant including the actual operators and using the latest lean thinking.  This is so successful that material costs have been cut by 25% and the total assembly time has come down from 10 hours in China to 2 hours in the Louisville facility.  And of course the leadtime has lost the 5 weeks shipping time from China lowering net inventories.  The net result is they have been able to beat the ‘China price’ by nearly 20%.  The China product retailed at $1599 and now the US is $1299. As a GE executive points out in the article; when you outsource the product you lose the link between manufacturing and design, the iterative innovation so in reality your whole business goes with the outsourcing.  Other experts point out it is easy to look initially at just the cost but there are hidden costs that come after the initial outsourcing.  Groups who cannot talk to each other, cultural barriers to limit integration and the cost of management hours travelling to ensure quality standard are met and maintained.

The overall message is that GE are one of the companies in the US starting to appreciate not only does made in the US create jobs but it can also now cut costs and build innovative products and a new mentality in Manufacturing!

This article raises thinking about whether Australia could learn from this reversal and start to bring manufacturing jobs back to Australia.  However, there are many differences that have to be recognised in our situation as opposed to America:

  • The consumer market in the US is probably 15 times larger than here and so the economies of scale that apply in most manufacturing plants would need to be ameliorated here somehow.
  • Despite our abundance of natural gas, the effects of the carbon tax have made our energy costs significantly more expensive and we have no strategic policy to use our natural resources internally to reduce these costs.
  • Australian Corporate tax rates are significantly higher than the US and most other OECD countries and add to this the red tape involved in running businesses in Australia are both burdens on the cost of manufacturing.
  • Despite the government spending huge sums of money on training particularly in Lean manufacturing thinking, the adversarial nature of our industrial relations means that there is no common purpose between management and unionised workforce to create a new climate of mutual interest and this fault does not just rest with the unions but more with the system itself.
  • Australian labour rates are high now compared to other major manufacturing nations – remember the previous comparison in a past newsletter at $1.61 for Australia compared to a $1 for the States.  Eventually the disparity between wages and productivity output will have to been reconciled in Australia.  Being one of the few countries in the world that did not have a recession may not have been in our best long term interests.

Despite what our December speaker said that manufacturing jobs will just be replaced by other service jobs, I still believe, born of my years in manufacturing that it is special; it is both the driver of research and innovation and also the benefactor.  The net message is that manufacturing needs a completely fresh approach in Australia – but I cannot see the soon to be released Government plan delivering the change required.

Engineering & Manufacturing Influence News – Issue 7 November 2012

ISSUE 7 – N0VEMBER 2012

Editorial

this month’s newsletter updates members with the latest manufacturing news and also includes three new sections; a book review of Andrew Liviris’s book on how to regenerate America’s manufacturing industry; a new feature identifying Australian companies that are succeeding in this tough global market and a letters’ section that invites readers to ask questions or give feedback.

The latest automotive job losses further support last month’s analysis of the industry, endorsing the message that the companies and the government’s current policies will not prevent the slow death of the industry in Australia without a radical and transparent rethink.  Australia’s need to dramatically change its productivity performance is endorsed by the Productivity Commission’s outgoing boss’s public statements, solidly supported by many industry bosses and analysis experts.  Industrial relation changes is still not even considered by the current government as demonstrated by the latest tweaking of the Fair Work rules and Shorten’s proposal to stack the board.  Cochlear, this month’s featured company clearly demonstrates the adversarial nature of IR in this country.  They have been involved in a 5 year battle with the AMWU over their EBA leading Cochlear CEO to comment that “They [unions] don’t have relevance without conflict”.

It seems a clear message to everyone, except perhaps the government, is that the mining boom has peaked and Australia needs to assertively restructure its economy, expand its industrial base and as Liviris clearly states put manufacturing – leading edge manufacturing – at the forefront of its policies.  The recent figures that show Australia as one of the most costly countries in the world seems to fall on deaf ears as this very left leaning, social democratic government continue to increase social spending without appropriate revenue.  A recent presentation by financial analyst Bridgette Leckie stated that while America appears to be coming out of recession and Europe stabilising but still uncertain; Australia, with its current policies, has only possibly two more years of performance before the economy reaches a massive cliff!

Australian Dollar is the dearest of top economies according to a study produced in the ‘AGE’ October 23rd.  We have the third most expensive currency in the world and the most expensive of the world’s 20 largest economies, with only Norway and Switzerland more expensive to do business in based on Purchasing Power Parity (PPP).  This makes us ($161) much more expensive than USA ($100) and Germany ($105) in terms of productivity value and when compared with China ($67) and India ($41) the size of the global predicament can be clearly appreciated.

Car News – since last month’s article, Holden have cut 170 jobs and Ford affected their 220 forced redundancies from the 440 people loss announced in July.  While Autodom are back at work, their future in the hands of the receiver is still very uncertain.  In light of the anti-Japanese sentiment in China, Koita a Toyota parts supply in China has suspended plans to triple production leaving their new factory half built.  In addition, Sumitomo Electric and Toyo Type companies are rethinking plans to expand and refocusing their expansion plans on Thailand, Vietnam, Myanmar, Indonesia and Cambodia (AFR 13/11).

The government has rejected calls to reconsider buying overseas built nuclear submarines so as to support the manufacture of conventional subs in SA where manufacturer ASC employs 2500 people on three sites in Adelaide and Perth and is the leading builder for the air warfare destroyer and maintains the aging Collins class sub fleet.

Qantas axed 500 aircraft maintenance jobs in Sydney and Avalon as the next phase of restructuring that is seeking to save $110m annually (AFR).  The company has said that before these current efforts, its number of engineers per aircraft was about 40 compared to about 20 per aircraft at British Airways.

Outgoing Productivity Commission chairman Gary Banks has criticised Labor’s reform agenda by calling for an overhaul of the Fair Work Act, GST increases and a winding back of industry handouts including the car companies.  His extensive proposals, which included deregulation of doctors and lawyers, changes to teachers’ recruitment and pay but mainly focuses on issues directly associated with productivity and was roundly supported by Reserve Bank Chairman Glenn Stevens (AFR 2/11).

Good Australian Companies – With the gloom and doom about Australian manufacturing, the newsletter will each month try to identify Australian companies that are succeeding in this tough globalised market.  One such company is Cochlear the hearing specialists, whose CEO Chris Roberts was featured in this month’s ‘AFR/Boss’ magazine.  Streamlining manufacturing Systems have underpinned Cochlear’s ability to keep its cost of goods sold at about 25% despite the appreciating dollar.  Also instrumental to the company’s success has been its relationship with its 800 manufacturing staff and crucial to this is their employee consultative committee that includes workers from each of the company’s main functions, but no one directly representing the AMWU.  Wage rates are 50% above award rates and wage rises occur when staff learn new skills set out in a skills matrix, which has assisted 96% of staff to be paid at the top level of the matrix.  At the same time, Cochlear have been involved in a 5 year EBA fight with the unions.  The company is still continuing to negotiate in good faith with the unions but this is not stopping the company and its workers drive for productivity improvements.

Book Review – Andrew Liviris “Make it in America: The Case for Reinventing the Economy” published by John Wiley and Sons, New Jersey USA.

The Australian born Liviris is the President, Chairman and CEO of Dow Chemical Company, a $60billion global specialty chemical, advanced materials, agro sciences and plastics company, based in Michigan USA.  He was also recently appointed to the Co-Chair of President Obama’s Advanced Manufacturing Partnership in the US because of his strong advocacy for the criticality of Manufacturing to the long term health of a nation’s economy.

The book focuses heavily on the manufacturing issues in the US and some of the policies Dow have employed to continue their global expansion, explaining how a manufacturing sector creates economic value at a scale unmatched by other sectors and how central manufacturing is vital in creating jobs, both inside and outside the factory.

In his concluding chapters, Liviris lays out a policy framework for economic growth:

  1. Make it easier for businesses to keep or locate their operations in the United States.
  2. Remake the manufacturing sector with a focus on advanced, high value products.
  3. Create an economy that can sustain itself and can, in turn, produce long-term job creation and economic growth.
  4. Prepare the next generation’s workforce for the changing economy.
  5. Improve America’s global competitiveness in both the short and the long term.

He then expands on his short term measures under the banner of ‘Immediate Impact Agenda’

  • Changing the way the US taxes – An area highly pertinent for Australia, he explains how America is still stuck at a 40% corporate tax rate compared to the European norm of 24%.
  • National Incentive Strategy – He points out that many countries are offering further financial incentives to relocate such as free land, low interest loans and even up to 80% start up salary support.  While this could be considered as corporate welfare, Liviris asks America to recognise this is the competitive nature of globalised manufacturing.
  • Regulatory Policy – again with messages for Australia, Liviris points out the need to simplify and harmonise rules; design performance standards to assist creativity not stifle it, increase collaboration between government and business, and benchmark regulations against other developed countries.
  • Continue to expand trade policies.

In his longer term policies he identifies:

  • A new look at education to first increase the number of ‘Science, Technology, Engineering and Math (STEM) graduates.  He expands on this through actions to improve teacher quality, lift national standards and improve skills training.  He proposes a number of positive incentives including tax credits to employers to encourage continuing education for existing workers and scholarships for STEM courses.
  • Change the immigration rules for graduates and other valued skilled people and increase the opportunities for entrepreneurs to set up in America.
  • Increase the innovation capacity and increase global competitiveness by using energy as a underpinning resource.  America is currently making great strides in self reliance through shale oil resources but on top of this Liviris wants America to put a price on carbon and aggressively pursue renewable energy expansion by supporting energy innovation.  Linked with this Liviris proposes that energy costs to America industries should be reduced to increase their competitiveness.  This is also a policy that Liviris endorsed strongly for Australia in his recent speech at the Australian Press Club.
  • Liviris recognises, again as Australia has, that America’s infrastructure is a limitation to productivity improvements and providing incentives for private- public partnerships and the creation of a national infrastructure bank.

While the book is heavily focused on the analysis of American issues, it has many parallels for Australia.  The good news for America is that some of these considerations are already being adopted into a national strategy that is seeing, as an example, companies like Brook Brothers, Adidas and Ford, moving their operations back to America.  The issue for Australia is that we are still waiting for positive and affirmative action.

Letters to the Editor:

One of our readers, Wayne, has written to the newsletter asking for advice;

“I am again planning the family festivities this Christmas.  In the past we have always been able to afford a lavish Christmas, thanks to some money my uncle John left us in his will and then of course the old credit card but things are getting tougher with the cost of living.  My eldest son is away working in the WA mines but he sent a very generous sum for us to spend this Christmas.  My middle child is disabled so I want to get her a good wheelchair and my other son has just been made redundant from a manufacturing apprenticeship and so I want to get him one of those little foreign cars so he can attend the job centre.  My youngest daughter is still at school and last year we built her a basketball court in the back garden to help her studies, so this year we thought we might actually get her some study books.  We are always able to put on a good spread as my wife Julia’s job means she gets lots of gifts at Christmas and this year we are inviting the immigrant family from across the road to have dinner with us so there is more to feed.  But my question is – we always have lots of lights on the house to make the neighbourhood happy and appear prosperous but is this what we should do this year? Will it add to global warming or should I get some solar panels to provide the energy?  I can buy these with some money I put aside for a holiday next year.  My next door neighbour, Joe is quite miserly, just has a battery driven three wise men scene and says we shouldn’t waste our money but I see the lights, not for us but for the entire street to enjoy.  Should I keep spending the money?

Editor’s response; – Wayne, keep spending; the economy is strong and the government gave you money for the carbon tax to keep on spending!  Don’t you get a great feeling when your house is the envy of the street?  So you can be good ‘King Waynelas’ looking out for all on the feast of Stephen!

Engineering & Manufacturing Influence News – Issue 5 September 2012

ISSUE 5 – SEPTEMBER 2012

The most significant development in this last month has been the release of the report on the future of Australian Manufacturing from the non-governmental taskforce set up by PM Julia Gillard.  The full report of over 90 pages is the result of over 8 months work by two governmental working groups under the direction of a 25 person taskforce comprised of eight parliamentarians, eight high powered industrialists, six unionists and three academics.

The report identifies what it says is a simple strategy; “Smarter Manufacturing for a Smarter Australia” and concludes with forty-one recommendations for government action outlined over a one, four and ten year timeframes.  The report is not easy to digest but the executive summary identifies a number of key future actions to be focused on the opportunities created by the Asian century:

  • Building a new and stronger generation of capable manufacturing organisations
  • Turning the $9.4b of investment in science and research into better applied knowledge
  • Ensuring companies see good reason for continuing to invest in Australia
  • Building better global supply chains
  • Building a smarter and more efficient manufacturing industry
  • Building more productive and collaborative workplaces

It would be very difficult for anyone to disagree with these proposals.  As manufacturing is such a broad church covering at least sixteen different sectors, the report does stress that there cannot be a broad brush approach but will have to be targeted to sectors that can give the most national benefit and have the most opportunity.  In this regard and with respect to Asia, it is suggested the focus should be on the following:

  • Automotive components
  • Clean energy and the environment
  • Food and beverage
  • Health and medical
  • Infrastructure and Building Materials

Of course, the Vernier Society’s primary interest is in sectors associated with ‘making things’ notably in metal and so the rest of this synopsis will try to expand on issues in these sectors whilst providing facts associated with the manufacturing industry in general.

Manufacturing employs close to 1 million people or 8.5% of the working population (as compared to mining that employs 200,000) It has lost over 107,000 jobs in the last four years and the report forecasts that it may lose a further 85,600 over next five years.    Manufacturing contributes over $103b of Gross Value Added (Value of goods and services produced) to the national economy or 8% of GDP and contributes 29% of Australia’s exports.  The major contribution sectors to the $103b are; Food, Beverage & Tobacco $22b, Petrol, Chemical & Rubber $21b and the two sectors of main interest, Metal Products and Machinery & Equipment, both contributing $18b each.

The distribution of GVA was given over eight sectors but when the employment split is further analysed this is over sixteen sectors with the major ‘making things’ sectors employing:

Sector Number of people
Clothing and Textiles 38,000
Fabricated Metal Products 55,000
Machinery and Equipment 110,000
Furniture 61,000
Total % 27%

The report has a complicated forecast of reducing employment but shows that three of these sectors (excluding Machinery and Equipment) will suffer the bulk of the further losses.

Of the 945k people employed, Victoria has 310,000 in total manufacturing or nearly 32% share.   When classifying roles, 25% of the people are now classed as highly skilled up from 19% ten years ago.  However, the report identifies that 43% of the workforce have either numeracy or literacy skills and 50% have no formal qualifications.  Finally more than 500,000 people work for small or medium sized manufacturing businesses and there are over 50,000 SME’s that employ less than 200 people.

Australian industry is currently said to be multi-speed economy with mining disguising ills in other industries.  To examine this more closely the report uses analysis done by the McKinsey Global Institute Sectoral and Industry Analysis (page 33/chart 3.2) which shows some very interesting results based on two key drivers.  ‘Differentiation’ that shows how differing industry sectors have different levels of value adding based on the uniqueness of the products, services and features and ‘Tradability’ that is the sectors ability to withstand competitive pressures.  As the report says the chart is complex but it shows that “more than other sectors, manufacturing is dependent on its ability to succeed in traded industries”.  Put another way and pertinent to Vernier, ‘making things’ sectors are highly tradable (both export and import) and so increasingly compete on differentiation of unique inputs, capabilities and consumer relationships.  The report further finds that “within-industry developments have greater economic impacts that changes in the industry mix. Or put simply as Michael Porter says “How a nation or region competes in its industries matters more than the industries it competes in””.  The full McKinsey report (interesting read) expands on this by identifying four areas in which government involvement can assist or hinder competition:

  • ‘Setting the ground rules’ – through setting a roadmap or using regulations
  • ‘Building enablers’ – R&D support and skills and training
  • ‘Tilting the playing field’ – protectionism
  • ‘Playing role of principal actor’ – State ownership or intervention

It will be interesting to see how the government applies these tools across various industry sectors.

While the report list 41 specific recommendations, the proposals are covered under some major policy directions:

  • Meeting current pressures by helping with investment and industry participation, to reduce the risk of loss of jobs and core manufacturing capabilities.
  •  Lifting productivity growth and reducing business costs via economy-wide proposals in transport infrastructure, broadband, energy, regulation and taxation reform.
  • Improving the benefits flowing to Australian manufacturing from our research investments including through a new platform for systemic collaboration with innovation hubs and stronger networks.
  • Building a cohort of medium sized world competitive firms and improving SME competitiveness through a new SME Strategy that targets SME capability.
  • Forging of a shared competitiveness culture through a new national partnership for workplaces, focused on the capabilities of managers and workers.

Editorial Comment:

 

The document stresses repeatedly that it is from the non government members of the taskforce, which are primarily industry leaders and union leaders.  The report is likely to therefore be a compromise between what at times must be opposing views.  The report suggests that is will not be recommending radical change, rather iterative, albeit innovative steps and this is what is delivered.  In fairness, in the detailed expansion of the overarching policy directions listed above, there are many good recommendations, particularly around the linking of research and innovation more directly to the needs of business and industry sectors in which Australia hold or have the potential to hold, a global competitive advantage.

Detailed reading of the report reveals a number of issues to the editor:

From the report is seems there are currently a myriad of government funded organisations that seem to operate across the manufacturing spectrum offering opportunities to industries and businesses.  Organisations such as AMTIL, CSIRO and Austrade are well known, but the report mentions among others;

  • Manufacturing Technology Innovation Centre (MTIC)
  • Enterprise Connect
  • Australian Manufacturing and Materials Innovation Precinct (AMMIP)
  •  Victorian Smart SME’s Market Validation Program
  • Researchers in Business Program
  • Defence, Science and Technology Organisation (DSTO),
  • Australian Research Council Centre of Excellence (ARCCE)
  • Commercialisation Australia

Besides this there are private organisations such as Insight Economics who provided information (one assumes paid for) to this report.

How can all these separately funded organisations be well managed so as to not to duplicate purpose, be well monitored and regulated and still ensure focus on benefit to the comprehensive manufacturing sector?  This seems to me to be a classic example of bureaucratic madness  and the task of controlling  these separate organisations must be huge.   One of the organisations mentioned is the ARRCE – a Centre of Excellence for Knowledge.  One of the 2011 funded projects listed on their website is a $24m, 7 year study into the ‘History of Emotions’ by the University of WA.  However valuable this research may be, I would have thought there were more beneficial uses for the money directly associated with manufacturing.

The report clearly identifies that Australia has gone backwards in productivity growth and international competiveness in which we have slipped from 5th in the world a decade ago to 20th today.  The analysis provided suggests specific comparative Australian weaknesses are in innovation, technological readiness and business sophistication (which has been translated in the report into management capabilities?).  The report, interestingly, quotes a Treasury Secretary suggesting that “we will get the biggest benefits from reform efforts, not in the same areas as the past but in areas that we have not yet focused on”.  Yet the report completely avoids any suggestions that our system of industrial relations should be an area for review and overhaul.  It can be reasonably assumed that consensus could never have been reached amongst the non government members on such a provocative issue and would probably have been vetoed from the report by the government anyway, but it seems such a denial to the elephant in the room!  How can a system based on bargaining, on adversarial relations and ambit claims ever lead to a collaborative and progressive culture?  We now live in a world of instantaneous global connection; a 24/7 world of commerce and of societal interaction yet we still see the working week as Monday to Friday and 37 hours.

The report quite rightly suggests that knowledge, innovation, design capability and skills are what will differentiate us in a highly competitive world and there are numerous good ideas including the setting up of innovation hubs for various competitive strengths to collect and disseminate knowledge for the benefit of Australian businesses.  Unfortunately, the report also recognises that that such innovation takes time to set up and accelerate and 4 years is a realistic timescale.  Of course, these actual benefits will also need to be recognised and agreed and governments are always reticent of choosing such capabilities for fear of failure.  Also governments seem to be using the economic climate for cost reduction rather than investment spending.  But a very good point was made by Mark Carnegie (Q&A 24/9) that investing in education (in this case the Gonsky Report) should be seen as vital for the future, regardless of the debt.  Surely this argument applies to manufacturing.  Leading the world in tradable engineering products based on leading edge knowledge and innovation is the key to the future prosperity.  Unfortunately, I cannot see either of our political parties having the courage to shed the baggage of the past nor the visionary intellect for the future to lead Australian manufacturing into a resurgent twenty first century.