Leaning Towards Manufacturing

In the height of the mining boom, Australia lost sight of the importance of strengthening its manufacturing sector. [1] This is a sector that relies on developing creativity and innovation. It requires the input from research institutions to provide insights into the goods of the future. It needs the support from policy makers to nurture the skills and thinking of employees. More importantly, though, the sector must stay in competition with the emerging and developed markets.

With closures in the car manufacturing industry, a freeze on government investment in wind and solar operations and a shift in focus towards tighter fiscal policies, Australia is planting the seeds for a weak post-mining economy. Gary Pisano, a professor at Harvard Business School, says that it would be regrettable for Australia to leave manufacturing. [2] Now, manufacturing companies need to realise that internal changes to management could reinvigorate the industry with more efficient and streamlined large-scale production. This often neglected component of competitiveness requires greater attention.

During the 1960s, employment in manufacturing was at its peak. Now, 10% of Australian employees work in the sector. [3] In 2013, the government spent 0.56% of GDP on research and development. [4] This was the lowest since 1978–9. This seemed to downplay the importance of forward-thinking innovation. With the cost of labour in Australia being one of the highest compared to OECD countries in 2013, manufacturing found itself in decline as companies outsourced operations to India and other low labour cost nations. [5] With greater competitiveness from leading manufacturing countries such as China, USA, Japan and Germany, [6] Australian companies need to look within the firm for improvements.

An assessment of operational strategies improving production line times, problem identification and rectification, and teamwork structures could help to improve productivity. The Karpin Report from 1994 identified a need to look at the internal structures of a firm to determine how management should adapt during a phase of greater future demand in the global marketplace. Australia has faced a number of unhelpful factors such as an overvalued currency, isolation from its trading partners and a strong union force.

In order for economic activity to fill the gap widened by the receding expansion from mining, Australia’s manufacturing industry has a lot to learn from being ‘lean’. Many firms are embracing this concept born in the early 1980s in the Japanese manufacturing industry. Now known as ‘lean management’, [7] this system, coined in 1988 by MIT graduate John Krafcik, is a process of eliminating ‘waste’ in the operational process. This concept is not a solution, but a strategy to be applied with other management systems to act as a supplement for a long-term competitive position. However, lean might not be healthy for the workforce and it might set unreasonable standards that could result in more errors. Whilst it aims to ensure that resources are used effectively for a purpose, lean strategies might overlook the external market and economic environment.

By using resources appropriately to minimise unnecessary costs, the objective is to maximise value to the end-user. It assumes that the removal of ‘waste’ will improve quality, speed up the processes in the assembly line and eliminate costs associated with non-streamlined work. A firm that employs aspects of lean management will continuously look internally at its processes and assess where it can make improvements. This is the meaning of ‘Kaizen’. Instead of a firm trying to be competitive by focusing on their position in the market, such as quality and price, a lean firm will examine their operations first. It is not about leaving senior management to solve problems. Instead, it relies on the workers from various departments coming together to identify solutions to problems that they face based on the experiences that they have in their position.

Many firms invest heavily in improving their performance. But is being keen on lean a rewarding strategy? Ensuring that processes in the supply chain are done just in time might result in a fall in quality. This is what happened with Toyota which led to a car recall. [8]

With greater interdependence between the departments, a break in the flow might see a stoppage unless the particular issue is resolved. Outsourcing parts of the supply chain might be cost effective but it can give rise to a lack of oversight and control. With the manufacturing industry relying on skills and intellect, streamlining the department might lead to a reduction in the double-up of work. However, it might see the experienced workers out the door. Firms need to be mindful that excessive lean tactics can be harmful if the organisational structure of the firm cannot withstand the system.

Australian manufacturing companies should look to the management systems of abroad to learn about continuous improvement. It is a beneficial tool if implemented well. Whilst the bonuses from anecdotal evidence seem great, it needs to be tailored to the firm. Australia should not undervalue the importance of manufacturing, especially during a phase where it is shifting away from a heavy focus on the minerals lying below the surface of this great nation.

Carl is a fourth-year commerce and law student with a fascination for complex issues and strategic solutions. He likes to think about the future of the economy and how changes to micro- and macro-economic factors will see a different trajectory.

[1] Deloitte. (2013, July 1). Investment and GDP Profile Study: Business Council of Australia. Retrieved from http://www2.deloitte.com/content/dam/Deloitte/au/Documents/finance/deloitte-au-fas-investment-gdp-profile-report-8-aug-2013-240914.pdf

[2] Fickling, D. (2015, July 13). Australia’s still too Expensive for Manufacturing, even after Currency Drop. Bloomberg Business. Retrieved from http://www.bloomberg.com/news/articles/2015-07-12/cheap-aussie-can-t-savefactories-one-gets-shipped-to-india

[3] Hahessy, E. (2014, April 14). Where to now for Australian Manufacturing? The Age. Retrieved from http://www.theage.com.au/national/education/voice/where-to-now-for-australian-manufacturing-20140414-36ncz.html

[4] ABC Fact Check. (2014, October 7). Science, research and innovation spending cut to ‘historic low’. ABC News. Retrieved from http://www.abc.net.au/news/2014-10-07/adam-bandt-research-development-spending-claimchecks-out/5789134

[5] Fickling, D. (2015, July 13). Australia’s still too Expensive for Manufacturing, even after Currency Drop. Bloomberg Business. Retrieved from http://www.bloomberg.com/news/articles/2015-07-12/cheap-aussie-can-t-savefactories-one-gets-shipped-to-india

[6] Meckstroth, D. J. (2015, March 30). China Solidifies Its Position as the World’s Largest Manufacturer. Manufacturers Alliance for Productivity and Innovation. Retrieved from https://www.mapi.net/chinasolidifies-position-worlds-largest-manufacturer

[7] Krafcik, J. (1988). Triumph of the Lean Production System. Sloan Management Review, 30(1), 41–52.

[8] Wakabayashi, D. (2010, January 30). How Lean Manufacturing Can Backfire. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/SB100014