A new report on the health of Australian manufacturers has found the industry is in good health, but there’s a shrinking middle class,
According to the report, at 63 out of 100, Australian manufacturers have successfully rebounded from their pandemic woes, improving their supply chain management, stock levels, and overall profitability
“If you were going off of the news alone, you would probably think industries like construction, beverage, and clothing manufacturing were on the brink of collapse. The truth is, as always, in the numbers,” said Jarrod Adam, Unleashed
“Australian manufacturing is facing various headwinds including pressure from overseas manufacturing, market consolidation, and tightening pockets, but it’s showing that it’s remaining resilient, despite it all.”
The Manufacturing Health Index determines the industry fitness on a scale of 0-100 for small to medium-sized manufacturers throughout New Zealand, Australia, and the United Kingdom. The index is calculated using a combination of sales, expenditure and overall efficiency metrics, analysing 2658 manufacturers across 16 different industry categories.
The haves and the have-nots in Australian manufacturing
Despite a positive overall score, Q3 2023 has been a case of the haves and the have nots in Australian manufacturing, where the majority of the 16 sectors studied are either doing poorly, or doing very well.
Nine out of the 16 industries scored 39 or below, and the remaining seven registered a health score of 57 or better. Further, only Beverages (57) registered within the 40-60 range, compared to NZ and the UK, which had six each in the middle range.
The secondary concern for the broader Australian manufacturing industry is the high levels of overstock — calculated by Unleashed in terms of inventory in excess to the needs of a business.
Unlike NZ which is gradually reducing the amount of excess inventory on its books, Australian manufacturers have seen these numbers rise since last year, up to an average of $259,390, from $244,205 in 2022.
Aussie ‘rag trade’ renaissance?
The Australian ‘rag trade’ has had its fair share of negative publicity in recent years, but the reality on the ground for the local manufacturers this quarter has been far more optimistic.
Clothing manufacturers were the third best performing market segment analysed at 96, reflecting buoyed profitability, and a significant drop in their overstock volumes down to $133,619, from $208,847 in Q3 of 2022.
Clothing saw the most impressive speeding up of their lead times, coming down from an industry-high 56 days in 2022, to 24 days in Q3 2023. Despite the drastic change, this is still a working week longer than the industry average of 19 days.
Building and construction defies negative rhetoric
The Australian building and construction industry, which has also faced some gloomy sentiment throughout 2023, is in strong health with a 76 in Q3, the fourth highest of the 16 industries analysed.
The optimism in building and construction is largely based on improving overall profitability, though the industry continues to struggle with overstocking, up to $309,713 from $297,508 in Q3 2022.
Cosmetics takes a Q3 battering
In the cosmetics and personal care industry, heavy consolidation within the sector and large international entrants has heaped pressure on small to medium sized independent cosmetics brands.
Dwindling profits have seen the sector score just 13, making it Australia’s worst performing of the 16 studied. Surprisingly, just across the ditch, New Zealand cosmetics brands were the country’s best performing industry, scoring a perfect 100 health score for Q3.
Close on their tail, Aussie sports and recreation manufacturers have also seen a turn for the worst scoring just 17. The poor health rating reflects slowly diminishing profitability since the early days of the pandemic, despite the industry seeing improvements in their lead times, which have dropped to 21 days, from 48 in Q3 of last year.
Australian food & beverage doing far better than NZ
Beverages, which have been shrouded in the gloomy predictions of a ‘craft beer recession’ in recent months, have proved resilient, scoring 57. Further down the aisle in food, things are less rosy at 31, but not dire.
Overall, the overstock is down across both sectors over the past year, reducing from $69,239 to $59,623 in beverages, and $286,005 to $224,025 in food.
By contrast, New Zealand’s struggling beverage and food industries are on the ropes, scoring just 2 and 1 out of 100 respectively.
Aussie manufacturers in an overall strong position heading into 2024
Despite the large spectrum of health positions within Australia’s manufacturing industry, as a whole the compass appears to be pointing in the right direction.
This sentiment is particularly evident in the perfect 100 point bill of health given to the Industrial Machinery, Raw Material and Equipment and Automotive and Automotive Supplies sectors which have found ways to navigate a complex economic environment and maximise operational efficiency.