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Canadian siteAustralian Manufacturing Crisis: Thinking Strategically About Operations and Supply Chains
By Dr Mohsen Varsei, Senior Lecturer and Discipline Leader, Australian Institute of Business.
The government recently acknowledged that ‘manufacturing in Australia has stagnated. Not enough manufacturers are scaling-up’. Its ‘vision is for Australia to be recognised as a high-quality and sustainable manufacturing nation that helps to deliver a strong, modern and resilient economy’. To reach this vision, companies need to think strategically about their operations and supply chain.
Factory Closure: People Feel Gutted
Overall, the manufacturing sector in Australia has the potential to do better, particularly when we compare it globally. For example, we can consider a country of similar size and economy: Canada.
According to recent data, Canadian manufacturers export more than $354 billion, representing 68% of all of Canada’s merchandise exports. Australian manufacturers export $54 billion, making up only 11% of Australia’s total exports which are heavily concentrated in natural resources for one or a few markets. This low diversification is risky given geo-political dynamics in the region. What if an export market stops buying Australian resources (e.g. coal) or service (e.g. international students); what if a black swan disruption happens (e.g. COVID-19)?
Canadian manufacturing sector creates ‘1.7 million quality full-time, well-paying jobs’, while ‘full-time’ manufacturing jobs in Australia are around 1 million less. Given the average household size of 2.6 in Australia, 1 million jobs could mean a better life for 2.6 million Australians. This is a big gap which can be filled by a world-class manufacturing sector.
We have all felt the decline of Australian manufacturing, for example when a community was impacted by news like this: Toyota to close: Thousands of jobs to go as carmaker closes Australian plants by 2017. Some research says that factory closure ‘resulted in highly visible redundancies amongst the vehicle producers, and a more profound, but less noticeable, loss of employment within the supply chain’. We know that losing job is not an easy thing. People ‘feel gutted’. They cry, silently.
Figure 1: Henry Fuller leaves the Geelong Ford plant on the day the closure was announced. Credit: Penny Stephens.
Scaling-up by Operations and Supply Chain Strategy
But we can reverse this decline. Australia can and must do better for various socio-economic reasons. What we can learn from operations and supply chain management research can help us, for example, by showing how other nations experienced manufacturing decline, and the roadmap to revitalise the sector and become world-class.
Wickham Skinner, a Harvard Business School operations management academic, was among the first to investigate the ‘decline of American manufacturing’ in the late 1960s. Attacking the conventional wisdom of the time, he argued that great marketing and finance were not enough for a business to compete globally. It needs to be good at operations, as well. It must have a strategic view of its operations.
Skinner’s 1969 article “Manufacturing – the Missing Link in Corporate Strategy” and 1974 book “The Focused Factory” developed a new concept used by several companies around the world: operations strategy.
This concept was further developed by his colleagues, Hayes and Wheelwright, who proposed a four-stage model for operations strategy. This model could be applied to both manufacturing and service organisations. And, as globalisation has extended operations to global supply chains for many businesses, the model could (and should) be adapted to include supply chain:
Figure 2: Maturity Model for Operations and Supply Chain Strategy (adapted from Hayes and Wheelwright cited in Slack and Brandon-Jones)
This model is an honest mirror in front of us, saying where we are and what the next levels for improvement are: if we reactively correct the worst problems, we are in Level 1. It is fine to follow best practices, but then we are only one level above the worst (i.e. Level 2). When the organisation’s strategy is clearly linked with the operations and supply chain, we are in Level 3.
At the highest maturity level (i.e. 4) the operations and supply chain drives the organisation’s strategy. Operations and supply chain excellence helps the business redefine industry expectations and set new horizons. It becomes the advantage. Global businesses like Apple, INDITEX (Zara), IKEA, Nike, Tesla and Amazon (e.g. watch this presentation by its supply chain executive) share the characteristics of Level 4.
Let’s Re-think Together: Few Questions
Now the first question worth exploring is: how many businesses and executives in Australia think, say and act in Level 4? If we honestly reflect on our (often unnecessarily) long board memos, committees, reports, and most importantly on facts (because they are often misinterpreted and lost in words), I think the answer is ‘very few’. Even if the answer is ‘there are some’, we can and should have more.
Founded in 1976, in August 2020 Apple Inc. reached $2 trillion market cap. We don’t buy Apple (or Samsung) phones because of national pride or government subsidy or pressure; the product must sell itself in the long run.
And if it does this well, the reward for a world-class business is huge: the global market. According to European Union, the ‘global middle class is expected to grow and reach 5.5 billion by 2030’. Various technologies in the 4th Industrial Revolution, digitisation and digitalisation have made global markets much more accessible. The world’s most valuable car company, Tesla, sells its car online, ‘no car salesman’. Tesla has redefined industry expectations by innovative processes, operations and supply chain (see Level 4 in Figure 2).
The second question worth exploring is: have we educated managers in Australia well to think, say and act in Level 4 of operations and supply chain strategy? In how many business schools in Australia we have a dedicated team of academics (similar to finance, human resource and marketing) who focus on operations and supply chain?
I hope I could be proven wrong, but to the best of my knowledge the answer is again ‘very few’. Overall there are only few public (e.g. University of Melbourne) and private (e.g. Australian Institute of Business) providers in Australia which have a dedicated team for operations and supply chain education and particularly for executive education (e.g. MBA). Only a few teach concepts like operations strategy to help Australian managers think and act in Level 4.
But this is not the setting in most leading business schools, for example in Europe (e.g. INSEAD, London Business School) and North America (e.g. Harvard). And this does not represent today’s business world at all where we increasingly see Chief Supply Chain Officers and Chief Operations Officers on the board, even becoming the CEO (e.g. Apple’s CEO, Tim Cook).
As Harvard’s Skinner argued, great marketing and financial wizardry are not alone sufficient; we need strong operations (and supply chain) to build more world-class manufacturing (and service) businesses in Australia. Businesses like Tesla, like Apple.
We need managers who do not merely follow best practices and can think big in line with Level 4, strive for excellence in operations and supply chain and redefine industry expectations by a unique way of making products/services and delivering to customers around the world.
A country that does not look after itself is doomed! Hoping and wishfully thinking of foreign support in times of needs is only a fallacy created into the minds of poor unsuspecting people, these are the greedy and self-centred businessmen and politicians! No face mask during Covid is a great example! Developed country and yet incompetent in the basic health product! China and other producers rightfully, exercised their country first! And then the foreigners! Was the money in the pocket any use?
We in Australia have the best brains comparable to any developed country and yet we have taken the easy route to sell our products, which is low in added value and typically raw in most product. With innovation, constraint in manpower resources, yet abundant natural resources we have yet to get our politicians to look at how to incentivise policies and provide financial(tax or otherwise) support to get the private and public collaboration into building sustainable manufacturing industries purely for the purpose of export with minimal local requirements. Each state looking at its available resources and looking at how to turn it with secondary added value to global needs. The Australian brand is a sellable value and is well received by the world over, why then should we not spend public money into high technology products. Don’t have to go for product volume but for quality and advancement in technology.
What we need is to get the ball rolling into design and manufacture and add value to products for defence, health, agriculture, mining raw, technology, in my many years of engineering experience, I did research on Australian workers and compared with people from other countries, I found that the world over many countries produce products which are very cheap and but lacks quality, many reworks and inefficiencies! And the Australian workers are slow but put in their thinking hat and produce quality products that requires lest rework! The number of times a supposedly completed overseas product that requires further attention to solve inherent deficiencies and not fit for purposes outweighs the slightly higher costed Australian product. Yet with budget overruns and bias project costing that looks attractive in paper products, we fail to look at our own business in greater scrutiny.
I hope for the sake of the next generations of our youths, I hope the politicians will look deeper into getting a set of policies that will give them a foothold in Australia with sellable skills and bring Australia to the forefront of technological sustainability and superiority in the world. Our boys and girls should not be guided to be waiter and waitress in cafes and restaurants, but be in positions to contribute in advancement of technology industries and be part of a new Australia.
Don’t not let these low self-centred businesses and their marketing politicians that looks only at profit regardless if they destroy the society or not! With such wealth they will move from one country to another regardless of the state the society is left with! We need sustainability in every aspect of our people’s wellbeing and future. Hope we can group together, lead and drive the need to build Australia’s Technology and Manufacturing capability and capacity to face any future challenges.
We need to exercise our vote effectively and get politicians voted into power who have the drive to bring Australia to Technology heights and constantly looking at polices and drive to be abreast with the world.
Thank you very much for this comment, Thangarasu. I like several parts of it, for example when you say: “Our boys and girls should not be guided to be waiter and waitress in cafes and restaurants, but be in positions to contribute in advancement of technology industries and be part of a new Australia.”
The government has started the investment, but it needs to do much more. We also share the responsibility, in academia, in industry, in our community. All of us.
We may need to shift our focus points and start highlighting a new conversation for the long-term prosperity of Australia, and your comment, Thangarasu, greatly assists in doing so. Thank you, again, and I encourage everyone to continue this conversation and share their comments.