As we move into 2017, the Australian Government is placing much faith into its Advanced Manufacturing Growth Centre (AMGC) which points to the success of a number of globally focused Australian advanced manufacturers. AMGC claims that “these companies employ a large number of scientists and collaborate heavily with universities and the CSIRO”, citing perhaps the “best-known example of Cochlear, which designs, produces and supplies implants for the hearing-impaired in more than 100 countries.” AMGC refers to “other companies such as Cablex, Marand Precision Engineering and Sutton Tools which may not be household names, yet each of these ‘quiet champions’ has established indelible places in global supply chains by contributing high-value tools and parts that other manufacturers convert into finished goods.”
That said, it needs to be recognised that prior to 2000, manufacturing was largely about the production of goods. Today, the boundary between manufacturing and services is disappearing – manufacturing is now the full cycle of activities from research and development, through design, production, logistics and services to end of life management.
In today’s globally competitive environment, manufacturers need to be committed innovators, global supply chain managers and service providers who are engaged not only in production but in research, design and service provision, even entrepreneurs. In other words, manufacturers are engaged in activities that develop, produce and deliver both goods and services to customers. When a company claims to be a manufacturer, and in the case of larger firms, an ‘original equipment manufacturer’ (OEM), it is more than likely that the manufacturer is assembling a whole range of products made by other companies.
In the case of aerospace, automotive and defence OEMs, there is a supply chain relationship which extends through first, second and even third tier suppliers. It is this system that allows OEMs to leverage competition between various suppliers at each level in the system.
Some manufacturers (the former Australian owned HPM comes to mind in this regard) prefer to be totally vertically integrated. These firms more often than not and where they have the expertise, are disposed to make the machines that do the manufacturing and assembly of the various componentry. Although vertical integration is becoming less common as companies now tend to specialise at some point in the overall global system. Moreover, many of the truly advanced manufacturing economies are characterised by firms that specialise in making (increasingly) robotic manufacturing machinery.
Therefore today’s global manufacturing system is part of a complex and highly integrated value chain, making it prone to fluctuations in global input costs and the Australian dollar. The value chain includes ‘cutting edge’ science and technology, innovation, skills, design, systems engineering, supply chain excellence, and a wide range of intelligent services. It also includes energy-efficient, sustainable and low-carbon manufacturing. In one sense the growth of additive manufacturing and digital manufacturing generally as well as robotics combined with artificial intelligence is driving this transformation. Moreover, Australia does have a rich tapestry of SMEs from software and product developers such as Planet Innovation and Grey Innovation through to key suppliers in the global value chain such as Micreo, Cap-XX and Austeng, and not forgetting the medical device OEM, Resmed, which is another global Australian manufacturing icon.
In short, for the longer term benefit to Australia, advanced manufacturing needs to be understood as the establishment of industrial ecosystems where ‘value add’ can be maximised through the growth of technology-enabled firms which transform away from just assembling and/or integrating imported componentry.
The AMGC now concedes that much more work is needed to ensure that a new generation of Australian companies follow their success. Major items on the nation’s to-do list include skilling Australia’s workforce, fostering stronger research collaboration and offering greater capital funding for start-ups. Not surprisingly, the Growth Centre has claimed that “with the right blend of committed industry partnerships and government support, the future of advanced manufacturing in Australia is bright.”
For its part, the Manufacturing on the Move (MotM) LinkedIn discussion group, which is providing input to Reinvent Australia, supports the AMGC view that there needs to be a strong focus on improving government support for business-led R&D and encourage industry–research collaboration. Reinvent Australia agrees with MotM that the AMGC must be encouraged to keep an open dialogue with manufacturers, research institutions and industry associations and to encourage strong prospects to apply for and co-fund projects.
MotM is also arguing that there is an opportunity for the Australian Government to follow the lead of the UK and USA Governments to set aside a proportion of the substantial Defence procurement budgets (particularly relating to submarines and warships) for supply by Australian SMEs. Without a legislative framework designed to achieve this objective, there is a real concern that the large multinational primes will simply procure manufactured products and services through their offshore supply chains. Existing arrangements indicate that less than 3% of public funds spent on Defence procurement are channelled into Australian SMEs – this compares unfavourably with the situation in the UK where legislative requirements require 25% sourced locally. Surely, this approach can achieve bipartisan support right across the political spectrum!