Written by SEMMA CEO Vonda Fenwick
vonda@semma.com.au
The COVID 19 pandemic has thrown into stark relief the risks associated with supply chains which extend beyond Australia’s borders. Those risks have now been recognized and the need to on-shore manufacturing for safety-critical items – medical equipment and personal protective equipment – to make Australia self-sufficient has been championed by politicians on both sides with the call for “national capability” being led by the Prime Minister, Scott Morrison.
A narrow focus on just medical equipment and possibly pharmaceuticals fails to recognize the importance of maintaining and growing our broad-based manufacturing sector. Decision making regarding purchasing of Australian Made or imported goods needs to acknowledge not just price comparisons but Total Cost.
The procurement process will no doubt consider the price of the product being sourced, freight and duties.
Assuming the overseas price is lower than local competitors’ products, the decision may look easy. Recent events however have highlighted the avoidable risks of buying from overseas.
Risks
- Supply chain risk – civil unrest (Hong Kong); pandemics – supply delays out of China, US, Europe.
- Poor Quality – especially in safety critical products. Poor quality in terms of failure to meet specifications and standards, poor reliability and issues around durability, especially within harsh Australian environments.
- Tales are legion around forged or falsified quality and test certificates on imported goods. Flammable building cladding is a high profile example of failure to meet standards with potential for catastrophic consequences. This latter example also exemplifies the exponential nature of quality failure costs i.e. costs increase exponentially depending upon whether the failure is identified at receipt, during installation or after failures in the field.
- Inability to get redress through foreign legal processes can leave buyers with major costs and defective products.
- Reputational risk – whether importing a complete product, raw materials or components, failure costs extend to reputational risk for the Australian importer/seller particularly in those cases where the item is being badged by the Australian company as their own brand.
- Speed to market/transport time – may create a need to hold buffer stock/inventories.
Benefits
By contrast, On-shoring provides a host of benefits to our economy: –
- Local, accessible supply chains.
- Healthy, profitable, resilient manufacturing companies.
- Australians employed in manufacturing Jobs – Paying income tax to “pay down the debt”.
- Reduced demand on Centrelink payments
- Employed people better able to afford housing.
- Properly housed, employed people have significantly better mental health leading to budget savings and less stress in our health care systems.
- Environmental benefits – reduced transport miles (air/sea freight).
- Local companies able to engage in innovative R&D in conjunction with our universities.
- Skills, knowledge and capability retained in Australia.
- The “multiplier effect” for manufacturing has been shown to be greater than any other sector; fostering on-shore manufacturing creates direct jobs which in turn flow into the economy and drive further employment.
A manufacturing revival can be ‘kick started’ by ensuring that all current and future Government purchasing contracts require a significant percentage of local content – not just major construction projects. In Victoria alone there are some 300 government agencies, with 500+ projects in the $275 – $1M range; these are ideally suited for SME’s (small to medium enterprises i.e. those with less than 199 employees). In fact, more than 80% of Australia’s manufacturing companies have less than 30 employees. Companies which contribute to supply chains building roads, bridges, trucks, buses, caravans, rolling stock, doors, scientific equipment, windows, architectural panels, coatings, plastics, electronics, machined castings, hydraulics, gears, floor coverings, furniture, mining equipment, farm machinery, munitions, aerospace and defence equipment. Over recent weeks many of these companies volunteered to assist with production of urgently needed ventilators and PPE demonstrating the capability and versatility of our current manufacturing base.
To focus on just medical equipment and pharmaceuticals fails to recognise the importance of having broad-based, robust and resilient supply chains within Australia. In the short term an active import replacement programme will provide new opportunities for Australian manufacturers. R&D incentives, focused upon outputs taken through to commercialization, will enable innovation to thrive. Robust supply chains and the critical part played by SME manufacturers needs to be considered when developing a new manufacturing industry plan; our standard of living, our ‘national sovereignty’ depends upon it.
