Manufacturing sector has been critical to resilience throughout the pandemic

Grant Thornton released its 2022 Manufacturing Benchmarking Report giving a unique view of the Aussie manufacturing industry. Now in its seventh year, the Manufacturing Benchmarking Report helps mid-sized manufacturers track their performance against industry benchmarks across a number of data points – including sales trends, gross margins, workforce costs, inventory lockup, and capex – and highlights potential avenues for improvement.

The sector has been critical to national resilience throughout the pandemic. Manufacturing makes many contributions to everyday life and Australia’s economy by encouraging commercialisation and R&D, creating efficiencies, generating export activity, and drove the production of crucial personal protective and medical equipment throughout the pandemic.

What were the findings of the study?

The impact of the initial outbreak is revealed in the 2022 Manufacturing Benchmarking Report’s sales numbers with a sharp decline in sales growth from 7.6% in 2019 to just 1.79% in 2020. In 2022, the industry experienced overall sales growth of 4.6% showing that while the growth rate is trending upward, it is still impacted by global supply chain challenges.

Another good outcome for the manufacturing industry in 2022 average debtor days were at 47, below their pre-COVID levels where the industry average in 2019 was 62 days. As the economy is experiencing high inflation, sales growth for 2022-23 will likely increase greatly.

However, the high inflationary environment will also pose many challenges for the year ahead for all businesses, including those in the manufacturing sector. The headline anticipated inflation number for the December 2022 quarter is 7%, but there are many actual cost increases businesses are also facing now that far exceed the cost of inflation.

Supply chain issues have seen the cost of raw materials increase greatly, and both freight and energy costs have doubled or more for mid-size manufacturers over the last year.

The 2022 benchmarking report also recorded staff costs as a percentage of sales, which are between 1 and 1.7 percentage powers lower in 2022 compared to the previous year across all market segments. A shortage of workers and unavailability due to illness has meant that businesses have not been able to grow their workforce at the same rate as revenues.

In addition, many manufacturers have been hesitant to add to the cost base of their businesses due to prevailing uncertainty in the market. Wage increases as a result of rising inflationary rates, coupled with returning workforce capacity mean that manufacturing businesses will need to closely monitor workforce efficiency to manage staff costs.

What were the executive’s thoughts on the report?

“While the sector has shown strength, it is not immune to challenges – like skill and labour shortages, supply chain gaps and finding its place in a highly competitive global marketplace,” said Michael Climpson, Partner & National Head of Manufacturing at Grant Thornton.

“But there’s light at the end of the tunnel with major investment into the sector as a result of a strong push by Government for manufacturers to scale up, establish Australia as a manufacturing nation, and position itself as a strategic partner in global supply chains.”

“This includes the Modern Manufacturing Initiative, Patent Box, the R&D Tax incentive, multiple state-run initiatives, enterprises to improve Australia’s trade system and support Aussie exporters. Many of these initiatives are specifically targeted at mid-sized manufacturers and play a key role in bringing these ambitions to scale up domestic capabilities to life.”