If business performance metrics are to be believed, the manufacturing sector is in bad shape. Headlines from the Performance of Manufacturing Index are depressing: ‘Downward Spiral’, ‘Entrenched Contraction’, and ‘Struggle Street’, to quote a few.
The latest data from Xero’s small business insights shows manufacturing firms are most likely to be paid late, and take the longest to be paid.
The Ministry of Business, Innovation and Employment says job advertisements for manufacturing are down 10 percent, and according to the latest annual GDP data manufacturing contracted by the biggest margin of all sectors.
It should not be a revelation that the sector is struggling.
Earlier this year the government, in partnership with Māori, industry and unions, released its Industry Transformation Plan.
The Plans were part of the government’s commitment to pin down what certain sectors as they sought to move into high productivity, high wage and low emissions economy. Agritech, construction, fisheries and tourism were among the other sectors that have such plans.
“What is manufacturing? Because manufacturing, at the end of the day, it’s almost becoming the back office to a technology company.”Catherine Lye, Advanced Manufacturing Aotearoa
To deliver on what had been decided on from that plan for the manufacturing sector – things like better pathways for school leavers, and investment in new technology – Advanced Manufacturing Aotearoa was born.
Its chief executive Catherine Lye, who has previously worked for the Employers and Manufacturers Association and Export NZ, said the global downturn in trade had hit manufacturing particularly hard, as 60 percent of manufacturers export their goods.
“I heard from one of the manufacturers that exports to South Africa are dire – one of their customers has just stopped ordering and 40 of the stores that this Kiwi company supply into have all shut down. And you’ve got UK and Europe not looking great.”
“So these manufacturers have been sitting on their hands for a while waiting for the orders to come in.”
However not all companies are in the same boat.
“There’s another company that supplies darts into the UK that’s going gangbusters. So you’ve got some manufacturers that supply into the high end premium market and are doing okay now, but mid-market it’s really, really tough.
“There’s a manufacturer that sells wood-chipping equipment to homeowners and because of interest rates that discretionary spend is impacting on sales. So the sales to that segment of the market might be down, say, 25 percent. But selling into another segment of the market like industrial arborists is doing well.”
The sector was hoping for an uptick which would see orders and production pick up again.
“They’re actually using this quiet time to review their processes and their systems and where they are investing in new technology, they’re spending this time to perfect it and to get it working well so that when things rebound they’re well positioned and geared to respond.
“I reckon it’s probably going to pick up over the next few months.”
The sector is New Zealand’s largest exporter, accounting for three-quarters of goods shipped offshore. It’s also the second largest employer of Māori and largest employer of Pasifika.
“Manufacturing has always been playing second fiddle… it is a place where governments have not been very forthcoming with funding.”Professor Xu Xun, Auckland University
Auckland University Professor of Mechanical Engineering Xu Xun heads The Laboratory for Industry 4.0 Smart Manufacturing Systems – a think tank for “the fourth industrial revolution”, the emergence of smart technology and robotics.
Two years ago he wrote how manufacturers needed urgent change to survive post-Covid, including an end to reliance on “manual and archaic machinery” which made it difficult to compete internationally.
But investing in new technology is easier said than done. For starters, it’s expensive.
Xu said the diversity within the sector, and the fact it was mostly small and medium sized businesses, made targeted government help for investment difficult.
“They often don’t have their own products, they serve other big companies and they get contracts from other manufacturers. So this has not helped governments coming forward with big plans. Because these are smaller businesses, they don’t really see the real impact.
“Manufacturing has always been playing second fiddle… it is a place where governments have not been very forthcoming with funding.”
In addition to this the uncertainty of the last few years has made investment calculations even more difficult.
“The economic uncertainty yes, but even government uncertainty on the regulation side as well environmental regulations… they have perhaps held back about investments in certain areas and it’s just a wait and see.”
Despite this, he said recent measures of business performance in the sector may not be telling the full story.
He said a downturn in job listings could be as a result of investment in technology.
“Perhaps the need for people to work in the factory has dropped?”
“We still need people, but they’ve just changed their role. So that we don’t know. Maybe they now come under another job classification that’s not manufacturing.”
“I think manufacturing is a bit of a dirty word, people think of a smelly old factory and someone wearing a welding mask and it’s kind of perceived as being at the bottom.“Catherine Lye
He said jobs that could be automated, were starting to be, so there would be fewer people doing the traditional factory floor work.
“But I think other areas of manufacturing we need more people. So this is what universities need to take notice of, we need to be a one step ahead for the younger engineers we’re training for the future. Are they ready for this shift?”
Lye agreed, saying the crossover between manufacturing and technology sectors was huge.
“What is manufacturing? Because manufacturing, at the end of the day, it’s almost becoming the back office to a technology company.
“So businesses like Fisher and Paykel healthcare, are they a manufacturer or are they a health-tech firm? Gallagher’s – are they an agri-tech business or a manufacturer?”
Onwards and upwards
The Industry Transformation Plan set six priorities for the sector, one of which was to address how people saw it.
This is something Lye has been working on recently.
“I think manufacturing is a bit of a dirty word, people think of a smelly old factory and someone wearing a welding mask and it’s kind of perceived as being at the bottom.”
She’s also talking about the impression school leavers get of the industry.
“It’s more aspirational for kids to be going into university and doing degrees and the tech story is not currently linked to making things so, really manufacturing it’s just not what you think and it’s not top of mind.”
The group is working with the Hanga-Aro-Rau (Manufacturing, Engineering and Logistics) Workforce Development Council on the issue although Lye would like to see things move faster.
Getting this work-stream moving would help with one of the other priorities – developing and attracting a high-skilled workforce.
“You’ve got all these individuals with that skill set who are retiring … and so you’re losing access to that.”Catherine Lye
Lye refers to a hydrogen company in the Bay of Plenty with huge demand at the moment but is constrained by workforce.
“They’ve had 71 percent growth last month, yearr-on-year 40 percent growth. So they’re investing a lot into technology to help ensure that they can meet the capacity for the growth opportunities that they foresee but then the problem is they’re needing the workers who have the skill sets to be able to operate a lot of this machinery that’s being brought into New Zealand because we don’t have that skill set available.”
Similarly ageing experts in the field don’t have enough young talent to train up.
“If you look at heat treatment technology, there’s only one company in New Zealand now who can do that because that skill set is not available.
“You’ve got all these individuals with that skill set who are retiring … and so you’re losing access to that.”
She urged the incoming government to let the work begun under the plan continue.
“It was an a-political collaboration. Business, unions, Māori, Pacific, and government had a lot of input into that plan and the outcome of the plan really addressed real world practical challenges that the sector are facing.
Now, what it’s called going forward, what the government call it, it may not be called an Industry Transformation Plan, I think there’s just got to be very careful consideration given to who provided input into that plan.
“It’s not just something that the previous government produced.”