It’s no secret that our Australian manufacturing industry is taking a quite a hit lately.
Although the sector is receiving some assistance from the government and other focus groups, ultimately it's up to the individual operation itself, to be competent enough to shrug off external or internal pressures that could have it buckle and fall.
The truth is that a manufacturing business survives for only as long as it remains financially sustainable and this is generally achieved by having the product cost less to produce than it is sold for. Basic stuff, but it is amazing how many manufacturers have gone broke over the past 2 years, amidst whispers of more closures soon.
Although the problems listed below are totally valid:
- Wages are too high;
- The Chinese prices are too low for us to compete with;
- There is generalised financial sluggishness;
- Banks are hesitant to lend money for expansion;
None of those external pressures are likely to change anytime in the future and we say why be a victim to external pressures, when it is highly possible to create a solution?
It is likely that there are plenty more valid reasons why you, the reader, think that it is a challenge to keep the doors of a manufacturing business open, but should you just suck it up and pray for a miracle?
Below are NEW ideas that could stop you stressing about your struggling manufacturing outfit.
- Decrease the quality of your goods and jack up the prices;
- Waste all the money spent on hiring, training and developing your staff and just sack 'em when the going gets tough – just make sure your left over staff know that they need to pick up the slack, or they will get the sack too;
- Set up a lobby group and pressure the Government to set up a “bail out fund” by squeezing some more tax dollars out of the population; or
- Go bankrupt, but just make sure your investor / CEO mates are given a fat bonus check before filing with the Tax Department.
OK, so most of the ideas listed above are somewhat tongue-in-cheek, but the fact is energy prices have risen by at least 65% over the past four years and, with an aging energy infrastructure, shareholder dividend requirements and increasing international energy export pressures, it is unlikely that the prices will ever drop.
What can you do that is a real solution, instead of a knee jerk reaction?
Let’s assume for a moment that energy tariffs will probably continue to increase by 10% per annum, and your energy bills account for 20 – 30% of your productions costs… What would it look like if you could cut your bills in half and pay for the upgrades out of your savings?
- Where could the money you have been spending on energy bills be diverted?
- With the savings available, can you keep your staff and develop them into a high performance team, increasing your chances of success?
- What about your competition? Are they already implementing measures that will see them be resource efficient, and able to price you out of the market?
- Put yourself in your customer’s shoes… If you had a choice to buy a similar and competitively priced item from a “green manufacturer”, over one that was not, what would you choose?
Most energy conservation, energy efficiency or renewable energy projects in our experience have a positive return on investment well within 36 months and often with a better rate than had you invested the money elsewhere. From the moment the investment has returned, the money you save can be used for expansion of the business or simply reducing prices.
In addition to the energy savings, there is often a remarkable downward trend in the use of other resources, purely as a by product of a more energy efficient and mindful workforce.
What about the environment? We could go in to depth about the Green House Gas Emissions Factors of various fuels and how carbon intensive your manufacturing operation is, but it is a lengthy discussion and better focused on as a separate subject. In general it is safe to say that the less resources we use to manufacture a product, the less pollution is created and environmental degradation is lessened as a result.
Of course for those that do not agree with the Green House / Global Warming debate, there is still no denying the truth that our planet is under massive pressure to keep sustaining our lives purely due to the un-recyclable, toxic waste products that humans create.
In closing, it is important to know that the mathematics of manufacturers becoming energy and resource efficient have time and time again equated to a favourable outcome.
Any accountant with the real facts and an agenda to assist your business to become financially sustainable will agree. Plus, on the environmental front, it is a rare opportunity to be in a position to create numerous positive outcomes from a single initiative, like energy efficiency does.
River Bradshaw Milnes is the Founder and Director of Invention at energy consultants Thinq Tanque Australia. For more information, click here to visit the company's website.
Image: Thinq Tanque