Australian manufacturers and distributors set to expand production

A CommBank report shows that the industry expects production output and financial performance to lift in 2024 while labour shortages and competitive pressures weigh on productivity and growth.

CommBank’s new Manufacturing and Supply Chain Insights report, based on a survey of manufacturing, wholesale trade, and distribution businesses, reveals that 61 percent are targeting a moderate or significant uplift in production levels in the next year. In contrast, only 6 percent predict a decrease, with the remainder holding steady.

Production forecasts are robust in Western Australia and Queensland, with 71 percent and 67 percent anticipating an increase, respectively. Victoria and South Australia both showed forecasts of 58 percent, while New South Wales was 54 percent.

At a national level, most businesses also forecast revenue and profit growth in line with rising output. This is reflected in business optimism, with 83 percent expressing confidence in conditions over the next 12 months.

However, as businesses strive for growth, they face persistent challenges. According to respondents, cost-related factors, driven by energy prices (80 percent), inflation (74 percent), and interest rates (72 percent), are set to be the highest-impact issues this year.

Around two in three also say changing customer preferences will impact 2024. That follows reports that the top-rated shifts in customer behaviour last year were expectations for lower prices (32 percent) and faster delivery (31 percent).

CommBank’s National Head of Manufacturing and Wholesale Trade Maria Christina said that while elevated costs and customer expectations have increased the focus on productivity, a shortage of skills, labour, and outdated equipment are holding businesses back.

“While manufacturers and distributors have been tested by economic uncertainty and labour shortages, most report healthy capacity utilisation rates – which measures the percentage of potential output being realised. More than half say utilisation is running above 85 per cent, which is a testament to the resilience and innovation of Australian manufacturers,” she said.

“To grow capacity in step with expected demand in 2024, businesses are doubling down on investment in technology and equipment, and upskilling employees. These initiatives help optimise operations and the workforce in pursuit of productivity.

“The Government’s newly announced Future Made in Australia Act will seek to support the efforts already underway. This could also help the domestic sector respond as many downstream customers gravitate to local or regional suppliers.”

With the top goal of improving productivity, 81 per cent of businesses plan to increase technology investment in the next 12 months. Among the emerging technologies set to impact the industry most, those enabling supply chain efficiencies, artificial intelligence, and machine learning top the list.

The potential benefits of artificial intelligence are widely recognised, with two in three saying it improves demand forecasting and inventory management and makes the supply chain more sustainable. Still, 62 percent face integration challenges, and 60 percent say a lack of skills makes AI difficult to fully leverage.

Many manufacturers and distributors are advancing their sustainability journeys, with almost two in three having advanced sustainability initiatives. 37 percent have adopted renewable energy or on-site generation, with a further 43 percent planning to follow. Should those intentions materialise, the current average proportion of renewables in the energy supply mix will increase. According to businesses, this is currently 33 percent of total energy usage across the supply chain.