Home' MHD Supply Chain Solutions : MHD Jan-Feb 2015 Contents The problem
There are many challenges facing
manufacturing businesses in Australia this
decade. However, the "Thriving Australian
Manufacturer of the Future" is not an oxymoron.
The nature of manufacturing has moved from
inflexible approaches of addressing market
demand that are highly forecast-dependent, to
highly responsive and adaptable market-focused
replenishment and production methods.
The challenge has arisen and continues to
rise as tariff barriers are reduced, the quality
and quantity of consumer choice increased,
and macroeconomic issues of exchange rate
and increased competition for skills from other
industries (e.g. mining) have increased.
Traditional leadership and organisational
approaches have found this transition difficult.
They have been highly focused on traditional
cost-accounting methodologies and operate
in highly functionally divided silo-based
hierarchies. This methodology that evolved
in the 1920s has been adequate in past eras
where competition was limited to other major
players who behaved the same way we did, and
the evolution in products and services was slow.
A silo-based mentality of management,
measurement and decision making will not
necessarily create the correct decisions on
sourcing and service delivery that are required
to ensure success for the next decade.
So what does this mean?
For the "Thriving Australian Manufacturer of
The Future" an approach to deciding what parts
of the business to outsource production of, what
parts to reinvest in, and what parts require a
turnaround project to increase performance
requires collaboration across departments and
a strategic approach to measurement and
Dilemma or choice
When you only have two options to choose from,
you do not have a choice, you have a dilemma.
Only when you have three or more options do
you truly have choice.
A new general manager of a large multi-na-
tional organisation with Australian and global
manufacturing sources faced choices when other
people felt there was only a dilemma. The large
($240m+ sales) business was break-even in prof-
itability and had lost money the previous year after
being a successful 'cash cow' from the late 1940s
onwards. Internal pressure was to source more
and more product from external suppliers. The
business had a very strong 'sales vs. operations'
approach, customers were not able to buy what
they wanted, yet working capital was consumed
in mountains of stock that the market did not
want. The factory produced what are considered
commodity products and there was extensive and
continually increasing competitive pressure.
An ongoing three-year project resulted in the
business moving from break-even to a $5.4m
profit in Year One. This was double the global
corporate return on sales.
The following year profit was $12.4m, the
year after that it was over $28m during the GFC.
The business grew market share, volume, set
records for quality performance and opened
up small but significant export markets into a
number of Asian countries including China. The
business also in-sourced over 25,000 units of
production from Asia and improved customer
service on these products while reducing the
corporate inventory by just under $2m.
Outsource, reinvest or turn around?
Making the right decision for today, and for the
future is the key outcome from our strategic
project. We want to make money now, and into
the future, in a sustainable way.
Outsourcing is the complete closure and
shutting down of that operation, a section of that
operation, or skill-set within the operation. This
is generally successful when the business has
an operation or section that has:
• Multiple proven options for supply, and
• Strong & stable market demand and where:
• The activity is peripheral to the company for
future cash generation.
• High investment (cash the company does not
have) is required to regain a competitive edge.
• The customer experience is enhanced.
• 'Exit cash' Cash required to shut down the
operation, (redundancies, land remediation,
extra inventory etc) still results in a less than
A solid example of this was the out sourcing
of the manufacturing and design of automotive
OR TURN AROUND
NAVIGATING THROUGH THE CORE STRATEGIC ISSUES FOR YOUR EXISTING
OPERATIONS VIABILITY, NOW AND INTO THE FUTURE. THE CONSEQUENCES
ARE FAR-REACHING FOR THE CUSTOMERS, THE BRAND, THE OVERALL
ORGANISATIONAL PERFORMANCE, EMPLOYEES, AND THE CAREERS OF THE
"The decision to outsource, reinvest, or turn around
an existing operation is an intensely strategic,
emotional, and complex decision. Getting this
right will determine if your organisation starves or
generates cash flow."
MHD SUPPLY CHAIN SOLUTIONS --- JANUARY / FEBRUARY 2015
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