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Risk and reward in the supply chain
Michael Sparrow
With the steady shift to globalisation, it’s easy to become complacent about supply chains and where organisations choose to manufacture.
The ease with which long and complex supply chains can be set up, has seen organisations underestimate some of the risks, while not recognising the rewards of local manufacturing. Not only is a long supply chain left vulnerable in the event of a global crisis, such as the COVID-19 pandemic, there are a variety of other negative factors, including significantly reduced flexibility when looking to meet the needs and demand from local customers, hidden costs and quality control issues, not to mention the impact on local manufacturing capacity and national skillsets.
The feedback I am getting from industry is a general acknowledgement that Australia needs to have more local manufacturing in place. Local manufacturing was a real advantage for PPG throughout the COVID-19 crisis as we were able to adapt quickly to rapidly changing conditions. Although PPG is very much a global company, it chooses to act locally. PPG’s general policy is that, wherever possible, we aim to manufacture close to our customers and, as a result, we operate three local technical laboratories and production facilities – Clayton in Melbourne, Villawood in Sydney and Auckland in New Zealand. Given that Australia is geographically isolated, having local manufacturing capability and capacity provides the flexibility to respond to fluctuations in demand and swiftly react to market trends.
Controlling quality
Greater control over quality throughout the supply chain is another crucial benefit. In contrast to products imported from an overseas ‘manufacturing hub’ or a complex international supply chain, local production means you know exactly what ingredients go into each product and what manufacturing process is used. This is particularly important in paint manufacture where there are tight regulations over the chemicals and other ingredients that can be used in products sold in Australia. To give our local operations even greater control over quality, we do more than make paints here – at our Clayton plant we have vertically integrated back into the supply chain by making the resins which go into making the paint. There are some exceptions. Sometimes importing products is unavoidable and typically this happens with global product platforms. However, wherever possible we will look to go through a localisation process to try to manufacturer a product line locally.
Challenging environments
Manufacturing locally also puts the company in a much better position to deal with one of the biggest challenges – the Australian environment. For example, all of our product lines – from architectural and automotive refinish, through to industrial and Commercial Performance Coatings – have to perform in incredibly varied conditions, from the cold of southern Tasmania to the heat and humidity of North Queensland and the hot, dry climate in WA. At the same time, they must cope with some of the highest UV readings on the planet. Our ability to respond to the needs of customers, no matter where in the region they are, comes down to our skilled local technical teams at our laboratories in Clayton, Villawood and Auckland. It lets us tap into PPG’s global toolkit of product technologies, choose the best components and then tune them and fully test them to suit our local conditions, as well as the specific application requirements of individual customers. All this can be done more effectively if you fully control the supply chain, the materials being used and the manufacturing process.
People and capacity
Another factor that is often overlooked in the push for globalisation, is the country’s loss of skills and overall manufacturing capability. Having a local manufacturing base opens up a pathway for the skills-space of the country, as a whole. Although it’s one of the obvious benefits, I am not just talking about jobs in manufacturing itself. Time and time again we find that a local manufacturing operation generates three or four times as many jobs in organisations that are associated with it. Here I am talking about all the different services that support manufacturing, such as waste management, freight, cleaners, etc. On top of this, we have clever young people coming out of university who are looking for places to apply their skills. Australia has a great reputation for innovation so we want to offer young people a breadth of experience. For its part, PPG runs a very successful intern program, dubbed ‘PPG Primer’, which works with universities to attract bright new talent into our organisation in order to help develop the innovators and leaders of tomorrow. If this country can’t offer them something attractive, they will go elsewhere. It’s a real challenge because Australian manufacturing has been rationalising for so long, the country has lost that critical mass of skills and capabilities. By growing the overall manufacturing base within Australia, we will get the opportunities for one company to service multiple other companies which builds on economies of scales and allows industry to propagate in our country.
Spotlight on supply chain
The extraordinary measures we have seen to combat COVID-19 have highlighted Australia’s general dependence on often long and complex supply chains that rely on other countries. In my view, it’s time for companies to reassess. Globalised supply chains can appear to offer worthwhile advantages, particularly in cost terms due to economies of scale, but I believe local manufacturing could be a cost neutral or lower cost alternative if you factor in things like waste and lifecycle costs. It’s also important to weigh up the lengthy lead times and the vulnerability of a long supply chain. This is not to mention the crucial ability to control quality and fine tune products for the local market. Australian conditions are like nowhere else on earth which is why you will find products that are like nowhere else on earth. For PPG, the supply chain choices are all about avoiding the risk, providing a sustainable future and adding real value to our customers.
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In 2016 I published a blog article titled Moonshots for Australia: 7 For Now. It’s one of many I have posted on business and innovation in Australia. In that book, I highlighted a number of Industries of the Future among a number of proposed Moonshots. I self-published a book, Innovation in Australia – Creating prosperity for future generations, in 2019, with a follow-up COVID edition in 2020. There is no doubt COVID is causing massive disruption. Prior to COVID, there was little conversation about National Sovereignty or supply chains. Even now, these topics are fading, and we remain preoccupied with productivity and jobs! My motivation for this writing has been the absence of a coherent narrative for Australia’s business future. Over the past six years, little has changed. The Australian ‘psyche’ regarding our political and business systems is programmed to avoid taking a long-term perspective. The short-term nature of Government (3 to 4-year terms), the short-term horizon of the business system (driven by shareholder value), the media culture (infotainment and ‘gotcha’ games), the general Australian population’s cynical perspective and a preoccupation with a lifestyle all create a malaise of strategic thinking and conversation. Ultimately, it leads to a leadership vacuum at all levels. In recent years we have seen the leadership of some of our significant institutions failing to live up to the most basic standards, with Royal Commissions, Inquiries and investigations consuming excessive time and resources. · Catholic Church and other religious bodies · Trade Unions · Banks (and businesses generally, take casinos, for example) · the Australian Defence Force · the Australian cricket teams · our elected representatives and the staff of Parliament House As they say, “A fish rots from the head!” At best, the leadership behaviour in those institutions could be described as unethical and, at worst….just bankrupt! In the last decade, politicians have led us through a game of “leadership by musical chairs” – although, for now, it has stabilised. However, there is still an absence of a coherent narrative about business and wealth creation. It is a challenge. One attempt to provide such a narrative has been the Intergenerational Reports produced by our federal Government every few years since 2002. The shortcomings of the latest Intergenerational Report Each Intergenerational Report examines the long-term sustainability of current government policies and how demographic, technological, and other structural trends may affect the economy and the budget over the next 40 years. The fifth and most recent Intergenerational Report released in 2021 (preceded by Reports in 2002, 2007, 2010 and 2015) provides a narrative about Australia’s future – in essence, it is an extension of the status quo. The Report also highlights three key insights: 1. First, our population is growing slower and ageing faster than expected. 2. The Australian economy will continue to grow, but slower than previously thought. 3. While Australia’s debt is sustainable and low by international standards, the ageing of our population will pressure revenue and expenditure. 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There were workshops, consultations with industry leaders, and conferences across industries to pursue a national microeconomic reform agenda. Remember these concepts? · global competitiveness · benchmarking · best practice · award restructuring and enterprising bargaining · training, management education and multiskilling. This agenda was at the heart of the business conversation. During that time, the Government encouraged high levels of engagement with stakeholders. As a result, I worked with a small group of training professionals to contribute to the debate. Our contribution included events and publications over several years, including What Dawkins, Kelty and Howard All Agree On – Human Resources Strategies for Our Nation (published by the Australian Institute of Training and Development). Unfortunately, these long-term strategic discussions are nowhere near as prevalent among Government and industry today. The 1980s and 1990s were a time of radical change in Australia. 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