Let’s rethink how we use the power of procurement
It seems these days, there is not one conversation I have with manufacturers that doesn’t center around opportunities in procurement and sales orders.
Manufacturing has been at the core of our COVID response and will be a crucial component of the economic recovery for our nation. Our manufacturers are ready, willing, and able to reduce the risks associated with long supply chains and provide assurance to the community that through strengthening our sovereign capability, you will have the products you need when you need it.
State and Federal Governments have put out a plethora of funding support opportunities for manufacturers, including the $1.5 billion Modern Manufacturing Strategy. It is wonderful that our governments see the critical importance in manufacturing and are willing to fund support for our industry - but I can’t help but feel they are missing the mark. The grants are long-term focused, manufacturers need the support now.
At their very core, manufacturers need one thing to grow their business. SALES ORDERS! Long term, steady, secure order books give us the confidence to take business risks, to invest in our people, to invest in our equipment, to invest in our processes. Orders facilitate innovation. Orders facilitate business growth. Orders facilitate economic development for the surrounding eco-system. Orders facilitate industry development!
The truth is, for many manufacturers, grants are an investment in time that are not worth the effort. Many feel their time is better spent optimising their processes, improving their efficiency, and chasing new customers and new market opportunities. Which makes perfect sense, right?
As manufacturers, we do not need a handout, we need a hand up.
Grants serve a purpose, and I have seen some wonderful examples of grants assisting and supporting local businesses, but their long-term impact to business is negligible compared to that of procurement opportunities.
I was recently out at Emerald with Shannon Jansen from Berg Engineering who told a fabulous story of how they got their start 50 years ago. It all started with a wheelie bin axel and a 5-year purchase order.
I love this story because it truly demonstrates the innovative nature of our manufacturers and the power of long purchase orders. The team was bidding on a big government order, one that was too large to manufacture with their current equipment and staffing. But with a 5-year steady, stable, guaranteed order on the table, they backed themselves to bid for the job.
They knew they had the capability to figure out how to manufacture it cost effectively. Long story short, they got the work, designed a new innovative process to manufacture them within the cost requirements, at the volumes required and trained a new workforce to support the product. This one 5-year order, created the foundation to build a strong, successful, long-term business that now employees over 100 people.
5-year purchase orders are unheard of in today’s procurement environment, in fact, as a manufacturer, you are lucky if you get 12 months from an order.
What our purchasers don’t realise, is that with such a short window of security, manufacturers can’t justify the risk of investment to improve the product and their processes. Many small-medium business owners can’t justify training up a new worker or supporting an apprentice, when the security for the future is not there. Investment in automation, industry 4.0 and process improvement in general, doesn’t meet the Return on Investment requirements for a short purchase order.
Simply put: short purchase orders prevent innovation and business growth.
My question is, what if these billions of dollars that are being distributed in grants were spent on purchasing locally designed and manufactured products?
A hand up – not a hand out.
I believe, this would trigger innovation in our sector at a level never seen before.
We often neglect to acknowledge the influence of public procurement on the development and introduction of new goods and services. Our government departments procure massive amounts of products, from medical devices to fabricated steel. Demand is a major potential source of innovation, yet the critical role of demand as a key driver of innovation has not been recognised in the implementation of government policy.
How could we leverage public demand as a driver of innovation through policy design aimed at supporting the growth of our manufacturing industry?
What if policy incentives emphasise public procurement of locally manufactured goods as a way to accelerate the development and application of new technologies, AND also as a way to achieve a competitive advantage, growth and job creation?
Sounds like a win, win situation to me.
Shay Chalmers © 2021