///The Future of Australian Manufacturing

The Future of Australian Manufacturing

Thank you for the opportunity to speak with you this afternoon, it is a pleasure to be here.

I would particularly like to thank Tim Welsh, Chair of the Chemicals and Plastics Network Advisory Board, for his generous introduction.

Tim also represents PPG Industries on the Leaders Group of the Australian Advanced Manufacturing Council.

I see from your list of Network industry members that we have a number of other members in common.

Innovation and chemistry

And this makes perfect sense: Because innovative chemistry and materials science is at the core of many advanced manufacturers.

The term Advanced Manufacturing is getting a lot more media coverage these days – but just what makes manufacturing “advanced”?

One way to distinguish it is by the rate of technology adoption and creation – and the ability to use that technology to remain competitive and add value.

Technology adoption and creation: that means thinking differently. It means, among many other things, thinking collaboratively. It means getting more PhDs into industry – and ensuring our world-class research is developed and, crucially, that it is commercialized.

Your Network and Training Program is well ahead of the game in understanding how vital this is. Collaborations between industry and research that lead to commercial outcomes are key to our manufacturing future.

Australia’s chemicals and plastics industries directly employ over 50,000 people and represent almost 10 per cent of total Australian manufacturing activity. This is significant.

But your work is also helping to power the rest of industry. New materials, new solutions and new applications are enabling manufacturers to remain competitive in a global context – and that is where your greatest impact is.

Manufacturing in Australia and across the world is going through a period of transformation; I want to share with you some success stories – and explain the changing paradigm of manufacturing in terms of the shift towards what some are dubbing “Industrie 4.0”.

But first a little background on the AAMC. More than three years ago, a series of meetings were held – under the auspices of the Australian Industry Group – to discuss the formation of a CEO-led coalition of advanced manufacturers.

The CEOs involved knew then that Australia’s industry policy did not reflect the needs of contemporary, globally competitive, manufacturing.

Our national responses did not reflect the fact that many Australian manufacturers had successfully evolved – and were world-leaders.

These manufacturers are not constrained by the domestic market. For them, the market is the world.

We knew that Australian manufacturing needed an image makeover.

And we knew that government policies needed to shed old frameworks – frameworks that were no longer applicable. We wanted manufacturing policy to be about success, not failure, and about the neo natal unit not palliative care – about winning not about asking for handouts.

Policies needed to be relevant to the fast changing dynamics of high-value, knowledge-intensive global business. They needed to recognise that change and innovation were keys to success not threats.

Prior to the last election – in June 2013 – the Australian Advanced Manufacturing Council was launched.

Our members are from across industries – they represent mining equipment manufacturers, the medical technology sector, aerospace and defence, high value engineering and instruments, chemicals and agribusiness. We also have strategic partnerships with the Ai Group and CSIRO and in fact are fortunate enough to occupy offices here at CSIRO’s Clayton Campus.

Over the past 18 months we have actively engaged with relevant Ministers at both the Federal and State Level.

We urged a greater understanding of the importance of research and industry collaboration, the importance of the three legs of the innovation tripod – industry/research/government – in building a stronger economy and ensuring future growth.

We urged policies that reflected and encouraged Australia’s comparative advantages; that promoted excellence (not dependence).
And we were pleased to see these thoughts and recommendations strongly reflected in the Federal Government’s 2014 innovation agenda – in the establishment of five Industry Growth Centres, in the promotion of greater industry-research links and in the focus on better commercialising our world class research.

The Government’s more recent National Innovation and Science Agenda – which builds on the previous work – is a substantive public policy agenda; a cogent recognition of the culture and settings that need to be encouraged for true innovation to flourish. And it is well worth a read – there is a lot in it.

Prime Minister Malcolm Turnbull’s new Ministry has focused national – and international – attention squarely on Australia’s future, with unprecedented emphasis on Australian innovation, technology, and leveraging our research excellence to build a strong economy.

Our changing world

Right now significant changes are occurring in manufacturing.

This audience will be well aware of technology shifts and the implications for your businesses.

Technological innovations suggest both danger and opportunity – as BASF’s Ross Pilling once aptly described it.

The commercial applications for artificial intelligence and machine learning are expanding, we see robotics entering a new phase – likewise nanotechnology, 3D printing, genetics, biotechnology and materials science, among others.
In your sector, you will be aware of the advent of Flow Chemistry, and the work being done by CSIRO and others to enable its commercial application.
While conventional batch processing methods for chemicals are effective, the equipment and storage can be very expensive, limiting industry’s capacity for product development and scale-up.
Batch and other traditional methods are also resource dependent and generate large volumes of waste.
Flow chemistry is a cleaner, more cost-effective method. In recent applications, the process doubled the yield and reduced energy and waste by 90% for high-value photo-chromatic dyes.
Some of the world’s leading capability for flow chemistry happens right here in Victoria.
These exciting changes are opening up opportunities for Australian businesses.

Indeed, if 2015 was supposed to be a tough year for manufacturers in Australia, a number of our forward-thinking companies appear to have missed the memo.

The past 12 months were a chance for many in the AAMC, for example, to make an even bigger mark in global circles.

Between them, these companies broke sales records, signed landmark contracts and brought world-first technology to the market.

The Australian manufacturing sector expanded for a seventh month in a row in January, according to the Australian Industry Group’s Performance of Manufacturing Index.

Of course we had a falling Australian dollar, low interest rates and inflation, and there were other factors in play.

There is no doubt we are in a good position – but we cannot afford to sit back down again and relax.

Industrie 4.0

We hear quite a bit about “Industrie 4.0” or the 4th industrial revolution.

Many companies are asking: What is it? Do I need to know more? Can’t I keep working the way I have been working, and still be competitive?

Understanding what is occurring internationally is vital to being able to really answer this.

Industrie 4.0 is the German term for what some people are calling the 4th industrial revolution.

  • This is where the 1st industrial revolution was mechanization.
  • The 2nd revolution was electrification.
  • The 3rd was automation and IT integration. This transformation is still going on in Australia.
  • And the 4th industrial revolution is about the merging of the cyber and the physical worlds, resulting in the ‘smart factory’

The term Industrie 4.0 was first used in 2011 at the Hannover Fair.

It is a prediction of the ways things are headed – and an actuality.

The basic principle of Industrie 4.0 is that by connecting machines, work pieces and systems, businesses are creating intelligent networks, along the entire value chain; networks that can control each other more or less autonomously.
One recent German study identified six so-called “design principles” of Industrie 4.0 which help explain not only the concept but I hope also some of the opportunity – and, dare I say it, the danger to our global competitiveness.

These principles are described as follows:

1. Interoperability

This is the ability of cyber-physical systems (i.e. workpiece carriers, assembly stations and products), humans and Smart Factories to connect and communicate with each other via the Internet of Things and the Internet of Services.

2. Virtualization

This is where a virtual copy of the Smart Factory is created by linking sensor data (from monitoring physical processes) with virtual plant models and simulation models.

3. Decentralization

With these advances comes the ability of cyber-physical systems within Smart Factories to make decisions on their own.

4. Real-Time Capability

This is the capability to collect and analyse data and provide the derived insights immediately.

Machines are able to predict failures and trigger maintenance processes autonomously or trigger self-organized logistics.

5. Service Orientation

This is the offering and customization of products and services via the Internet; a strong, needs-oriented, individualized, and customer-specific production operation.

6. Modularity

Meaning flexible adaptation of Smart Factories to changing requirements by replacing or expanding individual modules.

The basic principle of Industrie 4.0 is that by connecting machines, work pieces and systems, businesses are creating intelligent networks along the entire value chain that can control each other autonomously.

Industrie 4.0 can be seen as characterised by vertical networking and horizontal integration.
Vertical networking is the use of smart production systems, as mentioned – such as smart factories and smart products, and the networking of smart logistics, production and marketing and even smart services, with – as I said – a strong, needs-oriented, individualized, and customer-specific production operation.

Horizontal integration is the integration of business partners and customers, and new business and cooperation models across countries and continents.

  • Today there are twice as many devices, physical objects or machines, connected and communicating with one another via networked systems – as there are humans on the planet.
  • Supply chains are becoming more sophisticated and dynamically connected – with rapid response times now possible – and expected.
  • This fact – of increasing integration across supply chains – is especially important for small and medium sized companies in Australia, a point I will come back to.
  • A recent study by Tata Consultancy Services, a leading global IT services firm, surveyed 795 executives from large multi-nationals about the impact of “Internet of Things” technology on their businesses.
  • The study found an average increase in revenue as a result of IoT Initiatives of 15.6 per cent.
  • Market leaders in IoT reported 64 per cent revenue increases.
  • There is a sense that the opportunity for advanced manufacturers and service providers alike is significant – and on the flip side – that clinging to out-dated methodologies and approaches will render some companies and modes of production irrelevant when it comes to participating in global supply chains.
  • Last year, I visited Germany – and the UK – where I saw companies and government/industry/research collaborations embracing new technologies with open arms.
  • I would encourage you, if you have the opportunity, to see as much as you possibly can of what is happening elsewhere – in the US, the UK and Germany in particular – and even in other sectors and technologies.
  • Precision agriculture, for example, has been made possible by combining GPS and geographic information systems.
  • These technologies enable the coupling of real time data collection leading to more efficient farm planning, yield mapping, soil sampling, tractor guidance and so on.
  • The same sorts of precision processes are re-shaping manufacturing.
  • Germany is a powerful reminder of what Australian manufacturers and other industries need to do to be part of global high value industries of the future.
  • The only difference between Germany, the US, the UK and Australia is that they have been investing for a longer period of time and on a scale that we haven’t. There is no difference in our fundamental capabilities.
  • Between now and 2020, German industry will invest €40 billion annually in Industry 4.0 applications.
  • Industrial firms will invest, on average, 3.3 per cent of their revenues in digitisation solutions over the next five years. This corresponds to nearly 50 per cent of all planned capital investments.
  • As you might expect, German success in manufacturing has not been by accident.
  • A recent McKinsey report on Japanese productivity compared Japan to Germany – and the data reveals how one can never rest on your laurels.
  • Japan’s high value manufacturing sector – including automotive, industrial machinery, and electronics – has eroded over the past 15 years in the face of global competition.
  • At the firm level, Japanese auto companies have remained excellent performers, but the biggest names have shifted much of their production outside of Japan to lower cost countries.
  • In the Japanese consumer electronics industry, there are many subscale companies and plants focusing on products with declining margins.
  • The major Japanese conglomerates have spent the past decade fighting for profitability. In some cases, they made unfortunate bets on technologies that did not win out in the marketplace.
  • Samsung, LG, Xiaomi, Huawei, and Lenovo have grabbed market share for products such as TVs, PCs, and smartphones—often at the expense of Japanese firms.
  • Downward pricing pressure is a worldwide phenomenon and does not explain the German and US success stories.

Global supply chains

  • The McKinsey study argues that countries and companies need to aggressively adopt global best practices, starting with redirecting formidable R&D capabilities to higher-value spaces.
  • It’s important, as you think about the application of technologies to your own business, that you consider the size of the investment you are prepared to make into supplying and applying those technologies.
  • In an era of rapid-fire technology breakthroughs, there is enormous potential to create entirely new goods and services—not to mention applying innovation to management and production practices – and to efficiencies and connectivity in global supply chains.
  • Globalisation represents a significant opportunity for Australian industry at all levels.
  • 70 per cent of global trade now is in intermediate goods and services and capital goods – not in finished goods.
  • In fact, components trade – and trade in research – are two of the fastest growing forms of international trade.
  • Both these trades are underpinned by sophisticated supply chain management systems and cheap communication platforms.
  • What this tells us is that our companies can benefit a great deal from studying the strategic pathways of the global giants.

 

Definition of Advanced Manufacturing

  • I mentioned a defining element earlier of advanced manufacturing. Let me expand a little.
  • Advanced manufacturers – in general – share the following characteristics:o Advanced manufacturers sell to a global market and compete on distinctive qualities. The domestic market is not a constraint.
    o These manufacturers constantly innovate to remain competitive. They leverage the latest thinking in technology.
    o Advanced manufacturers tend to be engaged in collaborations with universities, the CSIRO and other research institutes.
    o They tend to have a high Intellectual Property component; a high knowledge base
    o The only public sector support needed is at the Research & Development phase through tax credits or leveraging public/private partnerships.
    o They produce high margin products.
    o And they have smaller capital and labor footprints but are higher paying, and provide higher quality work.

In Australia, as in other advanced economies, we do not want to compromise our high standard of living, quite rightly. We therefore must compete on distinctive qualities and consider the global opportunities.

All of this means – Looking ahead 25 years and beyond – that a successful manufacturing sector will depend on cutting edge research and technology – and a highly skilled, technologically advanced workforce. The market and the competitive landscape is now the world.

The fact of the existence of the council I chair – the Australian Advanced Manufacturing Council – is itself an indicator that there is a growing awareness we must set about correcting the imbalances that have emerged.

Few people will say that the auto exit is in itself a good thing.

But there are many who believe the automotive sector was hampered by significant limitations – the most significant being its domestic focus.

I am fiercely proud of our Australian-grown successes – and believe we have what it takes to build competitive industries unconstrained by the size of our domestic market.

Success stories

We have a growing number of Australian success stories.

A Deloitte and Austrade project mapping Australian capabilities to meet international MNC demand estimates that 10,000 Australian SMEs are “internationally ready”.

About 2500 companies were identified as producing high value, innovative solutions across 4 sectors including aerospace, Mining Equipment, Technology and Services, oil and gas, and infrastructure.

These are companies that are turning their focus to new areas of growth and tapping into multinational supply chains. They are making their mark on the world stage – not as Australian companies – but as global companies.

I am going to share with you a few stellar examples – Anatomics, Cochlear, Marand Precision Engineering, Textor Technologies, CSL and Boeing Australia. What you will note from all of these is that their success has been made possible by science – particularly, in a number of examples, by chemistry.

Now you may argue that Boeing is an American company, and you would be right – but with a significant portion of the company’s global supply chain – and 3000 employees here – Boeing Australia can rightly be described as an Australian – slash – global company.

Unique Australian successes in advanced manufacturing Anatomics

Anatomics is a relatively new Australian-owned medical device company that has been manufacturing and marketing surgical products to surgeons locally and internationally for approximately 10 years.

Anatomics is a world leader in its field, having developed technology whereby medical scan data from anywhere is used to manufacture an exact plastic replica (a BioModel) of a particular anatomical structure.

Surgeons then use these replicas to assess abnormalities, plan surgery, and communicate to patients and colleagues. From this, custom implants can be created – transforming the lives of people who have suffered major trauma either through accidents or cancer.

Recently the company was in the media when it developed, with the CSIRO, the world’s first 3D printed titanium heel bone – for an older gentleman who was otherwise going to lose his leg. In another wonderful example of collaboration, the company created a titanium sternum and rib cage implant for a patient, using the 3D printing facilities of CSIRO’s Lab 22.

The company’s products are manufactured in Australia – and sold to the world.

Cochlear

 

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Cochlear, makers of the bionic ear, is a global biotechnology company, employing 2700 people. I recently had the opportunity of visiting Cochlear’s plant and facilities co-located with Macquarie University in Sydney – highlighting the emphasis the company places on continuous collaboration with the research sector.
You may know that the Cochlear designs, manufactures and supplies the Nucleus cochlear implant, the Hybrid electro-acoustic implant and the Baha bone conduction implant.
Last year, Cochlear posted record sales, thanks in part to its latest speech processor Nucleus 6, and a range of wireless accessories linked to it that dramatically improved hearing for its users.
95 per cent of Cochlear’s sales are outside Australia.
A majority of its research and development, and the majority of its manufacturing, takes place in Sydney, Australia.
70 per cent of its global taxes are paid in Australia.
And Cochlear invests 15 per cent of its revenue in R & D.
The CEO of this company, and other companies like Cochlear – wake up every day concerned about how to ensure their businesses are globally competitive.

Marand

Marand-edit

 

 

 

 

Marand Precision Engineering is a privately owned company, a leading global supplier of high-quality precision tooling, machine tools and highly engineered automated production solutions.

Marand’s customer base includes Boeing, Lockheed Martin and Rio Tinto.

Originally a big supplier to the automotive industry, Marand took a long term view, investing substantial resources into a complex international engineering manufacturing project through the F35 combat jet program.

The SME did this with the full knowledge that profits would not flow through for a very long time.

Marand’s Managing Director David Ellul now firmly believes Australian manufacturing can survive the closure of the car industry.

CSL Limited

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CSL was originally the Commonwealth Serum Laboratories – now it is a $30 billion global manufacturer of vaccines and plasma protein biotherapies.

The company researches, develops, manufactures and markets biotherapies to treat and prevent a range of human medical conditions.

CSL invests heavily in research and development, significantly in the areas of immunoglobulins, specialty products, haemophilia products and breakthrough medicines.

Headquartered in Australia with substantial operations in the United States, Germany and Switzerland, CSL employs over 11,000 staff and operates in more than 20 countries.

The company continues to conduct a great deal of its research out of Australia.

 

Textor Technologies

Textor

 

 

 

 

 

Textor Technologies was originally a traditional textiles manufacturer that has transformed itself into a global supplier of high tech fabric that traps and transfers moisture.

It now supplies the global nappy industry at scale.

The company invested in the latest machinery and has worked closely for a number of years with the CSIRO in developing its world-beating fabric. I would not be surprised if you had already heard of them: they are a model of the transformation that is possible with science and strong invested management.

Boeing

Boeing

 

 

 

 

So my final example is Boeing.
Boeing Aerostructures Australia is Boeing’s largest manufacturing operation outside of North America.
They produce flight control surfaces for large commercial aircraft from advanced composite materials.
Boeing Australia is the sole supplier of moveable trailing edges to the 787 Dreamliner program.
This is Australia’s largest aerospace contract, valued at $5 billion over 20 years.

Follow the Customer – or cracking global value chains

Today’s discussion has focused on technology – how technology adaptation and innovation is necessary for ensuring our global competitiveness – and it is VITAL for ensuring access to sophisticated global supply chains.
Some of the biggest opportunities for business growth for many of our small and medium sized enterprises will come from supplying large multinational companies’ global value chains.

We know from our members, including companies like the South Australian based mining equipment supplier, Korvest, that by leveraging relationships with customers, smaller companies can enter new markets more easily.
The dominance of SMEs in Australia means some of the biggest opportunities for growth lie in this opportunity.
SMEs that are not involved in exporting can quickly gain a footing in new countries by “Following the Customer”.
The Australian Industry Group has given a great deal of welcome support to encouraging a better understanding of the value of this approach to growth.
We can do much to facilitate Australian entry.
The AAMC has urged a stronger emphasis, for example, on “country to company” trade facilitation, for example, as opposed to the more traditional country to country missions.
Australian businesses would benefit enormously if Government trade and investment strategies took this approach.
Companies would have an opportunity to truly understand the significance of global MNC value chains.
They could find out exactly what the world needs and wants – and then supply it.
Where are these companies expanding? What are the new sectors, new technologies, new markets they are focusing on? What are the problems they are trying to solve?
Really understanding this will give Australian companies an edge.

In conclusion

What we know is there is a new breed of transformative manufacturing company in Australia. These companies are often lean in operations, nimble and creative.
They employ engineers, scientists, emphasise collaboration in research and innovation, are export-focused and are some of the most innovative in the world.
How the smart factory of the future will look is yet to be entirely realized. What we do know is that whilst they will be able to be autonomous to a degree, production processes will still need to be managed at a higher level in order to, for example, set deadlines, environmental goals and other objectives. Having a highly skilled and highly educated workforce will be an imperative.
With targeted policies – around developing our STEM skills, around building strong connections and collaboration between our industry and our research community, and around trade and business facilitation, I know we will see many more examples of success.
AS I go around speaking to companies – and to policymakers – there is a message that I want them take away – and that is:

  1. I ask that they recognize that we do have a thriving advanced manufacturing sector – that is participating in global supply chains – and that you look for those successes and understand them;
  2. I ask that they look at what is occurring in North America, in Europe and locally. Digital technologies are transforming design and engineering processes – and creating game-changing possibilities.
  3. And I ask that companies investigate working with our world-class research sector and find ways to develop their own IP or collaborate on generating new IP that will differentiate their products and/or your processes and open up new markets for them – and for Australia.
  4. I ask that they recognise and embrace the fact that the industrial world is changing and that embracing these developments provides huge potential for the future of manufacturing in Australia.

John Pollaers
February 9, 2016

2018-01-09T11:59:21+00:00 February 12th, 2016|

Call to Arms

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