Manufacturing – the management challenge

The power is in your hands

By Christopher J Tipler

When we consider the problems in manufacturing it is very easy to think in terms of blame. The unions are to blame, or the Chinese, or the high value of the dollar, or interest rates, or perhaps the free traders. It is true that, at the level of government policy, we do have to acquire a new and more realistic attitude to manufacturing, an attitude that brings with it imaginative new policies, generally in the context of affirmative action.

However, if we see things only in these terms, we will overlook a large part of the task – a task to do with us as managers and leaders. Good managers don’t spend a lot of time admiring problems, or admiring possible solutions. Nor do they devote much energy to what other people should be doing. They focus on what they control; on what they can do to create new revenue streams, reduce costs, and improve their balance sheet.

These managers appreciate that success in manufacturing is possible despite adverse economic trends and naïve government policy settings. So, how do such managers think and what sorts of strategies do they pursue? Here area few ideas to stimulate your own thinking.

Build global  ‘top end’ niches

Successful Australian manufacturers understand the need to think globally and not be constrained by the small size of the Australian domestic market. Most markets have a top end where factors other than price – design, quality, and service – drive market success. Capturing small shares in a number of markets by serving the top end is clever and often successful. The Vicmarc company, for example, does exactly this, producing ‘Rolls Royce’ woodturning lathes that are sold worldwide for many times the price of basic lathes. The Riviera and Seawind companies do something similar in the leisure craft market, as does ROH Wheels in the auto products market.

These businesses, and many others like them, typically generate a large part of their revenue from export sales, with design excellence, product quality, and service as the basis of competition. The status of their products gives them some upward price flexibility in times of adverse exchange rates, and generally high selling prices give them the ability to cover apparently uncompetitive labour rates.

Get local and ‘hands on’

Good global marketers understand the need to manage their business activities intensively and locally. You cannot build a successful international business from an office in Sydney or Melbourne. You must get out of your comfort zone and be prepared to spend a lot of time away, working closely with your distributors or agents, meeting key clients, and getting to know the local environments. Murphy’s law applies in global marketing; if it can go wrong it will, so attention to detail is critical. Find the problems before they find you. Nor can this task be delegated to junior people; you must send your best people (and that may well be you!). This task is tough when your main markets are perhaps 20 hours flying time away, but that is just the way it is.

Know who your friends and allies really are

Building an international manufacturing business from Australia is a journey on which friends and allies are critical, so you need to know who they are. Australian companies generally expect too much from their bankers. Banks are highly geared businesses that are not set up to take capital risk, and they won’t do it. For this reason, your banker can never be your true friend, as much as he or she may like to be. Keep your borrowings well within prudent limits, don’t assume that your bank will help you in a crisis, and finance your growth mainly from good trading and new equity.

I am often surprised at how poor the relationship seems to be between public companies and their shareholder base. This won’t do if you want to raise capital for offshore expansion. Your shareholders are your true friends and allies; show them a believable strategic plan, and the determination to execute it, and they will generally back you.

Which brings me to the two other true friends; your suppliers and your employees. In both cases there is a complete alignment of interest. Suppliers want you to be successful and are often happy to think of themselves as partners in your business, offering generous credit terms and technical support. This is invaluable. The employee relationship can often seem to be problematic, particularly if there is a history of poor industrial relations. Yet, our employees are normally deeply committed to our success and will help in every way they can. To engender their support, including the support of the trade union involved, you must be willing to engage and have an open dialogue. Share your plans with them, help them to understand the pressure points in the business, thank them consistently for their efforts, and be prepared to share rewards with them along the way.

Last of all; remember that fortune favours the brave.  Tough times don’t stop good people from moving forward; indeed they often present us with unique opportunities.

Christopher Tipler is an advisor to top management. He holds an honors degree in economics and has taught macro-economic theory at university level. He is the author of Corpus RIOS – The how and what of business strategy (corpusrios.com).