Australian manufacturers are moving into a new era of innovation and competition. Gone are the days of simply looking for ways to optimise production; while optimisation remains important, it’s not likely to be the deciding factor in whether a manufacturer succeeds. Instead, manufacturers must take their lead from other industries and use digital transformation to remodel their value propositions and processes. By Peter Lawther, Chief Technology Officer at Fujitsu Australia and New Zealand

Fujitsu surveyed more than 1,500 C-suite executives in large and mid-sized companies in 16 countries. Of the manufacturing companies surveyed, 69% said they had already initiated digital transformation programs. While these programs tended to focus on efficiencies, manufacturers are starting to realise that there is much to gain from sectors that are further along their transformation journeys.

For example, when disruptors hit the finance sector, financial services providers started with innovations aimed at optimisation and driving down costs, which quickly evolved into offering alternative products and services. Transforming the value chain resulted in new opportunities for expansion, development, and growth.

For 40% of manufacturers, the focus remains on achieving efficiency improvements. Using emerging technologies, they’re identifying optimisation opportunities to avoid disruption using predictive maintenance and more effective monitoring of the supply chain and production centres.

Manufacturers who are more mature in their transformation journey now understand that this optimisation is only a starting point. With the right approach, digital transformation could drive an entire overhaul of the manufacturing industry that could lead to blurred lines between functions. For example, manufacturers may branch out into retail using online channels that don’t introduce the same prohibitive costs as bricks-and-mortar stores.

Alternatively, retailers may find themselves moving into manufacturing as some types of manufacturing become cheaper with lower barriers to entry. Additive manufacturing, or 3D printing, is one such example. Meanwhile, distribution companies may create closer links directly with consumers. This creates increased competition from previously unlikely sources. Manufacturers that don’t respond strategically could find themselves squeezed out of business altogether.

Market consolidation is nothing new and many industries have experienced it. Smart agile businesses survive and thrive while those that are slow to respond can find themselves eclipsed by larger, savvier competitors.

Consolidation isn’t the only potential threat manufacturer’s face. Increasing globalisation has already had a profound effect on Australian manufacturers, who have found it difficult to compete with offshore businesses. The relatively high cost of manufacturing in Australia compared with the lower cost borne by Asian neighbours has seen many manufacturers struggle to compete.

However, there are some industry observers who suggest that the price pressure on Australian manufacturers could recede somewhat as wages rise and working conditions improve in traditional manufacturing behemoths such as China. This is augmented by the increasing use of artificial intelligence (AI) and manufacturing automation. These emerging technologies will help drive down the cost of manufacturing at home, which erodes the advantage of countries with lower labour and energy costs.

Once these costs are accounted for, Australian manufacturers may find businesses and consumers are unwilling to pay the extra shipping costs to get products here from far-flung destinations, and are less eager to put up with lengthy supply chains.

So, while the pressure is likely to diminish to some extent, the effect of globalisation is far from eliminated. Other countries are growing and countries not traditionally thought of as manufacturing centres are likely to make their mark on the industry. For example, between now and 2050, the UN predicts that 1.3bn people will be born in Africa alone.

The rise of online retailers such as Amazon or Alibaba has let even small manufacturers reach global audiences. Now, small arts and crafts companies in Africa can sell to consumers anywhere in the world. Previously, these companies would have been limited to a small geographical area due to the complex and costly logistics involved in setting themselves up as global retailers. These companies can benefit from economies of scale that would never have been possible on their own. Indeed the entry of Amazon in the Australian market has changed the local playing field and has further widened the range of products available in this part of the world.

This kind of digital innovation in terms of getting products from manufacturers to consumers is just the beginning of how digital transformation can revolutionise the future of manufacturing. For example, the Internet of Things (IoT), Analytics and AI can be used to create integrated global dashboards to monitor collective manufacturing. Managers can see detail down to how an individual machine is performing, can utilise the data to predict bottlenecks and maintenance issues, and can allocate materials, components, capacity and skills in the most effective locations.

Manufacturers can also use faster, cheaper processes to produce consumer-customised products at scale, delivering a customer experience that has been limited to the very wealthy in the past. From clothes and homewares to cars and boats, manufacturers can offer consumers innovative ways to ensure their products are unique. In the past, the cost and complexity of doing this would have prohibited most manufacturers from even considering such a service.

Ultimately, a business’s willingness to reimagine its purpose will determine its success. This includes flexibility in product creation and finding the right partner ecosystem. Co-creation can set the scene for manufacturers to move beyond efficiency to embrace digital transformation. The rewards for manufacturers who do this will be unparalleled.