Manufacturing still doing it tough
New Zealand’s manufacturing sector is in trouble, continuing 11-months of contraction that is seeing significant drops in capex and staffing across the sector.
The BNZ Capital Business NZ Performance of Manufacturing Index (PMI) registered a seasonally adjusted figure of 40.7, well below the baseline of 50.
Above 50 means that the manufacturing sector is expanding, below and it is contracting.
It hasn't shown a postive figure since April 2008.
To put the economic downturn in context, March last year produced an average result of 53.2.
Business NZ chief executive Phil O’Reilly said recovery in the sector seemed some distance away.
“The first quarter of 2009 has shown to be considerably worse than previous years, and further months of contraction are expected given comments received from respondents.”
BNZ economist Craig Ebert says the sector is in “clear distress,” with the PMI jobs indicator at an all-time low of 38.7.
The outlook matches that of the Quarterly Survery of Business Opinion, which also suggested that the manufacturing sector remains on a downward trajectory.
The QSBO results pointed to a slowdown not just in exports, but more worryingly in domestic output.
Manufacturing companies such as Nuplex have found themselves on rocky ground with lower than expected turnovers leading to debt leveraging problems, reduced capex and potentially jobs in an attempt to preserve any kind of profitability.
The QSBO has also reported 64% of manufacturers reporting a decline in orders over the previous few months and 33% anticipating lower orders over the coming three months.
“It’s a chorus of concern. It’s not even telling us that manufacturing activity is about to stabilise, let alone start expanding again, as many are still hoping for before too much longer,” the PMI report states.
New Zealand’s manufacturing still compares favourably with international indexes however, the JPMorgan Global PMI for March (37.2) was the highest result in 5 months, with output and new orders rising. The Australian PMI (33.4) rose slightly, while the USA PMI (36.3) experienced its highest result since November 2008.
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Comments
Kaisen Can Revive NZ Manufacturing
NZ manufacturing, with the exception of food, has been hollowed out over decades due to loss of business to cheaper or more efficient producers in other countries. It is also driven by acquisitions by foreign concerns.
Some of the losses were inevitable, following the removal of import licensing, because we could not compete with volume manufacturers who have access to concentrations of skills, cheap labour and other resources. There was also considerable damage from poor NZ management and our lack of determination to remain in the game.
As was said for many years, we just can't rely on farming and fishing to earn our way. Prices are too cyclical and there are resource limits.
We just have to roll up our sleeves and have another crack at manufacturing.
There is a solution which can raise our productivity and revitalise our manufacturing sector. It is simply to lift the culture and practices of Gemba Kaizen out of Japan and drop it into our businesses. Gemba refers to the workplace where value gets added to things or service is provided. Kaizen refers to the beautiful idea that allows you to continually improve what you do.
Western business culture focuses on improvement by innovation, but innovation usually requires costly changes to equipment and processes.
Kaizen uses commonsense, low cost improvements to increase productivity. Standardization of processes secures gains. Kaizen takes time and requires fundamental changes to the old style company culture. Those changes are evolving right now, but progress is slow. For example, Kaizen elements are currently seen in programmes like Lean Manufacturing and ISO 9001.
My bold claim is that embracing Kaizen now, could revive NZ manufacturing in the medium term.
Read the "Gemba Kaizen" book by Masaaki Imai.
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