To develop resilience, SME manufacturing leaders need to upskill too

We have all marvelled at how some SME manufacturers have rallied to the call to action for more medical devices, PPE and related materials that have seen acute demand due to COVID-19 and self-isolation laws, a true testament to entrepreneurial innovation.

However, the reality is that the vast majority of SME manufacturers were/are incapable of responding even if they wanted to contribute because of their lack of “room” to innovate. In other words, available mind-space and time to spend value-adding rather than fighting fires. It’s a barrier that inhibits their ability to respond to market requirements.

Many privately owned SME manufacturers are locked into outdated technology and traditional manufacturing methods without the ambition or aspiration to think and act anew. They are increasingly vulnerable to significant disruptions and existential threats to their supply chains, such as another pandemic, war, terrorism, natural disasters and the effects of climate change. Also, many manufacturers have maintained a small local footprint and offshored the manufacture of high labour value add products, which threaten supply chains in times of acts of god or war.

How can we support, encourage and guide the leaders of these companies to educate themselves and their teams to adopt new manufacturing methods and technologies and best practices? As the statistics show in the 2019 Edition of Australian Jobs (Dept of Jobs & Small Business), only 18% of the people employed in the sector possess a bachelor's degree or higher, and 42% of the workforce (including managers) have no post-school qualifications.

Government, Industry bodies, Educational Institutions and Government Agencies all have a role to play in developing industry policy and operational frameworks, and the industry has seen significant consolidation and meaningful collaboration between business and institutions. Still, no amount of structural reform will create the resilience required in these companies' day-to-day operations.

For example, most of the SME manufacturers I have worked with in the past 15 years do not have an annual strategic planning process, have not optimised existing technology capability, and have not successfully adopted continuous improvement practices to drive productivity to improve profitability. Innovation is an abstract concept, and product development is a "ready, fire, aim" process that unsurprisingly yields less than impressive results.

Learning gaps exist in leaders of SME manufacturers.  For some, their talent management strategy is to value loyalty over competence. Many have little knowledge of fact-based decision making, i.e. how to interrogate the correct operational and sales data, Statistical Process Control, how (and why) to optimise ERP/MRP systems, using balanced scorecards, benchmarking, understanding the potential of adopting management techniques such as Lean, IBP, and the SCOR Modelling for Supply Chains, let alone an appreciation of what Industry 4.0 is all about - because most are still at 3.0, and are still struggling with optimising automated equipment and computer systems. The new age of digital supply chains, artificial intelligence (AI) and scenario modelling are ideals that exist in the critical few. However, they are not adopted across many SME manufacturers.

Many of these businesses (still at 3.0) are stuck in the spiral of the day to day, responding to problems with no clear vision of where they want to be in 12-18-24 months. The virus provides an opportunity as a circuit breaker for business owners to review their business and use this opportunity to develop and (a) strategic roadmap, an element of which needs to be contingency planning for these disruptors. Nobody saw this pandemic coming, nor can we see the next significant disruptor, but we can have a plan.

Australian manufacturing SMEs must innovate in a high-cost environment, not just with products but in the process too, to be domestic market leaders or globally competitive as exporters. Policymakers must consider the education of the leaders of these businesses in strategic planning, innovation, commercialisation and technology as a priority.

There is no better way to create resilience and agility for manufacturing than to create an industry of leaders focused on continuous improvement through learning.