Just recently, the BNZ Manufacturing Index showed that New Zealand’s producers had slipped back into contraction. After years of COVID restrictions finally gave way to a release of pent-up demand, manufacturing bounced back hard with (in some cases) unprecedented expansion of orders and rapid growth giving a brief glimpse of a permanent return to prosperity. Alas, inflation, rising interest rates, global economic challenges, a tight labour market and more have conspired to dampen the industry. The yo-yo-ing is not only frustrating, it also makes running a successful business that much harder: when demand is one year through the roof, the next through the floor, the difficulty of keeping on top of everything is magnified. With no end to the fluctuations in sight, there is one lasting lesson to be taken from the rollercoaster ride: Flexibility is crucial for long-term success. And a big component of organisational flexibility is an appropriate technology stack, just as capable of scaling up to meet demand, and scaling down when the orders dry up.
That’s among the core value propositions of a cloud Enterprise Resource Planning solution specifically designed for the manufacturing industry – like NetSuite Manufacturing. In fact, we’ve recently delivered a NetSuite implementation for innovative Christchurch manufacturer Fabrum; as a specialist producing anything from green hydrogen solutions, to cryogenics, and even a bit of good old fashioned rocket science, Fabrum doesn’t generally get ‘regular’ orders. Instead, its output is highly customised and therefore more likely to be irregular. That’s on the one side. On the other, Fabrum is a leading innovator in green energy solutions using hydrogen: as this fuel source and system takes off internationally, it could find demand soaring overnight. That’s among the reasons it chose NetSuite Manufacturing: the software handles Fabrum’s Kiwi operations smoothly, and is ready for replication anywhere in the world Fabrum chooses to go. Read more about Fabrum here.
Coming back to our central premise, though. Back in September 2022, the news for manufacturing was the best it could be in some time. The BNZ New Zealand Performance of Manufacturing Index (PMI) was at 54.9 and while looming challenges with employment were highlighted at the time, things were looking up for the sector. The news report at the time noted “The main driver of the increase was new orders gaining 8.9 points to 59.2, a 12-month high and well above its long-term average.”
Some six months later and the yo-yo has gone straight back to the bottom of the string. The most recent report on the PMI shows a fall of 3.6 points in March to a seasonally adjusted 48.1, indicating contraction and a number well below the long-term average of 53. The report says “Production contracted for the second consecutive month, falling further to 43.3 - which, outside the Covid-19 lockdowns, was the worst result since 2009. New orders also fell into contraction, falling from 46.7 to 51.5. Employment fell from 55.2 to 46.7.”
Now, while the contraction in the industry is undoubtedly a poor result for the economy as a whole, it is arguable that the bigger issue for manufacturers isn’t the sudden rise or the sudden contraction, but instead the unpredictability of demand. Big moves, either way, cause headaches and make tooling up and down incredibly difficult. That difficulty is writ large in associated industries including distribution and retail: when demand went gangbusters, the whole supply chain had to respond by manufacturing more, stocking more, and expecting sustained demand.
A case in point is the bicycling industry. Through COVID, people started riding their bikes more often. Demand went through the roof. Manufacturers made more bikes than ever, distributors loaded up on accessories, clothing, helmets and all manner of bits and pieces, and for a while, it looked like there was no end to consumer appetite.
But it all went ‘pop’ and all rather suddenly (there’s a very interesting case study here which details the bullwhip effect of rapidly fluctuating demand).
Bringing this back to software and NetSuite’s Manufacturing Solution, one way in which your organisation can mitigate that bullwhip effect is by reducing fixed costs – a killer for manufacturers, particularly when demand evaporates and possibly the reason for arguments in favour of accelerated depreciation. Cloud infrastructure and software has the great advantage of adapting easily upwards and downwards, creating variable costs which match variable demand.
There are of course other benefits associated with a modern cloud software system, such as improved process visibility, more accurate forecasting, and greater efficiencies as raw material passes through the manufacturing process on the way to becoming finished good. All these factors combine in purpose-designed software which leaves nothing to chance.
Of course, as you look for advantage or benefit in software, you should also look for a partner capable of delivering on the promises. At Project Salsa, we have a long history of success with New Zealand’s manufacturers. And we’d love to help your company become more agile and more efficient by taking advantage of NetSuite Advanced Manufacturing.
Do get in touch, we’d love to hear from you.
