Our reliance on imports and the segregation between manufacturing and distribution activities in Australia were exposed during the height of the Covid-19 pandemic.
From Travis Erridge, TM Insight CEO.
Either we couldn't get any products to our coast or locally made products flew off the shelves because sales activities couldn't keep up with significant peaks in demand.
This has highlighted the need to strengthen the Australian supply chain sector. The federal government recently made $ 1.5 billion available to the sector as part of its Modern Manufacturing Strategy.
While the government's strategy is focused on building local manufacturing capacity, I believe it will also help reconnect two key components of the supply chain – manufacturing and distribution. Companies now have an urgent need and ability to invest in their operations, which will result in increased collocation of manufacturing and distribution locations to streamline operations.
While large combined manufacturing and distribution facilities are not new to Australia, such as Coca-Cola Amatil's combined production, filling and storage facility in Richlands, Queensland, the adoption rate of this strategy will reach new heights.
Traditionally, the food, beverage and FMCG sectors have received both land and capital to expand manufacturing operations as it has been viewed as the area with the highest return on investment. However, given the falling cost of automation and advances in robotics over the past five years, and the government's investment in local manufacturing, a significant opportunity arose for these manufacturers to invest in optimizing their entire supply chain.
By investing in facilities that process, package, store and distribute goods from a single location, companies can significantly streamline their supply chain and offer a variety of benefits.
Better control of inventory
The production and sales locations at the same location offer companies the opportunity to work more agile in their production in order to build up buffer stocks, reduce production over the course of the year and avoid excessive inventory levels. We find that many FMCG companies are leaders in manufacturing (that is, focus on lean operations and the most efficient production processes at the cost of distribution costs). The cost and service requirements for distribution were secondary, but we've now seen a significant increase in companies looking at their total cost of manufacturing and distribution rather than just focusing on one thing or the other.
For example, the consumption of cold drinks is heavily dependent on the weather. During cold spots in the warmer months, there was often inventory in the distribution centers while the beverage production line continued, resulting in excess inventory. This could be a daily change. By treating manufacturing and sales as integrated functions rather than as separate entities, organizations can create buffers as needed or slow down manufacturing to degrade inventory.
By better controlling inventory, companies can also ensure product quality and greater flexibility to meet the growing demand for smaller and more frequent shipments, especially with the rise of e-commerce.
Elimination of costly transport legs
Finished goods have traditionally been removed from the manufacturing facility and shipped to an off-site warehouse, where they are stored and then distributed to stores or directly to customers.
A combined production and sales location eliminates costly transport routes between the production and warehouse locations of a company, optimizes processes and leads to immense operational savings.
Rethink real estate strategy
The joint localization of production and sales functions offers enormous advantages from an operational point of view, but must also be considered from the point of view of the properties.
Traditionally, production facilities have been owner-occupied locations to ensure that the user has control over their manufacturing processes and expensive equipment. While distribution centers are traditionally staffed with leasing structures (which gives users flexibility to expand, consolidate or relocate their sales activities).
We are currently seeing many organizations since Covid started releasing the capital in their own production facilities in order to invest again in co-location and automation in sales.
Manufacturing and distribution should not be separate parts of an organization's supply chain. Companies that take this time to reconfigure their operations and combine manufacturing and sales will build resilience in their supply chains to better serve their customers.
About Travis Erridge
Travis Erridge is the CEO and Co-Founder of TM Insight and a recognized industry leader who has designed and implemented some of the most advanced industrial developments in Australia. In his 20 year career, Travis has gained extensive experience in project management and development management of large projects.
About TM Insight
TM Insight is the leading Asia-Pacific specialist in supply chain, industrial property and digital transformation. TM Insight offers integrated consulting services in the areas of supply chain optimization, real estate consulting and project management.