Posted: 31 August 2020
The advent of Covid-19 has forced many industries to adapt to a new way of doing things - the 'new normal', as it's being called. It’s not always a bad thing; for New Zealand's manufacturing sector, the pandemic is presenting some opportunities as well as challenges.
Many New Zealand businesses outsource some or all of their manufacturing offshore and have had to re-evaluate how to continue production as their offshore options become no longer available. What this has meant is manufacturers have been looking at fulfilling their requirements back home, playing a major role in revitalising NZ's economy. Part of this economic upturn will include Kiwi businesses using local manufacturers providing employment opportunities through the sector.
For example at ENI, we have a customer who's looking to reshore their prototyping process. We’re working with them closely and due to being local have helped their development process to become more agile. The end result being they’re able to take their product to market faster. They will continue to mass-produce their products overseas, but this example of how a Kiwi business is moving part of their manufacturing back home illustrates the benefit to our local economy.
So what other home-shoring challenges do manufacturers face?
Cost effectiveness – is overseas really cheaper?
One of the main ones is cost. New Zealand, like many other countries, opted for outsourcing a major part of their manufacturing in offshore markets because it was believed to be cheaper. Outsourcing is a viable strategy for achieving a ‘leaner’ approach to manufacturing, and it applies to New Zealand contract manufacturers as well as those offshore. A business is still outsourcing - but the manufacturing is done here in New Zealand. When a business decides to outsource their manufacturing to a contractor, they'll save money in a number of ways, including:
- Scaling resources to fit demand - there's no need to hire people with specific skills for particular, possible short-term projects. This reduces the administration of related resource management like holiday pay, sick leave, training costs and staff turnover.
- Health and safety costs - this isn't an issue if the manufacturing is being done off-site, and there aren't any compliance headaches either.
With what a business can save on these costs, options open up as to how to invest those savings.
The impact of Covid on supply chains
There's also the issue of supply chain disruption. The Covid-19 era is revealing the best and worst of supply chain management; some businesses unable to operate while others not able to keep up with manufacturing demand. To mitigate supply chain risk businesses need to have a clear understanding of all partners throughout the chain, specifically the inter-reliance of those partners; a task made easier when the supply chain is local. As well as strengthening local supply chain links, New Zealand businesses should be looking to invest in additional inventory space to keep supply inputs on hand in case of future supply disruptions.
Why harnessing technology is crucial
Then there's the challenge of keeping up with technology. Outsourcing off shore like China for example was appealing because businesses would benefit from the latest innovative developments used in mass production. Restrictions imposed due to Covid-19 have seen local contract manufacturers investing in IOT technologies to enable more flexible manufacturing and ramping up their automation to cope with demand, and making their resources available to customers in an effort to support local manufacturing.
Successful contract manufacturers are always striving for innovation especially now, when manufacturing is coming back home, construction looks to source locally and the utility industry strives to maintain services with local resources . Now more than ever, businesses are looking for ways to reduce the cost of any project - particularly if their own fixed costs have risen due to the pandemic - and the way that contract manufacturers can help reduce those costs is by being continually innovative.
As disruptive and challenging as Covid-19 is, the past few months have helped strengthen the belief in local manufacturing; to create more jobs, increase local revenues and to safeguard the economy. It's not the end of globalisation, but global supply chains are likely to become less integrated over the next few years. What the pandemic has done is highlight the risk of relying too heavily on offshore outsourcing, and if Kiwi businesses continue to operate with supply chains that are too exposed to global trends, they're facing a struggle in the event of future outbreaks.
Blog categories: Contract Manufacturing