Why ag needs manufacturing

Making automobiles or steel products may not appear to have lots in common with producing wheat, beef or almonds, but the links between our primary producers and many secondary industries are very real, says the boss of a heavy metal business which is successfully challenging Australia's obsession with "offshoring" our manufacturing sector.

"Agriculture's a vital part of the Australian export economy, but it doesn't happen by itself," said Herbert Hermens, whose regional Victorian firm, Keech Australia, makes steel castings, cropping implements and mining gear for local and overseas manufacturers.

The Keech chief executive officer said not only had the falling dollar made our increasing reliance on overseas-built machinery and metal components 40 per cent more expensive in just three months, agriculture simply couldn't happen without supportive local infrastructure.

"Like many other sectors, agriculture needs supporting infrastructure, and that infrastructure also needs supporting manufacturers to service it with components and skills," he said.

Efficient Australian farming operations relied on well-built tillage gear or spraying equipment or appropriate building materials developed for the local environment.

They also needed specific businesses supplying those manufacturers with appropriate technology.

Dr Hermens is worried blindly believing the mantra about manufacturing being too expensive to do in Australia makes the focus of our economic structure far too narrow, exposing us to unpredictable quality, imported costs and leaving remaining industries exposed to aggressive price and service competition from overseas.

"Economies with a broad, diverse base recover faster from recession and can respond to evolving market opportunities," he said.

It was time for manufacturers to wake up, tell their story and get serious about competing in the 24-7 global economy.

Secondary industries, from farm machinery builders to food processors or electrical technology specialists must also move swiftly to re-skill their factories with far more tertiary trained employees, more robotics, and use more advance manufacturing materials so they were ready to exploit market opportunities servicing emerging consumer classes in developing countries.

Manufacturers must also encourage their staff "to dream", said Dr Hermens, in particular particular imagining ways to "challenge the normal way of doing business".

"I don't see the car industry in Germany giving up the game because the Chinese or Koreans can build cheap cars, nor have they cast out their metal casting plants or other industrial manufacturing operations," he said.

"Instead they've structured industries to focus on advanced manufacturing platforms to compete on a global scale - developing products which will appeal overseas."

He speaks from personal experience.

Dr Hermens has led the deeply traditional Keech foundry business from being a traditional manufacturer which he joined seven years ago to now rating as one of Australia's 50 most innovative companies.

The family-owned firm responded to the global financial crisis by re-equipping itself with three dimensional (3D) printing technology to make new products, subsequently lifting annual revenue 10 per cent for four years to $50 million.

Keech is not only making strides against imports, but is facing up to the added challenge of a shrinking local customer base as other manufacturers go offshore.

In 2007 the business employed only a few university educated employees at its Bendigo plant, but today has a significant number with TAFE and university qualifications who have contributed to "vast improvements" in the capabilities of general production staff, and workforce motivation to innovate all segments of the company.

Originally a Sydney company which moved bush in in 1995, its payroll now includes eight engineers in its innovation business developing software for 3D printing.

To retain and attract qualified staff Keech was also forced to lift its work safety record, improve its working environment and upgrade its equipment to be more relevant and invest in research.

The 3D printer has enabled faster product development (some prototypes are made overnight) as well as production of specialised equipment, such as small wind turbine blades.

What began as a strategy to stabilise the foundry's revenue base has turned into revenue growth from new product lines, including products exported to South Africa, Canada and Chile.

Keech is also a partner in a new $6m CSIRO centre exploring 3D opportunities for other small and medium businesses.

Dr Hermens said while catchcry terms such as "innovation" and "high end" products for wealthy consumers were frequently spruiked by commentators, developing new opportunities should not mean ignoring what we already have.

"We must believe even old technology can be restructured to survive as it does in the Netherlands or Germany," he said.

"And innovation doesn't have to be something earth-shattering, just something new for your business - maybe as simple as changing working hours or management structures."

Staying relevant to a global business marketplace will require Australian higher education institutions to get more involved in the workplaces where they expect their graduates to find jobs, says Herbert Hermens.

He says the manufacturing sector also needs to have some "tough conversations" about government mandates and industry frameworks which simply don't fit the fast evolving global economy - notably penalty rates, stamp duty and payroll taxes.

The Keech Australia boss said it should be mandatory for tertiary qualifications to include a solid minimum period of workplace training, with education institutions doing more to integrate with businesses so career entrants had more real life experience and workplace insight.

"We're allowing the education system to set itself aside from industry at a time when we must think and work much harder to upskill our workforce and lift our applied industry research capabilities," Dr Hermens said.

"Higher education institutions feel it's all a bit hard to integrate courses more closely aligned with industry, but we need universities to be driven to impart knowledge and modernisation and to dynamically pursue innovation and transformation."

In many other countries a tertiary degree involved students blending education time with the workplace to ensure they understood the relevance of their studies.

The close connection helped knowledge flow between business and universities or technical training colleges and it underpinned the relevance of tertiary institutions to innovations required by industry.

Mr Hermens also pointed to New Zealand's labour market to argue Australia had a fear of addressing big issues such as penalty rates in a meaningful way.

Maybe penalty rates were "not required as mandatory" in today's culture of widespread weekend work and around the clock global business trading activity, he said.

However, while low overseas labour costs were part of today's competition pressure, he did not believe Australian business had to offer less compensation to labour.

"We need to discuss how labour can be managed so effective costs can be cut through productivity, process improvement, education, better infrastructure - and yes, maybe even flexibility in penalty rates."