We have worked our way through Requirements Capture and Technology Selection. After doing some initial design work and deciding on how the circuit will work, you have to find components that you can buy on a reasonable lead time and at a reasonable price. This depends a lot on the expected production volume because if the volumes are low then you might not be able to secure the components you prefer.
For products Made in Australia, the typical production volumes are less than 5000 units per annum. Products in this category are niche or low volume products and are generally defensible internationally because of the special and targeted nature of the products. But it does introduce a complication. You don’t have much of a bargaining position with suppliers. In this circumstance you often have to look at what you can buy and from who. This will involve looking at both local distributors and international sellers of components. An example from Element 14 is shown below for options for a 22uF 350V radial leaded capacitor:
Component Selection
And once selected, you might have to go through this exercise for each subsequent production run. Whereas much higher volume products can negotiate forward schedule orders and secure components in advance of their being required. So each product and production run needs to be handled according to your specific circumstances.
External events can also influence component availability. As an example,after the 2011 earthquake in Japan there were many components that were in short supply for up to 6 months.
This is one of the things you look for in a Niche Electronics Manufacture supplier, the ability to handle the component selection not only for the first production run but for subsequent runs.
As well as being the Thinker in Residence for South Australia, Professor Goran Roos is considered one of the 20 most significant thinkers of the 21st Century. This morning he was presenting his views on Australian Manufacturing to a combined breakfast meeting of the South East Business Network and SEMMA.
So what did I learn?
Here is the short list on what manufacturing does for an economy:
R&D is driven by it
Innovation is primarily manufacturing related
Value added exports are usually manufactured
Creates more indirect jobs per direct job than other sectors
Many service companies have a manufacturing core
Is the fastest knowledge growth domain
Is essential for a highly competitive economy
His primary point is that “A healthy manufacturing sector is a must for any advanced economy with ambitions to maintain both economic and social wellbeing“.
Now he has my attention big time. Because this is something I have inherently believed my entire working life. Australia needs manufacturing.
Manufacturing creates employment
Next he looked at the contribution of manufacturing to employment and why we have employment issues in Australia. Yes I know the official unemployment figure is low, but that is because many people looking for work are not included in the official figure. So here is how is pans out for employment:
For each manufacturing job, there are 2.5 other jobs created around it
In Australia where there are 1 million jobs in manufacturing, that means there are 3.5 million jobs in total associated with manufacturing
For each working person, there is a dependent person relying on them for income. These can be relatives, children, spouse etc.
So in total there are 7 million people in Australia dependent on manufacturing
Now lets look at mining:
For each mining job, there is another job created around it
In Australia where there are 200 thousand jobs in mining, that means there are 400 thousand jobs in total associated with mining
For each working person, there is a dependent person relying on them for income. These can be relatives, children, spouse etc.
So in total there are 400 thousand people in Australia dependent on mining
So the current government policies and industry practices of reducing manufacturing and increasing mining for direct export are actually economic suicide.
The service industry is even worse for indirect job creation though it does employ more people than mining ever will:
For each service industry job, there is 0.5 jobs created around it
The ABS statistics for 2010 show roughly 3 million people working in service industries in total including the 0.5 jobs created
For each working person, there is a dependent person relying on them for income. These can be relatives, children, spouse etc.
So in total there are 6 million people in Australia dependent on service industry jobs
What this means is that manufacturing is actually the most critical sector in Australia in terms of job creation and future prosperity.
So lose manufacturing, and you lose a huge number of jobs.
The USA has shed 5 million manufacturing jobs since 2000, primarily to offshoring manufacturing to lower cost economies. These jobs were replaced by low paying personal service jobs. The net result is record levels of unemployment and a trade deficit in every manufacturing category.
He also spoke of the hidden categories, particularly in industrial products, that lead to high export incomes and have been strength of many European Manufacturers. The following diagram shows the attributes that make these products possible. Note that 4 are to do with knowledge, and 4 to do with structure and relationship. This implies you need both.
Invisible Middle Market
Economic Growth and Competitiveness
Economic growth is a measure of how well you have been doing up to now. It is a measure of the past performance. It applies to yesterday.
Competitiveness is a measure of how well you will keep doing. It is a measure of likely performance. It applies to tomorrow.
So it is more important for the future to be positioned to be competitive, than it is to have had past economic growth. Ideally you will have both.
Some examples of countries that are highly ranked for competitiveness and also economic growth are:
China
Singapore
Switzerland
Sweden
Finland
That was a surprise. Australia ranks at number 15 for competitiveness and growth according to this analysis. The red line is the frontier of highest competitiveness. Australia is a long way from it.
Future Economic Success
Innovation
Goran Roos also had an interesting take on innovation and this fits in nicely with the view of Edward De Bono on Creating Value. He defines 2 types of innovation that are required to address Australia’s lack of competitiveness:
Innovate to create value
Innovate to retain value
Based on this, offshoring is a really bad idea. It is only done to reduce overheads for cost based activities. For value based activities where we retain the value and the income from that value in Australia, we should be onshoring!
Knowledge
Manufacturing is the fastest knowledge growth domain. This is an interesting claim and one that had a case put for it to demonstrate the validity. Here is the case:
Manufacturing generates 15 times the knowledge that mining does per unit of economic activity
Manufacturing generates 3 times the knowledge that service industries do per unit of economic activity
Professor Goran Roos also pointed out that knowledge is like a race. If you slow down for a bit, then you can’t catch up if the other runners keep going full steam ahead.
Onshoring
It now makes sense that mining for export is not that great an option. Take something of huge potential value, and give it away at the lowest point you can in the value chain.
Onshoring means we pull value creating back in Australia so we get paid for it. And making stuff, and providing the service industries to support that should be our primary strategy for the future.
The other point Professor Goran Roos made is that Australia is not a scale based economy. We don’t have a large local market by world standards and so we should focus on product categories which do not require scale. Or in my language: lower volume, higher value add products. This is also know as Niche Electronics Manufacture.
Thinker in Residence
His speech on the future of South Australian manufacturing is also worth watching and listening too. Here it is:
I have been involved in all these areas and some of these are for projects I worked on or even ran.
So having looked at some examples, why do I think we should be excited about Niche Electronics Manufacture in Australia?
I touched on this briefly in an earlier post that addressed the question of Low Cost Electronics Manufacture in AustraliaCan We Compete?
I believe the answer is YES! But we must be smart in how we go about it and we have to play to our strengths. I see these as:
highly skilled technical workforce
world class software developers and embedded systems engineers
good levels of capability and automation in PCB assemblers
we like winning and overcoming challenges
we don’t immediately do things the same as everyone else
we have been doing this for a fair while now in spite of there being little government support or industry assistance
a smaller Low Cost Electronics Manufacturer can be agile and tightly connected to their customers
So the challenge is actually a marketing one and not specifically a Product Development issue. But once you have the opportunity identified, then there is no reason we can’t do it here.
Low Cost Electronics Manufacture in Australia makes good sense if you approach it the right way.
