I believe Australia is headed for an unprecedented number of food and other manufacturing plant closures in the next few years. It will ravage regional and outer suburban Australia. Non-food retail and other service sectors will not be far behind.
This is a two-part commentary. Today I will look at some of the deeper and more disturbing reasons behind the closures. It’s not just the Coles-Woolworths price war, the high dollar and the internet that is causing the closures, although they are important triggers.
Tomorrow, as part of the Kohler-Gottliebsen drive for greater productivity in Australia (in conjunction with Australia’s first ‘productivity editor Jackson Hewett), I will introduce a radical new technique which will give many doomed plants a chance.
It can also be applied to improve the operations of a large number of service operations in Australia.
As food processing plant after food processing plant closes in Australia the evil villains are always said to be Woolworths and Coles.
There is no doubt the supermarket price war is among the reasons, but in a great many closures the hidden reason is that in past years management agreed to uneconomic work practices including complex safety rules.
The unions believed there was no way the plants would shut but did not notice that the owners could no long justify investing in the processing plants which became more uneconomic. Similar things have happened to many enterprises.
But the problem goes much deeper than simply bad unions. Very often the plants became lifetime jobs for management and workers. In the new environment both managers and workers have to be highly skilled for plants, retail operations and service industries to survive. Often the skills were not and are not there but everyone is in denial.
If the doomed plant was owned by a large conglomerate, few noticed that the group was modernising its plants in New Zealand, in other states or further afield. Everyone believed that the high costs, which had been imposed on the doomed plants, could be passed on.
The truth is that over time the work practices and lack of skills were an enterprise death sentence. But then in food came the new Coles CEO Ian McLeod who began reducing prices instead of increasing them, and Woolworths quickly followed. At times they treated suppliers roughly. But those that were low cost producers and had not made the bad work practice decisions gained greater volumes and there is no doubt that Australia’s food processing supply chain is now starting to become more efficient.
But it’s not just food processing plants that are the subject of global competition. The internet has brought global competition to a vast number of service and manufacturing operations.
The badly trained managers and those enterprises with entitlement-driven unionised work forces that are not flexible are being wiped out. In many cases there is no way out because too many managers and workers are looking for redundancies. The managers don’t have the skills or inclination to motivate or train employees to do better. We recently had a soap plant shut that provided product at around 40% above the costs of similar plants overseas. It was the victim of the above process.
One of the reasons Australia is able to achieve lower inflation is that food and other prices have come down because of structural changes.
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In most organisations there is the talent that can make the required changes. Sometimes talent is in the workforce. Other times it is in management. Sometimes hidden talent is in both. What if we could use modern technology to uncover the talent and make our service and manufacturing operations more efficient? Watch this space.