After a difficult year for Kiwi manufacturers, 2023 ended on a high according to a new report from inventory management software provider Unleashed.
The Manufacturing Index shows NZ small to medium sized manufacturers were well into the black overall in Q4 2023, headlined by the rebounding profitability of businesses in the Food and Clothing sectors.
“In 2023, New Zealand small and medium sized manufacturers faced a number of well-documented headwinds, which makes their rebound to finish off the year all the more impressive,” said Unleashed Head of Product, Jarrod Adam.
“Heading into Q1 we have seen some very strong indicators of improvement among many of the local industries, particularly the improving stock control and lead times.”
The Manufacturing Health Index report assesses the profitable return for each dollar invested in inventory (GMROI) for small to medium sized manufacturers throughout New Zealand, Australia, and the United Kingdom. The report draws on a combination of sales, expenditure and overall efficiency metrics, analysing 2600 manufacturers across 13 different industry categories.
While the New Zealand manufacturing sector saw increased profitability in Q4 2023 with $2.05 made for every dollar spent, it was again well outpaced by its UK contemporaries at £2.33, and AUD$2.22 in Australia.
“It’s no secret that our manufacturers have been having a rough go at it recently. Q3 was one of New Zealand’s least profitable quarters for nearly two years. With that in mind, and with all of the upheaval in the world economy, it is very impressive that NZ Inc has managed to get itself back in business,” said Adam.
Improved results in Q4 are a strong indicator, but further pain could be ‘in the post’, as repercussions from shipping delays from the Red Sea conflict remain to be seen.
“As New Zealand is particularly sensitive to shipping supply chains, impacts from the Red Sea crisis are being watched closely by local manufacturers. Firms experimenting with Just in Time stock strategies may be forced to up their investment in safety stock in order to buffer against longer lead times,” said Adam.
Game of two halves for food and beverage: Food bouncing back, beverages doing it tough
The Food manufacturing industry bounced back into the black with an overall profit of $2.03 for each dollar spent, providing some breathing room after posting $0.95 averages through Q3 and Q2. This comes as some food processing plants around the country have had to restructure or shut down, and the cost of living crisis has put even more pressure on food manufacturers’ already slim margins.
Results in the Food and Beverage
By comparison, Australian beverage producers are earning an average of $2.93 for every dollar spent, indicating that NZ manufacturers are lagging behind their Australian cousins.
For New Zealand beverage producers, the key issues stymying industry growth were regulatory compliance, as well as the pressures of a high excise tax for alcohol producers.
Altitude Brewing managing director Eddie Gapper said the high tax is adding significant pressure to independent brewers, on top of the difficulties of consumer demand, and industry consolidation
“The relentless increases in excise duty tax are driving up the cost of a beer”
Despite facing difficulties in profitability and overstock issues, Beverages have continued to push down lead times to one of the lowest of all industries with lead times of only 13 days.
Cosmetics continues strong performance
The local Cosmetics industry, one of the stand out performers of last quarter, has continued its strong run with a $3.06 profit from every $1 invested in inventory in Q4 2023. The industry has made use of a boom in e-commerce to become a powerhouse of local manufacturing.
Lead times are low as the industry gets the right balance of sales to inventory, at only 11 days.
The promising trajectory of the Cosmetics industry has indexed closely to its inventory control, following a worrying $359,608 spike in overstock in Q4 2022. A year on and the industry has more than halved the average excess stock on hand, down to $145,879.
Clothing bounces back with final quarter buzzer beater
After a grim year for local makers and designers, the clothing industry saw a late surge into health in Q4 2023, seeing profit margins of $2.13 per dollar spent on inventory, almost double the sluggish $1.09 of the previous quarter.
But perhaps the most impressive figure from the sector is the drastic drop in lead times, down to 16 days in Q4 from the staggering heights of 50 in Q1 2023. Despite being beholden to international shipping performance, clothing manufacturers have taken advantage of a boom in e-commerce to achieve the profit margins they are now seeing.
Tight relationships between demand, lead times and profit
Steady sales in Q4 came as a pleasant surprise for many manufacturers, with 74 percent of those surveyed saying demand had been either better than, or about the same as they’d expected.
However the ability to turn that demand into profit largely appears to be the result of steadily improving supply chain conditions throughout 2023.
Mapping lead time performance against stock levels shows the degree to which profitability is affected by shorter – and more predictable – lead times.
Short lead times allow firms to carve back inventory levels, creating a virtuous cycle of improved cash flow – as well as lower supply chain costs – that leave them more flexible and able to invest in response to demand.
Average lead time performance – measured in this case as the time taken between placing a purchase order and receiving the goods – dipped below 20 days during Q4 across all three regions. This corresponded with a reduction in overstock levels – measured as the value of inventory held over and above optimal levels for that business.
This saw many firms better able to maximise returns – particularly in Australia and New Zealand, where lower lead times appear to have given manufacturers the confidence to shed some of their ‘Just in Case’ stock and shift towards more profitable ‘Just in Time’ strategies.
Unleashed Manufacturing Health Index numbers — NZ
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In Q4 2023 New Zealand manufacturers had an average profitability of $2.05 for every dollar spent.
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Up $0.50 cents from lacklustre Q3 profitability of $1.55, the lowest quarter in two years.
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We are lagging behind Australia ($2.22) and the UK (£ 2.33) in profitability.
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Q4 brought firm sales, as 74 percent of manufacturers experienced better-than-expected, or as-expected demand in Q4 2023
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In New Zealand lower lead times have given manufacturers the confidence to shed some of their ‘Just in Case’ stock and shift towards more profitable ‘Just in Time’ strategies.
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Overall, six sectors recorded their best profitability since mid-2021. (Building and Construction, Energy & Chemicals, Food, Health Medical Supplies and Equipment, Industrial Machinery Raw Material and Equipment, Personal Care)
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Dramatically improved shipping and logistics helped the cosmetics & personal care sector bounce back to record high profit margins of $3.06.
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Sectors still struggling, compared with prior performance, include furniture makers, electronics, beverages, and sports & recreation.
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Report data utilised business metrics from 2600
