Manufacturing

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GUEST OBSERVER
Despite the well publicised closure of some manufacturing sectors in Australia, manufacturing isn’t dying.
Instead, like industry around the world, it’s undergoing a period of significant change as new, disruptive technologies and economic realities take hold and new markets emerge.
There is a role for the manufacturing sector in Australia. Through interviews with 56 stakeholders, three workshops and a survey of industry and government organisations, as well as leading researchers, CSIRO identified major growth opportunities and what the manufacturing sector needs to do to achieve them.
Currently Australian manufacturing contributes 6.05% of Gross Domestic Product (GDP), exports A$96.1 billion of goods and employs 856,000 people. This has fallen from a high in 1995, when it contributed to 14% of GDP and employed more than a million people. 
High wages, geographical remoteness and a small dispersed local market are some of the reasons for these changes. However consumers are also changing what products they buy which then impacts the type of products made.
Major companies like Boeing and General Electric now look to the world using global supply chains for components for their final product, so Australia has to compete globally. 
The innovation resulting from science and technology, such as automation, digitisation and new materials, has changed the equation of what it means to be a manufacturer. Manufacturing is no longer a basic industry that employs low-skilled workers.
Over the next 20 years, Australia’s manufacturing industry must transform into a highly-integrated, collaborative and export-focused “ecosystem” that provides high-value customised solutions contributing to global supply chains.
Our research brought up some exciting examples of Australian companies that have already embraced this evolution, setting a standard to follow.
<h2>Customised high-margin solutions</h2>
We found that demand for more expensive bespoke products is replacing mass-produced products relying on value from producing a lot for the market. New materials, automation, biotechnology and new chemical processes have driven this innovation in manufacturing. 
These new technologies enable a new level of customisation. Products like personalised medical implants and functional foods and clothing are already possible thanks to the combination of design services and superior components (such as 3D printing).
Small to medium enterprises (SMEs) make up 97% of Australia businesses. So customisation is an ideal recipe for Australian SMEs to achieve global reach without the need for producing more goods than their competitors.
An example of an Australian company doing this well is Oventus. They produce an O2Vent mouthpiece for those that suffer sleep apnoea. Oventus uses a 3D scanner to map a patient’s mouth, then 3D prints a custom-made mouthpiece that helps stop dangerous pauses in sleep at night. Its custom fit and relative comfort attract a price premium. The company recently listed on the Australian stock exchange and is about to go global.
<h2>Collaboration</h2>
Too often Australian manufacturers focus on the rival across the street, rather than the looming competition over the horizon.
Our research shows manufacturers need to partner among themselves, either through business partnerships or increased collaboration. Nautitech and Northern Light Technologies Australia, for example, were brought together by a mining company to improve underground communications. 
These two companies combined hardware from one company and software from the other to provide mobile Wi-Fi coverage for mine sites. It allows miners to monitor worker safety, fleet optimisation, machine performance and also allows autonomous mining and productivity improvements. 
<h2>Global supply chain integration</h2>
In a global marketplace, Australia cannot stand on its own. The Australian market alone is too small - our population is the size of Shanghai, China. 
Australia has few multinational companies manufacturing here. However multinational companies do source components from the best suppliers globally and herein lies the opportunity for Australia.
For example, manufacturer ANCA Tools delivers specifically designed parts to Japan. These parts are made using the company’s multi-axis grinding machines. 
These machines, designed and built in Australia, are automated and wired up for flexible and precision manufacturing. The components are integrated into Japanese customers’ unmanned, factory-wide automated production systems.
Manufacturers need to integrate into international supply chains; using Australia’s advanced technology industry and research sector, to stand out from the crowd. One example of this highlighted from our research is Carbon Revolution, a company that pioneered the commercial production of carbon composite car wheels. These wheels are made from a single piece of material. 
Carbon Revolution is supplying Ford with wheels for the Mustang Shelby GT350R, making it the first company in the world to supply mass produced carbon fibre wheels on standard equipment for a major automaker.
The wheels weigh up to 50% less than conventional aluminium equivalents and reduce carbon emissions by up to 6%. Carbon Revolution is now investigating opportunities in aerospace and industrial markets.
<h2>Increased role for the research sector</h2>
Australia’s research sector can play a critical role in the future of Australian manufacturing, providing the significant technological innovation needed to drive future prosperity.
Publicly funded research agencies in Australia are already building stronger industry engagement. In our research, Australian manufacturers have identified the science and technology gaps that need filling. 
These companies want to use research results to be able to differentiate, make manufacturing processes more efficient, monitor in real time and drive decision making with data. Australian research institutions need to adapt to these demands.
The establishment of open access hubs such as Lab22, the Australian National Fabrication Facilities (ANFF), industry collaboration spaces in research organisations, researchers in business, industry PhDs and internships are all examples of initiatives to link the research and manufacturing sectors.
Australia has a high level of education, an excellent research sector, vast natural resources, a reputation for quality, keen SMEs and close proximity to a burgeoning Asia. The strengths far outweigh the weaknesses.
Cathy Foley is deputy director and Science Director Manufacturing Flagship CSIRO, and can be contacted <a href="https://theconversation.com/profiles/cathy-foley-1066" target="_blank">here</a>.
Keith McLean is director, CSIRO Manufacturing, CSIRO and can be contacted <a href="https://theconversation.com/profiles/keith-mclean-318305" target="_blank">here</a>.
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The Australian manufacturing industry is not dying, it’s evolving: CSIRO study

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GUEST OBSERVER
Australian car manufacturers are closing. Ford is closing in October this year. Toyota and Holden are to quit manufacturing in Australia by the end of 2017.
That means that from 2017, Australia will not have a local car manufacturing industry. This will especially impact on companies that make parts for new cars.
One aspect that has not been discussed among the many forthcoming hardships, is the impact on industrial property owners. The suburbs of Melbourne will be hard hit, especially the Northern Suburbs.
Opinions vary as to the number of businesses in the automotive component manufacturing industry but all agree that it is a large number. Many of which are located in Melbourne’s outer suburbs. Administrators appointed to one component manufacturer claims there are 150 firms nationally while Ibis Research says there are 882 businesses. Government committees have relied on automotive aftermarket association membership of 260 as their number.
Many component suppliers’ premises are setup for manufacturing and have limited alternative uses. While there is an ongoing demand for warehouse and distribution industrial properties, these component supplier premises are not considered as they usually lack the necessary high ceiling and high clearance entrance required for storage stacking and large vehicle access.
<h1 style="text-align: left;" align="center">Figure 1. Declining Industrial while Retail and Office do strong </h1>
<a href="/images/2016/08/16/Screen%20Shot%202016-08-16%20at%201.12.09%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/08/16/Screen%20Shot%202016-08-16%20at%201.12.09%20PM.png" alt="">
The effect on industrial property will happen sooner than we think. In fact, it’s happening now.
The Commercial Property Guide Asking Price Index (API) shows a steady decline in the rent that real estate agents are seeking for their clients’ industrial properties. This contrasts with a healthy increase over recent times for office and retail commercial space.
The industrial property rental asking price has been in a decline since November 2015 (see figure 1.). In May 2016 the asking price for industrial property rents have decreased 1.0 percent in the past three months. In the last two months (June and July) industrial rents have found a new lower level. One area that has been particularly hard hit is the Inner Northern suburbs of Melbourne where demand for logistics and warehouse properties does not appear to have offset the effect of factory rents decreases. Table 1. Shows the last six month changes.
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Feb
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Mar
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Apr
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May
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June
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July
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-3.08
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-1.23
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-3.23
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-3.08
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-3.26
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-1.78
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Table 1. Change over the previous 3 months for Inner Northern Melbourne Industrial Property
With domestic vehicle manufacturing to cease by 2017, the Victorian Government has launched a funding program “Towards Future Industries: Victoria’s Automotive Transition Plan”, to assist businesses, employees and communities to capitalise on opportunities and provide support to those affected.
One group not eligible for direct assistance are factory owners of premises where component manufacture will stop.
The Commercial Property Guide API is starting to tell the story of these parts makers. There is considerable lead-time required to transition out of car parts to a new opportunity. As well as the much discussed unemployment and economic impact, the unintended consequences on commercial property owners is just beginning to be felt.
Simon Rose is chief executive officer, Commercial Property Guide and can be contacted <a href="https://www.commercialpropertyguide.com.au" target="_blank">here</a>.
 
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Real estate early-warning radar for end of car manufacturing

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Car manufacturing job losses and oversupply of houses and apartments are expected to hit property prices in Melbourne from 2017, according to new research.
The study, by property market researcher Propertyology, found that Melbourne is on the cusp of a market downturn. The report says the slump will be caused by the untimely collision of thousands of job losses in manufacturing with entrenched oversupply issues.
"Propertyology believes that the 2016 supply-demand fundamentals for Greater Melbourne resemble those of Perth’s in 2014," said Propertyology market analyst Simon Pressley.
"The housing supply pipeline exceeds population demand in Melbourne to the tune of approximately 12,000 dwellings per year.
"Of even bigger concern is the impact on as much as six per cent of the city’s households from car manufacturing plant closures from late-2016 and continuing through 2017. One would have to anticipate there’d be a significant knock-on effect to consumer and business confidence across the entire city."
The report says the main factor in the market downturn will be the loss of jobs from 2014 to 2017 in the manufacturing plants of Ford, Holden and Toyota.
And it is not just the apartment sector that is burdened by oversupply. Sixteen of Greater Melbourne’s 31 local government areas (LGAs) have approved 50 per cent more dwellings than normal, even though the population growth rate has remained the same. The apartment sector also remains bloated by oversupply, the report says.
"Melbourne City is on track to approving 19,000 CBD apartments over the past three years; this is an increase of 158 per cent on the annual average from the previous five years," Pressley says.
"The Melbourne LGA population growth is just shy of 6,000 people per annum and equates to demand for 3,000 extra dwellings compared to the recent average annual supply of 6,300 CBD dwellings."
Pressley says a University of Adelaide study into the impact of the closures on Australia predicted huge job losses, with Victoria being the worst hit.
"The study states that 'Australia is expected to suffer a fall in national employment of around 200,000 as a result of the planned closure to motor vehicle manufacturing between (mid-2014) and 2017'," he says.
"The greatest impact in terms of projected job losses will be in Victoria, with an estimated decline of close to 100,000 jobs. Victoria’s Gross Regional Product is also forecast to decline by $13 billion per year."
Pressley says Victoria may have the highest unemployment rate in the country by the end of 2017, which will further negatively impact its property market from 2017 to 2018.
"Sales volumes will fall, days on market will increase, as will vacancy rates," Pressley says.
Property prices across Melbourne, and not just inner-city apartments, are likely to reduce as will rents, he said.
"I believe there is a stark resemblance between Melbourne’s current fundamentals and those of Perth’s in 2014. Propertyology correctly forecast the resultant easing of demand in Perth and rising housing supply that left the legacy of a five per cent decline in Perth property values during 2015 – and we feel more of the same is likely there in 2016."
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Job losses, oversupply to hurt Melbourne property prices from 2017: research

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Manufacturing in Melbourne, and pharmaceuticals and logistics in Sydney, are driving strong industrial markets with the demand for land in both cities pushing up values and triggering rental growth in Sydney, while pre-commitments are strong in Melbourne, according to the latest industrial leasing data from Savills Australia. 
Savills’ industrial leasing summaries reveal a tale of two economies with states beset by the end of the mining investment boom continuing to struggle while Melbourne and to a lesser extent, Sydney, forge ahead.
In the last 12 months to March, 2,694,559 square metres of industrial space was leased across Adelaide, Brisbane, Melbourne, Perth and Sydney markets, slightly below the five-year average, according to Savills’ national head of research, Tony Crabb. 
Melbourne and Sydney together accounted for 1.96 million square metres of the total – a rise of nearly 20 per cent on the five-year average - while Adelaide, Brisbane and Perth were down more than 34 per cent from 1,109,312 to just 731,542 square metres leased.
Melbourne has been the bolter with leasing up nearly 90,000 square metres on the previous 12 months and more than 230,000 square metres, or 36 per cent, on the five-year average, while Brisbane is nearly 33 per cent down on the long-term average    
Crabb said the data unequivocally illustrated the variance in economic fortunes the mainland states had experienced since the end of the mining investment boom.
"This is just what the doctor ordered. The end of the mining investment boom meant the national economy had to look to other sectors to drive growth and that is clearly what is happening.
"The lower Australian dollar has played no small part in the resurgence of the manufacturing sector, especially in Victoria, Australia’s manufacturing heartland, and that has been the key to a much more lively industrial market, while the drop in the oil price has been a timely boost for the transport &amp; logistics sector,’’ Crabb said.
The lower dollar has increased export competitiveness with some companies reportedly considering returning manufacturing operations to Australia and others putting on staff to handle increased export orders, according to the Australian Industry Group. 
In Victoria, the automotive industry suppliers have not totally shut down as was feared, due to the impending closure of car manufacturing, with a significant number of supply-chain manufacturers diversifying and restructuring, state government data shows.
The AIG’s Australian Performance of Manufacturing Index jumped by 2 points to 53.5 points in February, its highest level since July 2010, which, according to AIG, indicated a stronger rate of expansion. The rise was the eighth consecutive monthly rise above 50 points (net expansion) and the longest continuous run of expansion since 2006.
Crabb said the leasing results were also in accord with the latest NAB Monthly Business Survey for March which showed a jump in both business conditions and confidence to their highest level since 2008: "(Providing).. more assurance that the Australian economy is weathering the global challenges well, and is successfully transitioning through the end of the mining boom’’. 
<a href="/images/2016/04/19/Screen%20Shot%202016-04-18%20at%204.55.10%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/19/Screen%20Shot%202016-04-18%20at%204.55.10%20PM.png" alt="">
The strong demand for land in Sydney was now driving rental growth, said Savills’ head of industrial, Darren Curry.
"The market in Sydney is pretty hot with significant buy orders from numerous high profile institutional investors and a groundswell of pre-leases with well over 100,000 sqm soon to be announced driven heavily by requirements from the pharmaceutical industry and 3PLs (third party logistics).
"In Melbourne, it’s a similar story. We are now seeing the emergence of a new speculative industrial construction push and that is driving land values around key transport routes. 
"While rents remain stable in Melbourne, a 20 per cent jump in land values over the last 24 months is now driving rental growth in Sydney, particularly in South Sydney and Western Sydney,’’ Curry said.
According to Victorian head of industrial David Norman what is driving the Victorian leasing market are pre-commitments - 309,691 square metres in the 12 months to March - with retailers with online presence and corporates looking for efficiencies through consolidation, the key players.
The leasing summaries show businesses requiring industrial space for the purposes of Manufacturing/Engineering were the most active leasing 351,436 square metres in Melbourne, while Transport &amp; Logistics firms were the most active in Sydney leasing 475,948 square metres. 
<a href="/images/2016/04/19/Screen%20Shot%202016-04-18%20at%205.00.14%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/19/Screen%20Shot%202016-04-18%20at%205.00.14%20PM.png" alt=""> 
<a href="/images/2016/04/19/Screen%20Shot%202016-04-18%20at%205.06.11%20PM.png" target="_blank">Click to enlarge</a>
<img src="/images/2016/04/19/Screen%20Shot%202016-04-18%20at%205.06.11%20PM.png" alt="">
 
 
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Melbourne, Sydney driving industrial market: Savills 

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Holden will finally end its Australia manufacturing chapter in October 2017, leading to job losses numbering a least 1,000. 
It first announced its decision to shut making cars in Australia in late 2013. Much was said back then about the impact on the economy. 
Real estate being a being part of the Australian economy, Property Observer looked up for change in property prices in Elizabeth, site of Holden's plant, from around the time the decision was first announced and found there was no major impact on values. In fact, both house and unit prices have grown in value from 2013 to October 2016, according to CoreLogic RP Data.
The population in the area was <a href="https://www.urban.com.au/expert-insights/investing/7076-elizabeth-sa" target="_blank">18,672 people</a>, according to ABS Census 2011 data. The dwelling composition in the suburb was 67.8 percent houses, 8.2 percent units/apartments, while the rest comprised semi-detached homes or townhouses.
<a href="https://www.propertyobserver.com.au/images/2017/01/19/HoldenElizabeth.png" target="_blank">Click to enlarge</a>
<img src="https://www.urban.com.au/images/2017/01/19/HoldenElizabeth.png" alt="">
The median house price in Elizabeth (postcode 5112) in October 2016 was $226,000 with an annual average growth of 5.07 percent and three-year growth of 10.24 percent, according to CoreLogic data as at October 2016. There were 19 properties sold, data shows. 
The weekly median rent was $250 per week, with a gross rental yield of 5.75 percent, data shows.
For units, corresponding data was not available. However, according to the suburb profile on <a href="https://www.realestate.com.au/neighbourhoods/elizabeth-5112-sa" target="_blank">www.realestate.com.au</a>, the median unit rent was $201 per week.
Median house prices rose from about $200,000 in 2013, when Holden first announced its closure decision, to about $226,000 (CoreLogic, October 2016).
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Property prices rose in Elizabeth, SA despite impending Holden shutdown  

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Paper giant Visy Australia has signed a 20-year lease with Frasers Property Australia.
The new $46 million purpose built cardboard manufacturing and distribution centre is situated in West Park Industrial Estate in Melbourne’s western suburb of Truganina.
The state of the art facility will sit on 7.843 hectares of land located at 27 Doriemus Drive.
The facility will be 42,770 square metres.
It includes a 1,025 square metre office and 124 car spaces. 
The facility is now under construction by Frasers Property’s in-house construction division in two stages.
Stage 1 is expected to be completed by September 2018, while Stage 2’s completion date is December 2018.
The industrial park boasts access to the Western Ring Road, Deer Park Bypass and Melbourne’s ports and airport. 
Visy Australia will join several significant groups in the estate including Ceva Logistics, Toll, DB Schenker and National Tiles.
The transaction was brokered by Ben Fahey from Frasers Property, Stuart Duncan from Visy and Michael Green from Cushman Wakefield.
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Visy signs new lease for manufacturing and distribution centre in Truganina 

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EXPERT OBSERVER
Why is the manufacturing industry a target for cyber criminals?
In two words, money and information. Most cybercriminals want cold, hard cash or access to trade secrets.
In its <a href="https://www.verizonenterprise.com/verizon-insights-lab/dbir/" target="_blank">2018 Data Breach Investigations Report</a>, global telecommunications and technology company Verizon reveals that financial motives are behind just over half of all data breaches in the manufacturing sector, while espionage makes up most of the other incidents as spies seek to gain confidential information from companies.
The findings show what the cyber crooks are after, with personal information (32 per cent), company secrets (30 per cent) and credentials (24 per cent) topping the list. With the latter, stolen credentials can be used to ramp up cyberattacks and access other data types.
Chris Tappin, Principal Consultant at the Investigative Response team for the Verizon Threat Research Advisory Centre, points out that first-mover advantage is crucial in the manufacturing sector, so cyber criminals are hell-bent on trying to pinch companies’ best ideas. “If they can obtain trade secrets, such as plans and R&amp;D information, and then use these to bring an idea to market first, they can potentially make big financial wins,” he says.
Whereas organised crime gangs are responsible for most attacks on retailers, accommodation, food services groups and financial services companies, state-sponsored hackers carry out the greatest percentage of manufacturing attacks. These rogue governments want intellectual property as a means to score trade success and often see manufacturers as an easy target because old IT systems are difficult to update and protect. Better still, they know that many manufacturers’ supply chains are large and exposed, giving them an opportunity to infect many suppliers and businesses at the same time.
What are some high-profile examples of attacks on manufacturers?
One of the best known is the attack on networks of defence contractor Lockheed Martin, and the world’s largest aerospace manufacturer Boeing, in a series of strategic data breaches on top-secret plans and information around a decade ago.
Authorities were stunned at the scale of the espionage in which hackers accessed designs and data on the F-35 Lightning II joint strike fighter jet, the B-2 stealth bomber, the F-22 jet, space-based lasers, missile navigation and tracking systems, and more.
Following the FBI’s 2014 arrest, and the subsequent jailing, of a businessman reportedly working with the Chinese military, the hackers’ modus operandi was revealed to involve phishing emails to employees at the target companies and installing malware on their systems which allowed remote access to directories containing the trade secrets, along with other sections of the companies’ networks.
How do cyber criminals typically target manufacturing companies?
Traditionally, it’s via phishing campaigns to gain unauthorised access to systems and data, tricking executives and employees into revealing login credentials and other private information. Networks, as a result, become highly exposed.
“The initial vector of intrusion is often not that sophisticated,” says Simon Ezard, a Senior Security Consultant at the Verizon Threat Research Advisory Center. “Unsophisticated cases involve attackers sending phishing emails, sometimes to thousands of people and in the hopes that a percentage of those will fall victim.”
Verizon’s research indicates that in most cases manufacturers can expect the cyberattacks to come from outside the business. In about nine out of 10 data breaches, external players are to blame, with employees responsible for just a small percentage of incidents.
What action should manufacturers take to limit threats?
With crucial company data, trade secrets and business reputations at stake, it is incumbent on manufacturing leaders and innovators to protect their intellectual property.
There are some basic means to combat cyber criminals, including being vigilant, educating employees about the dangers of phishing scams, keeping anti-virus software and patching up to date, encrypting data and using multi-factor authentication to limit the chances of attacks.
According to Verizon, manufacturers should also be taking three overarching actions to mitigate risks:
<ol>
<li>Separate highly sensitive and secret data from the rest of their networks, and restrict access to only those individuals who absolutely require it to do their jobs.2.</li>
<li>Implement data-loss-prevention controls to identify and block transfers of data by employees, and especially those who are terminated or resigning.</li>
<li>Ensure that employees quickly report phishing attacks so they can be better understood and combatted.</li>
</ol>
“Make people your first line of defence,” Ezard says. “Give your employees cybersecurity and social engineering training. Help them learn how to spot a phishing email and empower them to speak up to their IT department if they become suspicious.”
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