Can Australia Pty take on and stave off foreign competition and protect its key high value add industries.
The recent news regarding potential job cuts within the shipbuilding sector in Victoria and South Australia isn’t good, considering all the other bad news stories that are and have been bedevilling the Australian economy in recent times. It’s bad enough when the reason for paring back a workforce is due to not a lot happening within that particular market segment: that’s business the worldwide over. It’s when this threatens to happen because whilst there is major work to be had, the local (i.e. Australian) producers are not being invited to tender for it. I’m assuming that there has already been an opinion that Australian producers are too expensive and, as the cost for naval vessel build would be paid for out of the public purse, to source this work locally wouldn’t justify any excess costs.
It throws up two issues that conflict with each other:-
- Australia Pty has a high cost manufacturing base (as highlighted in my blog titled “Is Australia Missing the Procurement Trick?”) therefore no point in including it in any tender work as it can’t compete therefore won’t win business.
- Corporate Social Responsibility (CSR) procurement practices that among other things encourage using local suppliers thus providing a positive contribution to the local communities by way of employment and spend economics.
Let’s look at these separately.
Competitiveness
Accepting that Australia is indeed expensive, what can be done to help mitigate it thus assisting with local sourcing? I wouldn’t dare to hazard any guess as to what its cost delta would be relative to its near neighbours (between 15-30 %, or have I already broken my promise not to do this)? In saying that, when making a sourcing decision what add on costs to ex works price do we consider, if at all any when attempting total price equalisation? Are the following taken in to account when calculating total cost at point of consumption: duty, freight, customs, quality surveillance, INCO terms, transit lead-times, local repair/rework, scrap/obsolescence, finance, storage etc. etc. I’ll cover this in more detail in a later blog. In a previous life I calculated all of this to put 15% on to Far East supplier factory door price thus able to use it to justify or assist with local sourcing decisions. It also was at that time a major factor in persuading overseas suppliers to set up local manufacturing that in turn (insourcing, although not regarded that way at the time) was a major contributor to sustainable procurement. Insourcing was “in vogue” at that time.
The application of add on costs, though, should not be solely used as a crutch to fully justify local sourcing! It can assist to an extent however not as a permanent fix! Better and more professional management and control of external resources still is fundamentally required to achieve closer comparable costs to those of the competition’s, then more easily application of the add on element to justify the decision to locally source. It would also facilitate the removal of any stigma of being excluded from tendering opportunities for large scale projects due to new found competitiveness!
Corporate Social Responsibility (CSR)
More and more there is an increasing push to source as much business as is possible with local suppliers and work closely with them to help them to grow and prosper, and in turn become regarded by them as customer of choice. CSR (or sustainable procurement) also has a positive impact on the local economies, environment and full employment. Companies wish to be regarded as good corporate citizens. Good kudos and good for business.
To become excluded from tendering for major projects sends a wrong message to the supplier base and local communities. It can ultimately result in the closure of key companies and industries that shall never return. Look at what happened to ship building in the UK. Could the same happen in Australia? The same issue is looming with the Australian car industry.
Once again, observing good CSR procurement practices should not be used as a crutch. Granted, procurement has a (probably the) major part to play in influencing an economy (local and national) however sourcing business with local suppliers that are expensive or uncompetitive, just to be nice, also isn’t good business and in terms of protecting the taxpayer’s or ultimate stakeholders’ interests, can be unethical.
I started by stating that competitive procurement and CSR procurement conflict with each other. On second thoughts maybe they do not. They can go hand in hand; provided that Australia Pty pays better attention to and respect for procurement and its management that can better enable an ability to more effectively stave off or take business back from its external competition.
