Food manufacturers lead the way in Manufacturing Health Index report

Australian SMB manufacturers have returned to health in Q3, boosting profitability, ditching excess stock and growing revenue, according to the latest report from inventory management software provider Unleashed.

Based on anonymised, aggregated transactions data from Australian firms using Unleashed software across manufacturing sectors — including food and beverage, clothing and fashion, and construction — the quarterly Manufacturing Health Index report assesses SME manufacturer performance via a big data approach.

The average Australian small to micro manufacturer grew sales by 9% to $625,400 in the quarter ending 30 September, while expanding profit margins by 3.2%, marking a resurgence after thin sales in its second quarter.

Despite revenue remaining 3.7% below the same quarter of the previous year, the quarterly improvement reflects resilience and strategic positioning in the face of broader economic headwinds.

“In spite of cautious consumer spending, spiking energy prices and high labour costs, Australian small and micro manufacturers have been adapting and thriving,” said Jarrod Adam, Head of Production & Distribution at Unleashed.

“Manufacturers have found pockets of demand and capitalised on them. The real story is operational awareness; firms have focused on growing revenue and expanding profitability without tying up capital in excess stock. That’s a fundamental shift in mindset from the pandemic era of buffer building.”

The report, which also assesses the manufacturing health of the UK and New Zealand, reveals Australian manufacturers leading the charge on operational efficiency across all measured markets. After the turbulence of Q2, supply chains have stabilised at 16-day lead times; meanwhile, average stock on hand across all industries fell to $311,200 per business in Q3, down from $462,735 in Q2.

However, Australian producers have seen a large pullback in their purchasing of raw materials, falling 34.9% quarter on quarter to $339,371. This dramatic reduction in ordering, combined with the inventory drawdown, signals a fundamental change in strategy. Firms are decisively abandoning buffer building in favour of lean operations that free up working capital while protecting profitability.

Food sector delivers standout growth performance

Food manufacturers emerged as the clear growth leader, posting 42.1% sales growth quarter on quarter to $733,254 while simultaneously improving margins and reducing inventory. The sector also achieved substantial margin expansion of 4.89% points quarter on quarter to reach 30.87%, demonstrating strategic pricing and cost efficiency despite input price volatility.

Stock holdings contracted sharply by 25.6% quarter on quarter as food manufacturers ran down Q2 inventory levels, yet remain moderately elevated by 8.5% compared to the same quarter of the previous year, striking a balance between capital efficiency and demand.

“Even with household budgets under pressure, the food sector is capturing strong consumer demand,” Adam said. “The 42% sales jump shows Australians are still buying quality food products. The margin expansion to near 31% proves manufacturers are passing through input costs while optimising their product mix.”

Beverages face structural headwinds despite margin resilience

The beverages sector experienced significant revenue contraction, falling 28.2% quarter on quarter and 38.4% compared to the same quarter of the previous year to $437,502. Despite these substantial headwinds, beverage manufacturers maintained margin stability with modest improvements, lifting profitability from 31.44 to 31.95% quarter on quarter.

Stock holdings declined 20.6% quarter on quarter as beverage firms recalibrated inventory to match current demand levels, while purchase order values held essentially flat quarter on quarter, suggesting procurement has stabilised at reduced run rates.

Lead times across all Australian manufacturers contracted sharply through Q3, falling 36% quarter on quarter to reach 16 days, matching the same quarter of the previous year. This dramatic quarterly improvement confirms supply chain normalisation is complete, enabling the sector’s strategic pivot to just-in-time operations.

“The sheer velocity of the Q3 pivot is remarkable,” Adam said. “Lead times down 36%, stock down 33%, purchasing down 35%, yet margins up nearly 4% points. This is what disciplined inventory management looks like when manufacturers have real-time data and the confidence to act on it.”

Image credit: iStock.com/NVS