Food industry bucks the 'inventory crisis' trend

It’s no secret Australian food suppliers have been among the most impacted by the supply chain woes of the pandemic, with a storm of rising costs, slimmer profits and stockpiled goods impacting the local food industry.

Despite this, a new report of over 240 independent Australian food suppliers shows they’re now benefiting from a shift to a domestic model — holding less stock and turning more profit.

Unleashed Software’s ‘Manufacturers health check’ report used data from its inventory management software to track how SMEs in Australia, New Zealand and the UK fared in 2022. It showed a common theme among businesses faced with rising costs, slimmer profits and stockpiled goods.

Many Australian manufacturers have been forced to hold more inventory for less profit during the pandemic, with some sectors declaring an inventory crisis. However, the report found that Aussie food manufacturers bucked this trend by decreasing stock by 10%, all the while doubling their returns on inventory.

Unleashed Gareth Berry CEO said that the Australian food industry has shown growth under a domestic model, enabling suppliers to navigate a challenging global supply chain.

With more than 1772 Australian SMEs in the analysis, the report painted a picture of manufacturer health by examining four main data points: the value of stock on hand, gross margin return on inventory (GMROI)*, fulfilment days and the price paid for goods purchased.

Overall, levels of stock on hand for Australian manufacturers increased steadily, from $770,950 in Q3 2019 to $895,729 in Q3 2022 (up 11.52%) where New Zealand and the UK saw more drastic increases of 115.37% and 99.78% respectively. However, Australian firms are losing on average more than one-third of their returns on inventory, dropping from 1.5% pre-pandemic to 0.9% today (39.33% reduction).

A summary of the details from the report includes:

The five industries with the biggest % increase in stock-on-hand value (Q3 2019 v Q3 2022)

Overall stock-on-hand levels among Australian manufacturers steadily increased by 11.52% over 3 years from Q3 in 2019 to Q3 in 2022, but sectors such as energy and chemicals (176% growth) and the automotive sector (114% increase) saw massive leaps in their inventory value.

Energy, chemicals	176.57%
Automotive and automotive supplies	114.58%
Clothing, footwear, accessories	52.21%
Building and construction	27.35%
Electronics, telecommunications, electrical & electronic components	24.50%

The five industries with the biggest % decrease in GMROI (Q3 2019 v Q3 2022)

The marginal returns on inventory fell through the floor in the past three years (-39.33%), marking a crisis for the manufacturing industry. Their struggles were felt worst in clothing, footwear and accessories (down 80.3%), beverages (down 53%) and energy and chemicals (47.5%) also experiencing significant downturns in GMROI.

Building and construction	-41.53%
Energy, chemicals	-47.52%
Beverages (alcoholic and non-alcoholic)	-53.01%
Sport, entertainment, recreation	-69.23%
Clothing, footwear, accessories	-80.28%

The industry-wide percentage change in fulfilment days (Q3 2019 v Q3 2022)

Australian manufacturers have managed an impressive rebound in their fulfilment days, from 12.1 days in 2019 to an average of 10.7 today. The AU building and construction firms in particular have successfully cut fulfilment times by 38.6% Q3 2019 to Q3 2022, while the automotive industry is the outlier, increasing from 4.5 days to 7.6.

Building and construction	-38.55%
Beverages (alcoholic and non-alcoholic)	-19.64%
Electronics, telecommunications, electrical & electronic components	-9.61%
Sport, entertainment, recreation	-9.22%
Clothing, footwear, accessories	-4.97%
Energy, chemicals	0.00%
Food	10.53%
Plastic and rubber products	15.11%
Automotive and automotive supplies	68.79%

Aussie food manufacturers bucking the trend:

The Australian food sector has seen surging increases in return on inventory, more than doubling from 0.8% Q3 2019 to 1.7% Q3 in 2022.

Image caption: iStock.com/ ti-ja