One of the key take-outs from the trade show AUSPACK, which took place in March this year, was that visitors were looking for ways to increase productivity and become more versatile, agile and scalable. This observation was made by Mark Dingley, chairman of the Australian Packaging and Processing Machinery Manufacturers Association (APPMA). He also noted that they were in search of options to allow them to become more efficient and profitable through innovation. Dingley was referring to food, dairy and beverage manufacturers, though ambitions for improvement can also apply to the packaging and process machinery companies the APPMA represents.
The Australian food manufacturing sector needs to adapt in order to survive, with $3 billion of its profits shifting to the retail sector in the past seven years, according to Morgan Stanley's recent Raising the Larder report. Reduced financial capacity makes the challenge even harder though, especially if the decision to invest is delayed for too long.
As a result, manufacturers are demanding more from their suppliers, including machinery and automation suppliers. At the same time, growth in capital investment is virtually stagnant, according to the latest Australian Food and Grocery Council State of the Industry 2014 report.
In line with these challenges, it’s clear the machinery sector must also adapt if it is to effectively serve the needs of Australian manufacturers. Some success stories in this category were acknowledged at the recent APPMA Industry Excellence Awards. The high performers honoured there (see PKN May-June, page 24-25) were united by disciplined management teams with well-defined and well-researched strategies, which hold all team members to account. Organisations that lack this discipline are unlikely to meet the ongoing needs of their customer base.
INSIDE TRACK
Packaging Partners is one organisation that's well placed to assess the state of Australia’s packaging machinery sector. Over the past 18 months its team has met with over 40 Australia- and New Zealand-based machinery manufacturers or distributors in this sector, and the company recently became the largest shareholder in robotic palletisation and automation specialist Foodmach.
Packaging Partners directors Phillip Biggs and Geoff Murdoch have spoken to organisations that are typically managed by their owners or founders.
“These are businesses that have been very well run, but are finding the current climate quite difficult,” says Biggs.
“What many are saying to us is that the market has never been more competitive, and winning business at historical profit margins is not easy. This naturally places pressure on cash flows and adjustments are often required. Many of these owners are also at a stage where they're contemplating their exit and succession plans, but with declining profitability that's increasingly difficult.”
Biggs says Packaging Partners has experience and resources that can assist these businesses to increase their earnings.
“We take a meaningful equity stake in the business, then work with the management team to improve profitability,” he explains.
“For example, we look at the sales function and identify ways they can improve their pipeline quality and winning success rate. We also look at the total cash cost of the business and find ways to reduce or delay cash outgoings. We’re also big fans of lean management principles, so we apply these to the entire business value chain. This uncovers some really valuable benefits.”
Biggs has engineering and commerce qualifications, coupled with an MBA, so he feels well-credentialed for such a project. His time at the sales helm at Matthews, and more recently advising various industry players, has positioned him well. Geoff Murdoch comes from a finance, mergers and acquisitions background with a global professional services firm. The two have known each other for over 15 years and decided to form Packaging Partners nearly two years ago when Biggs could see the machinery marketplace needed to adapt in order to effectively serve its customer base.
Biggs and Murdoch believe in working on each business rather than working in it.
“This provides greater objectivity and a fresh set of ideas to help each business improve,” he says.
“What this process ultimately aims to deliver for business owners is a sustained competitive advantage and the possibility to collaborate with other complementary organisations that we have a stake in,” adds Biggs.
“It’s about improved profitability, but importantly for many, it also offers a much-improved business exit situation when that time comes. We actively work with our businesses to identify potential exit options for them, which can often influence decisions that are taken during the business improvement stage.”
