By Godfrey Marema, Plant Manager and Managing Director for Eaton South Africa
Early optimism around the uptick in the Absa Purchasing Managers’ Index from 48.2 in September 2022 to 50 in October was quenched by a fresh raft of loadshedding warnings from the state power utility.
While legacy issues mean that Eskom is faced with an uphill battle in getting the system back on track, the South African manufacturing sector is grappling with an array of challenges set to persist for the medium-term, at the very least.
The Manufacturing PMI is a monthly survey of purchasing managers’ sentiment in South Africa’s manufacturing sector, a leading indicator of business conditions in the sector.
Returning to the year’s peak of 60 in March, will take more than the stabilisation of external conditions, like the war in Ukraine, which has scuppered supply chains globally, leading to key stock shortages and an overheating inflationary environment.
Labour issues
The recent 11-day Transnet strike, had a crippling effect on the economy, preventing South Africa from exporting an estimated R65 billion worth of goods.
Recovery from that labour action alone will take months, experts warn, and indications are that labour actions are only set to gain momentum as the rising cost of living accelerates further ahead of wage increase, which employers are struggling to deliver.
Structural challenges
Manufacturers are generally suffering the impact of an array of headwinds, from unpredictable loadshedding, availability of containers to ship, port bottlenecks, increased lead time to source raw material, and material price increase. All these, and others, contribute to delays in delivering to the remaining customers they may have.
The story is the same across all sectors, but as a manufacturer in the electricity sector, Eaton is fortunate enough to have minimal labour issues, full order books, ironically due to the demand for alternative energy solutions, and the increased need for uninterrupted power supplies, which we are able provide.
However, this does not shield our business from the need to mitigate the headwinds that all manufacturers face. For instance, a huge order book might turn into a nightmare if manufacturers do not have a resilient supply chain model. Without an internal program that responds to external forces quicker, manufacturers may find themselves closing doors.
Working closer with customers
Although manufacturing is indeed on a path to recovery since the pandemic, it is by no means back to business as usual.
As plant managers, or manufacturing leads, we have an important role in working together with our customers to find solutions instead of imposing solutions to our customers.
Minimising friction between ourselves and our customers, for example, sharing more granular, and more frequent information with customers than before, goes a long way and allows for a buffer, especially when things go wrong. Some manufacturers even go back to the drawing board and redesign components, if necessary, to mitigate some of these challenges, something that was frowned upon previously.
In addition to communicating crucial information timeously, we must invite our customers to our sites regularly and approach the relationship more as a partnership.
The dual sourcing approach
Finance minister, Enoch Godongwana reported recently in his Medium-term budget policy statement (MTBPS) that our 2022 projected growth rate is currently sitting at 1.9%, but is expected to drop to 1.6% in 2023 and remain on average in 2024. This is a huge crisis for manufacturers as the supply chain model of dual sourcing will no longer work.
Although having two or more suppliers on speed dial ensures costs are reduced and manufactures can still deliver to their customers on time. This model is effective in a growing economy because there is enough business for everyone.
However, when you have a stagnant economy the negotiating muscle of using volume to get better price becomes redundant as there might not be enough of it to keep two or three suppliers busy.
There is no telling when global and local supply chains will return to normal, if ever, but one cannot wait for things to change. Closer collaboration, communication, and creative solutions will be needed to ensure the continued viability of South African manufacturers for the foreseeable future.
