SME manufacturers are feeling upbeat these days as they are enjoying an increase in their revenues.
The latest edition of the quarterly Unleashed Manufacturing Report highlighted this positive outlook as average sales revenues increased by 4.5 per cent across all industries during the Q3 2024 period.
The report added that the strong sales encouraged SME manufacturers to increase stock levels in anticipation of a further surge in sales.
“To see sales revenue rise is a welcome relief for struggling SME manufacturers. The last few years have been tough, and as a result, we have seen businesses carefully strengthen their sales pipeline, manage overstock and generally upgrade their business health,” said Unleashed Head of Product Jarrod Adam. “Because of this we believe a lot of AU manufacturers will be in a strong position to take advantage of the change in economic fortunes.”
The increase in sales revenue is evidence of confidence rebuilding in the manufacturing SME Manufacturing Industry, Adam added.
“Sales revenue is the lifeblood of any business, and this is particularly true in times of economic uncertainty. To see this metric start to rise will be a welcome relief to many businesses that have been feeling the pinch of inflation, and will give them the ability to take advantage of a better economic climate,” he said.
Purchase orders strong
Adding to the positive outlook was the fact that purchase orders were very strong across the board. On average across all industries purchase orders were up 8.6 per cent in Q3.
Unleash noted that an uptick in purchase orders is a positive predictor of future revenue, for manufacturing industries with longer sales cycles. Combined with climbing revenue overall, including standout performers in the Beverage, and Clothing, Footwear & Accessories industries, Australian manufacturing may be turning a corner from the same period last year.
Profitability: down but not out
The report also noted that profitability (measured as Gross Margin Return on Inventory, or GMROI) is down at an average of -8.36 per cent this quarter. However, it also pointed out that it is likely a temporary flip side of upcoming gains
Taken in the context of rising sales and purchasing, the reduction in profitability is noted to have reflected an increase investment in inventory that is yet to be sold by manufacturerss. Whether this additional stock represents yet-to-be-invoiced sales or is simply preparation for forecasted demand, it says it will likely resolve into improved profit margins over time.
“While profitability is a measure of past performance, purchase orders point to the future. Taken as a whole the report is not a condemnation of future profitability. It actually shows a good news story for the Australian manufacturing industry, as we are seeing businesses put a difficult period behind them, and look towards a brighter future,” Adam said.
Excess stock is holding steady
The report also highlighted that average excess stock levels have held steady. Excess stock levels were up 0.6 per cent on last quarter, and up by 27.70 per cent compared to the same quarter three years ago, at the height of the pandemic.
While holding more inventory than required is an expensive exercise for manufacturers, Adam reiterated that overstock is a positive indicator of future sales for Australian producers.
“With the exception of industries with perishable products, an intentional stockpiling of goods indicates a fresh level of confidence amongst Aussie producers. After the post-pandemic overstock crisis, Australian manufacturers were trying to empty their warehouse shelves and free up capital. What we’re seeing now, coupled with an increase in purchase orders for future sales, is that local manufacturers are feeling confident about the future,” he said.
