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New Zealand manufacturers are being warned they may find themselves falling by the wayside as the world moves on, if they fail to adopt more digital technologies to boost the sector's contribution to the economy.
Westpac NZ industry economist Paul Clark says manufacturers should be taking steps to reduce their vulnerability to boom-bust cycles, as well as navigating the current downturn.
"That means investing in digital technologies capable of transforming every aspect of a firm's supply chain as well its internal operations," Clark says.
"The trend globally is towards greater automation, with AI, robotics, cloud computing and sensors, combining to monitor and control processes in real time."
Clark said connectivity was also an important component and was needed to compete effectively.
"The key to success is to deploy these digital technologies in an interconnected way that will minimise costs, improve product/service quality, and deliver what the customer wants."
He said global turnover from smart manufacturing was estimated between US$110 billion to US$280b in 2021, and expected to continue to grow in coming years.
"The US and the Asia Pacific region leads the pack, followed by Europe. New Zealand is at least a decade behind Europe," he said.
"The reality is that most of New Zealand's 23,000 manufacturers are reluctant adopters of digital technology."
He said cost was a factor, but implementing changes was also disruptive, particularly in the absence of technical know-how.
"Then there are those manufacturers that are just reluctant to ditch what has worked for them in the past.
"These firms will continue to operate on much the same basis as before, but over time they will lose competitiveness to competitors that have made the jump.
"Eventually these firms will fall by the wayside, targeted by others that have digitally transformed and are looking to add new capabilities to their bow."
However, he said there were some change-leaders in the sector.
"Larger firms here are investing in smart technologies, although that typically focuses on getting greater efficiencies out of existing operating models. But that's very different from using digital technologies to enable transformative change."
He said the advanced industry transformation plan released last year identified several steps to accelerate transformative change.
"Essentially, these focus on educating firms about new technologies, ensuring there are funding mechanisms in place to boost adoption, and developing the workforce so they can operate in a digital environment.
"This of course is what should be done. However, the reality is that despite the best effort of policy makers and stakeholders, many manufacturers today will not make the jump across the digital Rubicon."