By Matthew Addley, Senior Director, Product and Industry Market Strategy at Infor 

1. Outlook for the Australian manufacturing sector for the rest of 2025

It has been a tumultuous first quarter for the manufacturing sector, as trade policies and tariffs have driven up raw material and component costs, creating a ripple effect across the global supply chain. More specifically, the recent imposition of a 25% tariff on all steel and aluminium imports into the US has hit Australian manufacturers hard as they grapple with higher interest rates and subdued demand in 2024.

However, reducing interest rates to 4.10% could bolster business confidence and drive demand as the year progresses, opening up markets and investment opportunities for Australian manufacturers struggling to recover in a post-COVID world.

2. How are Artificial intelligence and generative AI impacting the manufacturing sector?

Generative AI (GenAI) is set to reshape Australian manufacturing, driving innovative integration, operational efficiency, and data insights, transforming productivity and revenue. We expect that distribution leaders will adopt AI, robotics, and IoT to enhance industry-specific processes, data, and ways of working. Research by KPMG indicates that over half of Australian (58%) and global (64%) CEOs view Gen AI as a top investment priority to gain a competitive edge for their businesses.

3. How will the changes in global policy affect supply chains, demand, and long-term investment in manufacturing?

Global policies and geopolitical risks can instantly influence supply chains. We have seen this with the recent 25% tariffs on steel and aluminium imports to the US, sending shockwaves through the global industry. This will impact production costs for many items, especially those with global supply chains, such as connected machinery & equipment, smartphones, laptops, servers, and other electrical and electronic products.

Having considered the rising cost pressures, manufacturers are anticipated to adopt new, agile technologies and sustainable practices to maximize opportunity and improve operational efficiency.

4. What are some of the biggest challenges Australian manufacturers will face for the rest of the year?

Australian manufacturers will have to be prepared for the continued rise in competition from lower-cost production countries in Asia, including Vietnam, Thailand and China, along with more technologically advanced nations in Europe. Additionally, rising energy costs may affect production, planning and budgeting. A big challenge also lies in navigating AI integration in manufacturing.

While manufacturers are turning to real-time data analytics and AI to monitor supply chain events and provide early warnings for any delays or shortages, they face several barriers to adoption. The high initial cost of implementation, lack of technical expertise and complex integration present crucial hurdles that Australian manufacturers must overcome to meet rising competition and lower-cost production.

5. How is the skills shortage expected to impact Australian manufacturing?

Skills shortage is an enduring problem largely due to a gap in technological advancements and technology literacy. Addressing this challenge is both time-consuming and costly, and few in the industry are willing to invest. The only way to address this challenge is to explore human-AI collaboration rather than replacing humans altogether. Human-AI collaboration can drive breakthrough productivity and unleash the full potential of workers whether in the back-office or on the shop floor. Automating and augmenting information flows increases timeliness and accuracy and leads to better business decisions.

In the physical world, Australian manufacturing is adapting to use intelligent machines to reduce health and safety risks, as robots can be used in hazardous environments, undertake physically demanding and highly repetitive activities and higher-risk tasks that reduce the effectivity of people.

6. Top three recommendations for Australian manufacturers to improve efficiencies in 2025

Australian manufacturers will need to invest in the right technologies. Automation, data and analytics and IoT are the drivers for improving processes and optimising supply chain management. Second, they must explore collaborations with experts – from tech providers to domain experts to ensure the technology complements existing processes.

Lastly, they must invest in the right talent and train existing employees, highlighting the enormous personal benefits that new technology brings to them. This will ensure smoother operations, increased productivity and a knock-on effect on the national economy.

Matthew is an Industry Strategist at Infor looking at Discrete Manufacturing sectors globally.