Australia: Recovering margins through productivity

In the third quarter of 2026, purchase costs and labour costs at Australian businesses each rose by 1.2%, while final product prices increased by only 0.5%.¹ The National Australia Bank (NAB) sales margin index fell to -20 points, the lowest level since June 2020.² At the same time, wage costs continued to be the main factor affecting business confidence.³ With costs growing faster than selling prices, improving productivity and reducing operational losses became priorities for protecting profitability.

On 29 September 2026, the Reserve Bank of Australia raised the cash rate target to 4.60%, making credit more expensive, and noted that higher fuel prices were already partly reflected in the prices of other goods and services.⁴ On the same day, the central bank’s Governor stressed that productivity growth remains weak.⁵ NAB recorded capacity utilisation of 82.3%, which is above the long-run average.⁶ This indicator shows high resource utilisation, but does not prove efficiency. The challenge for businesses is to reduce the labour hours, energy and materials needed for production, limiting their exposure to rising costs.

Where productivity losses originate

In an industrial operation, indicators such as OEE (Overall Equipment Effectiveness) help identify equipment availability, performance and quality losses. These losses translate into idle hours, energy consumed without producing and rejected materials. Labour productivity calls for a complementary analysis: waiting between tasks, imbalances in work distribution and unnecessary movement can increase the hours needed to produce each unit. Analysing equipment efficiency and work organisation together makes it possible to understand where costs originate and to identify specific improvement opportunities, without confusing utilisation with performance.

Choosing the right improvement approach

Different methodologies can address the opportunities identified. For example, Kobetsu KAIZEN™ makes it possible to tackle equipment efficiency problems, from loss analysis through to defining countermeasures and measuring results. It can also be applied to reducing unnecessary energy and fuel consumption. Where the main constraint lies in work organisation, line design and operational standardisation can help balance tasks and reduce non-productive time. Interventions should be selected based on the causes identified and their expected impact on operating costs, and results should be confirmed by monitoring the indicators.

Measuring the financial impact

To know how much each improvement contributes to profitability, its financial impact needs to be measured. Fewer defects and lower energy consumption generate direct savings. Fewer stoppages or less time per operation, on the other hand, mainly free up capacity: they only reduce costs if they eliminate overtime, extra shifts or subcontracting, or if they avoid new hires and investment. Producing more only adds value when there is demand and each additional unit carries a positive margin. Operations and finance teams should therefore validate the effect of each improvement on costs and margin before setting priorities.

As long as selling prices fail to keep pace with costs, productivity and efficiency are relevant levers for protecting margins. Businesses with a strong continuous improvement culture systematically identify losses, address their causes and monitor results, leaving them better prepared to respond to new economic pressures. Kaizen Institute supports this work through operational efficiency and productivity improvement consulting, from diagnosis to implementation, helping to turn identified opportunities into actual savings, avoided costs and greater profitability.

References

1. National Australia Bank (NAB), 2026: Conditions Negative, Confidence Partially Improves: NAB Quarterly Business Survey Q3 2026. ↩︎
2. Ibid. ↩︎
3. Ibid. ↩︎
4. Reserve Bank of Australia (RBA), 2026: Statement by the Monetary Policy Board: Monetary Policy Decision. ↩︎
5. Michele Bullock, Reserve Bank of Australia (RBA), 2026: Media Conference: Monetary Policy Decision. ↩︎
6. National Australia Bank (NAB), 2026: Triple Squeeze Hits Business Confidence: NAB Monthly Business Survey September 2026. ↩︎