With 2026 underway, Australia’s manufacturing industry is faced with some familiar pressures including rising costs, skills shortages, supply chain challenges, a complex regulatory environment and intense competition from imported goods.
Against this backdrop, innovation is being shaped by necessity, rather than experimentation for its own sake.
Slow and steady is winning the automation race
The manufacturing businesses that are making progress are those adopting technology in a disciplined manner, focused on efficiency, risk reduction and long-term competitiveness. Larger businesses are continuing to invest in advanced robotics, AI-enabled planning tools and integrated Industry 4.0 platforms, to improve throughput, reduce downtime and stabilise costs.
For many small-to-medium manufacturing enterprises, innovation is happening in smaller, more targeted steps. These businesses are choosing incremental automation, digital quality systems, improved production scheduling and energy-efficiency upgrades over large-scale transformation programs.
Interestingly, sustainability is no longer a parallel agenda, with energy efficiency, emissions reduction and traceability now central to decisions.
That’s being driven by Australian regulatory settings, customer requirements and lender expectations, and has led to a shift away from speculative innovation in favour of “smart efficiency” technology that strengthens resilience and protects margins.
Challenges and opportunities
Unsurprisingly, cost remains the most significant barrier to innovation, with steep up-front capital requirements, rising input prices and skills shortages limiting investment at scale, especially for SMEs. It’s meaning innovation is being deferred or narrowed in scope, but at the same time, these pressures are creating genuine opportunity.
The need to increase productivity is accelerating the adoption of automation, advanced analytics, AI-supported forecasting and digital supply chain tools. Higher expectations around sustainability are also driving innovation in energy management, materials, waste reduction and process design.
One of our clients at RSM Australia is a milk and formula powder manufacturer, which has introduced cutting-edge automation into its production. Everything is mechanised – from raw product to the mixing process, bagging and packaging. This business has streamlined its operations, reduced manual labour, cut down on errors and maintained high health and safety standards.
Another RSM client is a fertiliser, soil and lawn care business which has fully automated their bagging operations. There is now no human intervention in the process from raw product to bagging, pallet loading and packaging for transport. This comprehensive automation has significantly improved their efficiency and productivity and has freed their people up to focus on critical areas of the business.
Where to invest
In the current environment, successful manufacturers are being selective and disciplined about how they spend their money. We are advising clients to take a staged, commercially grounded approach and to prioritise technology investments that deliver measurable productivity, cost, or risk-reduction benefits.
Just as importantly, manufacturers should look at where they can differentiate, because competing on cost alone is increasingly difficult in a global market. Higher value, specialised and export capable products are much better positioned to justify ongoing investment in technology and innovation.
Broadly, automation in production, packaging and logistics remains one of the most effective levers for improving productivity and reducing labour dependency. Digital capability particularly real-time data, AI-enabled forecasting and predictive maintenance supports better decision making and more stable operations. Sustainability investments, energy efficiency, water management, emissions reduction and traceability are also increasingly essential.
Available support
Australian manufacturers do not need to navigate this transition alone. A range of federal and state-based programs including the R&D Tax Incentive, Export Market Development Grant, National Reconstruction Fund and industry specific modernisation and energy-efficiency grants can significantly cut the cost of innovation and transformation.
Industry bodies continue to provide valuable support through training, advocacy and practical guidance, particularly as regulatory and sustainability requirements evolve.
Equally important is access to specialist advisory support. At RSM, our advisers work closely with mid-market manufacturers to assess innovation readiness, identify the right technologies, access available incentives, and implement transformation programs aligned to commercial strategy.
In a challenging but opportunity rich environment, the manufacturers that succeed in 2026 will be those that approach innovation with preparation, control and clarity – using technology not as a headline, but as a practical tool to build resilience, competitiveness, and sustainable growth.
Louis Quintal is the national manufacturing leader and a partner in the Audit and Assurance division in Sydney for RSM Australia, one of Australia’s leading professional services firms.
