Sales growth and "signfiicant margin recovery" for SME manufacturing

The average Australian small to micro manufacturer grew sales by a solid 9 per cent quarter-on-quarter to $625,400 in the three months to 30 September, while margins were improved as companies slashed purchasing volumes and ran down their stock on hand to protect cash flow.

The latest report from UK-owned inventory management software provider Unleashed shows Australian SME manufacturers increased their average margins by 3.2 percentage points quarter-on-quarter to 39.2 per cent, marking a resurgence after thin sales in the second quarter of calendar 2025.

Unleashed's data draws from 1,000 Australian firms that use its software, and as such may not fully represent broader small business manufacturing.

But the data itself does cover a broad range of categories such as food and beverage, clothing and fashion, and construction, leading Unleashed to declare a 'return to health' for the sector.

"In spite of cautious consumer spending, spiking energy prices and high labour costs, Australian small and micro manufacturers have been adapting and thriving,”says Unleashed head of production and distribution, Jarrod Adam.

"Manufacturers have found pockets of demand and capitalised on them. The real story is operational awareness, firms have focused on growing revenue and expanding profitability without tying up capital in excess stock. That's a fundamental shift in mindset from the pandemic era of buffer building."

Also covering the same sector in the UK and New Zealand, the report reveals Australian manufacturers leading the charge on operational efficiency across all measured markets.

Unleashed claims this dramatic quarterly improvement confirms supply chain normalisation is complete, enabling the sector's strategic pivot to just in time operations.

After the turbulence of Q2, supply chains have stabilised at 16-day lead times - a quarterly fall of 36 per cent - while average stock on hand across all industries fell to $311,200 per business in Q3, down from $462,735 in Q2.

"The sheer velocity of the Q3 pivot is remarkable," Adam explains. "Lead times down 36 percent, stock down 33 per cent, purchasing down 35 per cent, yet margins up nearly 4 percentage points. This is what disciplined inventory management looks like when manufacturers have real-time data and the confidence to act on it."

However, Australian producers have seen a large pull back in their purchasing of raw materials, falling 34.9 per cent quarter-on-quarter to $339,371.

Unleashed believes this dramatic reduction in ordering, combined with the inventory drawdown, signals a fundamental change in strategy. Firms are decisively abandoning buffer building in favour of lean operations that free up working capital while protecting profitability.

Food manufacturers on top while beverage sector takes a spill on sales

Food manufacturers emerged as the clear growth leader, posting exceptional 42.1 per cent sales growth to $733,254 while simultaneously improving margins and reducing inventory.

The food sector also achieved substantial margin expansion of 4.89 percentage points to reach 30.87 per cent, demonstrating strategic pricing and cost efficiency despite input price volatility.

Stock holdings contracted sharply by 25.6 per cent as food manufacturers ran down Q2 inventory levels, yet remain moderately elevated by 8.5 per cent compared to the same quarter of the previous year, striking a balance between capital efficiency and demand.

"Even with household budgets under pressure, the food sector is capturing strong consumer demand," says Adam. "The 42 per cent sales jump shows Australians are still buying quality food products. The margin expansion to near 31 percent proves manufacturers are passing through input costs while optimising their product mix.

Meanwhile, the beverages sector experienced significant revenue contraction, falling 28.2 per cent quarter-on-quarter and 38.4 percent compared to the same quarter of the previous year to $437,502.

Despite these substantial headwinds, beverage manufacturers maintained margin stability with modest improvements, lifting profitability from 31.44 per cent to 31.95 per cent quarter-on-quarter.

Stock holdings declined 20.6 per cent quarter on quarter as beverage firms recalibrated inventory to match current demand levels, while purchase order values held essentially flat quarter on quarter, suggesting procurement has stabilised at reduced run rates.

Robust growth for construction sector manufacturers

Building and construction manufacturers delivered the strongest sustained performance across all measured sectors, achieving 17.6 per cent sales growth quarter-on-quarter and 16.9 per cent growth compared to the same quarter of the previous year to reach A$739,841.

 The sector expanded margins by 2.39 percentage points to 37.31 per cent while dramatically reducing stock holdings by 42.1 per cent quarter on quarter and 52 per cent compared to the same quarter of the previous year.

With $242 billion worth of major projects set for the next five years according to Infrastructure Australia, local manufacturers have been core beneficiaries.