Australian manufacturers are buying less stock but placing bigger orders. Unleashed’s Jarrod Adam explains what that shift tells us about SMEs in 2026
What’s happening: Unleashed Software’s latest Manufacturing Health Index, drawing on data from more than 500 Australian firms, shows SME manufacturers ended 2025 with stable revenue, resilient margins and significantly lower stock levels, pointing to a deliberate shift toward leaner, faster operations.
Why this matters: With interest rates rising again, Middle East conflict adding supply chain uncertainty and energy costs under pressure, how Australian manufacturers have positioned themselves coming out of 2025 will determine how well they absorb what is coming in 2026.
Australian SME manufacturers closed out 2025 in better shape than the year’s volatility might have suggested, with profit margins holding firm, lead times falling well below 2024 averages and a sharp lift in purchase order values pointing to a sector that adapted rather than contracted.
That is the picture emerging from Unleashed Software’s latest Manufacturing Health Index, which draws on anonymised, aggregated transaction data from more than 500 Australian manufacturers across categories including food and beverage, clothing and fashion, and construction.
A resilient finish to a volatile year
Average sales revenue across Australian SME manufacturers settled at $619,184 in the final quarter of 2025, a minor 1.0 per cent dip from Q3 that confirmed the gains made earlier in the year had largely held. For the full year, Australian firms maintained 5.1 per cent annualised sales growth.
Profit margins remained robust at 38.47 per cent despite ongoing inflationary pressures, a result that stands out against a backdrop of rising input costs and shifting consumer demand.
Jarrod Adam, Head of Product at Unleashed Software, says the headline numbers reflect a deliberate strategic shift rather than a lucky outcome. “Australian businesses are doing what they need to adapt in fast-changing environments,” he says.
Lean by design, not default
The most telling signal in the data is the relationship between stock levels and purchase order values. Stock on Hand dropped to an average of $233,763 in Q4, down from more than $300,000 the previous quarter. At the same time, purchase order values surged 22 per cent to an average of $415,000.
Unlike manufacturers in the UK and New Zealand, who moved toward aggressive restocking in the same period, Australian firms continued to refine their stock profiles, holding less inventory while placing larger, more targeted orders.
Adam describes the pattern as a clear move toward just-in-time replenishment. “The disconnect we’re seeing between lower stock levels and higher purchase values suggests a move toward just-in-time replenishment,” he says. “Firms aren’t sitting on mountains of cash tied up in inventory, they are buying precisely what they need to meet immediate demand.”
Supporting that strategy, lead times remained low at 17 days in Q4, widening only slightly from earlier in the year and remaining significantly below 2024 averages.
Holiday sectors lead the charge
The final quarter also brought a strong performance from several consumer-facing sectors as Australians increased discretionary spending over the summer break.
Sport, entertainment and recreation manufacturers saw average sales lift to $231,876. The beverage sector, which had faced headwinds from declining demand among younger consumers through much of the year, bounced back strongly, with average revenue jumping from $437,502 in Q3 to $627,422 in Q4. Clothing, footwear and accessories manufacturers also recorded a marked lift, with revenue rising to $414,065 from $253,268 the previous quarter.
“The holiday period provided a vital boost for lifestyle-focused manufacturers,” Adam says. “It’s a clear indicator that despite broader cost-of-living pressures, there is still resilient demand for high-quality, Australian-made consumer goods.”
Construction manufacturing, often watched as a bellwether for the broader economy, saw a slight 3 per cent dip in average revenue quarter on quarter to $716,237. However compared to the same quarter in 2024, revenue was up 63 per cent.
Rob Woolner, Managing Director of Autex, a producer of acoustic panels and insulation products across Australia and New Zealand, says the momentum in construction is tangible. “The market feels very buoyant in Australia, where there’s a huge investment in major infrastructure projects that flows through from large construction firms to smaller local manufacturers and contractors,” Woolner says. “We’ve opened up manufacturing plants in Melbourne and another in Brisbane. These investments reflect the faith we have in the continued growth of the Australian market, where driving down lead times is critical to keeping projects on time and under budget.”
What 2026 is about to test
The outlook for 2026 is more complicated. The RBA raised the cash rate to 3.85 per cent in February 2026, its first increase after a period of holding or cutting rates through 2025, and another increase remains a live possibility at the March board meeting. The RBA now expects inflation to peak in mid-2026 before moderating back toward its 2.5 per cent target by mid-2028.
The outbreak of conflict in the Middle East adds further uncertainty, with potential energy price increases likely to raise material and supply chain costs and put pressure on the lean margins manufacturers worked hard to protect through 2025. Lead times, which have been a genuine competitive advantage for Australian firms, could also come under pressure as shipping firms respond to the developing situation.
Against that backdrop, Unleashed identifies automation and real-time data as the two levers manufacturers will need to pull hardest in the year ahead, particularly as labour shortages and input cost pressures persist.
“The challenge for 2026 is productivity,” Adam says. “Manufacturers must leverage technology to manage these tighter cycles and ensure they have the visibility required to avoid stockouts during demand spikes, without sacrificing the lean efficiency they’ve worked so hard to achieve.”
For the smallest operators in particular, the coming months will test whether the discipline built through 2025 is enough to absorb what the global environment is lining up to deliver.
Keep up to date with our stories on LinkedIn, Twitter, Facebook and Instagram.
