Factories in retreat: inside NZ’s deindustrialisation crisis

WEBVTT - Factories in retreat: inside NZ’s deindustrialisation crisis This is the business of tech. I'm Peter Griffin for Business Desk, and over the last decade, New Zealand has lost around twenty thousand manufacturing jobs and seen manufacturing share of GDP steadily erode. Pulp and paper mills, food processing plants, wood processes, slaughter houses and household names like Waddies and McCain have either scaled back or shut their doors, often in small towns where those factories where the economic backbone of the community for the people.

In places like Westport and Kaitaya. This isn't some abstract economic trend. It's a question of whether the town still has a future. Economists and industry leaders are increasingly using a phrase we never thought we'd hear about New Zealand d industrialization.

It's happening in the face of deep structural problems that we've been slow to confront. Manufacturers are being squeezed by high energy costs, with electricity and gas now sitting among the top two costs for many plants. At the same time, they're dealing with shortages of skilled labor, tough lending conditions that effectively asked business owners to bet the family home on every capital upgrade, and regulatory burdens that make resource consents slow and expensive. Overlaying all of that is a glaring gap in industrial policy.

While countries like Australia, Singapore, the UK and the US have long term coordinated manufacturing and industry four point zero strategies, New Zealand has shelved its industry transformation plans and still doesn't have a clear view of what kind of manufacturing base it wants in. Ten to twenty years. Australia use the painful loss of Ford and hold And as a catalyst to pivot into defense manufacturing and attract global missile and vehicle makers. By contrasts, we've watched advances food plants close in a country that calls itself the food bowl of the world.

So where does that leave the manufacturers who are still here trying to compete from Timaru, Cambridge or Pongray. My guest today is christ Church based manufacturing expert Sewan Doherty. Sewan has had a front row seat to thousands of technology and productivity projects over a thirty year career, including a long stint at Rockwell Automation and then leading the advanced manufacturing program at Callahan Innovation. Before that, capability was disestablished.

Shawn's worked closely with both large corporates and the SMEs that make up the bulk of our industrial base, and he's worried about the direction of travel, but he's also very clear that manufacturers are not powerless passengers. In this story, he lays out why closures like Watty's and McCain point two structural problems and how he manufacture in New Zealand not just isolated commercial failures. He argues that without a coherent industrial strategy covering energy, skills, investment, and R and D, we're effectively putting headwinds in front of our most productive exporters rather than giving them a competitive advantage.

And he makes the case that if government is serious about doubling exports, it can't just pin its hopes on things like software subscriptions. We need a resilient base of physical manufacturing that's much harder to disrupt. So if you're running a factory in New Zealand right now, this episode is about two things, understanding the big forces that are making life so difficult and identifying the small, concrete steps you can take to lift productivity and resilience even in tough conditions.

And if you're a policymaker, investor, as someone who cares about the future of work in this country, Shawn's insights are a really timely reminder that without a serious industrial strategy, we risk hollowing out a sector that underpins about sixty percent of our exports and employees close to one in ten workers. That's all ahead on this episode of the Business of Tech, so stay tuned. Sean, welcome to the Business of Tech. Coming from christ Church.

How are you doing very well? You very good, Great to see you again. I've known you for a few years now, Sean. We did some work together when you were leading the advanced manufacturing work at Callahan Innovation, sadly an agency that's no longer with us, but that was really part of a thirty year career at least for you in manufacturing, a big stint at Rockwell Automation, one of the world's leading advanced manufacturing technology makers.

But just give us the potted rundown really of your career and how you got into focusing on manufacturing. Yeah, so, I mean I started my career like a lot of young people. I suppose my background is electronics. I came into manufacturing with electronics ground and found that was pretty limited.

You either go to three career paths. One was into radio systems, the other one was fixing televisions, and the third work stream was going into manufacturing and doing instrumentation. Didn't really like the sound of fixing television, so I thought I'd give manufacturing a go, and I worked my career through them. So I've got a soft spot in my heart.

And when I went to Rockwell, it was all about bringing technology into manufacturing. So I'd probably say I've had a front row seat to probably thousands of technology projects, and I've seen some go really well and some go really badly. And then coming to Callahan was a really interesting journey for me. I entered into the science side, where at Callahan at the time we had two hundred engineers, and it was how do we work closer with industry, trying to bring that commercial lens to the science side.

Industry had some commercial objectives and they had science objectives and trying to mash the two together to be a great outcome for both parties. So that was good. And then in my last three or so years at Callahan, I was there for six I led their Advanced manufacturing program as you mentioned, which was great good. This leans into the small seme type manufacturers, which we didn't see too many off at Rockwell and Ready.

The challenges they faced versus the big end of manufacturing really exciting time. I felt we did a bunch of programs that moved the needle. We saw a lot of great feedback coming from industry and we saw a lot of great actions coming back. That was the bit that we knew we were doing our jobs because we were seeing them lift their performance.

And then I think we were a consequence of the Callahan disestablishment. So the team I was working with a MB was really a productivity program, not an R and D program, and they were surprised to hear that Callahan was actually closing. There was a little bit of a disconnect and I kind of went, I couldn't deal it without the Callahan umbrella around me. So I've enjoyed tacking a break for the last year as a sabbatica when I've done some skilling and I've lost a little bit of weight, which is always good for the mind.

Right. Good on you, and I'm sure you've been delving into artificial intelligence and its implications not just for manufacturing, but all sorts of areas off business and well down on choosing manufacturing over fixing TVs, because that's what my father did, and he found himself pretty much redundant, you know, once we transitioned from tube TVs to LCDs and even plasmas, and we decided we just throw them out instead of fix them. So I think that was a good career move. But Sean, let's have a look at the dilemma we have in manufacturing at the moment.

We've all heard for the last couple of years these horrible headlines about you know, some of these big names in New Zealand shutting down manufacturing everything from from sort of slaughterhouses to pulp and paper mills, wood processing units to more recently the likes of McCain's and Watties, you know, big household names. We thought we're just part of the landscape in New Zealand, you know, so this is probably quite alarming to people. Some are even talking about the d industrialization off New Zealand, which is pretty scary.

Boil it down for us, what are some of the pressures you're seeing really facing our manufat actioning sector at the moment and how have they really escalated in recent years. You talk about de industrialization and I definitely think it's happening. You can see it on the news every day, right So the other day they said sixty jobs at Westport for fisheries are leaving terns for jobs in Kaitara of a population of six thousand. That's frightening stuff for those small regional towns where manufacturing is a great employer for those places.

But even more scary is the percentage of value that manufacturing offers an our GDP makeup is dropping. And over the last ten years we've lost about twenty thousand jobs in manufacturing. So those are two key statistics that economists watch but should. Be ringing alarm bells somewhere in our economy.

Because these guys are sixty percent of New Zealand's exports and they employ about nine percent of the workforce, they're probably need a little bit more attention from government that they're getting. In comparison for tourism, they're only about seven percent of the workforce, So if you look at the impact for neglecting. It, it's somewhat higher. If you wanted to go to the barriers that we saw, and we saw a lot of those during my time mccahun.

The number one barrier really was really the funding to scale. So when these guys went to the bank to go and invest in machinery, equipment and people, the bank wanted them to bet their house on the future. You know, it was either succeed or we'll ruin you kind of conversations. And so they were very risk adverse as New Zealand as somewhat to actually go and seek investment offshore or scale.

The second biggest barrier was the strategy piece. And this is where I really got back into that denojustrialization comment. So if people like kines Wattlies and some of these large overseas timber mills that are owned by the Japanese, if they can't be successful in New Zealand, there's something structurally wrong with how we manufacture in New Zealand. And then the.

Last part, and you could say it's a little bit of laziness on some of our manufacturer's behalfs was they were happy with where they were and why would we change. We all know and we've seen it changed rapidly in the last ten years. Technology is ramping up at a rate that we're not keeping up with. So how do we enable that.

There's some real concerns coming through in the data, you know, loss of manufacturing jobs, loss of manufacturer especially in the regions, and then manufacturers that do exist have a real tough time, especially with energy prices, you know, whether it be gas or electricity. They're having a tough time with the labor force, you know, getting skilled labor and the skills that they need. And they're having a tough time on the investment side, right the bank's pretty bullish with your bidding the house and your whole life to expand.

So that probably comes back to that comfort place of why people don't want to move. And look, we've heard recently, you know, those that high cost base that you're talking about there, high operational cost energy being a big component of that. That has directly led to the closure of some factories in New Zealand. The spot price of electricity has spiked in recent years, particularly over those winter months when it's a bit drier and there's more demand for electricity that has to be met from other sources like back up coal and the lug.

We've got gas sort of winding down in New Zealand might be imported, but that's going to have costs implications as well in terms of you know, we've heard a lot about trying to get our manufacturing sector to transferred to the electric the electrification off manufacturing, particularly for things like process heat and making steel and really intensive processes like that. We obviously haven't done enough, I guess, to get there quickly enough, And there's still concerns. Even if you go electric, you're getting supply from the grid and you're at the behest of the electricity market, which has seen very high prices for electricity.

I don't think that the average person realizes that, you know, electricity could be the number. One or two costs. So if you're in steel in our amnium, electricity is probably a number two costs, right, And if you're in general manufacturing like the Hines what is the world, it's probably in your top five costs. So the key there is if we've got an energy.

Market, and I'll also say either the gas because a lot of the North Island runs on gas for energy without a strategy to transition. Over a period of time, people have jumped into electrification or they've gone into biomass and they haven't really realized all the implications because it's been such a quick transition because the funding was there to transition, whereas if we're stretched out a little bit longer, we could have been a lot better position. I would hate to be a dairy site to know your number of them that went to electro boilers.

So they did the electrication right. They got away from the burning coal. They put an electro boiler, which is just a big element sitting inside a boiler to get process heat. Twenty twenty four came along with electricity shortages.

Those guys were paying a fortune in electricity, So we have to realize there's consequences for choices. Are we thinking enough about the grid and the sustainability of manufacturing or do we get the retailer's profit from that. Yeah, so there are a lot of discussions about whether there needs to be some structural changes to the electricity market. And there's also, as you said, that transition and doing that in a managed way.

I had some of the people from ata Aki on a few episodes ago who are looking at innovation in this area. For instance, you know some of those wells that we used for oil and gas in the Taranaki region. Some of them are actually producing not really hot sort of gas and water there coming out of that, but enough to warm greenhouses or to dry milk powder. So there's all sorts of innovative things that are going on across the country to try and accommodate that transition to renewable energy sources and cleaner sources and more sustainable energy.

But we just have been very scattergun about it. We haven't really done it in a very coordinated way. So now we're facing an energy crunch and we haven't laid the groundwork for it. I also don't think you can necessarily lay it all at the retailer's doors.

Right. There's been a lack of investment in generation and you kind of do they or why was that? And the resource consents are really hard for them to get some regulation. For the power companies, it's been really hard to build new generation capacity.

You've got a lot of investment going into wind and solar, which is kind of intermittent, but we're not doing enough with base load. And then you've got the lines companies. There's been a significant underinvestment in the lines around New Zealand for a period of time. Hence why a lot of householders are saying, I think it's fifty dollars a year come back into your things to upgrade the lines.

I'm not against that, but. Then I have to think that they have to then go, well, actually you can export solar from your house, or if you put battery technology into your house, let's that make that part of the overall solution, rather than think about things in isolated little pockets or silos. I just think that horizon, seecond and thirdder effects need to be thought about when we're making these big strategic investments. Yeah, is there also a factor sewn that you know, we're just lacking scale here?

Like there was a lot of talk around sort of whities and McCain, well, you know, the Chinese are able to produce peaches or whatever much more cheaply, and actually you know, import them into New Zealand and undercut our local producers. Frozen foods is very commoditized. Other countries can do that. Now, you know, is there a fact that they're across some of our manufacturing base that just other producers around the world have got that scale and manufacturing that just have priced us out of the market even for our own local consumption of these things.

Yeah, I'm not so sure about that, but I mean I was quite shocked about the what is one right, So we have the supply chain locally, we have lots of great people around the country that deal with primary produce, and we have a lot of investment in primary produce, even from the government perspective, you know, they've really linked in and the CRIS the primary produce funding in the way of levies. There's a lot of work that goes into keeping primary products successful. But we're kind of like, if they can't compete on.

A world scale, what is wrong? That's not the question they're asking. It's like, oh, we don't want to bail them out because they're owned by Warren Buffet's business in the US, you know, even though if they employ six hundred people, we don't want to do anything about it. The real question is what is the structural problems behind the failure of this organization.

And they've been quite clear, you know, they've seen you mentioned the Chinese pictures. Their version was that was dumping into the New Zealand market cheaper than you could buy the global commodity for MB didn't really take that to task they decided to. You know, there wasn't enough evidence to say that. Further, they certainly said about power prices, you know, they said utility prices in New Zealand are far too high for us to be competitive.

Government should take that on board because that's. Something they can do something about regulation, you know, what they can emit from the site and the way of noise waste and a lot of these people want to be good stewards of their sites, right, They don't want to be dirty polluters, But to spend millions of dollars with lawyers to get resource consents as somewhat counterproductive to being lean and mean. And then I will come back and I'll have a bit of a shot at the government.

They are lacking an industry policy for manufacturing a bunch of stuff. If they wanted to take it seriously, they don't have to look fast. Australia's got one, Singapau's got one, the Lasier's got one, UK's got one. You got one, Go and ask what hass The last time.

We had industry policy in New Zealand it was the industry Transformation planes and we know they're all bimmed. When the new government came in. If you look at Australia. You mentioned Australia there, I think the closure of Holding and Ford and vehicle manufacturing was a real rallying point for the government there.

A big sort of reindustrialization policy came in. As part of it was sort of bundled up as COVID recovery as well, billions and billions of dollars into not only manufacturing, but clean tech and new types of manufacturing and taking advantage of some of the raw materials they have to move up the value chain. Meanwhile, as you say, you know we had these industry transformation plan that the labor governments introduced, they sort of all got shelved really and unfortunately we still have this technology gap where many of our small and medium size manufacturers still rely on a lot of manual processes.

That was something that I was really surprised that when we collaborated on an Advanced Manufacturing Report for Callahan Innovation and I started talking to some of these companies and doing case studies, and a lot of them we're still very much in pilot mode about introducing so called industry four point zero technologies into their factories and their processes. I thought they'd be much further along, and that's something that you've identified when you benchmark New Zealand against other countries overseas.

We're sort of well behind, aren't we. So there are these structural issues, but the core business of how you run a factory and do it really efficiently and produce high quality goods, we've sort of lagged on that as well. I'll just go back to the Australian thing, because I think they did it really well. Right, We're closing down automotive and you can imagine that was a very painful thing for their economy.

But what did they do. They pivoted into defense. So a lot of those automotive factories and people who built cars are now building armored vehicles and ATVs, and the Australian government's buying them, the UK government's buying them smart industrial policy. You kind of go, well, what's the future in New Zealand If we're shutting down food plants?

Aren't we the food bowl of the world and we have really efficient processes. I mean, if you look at Fontira, for example, they would be held up as the best milk processor on the globe. You go on that it'skinning of their competition, who's the number one and milk processing in the globe. They've come back and they'd say, Fonterra.

You know they've got it. Lean mean, they know how to manufacture. I think we need to just focus back into what's really important. Does what could government do to give these guys a tail wind rather than just keep standing up headwinds.

I'm in agreement with others that you know, they owned three of the major gen tailors. They need to stop saying, you know what's really improper important is profit. Turn that around and say what's really important is long term stability the energy prices, you know, not just electricity but gas also. You know, how do we.

Get this transition of clean green that we want? And that comes down to industrial policy and strategy, which you know, I'm not so sure that it's city where that I can see. Yeah, And we've had sort of a chronic underinvestment in research and development, you know, it's lagged the OECD average, and we just haven't really seen any coordinated efforts to encourage plant app grades, innovation, productivity gains in manufacturing. A lot of really proactive manufacturers that are doing it themselves off their own back.

They're introducing three D printing or you know, really smart automation using artificial intelligence. There's a lot of great stuff around computer vision that's been going on orchardists and and vegetable manufacturers to look at the quality of fruit. So some of that stuff is going on. But you know, particularly i'm medium sized manufacturers, a budget constrained, and they're just treating automation as discretionary spend rather than the strategic investment that it should be.

Yeah, and I think that comes back to the Callahan survey we did in twenty five, which was they don't know where to start, how to start, and then if they could start with the banks hold them back. I mean, are they beating the house on something they don't because you're right, there's not a lot of it in New Zealand. If you go to Australia, they've now had an industry full program for ten fifteen years, Singapore have had it for fifteen years. We're sort of a decade behind, so we haven't got those frontier organizations to show off what they do.

We tried to create a bit of a. Callahan while I was there, but then you kind of mentioned an interesting point the tension between what I was doing. So that was an MB program that Calahan administered. There was really about productivity and you know, lifting New Zealand's manufacturing productivity, which was the goal.

But the organization's key goal was to lift research and development, right, and the government was going, we're happy with the one and a half percent. We'll try and figure out how to get the best return on that one and a half percent. And we were saying, well, that's really interesting. You know, do you want to be more like Singapore and actually get really focused with that one and a half percent.

You know they've got five industries they focus there on Manufacturing is one of them. So there's I think a manufacturing, health, sustainability, digital transformation, and talent development. Do we want to be more like the UK which has ten year innovation cycles? So you know they've they've got like a defense cluster, a health tech cluster, a manufacturing cluster, and they basically go, you run for ten years, we review it after five.

After ten, we decide or we double down on our investment. That's all smart policy, right. We seem to be lacking and actually making some of those decisions as a wider group. So I suppose the first question is is manufacturing important to New Zealand?

You know, and I'll come back, sixteen percent of exports, ten percent of the population is employed by manufacturing. Is that important to us? Well, it should be, because the government has the stated aim of doubling exports over the next decade. So unless they're expecting you zero and our software sector to ramp up subscriptions and accounting those as exports, it's going to be physical goods.

Yeah, and they're harder to disrupt. Right when you're making physical goods, it's harder to disrupt that industry than a say, an Apple decide and they'll compete with a local company. I mean I used to have a saying because I used to split manufacturing into three sepens. We had the primary you, I don't think dairy meat would I'd almost call it low value add, especially we're shipping logs off Sure's and Fontierra is a great example of that.

They're really super efficient to milk powder processing, but they gave up the brand's part. Because it's quite a bit harder. Then we've got the value add manufacturers, and you can think of the waddies even just putting it in the bag and freezing it or turning it into frozen meals, because chocolate used to be my favorite one for value add like love their chocolate cookie, time Craft brewers, you can you can talk about all those people that add value to the primary produce. And then what goes undersung in New Zealand is a really high tech manufacturers we have in New Zealand, like the Raycons.

Developed crystal oscilators. We sell them to send something in Apple and out of Mount Wellington and Auckland and hardly anyone knows what they do. Fisher and Pipal Healthcare and their ventilators for sleep Hatnew not a lot of people know what they do. Or they're like two billion dollars worth of our exports.

Rocket Lab and doorn Aerospace. You know they went to Thing ten years ago, but they're manufacturing here in New Zealand and. We don't talk enough about it. And then some of the acquisitions, you know, Robotics Plus have just been acquired by Yamaha and they've Yamaha are standing up Yamaha Agricultural on the back of a New Zealand company that they've required.

It's like, well, we should celebrate that, but where are they on the six o'clock news. So we've got some great examples of that great manufacturing in New Zealand, but we're just sort of it's this silent sector that just keeps on before me. And now they're hitting the headwinds. They're putting their hand up for a little bit of how I don't think because of their lack of industrial policy, we're actually dressing what the headwinds are or even understanding if we want them.

I wondered to what extended to culture or problem are we still to incline to see manufacturing as old school, low status work rather than the high tech career path it can be because we do have those companies like rocket Lab and Robotics plus doing really sophisticated manufacturing. So I'd say sixty percent of manufacturers I think it was twenty two twenty three when they did the statistics. It was something that the Workforce Development Council did. Sixty percent of them were low to mid skill jobs, Like you didn't have to have a university degree or you had a trade, or you didn't have to have anything super sophisticated.

You just needed to. Have that will to learn and that will to problem solve and that will to get stuff out the door. Lots of people in that high skilled job sector and manufacturing, but also a lot of mid skill people. So if you look at the options for the mid skill to low skill people, it's going into tourism, which is a lot less lower paid than the end up paying family benefits and top up benefits, and people can't afford to live.

Or we have manufacturing sitting in the middle, which provide higher tech jobs. And the more manufacturing you have is a segment of your population that generally train. You know, as they get bigger in scale, they'll train, so you start to move up there. As you move up their value curve of people that they get better and better.

Whereas if you have less manufacturing or you focus on just primary manufacturing, the wages remain sagnant. We can't grow as as an organization or as a country, right, they struggle. Come back to the WYSE. Why is this We're not investing in people enough.

We have a great new workforce coming in with low industry knowledge but great skills, and then the people that we've got have great skills but low knowledge around new technology. Right, So it's that dichotomy if we. Need to train the existing workforce but we've got no funding to do that, or no pathways or microp in conditionals to do that, like Australia, and we've got people, young people coming into the workforce that have very high skills but not necessarily aligned with what Manifest is looking for.

There's a mention in the middle somewhere. And look there there's a great opportunity I think for those people to meet in the middle. And we're seeing it in I start up sect there where we're seeing foiling boats and electric fairies and all sorts of things that where you have people coming together that wouldn't necessarily have worked together traditionally, but they're seeing opportunities. No one was able to buy an electric ferry and important into New Zealand a few years ago, so you know, some people did it here in Wellington and I see it criss crossing the harbor all the time, So it can be done.

You know, we're sort of famously sort of known for having poor productivity sean and in manufacturing as well. Yeah, given that there's probably nothing quickly is going to happen around industrial policy in the next year or two we'll talk a little bit about the election and a new manufacturing minister and what that might mean. But in terms of improving basic management practices, you know, you know there's lean as a philosophy, and manufacturing continuous improvement, better data.

What are some of the things that are manufacturers who might be looking at their balance sheet and looking around the industry going, oh my god, you know, when am I going to face this existential crisis? What should they be doing now? So I suppose they've got to realize two things. A government can help if you push them hard enough.

You need to make your voice heard, lean and actually expose some of the problems because I think you know this margin erosion and manufacturing is a real thing. You've got to stand up for a compliance. Electricity is future of energy. I think you've got to make your voice heard as manufacturers.

The second part is there is no magic bullet, right, So a lot of people go, I'll plug an AI and all my problems will be solved. Yeah, I've got news for you. It doesn't happen, and it comes in two things. You won't get the ROI if you just invest in the new whizband machine.

You also have to bring people along for the journey, right. So it's a tendem kind of duality that you invest in the machine, but you've also got to invest in the people in the continuous improvement to get those rois that you're actually looking for. So anyone who tells you that they can plug in an AI or they can plug in some manufacturing software and all your problems will go away and you'll go thirty percent faster, You've got to really question do they actually understand what we do?

You know, break down what you do and say, this is where we're going as a business. How does your software complement that. How does it. Help solve some of the problems or does it just highlight the problems and then we back in continuous improvement and we back in those productivity programs or do we back in some investments to actually.

Change our position. And then I think that also comes down to business strategy, Peter, and being really clear as you engage with some of these vendors. I keep saying it, if I want to grow my sales by thirty percent, I wanted to deliver thirty percent more products into the market. Your manufacturing goal should be about understanding your constraints.

What would get you there? Does your price drop if you actually do more widgets or does it increase if you do more widgets? Do you have to bring in more time to do more widgits? Do you have to invest more capital and new machines to get widgets?

And without data you don't really know. There's a huge investment in actually getting reliable data and getting away from this tribal knowledge with I think we need to put a new machine down here. We think that this is the problem you need to go to. We actually have some really good data because we captured it on paper, we captured it digitally.

We know that we need to do this and doing it in real time and real information is hard. It is probably a really good position to be in, and then you can make those investments for growth. Right and when you go to the bank and you go, well, this is my position, these are the investments I need to make. This is what the potential available market for me is.

I think the banks take you a bit more seriously than Sean said. We think the problem's that machine. And if we've gon on grow by thirty percent because the market's there, I just think the data just reinforces your position when you're making a pitch to the bank for the cash. Yeah, it would be lovely if.

Government had some funding to de risk it for you. I mean when Callahan left, the productivity programs left. I don't know that they exist today, So they're on their own. There's nothing dedicated as far as I can see around that.

And yeah, look, some of those case studies I worked on just the just managing to get data and usable formats and visibility into it. You know, a lot of people I spoke to, some of them were making taps you know, at meth and things like that, and just being able to go from having to you know, scratch around to figure out the performance of these machines, get all that data in one place, to plugging in a sort of an API into Microsoft Azure and putting all of that in one place and visualizing it so that everyone on the factory floor could see it, or even just simply putting a sensor on a piece of machinery so that you know when it's getting too hot or it's getting unstable and it's going to blow up, and managing to fix that before it blows up, and taking production down for three days, it's relatively small stuff can make a major difference.

Yeah, I mean, I'll give you a good example from a window manufacturer i've visited well as at Callahan. They were traditional manufacturers. They had a whiteboard where they put the job numbers on, you know, manage whiteboard. So Peter's windows are coming here that you know the scheduled.

Peter's builder would then ring the window manufacturer where are my windows? Where are my windows? And the schedule would change everything around. The question wasn't windows actually Peter's builder need those windows?

And then what would happen if we actually show Peter in real time when his windows were scheduled to be built, and then we didn't have to have the conversation that took us five minutes and fifteen minutes internally to actually tell them, I, actually your windows will be with you on Thursday, which is when you needed them. Anyway, we've just created all this rework and it. Was as simple as them putting into an Excel planner right, and then as soon as it was in the Excel planner, they could see it all internally exactly what.

Was going on. So those time savings they don't sound like much, but when you're getting fifty phone calls a day going where are my windows? You can save a shitload of time for the customer and yourself, which you can imagine lifts productivity. Right, there's that person if they could get an hour a day, what could they do to grow the business an hour a day?

And look, so there's the small things. Is the more advanced things that that you've canvassed. And I've been to some of these factories in Germany and Japan and China that are doing you know, our dark factories, you know where they have next to know people in them. They've got lots of robotics, lots of senses, lots of automation, and some of our companies are using that.

But it's really that intermediatory sort of stuff that we need to get right. If we do get it right, because I think, you know, the supply chain shocks we're experiencing at the moment and experienced around COVID might be a bit of an opportunity for us to rethink manufacturing and the way that you know, Trump's call to the to allies around the world you need to increase defense spending actually did see many governments, including our own to increase spending on defense, and that has led to investment in our in our fleet and our armed forces.

The government is doing a deal with Sios, the drone maker, to to maybe use drones as part of our defense force as well. So do you think that is potentially an opportunity that these crises have shown us that we actually still do need a manufacturing base, but we need to invest in it. When you do invest in it, And I'll use Australia again as an example. So you know a lot of those automotive factories became doing defense vehicles and ATVs and all.

Sorts of things. They've actually been able to also attract some missile companies into Australia, so they've got sovereigntory around building missiles now in Australia. So the US companies and they've moved their manufacturing facilities to Australia based on the fact that Australia is going to create them a pipeline of defense. By I mean, that's just smart policy, right.

So UK's another great example. You know, we're going to spend all this money on defense, why wouldn't we give four hundred million dollars to an innovation program? To support local manufacturers come into our defense supply chain. Maybe we just need to be a little bit smarter Peter with like, we're going to spend lots of money in defense, let's see how much we can capture in New Zealand.

Yeah, so that potentially is a growing niche that we could play around manufacturing. And there are a few doing that around the country doing components of that, which is great. There could be more critical mass there any other sort of niches that we can plan as a distant economy small scale that you think something that we should really focus on, Any particular high value niches we can go after. I think we could do a lot more in machine building.

So we're seeing that segment really take off. I will give one piece of advice which won't make me popular here. I look at our science speend, right, and almost quart of our science spend goes into agriculture, all the levied money and all the stuff that comes out of agriculture, and you look at all the duplication that happens in the science system in those things. Maybe there's some hard conversations to happen somewhere in the spend.

And I know they're currently talking about realitating some of the science budget. But then maybe we have to think about what's not working for us, and do we shut it down and what would work for us in the future, and do we double down on it, and then do we become smarter like the UK and will let's double down in that investment for ten years because that's about a good horizon for a science project and it could be the future of energy. I know, you know people like Fabroam and their crow callers, and there's lots of energy people around New Zealand doing some really cool stuff that could be one of those significant things that could be a game changer for us in the future.

I get the government will probably. Want to take money from somewhere else rather than spend more in science, but you kind of go, well, what are the bets we're going to make, and then how do we tell the tax payer we're going to make those bets and why we made those bets. We also play it very safe. I was lucky enough to attend a call with the head of our infection Islay and their thing was, if we don't have twenty five percent of our innovation projects fail, we're not pushing the boat hard.

Enough. And I really reflected back at my time with Callahan Innovation, and I mean, jeez, if we had like five percent of projects fail, we'd be in the front page of the Herald going Callahan's. Spent five hundred million dollars on this company that failed. It doesn't recognize all the learning, the jobs who are employed, the good stuff that they did, and a lot of those people got ideas in those industries that sparked off into other places.

But we get focused on the sunk costs rather than the opportunity that we're we're making. So maybe we have to just change our mindset a little bit about are we pushing the vote hard enough to actually go faster? Yeah, And look, and as you said, that is currently the proposal that the Science and Technology Council has put to the government, which is to reallocate a big chunk of public science funding from agriculture, health, environmental science into advanced technologies like AI.

Nothing as far as I can see around manufacturing or specific projects around that, but it may come under the banner of the Advanced Technology Institute. We'll wait and see. But as we do approach the election, you know, the government, the coalition government is talking a big, big game around the economy and it's all about going for growth and all that sort of thing. There is a new manufacturing minister, but very quiet on the policy front around this.

What would you like to see on the table in the run up to the election being discussed when it specifically comes to this existential issue off the the industrialization of New Zealand. Three ministers in three years, right, so you've got to say, have they had the deep immersion into industry. They need to understand the problems. So I suppose recognizing that we have problems, right So energy is an issue for a lot of manufacturers.

Future workforce is an issue for a lot of manufacturers. Certainly, how do we do risk investment, whether that's working with banks to help with lending policy, whether that's government loans, whether that's grants for productivity. They have a lot of leavers. They could pull them a long term.

They just have to figure out what they can do with the financial constraints they put on themselves. They also have to see I suppose R and D and productivity as an investment in the future of New Zealand. When I was at Callahan, we always saw that every dollar we invested into programs took a dollar away from police, health and court services, so we wanted to see a return on those investments. And I think it would be really important for the science system that they actually can tell those stories about how those investments have helped their industries.

I mean I went to Plant and Food and they had a really cool story about how their investments had helped industry. And then I went to Sion before it went to the bioeconomy, and I was underwhelmed. If they had it, they weren't articulating a great story. So maybe that science system just needs to do a better thing.

If this is the impact we create when we do good science in New Zealand, and then I think it would be easy for the government to then turn around and say, actually, instead of this one and a half percine, let's be expirational like the rest of the world and go to through and that would significally change our GDP trajectory. Right. Yeah, this is a perennial problem I think that the science sector has faced. And on the other hand, you've got the startup sector that's very good at telling the story, selling the vision, and having these sort of stage gates where they get a certain amount of money or runway as they call it, to get to the next deliverable and if they don't make it, they fail.

If they do make it, they get some more money to get to the next stage. So it's a bit brutal and scientists don't really like thinking that way, but perhaps we need a little bit more of that, and that definitely seems to be the The trajectory in our funding system is more towards the applied science and stuff that has a direct tied to economic development. I mean, there was a saying that there's science without commercialization is just that you know, it's nice to look at, but doesn't really give you up.

Well, I suppose you can sell, but it doesn't give you very far for a lot of it, right, just hands and hallways of universities and cris Yeah. So if you're sitting there Sean as a as a manufacturer in Timaru or Cambridge or Carra or somewhere like that, going you know, do I invest several million dollars in this business or do I just hang on? You know? What are some of the questions you should be asking yourself right now in a very uncertain environment, Both price of energy politically, geopolitically, the cost of inflation and potentially interest rates as well.

Why should you be asking yourself? Yeah, so that's a tough question. I suppose that comes down to strategic planning. To Peter, so if I'm in a market where I'm growing, how do I take advantage of that growth?

That overall business goal should casca down into your technology goals, your investments, and how you move the business forward. Some people need to be a little bit. More honest with themselves that if your aspirational goal is potential or what is and you're making frozen foods, how do we do that as super sufficiently as we can and take out as much cost as we can? That needs to be a strategy, right, do we understand our cost?

Do we understand what our outrusty is costing us? Do we understand what the labor force is costing us? Could we invest in a new packing machine or a new refrigerator that actually gets us there faster? Totally different conversations, but I think from a strategic level, they've just got to be a little bit more elevated across the organization.

One thing I see is. A lot of people go we want to double, want to double our business in five years, and when you go what are the tactics you're getting to go there, they kind of go, oh, well, we're going to just sell more and you go what investments you make and how are you bringing your people for the journey to which you see the shock in their eyes. They've got the aspirational goal, they just don't have the tactics. And I think maybe that just comes down to a little bit also about how we train people within New Zealand.

You know that continuous improvement of training. I know in Australia they've leaned heavily into micro credentials to help people. How to build a better business case is one of them. So you know when you take a business cash to the bank or you take it to your manager to say, look.

At our goals to do this. We haven't got the equipment. This is the uplift we'll get in productivity and this will reduce our cost by X. There's an art to writing those business cases really well.

And likewise for people on the shop floor, they do digital tools, so you know, how do I use Excel instead of paper? How would I do compliance to New Zealand standards for compliance. If I wasn't using paper, but it was all other tronic They're all great things to invest in, but it's led by the strategy at the top. Yeah.

Just finally, Sean, if you look out ten to fifteen years, what do you think New Zealand manufacturing is going to look like? You know, on its current trajectory, and maybe as an alternative reality, if we did actually get our industrial policy right, what could it look like. I mean, on the current trajectory, it's not looking good, Peter. You know, I think we'll see a lot of that very primary industy struggle.

I mean, what I haven't mentioned is artificial proteins coming across the horizon. If we had an outbreak of disease in New Zealand, that could end agricultural thing and GDP would drop to almost nothing. So we have to diversify the economy. Likewise, if we invest more into science and diversify into high tech manufacturing, imagine if a space sector in New Zealand triple Imagine if we were a billion dollar defense manufacturer in New Zealand that was feeding into our defense forces.

Imagine if we could stand up another couple of robotics pluses who were so good in agriculture that Japanese company want to come and buy them. So I think there's a little bit of defend the agricultural thing that we're already good for, and there's a little bit of grow for a bunch of industries which I think are emerging and we're playing around the edges, but with some focus, we could really grow them. I agree entirely, Sean, and hopefully we'll get it together and do that, because otherwise we will lose some of these manufacturers offshore.

They just won't without the incentives or the right environment or the skills to do it in New Zealand, they will, they will depart. So yeah, hopefully our governments and our industry can get together and do something. There is a manufacturing industry body which does quite a good job I think of looking at some of these issues, but it needs momentum from the top politically, so hopefully we'll see it at least mentioned in the run up to the election. So, you know, thanks so much for coming on, Sean.

Great to see you again, and we'll in the show notes will put links to how people can find some of your thinking and approach you for some advice on this So thanks for coming on the Business of Tech. Thanks for having the great to have a chat. That's it for this episode of the Business of Tech. Thanks to Sean Doherty for coming on.

Check out the show notes from more info on Sean and how to find them. If you want advice on practical steps you can still take as a manufacturer to improve productivity and resilience in spite of high energy costs, tight labor markets, and the absence of a coherent industrial policy, Sean is your man, so reach out to him. You can find more episode of the Business of Tech wherever you get your podcasts, and if you found a conversation useful, please follow, rate and share. It really helps others discover the show.

I'm Peter Griffin. Thanks so much for listening, and I'll catch you next Tuesday for another episode.