-Ian Walsh, Partner, Argon & Co NZ

It’s great to see the recent government announcements allowing additional tax deduction for new assets, which will encourage business to invest in plants and equipment to help drive productivity.

These are all a step in the right direction for making New Zealand’s manufacturing sector more competitive on a global stage.

With that said, any investment should be reviewed in terms of the cost and benefit, and the overall business case for making it.

When I worked in Japan the approach taken was to drive efficiency and productivity until you had exhausted the potential of your existing assets. The aim was to get the absolute maximum possible out of all the equipment and space available, and only then to invest in extra capacity.

This led to a relentless focus on efficiency and debottlenecking to get the most reliable, most productive assets.

I remember a conversation I had with a production manager at one of these Japanese plants. He explained to me how he disliked new equipment, as “the first day was the worst day”, and it got better after that. He preferred older equipment because “we know everything about it and how to run it highly efficiently”.

This is interesting to compare with more ‘Western’ approaches where we assume that new equipment is at its best on its first day and then we depreciate it, because it’s deteriorating and will only perform worse from then!

The difference is that the better performing factories don’t only invest in new capital when they need capacity (or to meet an innovation need); they invest in the total asset.

This includes how it is commissioned, optimising it for its role, how it is run, how it’s maintained, care for its individual parts, how people are trained to operate it. They make supporting SOPs and establish visual management.

They capture data and have well-adhered feedback loops around the care of the asset. This is a holistic approach which looks at the whole lifecycle of the asset, to ensure that the investment made pays the greatest dividend and meets the business’s needs for the longest time possible.

They also ensure that they have developed the speed profiles of their lines and equipment, to determine the speed and output bottlenecks of any manufacturing process.

This ensures that their investments are right-sized and address any capacity shortfalls.

How many times have you seen shiny new capital deployed, only to find out that throughput didn’t go up by the expected amount? Likely this is because the bottleneck moved to a new machine or workstation on the line, not because of the output potential of the new asset.

Or even worse, the new capital was deployed, and no output gain was noted because the real issue was the reliability of a different asset, which limited the total system throughput.

In my experience most businesses have not developed their speed and output profiles, criticality analyses are not developed, and they have no asset investment strategy which aligns their business needs with asset requirements.

The inevitable outcome of this is that when new plants or processes start up, they don’t hit planned performance targets for months, if ever, and thus follows a series of reactive crises where undertrained operators and leaders attempt in vain to operate, improve and maintain an asset they have only a passing understanding of.

So, while an investment is a good thing, there are some things to consider:

• What problem does the investment solve? (Volume, throughput, innovation, capacity, reliability etc.)
• What is the current opportunity within your existing assets? Do you have a speed output profile
• Can you invest in your existing assets and capacity, and debottleneck?
• Do you have a criticality matrix for the asset and the process? Do you have critical spare parts?
• Do you have the right resources to develop the SOPs and train the operators properly?
• How will you measure success? (Performance benchmarks and contingency plans.)
• Is the ROI worth it? (Target at least 15%—and consider cash flow impacts.)
  Are there alternatives? (Leasing options or volume collaborations to manage demand.)
• What are the tax implications? (GST, depreciation, financial structuring.)

Remember, while financial incentives for asset investment are beneficial, a truly effective strategy goes beyond acquiring new machinery. A holistic, data-driven, and efficiency-first approach ensures that any investment delivers lasting value.

A more considered approach to evaluating these factors, will not only encourage businesses to maximise productivity and improve asset longevity, but ensure capital investments drive sustainable success.