9 min read.Updated: 17 May 2021, 07:39 PM ISTGoutam Das
As India grapples with a second surge, firms are scrambling to draw up business continuity plans.
Behind the glass facade of Avik Motors’ 3,000 sq. ft. showroom on GT Road in West Bengal’s Asansol, there are three distinct zones that display 10 models of scooters, motorbikes and premium bikes.
On a good month, nearly two dozen potential buyers would visit the two-wheeler dealership each day. Over the past 25 days, however, as the pandemic tightened its grip on West Bengal, customer enquiries have halved.
And buying patterns have changed too, underlining a clear shift in consumer sentiment. Demand for top-end bikes, or those priced above ₹1 lakh, has slumped; the few buyers who walk in are interested in scooters and entry-level bikes. There are no takers for accessories such as steel bodyguard kits, seat covers and foot mats, or even helmets.
Cities in West Bengal have so far been spared the complete lockdowns that other states have taken recourse to in an effort to stanch a lethal second wave. Nationwide, more than 400,000 new cases and 4,000 deaths have been reported for several consecutive days. Bihar, Karnataka, Kerala, Rajasthan and Tamil Nadu have announced complete or partial lockdowns and Maharashtra has extended restrictions by a fortnight, until 15 May.
In Asansol, meanwhile, working hours have been restricted, but shops can still open every day although covid-19 infections in the state are rising fast. On 8 May, West Bengal recorded 19,436 new cases, the biggest single-day spike.
At Avik Motors, cash preservation has become the number one priority. “We have cut down on dispatches from the manufacturer. We are ordering less while trying to sell as much of the existing stock as possible," Shamik Paul, partner at Avik Motors, said. “As part of our business continuity planning, we have put off any capital expenses. We will not upgrade anything in the service centre or buy any new machinery at the moment."
A 2020 replay
In the automobile industry value chain, dealers and sub-dealers are the last mile. Higher up the ladder are the manufacturers and component makers. Even so, when dealerships shrink, everyone else across the value chain also takes a hit.
Business continuity plans, even at larger companies, mirror Avik Motors’ game plan. Life inside India Inc’s boardrooms is all about tightening expenses, managing cash flows and inventories, and generally doing more with less. Of course, the complexity grows at every level. Companies have to ensure employee’ safety, besides using digital platforms to sell and find alternative sources of supply. Some automakers are asking suppliers to keep spare parts well-oiled because, in the event of a longer than foreseen break in operations, components may get rusted. Migration worries around labour have resurfaced, and so, management teams are keeping a constant tab on workforce number.
In every way, it’s a replay of 2020, when the central government announced one of the world’s most stringent lockdowns in March. The one difference: the benefit of experience means companies are better prepared this time around.
To be sure, there are also new worries. The so-called just-in-time model, which global manufacturers have followed for decades, is one casualty in the post-pandemic world. The practice entails component suppliers delivering parts to the assembly unit just a few days or even a few hours before a product is finally assembled. The lean model reduces warehousing costs.
“The just-in-time model needs to be reviewed for imported components—there are global issues such as container non-availability, congestion in ports, delayed clearances in trans-shipment ports like Singapore and Colombo," an executive in an Indian auto company said on condition of anonymity. “We have built up an inventory and our stocks are sufficient."
As companies sort out the supply side, a lingering question remains. What about demand? The year started on a good note for many businesses, sparking sales growth optimism. But targets and budgets planned in March have flown out of the window given the severity of the second wave.
“It is obvious that plans are going to be disrupted. There will be an impact on operations in the first quarter," Harsh Pati Singhania, president of the All India Management Association and vice chairman and managing director of JK Paper Ltd, said. “The issue is that when you have curbs, it may not be felt by the businesses right away other than the services industries, such as the hospitality sector. But it will have a cascading effect."
Creditor assessors and securities firms are trimming India’s economic growth projections for this fiscal year. Fitch Ratings Inc has forecast that the country’s gross domestic product growth will slow to 9.5% in 2021-22. Credit Suisse expects growth to range around 8.5-9% versus a consensus estimate of 10-11% earlier.
“Commodities are touching an all-time high. Copper, aluminium, plastics, steel—all their prices have gone through the roof. That has its own impact on the demand side," said Sanjay Aggarwal, president of the PHD Chamber of Commerce and Industry and chairman of Paramount Cables Group, a cable manufacturer. “Demand gets depressed when there is such a huge increase in costs. The industry will not be able to absorb such huge increases."
Bengaluru-based startup Zetwerk Manufacturing Businesses Pvt Ltd, a contract manufacturer of capital and consumer goods, is running its factory with fewer employees, said chief executive officer Amrit Acharya. Part of his challenge is oxygen—as covid-19 cases spun out of control, the Indian government ordered industrial oxygen to be diverted for medical use.
“Even if factories are open, you may not have the consumables to keep manufacturing going. We are innovating," Acharya said in a conversation with Mint via Google Meets.
Zetwerk has substituted oxygen cylinders, used for gas cutting of metals, with hand plasma machines and electrical arc cutting equipment. These machines use electricity instead of oxygen and have been deployed in the company’s supplier facilities across Maharashtra and Chhattisgarh. Here’s the catch though. New machines imply capital expenditure and an additional learning curve for workers. And the outcome is less desirable. “The productivity in non-oxygen-based welding is 30-40% lower. For the next two quarters, it is better than zero productivity," Acharya said.
Manufacturers have also readied a list of alternative vendors just in case regional lockdowns impair the movement of goods. This is true of multinationals as well. California-based Flex Ltd, one of the world’s largest contract manufacturers, runs a supply chain team in India.
Data science and artificial intelligence are at play in terms of figuring out what is available with which supplier across the world. “In the last four months, there has been a mad rush to find alternative sources of supply. My teams are very well connected to large suppliers, and we are able to get our share of allocation. But there will be unmet demand that will affect all of us," Revathi Advaithi, the global CEO of Flex, said.
In the meantime, greater focus is being placed on inventory planning. During the first lockdown of 2020, manufacturers were saddled with large inventories. On the other hand, companies experienced stock-outs. That made it difficult to keep factories running even in places where they were allowed to operate. It’s going to be a delicate balance this year too.
Sanitaryware maker Roca Parryware Pvt Ltd sells 5,000 products in India ranging from wash basins to shower cabins with different price points—from luxury (like Armani Roca) to regular-use brands (such as Parryware and Johnson Pedder). Selling such a wide range of products during the pandemic would be next to impossible without a digital play.
In July 2020, the company introduced a digital platform where customers can pick different bathroom combinations and engage with dealers and plumbers remotely. “The digital platform has all the 35,000 plumbers and 15,000 outlets that sell our products. The system shows you the retailers available around a buyer’s location," K.E. Ranganathan, managing director of Roca Parryware, said. This platform is holding the company steady this year as well.
A second business continuity plan for the company is an e-auction site that keeps costs in check. The platform, used by vendors working with the company, drives down prices 5-6%. “Almost 100 trucks leave our factories or warehouses every day. The transporters, for example, come on to the e-platform and bid for picking up the business. Similarly, the packaging material vendors use the platform," the executive explained.
Managing costs has become doubly important for the company because of the higher raw material and freight costs. Ranganathan’s primary raw material is clay and the cost of transporting it has shot up 30% in one year because diesel prices have spiked. The cost of other raw materials such as brass has escalated 40-50% in three months. When it comes to imports, container costs have doubled. “Our margins are hit. We are working on margins-improvement measures both in the factory and in the supply chain," he said.
Technology, for now, is also reducing the need for physical inspections on the manufacturing floor. Companies that outsource manufacturing traditionally visit their suppliers to inspect a product through its various lifecycles. Given the risks associated with a visit, virtual tools have become a blessing. Zetwerk, for instance, has developed an in-house project management tool it calls ZISO, which helps track manufacturing projects in real-time.
In March, this writer visited two factories near Chennai. The plants run noisy machines that generate heat. Workers on the shop floor had face masks on, but all had pulled the masks down. In hot and humid industrial belts, it is nearly impossible to keep masks on for eight hours at a stretch.
Business continuity now demands that all health protocols be followed strictly. Some companies are creating “islands" around the factories so that employees stay safe from the virus.
“There was a feeling of tiredness and fatigue in following the protocols. People have been asked to follow the protocols very clearly again," Sanjay Kirloskar, chairman and managing director of Kirloskar Brothers Ltd, a pump maker, said. The company has created an island around its Kirloskarvadi plant township in Sangli, Maharashtra—the plant, established in 1910, is Kirloskar Brothers’ flagship factory.
“Our company owns the township. We have locked it down. We are providing everything that is needed inside and are not allowing people to go out," Kirloskar said. Companies are also stepping up efforts to get employees vaccinated and are working with district administrations to distribute meals in villages where workers live.
Meanwhile, executives from the construction industry are keeping a handle on reverse migration. Images of millions of daily wagers walking back to their villages during the lockdown last year are still fresh in their minds. People employed in the industry are still heading home, but not at the scale of 2020.
“We are now very good with it (handling reverse migration). We look after them. We take care of their sanitisation; we do frequent testing," said Niranjan Hiranandani, managing director of real estate developer Hiranandani Group.
In 2020, about 40% of the labourers working on the company’s projects went home. This year. only about 10% had left by April-May 2021—this attrition, the company said, is normal in the summer months when workers leave to work on their farms.
Indeed, companies appear to have learnt their lessons from last year and are better prepared to handle the impact of the second wave. Every executive, though, has their fingers crossed. The number of regional lockdowns is expanding every week, and the problems that come with the restrictions are mounting.
“We have to have some parts of our economy going. And also manage to break the chain (of infections) and contain the rise of the virus. The industry and policymakers have to do this in the best possible planned manner," Singhania of JK Paper said.