BackTractor output suffers as curbs hit parts supply
For instance, more than 75 covid cases were reported at German automotive supplier Bosch’s Bangalore plant earlier this monthSeveral parts suppliers based in Aurangabad had to shut their facilities after local authorities ordered a lockdown during the second week of July.
PremiumSporadic lockdowns in automobile hubs such as Aurangabad, Pune and Bangalore in July have severely disrupted production of tractors, one of the few sectors that have seen a spike in demand post the coronavirus pandemic, senior industry executives said.
The farm equipment segment saw capacity utilization recover swiftly to about 90-95% in June after the nationwide lockdown was lifted as an above-normal monsoon and higher crop acreage generated demand, but much of the gains have been lost in July as intermittent lockdowns in the hubs to contain the virus have thrown production into disarray.
For instance, more than 75 covid cases were reported at German automotive supplier Bosch’s Bangalore plant earlier this month as a result of which production of critical parts and supplies were disrupted. Similarly, several parts suppliers based in Aurangabad had to shut their facilities after local authorities ordered a lockdown during the second week of July.
“The localized lockdowns enforced in certain cities are hampering the ramp-up of the supply chain and, thus, affecting production at OEMs (original equipment manufacturers)," said Hemant Sikka, president, farm equipment sector at Mahindra and Mahindra Ltd, which has a 42% share of the domestic tractor market.
“Many suppliers were either in the containment zone or were forced to shut plants under new regional lockdowns during July. Plant capacity utilization, which was 90% in June, dropped to 50-65% in July as tractor production came to a halt due to a shortage of key parts," Bharat Madan, group chief financial officer, Escorts Ltd, said in a phone interview.
Hoshiarpur-based Sonalika Group, which recorded its highest-ever retail billing of 15,200 tractors, including exports in June, saw its July production drop sharply month-on-month.
The company, which commands roughly 15% market share in the tractor market, did not disclose its adjusted production volumes during July.
Raman Mittal, executive director, Sonalika Group said, “In June, we had recorded 55% growth in domestic volumes and as a result our manufacturing had reached optimum level at our plant. However, on account of some constrained supply of a key component, our production efficiency is estimated to be approximately lower by 20% compared to June."
According to the Tractor and Mechanisation Association (TMA), the overall tractor production in April stood at only 158 units. Later it rose to 30,751 units in May and 81,445 units in June. Total tractor production in June 2019 was at 53,781 units.
According to Ashim Sharma, partner at Nomura Consulting, while supply chokes will happen as covid infection can spread anywhere, the manufacturers will have to either look at alternate supply sources or build up a stock to create a buffer.
“The manufacturers can either relook at the inventory norms and save more stock or ensure extreme visibility of their supply chain to build buffers across tier 1 and 2 vendors. Even on the product side, the manufacturers’ are likely to build an inventory of vehicles," Sharma added.
While tractor production is being ramped up after parts supplies are reinstated, leading manufacturers have asked their vendors to build necessary stock of parts urgently, senior industry executives said.
“We plan to ramp up to 100% capacity utilisation by mid-August to ensure that we have enough inventory to address the market demand. This time the festive season is expected to be good for tractor sales and it is crucial to have the retail channels well-fed," Madan of Escorts said.
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