BackLooking at re-strategizing our procurement process: Diego Graffi
Mint’s Pivot or Perish campaign focuses on how companies are responding to a new normal across key sectorsThe CEO of Piaggio Vehicles Pvt. Ltd speaks about the tough calls the company may have to take as uncertainty looms on resuming operations
PremiumThe coronavirus pandemic has upturned businesses worldwide, forcing them to change everything and reboot in a once-in-a-lifetime moment. In recognition of the unique times confronting businesses, Mint’s Pivot or Perish campaign will focus on how companies are responding to a new normal. The automobile sector has been one of the worst affected by the pandemic. Diego Graffi, chief executive officer and managing director, Piaggio Vehicles Pvt. Ltd, spoke about the tough calls the company may have to take as uncertainty looms on resuming operations amid the extended nationwide lockdown. Edited excerpts from an interview:
How will the third phase of lockdown impact the company? What course of action are you planning to take for business resumption?
The situation has become more complicated under the third phase of lockdown. We have received the permission to resume operations at our manufacturing plants in Baramati, but the problem is that our suppliers located in the Pune region cannot resume production.
I understand that the new circular says plants located in the vicinity of PMC (Pune Municipal Corporation) and PCMC (Pimpri-Chinchwad Municipal Corporation) cannot resume operations. We are still looking for more clarity.
We will have to take some tough calls and it could be salary cuts, going forward, as it is becoming unbearable. Two months of no production and sales is not sustainable for any vehicle manufacturer. We are in constant touch with our vendors. It will take another 4-6 days at least once the lockdown is lifted to arrange the materials and workers, and align the supply chain to begin production. It appears that May, too, will see no revenue.
Do you think the automotive manufacturing practices will change with the just-in-time (JIT) culture written off?
No. I don’t think it will change, as it is designed to achieve (working capital) efficiencies. Although JIT as a production strategy will continue, as it ensures no unnecessary building up of inventory of parts, we are looking at re-strategizing our procurement (process) with more alternatives. So, we will look at new suppliers for the same parts to reduce our dependency on one vendor.
In order to downsize operations, will automakers shift to niche segments?
This may happen most probably. I can comment only about our focus areas. For example, demand for two-wheelers may increase as people may look at an alternative to shared mobility.
We have two assembly lines—cargo and passenger for three-wheelers. While passenger category will take a big hit because we expect that people will not use shared mobility at least for the first few months, the demand for passenger three-wheelers would drop. But people may still use shared mobility solutions in districts that are green zones and people are less scared.
However, we expect that all over India, the demand for last-mile delivery vehicles will remain. This is because transportation of essential items, food and groceries, water, medicines, e-commerce will see demand. This augurs well for our three-wheelers with cargo applications.
What changes will we see in new investment plans and the new product pipeline?
At the moment, we are maintaining the new product pipeline until end 2021. The new investment plans will depend upon the outcome of the second half of this year. Nobody has experience of handling business in such a pandemic before. We expect May-June will be complex months even if we are able to restart operations and managing in terms of demand from the market. However, from July, I see decent business. In that case, we will maintain the new product pipeline. We are planning for different scenarios. It is not easy to say which specific strategy we will implement.
When do you think the market will recover? Will expectations of a normal monsoon aid the process?
To recover the 2019 sales volumes, it may take 12-18 months, minimum. However, some segment may recover faster such as the cargo three-wheelers and two-wheelers.
Yes, we are hopeful of rural demand driven by good monsoons. Cargo three-wheelers ply 80-120km on an average.
They move within the state transporting farm produce from villages to the nearby mandis and beyond. They are also deployed for last-mile transportation of goods. We can draw a parallel with the time when demonetization was announced. That’s when we saw that demand for passenger three-wheelers dropped but cargo was keeping up.
Was BSVI transition over for Piaggio when lockdown was announced on March 24? Do you still have BSIV stock in dealership pipeline?
We had completed BSVI transition of all our two-wheelers and about 90% of all three-wheeler models. Almost 100% of stock at our dealerships is BSVI compliant. However, there were 2 or 3 minor versions that were still pending. That will get postponed and we will update them with BSVI compliance once we resume operations.
We had stopped producing BSIV vehicles since December last year. We had exhausted all BSIV stock but for a few hundred vehicles. That’s because we lost about 10 days in March.
Exports contribute 15-20% of total turnover for Piaggio in India. Will this change in CY2020?
Yes, we are planning to boost our exports this year as we were seeing some good opportunities in Africa. But we don’t know how the new scenario will play out. Nigeria, which is a very important market for us, is in complete lockdown and nobody knows when it will be lifted.
Will Piaggio’s electric vehicle plans take a backseat this year?
The electric vehicle (EV) plan can have some delay for some months for sure as it is more of an investment for the future. That said, we want to maintain our strategy because I think that it is a good opportunity for the three-wheeler business in the next 3-5 years is going to come from last mile transportation and electrification. We do not want to miss that opportunity.
Our 2020 plan for EVs will be revised now and we may make not more than 3,000 – 5,000 electric three-wheelers this year. We have lost 2 months from this year. Development of EVs would directly depend upon the EV infrastructure development plan (battery-swap network). That does not depend only on us but also on the local authorities.
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