The business plan for life after lockdown

A few days after covid-19 broke out, the Automotive Component Manufacturers Association of India (ACMA) sent its 830 members a health advisory. Weeks later, ACMA is back to the drawing board, chalking up more guidelines to help auto component makers deal with a post-lockdown world.

The scale of the covid-19 infection has ballooned multifold in the past two weeks with India registering over 9,000 cases and 300 deaths. Segregating the working stations on the shop floor is now a must, so is fumigating the plant every few hours. The number of workers seated in a bus— those that ferry them from the villages to factories—must be capped. Managing the shifts, the lunch hours and even the sort of cutlery that can be used in the canteens now need a rethink.

“One of the interventions we are working on is how a single person can manage multiple machines,” Vinnie Mehta, director general of ACMA said. “Going forward, the industry would need systems that enable remote monitoring of processes and machines. You will have more automated vehicles moving inside the plants.”

Indian manufacturers were coy when it came to adopting automation. A balance between deploying people and machines was in vogue, partly because of the high capital costs of automation and mostly because cheap manpower is abundant. Covid-19 is challenging many of these assumptions. People deployment on the shop floor has to be significantly cut.

The stakes couldn’t be higher. Even if one worker is found to be infected, an entire factory can be sealed. Component makers supply to many large car, bike and tractor manufacturers. Production for much of the industry, therefore, can come to a standstill, overnight. Securing the factories and the people who work there are important pillars in the business continuity plan of every company.

The big plan

Nearly all companies are in the middle of what they describe as “scenario planning”. More automation is on the cards but that’s a long-term goal. This writer spoke to 10 organizations, from heavy engineering and white goods makers to fast moving consumer goods (FMCG) and real estate firms. Besides drawing up social distancing norms, companies are right now focussed on fixing the supply-side. They are strategizing around securing raw materials, managing costs, up-skilling their workforce, and getting back workers who may have migrated back to their villages.

Depending on the sector, the companies said that demand could take anywhere between a quarter or more to revive.

“For each of our factories, the workers are not just locals. They come from different states,” Sridhar V., group vice president and director of Honda Motorcycle and Scooter India Pvt Ltd said. “We are planning for different scenarios. By the time people who have gone back to their villages return, it would take 15-20 days. Many of them are skilled and cannot be replaced easily,” he added.

The problem of getting back workers could be worse for sectors such as construction, which are heavily dependent on casual labour, Siddharth Jain, partner at management consulting firm Kearney predicted. Fixing the supply-chain, particularly for non-essential goods, wouldn’t be easy either. Part of the packaging material for FMCG companies, for instance, are imported. Moreover, there is also a shortage of components such as pumps used in beauty products since much of the capacity was diverted to the manufacture of hand sanitizers and hand washes.

“If there is import dependence, it is a big task right now to get the supplies. In cases where the supplies are domestic, companies would need to micromanage their smaller suppliers. A financial health check on the suppliers may be required,” Jain added.

People first

Meanwhile, some industrialists have made a case for a more humane approach in dealing with suppliers and employees. M.S. Unnikrishnan, managing director and CEO of engineering company Thermax is one of them. “People first, economy second—this is what I believe in,” he told Mint when asked about the economic consequences of under-utilized factories, post the lockdown. “We can start with 30% capacity, go 40-50% over the next few months,” he said.

Part of the reason why companies cannot bounce back quickly enough is that suppliers—like Jain indicated—may not be in a good shape. Some of the components for Thermax’s heating, cooling, water and waste management products, for instance, are made by smaller companies. “The micro, small and medium enterprises were facing major difficulties even before the lockdown because of economic difficulties. Covid-19 is a double whammy,” Unnikrishnan said.

Thermax is, therefore, planning to reimburse salaries for the workmen of some of its contractors who are unable to pay given the lockdown. “Currently, we can’t be contractual and business-like. There should be large heartedness among the larger companies. We may have to make advance payments to some of our smaller suppliers and help them overcome difficulties,” he said.

A humane approach in tough times can go a long way in securing trust as well as people, particularly in the unorganized segments of the economy. Trucking is an example. To get manufacturers on their feet, India needs drivers to move raw materials and goods. Nevertheless, drivers were one of the most impacted. Thousands were left high and dry along the highways after the lockdown took effect.

“We have around 4,000 vehicles that are stranded in different parts of India carrying loads for customers. These are trucks carrying engines, cell phones, televisions etc,” Rampraveen Swaminathan, managing director and CEO of Mahindra Logistics, a third-party logistics company, said. “In many cases, the drivers have left the vehicles and gone back home out of fear. We are in touch to mobilize them back,” he added.

A week into the lockdown, Mahindra Logistics launched a helpline for the drivers. “In more than 40 sites across India, we have organized food and temporary lodging. We have also created economic relief programmes for the families of drivers. The intent is to secure assets, secure drivers, secure partnerships,” Swaminathan said. Most third-party logistics companies are asset-lite—they don’t own the trucks or employ the drivers directly. Instead, they depend on big and small transporters who own trucks.

Not just drivers, getting any migrant labour back to the workplace would now require “compassion, care and comfort”, industry body Confederation of Indian Industry (CII) contended. Most of them had a harrowing experience finding their way back to the villages.

“CII has already begun dialogues with some unions to address their issues,” the industry body wrote in a strategy paper, Exit From The Lockdown. “Set up accommodation, with access to food and medical facilities for migrant workers. The next two-three weeks should be used to structure this intervention,” the paper noted.

Distancing goals

An executive from an electronics hardware manufacturer, which employs over 20,000 people in India, summed up the post covid-19 scenario, poignantly. “We have an economic storm, a health storm, a security storm. All of them have converged into the perfect storm”.

The management in the company have taken a 30% salary cut and no workers have been fired just as yet. But then, he quickly warned, the electronics hardware industry operates at 5.5-6% margins. “You can sustain these challenges for two-three months. Post that, retaining the workers or letting them not go may not be an option for me,” the executive who didn’t want to be identified, said.

His immediate challenge, post the lockdown, is to have less people on the factory floor in compliance with the social distancing norms. According to Johns Hopkins Medicine, staying at least six feet away from one another reduces the chances of catching covid-19. This implies factory-floor modifications with lifting and shifting of machinery. It is easier said than done when the lockdown is still in force.

“In the short term, you simply need to have fewer people because one needs time to retrofit a factory—a team of workers is needed for the modifications,” the executive said. Typically, a worker stands almost shoulder to shoulder in an assembly line. The gap of nearly two metres implies that the manufacturer’s plant would now run at about 30% capacity. “You cannot run the factory with less than 30% capacity anyways,” the executive said. That’s the capacity required to maintain bare minimum profitability.

The social distancing norms would shoot up costs. Manufacturers across India would require more number of buses to transport workers, for instance. In the case of the electronics manufacturer mentioned here, one seat in the bus sat four workers. Now, it can seat just one. “I have 30 buses for one of our plants. One worker per seat means I have to run over 100 buses for the same plant,” the executive said.

Companies are similarly planning for distancing norms in warehouses and offices. Mahindra Logistics had cut down the density of people in its warehousing floors mid-February. That could continue post the lockdown. Thermax reduced the number of employees in its offices by one-third before the lockdown. It created two shifts instead of the usual one. The first shifts began early, at 7am and ran till 2-2.30pm. The office was sanitized before the second batch of employees arrived, at around 2.30-3pm. That’s a strategy likely to continue, once things start rolling.

Getting retail ready

The Zoom conversation with Pushpa Bector, executive director of DLF Shopping Malls, began around life in a lockdown. Is this writer getting fish in CR Park (in Delhi)? Well, yes, you might if you are resourceful enough. And is she getting vegetables online? No, not at all. India needs physical retail, still.

Shopping malls, nonetheless, may take a bit of time to limp back to normalcy. People may be scared of public spaces. Bector’s scenario planning is around making her retail spaces comfortable for shoppers. “We are evaluating sanitation tunnels at the entrance of the malls. We are assessing the vendors as we speak,” she said.

Besides, there would be social distancing norms in stores, restaurants and film theatres. The waiting lines would be defined. “I am talking to cinema operators. There should be a two-seat gap between two bookings,” she added. “I am starting to talk to the brands on sanitization of their stores and products. Kitchen sanitization will play an important role in restaurants.” Over the next two weeks, the mall staff would be online trained to be sensitive — understand the customer’s body language to figure out if they are uncomfortable.

Brands such as Panasonic, a home appliance maker, is also using the lockdown period to ready its retail sales staff and up-skill them.

As Panasonic waits for consumer demand for its appliances such as air conditioners and refrigerators to return post the lockdown, the firm is working on a long-term strategy—diversify into the business-to-business (B2B) segment. “Today, we are more of a B2C (business-to-consumer) company in India—69% of our revenues. We want to rapidly accelerate our B2B capabilities,” Manish Sharma, president and CEO of Panasonic India and South Asia, said. Panasonic, for instance, makes industrial robots for the automotive sector. Pressing the accelerator on such products would feed into the growing automation story in India’s factories.

In the post-covid world, many more companies would need to re-look at their product strategy. Perhaps, drop non-essentials. Perhaps, drop luxury products that may no longer find currency in a climate of tight discretionary spending.

“The whole planning process is going to change. Today, most companies do quarterly and monthly planning of demand, what needs to be manufactured. People would need to do daily and weekly planning, reassess the situation every week or so,” Siddharth Jain of Kearney said. “Large companies have a lot of complexity—a lot of products and services. They would need to focus on fewer products because dealing with complexity in a plant would no longer be easy,” he concluded.

Some of the more progressive companies have indeed pressed the reset button.