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Covid impact: Companies struggle to streamline production

With the country still under lockdown and suppliers and dealers only partially open, manufacturing firms that were allowed to resume operations are finding the going tougher than expected.

Auto, steel, cement, component makers and engineering companies are struggling to streamline production, with output barely touching 20% of capacity since production started with the gradual lifting of curbs imposed to combat the spread of Covid-19.

Work at factories has resumed in tough conditions: Demand is yet to revive, labour availability is limited and new safety and health norms have to be enforced in the workplace. In addition, many industry hubs in red zones, which have the most restrictions, remain closed.

Auto component makers said the entire supply chain has gone haywire. Given that automobile production will be limited for the next couple of months, there’s uncertainty over supply, production and demand, manufacturers said.

According to RC Bhargava, chairman of India’s largest carmaker Maruti Suzuki, this situation is new and unique, without precedent and no rule book to follow.

“Production has started, but it is evolving every day,” Bhargava said. “As we go along, we are making improvements, keeping safety paramount. It’s all trial and error and learning how to get better each day.”

Shop Floor Activities Curtailed

Experts said companies are also facing infrastructure and labour-related problems. Production in many cases has started on a single shift, with complete emphasis on the safety and health of workers. With only 20-25% of the workforce at hand, shop floor activities have been curtailed, not only for auto and component makers but also for engineering companies.

Production levels in the automotive industry would not be more than 15% at this time, experts estimated. While Maruti and Hyundai Motor have started operations, Tata Motors and Mahindra & Mahindra have resumed at a few locations.

“For the supply chain to get normalised, it will take 3-4 weeks. There is not much demand now, so we are producing much less for local and export markets,” said Venu Srinivasan, chairman of Chennai-based TVS Motor Company. “What we are doing is running the machine in phases so as to get ready as production starts picking up.”

Thermax’s factories in Vadodara and Andhra Pradesh are operating at 10-25% capacity because most raw material suppliers are small enterprises that have cash flow constraints. Transport, logistics and getting labour continue to be an issue, said MS Unnikrishnan, MD of Thermax.

Even in the face of dwindling demand, Tata Steel, JSW Steel and Steel Authority of India are forced to keep their blast furnaces running, while cutting production by 40-50%. They are now grappling with disruption in production and distribution with fewer orders.

“The medium-to-longer term impact will be clearer in the next 6-9 months,” said TV Narendran, managing director of Tata Steel.

SAIL and others are rationalising their product basket. “We have decided to produce more semi-finished items that can later be value added into finished steel,” Anil Chaudhary, chairman of SAIL, told ET.

Domestic steel demand plunged 91% in April, according to official figures, as key user industries such as construction, infrastructure and auto came to a virtual standstill.

Cement makers, including Shree Cement, could be bracing for a 20-30% fall in volumes as their capacity addition plans have clashed with dwindling demand. Anand Rathi Communications has estimated a 25-30% capacity utilisation for cement in the first half of FY21.

Most auto and component companies have resumed work taking into account social distancing, sanitisation and transportation. However, this has slowed production schedules and increased costs.

“We are not even running one shift fully and this current production schedule is not sustainable, as the entire supply chain has gone haywire and we cannot continue to burn cash,” said Deepak Jain, managing director of Lumax, a supplier of components to automobile manufacturers. “We are producing in batches according to order and production is extremely difficult to be ramped up as practically many tier 2 and 3 suppliers are still in red zones.”

New Delhi, Mumbai and Chennai are among the 130 districts in the country classified as red zones, which are estimated to contribute to half of the country’s economy.

Jain said that at current low levels of production, labour is not a problem but the moment output is scaled up, it will become a huge issue especially as migrant workers have returned to their villages over the past month or so.

While the phased opening up of various sections of automotive manufacturing units, companies will have to take the lead in putting in place a proper strategy, failing which their schedules will get disrupted and their costs will surge, experts said.

SourceThe Economic Times