Manufacturing Industry at Crossroads

For the fear of sounding repetitive, I shall not go into the horrific statistics of how Covid has wrecked havoc across the world. The precious lives and jobs have been lost, economy is deflated and the business confidence has taken it on its chin.

I shall come to some details of the sector (Manufacturing / Engineering) in which I have core competency, but before that I need to touch upon a few aspects which bear relevance to every sector.

As the pandemic unfolded 5 quarters ago, in phase 1 (so also in phase 2), each country was caught on wrong foot in terms of medical preparedness and the response to daily rising cases of infections & fatalities. This led to deep fear, anguish and shock amongst the population, forcing changes (some permanent) in consumer behaviours. All the governments first focused fully on pharma, diagnostics and hospitals. The relentless and fair demand of public was first for free food and helicopter money and then subsidies and then further led to easing of taxes and or concessions. Undoubtedly all of this was the need of the hour. As debate between “lives OR livelihoods” remained unsettled and unlocking started, the second wave hit harder and the inevitability of 3rd wave – not if, but when -looms large, over our heads.

In the mean- time, the ‘easy money’ in the ‘strong hands’ (not retail investors like you and me!) has led to a dichotomy of plummeting economy and booming stock markets. But on the other hand, most of the public have depleted their savings or pension funds or some such measures “for the rainy day”. All this has and shall continue to have a long-lasting impact on “discretionary spends and luxuries” at least for some foreseeable future of 1 to 3 years, which must spell changes in strategies for those sectors.

As for the manufacturing and engineering sector, the ‘new normals’ (or the new abnormals!) are bringing big changes.

In the aftermath of the pandemic, a few mines closed down and the huge uptrend in metal prices hit the industry. All metals like steel, copper, aluminium as also the precious metals have hit all-time highs which makes the “input costs” go up substantially (pushing the profits down) coupled with fallen demand. When companies fight for orders, no industry can push for the price rises!

Since the capacity utilisations of many engineering industries were below 50 % (new ‘Abnormal’), the beaten down profits make it even harder to go for expansions or modernisations.

The other major factor has been the labour crunch as there was a rush to get back to villages and uncertainty of their return. The mismatch of skilled labour and job requirements thus creates new bottlenecks. This applies to large and small industries alike. So, the factories and their whole supply chain comes under huge pressure.

As an example, in the month of May during the second wave, Maruti with its 3100 + outlets, across India found themselves in a grim situation that more 2500 of them were closed. And when they opened, the ‘foot fall’ was below par for passenger cars. But very tepid for commercial vehicles.  As you know, Automobiles and Construction, are the two biggest employment sectors, so weak demand and piling stocks is a big impact and a big abnormal.

 Also, as the geo-political tensions rise amidst the simultaneous coming-back-of- the-demand for fuels, the crude oil has moved northwards to hover in the 75 USD range. This is a bad recipe for rising inflationary trends in India for sure.

The WFH is in vogue (new normal) now a days! But think again! Does it apply to (say) farmers, policemen, doctors, workers in factories or fire fighters – the small point is, WFH is not the solution for 85 % employed people & for the balance 15 %, I doubt how long that shall stay. Already those, who are working from home, are longing to get back to their offices!

Much before the pandemic, there was a big move of ‘de-globalisation’ with Trump as major architect. So, on the one hand a lot of export dependent manufacturing companies were already under pressure, which may only increase now. On the other hand, the Wuhan factor has shaken the world’s confidence & forced them to move away from China – the erstwhile ‘factory to the world’ – as can be seen from some MNCs moving away to Vietnam, Indonesia, Bangladesh but not so much to India! Why-  Reasons are not difficult to find – the major being un “ease of Doing Business in India”. Since the govt had already reduced the corporate tax structure and if we can make a concentrated effort to bring those companies to India, then it will be a big win.

Thus, the manufacturing industry in particular will continue to be under severe pressure from all sides – paucity of workers, supply chain disruptions, rising input costs, unfavourable govt policies but the most important being tepid demand.

Therefore, the sector’s focus has to be on how to innovate & to launch NPD (new product developments) to cater to new needs of consumers at an electric speed – shortest time from ‘drawing board to drawing room’! That shall give a ‘competitive advantage’.

Coupled with that, shall be the requirements of going digital for sales and service related work. And to employ intelligent bots to take remote servicing.  Many companies are seizing this opportunity to change the manufacturing and business processes employing tools like IoT and 4.0. In these abnormal times, even the most staunch ‘old school’ workmen will not mind these changes at the cost of saving their jobs. So, we can actually use these hard times to push for some OE (operational effectiveness). Further a lot of team work can go into additional projects of bettering the products  (6 Sigma/ Kaizen) or making them more user friendly or less stressful by employing automation, as we did with some clients.

The need therefore is to think strategically and focus in each area to find innovative solutions, which may again change or tweak in the months to come! But first, we learn to survive, then become profitable again and then aspire to grow!

By Ranjit Bhide (Consultant with IndusGuru Network Partners)

Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of IndusGuru Network Partners

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