COVID-19 & Disrupted supply chains
The manufacturing industry speaks about the disruption in the supply chain and how each company is dealing with it.
The corona virus has crippled the Chinese manufacturing industry. As per the PMI report, “At 40.3 in February, the headline seasonally adjusted Purchasing Managers’ Index™ (PMI™)–a composite indicator designed to provide a single-figure snapshot of operating conditions in the manufacturing economy –fell from 51.1 at the start of the year to signal a renewed decline in the health of the sector. Furthermore, it was the lowest PMI reading since the survey began in April 2004.”
The Indian manufacturing industry is dependent on China for their raw materials and components. Hence, it is imperative to see what impact has it shown and how the industry is dealing with it.
How is the Indian manufacturing industry dealing with disrupted supply chain?
Stating about the virus’ impact on the auto industry, Rajan Wadhera, President, SIAM in a brief statement highlighted that many automakers in India import about 10% of their raw materials from China. The disruption in availability of these parts are likely to critically hamper production across all segments, namely Passenger Vehicles (PV), Commercial Vehicles (CV), Three-Wheelers (3W), Two-Wheelers (2W) and gravely affecting Electric Vehicles (EVs).
Wadhera further emphasised that with anticipation of the Chinese New Year, Indian Auto Industry had maintained inventory in beginning of the year, but with the current lockdown in China, supply for BSVI vehicles is likely to get impacted.
Manufacturers are exploring alternatives to fulfil their supply chain demands but that would also take a substantial amount of time to reach stable production scale as these components would need regulatory testing, reiterated Wadhera.
He also mentioned that SIAM has been in touch with the Government of India with specific recommendations on behalf of the Auto Industry and in this regard, Industry is particularly thankful to the Government for issuing a notification of Force Majeure for Corona virus and also 24x7 clearance of shipments at all customs formations.
What did auto & auto components makers say?
A recent statement released by Tata Motors says, “For Tata Motors domestic, the transition out of BSIV is almost complete. However, materials management to support the ramp up of BSVI has become a daily affair and we are seeing improved availability position as vendors come on stream in China. With some flexibility in mix (models, trim levels) current visibility protects production volumes up to mid-March. The further planning horizon contains some uncertainties which are expected to be mitigated to a large extent; situation could lead to limited volume losses in Q4. This is however, expected to be recovered as market demand is likely to improve gradually upon transition to BSVI. The timeline for a complete rebalancing of supply and demand is dependent on the further developments in the coming 4-6 weeks. Domestic business is positive to overcome the current challenge with a limited impact on its overall FY21 performance.”
Jaguar Land Rover’s supply chain is primarily based in Europe and the UK, with a relatively small percentage of direct parts from China. Over 95% of its Tier 1 and Tier 2 suppliers in China are now open but at reduced capacity and Jaguar Land Rover is engaged with its suppliers on the status of their sub-tier suppliers in China. The company has visibility of availability of most parts out 2 weeks or more and has managed to avoid potential parts shortages by working closely with its suppliers and with some increased use of air freight. In the event of specific parts shortages, Jaguar Land Rover would ordinarily be able to still build cars and retrofit missing parts when available, however, we cannot rule out the risk that a shortage of a critical component could impact production at some point. The spread of the virus to South Korea, Japan, and Northern Italy is creating similar issues which we are managing in the same way.
In the statement Continental Automotive India highlighted, “We are continuing to review our supply chain and are working closely with our suppliers and customers to minimise any disruption. Please understand that we do not comment on customer issues and therefore will not be providing any further information about potential effects on supply chains.”
Some of the measures that Continental is taking at plants & components level are:
● The risk of infection from infected components, for example, is very low thanks in part to the high hygienic standards in our plants. We conduct risk assessments in every plant to ensure the safety of our employees and to evaluate possible effects on our employees and customers in individual cases. Depending on the results of the risk assessments, individually coordinated protective measures are then implemented in the respective plant.
● We are supporting our sites, for example by providing our employees with personal protective equipment. At the same time, we are continuing to review our supply chains and are working closely with our suppliers and customers to minimise any disruptions.
Even start-ups are under pressuere due irregular supplies.
Vipul Singh, CEO and Co-founder, Aarav Unmanned Systems says, “Manufacturers like us which are dependent on the Chinese partners for supply and manufacturing of specific components like Lithium batteries, motors, etc. have got significantly delayed in their supply and also the capital paid for these components are stuck. For SMEs and start-ups, this has badly impacted the cashflow and revenue. The government must provide interest free business loan to small setups for an interim period until the situation becomes normal.”