Ramping up isn’t easy with restrictions and labour shortages

The first of a 3-part series looks at how manufacturing units are gearing up for the new normal

The first of a three-part series looks at how manufacturing units are gearing up to the new normal

As the government readies to relax more restrictions from May 17, many companies want to ramp up production but face a labour shortage, muted demand, problems in the import of raw materials, and stiff restrictions on supply chains which are disrupting their manufacturing operations.

Jindal Stainless is working at 40 per cent of its capacity. It would like to increase this to

60-70 per cent so that the cost of production comes down (it has high fixed costs) but for this, it has to get orders from its customers and they don’t have enough labour. MD Abhyuday Jindal pointed out that its buyers — utensil manufacturers, fabricators and pipe makers — depend on contract labour which is over 85-90 per cent of their workforce. But the workers have fled coronavirus and the lockdown to go to their villages.

“If our customers cannot ramp up, our demand for stainless steel is also adversely impacted. They hire lakhs of contract workers as it is a labour-intensive industry. Now, with trains running for migrant workers, many are going home or have already done so, so they can’t produce much,” said Jindal. The auto sector is confronted with the same shortage. Even though its plant in Haryana which it has just restarted is only running at 30-40 per cent capacity, Nippon Paints India is struggling to get enough workers. Said Sharad Malhotra, president, automotive refinishes and wood coatings: “Even with 25 per cent of our normal workforce for a single shift, we are facing difficulties. If suddenly big orders start coming and we have to increase capacity, we will face a serious issue to get labour.” Transmission major KEC International has seen its contract labour force shrink by over half from 30,000 to a mere 15,000 across the country but sees positive signs. “We are getting positive feelers now that many workers are looking at coming back, especially as train services have been partially restored. I cannot hazard how many will come, but we are continuing with our efforts to recruit local labour to meet the shortage in the various states,” said S Venkatesh, president, Group HR, RPG Enterprises (of which KEC is a part).

There are others who are opting for automation to tackle the labour shortage. Mayank Shah, senior category head of Parle Products, said robots will be used in labour intensive activities such as packaging, loading and unloading.

“We are working with 50 per cent of our workers in order to follow guidelines and these are here to stay for some time.

We don’t see labour coming back soon from their villages so we have to have more automation,” said Shah.

Supply chain restrictions imposed by local authorities are also stifling companies looking to ramp up. Sunjay Kapur, chairman Sona Comstar, which has a plant in Tamil Nadu, described the workforce restrictions as ‘very stringent’.

“Those who are above 55 years old or have parents who live with them or children below 10, are not allowed to the factory. This limits the workforce even further beyond the reduction of numbers due to social distancing,” he said.

In Noida, just outside the capital, Lava Mobiles said the number of workers they have allowed in the factory enables them to work at 25 per cent capacity or make

15,000 mobile phones a day. “We can ramp up to 50 per cent but for that we will require permission. Currently we are working with 600 workers in two shifts,” said Lava Mobiles director Hari Om Rai.

Some are even worse off. Ask Krishan Sachdev, MD of air conditioning company Carrier Midea about the low capacity of his unit in Manesar. “Our manpower strength when we closed was 750 workers. We have permission for 130, less than 20 per cent. We are trying to operate our three assembly lines in a single shift,” said Sachdev. Bajaj Auto has opened its factory in Chakan and Aurangabad and is planning to tweak the just-in-time model. Said executive director Rakesh Sharma: “In a long supply chain, if any link is broken it impacts production. Owing to the frequent disruptions one may be required to stock a bit more, in case there is line stoppage at one vendor.” The other challenge some firms are facing is the supply of components. The CEO of an Indian mobile device company said most of its components came from China and that was a challenge. He wants to hedge his risks and is looking at Indian suppliers but this takes time.

Sources say that this could be an advantage for companies like Samsung which source their components from South Korea and Vietnam.

Some companies are already looking at starting talks to move suppliers from abroad, especially from China, to India. One of the country’s largest garment exporters, Gokaldas, has a 30 per cent import content and relies on some products coming from China and south east Asia. “In the past we have discussed with Taiwanese players about setting up their raw material plants in India. Serious conversations did not happen but now they should,” said Gokaldas MD Sivaramkrishnan Ganapathi.

At the centre of everything is domestic demand and here, those with large export orders are clearly better off in hedging their risks. Take Aurangabad-based Varroc Engineering which earns 60 per cent of its revenues from exports and has 41 factories across six continents.

Those who have substantial exports or revenue from foreign operations of course have a better hedge of their risks. Take Aurangabad based Varroc Engineering which earns 60 per cent of its revenues from foreign operations and has 41 factories spread across six continents. Says Arjun Jain business head- electricals and electronics: “Even if the local demand does not catch up to a reasonable level, as an organization we are globally hedged, and might even achieve 50 percent capacity at some plants within a week.” It’s a different story for Jindal. The domestic market is over 75 per cent of its sales. It only expects demand to firm up in June. Till then, it will produce mostly for exports to Russia, south East Asia and elsewhere. Sona Comstar is currently making components only for exports. Malhotra of Nippon Paints laments that the after-market paint business for autos is virtually defunct right now. The company isn’t getting many orders yet from auto companies which have just started production but Malhotra hopes demand will pick up in June.

“In a long supply chain, if any link is broken it impacts production. Owing to the disruptions one may be required to stock a bit more, in case there is line stoppage at one vendor”

RAKESH SHARMA, Executive director, Bajaj Auto

“We are working with 50 per cent of our workers in order to follow guidelines and these are here to stay for some time”

MAYANK SHAH,

Senior category head, Parle Products

“If our customers cannot ramp up, our demand of stainless steel is also adversely impacted. They hire lakhs of contract workers as it is a labour-intensive industry”

ABHYUDAY JINDAL, MD, Jindal Stainless