Move aimed at ensuring suppliers have enough inventory in place to tide over production stoppages caused by local lockdowns
With the market showing early signs of a turnaround, as evident from their stellar performance in July, automakers are asking their parts suppliers to produce as much as they can and stock up in order to avoid any further disruptions in output.
Any unevenness in quality or total lack of availability of even a single component can derail the entire production schedule at a vehicle-maker’s factories. Several automakers have therefore asked their parts vendors to step up supplies to ensure smooth production cycles.
Speaking to analysts last week, Rahul Bharti, Senior VP, Corporate Planning and Government Affairs at Maruti Suzuki India, said: “We have to be mindful about local lockdowns across cities or States of different kinds. Our vendors are located in about 46 districts over 9 states and sometimes they witness these lockdowns.”
“So our strategy is, wherever the vendor is, at whichever point of time he is, let him keep producing to the maximum and keep stocking. We never know when the lockdown will hit him. So, at least the stocks and inventories will help during such lockdowns”, Bharti said.
Struggling to meet targets
While social distancing norms have resulted in reducing the number of workers inside factories, the unavailability of components was one of the other reasons demand outstripped supply in July as vehicle manufacturers were seen struggling to meet targets.
Speaking to analysts last week, P B Balaji, Chief Financial Officer, Tata Motors, said: “We continue to be impacted by the supply situation because of the intermittent lockdowns in various parts of the country. Therefore this is going to be a challenge for us to address in this particular quarter — to get this under control so that the supply chain moves in a more rhythmic manner compared to the stop- start mode that we are currently working in.”
Suppliers hit by financial challenges
Parts suppliers, especially those in the third rung, faced financial challenges to the extent of getting wiped out completely during the lockdown. This highly fragmented segment involves small establishments that employ 10-15 people supplying plastic or metal. Unusual delays in payments from automakers immediately after the lockdown created a cascading effect.
Demand rebounds in July
Wholesale dispatches by five of India’s top six car and SUV makers in July jumped 84 percent compared to June as demand from rural and semi-urban pockets recorded robust growth. Such a comeback in demand surprised even the automakers and other market watchers.
Maruti Suzuki, Hyundai, Mahindra & Mahindra, Honda and Toyota, the five automakers, who control more than 70 percent of the market, sold 157,762 units in July compared to 85,933 units in June. The comparison is sequential because many dealerships continue to remain shut due to the Covid-19 disruption.
Ashok Minda, Chairman and Group CEO, Minda Corporation, said: “Almost all plants have started operations but sometimes a particular zone is in a containment area that houses our facility and that is when supplies get impacted for some days. Besides the lockdowns, we face issues like worker availability. We are presently working at 40 percent utilisation, on an average, across 30 plants in the country”.
To avoid upsetting the production lines again vehicle makers are working with their vendor partners for collaboration on projects.
“There has been a lot of agility in managing these interruptions by creating alternative capacities and through vendor collaboration with us,” said Rakesh Sharma, Chief Commercial Officer and Executive Director, Bajaj Auto. “A lot of the restoration of business is partly because demand has come roaring back and also because we have been able to manage the supply chain pretty well.