Manufacturing | Companies need a new set of priorities for success in the long term

Jeffry Jacob

Manufacturing has been one of the main sectors affected by the lockdown implemented in most countries in the wake of COVID-19. In addition to the demand slowdown across sectors, the disruptions on the supply side was significant. The supply shocks were no longer restricted to those dependent on the global supply chain, as was the case in January-February.

By the start of this financial year, the domestic supply chain and movement of raw material and goods within India was severely impacted. Factory operations came to a standstill in most parts of the country and even those which could operate faced issues in getting raw materials or delivery of finished goods. With the phased re-opening, availability of labour force to re-start operations is an issue.

While most companies have now restarted operations in a phased manner, the new operating conditions are vastly different from the ones prevalent just a couple of months back. Implementation of social distancing norms and operation of factories at low utilisation levels throw open a plethora of challenges.

Chief executives must ask these key questions: Do I have the right skills and manpower to ensure smooth operations, and how do I ensure safety of my workforce? Two, how do I ensure smooth operations considering the changing red/green/orange zones and is my supply chain geared up to meet these demands? Three, is there an opportunity to relook at my non-core costs and can I move some of them to a variable cost model? Four, are my suppliers and dealers financially stable? Five, how has customer behaviour changed and how do I continue to effectively engage with them?

Companies need to develop a list of time-bound and well-defined activities that need to be carried out while re-starting factory operations. Sufficient supplies and equipment need to be ensured to maintain the health and safety of all personnel at the facility. Guidelines for critical processes must be outlined. Guidelines for employee movement across the facility, as well as for those continuing to work from home, need to be developed.

There should be a business continuity and crisis management plan. While all the mandatory precautions to ensure social distancing and hygiene need to be taken, it is equally important for the top leadership to regularly communicate with employees and give them the feeling of security and belonging.

A detailed assessment of the suppliers and dealers is crucial to ensure continuity of operations. Several of them are today suffering from poor liquidity and have issues with financial viability and sustenance. Companies may decide selectively, based on the criticality of each individual dealer or supplier, to extend support to a few of them. A roadmap needs to be devised accordingly.

In addition to identifying and eliminating all non-critical expenses, companies should relook at their cost base with a fresh pair of eyes. Zero-based budgeting and negotiations with suppliers and service providers are the order of the day. Sustained cost reduction measures will go a long way to optimise the operating model. Companies need to maintain a clear focus on working capital, implement 13-week rolling forecasts and identify cash generation opportunities through both critical and tactical interventions.

Companies should use this opportunity to relook at their staffing and how some of these manpower needs can be met in a more agile and flexible manner. Multiskilling will help increase productivity and utilisation, while also requiring slightly lesser manpower. Opportunities for GiG and contractual workforce can be identified by critical and strategic workforce segmentation. The potential for outsourcing can accordingly be identified and a leaner and future-ready organisation structure can be developed, while delivering bottom-line savings.

During the past couple of months, there has also been a noticeable change in the consumer’s purchasing behaviour. Across segments, companies have been witnessing an increased preference for digital modes of purchase. Traditional companies need to adapt to the emerging trends to stay relevant in this highly competitive market.

Companies, therefore, need to consider a new set of priorities while planning for success in the long term. The re-orientation of the supply chain and increasing shift towards localisation and near-shoring is one of the main trends. In case of a necessary trade-off between cost-saving and higher resilience in supply chain, decisions may be made in favour of the latter. Usage of digital technologies will get a real push, not only for work from home (WFH), but for both internal operations and external interactions with customers and dealers.

A shift towards variable business models will mean increased usage of managed services for non-core functions. The importance of building sensing and control tower capabilities cannot be over-emphasised. Agility in response to changing market conditions and responses will be key to successfully competing and winning in this new environment.

Jeffry Jacob, Partner – Management Consulting, KPMG in India, Views are personal.

Note to readers: Make In India — Reboot is a series of articles that will take a top-to-bottom look at ways to breathe life into manufacturing in India