Manufacturer’s Dilemma – 10 important decision to make
India has become one of the most attractive destinations for investments in the manufacturing sector. Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 89.15 billion during April 2000-December 2019. Under the Make in India initiative, the Government of India aims to increase the share of the manufacturing sector to the gross domestic product (GDP) to 25 per cent by 2022, from 16 per cent, and to create 100 million new jobs by 2022 ( www.ibef.org )
While India’s economic as well as market fundamentals are strong, few things have changed; the Covid-19 pandemic has created immediate issues but also opportunities to make long-term changes. As factories re-open, the current situation calls for deliberations over 10 very critical decisions:
- Labour intensive V/s Automation
Many industries critically depend on migrant labour who’re not going to come back in a hurry. Do we take this opportunity to automate or still incentivize labour to return.
- Change in factory layout to accommodate social distancing V/s Labor accommodation facility within campus.
Complying with national and local regulation is tough. Even if one worker is found to be infected, an entire factory can be sealed and production can come to a standstill, overnight. Companies will have to evaluate options to redesign the factory layout to maintain 6ft distance or if possible create an isolated facility to have all the labour reside in the factory itself. Impact of this on productivity and cost needs to be evaluated.
- Manufacturing of fewer products V/s all products
Immediate challenge, post the lockdown, is to have less people on the factory floor in compliance with the social distancing norms. Given the resource constraints, it will lead to a decision on which products to drop and will warrant a close collaboration between sales and production planning.
- Demand and Supply dynamics are changing faster
Depending on the sector, market demand to pick up could take anywhere between two quarters or more to revive. More important, consumers are likely to prioritize their needs due to which the buying behavior is going to change significantly. With this change will change the demand patterns and may create supply challenges as well. Good example will be a shift in demand from desktop to laptops.
- Monthly or quarterly planning V/s daily planning
Situation is fluid and changing by the day. National, State and local factors are more at play. Logistics, market, distribution; everything is changing each day. Manufacturers will need to evaluate habitual yearly / quarterly plans approach or instead have a more intensive daily / weekly plan.
- Embrace digital V/s Business as usual
Support functions like finance, HR, Sales & Marketing may continue working from home to reduce the infection risk and maintain government norms on capacity. They need to embrace Digital tools (apart from video conferencing) to be more productive and efficient. Paper and physical files are out for some time!
- B2B companies exploring B2C & vice versa
New opportunities to grow or survive for long term sustenance is going to force manufacturers in certain sectors to relook at their target customers or more fundamental shift in business model from B2B to B2C or vice versa. For instance, demand for office chairs in shifted home users.
- Manufacturers to invest in suppliers or not
Securing supply is not going to be easy. Many of the suppliers will be constrained with cash and manufacturers will have to do a strategic assessment on which suppliers are key and which are not. One may have to go that extra mile to ease suppliers’ cash flow situation.
- Logistics & transportation – Cost V/s delivery on time
Overall cost of production is going to go up. One of the key components that increased cost is transportation. It’s important to note that one of the most impacted labour class are truck drivers. From availability of transportation to assessing cost of delivery to keep customers happy will require a close watch.
- China or alternate to China?
Current sentiments towards China are not favorable. Short term, one may have no alternative, but long-term, manufacturers will be forced to look at other options locally or in the global market. The impact of that on cost also needs to be factored.
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Kumar Karpe Co-Founder and CEO, Kapittx