Covid-19 outbreak: Time running out for just-in-time inventory system

As corporate India braces for a post Covid-19 world, many CEOs are pressing ahead with fundamental changes in the factory and its supply chains, including more automation, localisation, ending just-in-time production, the way they work, and opting for larger warehouses.
 

Some of these issues are contentious and opinions can be divided, depending on what line of business you are in and what levels of automation you have. The processing plant of automotive paints firm Nippon Paints India is 80 per cent automated. But only 50 per cent of the filling plant is automated and the packaging unit is still manual.
 

“In order to meet social distancing norms in areas like packaging where people work closer together, we are thinking of increasingly bringing in automation. The other area is in warehousing because it gives more efficiencies,” said Sharad Malhotra, president of the company.

Volkswagen group Managing Director Gurpratap Boparai, however, finds automation expensive, especially at a time when everyone will be looking at preserving cash. 

“Automation has significant costs, ordering robots and getting delivery can take over 12 months and it would have made sense if factories were going to be working at 80-100 per cent capacity and one wanted to increase productivity. But that will not be the case after Covid-19,” said Boparai.

Automation aside, managers are gearing up to bring out fundamental changes in their factory, shop floor and the supply chain backbone functioning. Many are questioning the efficacy of the Japanese just-in-time principle, which is posited on low raw material or component inventory but causes disruption in the supply chain during a crisis.

German company Hettich India, which makes office and furniture fittings, has realised that just-in-time production is dead.

“Everyone has to have enough stocks in the case of exigencies. Just-in-time production will go,” said MD Anil Goel in a webinar.

Others are pushing for more localisation so that if imports stop, production does not suffer. Or considering if more shifts can be arranged to adhere to social distancing norms even if it means increased costs. Or replacing their strategy of setting up smaller but more warehouses to be nearer to the buyer with larger automated ones to increase efficiencies and lower operating costs.
 

Hettich is thinking of increasing the size of its warehouses, which used to be small, as there was very little need to store components and goods.
 

Some firms are being even more adventurous and toying with an idea that, on the face of it, seems counter-intuitive, namely replicating the work from a home model in the factory. Tyre maker Ceat has calculated that even in its factories, 15-20 per cent of the staff is HR, finance, supply chain and support staff, i.e. not directly related to production.

At RPG Enterprises, S Venkatesh, president, group HR, is thinking along similar lines. “We will perhaps be the first in the country which will be looking at work from home for our factory. Some employees at least can be earmarked to work from home for a number of days which has to be worked out,” he said.

Localisation is another buzzword, especially for those who have substantial imports, which can be seriously disrupted by a pandemic. Over 50 per cent of Nippon Paints’ raw materials are imported from China and Europe. It plans to explore more local sourcing instead.

Yet, there are doubts about rushing in. Some corporate leaders say that changing the production process makes no sense if it makes them uncompetitive. Hari Om Rai, director of Lava Mobiles, said: “You cannot change your cost advantage based on labour and go for automation or build warehouses to keep stock for import of components just in anticipation of a crisis or a disruption which might come. You can never compete.”