Coronavirus, referred to as COVID 19, has transcended across the globe originating from Wuhan, China. As of July 2020, globally more than 13 million have been diagnosed with COVID 19 and about 570,000 humans have died. USA is one of the highest with more than 6 million affected followed by Brazil and India. In this note, we are focusing on impact with respect to Indian geography.
Without any vaccine or directly administered medicine for curing COVID 19, some of the protocol and efficient healthcare system could limit the spread and dreadful impact. One of the key strategies deployed by policy administrators is to reduce the movement of people and cargo; and effectively implement track, trace, and quarantine risky and possible spreaders. International flights were banned and now with limited operations. It again limits the belly cargo a passenger plane can carry, especially of small parcels and critical components.
Let us look at some of the areas of operations management that COVID 19 continues to hamper. When we discuss processes, we focus on both manufacturing and service operations as well. Wherever possible, both manufacturing and services are linked up.
First, any operations require labour, supervisory staff, and management personnel whose strength had been deployed based on the production system requirement. There is an environment where three shifts operation may be required while in another one can manage with a single shift or suitably aligning with demand requirement. Sales and operations plan drive manufacturing operations. Certain activities require minimum run size, and demand generation must take care of the same. Else, the unit must take it on the stock.
Under COVID 19, low demand and availability of labour hamper production. Many places workers are limited to 33 or 50 percent of the requirement. There are certain cases where there is a maximum cap of workmen at the site. Those factories that could run processes as independent work areas and still get the product at the end of the system can operate.
The other problem concerning labour in processes is the dependence on contract workers for support at the workplace or in a shop. Such workers are mainly semi-skilled or unskilled migrant labourers. In India, in places like Gujarat, Maharashtra (especially in Mumbai), Delhi, and other parts of India, migrant labourers have moved out. The problems in warehouse operations and trucking are huge. Though other resources are deployed, there are inefficiencies in terms of output and cost. Till normalcy arises, this problem would continue.
Service operations in specific industries could manage the delivery of service. But, many service industries like hospitality, financial services, real estate providers like renters of commercial space and shared office, travel and leisure, and hygiene-oriented businesses like grooming, personal care, and beauty salons have faced workmen's problems.
IT services companies, KPOs, BPOs, and those who could offer remote services, including eCommerce trade and delivery, can realign under the restrictive conditions. However, one may have to investigate two aspects:
- In most cases, existing resources could be deployed for the current level demand, and quick reallocation of resources, including office equipment, computing, and software has helped them survive. Need to sustain this for a predictable future is essential and aligning demand promotion is critical. Virtual workspace takes away from soft issues like tacit learning shared among peer groups, bonding and sharing key customer learning across employees, which is possible in earlier conditions.
- Second, an essential challenge for operations is the availability of material for production. In the early stages of lockdown, there were quite high restrictions on the movement of materials that forced operations to close. As unlock in a restricted sense is being implemented, cargo movement is enabled.
However, such a condition varies from industry to industry. Specific process industries are mainly dependent upon single source supply and mostly near its plant location. This is typical of weight loss material in processes like manufacturing of clinker from lime or agriculture-based processing industries like sugar, flour and rice mills, beverages, etc. They can work until they have stock material from inventory carried forward by upstream supply network partners.
Numerous industries are affected by more than one way in the supply of materials. Those who are in heavy engineering, automotive, or those who use components, ancillary units for shaping, forming, and sub-assemblies are severely affected in more than one way. Here it is just not materials but value addition to material through processing. Though a base material is being provided by a sizeable focal organization, which is the manufacturer of a product, at times, at the early-stage component development, the ancillary unit may have to take delivery of the material independently.
Further, they are constrained by the availability of labour and transport for inbound and outbound operations. The biggest issue is that many of these firms are in the MSME segment. The woe of such firms are widely discussed in multiple forums. They are unable to process material because of a lack of access to adequate working capital. The government’s new stimulus programme is expected to ease this condition, provided the MSME firms can follow the norms. The plants have been incurring certain fixed overheads irrespective of production loss, and it has considerably limited their borrowing capacity.
Another issue concerning material that the author has found through his discussions is that individual firms carry inventory at a higher cost. In contrast, the current end product price parity is not supporting the same. Hence, such firms cannot decide if they were to process and market at a loss or wait for conditions to improve. But that has another component cost, namely material holding cost.
Import of Material is also constrained. This is because of the slowdown in trade, frequency of vessel calling port, and free movement from ports to inland towards production centres. These are improving but could affect until it reaches normalcy. With increasing orientation towards Athmanirbhar and Make in India campaigns, supply networks from other countries may have to be reviewed. Apart from this, even the lockdown has made many manufacturing and service firms critically evaluate their supply networks.
Lastly, support activities like logistics, including warehouse, regional distribution centres for downstream movements, inbound and outbound transportation, milk runs, order manager, and hyper-local, all have different kinds of impact for industries. In many cases, the effect is adverse. Warehouses have problems in the turnaround of goods and material and labour, statutory issues like payment of rent and contract workers salary, etc. Transport largely depends upon the mobile workforce, which will expect normalcy to return to work. Intracity and state movements may ease; so also, the operations of large corporations. But, market loads which play a significant role in the movement of meeting uneven demand would suffer for long. Similarly, service businesses will also suffer. Imagine a servicescape (design of operations area) of a hotel, restaurant, retail store, or even a dispensary! How would you manage social distancing and ensure law-abiding practice? Today, the customer expects that. Is he willing to pay for it?
We are in an exciting era of "new normal," especially from an operations management perspective. Most of us know the point of impact. But, until an amicable solution is derived, the unsettled question that loiters across the operations management chain is, ‘will the incidence in terms of cost and loss of efficiencies be shared equitably across the network players?’ Only time could answer that for us.
About the Author
The article is written by N Chandrasekaran, Professor, Operations Management Area, IFMR Graduate School of Management, KREA University. He can be reached at chandrasekaran.nagarajan@krea.edu.in