6 minute read 11 May 2020
COVID-19 may force auto cos into more automation

How automotive shop floors will evolve and embrace digital post COVID-19

By Vinay Raghunath

EY India Consulting AMI Leader

Passionate about Automotive, Industrial and Consumer Goods. Experience in route-to-market, supply chain, post-merger integration, digital and analytics. Squash player. Curious about Indian history.

6 minute read 11 May 2020
Related topics Automotive Mobility COVID-19

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  • Now, Next and Beyond: Auto factory of the future

The Indian auto sector is one of the early adopters of digitization in manufacturing, but the journey so far has been slow and uncertain due to apprehension about its benefits and returns.

The auto industry in India has been under recessionary conditions between July 2018 and January 2020 due to certain regulatory changes, need to shift to electric vehicles and changes in consumer preferences. With the COVID-19 pandemic outbreak, another crisis has hit all industries hard across the world.

The auto sector in India is likely to witness further slowdown in demand, non-availability of labor, concerns on health and safety management on the shop- floor. This report reflects upon what the automotive OEMs need to do NOW, and how they should respond with  an increased pace of adoption of hyper-intelligent digital technologies in the NEXT, thereby building resilience to such events in the BEYOND phases for the auto manufacturing sector. It answers the question: What should the automotive industry do to achieve resilience and develop immunity against market uncertainties in future?

The ongoing nationwide lockdown to contain the virus has led to a significantly negative impact on both the macroeconomy and auto sector. It has amplified the sector’s existing vulnerabilities by disrupting both manufacturing and supply chain. The automotive industry had an expected loss of 7.5 lakh units in production in March 2020 alone, which is ~1% of the total units produced in 2019, because of the lockdowns to combat the Covid-19 outbreak. Even after the lockdown is lifted, it will take 6 -18 months for demand to pick up. Due to the disruption, sales are likely to plunge by another ~20% as compared to 2019.

Due to growing apprehensions during the lockdown, workmen are refraining from attending work.

Some shop floors have been left deserted. Further, due to large scale migration of labour across India, availability & redeployment of contract labour post lockdown is a major concern. Contract labour accounts for more than half of India’s auto industry’s workers. The lockdown could lead to several complexities around supply of contract labour forcing companies to automate and thereby reducing the reliance on contract labour.

On the other hand, the cycle of money flow from customers to dealers to OEMs and ultimately to Tier 1 and 2 suppliers has been disrupted, leaving behind an outstanding of INR500 – 1000 crore in this short period. An estimated INR 20,000 crore worth of unsold inventory is currently lying with the auto manufacturers and revenue loss/day of about ~INR 2,300 crore is estimated for the auto sector in India.

What should the organizations do to proactively prepare for post lockdown scenarios (NOW):

  • Employee safety is paramount: Use of right protective gear, face shield, gloves.
  • Social distancing as per new norms.
  • Staggered shift schedule as per GOI guidelines.
  • Developing an Infectious Disease Preparedness and Response Plan.
  • Caution in use of equipment on the shop floor.
  • Redefining or modifying plant layouts to reduce man to machine ratio.
  • Redefine SOPs to accommodate the post-COVID working environment.

What is the ‘New Normal’ for the automotive manufacturers and component suppliers?

Digital adoption on manufacturing shop floors in India is at a nascent stage. As per EY Digital Manufacturing India Survey 2019, only 23% of the large manufacturing firms in India have a clear digital strategy. However, unlike other industries, the Automotive shop floor still leads in the adoption of emerging technologies in India. A few factories in India are using substantial automation in their production lines – physical robots, Automated Guided Vehicles, Artificial Intelligence, Machine Learning, and Predictive maintenance.

Smart factory combines traditional manufacturing excellence approach with IT-OT integration to significantly increase performance. The exhibit below illustrates a typical journey towards digital maturity; starting from implementing manufacturing excellence frameworks to embedding it in daily processes through digital applications and finally leveraging emerging technologies to build an ecosystem that is smart and optimized in performance.

Illustrative of an automotive factory of the future

Automotive factories are mature in adoption and implementation of manufacturing excellence frameworks as compared to their peers in other sectors. They have progressed even further to automate data capture and visualize it for monitoring real time performance. Some of these firms are consciously building data as an asset to leverage intelligent technologies in the future. Hence, we understand that most Indian automotive OEMs have progressed on to the “advanced technology” step while still working on “execution excellence”. 

The COVID outbreak would serve as a reminder and would force other automotive players to review their current maturity stages and embark on a journey to transform their operations leveraging digital technologies. New business and operating models will require close integration of both manufacturing and supply chain. Organizations would need to map key technology solutions as critical enablers to achieve their strategic goals and absorb shocks from future events of similar nature.

How should firms respond – Now. Next. Beyond.

In this highly volatile scenario, planning actions for an immediate response assumes immense importance. Multiple departments and functions must work together to develop and execute an operations continuity and upgradation plan There is a need to set-up a Crisis Response team and perform the complete assessment of the impact on critical plant functions. Mitigation strategies need to be activated for immediate response in the next two to three years.

At the same time a Digital Response Center (DRC) may be set-up to collaborate with the Crisis

Response team to facilitate the execution of the interventions required for immediate response through technology. The DRC will embark on a sustained digital journey to achieve stability, resilience and growth in the next one to two years.

The Digital Response Team can work on an accelerated journey plan with Now (Immediate), Next (9 to 12 months) and Beyond (12 months and ahead) horizon for planning the actions.

Now: Creating an immediate response plan to restart the operations but at the same time do a quick. As-is assessment of digital maturity and form a road map for implementation.

Next: Moving to paperless shop floor. Leveraging advanced analytics and IIoT to move to smart quality and smart maintenance.

Beyond: Investing in advanced technology and automation to reduce human interventions in the plant.

In this highly volatile scenario, while it is urgent to respond to the current situation, there is also a need to plan for the future as the industry dynamics are likely to change significantly as the world comes out of this crisis and a new normal/paradigm is likely to emerge in each industry. For the auto industry, investment in digitization of manufacturing should be viewed as a risk mitigation technique (much like insurance).

Companies, irrespective of their size and scale of operations, need to finalize a well thought-out strategy and a roadmap that leverages Industry 4.0 interventions to regain stability and remain competitive in the medium to long term.

The investments undertaken now during these turbulent times will support the auto industry to achieve the end state of a smart factory as depicted below over a period of 5 -10 years depending on the size, current digital maturity and investments.
Vinay Raghunath
EY India Consulting AMI Leader

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The current stress on liquidity and factory operations due to the disruption caused by COVID-19 will most certainly accelerate the digitization of shop floors and enable auto manufacturers to become proactive, agile, flexible and adaptive.

About this article

By Vinay Raghunath

EY India Consulting AMI Leader

Passionate about Automotive, Industrial and Consumer Goods. Experience in route-to-market, supply chain, post-merger integration, digital and analytics. Squash player. Curious about Indian history.

Related topics Automotive Mobility COVID-19