Archives: Vol. XXX No. 6, July 1-15, 2020

The Chaos in Chennai’s Supply Chain

by The Editor

We are opening up is the cry that is doing the rounds in the city. Temples and other religious establishments, restaurants, offices, factories and hairdressing saloons are all opening up after the lockdown. The number of COVID afflicted patients is also going up but it is now more or less agreed that living with the prevalence of this virus may be the new way of life. All we need to do at present is to maintain physical distance from others, wash our hands frequently and wear masks. But while people may be ready to resume their various occupations it is quite clear that it may be several months before business returns to normal.

Leave aside the demand side of things – that is for others to worry about. Most factories are at present facing supply-side shortages. There is firstly the shortage of manpower. Most companies in view of the continuing downturn before the pandemic (remember those halcyon days?) had already cut down on contract staff and were depending on workers on their rolls. Now, the mandatory cut in staff strength per shift – to maintain physical distancing, has reduced productivity. There is also the added cost of running three shifts for the same production that came out of two.

The next question is as to whether it is worthwhile at all to resume production. There is always the fear of infection among the workforce and then the consequent sealing of the premises, etc. Many of the smaller manufacturing establishments are unwilling to risk this and have not opened up at all. These form an integral part of the vast supply-side ecosystem of Chennai and their continued closure has choked supply lines. It must also be remembered here that these smaller units depend quite a bit on contract (read migrant) labour, which contingent has all but vanished from the city. The same applies to facilities such as restaurants, retail shops and beauty parlours. None of them may see their workforce return in a hurry.

The arrival of consignments by air and sea have also been disrupted as is the case with rail shipment as well. In the absence of vital raw material, many plants are seeing huge disruptions in what were routine manufacturing activities earlier. The extra time now spent in disinfecting at the port and the air cargo terminals is also adding to the time it takes for consignments to be released.

All of these delays and the extra costs incurred in just about any activity, are pushing up expenses in manufacturing, all of which will eventually reflect in the final price of the finished product. Chennai’s largely automotive sector based businesses are already operating in very price sensitive markets with margins coming in from larger volumes of spares being sold in the retail. With that market as good as non-existent and with higher prices, it becomes a moot point as to whether many of these entities will remain viable.