Slowdown Puts a Crimp in Operations

Users of sheet metal products cut across a wide swath of industries—from consumer durables and automobiles, to machinery and switchgear enclosures. Consequently, the segment of the manufacturing industry that services them is fairly varied—and widely dispersed through the country.  Many sheet metal working enterprises are small, and have limited capabilities—and often teaming up with other suppliers and service providers to deliver orders.

Powered by the boom in the economy during 2008, the major players in the industry expanded capacities and added new capabilities. Now, the recession has left them reeling with unused facilities. The problem is especially acute amongst suppliers to the automotive components industry. The auto components sector consumes almost 30 per cent of the total production of sheet metal products. The drastic decline in exports and a significant downturn in the domestic market has hit all auto component makers hard—with a  cascading effect on sheet metal suppliers.

Tighter consumer credit has also reduced demand for panels and enclosures used in consumer durables like white goods and electronics. Add to this the slowdown in new projects in infrastructure, general engineering, and fabrication industry—you have a recipe for disaster. According to T S Sundaresan, Secretary General of the Indian Ferro Alloy Producers Association, “There's approximately 25 to 30 per cent drop in demand for sheet metal.”  The drop in demand has also compelled sheet metal product makers to reduce prices in a bid to spur off take, and reduce piled up inventories. “Prices of finished sheet metal products have declined by 5 to 10 per cent,” concedes Mallikarjuna S, Senior Manager for Marketing at Rittal India, a large manufacturer of enclosures. According to industry sources, overall production volumes have dropped almost by a quarter. Most companies also face the problem of liquidating inventories accumulated when material prices were higher—and incurring substantial losses.

New Capacities Come on Stream
In the last one year, at least three major sheet metal fabrication companies have boosted capacities. Rittal enhanced its annual production capacity (junction boxes from 100,000 to 200,000, enclosures from 50,000 to 100,000, and panels from 5,000 units to 7,000 units). APW President Systems (APWPS), a manufacturer of infrastructure systems for IT, telecom and general electronics customers announced an expansion in its manufacturing facility at Bangalore. The company is adding a new plating facility and additional factory premises. According to the company, the new plating facility will have an installed capacity of 300,000 units, and will go on stream by September 2009.

Tata Ryerson Ltd. (TRyL), a joint venture between Tata Steel and US based Ryerson Inc, has set up a service centre in Tada, about 70 km from Chennai, in the state of Andhra Pradesh at an investment of 45 crores. This new facility will perform plate processing and fabrication for Caterpillar’s construction and earth moving equipment, and is in addition to the company’s existing processing facilities in Jamshedpur, Pune and Faridabad.
Most of these new capacities were planned prior to the current recession While currently the total volume for sheet metal products is 10 million tonnes, “Installed capacity over the next five years is pegged at 20 million tonnes,” says Sandipan Chakraborty, Managing Director of Tata Ryerson.

Leveraging technology
One of the beneficial impacts of international outsourcing is that Indian companies have updated their technology to global norms. This is most evident in the auto ancillary sector, because of which companies in the metal working sector have added new capabilities to their repertoire. “There's an increasing level of process automation,” confirms Elias.

The focus is on using software for designing (CAD) and manufacturing (CAM), and using computer aided engineering (CAE) tools. There is also an increasing use of robots, especially in cutting and jointing processes. “Sophisticated CNC equipment is being used to improve accuracy of welding and to significantly increase throughput significantly. This yields added quality and consistency,” says Elias. Rittal also employs robots for a range of activities, including loading and unloading of sheet metal components into CNC machines. According to Prasanna Kumar, Deputy General Manager of engineering at Rittal, this results in “fixed cycle times, maximum utilization of machines, and better control over entire process.”

The use of CAD systems is most evident in turret punching machines. “With today’s CAD systems, the programmer simply uses a mouse to pick a tool from a tool library, and generate the code required for that portion,” explains D K Sarma, Assistant General Manager-Marketing, at ESAB India. Commonly known as G-Code, such programming systems have eliminated the need to calculate X and Y coordinates of part features. The G-Code can be sent directly to the machine on the shop floor over a LAN, eliminating the need for hand delivered paper tape or even a floppy disk. “Turrets have come a long way over the years, and it’s exciting to think of things to come,” adds Sarma.
“While these changes may have resulted in substantial improvements, they continue to demand extraordinary levels of effort.  Managers are still left with the uncomfortable feeling that they are falling short of expectations!” remarks Elias. “Simply re-engineering processes and local improvements are insufficient. We are being forced to challenge the basic assumptions on which management practices are based and decisions are made,” he adds.

Shoring Up Demand
To combat the current crisis, companies are adopting all kinds of innovative measures. According to Chakraborty, “Companies now have to deal with credit problems. Customers want their suppliers to extend credit lines, but this puts pressure on our working capital.” Rittal is offering extended credit lines to its customers along, and promising immediate delivery from factory stock. Mallikarjuna admits, “There is pressure on companies to close ongoing deals to maintain market share.”  

APWPS has opted to focus on areas that are still exhibiting growth despite the general slowdown. “While there has been a notable slowdown in IT and general electronics, the telecom sector continues to offer good growth potential. During 2008-09, production of telecom equipment is expected to reach Rs. 518,000 million. But in the context of the current crisis we expect to see much slower growth across the telecom sector later this year,” explains E Elias, Managing Director of APWPS. The company has also widened its customer focus to include SMBs. “Indian SMBs are expected to be a major growth generator. Last year, SMBs are estimated to have invested Rs. 32,000 crore on enhancing their connectivity infrastructure (includes electronic infrastructure for IT and telecom). We expect this growth to slow down moderately due to the economic recession, but it would still be of the order of about Rs. 25,000 crores,” Elias adds.

Elaborating on TRyL’s strategy to beat the downturn, Chakraborty says we are “Close to major OEMs like Caterpillar at Thiruvallur near Chennai, Komatsu in Chennai, Volvo, L&T-Komatsu near Bangalore, and Telcon in Dharwad. Our Tada service center for plate processing and fabrication is a strategic fit for these equipment manufacturers.”   

While the bigger companies have the financial muscle to ride out the downturn, the SME sector has been hard hit. Of the total annual volume of 10 million tonnes of sheet metal products, only about 4 million tonnes is contributed by the organised sector. The remainder is produced by small units, and are largely sustained by job work orders. Most of these units are now getting fewer orders, and some have already shut shop. “New orders are very few owing to the slowdown. We are using this slack period to upgrade worker skills and obtain strategic certification,” says Captain D R Khobare, Managing Director of Fine Blanking Pvt. Ltd, a SME unit specialising in minting blanks for the auto and electrical industry.

While the ongoing recession may have resulted in excess capacities, most companies are hopeful of a turnaround, and expect demand to bounce revive in the next quarter. “We think this is the best time to invest in capacity expansion to be ready for the upswing,” says Elias.