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Cummins India despatches parts to China as coronavirus rages on

Murali Gopalan | Updated on March 05, 2020

Business opportunity crops up during an adversity

Cummins India is despatching critical engine parts to China as part of an effort to bridge shortage requirements amid the coronavirus outbreak. “This setback in China with the virus has opened up doors for us to meet some emergency requirements where we are exporting products,” says Ashwath Ram, Managing Director, Cummins India and Tata Cummins.

These parts were being originally sourced from the Wuhan area, which is now the epicentre of the coronavirus. The fact that India is now helping out marks a big step forward in Cummins’ operations here.

“This is the first time that the products we are making now are on par with global markets, which largely means Europe and the US. This then opens the door for us to many new opportunities,” adds Ram.

It has been made possible thanks to the BS-VI emission norms which come into force from April 2020 and this is where Tata Motors and Cummins pushed the envelope aggressively to make this a reality.

“This has been done in record time with more stringent validation and more miles run in real world India conditions than ever before. We have run 4x the number of miles, hours and warranty periods we have ever done before,” says Ram.

According to him, people have been working 24x7 to meet the deadline. After all, this was no easy task, especially with India jumping directly from BS-IV to BS-VI in barely 36 months. This has never been attempted elsewhere and even in China, where new emission norms were introduced last year, their implementation is happening across a 30-month timeframe nationwide. Ram says the India teams which worked on this marathon transition are confident that the technology, innovation, work done on cost management and lessons of durability/reliability brought from other markets here should help overcome obstacles even in a tough market scenario.

It is also this capability in BS-VI that has allowed Cummins India to meet the needs of China, especially in a troubled time now, when Covid-19 is threatening to disrupt the automotive supply chain globally.

Scale advantage

“The scale advantage that we talk about is finally starting to come together, where we actually try this around the world…where we can take products to our network of plants that we have been depending on, where the perfect cost scenario is there,” says Srikanth Padmanabhan, President, Engine Business, Cummins Inc (US).

It is also his view that because of tariffs and such unpredictable situations like the virus, as much as companies want the lowest cost, “what you want is flexibility and resilience”. “Resilience often comes when you have sources that you are allowed to capitalise on, which we are not able to do before since technology did not come together,” says Padmanabhan.

Clearly, it is a big moment for Cummins India and the BS-VI milestone means that there could be other such opportunities emerging from the ASEAN region and other countries which are also moving to tighter emission norms. It is also likely that the cost efficiencies achieved in India could be leveraged to meet the needs of developed markets in Europe. Yet, the rapid spread of the coronavirus could scuttle plans of a host of automakers which are hugely dependent on China. Even Cummins has made a reference to this in its latest annual report. “Our manufacturing and supply chain abilities may be adversely impacted by an extended shutdown of our operations in China due to the recent coronavirus outbreak,” it states.

The report traces the beginning of this nightmare to December 2019, when a novel strain of coronavirus began to impact the population of Wuhan, China, “where several of our manufacturing and distribution facilities are located”.

In late January 2020, continues the report, in an effort to contain the spread of the virus, “maintain the well-being of our employees and in accordance with governmental requirements, we closed several production and distribution facilities in the Hubei Provence of China”. According to Cummins, it relies on these facilities to support its business in China, as well as to export components for use in products in other parts of the world. While the closures and limitations on movement in the region are expected to be temporary, the duration of the production and supply chain disruption, and related financial impact, cannot be estimated at this time, states the company.

“Should the production and distribution closures continue for an extended period of time, the impact on our supply chain in China and globally could have a material adverse effect on our results of operations and cash flows,” it cautions.

This is not only true for Cummins but for a host of automakers and their suppliers — all of them will be keeping their fingers crossed over the next few months.

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Published on March 05, 2020
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