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Piaggio to revisit India supply chain model for more options post Covid

Murali Gopalan | Updated on June 25, 2020 Published on June 25, 2020

Diego Graffi, MD & CEO, Piaggio Vehicles

Italian automaker believes that de-risking is the best way forward

Diego Graffi believes his company must prepare a de-risk model for sourcing components after the havoc created by Covid-19.

“We need to de-risk our internal supply chain going forward. This terrible situation has impacted operations and, in the mid to long term, we must have multiple sources within India or overseas,” says the MD & CEO of Piaggio Vehicles.

Based in Baramati, Maharashtra, the company makes the Vespa and Aprilia brand of two-wheelers as well as three-wheeled cargo carriers. It has been tough going for Piaggio since the lockdown began in late March, with the supply chain getting into a tailspin making sourcing of vehicle components difficult.

This was largely on account of the regulations imposed in different parts of the country where infections were spiralling out of control. “We need to have multiple sources of supply going forward. There will be higher investments as a result but it is still important to maintain continuity in production,” says Graffi.

Even while Covid-19 continues to be on the rampage, he believes that the spirit of globalisation must stay intact even as large parts of the world lie battered. “Globalisation is something that cannot be stopped even though there could be a change of strategy in terms of de-risking for some sectors in the long term,” says Graffi.

As he explains, all stakeholders are operating in a global industry which cannot change overnight due to this pandemic. “We need to find the right balance between what is the need of globalisation coupled with the advantages for certain sectors to go local. The two aspects are not in contradiction,” insists Graffi.

He points out to the case of Piaggio Vehicles which has “always been a strong advocate of Make in India”. This stems from the belief that this country’s automotive industry has one of the “highest levels of competencies” and has done particularly well for itself in the last few years. “We export a lot of our production globally and believe that India is a fantastic hub in terms of balancing quality and costs. Yet, we could go local in terms of supply chain and taking advantage of knowhow available here,” explains Graffi. In short, globalisation is a trend “which is not reversible” right now.

‘Dramatic situations’

While the unlocking of the Indian economy has kicked off in right earnest, the Piaggio chief has clearly been disheartened by the events of the last few months. Automakers operating in Maharashtra, for instance, had to contend with a host of regulations and ad hoc announcements during the lockdown. It was a virtual nightmare for supply chain continuity as component makers were housed in containment zones and had their backs to the wall.

This is what prompts Graffi to say that for such “dramatic situations”, there needs to be a common guideline pan-India. “There should be one common way to look at the matter and one guideline coming from the Centre. This should be followed at the local level without so many interpretations,” he says.

The Maharashtra experience, for instance, was a huge challenge for automakers. The constant changes in rules only added to the pressure of handling “the complexity of safety” at work. Things are apparently a lot better now but there is no telling what could happen in the coming weeks if cases continue to rise. “Automotive is an ecosystem where vendors and dealers must be in sync. There is no point producing and keeping vehicles idle when dealerships are closed. It is important for the entire ecosystem to be up and about,” says Graffi. It was not too long ago when his hometown, Italy, was constantly in the news for its huge numbers of infections and deaths. Today, however, while Italy is opening up everything, things are not quite the same in India, with some States extending the lockdown. “Italy took control of the situation after two months of the lockdown and is definitely much better today than what it was when the virus first broke out,” says Graffi.

In his view, the difference in India is that the two months of the lockdown have not taken the same country to the same level of confidence. On the contrary, the situation only looks bleaker with infections on the rise. While Piaggio’s operations opened up in Europe and ASEAN, India continues to be an area of concern.

Graffi is quick to add, though, that the lockdown period definitely helped contain the spread of the virus to an extent. “There was really no other choice given the landscape of India and its population which makes it different from the world,” he says.

However, the goal of bringing the situation under control does not seem to have happened with places like Mumbai and other big cities caught in the midst of a spiral. “Lockdown is not an option and this country will have to learn to live with the virus somehow or the other. This is important for everyone to understand,” reiterates Graffi. He concedes that it is perfectly natural for people to get paranoid about such a massive outbreak that has had the world paralysed. “I think it is a logical human reaction to such tragedy in terms of being afraid and mixing with other people,” he says.

This fear will continue in the coming months since the virus is not going to disappear but “it is part of what we have to manage”. As Graffi points out, keeping everything closed is not the solution and will only drive the economy into a deeper mess.

Italian experience

“Here in India, we at Piaggio look at Italy’s experience and try to apply guidelines. In a way, the fact that we were coming after Italy for Covid-19 was an advantage,” he says. Italy had also planned for what was going to happen 15 days prior in terms of dos and don’ts .

The Piaggio chief is upbeat about the company’s export business from India, especially in two-wheelers, where Africa and ASEAN offer potential. It is his conviction that these two regions can replicate the experience of India with even bigger numbers. He is also optimistic that Covid-19 is a “temporary situation which will fade away” and demand will eventually return. “We need to be prepared when that happens,” says Graffi.

Yet, there is a word of caution on taking things one at a time in terms of new policies. For instance, there have been “huge changes” in automotive regulations for two-wheelers and cars in a short span of time.

“We have met these challenges right from BS-VI to regulations like ABS, CBS and insurance successfully…there must now be a period of stability,” he says. This is important since all this takes a toll on costs and investments on initiatives like BS-VI should be recovered.

“For the next 4-5 years, there should ideally be no changes in regulations and ensure only stability. BS-VI is almost at par with Europe and India has done a big thing already with emissions and safety norms,” adds Graffi. After the storm, it is the calm that Indian automakers are now looking forward to.

Published on June 25, 2020
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