What is the volume size of the Indian Furniture industry?
The Indian furniture industry is still 85% in the unorganised sector, so exact numbers are only estimates, but it is 0.5% of the GDP vs. 2% in developed nations. This means if we are a 4 trillion dollar economy, this would be around 1.5 lac crore per year.
Skilled manpower seems to be a challenge for our industry. What is the number of skilled people required, and what is the growth trajectory?
The labour market will grow at 1/3rd the GDP..if we grow at 7.5% pa, we will need 2.5% growth in labour. But the population rise is 0.8%. This means there is a deficit of 2.5-0.8=1.7%. Assuming our industry has 50 lac carpenters, we will require 125000 people in the job market. Assuming the ratio of the new workers who will naturally come to this industry is 0.8%, there is still a deficit of 85000 vacancies per year. If we do not plug this, there will be poaching, and the labour cost will increase. The value addition will be zero, and as the cost increases, so will the selling price. Our competitors across the borders will offer a cheaper product, and the Indian manufacturers will lose.
How do we overcome this challenge?
We need to build a pipeline of skilled labour. And the trainee cannot pay. So, it has to be an industry-led initiative or CSR initiative. In soft skills, you can have 60 people in a room, but in hard skills, ten should be the classroom number, as the training needs to be practical. You cannot have one student using the machine and the other nine standing and watching him do it. This will not lead to quality skilled people. We need to have more machines in the centre of excellence. If we need 30 days per student and a batch size of 10 for 4 hrs/day = 20 students per month/training centre = 240 / year, then we require 500+ training centres for orientation, skilling, upskilling, advanced training and skills competition.
What should the factory owner's strategy be?
Smaller workshops should have a Value-based strategy. Large-sized workshops should have a volume-based approach.
Value-based means the batch size is one; designs are innovative and customised; machines are effective with low set-up time and high gross margins. Once you have achieved the value, move towards volume.
Volume-based means batch sizes are larger, designs are standard, machines are efficient with low cycle time, and gross margins can be aggressive. Once you have achieved the volume, move towards value addition.
Eventually, the focus should be on achieving both. Don't be in the quadrant where you don't have high volume and do a low-value job, as the risk of failure is the highest in this segment.
Design your 5-year cash flow from where, how and when the money will come in and move out, 5-year P&L on how you will budget, forecast your expenses and revenue and at what gross and net margins, and how will the 5 year Balance sheet look like. Write down the top SWOTs what you need to do to enhance strength, reduce weaknesses, tap opportunities, and mitigate threats. Who will do it, and when will he do it? Brainstorm and list the risks and write the solutions to mitigate the risks.
What is the mantra to scale and sustain?
Focus on cash flow to keep the gross margins intact to achieve your net margins then scale and sustain the growth. This is sequential. If you lose focus on the first step, you will lose operational efficiency, gross margin, and thus lose your net margin, cannot offer growth to the team or scale, leading to attrition and will not be able to sustain. To sustain remember do not in any business or process that is against human nature, environment, health and safety and/or government law.