Celerity May - June 2020 by Celerity Supply Chain Tribe

SUPPLYCHAINTRIBE.COM May - June 2020 Volume 4 Issue 3 For private circulation only

INSIDE FIGHTING the COVID-19 BATTLE Making SUPPLY CHAIN FUTURE READY CIRCULAR KARMA

WHEELS OF FORTUNE

Greater shifts are required in business models as Multi-modal logistics takes centre-stage

PUBLISHER’S NOTE

THIS TOO SHALL PASS Dear Readers, It has been a tough month for everyone. Unprecedented in nature. We all are a part of and witnessing history in the making. How the history pans out is upto us and our resilience. Easier said than done though. India has had a slower curve of infection, but the consequences of the lockdown have been severe. In our efforts to balance lives v/s livelihood, stringent clauses have been enforced which has left MSMEs and manufacturing as a sector in the lurch. These clauses have made it unviable to open factories. While the next few months also may look bleak, this adversity had brought with it many opportunities for India. China’s loss could be India’s gain. The government, MSMEs, industry leaders, bankers, lenders and civic authorities need to come together to provide the support required for India to be able to fill the void left by China. As we near May 03, there could be an extended lockdown especially in red zone areas. We all must make the efforts to ensure that our economy does not become supine. After all, we must look at this as a short-term aberration. Once this passes, a lot of global manufacturing should move to India, thus generating greater employment opportunities. We simply must come up with smarter solutions because the light is brighter at the end of the tunnel. Remember THIS TOO SHALL PASS & collectively WE as the MOVERS of the economy, will tide through the tough times.

Charulata Bansal Publisher Charulata.bansal@celerityin.com www.supplychaintribe.com

Published by Charulata Bansal on behalf of Celerity India Marketing Services Edited by: Prerna Lodaya • e-mail: prerna.lodaya@celerityin.com Designed by: Lakshminarayanan G • e-mail: lakshdesign@gmail.com Printed by: Xposures, A 210, Byculla Service Industrial Estate, D K Cross Road, Byculla, Mumbai- 400027. Logistics Partner: Blue Dart Express Limited

CONTENTS

May - June 2020 Volume 4 Issue 3

COVER STORY

WHEELS OF FORTUNE Logistics is a $3.4 trillion industry globally and a robust channel of transport supported by infrastructure, technology & innovation in multimodal transport can substantially reduce cost and increase competitive advantage for exports. A Multimodal Transport System uses a combination of more than one mode of transport and integrates the scope and viability of simultaneous use of various interlinked network of distribution and logistics channels. This cover story delves with all such myriad challenges and present companies an opportunity to introspect and transform their supply chains…

10 OPINION Fighting The Covid-19 Battle

“The COVID-19 outbreak has shown the industry how delicate the supply chain has become,” stresses Senthil Kumar Subbiah, Senior Research Analyst, Transportation & Logistics Practice, Frost & Sullivan.

INTERVIEWS

6 From Mines to Markets

Sukanta Das, Chief Logistics Officer, Hindalco Ltd., shares that Hindalco aspires to excel in the effective management of resources while minimizing our ecological footprint through improved supply chain operations.

12 Building a Resilient Supply Chain

Rajeev Ranjan, Supply Chain & Route to Market (RTM) Consultant, believes that business costs of events like Covid-19 and few other unforeseen events in recent past, has made it clear that investing in resilient supply chain is an absolute must.

26 Creating the Necessary Standards Ravi Mathur, CEO, GS1 India, highlights that GS1 is working to achieve fully accurate, real-time visibility throughout the supply chain, from source to consumer.

32 FOCUS Circular Karma

Artificial Intelligence is helping supply chains to be economically circular, writes Raghavan Santhanam, Senior Consultant, Stratadigm.

FEATURE

30 Audit in Logistics & Supply Chain

Objective of Logistics Audit is to examine organization’s competitiveness and robustness of logistics operations, efficiency and cost, states Vikash Khatri, Founder, Aviral Consulting Pvt Ltd.

36 The Supply Chain Leader of Tomorrow

It is a time to adopt a different perspective on managing business functions, stresses Alagu Balaraman, Director & Founder, Augmented SCM and MD, CGN Global India.

Editor: Prerna Lodaya DISCLAIMER: This magazine is being published on the condition and understanding that the information, comments and views it contains are merely for guidance and reference and must not be taken as having the authority of, or being binding in any way on, the author, editors, publishers who do not take any responsibility whatsoever for any loss, damage or distress to any person on account of any action taken or not taken on the basis of this publication. Despite all the care taken, errors or omissions may have crept inadvertently into this publication. The publisher shall be obliged if any such error or omission is brought to her notice for possible correction in the next edition. The views expressed here are solely those of the author in his private/professional capacity and do not in any way represent the views of the publisher. All trademarks, products, pictures, copyrights, registered marks, patents, logos, holograms and names belong to the respective owners. The publication will entertain no claims on the above. No part of this publication can be reproduced or transmitted in any form or by any means, without prior permission of the publisher. All disputes are subject to the exclusive jurisdiction of competent courts and forums in Mumbai only.

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INTERVIEW

FROM MINES TO MARKETS “As one of the world’s largest aluminium producers, Hindalco aspires to excel in the effective management of resources while minimizing our ecological footprint through improved supply chain operations,” Sukanta Das, Chief Logistics Officer, Hindalco Ltd., during an interview…

How does the Hindalco aluminium value chain work? Hindalco runs fully integrated aluminium operations in India, from mining to aluminium semi-fabricated products. Apart from aluminium ingots, sheets, wire rods and billets, we also make aluminium foil for food and pharma packaging, and branded roof and window solutions. Hindalco produces 1.3 million tons of aluminium per annum. Our operations are spread across the country based on where our key inputs and markets are located. The key inputs for aluminium production are bauxite and power. We operate bauxite mines and coal-based captive power plants that supply our aluminium smelters. One ton of aluminium will need about 6 tons of bauxite and roughly 12 tons of coal (for power generation). Most of the bauxite is sourced from our captive

mines, the rest from outside suppliers.

continuity plan in place. We were ready

Coal is sourced mostly from Coal India and some from our own mines. So that is the scope of our supply chain footprint. As a thumb rule, producing and selling one ton of aluminium calls for transporting 22 tons of material, including solid wastes generated in the process. At Hindalco, we use a variety of transportation solutions such as longdistance conveyors (LDC), ropeways, road, rail and coastal. Since our markets are both domestic and international, we use multi-modal transportation to reach to our customers. The coronavirus outbreak has hugely affected global supply chains. We face the challenge of keeping human lives safe and protected while trying to secure our economic lifelines. At Hindalco, we always have a business

for the challenge, otherwise it would have been a huge problem. There is no room for errors when you are dealing with continuous process plants like an aluminium smelter.

Digitalization is going to be the big game changer. It will make the entire supply chain more visible, flexible and agile. Organizations will need to understand the extent of digitalization they need in order to harness optimal benefits. Adoption and adaption are both critical and that’s where companies will face the greatest headwinds. 6 CELERITY May - June 2020

Sukanta Das has over 22 years of experience in back and front-end operations, encompassing logistics, retail, media, e-commerce and the manufacturing industries. After completing his graduation in Commerce, he pursued a postgraduation diploma in Logistics from IISWBM, Kolkata.

How do you manage the daunting task? I believe any logistics operation, irrespective of the industry or sector, requires agility and flexibility. To handle challenges and market pressures, you need to have a robust monitoring mechanism and stay ahead of the curve. The complexities in our operations arise in terms of handling different types of products, modes of transportation and large volumes. We have plants situated in remote locations to be close to the mines. In such locations, major movement is through rail. Most of our plants have their own railway sidings. We have laid about 10-12 km of track to connect plants with the main line and we have our own fleet of rakes, BTAP rakes for Alumina and a BTCS rake for Caustic soda. There is always an element of uncertainty and delay when it comes to moving goods through rail. We have deployed our own traffic managers across railway divisions to ensure smooth movement and rigorous monitoring during transit. These traffic managers co-ordinate with railway divisions where our rakes are in operation so as to get real-time information. Our other major product Copper

I think a logistician’s core KRA has always been to work at a war footing. Nothing can illustrate this statement better than the current scenario of a nation-wide lockdown. The work doesn’t stop and we have to manage the entire supply chain while working from home. As a continuous process industry, our refineries and smelters need to run even during the lockdown. We have to ensure that all input materials reach the plants and finished goods are evacuated for exports. It is heartening that even in this volatile period, we have managed to ensure seamless production and higher export sales. is a valuable commodity. Copper is transported in convoys, and we deploy pilot cars that travel with the consignment. The point I am making

Environmental, Social and Governance (ESG) criteria such as health and safety, environmental standards, working conditions, labor rights, and so on. The

finished goods. This entails tracking truck movements starting from the refineries to smelters to downstream plants to warehouses and customers.

is that there is no ‘One Size Fits All’ scenario. In many of our operations, we are setting supply chain benchmarks. We have segregated the supply chain into streamlined subsets to deal quickly even with unforeseen complexities. In continuous process industries, we need to always have a Plan B ready, while keeping a firm eye on what’s happening on the ground and staying in touch with our people to manage any eventualities.

ESG parameters constitute a weightage of a minimum of 25% in our supplier evaluation process. Based on the score received, suppliers are categorized as Identified Vendors (those willing to work with us), Empanelled Vendors (those eligible for trial orders) and Approved Vendors (those who are approved after evaluation). Our sustainability framework involves future proofing by creating value for all our stakeholders. Suppliers are a key part of our ecosystem and we lay great emphasis on sustainable supply chain management. This has been a priority in our materiality matrix and our customers also understand this. We have framed our Supply Chain and Procurement Policy such that our suppliers can align themselves with us on sustainability aspects such as resource conservation, use of alternative materials and renewable energy, water stewardship, safety, health, adherence to human rights across the supply chain. In short, we are creating an environment that supports our supply chain partners in their sustainability journey.

This technology has provided greater visibility on finished goods to both internal and external customers. Other benefits include better operational control, faster damage control in case of accidents and optimal route usages. We have also deployed Blockchain for smart contracts at the foils plant. Workers, suppliers and Hindalco are connected on a single, transparent and incorruptible digital ledger of economic transactions, which records financial transactions and other important developments through a smart contract. This helps users to identify and mitigate inefficiencies across the value chain.

Please enlighten us about your endeavors towards streamlining supply management globally. As one of the world’s largest aluminium producers, Hindalco aspires to excel in the effective management of resources while minimizing our ecological footprint through improved supply chain operations. To give you a sense of the numbers, till last year, we were associated with more than 11,220 suppliers in the Aluminium Business and about 2,450 in the Copper Business. Most of our suppliers are based in India, the rest are spread across China, Japan, Togo, Indonesia and South Africa. Currently 34% of our suppliers have ISO 14001 certification. We intend to increase this number by 5% to 10% by next year. We have a screening process for all suppliers. There is due diligence to look at the commercial feasibility of collaboration and to evaluate suppliers on parameters such as price competitiveness, quality, response time,

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How are you planning to drive efficiency through technology? At Hindalco, we have been adopting best-in-class digital technologies to achieve higher visibility, speed and efficiency across our processes. We are leveraging analytics for data-driven process management. For instance, we have GPS-based logistics solutions for

Share with us your green trailer strategy. Hindalco's aluminium trailers and bulkers are the greener, stronger and smarter alternative to conventional transportation. The idea began as a small discussion to explore the benefits of aluminium in the transportation and logistics industry. Within ten months, the green trailer became a big step towards revolutionizing the transport industry. The Hindalco trailer is made from high strength aluminium alloy. This means that a 34-foot long aluminium trailer is actually 50% lighter and weighs 2.5 tons less than an equivalent-sized steel trailer. The lighter weight makes it highly fuelefficient with each trailer saving up to 15,000 litres of fuel. Each trailer can potentially carry a corresponding extra

INTERVIEW load of 2.5 tons per trip, thus providing additional revenue and other business benefits to the operator. It can ferry a wide range of materials such as cement, alumina, fly ash, grains, flour, and even heavier material such as steel coils and cylinders. The reduction in total weight also makes it environment-friendly as it gives off 25 tons less GHGs and helps in achieving BS-VI emission targets. Plus, aluminium is entirely recyclable, which means the trailer can be recycled over and over again. It has a 70% higher scrap value, which makes it more costadvantageous over its lifecycle. It’s the unbeatable combination of improved vehicle efficiency and reduction of carbon footprint that makes the aluminium trailer a smart, truly sustainable product.

How did this idea strike you? Over the past decade, India has seen improvements in the road network and rapid growth in the logistics and freight industry. A big component of the freight industry are the trailers that ply the roads 24x7. Today, domestic trailer production is estimated to be around 20,000 units per annum. Most of these are made of steel. The heavy weight makes them slow and increases fuel consumption which leads to more greenhouse gas (GHG) emissions, and therefore a higher carbon footprint. The domestic trailer market is expected to grow at 10-12% annually. All of this meant there was an urgent need to design a sustainable alternative to traditional commercial vehicles. We first started exploring the idea of an indigenously built aluminium bulker. Like the trailer, the aluminium bulker is lighter in weight and enjoys a longer life with a low cost of maintenance. For instance, a 30 cubic meter bulker is two tons lighter than an MS bulker of the same size. The bulker is 100% recyclable and also eco-friendly. The lighter weight puts less strain on the engine and tyres, making it more fuel-efficient, adding to the eco-friendly properties of the bulker. Plus, it is corrosion resistant which increases its longevity and reduces maintenance costs. While the aluminium bulker costs twice as much as a traditional bulker, it is able to earn this back quickly because it can transport an extra 2 tons of material in every trip. This

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INTERVIEW

Over the past decade, India has seen improvements in the road network and rapid growth in the logistics and freight industry. A big component of the freight industry are the trailers that ply the roads 24x7. Today, domestic trailer production is estimated to be around 20,000 units per annum. Most of these are made of steel. The heavy weight makes them slow and increases fuel consumption which leads to more greenhouse gas (GHG) emissions, and therefore a higher carbon footprint. The domestic trailer market is expected to grow at 10-12% annually. translates into extra earnings which are almost three times the investment. By developing the aluminium bulker, Hindalco showed that the transport fleet operators could enjoy the same benefits of aluminium usage that highend passenger vehicles have enjoyed for years.

What were the challenges that came your way? The green bulker and trailer initiative started with Hindalco exploring ways to increase India’s per capita consumption of aluminium. When we looked at transport solutions, we met a lot of roadblocks. A big challenge was the low-risk appetite of auto OEMs. To get beyond this, Hindalco decided to fast-track product development by working with unorganized players in the commercial vehicle segment. But this

was easier said than done as we had no expertise in developing transport solutions. The first challenge was to identify a fabricator. The company needed someone willing to work with aluminium fabrication, as it requires a different kind of expertise. Hindalco spoke to several fabricators and then shortlisted a few who were willing to take the big leap. We partnered with UltraTech Cement, another Aditya Birla Group company, who helped these fabricators get firm orders from transporters and logistics companies. Since these were first-of-their-kind products, the idea was to get users on board for testing and checking the commercial viability. Hindalco worked behind-the-scenes to ensure that the fabricators had no problems with product development and

supply of aluminium. We were handholding whenever required. To make the development process easier, Hindalco created a kit of various aluminium components and delivered it to the fabricator in the requisite shapes and sizes. The contribution of these fabricators cannot be overemphasized. They were new to aluminium welding and did not have the infrastructure for it. Hindalco introduced these fabricators to processes such as inert gas welding and plasma /laser cutting – prerequisites to working with aluminium. We arranged for the first aluminium welding machine to be imported and also the training of the fabricator’s teams. Handling aluminium alloy is not easy. Improper handling leads to scratches and dents. The fabricators were trained on how to work with

results. We are seeing a continuous rise in orders and enquiries. In less than a year, over ten bulkers and four trailers have been sold. Now we are looking at recreating this ecosystem across India. It’s an exciting initiative. The indigenously developed aluminium trailer and the bulker are a testament to Hindalco’s commitment to introduce sustainable, engineered transport solutions. More importantly, these products exemplify Hindalco’s purpose of making products that are greener, stronger and smarter.

aluminium to preserve its metallic lustre. An entire ecosystem comprising fabricators, welding expertise, vendors for aluminium joineries (nuts/bolts) and service support was created so that buyers would have no concerns around timely repairs and availability of spares. It was a long hard grind, but all the effort has now started showing

In logistics, every product and industry comes with inherent challenges and nuances. One needs to understand what’s required for that product to be moved in a seamless manner. Before joining Hindalco, I had never worked in a manufacturing organization, so there was a lot of learning and evolving here. I had a 3-month

Your stint in supply chain as you have been a part of various challenging sectors… Challenges excite me and keep me going. If there is nothing new to learn in my job, then it doesn’t help me grow or give back to the organization.

Hindalco’s aluminium trailers and bulkers are the greener, stronger and smarter alternative to conventional transportation. The idea began as a small discussion to explore the benefits of aluminium in the transportation and logistics industry. Within ten months, the green trailer became a big step towards revolutionizing the transport industry.

induction period to understand the manufacturing process, which helped me immensely in devising a productdriven supply chain. I experienced a similar learning journey years ago when I saw the logistics dynamics relating to retail and e-commerce boom from close quarters. So at every juncture, you experience newer paradigms in order to evolve as a professional and that’s how it should be.

Your most challenging project at Hindalco… I think a logistician’s core KRA has always been to work at a war footing. Nothing can illustrate this statement better than the current scenario of a nation-wide lockdown. The work doesn’t stop and we have to manage the entire supply chain while working from home. As a continuous process industry, our refineries and smelters need to run even during the lockdown. We have to ensure that all input materials reach the plants and finished goods are evacuated for exports. It is heartening that even in this volatile period, we have managed to ensure seamless production and higher export sales. And yet, every day has been challenging – there were times when we couldn’t move anything. There was confusion on the ground as there were multiple directives from the central and state governments. In such a situation, we had to quickly find alternative solutions to overcome unexpected obstacles. We made maximum use of railways because inter-state movement on roads is very limited. We had to go that extra mile and get things under control in the shortest time possible by liaising with government officials and local administrations. One must remember that tough times call for tough measures and we need to be ready for it.

Going forward, how do you see India’s supply chain evolving? Digitalization is going to be the big game changer. It will make the entire supply chain more visible, flexible and agile. Organizations will need to understand the extent of digitalization they need in order to harness optimal benefits. Adoption and adaption are both critical and that’s where companies will face the greatest headwinds.

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OPINION

Fighting the

With China being one of the major suppliers of intermediate goods, disruptions in the supply chain had an adverse impact on some of its major trading partners. Several global companies are seeking to diversify their sourcing requirements by shifting a part of their supply chain from China (to other low cost countries).

COVID-19 BATTLE “The COVID-19 outbreak has shown the industry how delicate the supply chain has become. During this difficult time, it essential for logistics companies to have an immediate focus on enabling end-to-end visibility, process flexibility, and collaboration to support their customers in anticipating disruptions and mitigating the respective impacts,” stresses Senthil Kumar Subbiah, Senior Research Analyst, Transportation & Logistics Practice, Frost & Sullivan.

TRICT containment measures

imposed by governments due to COVID-19 have resulted in plant closures, reduction in ports operations, travel restrictions, and affected both International and cross border trade. As per Frost & Sullivan analysis, trade contributes to nearly 20% of India’s GDP; the disruption caused by the pandemic across the supply chain has emerged as the key challenge facing the Indian logistics industry. Due to a combination of factors such as global supply chain disruptions, the economic slowdown in Europe, and North America, strict containment measures and the lockdown has taken a significant toll on the economy reducing the GDP growth rate projections to 1.9% in 2020, according to recent IMF estimates.

Workforce shortage and closed borders impact the road freight services Social distancing and economic lockdown are proving to be a nightmare for road freight transportation and distribution services. As per the notification issued by Union Ministry on April 15, 170 districts across the country have been identified as COVID-19 hotspots, where strict containment measures will be adopted. Due to the lockdown, people’s movement by any mode of transport remains suspended. Distribution challenges were intensified for the consumer goods supply chain due to panic-purchase

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Senthil Kumar Subbiah has over 7 years of operational and strategic consulting experience across a multitude of industries including automotive, retail, eCommerce, transportation, and healthcare.

behavior, resulting in constrained and

COVID-19 outbreak. Strict containment

out-of-stock supplies as only the movement of essentials was allowed through roads earlier. As part of the relaxation, cargo movement for all types of goods has been allowed throughout the country. Even though the movement of goods has started, there is a significant shortage of vehicle availability on account of driver shortages. Most of the impact of driver shortage is felt on the long and regional haul movements. Driver shortage in the trucking industry and reduced fleet deployments have led to supply chain bottlenecks across the country. The vehicle availability for intra-city goods movement is expected to improve in the next 10 to 15 days across all major industrial areas as the travel restrictions are relaxed, enabling drivers to return to work. The pandemic also induced a rapid and unexpected rise in demand for online grocery, creating a tailwind for domestic road freight and distribution channels. India is dependent on the road as a primary mode of transportation, and road transport acts as a lifeline to clear the goods from airports and seaports. The disruption in road freight caused by driver shortages and fleet unavailability is having a ripple effect on the clearance of cargo in airport and seaports, leading to congestion at terminals.

measures imposed by the Indian Government and preventive measures to mitigate the outbreak impact have led to a significant port calling, driving a knock-on effect with declined trade and cargo volumes. Weakening manufacturing confidence and low demand for commodities and raw materials due to plant shutdowns result in uncertainty for the ocean freight transportation industry. The economy shutdown has led to supply shortages, and the pandemic situation is significantly impacting the maritime segments, from oil tankers to container lines. Decreased cargo volumes have impacted the volume throughput at ports. According to Indian Ports Association (IPA), between April and February of this FY20, major Indian ports have recorded a mere growth of 2.8%. A major share of this growth is also attributed to coal shipments, whereas other cargo categories like containers and bulk cargo experienced some slowdown in growth. IPA had also mentioned that the overall container volume slowed down to 3.5% in AprilFebruary as against 11% growth in the corresponding period of FY19. A backlog of delayed orders, port calls, and blank sailings have escalated volume pressures on the containerized supply chain. Significant reduction in cargo volumes has forced major carriers to announce service cancellations and delays, and blank sailings from/to India and the Middle East, Europe, and the Mediterranean. Considering the

Ocean freight transportation takes the slow lane The maritime industry is both directly and indirectly impacted by the

uncertain market conditions, the trend is likely to continue and measures need to be taken to address the supply/ demand imbalance. If the situation prolongs, carriers are expected to opt for heavy capacity reduction measures, which would impact the fleet-to-order book. The major container carriers are at low risk for bankruptcy with this

Dedicated Indian freighters only have a 15% share in the domestic air freight market, according to Directorate General of Civil Aviation, and as a major chunk of the international volumes is handled by their international peers, while the Indian airliners operate on shorter distances. However, in the medium term, a sudden drop in capacity expansion and grounding of flights has

logistics industry to work in emergency services, as governments and logistics associations work hard to keep the essential supplies flowing. During this difficult time, it essential for logistics companies to have an immediate focus on enabling end-to-end visibility, process flexibility, and collaboration to support their customers in anticipating disruptions and mitigating the

COVID-19-induced downturn as they use blank sailings to counter the impact. However, the small and mediumsized carriers are highly exposed and vulnerable to this unprecedented situation. But, following the oil price crash, the extra cost of the IMO 2020 rule will be deferred until the global economy normalizes, posing a short -term relief for the carriers hit by slumping cargo volumes.

resulted in increased demand for air freight. With severe capacity constraints, air carriers are spot rating all shipments, and the rates are expected to rise with demand. Few Air cargo freighters have replaced scheduled flights and introduced charter flight services to cater to the increasing demands.

respective impacts. With the maritime and air freight industry experiencing capacity constraints, logistics service providers should drive transparency by assessing “what-if” scenarios with customers to understand planned volume and strategic needs. Advanced capacity bookings for air cargo could mitigate supply risks for customers on emergency shipments. Freight forwarders and small and medium-sized freight operators should emphasize building digital capabilities to evaluate alternate routeto-market models and address potential operational gaps. Digital logistics is essential to drive the adoption of e-freight to combat the spread of the virus through paper documentation. In the retail industry, order backlogs are creating inventory stocking issues. However, the adoption of the Internet of Things (IoT) in warehousing and distribution operations would facilitate inventory accuracy, ensuring the placement of the right products in the right place at the right time. In the long term, robotics systems for warehouse operations, SaaS platforms for transportation management and control tower operations, and artificial intelligencepowered technology platforms for customer management will allow logistics companies to anticipate supply chain risk and promote sustainability goals with enhanced operational efficiency.

Airlines as a lifeline during COVID-19 The airfreight industry has been a vital partner in keeping the global supply chain functioning for critical and timebound shipments. While COVID-19 is spreading at a rapid rate around the world, Airports Authority of India (AAI) said that over 80% of Indian aircraft have been grounded, responding to the plummeting demand and travel restrictions. As no ban has been implemented on the movement for air-cargo, India-based airlines are operating their freighters and passenger planes (for cargo only) in/out of India. Despite government orders, few airlines are refusing to temporarily convert their passenger flight to cargo planes (by moving the seats that would maximize the cargo carrying capacity) as the airlines believe it will involve significant time and costs. The air-carriers prioritize on transportation of essential cargo and critical pharma/medical equipment.

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India likely to benefit from supply chain disruptions Under the current business scenario, dramatic contraction in Chinese output has hampered the global manufacturing supply chain. Industries that rely heavily on the Chinese supply base for intermediate and finished products, with lean and just-in-time inventory models have suffered severe supply chain disruptions. With China being one of the major suppliers of intermediate goods, disruptions in the supply chain had an adverse impact on some of its major trading partners. Several global companies are seeking to diversify their sourcing requirements by shifting a part of their supply chain from China (to other low cost countries). With relatively lower labor costs and a huge domestic market, India has emerged as a contender for companies that are looking for alternate supply sources.

Mitigation measures and contingency planning The COVID-19 outbreak has shown the industry how delicate the supply chain has become. The heightened safety precautions have required the

INTERVIEW

Building A RESILIENT SUPPLY CHAIN

 Robust, well-functioning reliable 3PL ecosystem with clear deliverable and symbiotic working relationships, which leads to higher adoption of 3PL services by companies.

What are the supply chain best practices being implemented by leading South East Asian companies?

“Building a resilient supply chain is as important, if not more, as building and running an efficient supply chain. So far investments and efforts have been in building efficiency, with resilience at the back burner. Business costs of events like Covid and other unforeseen events in recent past, has made it clear that investing in resilient supply chain is an absolute must,” believes Rajeev Ranjan, Supply Chain & Route to Market (RTM) Consultant.

Rajeev Ranjan is a supply chain leader with 15+ years of FMCG and Food & Beverage experience. He has held leadership positions with Marico, Hindustan Coca-Cola Beverages and YHS Singapore Pte in India, China and South East Asian countries. His area of expertise is Supply chain and Route to Market. Views expressed are personal.

You have wide & varied experience in managing F&B supply chain. What are the peculiar complexities you have observed over the years?

differences you have witnessed in these countries in efficiently managing supply chains?

The needs and wants of consumers have changed. Consumer toady is asking for speed, convenience, variety as well as flexibility. In F&B space, the customer is looking for healthy, fresh, natural, no preservative, high shelf life, organic, non-GMO, environmentfriendly, farm to fork visibility and more. The challenge (and opportunity) is to provide all these at prices sustainable to organizations and affordable to consumers. Progressive organizations are reassessing and realigning supply chain and business models to meet these emerging needs of consumers in the best possible way. For organizations servicing cross-border markets of US, Europe, Asia, frequent changes and increasing stringency in regulatory requirements of different countries, especially on permitted ingredients and certifications of facilities, pose other set of complexities on supply chain.

How can companies successfully overcome these challenges and design a full-proof supply chain? Businesses strategy outlines which

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brand pack of the portfolio is to be sold at what price thru which channel to which profile of consumers for what consumption occasions. Supply chains are designed to enable this price-packchannel architecture with best in class cost to serve, delivered product quality and delightful consumer experience. Assessing suitability of existing supply chain (with respect to footprint, flow, capacities, processes, technology, and people capability) to be able to profitably and sustainably meet the above needs provides the opportunity map. Meticulous planning and effective execution of transformation initiatives laser focused on tailoring different supply chain for meeting needs of different Brand Pack Price Channel (BPPC) segments of consumers is how these challenges can be met in a robust, sustainable, and agile manner. The tailored supply chains would differ on service levels, order to delivery lead times, inventory levels, product freshness, cost to serve, extent of customization, etc.

You have got an extensive experience in managing supply chain in India and now you are overseas. What are the major

While each geography has its own set of strengths and opportunities, I observed following differences:  Upfront investment in high quality supply chain infrastructure as a cost of doing business overseas Vs a much more calibrated nuanced short period ROI driven proved investments in supply chain infrastructure and technology in India  Premium on deep knowledge of few specialized skills in overseas market Vs Premium on overall knowledge of a wider canvas of skillsets back home in India  Substantially higher focus on innovation, new product development and effort on sustainability along with a culture that encourages intelligent and bold risk taking  Sourcing contracts (incl few commodities) inked for reasonably long term in overseas market I had the opportunity to work for. Both parties take associated risks and honor contract terms, irrespective.

1. Leading South East Asian (SEA) companies have figured out the secret sauce of optimally managing scale and complexity in supply chain. SKU addition to portfolio is done only till and only if it is helping in demand disaggregation. Well established SKU rationalization protocols are in place, which run annually. 2. Inventory management is done by aggressively looking at all ways to reduce lead times not so much thru inventory norming. 3. These markets are gradually shifting from demand forecasting to increased frequency of planning and faster speed of and agility in execution processes. This is achieved through frequent synchronization of demand signal with sourcing, production, distribution plans and execution. 4. Brand owners manufacture and supply products directly from factory to retail outlets in markets like Singapore with full control on outlet relationships, order generation, merchandizing, delivery and collection, thereby sustaining healthy margins. 5. Volume aggregation driven longterm sourcing contracts.

How complex and difficult are the import and export scenarios? Since a significant portion of economy in many SEA countries is dependent on cross-border movement, import & export processes and procedures are much simpler. They are online and require fewer form filling and intervention from government machinery is usually not a worry. Government machineries’ speed of action and efficiency of execution is superb and is designed to ease and speed up trade.

How can companies achieve significant cost savings on the back supplychaintribe.com

The challenges supply chains face today, be it ensuring food safety across end-to-end extended supply chain, plastic waste, carbon footprint, etc., cannot be solved within the four walls of company alone. In addition to leadership commitment, co-working with an ecosystem of external partners, governments, nongovernmental organizations (NGOs), academia, start-ups and solution providers is an absolute must. Solution driven boundaryless collaboration mindset is a growing need. Building a team that believe in ‘There is always a better way of doing things’ and supporting them with a culture of bold intelligent risk taking and constant introspection around are we doing enough to make our supply chain a source of competitive advantage for the business. of an efficient supply chain? At a strategic level, critical review of the following levers has served me well in leveraging big cost opportunities: 1. Product flow path optimization Which factory should make which SKU and supply to which market so that total cost to serve is optimal. 2. Production and distribution footprint analysis – How many suppliers, factories, warehouses, distributors, trucks, etc., should be there, what should be their capacities and where geographically should these be located. 3. Demand segmentation and inventory right-sizing – How much inventory must be kept at each node and location in the supply chain to deliver the desired service level at the lowest cost factoring in the inherent variability at demand and supply nodes. 4. Transportation and distribution route optimization – Algorithms to minimize the cost of inbound or outbound shipments, while considering realistic cost and

constraints. However, often these levers are tough painful decisions, it requires first principle approach and significant reallocation of capital and changes in operating models.

How is technology aiding the growth of supply chain? What are the latest tech tools that are slated to dominate the segment? Technology is helping supply chain primarily in following four areas:  Providing visibility across the supply chain  Helping execution team improve efficiency using Real-time, Actionable Data  Enhancing Customer Communication, improving consumer experience and  Simplifying Supply Chain processes by automating/reducing/optimizing number of nodes/ transactions/ players in end to end supply chain. We have multiple supply chains tech tools today viz., no touch order processing tool, transport management

INTERVIEW

Businesses strategy outlines which brand pack of the portfolio is to be sold at what price thru which channel to which profile of consumers for what consumption occasions. Supply chains are designed to enable this price-pack channel architecture with best in class cost to serve, delivered product quality and delightful consumer experience. Assessing suitability of existing supply chain (with respect to footprint, flow, capacities, processes, technology, and people capability) to be able to profitably and sustainably meet the above needs provides the opportunity map.

systems with track & trace and shipping status alerts, control tower, dynamic routing, supply chain network design tools, warehouse management and control systems, lean inventory tools, digital factory, bid & spend tools, supplier management, integrated planning tools, collaboration portals, etc. One needs to pick the ones basis value it can add to their respective businesses.

Share your views on ‘Efficient Supply Chain and route to market design for competitive advantage’. RTM  Direct distribution, maximizing reach and numeric availability  Pull based replenishment of real consumption demand  Order generation / merchandizing to be in direct control of organization  Sustainable, best in class, margin to efficiency run dedicated channel partners, ensuring low attrition. In addition to the supply chain design levers (product flow, footprint, demand segmentation, inventory rightsizing and transport optimization), which we spoke earlier, specifically for F&B supply chain, differentiation can be achieved from 1. Strong product and packaging development capability; and 2. Capability to telescopically track health, safety, and inventory of food products across all nodes of supply chain real-time and ability to execute with speed basis insights gathered from data analytics.

What is the mantra to meet high

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demands in peak seasons and how can companies ready their supply chains to meet the same? Pre-building inventory in pre-season periods, factoring in the freshness of products as desired by consumers, food safety and costs, keeping inventories at one or two nodes before the last point of sale/consumption, building flexibility to move/sell inventories to multiple consumption points quickly with little or no incremental costs, smart and flexible data driven planning of consumer promotions to flatten the likely peak requirement curve, changing SKU mix while balancing market share & profitability needs, investing in flexible manufacturing lines that can make two or more category of products with different seasonality and dedicating them for respective category’s peak period demand and a process of daily/weekly/frequent gauging of real demand and synchronization of sourcing-production-shipping cycle to speedy replenishment, are some of the potential ways that come to my mind. Of course, these would need customization in specific business context. In addition, there are, at times, opportunities to collaborate with partners outside the organization with respect to uberization of manufacturing, storage, and distribution capacity.

EXTENDED END TO END SUPPLY CHAIN 2. PRODUCT FORMULATIONS TRANSITIONING TO  low to NO use of three S – Sugar, Salt, Saturated fat  Low to no preservatives  Health and nutrition taking precedence over taste  Packaging aesthetics and convenience taking back seat over low/no harm to environment  clean label with honest and complete declarations  More and more plant-based products and ingredients vs animalbased sources 3. MANUFACTURING  Reducing lot size of production, faster changeover times, lower losses  Flexible capacities capable to make multiple SKUs per line/plant  Increasing manufacturing complexity and customization, increasing automation and controls, shorter inplant quarantine quantities

What are the upcoming trends in supply chain in general and F&B supply chain in particular?

4. SOURCING  Supplier role changing from provider of a bill of material (BoM) to strategic contributor in new product formulation  Supplier reliability, quality and traceability will take precedence over cost/unit

F&B supply chains: 1. PACK LEVEL REAL TIME VISIBILITY ALL THRU THE LENGTH OF

5. LOGISTICS 1. Speed to reach destination and real

time status en-route 2. No breach (of temperature, pressure, humidity, etc.) will be basic nonnegotiable 3. Time stamp wise digital visibility all thru delivery chain 6. DEMAND 1. Multiple in and out SKUs, lower product life cycles 2. Premium on personalization 3. Sustainable packaging

Besides these trends, the differentiating factors would be product innovation, speedy & agile execution and segmented supply chains.

What are the sustainable supply chain initiatives that we can look forward to? Sustainable supply chain initiatives are focused on reducing energy, water and carbon intensity. This is being achieved through absolute and productionadjusted reductions in waste, water, energy, and greenhouse gas emissions. Solar panels on majority of factories and warehouses, higher % of renewables in energy mix, super-efficient lighting, reduce-reuse-recycle initiatives, non-hazardous ETP waste, higher % of electric delivery vans, recycling of returns is becoming norm. Some of the trends that I can foresee include: Gradual re-emergence of glass (lowest carbon footprint vis-à-vis PET, Tetra, can) as primary packaging, massive thin gauging of PET and Cans+lids primary containers, increasing percentage of recycled resin in Preforms, very high collection of used PET/Cans/tetra containers for recycling, biodegradable straws, bagasse based caps replacing

PP caps, fully recyclable and/or compostable fiber cup solutions, primary packaging redesigned to lower/eliminate secondary packaging Ex. Tide -Eco-Box.

How do you see Supply Chain 4.0 catapulting the domain in years to come? Undoubtedly Supply Chain 4.0 has immense potential. In short term, 1. Machine Learning (ML) based planning algorithms will help significantly understand and reduce demand supply variability, smarter changeovers, optimal lot size of manufacturing and reliable predictive shipping will reduce replenishment times, thereby helping improve inventories significantly. 2. Cross-functionally integrated Supply chain planning will become automated, granular and decisions will be based on multiple what ifs and scenarios with execution monitored and adjusted real time. 3. Track and trace, dynamic routing and uberization in transport, efficiently minimizing touch points, gaining item level visibility, faster TAT of pick-pack-ship-thru smart automation in warehousing and algorithm-led supply chain footprint and supply network redesign to meet emerging needs of customers will help chisel out costs significantly.

What are the necessary aspects that companies need to imbibe to enhance their supply chain game? Supply chains need to be agile enough to orchestrate a profitable response to frequently changing demands, personalize offering at scale and quickly offer products & services to consumers.

Comprehensive understanding of risks (in parent organization and their suppliers’ supply chain), their significance, and their likelihood is key to start with. Decisions on which all risks one is ok to live with is a tough but an unavoidable business leadership decision. supplychaintribe.com

Are the global supply chains prepared for unforeseen disruptions? If not, then how can companies work towards the same? Building a resilient supply chain is as important, if not more, as building and running an efficient supply chain. So far investments and efforts have been in building efficiency with resilience at the back burner. Business costs of events like Covid and other unforeseen events in recent past, has made it clear that investing in resilient supply chain is an absolute must. Comprehensive understanding of risks (in parent organization and their suppliers’ supply chain), their significance, and their likelihood is key to start with. Decisions on which all risks one is ok to live with is a tough but an unavoidable business leadership decision. Working on multiple what ifs scenarios on each of the risks and possible ways to offset those, along with diversification in manufacturing facilities, diversification in supplier base, building capability to move production among plants by using interchangeable and generic ingredients/components and processes, flexibility in using standard packaging combinations, multi-skilling of talent, agile planning and fulfilment capabilities and a culture of distributed decision making power are directionally some of the ways we work towards building resilient supply chain while balancing cost to serve.

COVER STORY

WHEELS OF FORTUNE

COVER STORY Nothing could best describe the growing importance of multimodal transportation than the current situation where companies could no longer depend on their favorite mode of transportation – ROADS with the interstate borders sealed and the movement of goods coming completely to standstill. Yes, these are challenging times for not only industries but for every human being. But the way Indian Railways and Indian Post have set an exemplary model before all of us, will actually change the way we see our modes of transportation. At a time when commercial airlines used to only focus on passenger movements, today they have become the most important carriers of essential goods & lifesaving medicines as well as PPEs. Such times call for a great shift in the mindset and a greater shift in business models as the Hon’ble PM aptly called ‘Jaan bhi aur Jahaan bhi’ to devise the most efficient multimodal transportation model that is safe, sustainable, and fast enough to deliver to people’s demands in times of crisis and otherwise. This cover story delves with all such myriad challenges and present companies an opportunity to introspect and transform their supply chains…

OGISTICS is a $3.4 trillion industry globally and a robust channel of transport supported by infrastructure, technology & innovation in multimodal transport can substantially reduce cost and increase competitive advantage for exports, states a recent report by Grus & Grade. A Multimodal Transport System uses a combination of more than one mode of transport and integrates the scope and viability of simultaneous use of various inter-linked network of distribution and logistics channels. “An efficient and sustainable model, which uses various channels of transportation for efficient allocation and use of resources. This helps not only to reduce the lead time for delivery of goods & services but also encompasses financial and cost efficiency, on time delivery, warehouse and storage efficiency, information and communication flow as well as environmental protection (by reduced use of energy and fuel). The model also helps to contain risk of damages, wastage and pilferages,” remarks Ravi Soni, CEO, Grus & Grade. Dr. KK Sharma, Head of Centre for Surface & Air Transport, Adani Institute of Infrastructure, elaborates, “Mckinsey & BCG reports noted in 2017 that based on the then growth rates, India could become the 5th largest economy by 2025 and the consumption expenditure would grow over 3 times. This would mean a huge growth in demand & hence economic activity

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COVER STORY

COVER STORY Eshaan Lazarus, Executive Director, Angre Port Pvt Ltd.

that would require efficient logistics for smooth internal & external trade. The large Indian population & increasing incomes leading to greater demand would also attract a lot of global companies with consumption of goods & services. However, Indian logistics

hurdles supplemented with noncongruous legal framework are major roadblocks that are a hinderance to efficient model development. Apart from these challenges, the policy implementation, corruption and multiple state laws apart from central laws are

transport is around 30-35% and road transport is around 60%. Water transport and air transport constitute a meagre 6-8% and 1-2% respectively. Multimodal is still at an evolving solution in India with different modes of transport at different stages of

connectivity: While the road network is ubiquitous, rail stations that have capacity to handle goods loading/ unloading operations may not be nearer to the customer locations. Same argument holds true at the destination locations, which could be a dry port or a seaport that is not served through a rail link. Multimodal transport in such cases would require multiple handling of cargo, thereby increasing costs, transit time and risk of mishandling. ♦ Oversaturation of important rail networks: Against a CAGR of over 50% of freight and passenger traffic growth over the decades, the Indian railway track infrastructure has just grown at about 3% CAGR for route kms and 6.6% CAGR for track kms. Even the high-density corridors have become oversaturated despite

sector performance has not been up to the mark, inefficiencies are widespread, and the logistics costs and freight rates are one of the highest in the world as reported by World Bank. Multimodal logistics offers huge potential to reduce the logistics cost and make the economy more efficient.” Offering another perspective, Ravi Soni adds that as per World Bank Logistics Performance Index Report, all is not well as India slipped in the league from 35th position to 44th position in year 2018. The logistics performance index (LPI) is the weighted index of the country scores on the six key dimensions: ♦ Efficiency of the clearance process (i.e., speed, simplicity, and predictability of formalities) by border control agencies, including customs ♦ Quality of trade and transport related infrastructure (e.g., ports, railroads, roads, information technology) ♦ Ease of arranging competitively priced shipments ♦ Competence and quality of logistics services (e.g., transport operators, customs brokers). ♦ Ability to track and trace consignments ♦ Timeliness of shipments in reaching destination within the scheduled or expected delivery time. The county faces multi-variant challenges in all the six parameters mentioned above. The bureaucratic

key challenges. The sector also lacks appropriate investments as thee mega projects are capital intensive with long gestation period for being a profitable institution. Sharply pointing the reason behind the limited adoption of multimodal, Rajeev Vijay, Executive Director - Government and Infrastructure Advisory, Knight Frank, said, “Multimodal transportation requires parts of journey to be carried in the most efficient way, efficient in terms of cost and time. Any interchange imposes a delay and cost penalty, which if significant, discourages people to use multimodal transportation. In India, the biggest multimodal park opportunity remains between road and rail for inland transport. Because of Railways’ tendency to encourage only Full rake loads, the market for less than train loads and less than wagon loads died decades ago; resulting in all that traffic shifting to roads. Owing to regulations in India (particularly prior to GST), the companies in corporate sector always found smaller consignments, smaller warehouses at multiple locations a better option than to consolidate freight and use a bulk mode to reduce cost of transportation. Hence the impetus or multimodal operation was not evident from both supply and demand side, other than for some select commodities.” According to Eshaan Lazarus, Executive Director, Angre Port Pvt Ltd., currently, the share of rail

evolution. This share of rail, water and air must increase for Indian Multimodal Logistics to be utilized effectively. The biggest challenge is availability of reliable service providers who are willing to take the end to end supply chain within their scope which would then free up client time to focus on other functions more core to their business. In turn, this has resulted in a hesitation on the part of logistics teams to fully outsource key parts of their value chains. There is a need for development of infrastructure like Dedicated Freight Corridors (DFCs) in the country to improve hinterland connectivity and utilizing this capacity in the most efficient manner possible. For instance, Angré Port is facing issues with rail connectivity in the Konkan region as it is currently restricted to only north and south. Therefore, the connectivity for west and east of the region needs to be developed. In addition, rail head is required to be closer to the Port, as the current one is 50 km away at Ratnagiri. Solving these issues will enable efficient cargo transportation and a significant reduction in cost for our customers. Dr. KK Sharma highlights that it is well recognized that movement of long haul bulk traffic by road is less efficient than by rail. However, multimodal transportation especially through rail has always been an underutilized phenomenon for Indian companies for the following reasons: ♦ Poor first-mile, last-mile & port

addition in track km. ♦ High rail freight tariffs as the Indian railways follows a policy of crosssubsidization of passenger tariff by freight tariff. Progressively over the years, Indian rail freight rates have become one of the highest in the world. Further there is rigidity in freight rates that do not change with the changing economic dynamics. ♦ Transit times are long and uncertain with freight train taking even up to 6-8 days for a journey of 2000kms. This happens because freight traffic is frequently subordinated to passenger traffic. ♦ Poor customer service – Over & above the already known poor transit times, Railways does not guarantee on the transit time for freight trains. Often wagons are not available on demand and hence it is exceedingly difficult to plan finished good dispatches being dependent only on rail. Some goods require special wagons for transit that may not be available like project cargo, high value cargo, etc. Further, since Railways is a highly bureaucratic organization, the interfaces are difficult and often mired in procedures & poor customer service mentality. There are often issues of cargo security & theft in yards and en-route to destination. ♦ Poor Rail terminal (Goods Sheds) quality: Infrastructure is old and hence quite often material waiting

The draft National Logistics Policy is a step in the right direction to transform the overall logistics industry. The decision to develop multimodal logistics parks (MMLPs) will pave way for reducing costs by integrating all modes of transport and storage for different kinds of cargo – liquid, bulk, container as a one stop solution. An ecosystem of MMLPs can effectively work as a hub and spoke model for cargo movement and address issues of incorrect and inefficient modal movement, fleet optimization, and practically develop a competent material handling infrastructure. All of these are indirect costs that the customer and economy bear today. It is high time that the current mode of point-to-point movement transforms to a supply chain visualized by hub and spoke freight model with MMLPs at the core of their design.

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to be loaded or for last mile dispatch after unloading could be damaged because of heat or rains. In a lot of cases, they also suffer from issues of access and evacuation of traffic. ♦ Railways mostly promotes rake loading due to issues of operational efficiency. Given the nature of fragmented, small size plants and distributed production capacities, most companies including the MSME sector are not able to order rakeloads. There are other associated problems of requirement to keep high inventory in storage and waiting for transit goods. Coastal shipping & inland water transportation is still in its nascent stages, hence poor in infrastructure and does not serve a lot of production locations. The destination location could be away from the water port and the

drivers in both Europe and North America is, however, hindering development opportunities in the sector. ♦ Rail freight has also reached its peak with high damage rates due to disparate infrastructure across Europe. A trade route world war is currently at play, backed by substantial financial investment.

goods may not be amenable to multiple handling. There are other issues of unpredictability of transit times as well. More than the shortcomings of other modes, the road transport is preferred for its own positives including door-todoor deliveries, minimal handling, easy availability of trucks in most cases, easy access to good storage points, greater predictability, better customer services, etc. Vibhore Khandelwal, Manager – SCM, Hafele India Pvt Ltd., is of the view that every transportation company, regardless of vehicle type, is dealing with network saturation. New solutions are necessary to advance transportation methods, particularly when it comes to capacity. ♦ Ocean freight makes up for more than 90% of international trade and is the cheapest mode of transportation today. But it is losing touch with current trade challenges due to a capacity crisis causing delays which themselves entail negative consequences. ♦ Increasing the capacity of container ships is no viable solution to the problem because it also limits port capacity to receive larger volumes of cargo. It is rare to find infrastructure that caters to jumbo vessels with adequate installations for loading and offloading freight. ♦ As for door-to-door deliveries, road transportation is by far the go-to option for flexibility and costeffectiveness. A shortage of truck

(Brazil), Tokyo, Hong Kong, Shanghai (China), Singapore, London (UK), Paris, Dubai, Moscow, Rotterdam, Hamburg, Milan, Antwerp, etc. Many of these hubs lead the way when it comes to efficiency and automation, with entire container terminals, for example, end to end working with minimal human intervention, thereby minimizing downtime, errors, delays, etc., shares Eshaan Lazarus. “I hope that India can reach that level soon.” Elaborating further, Rajeev Vijay, states, “The global experience suggests that such logistics facilities are not pure play logistics only but are dovetailed with light manufacturing, trading firms, company offices, educational and training facilities, etc. To enhance viability of logistics parks, it can be integrated with office and retails facilities to allow regular leasing income and at the same provide much more integrated environment to the companies operating in that area. This is important particularly in initial years as it can provide much needed income before the logistics operations ramp up.”

EMULATING GLOBAL BEST PRACTICES Global logistics hubs are along the major trade corridors in their regions, connected to major international transport networks, and contain highest concentration of prime logistics space in the region. Of the identified 30 global logistics hub some of them are New Jersey (US), Toronto (Canada), Mexico City, Sao Paulo

LOGISTICS POLICY DRAFT AND ITS SLATED IMPACT ON MULTIMODAL Industry leaders hail the announcement of National Logistics Policy draft in unison as Eshaan Lazarus remarks, “The draft National Logistics Policy is a step in the right direction to transform the overall logistics industry.

COVER STORY

COVER STORY Dr. KK Sharma, Head of Centre for Surface & Air Transport, Adani Institute of Infrastructure

It aims to optimize the multimodal mix at par with global standards and ensure development of multi-modal infrastructure. The decision to develop multimodal logistics parks (MMLPs) will pave way for reducing costs by integrating all modes of transport and storage for different kinds of cargo – liquid, bulk, container as a one stop solution.” “An ecosystem of MMLPs can effectively work as a hub and spoke model for cargo movement and address issues of incorrect and inefficient modal movement, fleet optimization, and practically develop a competent material handling infrastructure. All of these are indirect costs that the customer and economy bear today. It is high time that the current mode of point-to-point movement transforms to a supply chain visualized by hub and spoke freight

efficiently over long distances, and transferred from one mode of transport to another like container ships, rail flatcars and trailer trucks without the need to open. The handling system is also completely mechanized so that all handling can be done by cranes and special forklift trucks. All containers are numbered and can be tracked using RFID, IOT & computerized systems. Increasing use of containers through multi-modal transport would help Indian economy and allied sectors grow faster.” Further, setting up of multimodal logistics parks would increase trade, improve quality & cost of services and create employment opportunities. Multimodal transport would also pave the way for a gradual shift from road to more efficient & less costly rail, marine & pipeline-based transport which

transportation such as packaging, transportation conditions and storage. In a multimodal transport case, an added complication is the complex management of the whole process that involves different players such as freight forwarders, third-party logistic service providers, couriers, carriers of different modes of transport, MTOs, rail, sea carriers, port and intermodal terminal operators. Different technologies are deployed by each of these and that increases the importance of managing the communication process for proper coordination and the accuracy, flow and timeliness of information to ensure a smooth logistic delivery process. The range of activities that varies from resource management and port operations to fleet and freight management processes need to be supported by appropriate ICT solutions

information exchange platform/ portal/ marketplace for better communication between stakeholders on a one-stop shop More recent technological advances including cloud computing, IOT, RFID, Data Analytics etc., are helping in: ♦ Complete node to node vehicle/

good enough, it is the practice that will lead to performance and there lies the importance of technologically aware and trained manpower. According to Ravi Soni, on account of increase in transportation and logistics cost supplemented by a pressure to reduce greenhouse gases

as well as timely delivery of orders. ♦ Artificial Intelligence through its predictive and prescriptive analogies can determine demand and supply forecast, inventory movement vs container availability, pre & post shipment transportation gap analysis etc. This technology can

model with MMLPs at the core of their design,” he adds. Dr. KK Sharma seconds, “India has one of the largest and unfortunately highly fragmented transport & logistics sector. There is a silver lining there that every intervention has scope to bring about a very large positive effect. Multimodal logistics serves to interconnect different modes of transport – road, rail, air, water – and therefore improve efficiency and speed of goods movement. The economic growth in India has increased the demand for practically all transport services and further underlines the importance of providing an efficient multimodal logistics infrastructure in India that has a huge potential to provide the most efficient way of transporting goods over long distances.” Giving statistical insights, he highlights, “Due to India’s industrial growth, there is an increasing demand for container transportation. This should progressively lead towards increased penetration of containers into the break bulk cargo segment. The Indian ports handle around 9% of global container traffic and the domestic containerization level stands at around 40%. The Indian Ministry of Shipping estimates that the container traffic in the country would double in seven years from 15 Million TEUs in 2018 to 30 Million TEUs in 2025. It is important to note that containers have standardized dimensions. They can be loaded and unloaded, stacked, transported

would reduce environmental pollution as well as unit costs of transport. It is also expected that there will be more transparency and predictability for better planning across the logistics sector.

both on the hardware as well as software side.” He adds that the need for real time and extended visibility across supply chains in a world of rising uncertainty and complexity in a multimodal environment is critical. ICT has a huge potential for efficient, effective and reliable real-time management and operations of multimodal freight transport. From the historic use of inventory management systems, transport routing, scheduling and billing systems, the increasing sophistication led to development of company specific Enterprise Resource Planning (ERP) systems in the 1990s which is now giving way to web-based systems designed for multiple participants to share a single system. ICT can address the needs of the various components of the multimodal transport through four groups of interventions as follows: ♦ freight resource management systems and applications for better operational efficiency, scheduling, fleet movement & route optimization ♦ terminal and port information and communication systems and applications for better network design, efficient operations & coordination at interchange points ♦ freight and fleet tracking and management systems and applications for better operations, inventory management and customer services ♦ integrated operational/

consignment tracking through wireless communication technologies & devices such as smart mobile phones, QR code, RFID & IOT based smart container tracking ♦ Big data, data analytics-based decision support systems that rely on real-time analysis ♦ Better customer servicing through dynamic information sharing and improved compatibility & interoperability of different ICT systems ♦ Data confidentiality issues through cloud storage and better software capabilities ♦ Reduction in cost of ICT adoption like cloud computing that enables the ICT systems to be hosted by a third party and user companies irrespective size of business, can just “plug in and play”. ♦ Use of private social networks with all stakeholders for a more efficient one to many communication On the hardware front, newer engine developments, better fuel mix to reduce on sea pollution, better communication devices, waste management technologies, intelligent port handling equipment can be adopted limited only by the cost that the organizations can bear v/s the value derived. Raising a very importance point, Dr. KK Sharma asserts that while the technologies are developing at a fast pace, skilling of employees and finding new skilled employees both have challenges. Further, just knowing is not

(fuel efficacy increase) technological innovation in rail transport becomes imperative. An innovation in IOT, ICT, AI, Digitalization, Blockchain, Augmented Realty is thus the need of hour for developing a sustainable multimodal transport network. For Instance, semi-Trailers dominate with more than 66% of transport volume, but less than 2% of these are equipped with vertical handlers and robotic cranes. There is a vast scope for development of material handling and automated crane in Semi-Trailer segment. Though many technological thought process has done research in the segment, but none has gone beyond pilot test stage. Generation of e-Challans for faster movement of invoices, lorry receipts, shipment documents, bill of lading, etc. This improves efficient delivery of goods and service, improves quality check as well as reduces hassles to all parties involved in the transaction. ♦ Blockchain technological application in intermodal transport system can be the next generation game changer. This will induce reliability, appropriateness and trust ability of real time data transmission for super-fast information flow and decision taking matrix generation. ♦ Augmented Realty Glass is another technological revolution that will redefine the way logistics are staked, loaded and transported. This will reduce warehouse searching time and cost, damages and pilferage loss

be extensively used to create a harmonious inter-relationship between various modes of transport. Space availability, dock availability. ♦ Internet of Things (IoT) can be used to track inventory, suppliers and buyers’ stocks, in transit inventory tracking mechanism, GAP analysis and foundation for logistical connectivity on real time basis. ♦ Cloud Technology will help in accessibility of data on multiple platform and vendors through one source. This improve data transferability while maintaining security and confidentiality.

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TECHNOLOGY PLAYING AN ENABLING ROLE Technology is changing the traditional way of operations in most industries, not just ports and logistics. Digitizing the end to end workflow of cargo movement into and out of facilities will help eliminate all internal paperwork associated with this process thereby speeding up turnaround time and driving up efficiency. “At Angré Port, we have accomplished this by developing a cloud-based app, customized to our requirements. This app is extremely easy to create and train staff on, even shop floor staff who have never utilized any kind of software before, with the result that the entire development and training phase was completed in only 45 days. The takeaway is that now, more than ever, there are such tools available that can easily work in plug and play mode, to improve specific areas of the business quickly. This is a much better way of working rather than waiting for a full-fledged ERP to be implemented, for example, a process that often, fails,” shares Eshaan Lazarus. Offering operational nuances, Dr. KK Sharma states, “Multiple characteristics of each transport mode places constraints on goods during

India has one of the largest and unfortunately highly fragmented transport & logistics sectors. There is a silverlining there that every intervention has scope to bring about an exceptionally large positive effect. Multimodal logistics serves to interconnect different modes of transport – road, rail, air, water – and therefore improve efficiency and speed of goods movement. The economic growth in India has increased the demand for practically all transport services and further underlines the importance of providing an efficient multimodal logistics infrastructure in India that has a huge potential to provide the most efficient way of transporting goods over long distances.

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NEW PROJECTS IN THE OFFING The port sector is expected to get a boost with government’s emphasis on sea route under Sagarmala programme. India has one of the largest coastlines in the world and this has the potential of contributing significantly to the nation’s economic growth. Adds Eshaan Lazarus, “The primary objective of Sagarmala is to leverage the country's coastline and inland waterways to reduce logistics cost for all industries. If implemented effectively, the Sagarmala project will bridge the connectivity issues of the ports and help move the needle towards a true multi-modal cargo mix. Bharatmala, on the other hand, will ease congestion that has resulted due to over-dependence on road transport. It will further improve the efficiency of

COVER STORY

COVER STORY Rajeev Vijay, Executive Director - Government and Infrastructure Advisory, Knight Frank

existing corridors through development of Multimodal Logistics Parks and bridge critical infrastructure gaps. Of the Projects under Bharatmala – ‘Economic Corridors’ has Mumbai (Panvel) Mahad - Chiplun - Panjim - Karwar –

East region will significantly improve trade access to/from and socioeconomic development of that part of India. The more cost effective but hitherto heavily underutilized Inland waterways will be better connected to

that would otherwise be needed for achieving the logistics targets in the Indian economy.

CAPTURING IMMENSE OPPORTUNITIES

lead time. According to Rajeev Vijay, implementation of DFC gives railways an opportunity now to encash upon this opportunity to wean traffic at least on the DFC corridors. What it does require is timely and efficient movement of cargo/ container trains – all being tracked through technology to give certainty to logistics companies and users. The big question is if Railways is working to give comfort to the users of timeliness and reliability on delivery. There has been interest expressed towards certain logistics park projects for e.g. the one closer to Dadri being implemented by DMICDC. It is in a good hinterland from market perspective, has direct access to Western DFC and to Eastern DFC through a short spur link, is fairly large in size and sits in an already established logistics ecosystem. What

Bhatkal section and in ‘Port Connectivity Roads’ Karad – Chiplun - Jaigad port road enhancement (SH-78) will benefit enhancing road connectivity to Angré port.” Seconding his thoughts, Dr. KK Sharma, elaborates, “The focus of Bharatmala Project is on optimizing efficiency of freight and passenger movement across the country by bridging critical infrastructure gaps including development of Economic Corridors, Inter Corridors and Feeder Routes, National Corridor Efficiency Improvement, Border and International connectivity roads, Coastal and Port connectivity roads and Green-field expressways. First & foremost, this will lead India to be a country with worldclass road infrastructure with building of over 35000 km of highways at a cost of Rs.5.35 Trillion by 2022. For multimodal logistics in India, this is a huge step forward. The project will enlarge options, improve planning, access, flow, speed, predictability and reduce bottlenecks & logistics costs.” He adds, “Absence of adequate logistics infrastructure is the biggest impediment to economic growth of a country. Bharatmala project will improve connectivity, average speed on road & life of vehicles thus leading to better predictability & planning of goods & passenger movement in India. This will help on both the demand and supply side of the growing Indian economy. Faster, farther & better reach to the difficult hilly region of the Indian North

the larger road network thereby leading to great synergy.” According to Dr. KK Sharma, setting up of Multimodal Logistics Parks will smoothen the Inter-Modal transition of goods. A larger & better road network will improve the traffic flow and thence speed of delivery by generating more options to travel and reduced load at the choke points at the geographical boundaries or nearer to larger consumption centres. The evacuation from airports, seaports and rail-road loading/unloading points would be faster thereby improving predictability of inter-modal goods movement. There are significant allied benefits including employment generation and positive externalities for the environment owing to using a lot of greenery, EV vehicles, solar energy & use of household & industrial wastes for road construction. The 'Sagarmala Project' is going to complement the Bharatmala with a network of good-quality roads in coastal areas and areas adjoining seaports. It may be noted here that maritime logistics that includes goods moving by sea and inland water route could significantly reduce costs of bulk goods transport for internal consumption & external trade. An efficient maritime logistics network of well laid out ports along India’s vast coastline, commensurate port infrastructure and rail-road access through Sagarmala would also mean a multimodal transport network that would lead to huge savings in infrastructural investments

Expanding the consideration set of logistics options beyond simple road transport can throw up huge opportunities for cost saving, believes Eshaan Lazarus. Illustrating this with an example, he adds, “At one of our client locations in Goa, their raw material can either come from Factory A that is 30 km away or Factory B that is 400 km away. But the road freight difference between the two locations to our client’s site is hardly 50%, even though there is a 13X difference in distance between the two options. This is due to Factory A being in the midst of villages that do not allow for free cargo movement and transport unions that maintain a fixed freight. However, Factory A is on the riverfront, which enables the cargo to be loaded into barges, and thereby transported most of the distance by waterway, and the last 3 km by road. Adopting this multimodal approach has caused the freight from Factory A to come down by another 60%, thereby making it a much more economical option to source from.” Eshaan Lazarus believes that having a single provider with a long-term contract and guaranteed service levels across the value chain allows supply chains to be immune to transportation rate fluctuations, frees up the supply chain team’s time to focus on other higher priority areas, and greatly reduces the need for storage space at client locations, since clients can stock cargo at the port, and the 3PL can supply it to them within a guaranteed

private players desire is unencumbered land, trunk infrastructure connectivity to the park including rail connections and more importantly certainty in policy. For them, the biggest setback is rules of the government change after a few years and they are left with a fait accompli to accept it. For private logistics park players, it is much easier to acquire private land, use road as an access and not be bound by any extra regulations. For them to develop larger logistics park, government should provide initial time bound support while it is under implementation and let private sector manage to exploit potential as per market forces. The government and in particular, Railways, will have to open up on this PPP approach; where Railways still continues with its legacy practices on having a control and multilayered decision matrix on every issue. “Other than core economics of scale and distribution efficiencies advantage that logistics players and companies enjoy, the value adds are the biggest facilities that logistics parks offer compared to company owned or leased logistics facilities. The multi-modal logistics park environment allows users to consolidate supplies from several sources and turn it into a produce for market delivery pretty quickly. Sitting right within the market. Facilities like banking, insurance, legal, finance, IT, software, packaging and labelling, warehouse retail add significantly to the requirements. It allows logistics companies to use technology and

Multimodal transportation requires parts of journey to be carried in the most efficient way, efficient in terms of cost and time. Any interchange imposes a delay and cost penalty, which if significant, discourages people to use multimodal transportation. In India, the biggest multimodal park opportunity remains between road and rail for inland transport. Because of Railways’ tendency to encourage only Full rake loads, the market for less than train loads and less than wagon loads died decades ago; resulting in all that traffic shifting to roads. Owing to regulations in India (particularly prior to GST), the companies in corporate sector always found smaller consignments, smaller warehouses at multiple locations a better option than to consolidate freight and use a bulk mode to reduce cost of transportation. Hence the impetus or multimodal operation was not evident from both supply and demand side, other than for some select commodities.

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skills ecosystem to operate in a highly enabled and competitive environment to deliver immediate, effective and efficient operations. The key is to have ability to deliver to customer on demand at the earliest,” adds Rajeev Vijay.

comfortable in within their four walls should step out and start offering multi model solutions to their clients. This approach will no doubt result in benefits for clients, as well as ports, in the form of sticky, long term business, as a supply chain manager likes nothing more than having a hassle-free solution he can rely on. Also, the demand from clients for single window end to end solutions will motivate service providers to enhance their efforts in this direction.” According to Dr. KK Sharma, multimodal logistics by its very nature involves using of more than one mode of travel to help the goods, mostly packed in standard sized containers, reach from door to door in national as well as international trade. At each point where the goods move from one mode of transport to another, there is a requirement of goods unloading, checking that requires opening up the packages, repackaging, preparation of

A PARADIGM SHIFT IN THE MAKING Accelerated completion of the Dedicated Freight Corridors (DFCs) will enhance the share of rail freight in the country from the current 30% to around 6070% as in developed countries. Hence, making them available to trade as early as possible will be a big boost. For Eshaan Lazarus, “The involvement of private players in multimodal logistics will help in efficient delivery of services. Specifically, players like ports that have traditionally worked in areas they are

new documents, loading & dispatch. The same process may have to be followed at the point of the next point of change of transport mode. The Multimodal transport addresses this complexity as it provides for the transportation of goods under a single contract document irrespective of the number of different modes of transport and the carrier is legally liable for the entire carriage. The process ensures reduction of the overall cost to the goods-owner making his products more competitive at the point of delivery. The Indian Multimodal Transportation of Goods Act, 1993 precisely facilitates the exporters on this front and give them a sense of security in transporting their goods. The Act lays down the standard terms and conditions so that only those who have the necessary expertise infrastructure and financial capability are allowed to undertake Multimodal Transportation in order that the interests of shippers are fully protected. Container transportation has become the most preferred multimodal transport candidate because of standardization in handling & moving. Multimodal logistics requires support in order to deliver the value it is capable of. Adequate Logistics including railroad infrastructure is just a part of it. Other very important factors include availability of containers road-trailers & empty rail-wagons; coordinated port operations; speed of custom clearances at interchange points; proper unloadingreturn coordination through use of IT & IOT; appropriate financial support to the sector; compliance & legal guarantees to contract & sub-contracts and speedy support by respective judicial institutions; and appropriate regulatory & ease of doing business & trade facilitation support.

SUCCESS STORY In Varanasi, a freight village is being developed along the river to enhance the potential of Eastern DFC and to augment traffic capacity along the National Waterway 1. Inland waterways cargo movement has already started from NW 1 by PepsiCo, Dabur, Emami, IFFCO from Kolkata to Varanasi where a freight village is being developed to connect it to the eastern DFC.

COVER STORY

COVER STORY Vibhore Khandelwal, Manager – SCM, Hafele India Pvt Ltd.

working and knitting people, processes and technology in one basket. More disruptive technologies will emerge. While some may only appear as dots on the horizon today, they will turn out to be transformational in the years to come. What could Multimodal look like

that are common in Konkan hinterland would reduce logistics costs for all players in the region. Lastly, creating a port led industrial zone which has concessional water supply, power supply, as well as land availability and perhaps even low interest rate funding for capex

However, a lot more can be done by the government either through its own agencies or through private sector participation. Government needs to address the lack of appropriate logistics infrastructure including warehousing & cold chains, transport hubs through private sector participation. Better interconnectivity & integration would further reduce time & cost of multimodal transportation. Private businesses have the capacity to produce more wagons and trucks but the road conditions, excessive time on road, poor average speed of vehicles on the move, multiple checkpoints (road worthiness, weight checks, toll/tax collections etc.) & inordinate waiting time at interstate border check points all add up to inefficiencies that need to be addressed to improve load bearing capacity of road infrastructure. The insufficient and

in next 5-10 years to come? The mantra is going to be ‘Mobility-as-a-service’ or ‘Commuting-as-a-service’: ♦ Putting a strong focus on Omni channel and multimodal customer experience 540° ♦ To attract consumers, transportation will have to be more personalized. ♦ Streamlining punctuality, serviceability and reducing costs ♦ Not only transportation, rather the entire supply chain model has to be multimodal ♦ Hyperloop trains/submarines and autonomous robot-taxis. ♦ Building platforms and marketplaces for multi-sided collaboration (Cloud concept) ♦ Enforcing trust & compliance (cyber securities, fraud reduction etc.)

would really accelerate development in the region.” According to Dr. KK Sharma, Nitin Gadkari, Cabinet Minister for Road Transport & Highways, while addressing India Integrated Transport & Logistics Summit 2017 had stated that high logistics cost is one of the major impediments to India’s economic growth. Inefficiency led high operational costs and resultant high freight rates lead to this poor state. On the positive side, the Logistics sector was granted infrastructure status in 2017 that is helping larger investments and more infrastructure lending at betters terms. The rail-road infrastructure projects like Bharatmala, Sagarmala, Setu Bharatam, Rural Infrastructure development, Dedicated Freight Corridors, Inland water transport etc. are getting implemented. On the softer side, the Indian bridge management system for upkeep of bridges, Indian Customs EDI System (ICES) for automation of customs documentation process being operational at 134 major custom locations handling more than 98% of India’s international trade of import and export are all very laudable initiatives. The Kandla- North India & Kolkata- Guwahati-North East are great examples of the potential of multi-modal transportation. The private sector participation in port & airport development in the recent times has already started bearing fruits in terms of improving efficiency and augmenting capacity.

inefficient urban as well as rural public transport system also puts pressure on road and rail infrastructure which needs sure and urgent government attention. Indian infrastructure users have been poor in using information technology & other technology means to modernize its infrastructure and reduce lifecycle cost of operations. The RFID & FASTags based toll collection itself took a lot of time to get adopted when the technology was existing for decades. Appropriate policy push & institutional interventions are needed. For longer distance movement of bulk goods, railways need to increase their share. The Eastern (1856 km) & Western (1504 km) Dedicated Freight Corridors need to be operational on priority. Though about 15 Private Freight Train Operators (PFTOs) are in the business, which can lease or build train rakes and also run their own Private Freight Terminals (PFTs), more investment in multimodal logistics parks, ICDs, CFS, Private Freight terminals are needed to augment loading capacity. Better incentive structure could induce more private investments here. The physical infrastructure at existing ports & airports in government domain need to be augmented. The private sector participation in ports and airports development has to pick up pace including more investments in logistics infrastructure including warehousing/ cold chains and private freight stations. Government can also contribute to

Transportation is undergoing major disruption and striving towards becoming more organized sector. To succeed and sustain, organizations need to understand and adapt to fast-changing ecosystems, focusing on customer-driven market, reflexive supply chain and multimodal value chains. The entire economy is struggling today due to ‘COVID’. The COVID-19 outbreak has led to blank sailings and a reduction in imports, which translates to less container volume for intermodal businesses. As shippers see demand for their products shrink, this will be passed along to carriers in the form of decreased demand for freight. However, looking at the brighter side, it is the right time when organizations can ideate and develop ‘Collaborative model – COBOT’, a start towards Industry 5.0 and more resilient supply chain, to be future ready and withstand these pandemic events.

PAVING THE WAY TO NEXT GEN MULTIMODAL TRANSPORT: A STEP TOWARDS TRANSPORT 5.0 Vibhore Khandelwal provides futuristic avenues to adopt multimodal, “Succeeding in tomorrows’ multimodal transport will be a collaborative game. From the start, organizations must think about ecosystems and multi-sided platforms.” The prima facie the factors need to critically evaluated and focused are as follows: ♦ Workforce (Skill development): Shift to lighter and smarter work load and handing strenuous workloads to machines ♦ Technology and IT infrastructure ♦ Flexible supply chain to address dynamic and vulnerable consumer trends ♦ Business strategies, models and tailored supply chains ♦ Future readiness i.e. scalability The last 100 years have brought multiple innovations to the transport industry. Each day, a billion people take a car, bus or subway, around 11 million passengers fly and nearly 200 million parcels are delivered. Everywhere, new entrants are challenging existing transport practices. Online providers leverage mobile to create new relationships with travelers. Marketplaces exploit peer-to-peer to move from a world of vehicle possession to one based on usage. New players use the power of real time data to offer personalized door-to-door travel and logistics services. Today’s changes represent immense opportunities for organizations to place themselves at the heart of next-generation multimodal transport ecosystems. Opportunities and focus for 2020 to next five years are more towards collaboration

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GOVERNMENT INTENT & ACTION While the gaps remain, industry leaders are of the view that the Government has shown real intent towards bringing down overall logistics costs by enhancing the use of the country’s waterways. However, while coastal movement takes care of the longdistance port to port movement in the supply chain, robust first and last mile systems are required in the form of DFCs. Giving an example, Eshaan Lazarus highlights, “In the Konkan region, DFCs that connect west to east are the need of the hour. Additionally, having wide and smooth roads, especially in the mountainous sections

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Ravi Soni, CEO, Grus & Grade

KEY RECOMMENDATIONS A. Investment Environment

• Design robust routes for demand-responsive transport system • Initiate policy guidelines to allow hundred percent foreign direct investment through automatic route • Improve Ease of doing business for Multimodal transport operators • Establish regulatory bodies in the segment to mitigate buyer supplier conflicts

B. Infrastructure Development

• Develop SEZs for MMT Hubs • Robust Road, Rail & Port infrastructure for multi-factor transport network. • Build up dry ports, inland ports, logistical hubs to decongest ports and supplement movement of goods through various models of transportation.

C. Technological Development

• Technological interventions and innovation in the sector for efficiency • Incentivize investment in technology, research & development activities • Set up MML data and logistic centres • Introduce industry 4.0 interventions

D. Environmental protection for sustainability

• Improve fuel economy through MMTS • Reduce CO2 emission by reducing burden on roads and transport cargos through rail or water.

E. Policy framework

• Make a coherent state and central law for all clearances. Custom checks, inter state border checks ets needs to be made more transparent • Simplification of laws and rules • Decomposing bureaucratic hurdles

expediting utilization of coastal shipping & Inland water transport ways and ameliorating the sectoral challenge of non-availability of adequately trained manpower. Rajeev Vijay concludes, “For the government to bring down logistics costs, particularly post GST, it is important some of the landmark logistics parks be developed in India

at right locations. There are many markets where there is a need for such facilities to make our industries more competitive. For anything to be successful in logistics, the primary requirement from such facilities though remains is the agility to meet the market requirements, which any successful logistics park must deliver.”

INTERVIEW

Creating the

NECESSARY STANDARDS

“The entire value chain, comprising of manufacturer, retailer or logistics service provider, needs to know exactly where their shipments of goods are, at any time, where they have come from, and when & where they are due to arrive. Identifying, capturing and sharing information about the movement of products—and the digitalization of everyday business processes—not only enhances interoperability between stakeholders but creates a highly efficient, sustainable and collaborative logistics environment. GS1 is working to achieve fully accurate, real-time visibility throughout the supply chain, from source to consumer, no matter what the mode of transport is,” stresses Ravi Mathur, CEO, GS1 India, during an interview… How alarming is the issue of counterfeiting globally and in India?

Fraudulent product warranty claims: With fraudulent products comes

According to the Global Brand Counterfeiting Report 2018, the amount of total counterfeiting in the global market had reached 1.2 Trillion USD in the year 2017 and was projected to reach 1.82 Trillion USD by 2020. You will be alarmed to know that even a country’s most crucial products and equipment are counterfeited, let alone luxury goods and other high value items. The same 2018 report also says that the online counterfeiting led to 323 Billion USD loss in the year 2017. The challenges of counterfeiting are many, which include:

fraudulent claims. The counterfeit products for obvious reasons are availed of by the consumers at comparatively much cheaper rates because of the usage of compromised quality materials and poor-quality treatment. Thus, their longevity also gets compromised.

Loss of sales revenue and profit margin: With the influx of cheap and exact replica of real products, people fall for the same. The cheap price and easy availability of the same being the reasons, the existing original brands or businesses start losing on sales revenue, and profit margin.

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Product liability claims: With counterfeiting comes no product liability claim. So, in case you encounter defective or damaged products or not getting adequate warnings or instructions regarding the product, or even the warranty, you do not have the option to complaint and seek for the product liability claims. The reason being is that you cannot trace the origin of counterfeit products.

Damage to brand and product reputation: A layman cannot distinguish between original stuff and a counterfeited one. For him, a replica

Ravi Mathur has been driving adoption of global standards and best practices in India which help in enhancing operational efficiencies of organizations across Industry sectors and facilitate compliance with regulatory requirements worldwide. This effort extends now to online commerce and digital marketing for empowering shoppers to make informed choices. He has 40 years of experience across Industry & Service sectors in varied responsibilities and functions, which include business strategy development, sales & marketing for domestic and int’l markets, general management, etc., in leading multinational companies like L&T, GE, Sprint RPG, etc. Mr. Mathur is a graduate in Mech. Engineering from IIT Delhi. He has also undertaken a comprehensive course in International Trade & Marketing from Indian Institute of Foreign Trade, New Delhi.

GS1 started with the barcode, which was first scanned in 1974 at a Supermarket in Ohio. From then, GS1 standards have evolved to enhance efficiency, safety, and visibility across industry sectors. seems to be the original one. But when replicated products do not live up to the quality of the brand, the brand and the product’s image get hampered. And most importantly, the customer’s faith in the brand gets shaken. Thus, the customer’s trust shifts from the existing brand to some other brand.

How does Traceability help? With intrusion of fake goods in the market, traceability can help brands or even small-scale businesses survive. Traceability is divided into two major segments – unit traceability and batch traceability. Unit traceability allows tracing of every single unit and batch traceability allows tracing of the entire batch. Every original brand/business uses a barcode on its product. With Traceability system in place, brand owner can locate the entire batch of the product or any single product of the batch, from the supply chain and can take corrective measures if needed. GS1’s traceability provides a solution to

such business problems.

Tell us more about GS1 Global and its journey in India... GS1 was set up in response to challenging environments retailers and suppliers of FMCG companies were facing. These retailers were then grappling with the problem of uniquely identifying retail products in the supply chain, and at the same time, providing visibility to all the stakeholders in the supply chain – be it for raw material providers, manufacturers, or distributors, etc. There was a need for unifying out internal coding systems for identifying products. In a nutshell, the basic premise of GS1 has been to help Industry enhance efficiency and profitability in their supply chains through the adoption of global standards. GS1’s global scale and reach – local Member Organizations in 115 countries,

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1.5 million user companies and 6 billion transactions every day – help ensure that GS1 standards create a common language that supports systems and processes across the globe. GS1 India is an affiliate of an international body – GS1 Global, which is headquartered at Brussels. Talking about our footprints in the Indian market, GS1 India was set up under the umbrella of Ministry of Commerce and Industry, Government of India, along with CII, FICCI, ASSOCHAM, FIEO, IMC, BIS, Spices Board, APEDA, and IIP, in the year 1996. GS1 standards improve the efficiency, safety and visibility of supply chains across physical and digital channels in 25 sectors.

How do GS1 standards help and what is their scope for SMEs? GS1 standards facilitate unique and universal identification, capture and share of information on products

and services, from point-of-origin to point-of-sale or dispensation. Most commonly, GS1 standards are used in barcoding of consumer items and they enable important applications, such as product authentication, track & trace, product recall, real-time stocks monitoring, online selling and more. When industries use GS1 standards, consumers benefit from enhanced product availability, safety & security, and making better purchasing decisions whether shopping online or offline. GS1 System of Standards create a common foundation for business by uniquely identifying, accurately capturing, and automatically sharing important information on products, locations, assets, and more. GS1 standards make it possible for companies to speak the same language, connect with each other, and enable visibility in the supply chain, irrespective of their geographic locations.

INTERVIEW

One of the key underlying causes of the growth of counterfeiting is the inability of current supply chain systems to effectively identify counterfeits. The answer lies in greater visibility, traceability and transparency across supply chains from raw material to point of sale/use. GS1 and its interoperable standards support industry and government agencies to put effective solutions in place to tackle this problem. GS1 standards are becoming increasingly important for small businesses to sell online. Marketplaces, like Amazon, eBay, Flipkart and Google Shopping use unique GS1 barcode numbers (Global Trade Item Number - GTIN) to manage their vast

quality and safety from consumers  Increased demand for quick and efficient responses to questions regarding product ingredients from regulators  Need for immediate and effective product withdrawals/recalls in the

platforms only facilitate trade between buyers and sellers without physically handling goods, making it easier for counterfeiters to flourish. One of the key underlying causes of the growth of counterfeiting is the inability of current supply chain systems

product catalogues. With unique GS1 barcode numbers, marketplaces can help shoppers find, compare and buy products more easily.

event of a crisis  Increased demand for product authentication and counterfeit detection to protect brand integrity and consumer safety GS1 standards provide the necessary framework required to support a seamless traceability system. GS1 Global Traceability Standard (GTS), developed in 2005, with the active participation of global industry, defines the globally-accepted method for uniquely identifying and sharing information on – trading partners, trading locations, trading items, logistics units, Inbound and outbound shipments. With business challenges that relate to traceability solutions increasing in number and complexity, and with newer emerging technologies, GS1 has developed GTS 2. The updated standard includes references to new technical possibilities such as EPCIS. There are references to new data and event-sharing architectures such as the possibility to connect databases and to search for information in the “cloud”. GTS 2 is global and multi-sectorial and meets the needs of all industries and geographies.

to effectively identify counterfeits. The answer lies in greater visibility, traceability and transparency across supply chains from raw material to point of sale/use. GS1 and its interoperable standards support industry and government agencies to put effective solutions in place to tackle this problem. GS1 standards provide the much-needed foundational layers and building blocks that allow organizations to focus more on how to use the information rather than how to get the information. They help in improving collaboration, traceability, transparency, security, and visibility in the supply chain.

What are the applications of GS1 standards? Inventory Management: Effective inventory management is all about keeping the right product in the right place at the right time and in the right quantity. Or, in other words, it is about keeping an optimal stock of products at various storage centers to ensure continued customer service at the desired level. Inaccurate inventory counts can also lead to the mismanagement of products with expiration dates, especially for fresh foods, pharmaceuticals, and medical supplies. The identification and sharing standards of GS1 System are ideally suited to uniquely and accurately identifying and tracking inventory as it moves through the supply chain, thus enabling efficient inventory management.

Traceability: The ability to track and trace goods across multiple trading partners with real-time visibility and quickly respond to market needs is the key to a successful and efficiently managed supply chain. In this context, businesses such as manufacturers, logistics providers and retailers are facing a multitude of challenges, which include:  Higher than ever expectations of

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Authentication & Counterfeit Detection: Counterfeit products are a threat to consumer safety. The increasing level of counterfeit activity in all sectors poses a huge challenge to industry and governments around the world. More so with today’s online marketplace models, where e-commerce

Product Recall: A great threat to success in any industry today is the possibility of a devastating recall that can destroy reputation and brand image of a company as well as raise consumer safety issues. Worldwide, businesses, consumers and regulators have a common interest in establishing an affordable, uniform, and interoperable processes that can enable supply chain partners to initiate a rapid and efficient recall and track its progress through to its conclusion, consistently ensuring that the identified product is no longer available for consumption. An effective recall needs seamless data flow among supply chain partners with unambiguous and unique identification of products, consignments, locations, parties, and documents. The GS1 product recall solution,

GS1 standards are open, interoperable, user driven, and extensively used in supply & demand chain management. Open standards enable interoperability, flexibility, and vendor independence, which result in reduction of costs of end-products to businesses and consumers. Flow of physical supplies and data sharing/ querying also become faster, more accurate and seamless across multiple trading partners in supply chains. based on GS1 Global Traceability Standards, was developed in response to growing stringent regulations worldwide on product recall, concerns on consumer safety, the increasing need for sustainable sources of supply and the growing emphasis on the necessity of ethics in trade.

Please enlighten us on use of GS1 barcodes in pharmaceuticals. GS1 standards enable authentication and verification of pharmaceuticals drugs by making it possible to uniquely identify, capture and share important information about consignments with Regulators and patients across the

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world. Pharmaceutical companies, across the world, mark their consignments with GS1 barcodes at various packaging levels and upload this information along with product hierarchy (parentchild relationship). More than 3000 companies comply with GS1 barcoding standards in India.

Share with us some of the success stories. Well, there are many success stories that we have brought out towards enhancing traceability in the supply chain. One of the most successful one is about Indian Railways, which uses GS1 identification standards to track wagons and coaches. Indian Railways uses GS1 identifiers, encoded in radio frequency tags, to manage and know which of its assets – wagons, coaches and locomotives – are located where. This also helps Indian Railways capture data accurately on these assets while in transit and use this information for more efficient utilization of its rolling stock. For unique identification of its rolling stock, Indian Railways uses EPC/ RFID tags designed by the Centre for Railway Information Systems (CRIS) encoded with GS1’s GIAI-202 standard. These tags have a user memory area that allows the information stored in them to be read and used, without any backend network connectivity. Till recently, Indian Railways uniquely identified 3,500 wagons and tested the design of radio frequency tags at a speed of over 180 kmph. Trackside readers installed in between stations and other key points can read these RFID tags from a distance of one-and-a-half meter and transmit the vehicle identity over a network to a central computer. Indian Railways also plans to integrate these tags with trackside equipment for runtime detection of maintenance parameters.

What are the global best practices implemented in transforming last mile delivery? With access to products from around the world, customers are making purchase decisions more frequently, and for smaller orders. As customers interact across multiple channels, vast amounts of data is being collected by omni-channel stakeholders. There is an opportunity (and a challenge) to

turn this customer intelligence into actionable insights and visibility for improving how deliveries are made in the last mile. Clearly, new transport & logistics (T&L) paradigms are needed to deal with the challenges of this new buying environment—where the power resides with customers. Luckily, new innovative models are emerging. In the European Union (EU), a standardized parcel label has been created to enable interoperability amongst all stakeholders in the supply chain. Similar standardization initiatives have been implemented and are developing in countries like Australia and China. Urban consolidation centres are also being implemented—impacting the flow of deliveries into cities and the flow of information between trading partners. By using a common set of standards, all stakeholders can gain visibility into deliveries made and achieve a higher drop-density rate. Parcel lockers are gaining popularity, helping to streamline the delivery of orders to multiple customers, and from multiple sellers. These lockers can provide significant cost savings and ease last-mile fulfilment challenges. Additional cross-border savings can be realized through special services that combine deliveries in the retailer’s country for transport to the customer’s country. With the mix-move-match concept, delivery consignments are built close to customer delivery locations; and with collaborative routing centres, shipments are bundled by multiple shippers and carriers. This reduces the number of trucks required and provides relief from traffic congestion around customer locations. In fact, some stakeholders like manufacturers and LSPs are partnering to fully utilize space on each company’s trucks for time and cost savings, and ultimately, greater customer satisfaction. GS1 standards can provide these emerging services and innovations with a necessary and beneficial foundation of unique identification—of trading partners, locations, logistics units, shipments and assets. When used by all trading partners, GS1 standards enable the seamless flow of physical deliveries along with the flow of information— propelling the transformation of the last mile for the benefit of all.

FEATURE

Audit in

Logistics audit is not statutory and that’s why logistics audit never gets priority within organization. Only inventory audits are done in companies in order to ascertain inventory accuracy and valuation, which has an impact on financial reporting of the organization. In the era of competition, such audits are more relevant, as these audits pinpoint gaps and shortcoming in the process and cost structure.

LOGISTICS & SUPPLY CHAIN While scope of logistics audit is quite comprehensive, it’s not a cost audit, instead it’s a comprehensive audit of processes, practices and cost. Objective of Logistics Audit is to examine organization’s competitiveness and robustness of logistics operations, efficiency and cost, writes Vikash Khatri, Founder, Aviral Consulting Pvt Ltd.

UDIT is an official inspection of an organization’s accounts, officially by an independent body. The word is predominantly used in financial accounting. As audit of financial accounts is mandatory as per accounts, Audits are conducted to check fairness of statements, adherence to policies, detection / prevention of errors and frauds by an independent body. The objective of audit is to provide fair and transparent view on accuracy and compliance within the organization. Like financial audit, certain functions / domains have adopted audit concept

successfully like cost audit, risk audit, security audit or energy audit. Some of these are mandatory by nature for specific industries like cost audit, while others are non-mandatory by statute. Adoption of audit in non-mandatory areas is still not very good. One of the major reasons for poor adoption of audit is linked to perception about it. Most of the time, audit is considered an activity to find fault and auditee function does not welcome it. Logistics audit is not statutory and that’s why logistics audit never gets priority within organization. Only inventory audits are done in companies

Supply chain procurement requires a robust structure. It procures to pay audit of supply chain, which covers RFQ process audit, vendor selection process audit, contract audit, payment audit, bill audit, etc. Efficiency of supply chain procurement has a direct impact on cost and also avoids any biasing in overall process. 30 CELERITY May - June 2020

Vikash Khatri is a management consultant with an experience of over 20 years in Strategy, Business Transformation & Supply Chain. He has varied industry expertise with business verticals like Logistics, Healthcare and FMCG. A management graduate from IIM Indore, he has also completed certification in Strategic Innovation in Organization from Vanderbilt University USA. Currently he is engaged with Aviral Consulting Pvt Ltd, which he has founded in 2016. Aviral Consulting serves in the domain of Supply Chain and Business strategy.

in order to ascertain inventory accuracy and valuation, which has an impact on financial reporting of the organization. Inventory audits have no link with competitiveness and robustness of logistics processes. While scope of logistics audit is quite comprehensive, it’s not a cost audit, instead it’s a comprehensive audit of processes, practices and cost. Objective of Logistics Audit is to examine organization’s competitiveness and robustness of logistics operations, efficiency and cost. This activity also provides recommendations and guidelines on logistics management to improve overall efficiency.

The SUBSETS Logistics audit comprises of quantitative and qualitative audit. This audit comprises of following subsets:  Logistics cost audit: Transportation and warehousing  Logistics process audit  Logistics procurement audit  Logistics performance audit  Logistics technology audit Most of the activities in logistics and supply chain are outsourced. Logistics cost audit also ensures that cost of outsourced activities is aligned or lesser than the industry benchmark. Logistics

cost benchmarking can be done through various ways such as activitybased cost model, comparison with industry peers or mystery checks. Audit process also checks that price discovery mechanism of organization determines the best possible cost. The cost audit is applicable on transportation and warehousing both. In case of large and complex network of supply chain, audit of each lane and warehouse might not be possible. In such cases, audit scope can be for certain outward location, certain inward location, certain warehouses, which can be selected based on outlier data or random basis. The audit process also aims to find the unwarranted wastage and leakages in logistics cost head. Second part of logistics audit is process audit, which is an examination of outputs to ascertain whether the logistics activities and resources are being managed efficiently. It is entirely different from transaction audit. Process audit’s outcome suggests removal of redundant / non-value add activities and may also suggest inclusion of few new processes, which can add value. One of the core objectives of process audits remain to achieve seamless flow in supply chain. Therefore, scope of process audit is quite comprehensive and includes various processes like warehousing process, transportation process, vehicle indent process, placement process, etc. Procurement of logistics function comprises of overlapping activities between supply chain function and logistics function. Various factors like demand & supply and seasonality impact pricing trends in market specially in transportation segment. So, supply

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chain procurement requires a robust structure. Basically, it procures to pay audit of supply chain, which covers RFQ process audit, vendor selection process audit, contract audit, payment audit, bill audit, etc. Efficiency of supply chain procurement has a direct impact on cost and also avoids any biasing in overall process. Fourth part of performance audit

to improved utilization of control tower services.

deep dives into the performance indicators and measurability matrix of supply chain. A study shows that most of the time performance measurement of logistics partners take a back seat in the organization. Only handful of organizations have institutionalized robust process of periodic performance review. While regular service performance reviews highlight all issues and act as preventive measure to avoid risk. This audit reviews the process of vendor performance matrix and frequency on various parameters. Regular and structured review pinpoints bottlenecks and issues impacting supply chain on which organization and its vendors can work for improvement. Last but not the least part of logistics audit is technology audit. This is not technical audit, instead its functional audit. This audit deep dives in area, where technological intervention can improve the productivity in logistics. In a full-blown form, such audit can lead to business case for supply chain automation. Now a days, organizations use outsourced service of control tower for monitoring logistics operations. The success of such outsourced control tower depends on best utilization of available tools and smooth coordination

external audit can help in the following way:  Identification of commercial gaps which can help in cost reduction  Identification of leakages of cost if any  Identification of process gaps of transportation and warehousing leading to inefficiency  Setting up process of structure performance measurement matrix to evaluate partners  Identification of supply chain risk and plan to mitigate them  Performance improvement by challenging existing non-value add practices  Support in development of new strategies to drive supply chain forward In the era of competition, such audits are more relevant, as these audits pinpoint gaps and shortcoming in the process and cost structure. In broader view, audit will help the organization, but in myopic view, it can be considered as an activity to pinpoint the errors. Such audits are not statutory, so it can move forward only when functional team take a participative view to improve efficiency.

The SCOPE & IMPACT The scope of logistics audit is quite comprehensive. Due to its nature, it becomes a tool for supply chain head to check their efficiency. Many a times, some critical things get missed due to routine work. In such scenario, such

with service provider. This audit of control tower and its scope leads a way

FOCUS

CIRCULAR KARMA A circular economy requires all supply chains to think creatively about waste by redesigning products, components and packaging to create safe compostable material enabling more products to be built. Wherever the raw materials of the product are not biodegradable, recycling the metals, alloys to make it useful beyond the products shelf life is needed. Rethinking on mechanism to return, renew and reuse is the key. In view to this, Artificial Intelligence is helping supply chains to be economically circular, writes Raghavan Santhanam, Senior Consultant, Stratadigm.

COVID-19

outbreak has forced people to become philosophical and has highlighted the importance of not interfering with nature. Almost all agree with Newton’s third law, which states that “For every action, there is an equal and opposite reaction”. The law of Karma also states the same. The Sanskrit word Karma simply means “action.” In essence, "what goes around comes around." Nothing illustrates the interference with nature better than the current state of the Supply Chain in the fashion industry, which basically takes raw material, makes and disposes after usage. This take-make-waste describes the linear approach humans have taken. Fashion industry valued at over trillion dollars, expected to triple by 2050, has issues of human rights abuses, clogged landfills due to end of use clothes (synthetic and non-synthetic), ocean polluting micro plastics because of chemicals, dyes used in processing of textiles. Every second, the equivalent of one garbage truck of textiles is landfilled or burned. Of course, these issues exist in all industries and it is unfair to single out any one industry. Every time we dispose off a mobile phone to get a new one, or a new fridge or a new washing

32 CELERITY May - June 2020

machine, we are contributing to a linear economy. This then brings us to the question – is there is an alternate way? A circular economy requires all supply chains to think creatively about waste by redesigning products, components and packaging to create safe compostable material enabling more products to be built. Wherever the raw materials of the product are non-biodegradable, recycling the metals, alloys to make it useful beyond the products shelf life is needed. Recovering and restoring products, components, and materials through strategies like reuse, repair, remanufacture or (in the last resort) recycling is critical. Rethinking on mechanism to return, renew and reuse is the key. All transportation using renewable energy then completes the circular economy. The circular economy, in essence, is a closed loop based on the 7Rs – Reduce, Reuse, Renew, Repair, Recycle, Recover and Redesign. According to the Ellen Macarthur foundation, a circular economy is based on the principles of designing out waste and pollution, keeping products and materials in use, and regenerating natural systems. A circular economy is one that is restorative and regenerative by design.

related ambitions of a circular economy. Hence it is critical that organizations pay attention to incorporating circular economy principles while designing their supply chain.

IMPLEMENTATION CHALLENGES & SUPPLY CHAIN

Raghavan has over 25 years’ experience as a supply chain strategist, business operations and consulting professional in multiple industries across US, Europe and Asia Pacific. He was awarded “Transformational Leader” at the 2019 Asian Thought Leadership Summit on logistics and supply chain management for his achievements in digitizing sourcing and third-party risk management at Standard Chartered Bank. As a senior management consultant supply chain consulting practice at IBM GBS USA, he has helped fortune 500 companies save millions of dollars in annual hard cost reduction.

CIRCULAR ECONOMY The World Economic Forum defines ‘circular economy’ in a report as follows: “A circular economy is an industrial system that is restorative or regenerative by intention and design. It replaces the end-of-life concept with restoration, shifts towards the use of renewable energy, eliminates the use of toxic chemicals, which impair reuse and return to the biosphere, and aims for the elimination of waste through the superior design of materials, products, systems and business models.” Many organizations and CEOs across industries have stated sustainability as their goal. Circularity and Sustainability are used interchangeably; however, they are different. According to the US Chamber of Commerce foundation, the practice of circularity is focused on a human construct designed to support the conversion of raw materials for human consumption beyond simple survival needs of food and water. The intentional design of a system is what separates circularity from sustainability. Many governments have realized and are encouraging the adoption of circular economy principles. At a global level, the Sustainable Development Goals, adopted by the United Nations Member States in 2015, include many

Some would argue that the implementation of Circular economy in manufacturing companies is being done through Product Service Systems (PSS). Product Service Systems promote a focus shift from selling just products to selling the utility, through a mix of products and services while fulfilling the same client demands with less environmental impact. However, one should note that PSS might lead to inefficient practices and less circular models because of the rebound effect.

An example of the rebound effect is the way in which fuel efficiency improvements in passenger cars have made driving cheaper, resulting in users driving more and buying bigger cars (direct effect) and/or spending the remaining savings on other products (indirect effect). As a result, total fuel and energy savings are reduced. Therefore, it is important to look at all supply chains through the prism of circular economy afresh. Technology is also altering the model of society’s consumption pattern to a sharing model. Pooling of resources and provision of services on demand is a reality today. The growth of platforms worldwide like Uber, Ola, Airbnb have propagated a buy-less, share-more ethos in the last ten years. Connected objects, automation and robotization is now a reality. This augurs well for the

implementation of circular economy principles. Artificial intelligence is now gaining acceptance across supply chains more than ever. This maybe the right time for all supply chains to relook at how artificial intelligence can be applied to convert linear economies to circular economies. Firstly, artificial intelligence has enabled faster and agile learning processes through iterative cycles of designing, prototyping, and gathering feedback. The increased virtualization is enabling design of circular products, components and materials. Secondly, advances in digital technology has enabled collection of real time data from products and users. This is leading to de-materialization, the capability of doing more with less by looking at circular business models like product-as-a-service and leasing.

The increased virtualization is enabling design of circular products, components and materials. Advances in digital technology has enabled collection of real time data from products and users. This is leading to de-materialization, the capability of doing more with less by looking at circular business models like product-as-a-service and leasing.

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FOCUS Lastly, technology led feedbackdriven intelligence has led to circular operations & infrastructure optimization through increased transparency. Reverse logistics infrastructure required to ‘close the loop’ on products and materials through advancements in sorting and disassembling products, remanufacture of components, and recycle materials is today easily creatable. End-to-End open source machine learning platforms like TensorFlow that are now available to everyone is making AI accessible to all.

TECH AT PLAY A research paper by Google, McKinsey & Company, Ellen Macarthur foundation has explored the intersection between artificial intelligence and circular economy. The research, after examining the application of AI in two value chains: food and consumer electronics, concluded that the essential similarities between the opportunities in these two industries suggests that the opportunities for AI to unlock value in a circular economy are not industry specific. Data is central for redesigning of business models and resource flows to suit the circular economy. According to Atos whitepaper, data plays a key role in sustainable sourcing, eco designing, ensuring compliance and regulation norms, organizing intercompany flows enabling “mutualization” of resources, enabling “servicization” of economy giving priority to usage over possession, allowing customers to be accountable for their choices by providing data on

FOCUS

Technology led feedback-driven intelligence has led to circular operations & infrastructure optimization through increased transparency. Reverse logistics infrastructure required to ‘close the loop’ on products and materials through advancements in sorting and disassembling products, remanufacture of components, and recycle materials is today easily creatable. environmental impact. Research by Aris, Daniela and Tim also indicates that data collection (IoT), data integration (PLM) and data analysis (Machine learning) are playing a key role in accelerating supply chains towards a circular economy. A collaborative white paper by MissionC and Fountech Solutions identified algorithms that can be developed and applied in Circular Economics across various industries. A ‘mix-and-match’ approach is what they recommend addressing potential needs. The algorithms identified were (a) data clustering (b) timeseries analysis (c) outlier detection (d) computer vision and object detection (e) chatbots (f) entity recognition (g) summarization (h) text classification. Timeseries analysis is used to detect patterns enabling prediction of future events. For example, IoT sensors attached to whitegoods such as washing machines can monitor vibration

Data plays a key role in sustainable sourcing, eco designing, ensuring compliance and regulation norms, organizing intercompany flows enabling “mutualization” of resources, enabling “servicization” of economy giving priority to usage over possession, allowing customers to be accountable for their choices by providing data on environmental impact. 34 CELERITY May - June 2020

frequencies during usage. If this data is used for maintenance, it can prolong the life of the machine. Outlier detection can help in urban resource monitoring (water consumption in a household) and healthcare to eliminate waste. This can also be used for waste materials sorting, enabling their proper separation and collection for potential secondary use. Computer vision and object detection has applicability in detecting when the crop is mature for harvesting (color, size), detecting weeds in soil. How much crop to grow and when to grow can be ascertained through analysis of end user supermarket data. Chatbots conversational agents can be used to answer queries such as origin of materials. Entity recognition has application within the healthcare and financial services industry. Prescriptions by doctors can be used to parse texts enabling creation of patient histories. Summarization can be useful where large bodies of text such as educational material need to be converted to summaries. Text classification involves using Natural Language Understanding (NLU) algorithms to parse the text and automatically classify risk of customer. Keywords such as money-laundering, imprisonment, etc., can describe someone with a high-risk profile.

COLLABORATIVE EFFORT There is no doubt that organizations would be well served to use the power of AI with a vision for a circular economy. This is still an area that is

largely untouched and an opportunity does exist to fundamentally reshape the supply chains into a circular economy that is regenerative, resilient, and fit for the long term from the current linear economy that is extractive and consumptive. According to the circularity gap report 2020, the global economy is only 8.6% circular, just two years ago, it was 9.1%. There is a desperate need for transformative and correctional solutions. A 2018 research study by WBSCD and BCG found that 97% of respondents indicated that Circular Economics drove innovation and made companies more efficient and competitive. Around 51% stated that circular activities already add to company profits. Circular economy model is not just about doing the right thing. It will generate new jobs, encourage innovation and create trillions

eco-design or lifespan of products could also support the shift to smarter practices. EU Government has already taken the lead by setting ambitious circular economy targets. In January 2018, the European Commission adopted a new set of measures, as part of a Circular Economy Action Plan that call for plastics packaging to be recyclable by 2030, a monitoring Framework on progress towards a circular economy at EU and national level. In 2016, Finland was the first country to publish a national roadmap to become circular by 2025. Netherlands aims to achieve a 100% circular economy by 2050. Significant EU investment and private funding is now available to businesses that can demonstrate use of artificial intelligence to further circular economy. For example, the European

substitutes for foods made from animal products, Motivo that has developed a computational suite to reduce waste in the manufacturing process of integrated circuits are already leading the way in terms of applying artificial intelligence to accelerate circular economy. Indian policy makers, to continue avoiding excessive degradation of natural assets, should look at their programs of much-needed development, and design it in a sustainable and circular manner. For instance, Indian policy makers have already made a start by supporting policy adjustments in the case of cold storage facilities for potato producing regions. As India embarks on its smart cities mission, circular economy principles hold great relevance. Creating buildings in cities with fully closed water, nutrition, material and energy

of dollars in net benefit. Countries also have a role in shaping the circular economy. The global adoption of a universal development model is certainly not easy and complicated by development gaps between countries. The priorities of economic players (government, cities, sectors, companies, citizen) need to be balanced while working on initiatives. The silver lining is that examples like FairPhone do exist where markets have agreed on technical and functional requirements related to modularity of components. FairPhone was founded by Bas van Abel, Tessa Wernink and Miquel Ballester as a social enterprise company in January 2013. The company's website states that its mission is to "bring a fair smartphone to the market – one designed and produced with minimal harm to people and planet". This gives hope that it is possible to implement common governance tools for a circular economy. Standards about water reuse,

Investment Bank has provided EUR 2.1 billion in co-financing circular projects. The Dutch Government has announced an additional contribution of 80 million EUR to promote Circular Economy in 2019 and 2020. Philips, a global firm, has already started incorporating circular practices, products and models into their business. 15% of its total revenues by 2020 is expected to be from circular products and services. In 2018, revenues from circular propositions was 12% (over 2 billion EUR). Adidas, Lego, IKEA, Akzo Nobel, DSM-Niaga, ING Bank and others are adopting circular business practices. Organizations like Stuffstr that help consumers to sell their used clothing back, Optoro who help retailers to manage process and sell returns, TOMRA that uses images and data from cameras to identify non uniform produce, Wasteless that helps retailers sell food before it goes bad, Notco that creates plant based

loops will pave the way for living buildings of future. Circular mobility systems in cities would be multimodal. Smart cities would use artificial intelligence to suggest best mode of transport within the city. Cities like Helsinki have adopted it. India has embarked on a bold multi-modal logistics policy. Indian cities now need to incorporate it. Food systems in cities as well as the different products in cities need to be examined. This has repercussions on waste management in cities. India is at the cusp of major transformations with a slew of announced policies. Public-private and cross-sector collaboration at a scale, not seen in India thus far, would be needed to make it a success. It is now time for the Indian private organizations to play their part by developing a circular economy roadmap leveraging on advancements in artificial intelligence.

Indian policy makers have made a start by supportive policy adjustments in the case of cold storage facilities for potato producing regions. As India embarks on its smart cities mission, circular economy principles hold great relevance. Creating buildings in cities with fully closed water, nutrition, material and energy loops will pave the way for living buildings of future. Circular mobility systems in cities would be multi-modal. supplychaintribe.com

FEATURE

“It is a time to adopt a different perspective on managing business functions. When times are uncertain, survival and risk management are more important than extracting the maximum out of a market or system. The system needs to shift focus from maximization to optimization,” stresses Alagu Balaraman, Director & Founder, Augmented SCM and MD, CGN Global India.

UR world is changing. The Indian mindset is often very insular. Except for some sectors, we tend to see ourselves cut off from the world. It is startling to consider that our total trade, adding imports and exports, is over 40% of our GDP. We are inextricably linked with the global economy. So, while our exports are much less than China’s, our ratio of total trade to GDP is higher. So, what happens in the world affects us much more than we realize, believing that we are somewhat cut off. When an economy has many points of linkages with the global economy, it is understandable that global shocks are as impactful as local ones. This can create the impression of constant and unexpected surprises in the business

environment. Companies have been accustomed to a long period of steady growth. Though the rate of growth might change, it has been one of the longest such periods in decades. During that time, businesses tend to focus on growing scale, share and profits. Companies frame strategies, structures and policies to maximize these parameters.

BUSINESSES NEED TO CHANGE GEARS In the last few years, the world economy has very different characteristics from one of steady growth. Political, generational and climate-based factors are hotly debated in societies. Change, when it happens, is often abrupt causing shocks to systems.

Alagu Balaraman works to help companies adapt and deliver better outcomes in fast changing times. To do this, he draws on over 3 decades of experience. During that time, he has played executive roles in and consulted for a variety of organisations, from large global companies to family businesses to start ups and non-profits. Currently, among other things, he is focused on an AI-based tool for enhancing sales and in building a resource base for managers who need to adapt to a changing world.

For example, trade wars have become very common, with rapid changes and roll backs in tariffs. The US and China traded customs tariffs of the magnitude of 10 to 25% in a matter of weeks. They rolled them back in months. Each time, supply chains must forecast demand, set up vendors or renegotiate contracts continuously and will struggle to realign at that speed. National policy in many countries is highly polarized, leading to dramatically different economic agendas that are decided in polls. When policy changes, it is often overnight. Natural disasters have become more frequent and severe, disrupting lives and businesses across the globe. It is a time to adopt a different perspective on managing business

Despite hiccups arising from the financial sector clean up and the current COVID-19 pandemic, it is likely that the Indian customer will continue to grow and upgrade their interests. Firms will thrive by innovating for India and embracing a “founder’s mentality”. Going beyond replicating Western models at lower cost, they need to localize and personalize products & services. The founder’s mentality refers to greater entrepreneurial thinking and agility. 36 CELERITY May - June 2020

Exhibit 1: Investors are holding stocks for shorter time periods NSYE average holding periods, 1929-2016

8 7 Average holding period (years)

THE SUPPLY CHAIN LEADER OF TOMORROW

functions. When times are uncertain, survival and risk management are more important than extracting the maximum out of a market or system. The system needs to shift focus from maximization to optimization. Though these words are often used interchangeably, that is incorrect. At a personal level, when the stock market is uncertain, you aim for safer returns rather than the highest returns. Unfortunately, most leaders have built their careers during the period of steady growth and changing gears to being prudent instead of pushing for the “big prize” is not always easy.

CLOUDED BY COST FOCUS In the last year, the Indian economy saw growth rates tapering off. After 6 consecutive quarters of decline, the growth rate had fallen from 7.95% in

6 5 4 3 8.3 months Dec 2016

2 1 0

Q1 of FY2019 to 4.5% in Q2 of FY20. This economic slowdown (not recession) threw the plans of many companies off track. It was estimated that sales growth fell from 13.5% to 4.6% in the same quarter. At about the same time, capacity utilization had finally reached a 6-year high of 76%, triggering the need for fresh investments, when the anticipated growth levels were not met, and it dropped in the middle of last year. Managers have to scramble to realign revenues, costs and investments. Towards the end of last year, there was a debate among a group of supply chain leaders on the best way that they could contribute. The group focused almost exclusively on cutting their logistics costs, an area directly in their control. Given that the logistics cost of most distribution intensive companies is anywhere between 5-10% of total

1929 1939 1949 1959 1969 1979 1989 1999 2009 Source: Ned Davis Research, December 2016

cost, these savings would have been a minor contribution at best. In the meanwhile, sales had dropped by a much larger factor. In the period from Apr to Jun 2019, car sales fell 14%, two-wheeler sales fell 11.7% and tractor sales fell 14.1%. Given the lag between production, distribution and sales, the small saving anticipated with a pure cost focus was not going to significantly help. Moreover, the core problem was not cutting costs, it was improving sales. However, that was not considered a major topic. Why this narrow world view of

2007-2010

Reducing operating costs

2010-2015

Reducing overall inventory levels

Improving customer service

Improving quality of products & services

Getting products or services to market faster

Improving customer service

Improving the quality of products & services

Getting products or services to market faster

Reducing risk Reducing carbon footprint

Figure 1 – McKinsey Global survey on challenges ahead in supply chain

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business impact? Most companies measure performance in terms of availability and cost metrics. However, when push comes to shove, the cost metrics are more important. This is to be expected. For the period from 2007 to 2015, business leaders believed the top supply chain challenge was reducing operational costs (see Figure 1). And, today’s leaders became successes by addressing this most important business challenge and often continue to focus primarily on cost. The other reason for an extreme cost focus is based on reward structures. Shareholder value has held primacy in business for the past 3 decades. For publicly traded companies, the average period an investor in the NYSE holds a stock has declined from over 5 years in the 1970s to about 8.3 months in 2016 (see exhibit 1). Are shareholders really concerned about the long-term? Do they form a deep understanding of the business to take a call on its strategies and operations? The second challenge with reward structures is executive compensation. To align management and shareholder interests, executives are rewarded for profitability and share prices. However, as executive terms become shorter,

FEATURE

Supply chain leaders will need to go beyond rolling out global templates and help shape these templates. They need to get a deeper understanding of what their external customers need. They need to change the way their functions work and how they interact with other functions to deliver superior value to customers.

there is a stronger focus on generating profits today, instead of preparing for an unknown future when someone else will be in charge. The average CEO tenure in India has been reducing and is at 4.1 years in 2019. Globally the trend has been stable or growing. Considering that the average transformation exercise

simply because it was difficult to park at one dealership versus another. A significant purchase decision was based on the availability of parking. The consumer electronic industry has clearly imprinted in the mind of people that new things are superior to old ones. Also, new things come

became critical. Today, we are twenty years away from the start of that period. Indian customers expect more. Businesses need to focus hard on what their customers will value. The lazy way is to ask customers what they value. Often, customers don’t know that themselves. It’s the job of the business

in a large company takes about 3 years, a CEO typically has one shot to try something out. So, few want to leave with moderate results and would prefer to make big bets. At the same time, more than half the companies attempting a transformation fail to achieve the desired business results. So, these big bets often don’t work out. While those behaviours were acceptable in stable times when growth covers up all mistakes, it does not work as effectively when uncertainty increases. Today, it is important to take a long-term view and act with shortterm agility. This is not impossible.

more frequently - often than one model release in a year. Today, Indian consumers even take medical care decisions based on how new the hospital and the equipment in it are. Traditionally, it was only the reputation of the doctor, but now it is more than that. So, it’s not enough to meet the customers standards in one or two areas, but to be significantly superior to competition in all critical areas. In addition to improving on cost and availability, it is vital to relook at the other parameters that today’s customers expect. When we look at them, it’s not enough to do better than what we did last year. We need to do better than what our competition will do next year. Indian companies have done competitive benchmarking in the past. Much of it has been for product features and product cost. That’s not enough. We must look at competitive benchmarks for business processes that deliver what is valued by the customer.

to figure that out and it will vary by industry, market and positioning within that market . A scan of the writing of future gazing pundits shows some common themes. Despite hiccups arising from the financial sector clean up and the current COVID-19 pandemic, it is likely that the Indian customer will continue to grow and upgrade their interests. What’s the best way to respond to this? A report tabled by Bain & Co at the World Economic Forum ends by saying – Firms will thrive by innovating for India and embracing a “founder’s mentality”. Going beyond replicating Western models at lower cost, they need to localize and personalize products and services. The founder’s mentality refers to greater entrepreneurial thinking and agility. Supply chain leaders will need to go beyond rolling out global templates and help shape these templates. They need to get a deeper understanding of what their external customers need. They need to change the way their functions work and how they interact with other functions to deliver superior value to customers.

KEEP YOUR EYES ON THE CUSTOMER AND… Business history is replete with examples of how companies failed because they stuck to what they knew and let competitors take over. From Casio and the Swiss watch makers to music streaming and the CD industry. Or, more recently, the belief that ridehailing apps are driving down passenger vehicle sales. Business leaders now need to focus on the customer and on competitors who change the game. The most powerful levers in the Indian market have historically been price points and availability. That’s not going away. However, customers are also looking for ease of doing business and innovation. In one example, a young couple needed to replace one of their cars. The choice of the brand they bought was made

38 CELERITY May - June 2020

CONCLUSION Every business believes in the mantra of being customer focused. It is usually the first line of the vision or mission statement. The problem is what companies believe customer focus stands for. A few decades ago, making products available to customers was the most important thing. Indian customers were starved of supplies in the License Raj era. Then came liberalization. With bottom-of-the-pyramid thinking and huge scale opportunities, price points

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