Vol. 01 | Issue 05 | AUGUST 2010
Rs 100/-
VIEWPOINT EDITORIAL
LOOKING AT THINGS DIFFERENTLY
Executive Editor Archana Tiwari-Nayudu Features Editor Prerna Sharma Senior Features Writer Sumedha Mahorey Senior Correspondent Shivani Mody (Bengaluru) Features Writer Sandeep Pai, Sudhir Muddana, Purna Parmar, KTP Radhika Jinoy (Delhi) Correspondents Desk Geetha Jayaraman (Delhi) Copy Desk Swati Sharma Product Desk Michael Anthony
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A
business should no more be recognised as a stand-alone entity but rather a total supply chain…a unique thought which has the capability of changing the dynamics of the logistics and the supply chain industry, if understood properly and put to use. This thought challenges the very fact that it is no more ‘smart’ to start solving the logistics and supply chain problems at a later stage of the product lifecycle. This thought prompts us to look at things differently. Each business entity needs to co-ordinate and manage the relationships with their partners in a network, committing themselves to a better, closer and more agile relationship with their end customers, as well as their counterparts often called competitors. There is a need to take joint ownership of inventory & replenishment, and a shared process of creation between two or more parties with diverse skills and knowledge, to achieve greater mutual benefits. Delivering a unified approach that provides the optimal framework for customer satisfaction is important to meet the supply chain delivery challenges. The industry also needs to jointly produce a single demand forecast, and a shared source of data with simpler control processes. Puzzled by the scattered thoughts… there are more, but before that a small insight on the genesis of these questions and concerns. While serving this industry, we at Smart Logistics have always stumbled upon the unique problems faced by this industry. The peculiarity of the situation is that we being the neutral ‘industry watch’ can envision a very radical but simplistic roadmap for this industry. And the outcome of these myriad
questions has prompted us to device ways to solve them, and since no battle is won alone, we thought of finding a way to call and connect with the industry to make it all the more efficient and growth oriented. Smart Logistics is organising a multi-region Leadership Series aimed at addressing the most critical needs of the industry. The Smart Logistics Leadership Series is all set to provide a platform to both logistics user fraternity as well logistics providers to come together and share their views and opinions on the challenges being faced by them and bring forth the sustainable ways to overcome those obstacles. We believe that it is no longer enough to build supply chains that are efficient, demand-driven or even transparent…They must also be SMART. The theme of this Leadership Series, Competitive Collaboration and Collaborative Partnership – terms hardly understood and loosely used lately – have the potential to revolutionise and light the way for the logistics and supply chain industry of today and tomorrow. Through this initiative, Smart Logistics aims to change the way this industry perceives its customers and competitors. The changing perspective, we are sure, will open-up many opportunities, often unexplored. As we strive for the sky, this initiative, we admit, is just a speck towards that spectacle. We will be reaching out to each one of you. Be a part of this initiative, be the change you always wanted to be!
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AUGUST 2010 • SMART LOGISTICS • 5
CONTENTS INSIGHTS & OUTLOOK
VOL. 01, NO. 05
22
HAZARDOUS GOODS TRANSPORTATION
Hazardous goods, if not handled properly during transit, can be a threat to people, property and the environment. With disasters occurring across the country, there is a clear need for good and efficient logistics of such goods. Such hazards occur due to lack of intelligent & systematic supervision, negligence and lack of focussed training. Proper identification of the problems, strong training & evaluation and simple & unified procedural norms and policies will help ensure secure transportation of such goods.
‘Coordination & Harmonisation – Key To Safe And Efficient Transport Of Hazardous Materials’
20
Amitabh Khosla, Country Director, IATA India
AUGUST 2010
SL EXCLUSIVE Indian Cabotage Law Towards A Transformational Phase Warehousing Development & Regulation Act 2007 All Set To Stamp Success Through Standardisation
38 40
SPECIAL FEATURE Express Courier Market Charting An Express Route To Success
44
TECH TRACK
48
IT Trends In Logistics
IT IN LOGISTICS Radioactive Material Logistics Moving Ahead With Surge In Global Demand
30
Frost & Sullivan Strategy Workshop Presenting Future Supply Chain Strategies Indian retail Sourcing, Operations & Supply Chain Summit ’10 Platforming Growth Opportunities
CURTAIN RAISER
13 14 16
Indian Container Logistics Summit ‘10 Witnessing Resurgence With Promising Prospects
VIEW FROM THE TOP ‘Mobility And Agility Are Mantras To Lead The Growth Trajectory’ Harry Himmat Lagad, Director, GATI
Transportation Management System Leading To Cost-effective, Green Business Proposition
SUPPLY CHAIN BEST PRACTICES
REPORT
50 53
Electronics Manufacturers In A Quest To Build A World-class Supply Chain
WAREHOUSING & DC
56
Smart Warehousing Evolving At A Faster Pace
LEADERSHIP SERIES
59
Eaton’s Aerospace Business Elevating Supply Chain Standards To New Heights
35
EQUIPMENT UPDATE
62
Automated Receiving System Stepping-up Productivity, Accuracy & Cost-efficiency
ALSO IN THIS ISSUE VIEWPOINT NATIONAL NEWS PROJECT UPDATE NEWS ANALYSIS PRICE TRENDS WORLD NEWS PRODUCT & ADVERTISERS’ INDEX PRODUCT & ADVERTISERS’ INQUIRY FORM 6 • SMART LOGISTICS • AUGUST 2010
5 8 10 11 17 18 66 67
NATIO AL EWS ■
GST: CENTRE AGREES TO COMPENSATE STATES FOR LOSS OF REVENUE
The Centre and states have came closer to ink a deal on the structure of the ambitious indirect taxes reform, the Goods & Services Tax (GST), after the Hon’ble Finance Minister agreed to compensate the states fully for any possible loss of revenue from shift to the new tax, brightening the prospects for its rollout from April 1, 2011. However, a few hurdles remain in the form of apprehension that the proposed structure would erode the states’ constitutional power to levy taxes, but these are being addressed by the finance minister at the level of political parties as well as at the level of the state governments. Asim Dasgupta, Panel Head & Finance Minister, West Bengal, says, “We have made remarkable progress on major issues...The convergence process between the views of the states and the Centre has progressed significantly and a consensus is emerging on the GST structure.” In line with the recommendations of the empowered committee of state finance ministers, the Centre has proposed a three-rate structure for GST, under which goods will attract a levy of 20 per cent, services 16 per cent and essential items a concessional rate of 12 per cent. The levy is proposed to be split evenly between the states and the Centre. The panel had suggested a dual-rate structure for GST with a 10 per cent rate for essential items and 20 per cent for others. Hon’ble Finance Minister also told the empowered panel that the GST should eventually move to a single-rate 16 per cent (8 per cent from the state’s side plus 8 per cent from the centre’s side) structure in the third year of its operation. In the second year, the rates are proposed to be lowered to 12 per cent for essential goods, 18 per cent for others and 16 per cent for services. Proposal also includes a list of 99 essential items exempted under the value-added tax regime. Alcohol, petroleum and electricity for example would remain outside the GST structure. Dasgupta, however, remained non-committal on the rate structure proposed by the Centre. “Rates are determined almost at the end. Certain rates were proposed by the Centre. We are still discussing the matter. We can’t go public unless we have the consensus,” he says. The GST is India’s most ambitious indirect tax reform that would replace existing state and central taxes such as excise duty, Service Tax and Value Added Tax and Purchase Tax. It is a consumption tax that will create a seamless pan-India market and also bring down the total incidence of taxes on goods and services by eliminating levy of tax on elements of tax already built into the price of a good or service before that stage of taxation (known as cascading of taxes). ■
‘EXPORT SECTOR MUST BE BUOYANT ENOUGH TO SUSTAIN ITSELF’
Reacting to the Reserve Bank of India’s (RBI) latest data on
8 • SMART LOGISTICS • AUGUST 2010
credit offtake, A Sakthivel, President, Federation of Indian Export Organisations (FIEO) said that while the trend showed a robust 19.6 per cent growth vis-à-vis 15.7 per cent last year and close to the targeted 20 per cent as per the monetary policy, much of it was focussed towards infrastructure, auto and auto ancillaries. According to the FIEO chief, considering global slowdown and the faltering growth in the US, it would be prudent to assess export credit requirements, growth, and set separate targets which could be monitored periodically so as to ensure that the export sector was buoyant enough to sustain itself. As of now, he pointed out, no data was readily available with RBI on credit offtake pertaining to exports, which would be crucial information since markets were shrinking and buyers defaulting due to high rate of insolvencies. Such buyers, Sakthivel pointed out, were generally protected by the laws of their land and, by simply declaring themselves insolvent, they were unilaterally absolved of all liabilities, leaving the exporter ‘high and dry’ with insurance claims, if any, to fall back upon. This issue needed to be addressed at the highest level by the Union Ministry of Commerce with the country’s trading partners, Sakthivel stressed. ■
CENTRE ROPES IN PRIVATE SECTOR TO CONSTRUCT WAREHOUSES
Scarcity of warehouses and increased food grain production has prompted the Centre to rope in private players to construct storage facilities under a seven year guarantee scheme. The government has already approved a capacity of 12.76 million tonne under the programme. The Centre’s move was crucial following the acute storage of warehouses over the last few years with the Food Corporation of India procuring 20-25 million tonne of wheat every year. This season, FCI has procured over 50 million tonne of food grain – 25 million tonne each of rice and wheat. While the existing wheat stock with FCI is 33.6 million tonne, nearly 17 million tonne is lying in the open and 12 million tonne in Punjab due to unavailability of godowns. The recent flood in Punjab and Haryana has affected the wheat stock lying in open. An FCI spokesperson said they are yet to make an assessment of the losses due to flood because the area is still submerged under flood waters. The quantum of damage would depend on the level of water because the foodgrain has been stored over two feet above the surface. The Centre has sent a team for assessing the impact of flood on such stocks. The Centre has allocated Rs 149 crore, out of which Rs 125 crore would be released to FCI as equity for construction of storage godowns. The remaining Rs 24 crore would be released as Grants-in-Aid to the North East, Sikkim and Jammu & Kashmir for construction of godowns. Meanwhile, the Confederation of Indian Industry recently announced the launch of its warehouse rating services. Warehouse certification is a new initiative of CII, under which
it assesses and certifies the overall functionality of a warehouse. As per the recent reports, logistics cost is around 13 per cent of the national GDP, with warehousing activities accounting for 22 per cent to 27 per cent of total logistics costs. With the economy on a sound footing now, warehouse services are bound to play a crucial role. ■
STATE-OF-THE-ART LOGISTICS PARK NEAR CHENNAI
City-based Shri Kailash Logistics (SKL) recently launched Logicity, a logistics park, at Oragadam, partnering with Singapore’s BPS Global. Oragadam is emerging hub for supply chain and logistics services. Logicity will have one million square feet of modern warehousing, container freight station, built-to-suit units and value added services such as third and fourth party logistics. The first phase of the park will involve development of 30 acre at an outlay of Rs120 crore. The second phase will see the park expand over 100 acre. The company hopes to attract the automotive, fast moving consumer goods (FMCG), retail and other industrial sector as its clientele. SKL is part of the Rs 300 crore Shri Kailash Group having interests in paper mill, construction, waste management, transportation and warehousing. ■
RAILWAYS FREIGHT REVENUES UP BY 7 PER CENT IN JUNE 2010
The Indian Railways freight revenue touched US$1.03 billion in June 2010, an increase of 6.99 per cent from the corresponding month in 2009. The growth in revenue was supported by commodities including cement, coal, foodgrains, fertiliser, iron ore, and mineral oil. The Railways freight increased to 79.94 million tonne (MT) of goods, a marginal growth of 0.47 per cent in June 2010 from the corresponding month in 2009.
The Railways earned 96 per cent more by moving one tonne of iron ore meant exports for one kilometre in June 2010 as against June 2009. The earnings can be attributed to various factors including increase in fare, handling and other supplementary charges. Similarly, the Indian Railways earned about 22 per cent more by moving one tonne of goods in containers for one km during the period.
■
APEEJAY TO SET UP LOGISTICS PARKS IN BENGAL, ORISSA BY YEAR-END
Apeejay Infralogistics, a JV between Apeejay Surrendra Group and Eredene Capital Plc, UK, hopes to commission the first phase of its two integrated logistics parks at Haldia (West Bengal) and Kalinganagar (Orissa) towards the end of this year. Giving this information on the project, Sourav Daspatnaik, Director, Apeejay Surrendra Group, said, “We have just received the Commerce Ministry’s approval for setting up an inland container depot (ICD) at Kalinganagar while the same for Haldia was received earlier.” The Haldia integrated logistics park, estimated at Rs 200 crore in phases, would come up on over 90 acre while the one at Kalinganagar, costing Rs 60 crore, over 30 acre. The Kalinganagar logistics park, he said, would be different from the one at Haldia because it would cater to the requirements of the steel units coming up in the area. “The big names in steel such as Jindals, the Tatas, and the Visa Group are present at Kalinganagar,” he said. The Haldia outfit, on the other hand, would be much bigger and much more diversified because it would cater to the cross-section of industry. “Haldia as a port, no matter whether river port or handling the ocean-going vessel, will never lose its importance because of its linkage advantage,” he observed. In the first phase, the Haldia outfit would be complete with an ICD, warehousing facilities - both covered and open, truck terminal and trade facilitation centre and other facilities. Similar facilities, though on a smaller scale, too were being created at Kalinganagar, he added. ■
DAWN OF SINGLE CUSTOMS PERMIT REGIME FOR EXPORTERS
In a move to bring down transaction costs and time, exporters will now be issued single customs permission for their consignments that will be valid at all the 34 shipment ports, the Revenue Department has said. Earlier, exporters required station-wise customs permission to despatch their shipments. “It has been decided by the Central Board of Excise and Customs (CBEC) to provide for the grant of a single factory stuffing (container) permission valid for all the customs stations instead of customs stationwise permission,” the Department said. Exporters, however, would have to provide a list of ports to the CBEC they want to despatch their goods from. A task-force headed by the Minister of State for Commerce and Industry, Jyotiraditya Scindia, had recommended a single permit regime for exporters for all the customs stations. Transaction cost works out to 7-8 per cent of total export value in the country at present. This move is expected to not only bring down costs but also save time. The country has 34 airports, seaports and inland container depots, which have provisions for electronic customs clearance. About 90 per cent of the exports take place from these locations.
AUGUST 2010 • SMART LOGISTICS • 9
PROJECT GUJARAT GOVERNMENT CLEARS
3 SHIPBUILDING PROJECTS
According to reports, keeping up with its enhanced focus on shipbuilding and ship repair, the Gujarat Government has approved three projects, worth Rs 1,070 crore, for development of shipbuilding yards. The projects include yards along the north bank of Narmada near Dahej, and the old port of Bhavnagar, where private players will be constructing small-to-medium-sized vessels. The three companies which have received approval for developing shipbuilding yards are Modest Infrastructure at Nava Ratanpara in Bhavnagar, Dolphin Offshore at Jafrabad in Saurashtra and Bombay Marine at Koliyad near Dahej. The State Government, through the Gujarat Maritime Board (GMB), had earlier this year come out with a comprehensive Shipbuilding Policy to promote shipbuilding and related activities along the state’s coastline.
VIZAG SEAPORT TO INVEST RS 150 CRORE
IN BULK MATERIAL HANDLING FACILITY
Vizag Seaport (VSPL), a public-private initiative, will invest Rs 150 crore in developing a bulk material handling facility near Visakhapatnam Port, Andhra Pradesh. Fifty acre of land has been allocated to the company by the Visakha Port. The facility will mainly handle coking coal and gypsum. Its promoters, Gammon Infra and Last In Holdings, will raise the necessary funds through the debt-equity route. VSPL has 10 major customers, mainly including SAIL, VSP, cement and power plants handling coking coal. The company, now in its fifth year of commercial operations, is confident of achieving break even during fiscal 2010-11, with a target turnover of around Rs 120 crore. At present, the annual turnover is close to Rs 100 crore. So far, VSPL had invested Rs 370 crore for the existing facility of two berths spread over a 70 acre area, which is on a 30-year lease from the Visakhapatnam Port.
ADANIS TO DEVELOP COAL TERMINAL AT
AUSTRALIAN PORT
The Adani Group-promoted Mundra Port and Special Economic Zone (MPSEZL) has been selected as the preferred proponents to develop a coal exporting terminal at Dungeon Point, Australia. This is the first time that Australia has decided to lease out land for development of ports to a non-Australian company. MPSEZL is likely to develop two terminals. The possible investment involved, based on the extent of mechanisation and other parameters, could be up to Rs 12,000 crore. “In India, this investment is Rs 60-100 crore for a million tonne,” said sources familiar with the development. The lease of the terminal will be for 99 years. The company, which had filed an expression of interest (EoI) about five months ago, recently received a communication from North Queensland Bulk Ports Corporation (NQBP), representing the Government of Queensland, Australia.
10 • SMART LOGISTICS • AUGUST 2010
UPDATE
It has been reported that MPSEZL has been selected as the ‘Preferred Proponent’ for the development of new coal export terminal along with another proponent, Dalrymple Bay Coal Terminal (DBCT). The ‘Preferred Proponent’ status provides Adanis the right to develop a terminal with the capacity to handle at least 30-60 million tonne per annum (mmtpa), subject to technical and commercial feasibility and environmental approvals. Subsequently, MPSEZ, along with NQBP and DBCT, would prepare a master plan for coal export infrastructure/terminals at Dudgeon Point to assist the State of Queensland and NQBP to evaluate options for meeting development demands. The master plan will involve, among other things, costs associated with the development of the terminals, the required land and the feasibility study, which is likely to be completed by October this year. On the basis of this study, the two proponents would take decisions about developments of the terminal(s), and work out the kind of investments required. Dudgeon Point is located within the Bowen Basin, the premier coal-producing basin that supplies coking coal to the world, Pulverised Coal Injection (PCI) grade and high grade thermal coal.
DMICDC TO INVITE GLOBAL BIDS FOR FOUR
INFRASTRUCTURE AND LOGISTICS PROJECTS
The Delhi Mumbai Industrial Corridor Development Corporation (DMICDC), a Union Government company, would invite global bids in the next three months to build four mega infrastructure and logistics projects as it initiates building sophisticated industrial cities across northern and western India, connecting Haryana and UP with Maharashtra with a total investment of $100 billion. These six states, where new cities would come up, account for half of the country’s industrial production and exports and about 43 per cent of the country’s total economic output. The projects, for which international competitive bids would be called, include a Rs 2,500 crore logistics hub in Pune and an Rs 800-900 crore exhibition and convention centre in Aurangabad. More expensive projects include a mega industrial park at Dholera, Gujarat and a water supply project in Madhya Pradesh. The initial cost estimates could change as the DMICDC gives final touches to the projects. Amitabh Kant, CEO & MD, DMICDC said, “Bids would be invited for these projects in the next three to four months from specialists in multi-modal logistics, public transport and water supply management.” The first phase of the industrial corridor project would be completed by 2017. About 65-70 per cent of all the projects would be executed in public-private-partnerships and a large number of these would require trunk infrastructure or long distance pipelines. The projects would be executed with state government participation to ensure land, water, power and environment clearances are tied up without delay. The states that would directly benefit are Haryana, Uttar Pradesh, Rajasthan, Madhya Pradesh, Maharashtra and Gujarat.
CAPTIVE USE POLICY NEWS ANALYSIS
ENSURING MAXIMUM UTILISATION OF RESOURCES The much-awaited captive use policy will allow major port trusts to handover its unutilised facilities to a public or a private enterprise for ensuring maximum utilisation of resources. Moreover, this initiative will attract a large pool of dedicated customers, resulting into multifold increase in revenues of various ports. Thus it is important that the formulation process take place sooner than later. SANDEEP PAI WITH India becoming a major trading destination, ports are expected to play a major role in ensuring smooth transfer of goods and providing large storage facilities. Thus recognising the importance of providing more resources to the ports, a high-level panel, headed by the Finance Secretary, Ashok Chawla, has cleared four port expansion projects entailing an estimated investment of US$890.36 million in three states. Additionally, the public private partnership appraisal committee (PPPAC) has given its nod for the proposed Rs 3,686 crore (US$ 811.1 million) mega container terminal
at Chennai port. Moreover, the latest data compiled by the Indian Ports Association (IPA) clearly indicate the increased use of ports. It states that the traffic at nine out of 12 major ports registered a growth to the tune of 560 million tonne (MT) in April 2009-March 2010, as against 530 MT in April 2008-March 2009. Also, the traffic at major ports was up 2.4 per cent on a yearly basis in March 2010, which is the highest cargo volume in the last 24 months Considering this as a benchmark, the Ministry of Shipping has set a target to
increase the annual capacity of the major ports by 74 per cent to reach 1 billion tonne by 2012. With increased traffic and demand for more resources at the ports, it is important for the shipping industry to formulate a captive use policy for major ports. This policy will enable a port trust to give the underutilised facility constructed by captive users to other users. Experts believe this to be a much needed policy initiative, which will be beneficial for all. “It is a good proposal by the Shipping Ministry, as there is a scarcity of resources at
AUGUST 2010 • SMART LOGISTICS • 11
Captive use policy, continued
various ports. Thus, framing and proper implementation of such a policy will be a boon for the ports. It will also help captive users in generating additional income,” says Sabyasacchi Hajara, CMD, SCI, and President, Indian National Shipowners Association, Mumbai.
PROPOSED POLICY In the current policy proposal, if a private container terminal is not being fully used, the facility can be used for handling other cargo. For example, at Chennai port, the second private container terminal will take a few months to achieve its full utilisation. Citing this instance, Captain Subhash Kumar, chairman, Chennai Port Trust, says, “Car manufacturers can use the facility for exports during this period, and thus help in utilising the available resources.” A recent communication to port chairmen by the Shipping Ministry states that if a user has constructed a captive facility but not fully utilised it, the port reserves the right to assign the use of the facility to other users and collect charges such as wharfage, port dues and pilotage. The berth hire charges shall also be collected by the port and passed on to the captive user. The cargo handled in this manner for other users, through such captive facility, can determine the minimum guaranteed tonnage (MGT) in the given year.
Points to ponder: • In case, there is no completion for competition for creation of captive facilities, the prize discovery shall be determined as follows: - 50 per cent warfage and handling charges of port as applicable; or - 50 per cent of the ROI of the investment made by private enterprises on captive facilities including berth and handling equipment installed within the port area, or a negotiated rate between the port and the entrepreneur. • If a captive facility has been constructed by the captive user and not fully utilized, the port shall have the right to assign the use of the facilities to other users and collect charges such as Wharfage, Port dues, Pilotage etc., from such other users. The berth hire charges shall also be collected by the port and passed on to the captive user. The cargo so handled for other users, through such captive facility, shall also be counted for the purpose of determining the MGT in that particular year. However, the berth hire charges will accrue to the port in addition to wharfage, port dues, and pilotage, if the berth is constructed by the port. • The security arrangements in respect of all captive facilities should be compatible with the security of the port where such projects are located.
CLARIFICATIONS REQUIRED While the plan is a much needed one, it is important that the ministry discusses the issue with all stakeholders to obtain their approval for implementing the same. Within captive use, port trusts should be permitted to choose an industry or a commodity-specific facility rather than a company-specific facility. This would allow
The captive use policy is a good proposal by the Shipping Ministry, as there is a scarcity of resources at various ports. Thus, framing and proper implementation of such a policy will be a boon for the ports. Moreover, it will also help captive users in generating additional income. SABYASACCHI HAJARA, CMD, SHIPPING CORPORATION OF INDIA, AND PRESIDENT, INDIAN NATIONAL SHIP-OWNERS ASSOCIATION, MUMBAI
However, if the berth is constructed by the port, the berth hire charges will accrue to the port, in addition to wharfage, port dues and pilotage. Also, all major ports are expected to provide details of yearwise traffic and capacity projections till 2019-20 as well as the development scheme in three phases. Furthermore, the proposal says that the security arrangements with respect to all captive facilities should be compatible with the security of the port where such projects are located.
12 • SMART LOGISTICS • AUGUST 2010
easier price discovery. For a commodityspecific facility, the port can invite expressions of interest from companies dealing with that commodity by specifying a minimum level of guaranteed cargo. The port trust can then award the facility through the competitive bidding route to ensure maximum revenue to the port. The guarantee for traffic and revenue share over a 30-year period will be the parameters for competitive bidding. It is important to outline specific details before finalising such policies to eliminate
possibility of uncertainties in future. In the past, the Ministry had attempted to frame a policy for captive facilities in the ports but failed to implement it. The main problem is that the major ports are under the Centre’s jurisdiction, and thus port authorities in the states have less say in such matters. “Major port trusts usually hesitate to take decisions on captive facilities in the absence of a competitive bidding process, as they are cautious of audit-related issues in the government set up,”revealed ministry officials. In order to put the policy in place, a committee was set up in January, with officials from the Ministry of Shipping and major port trusts as members to recommend ways to improve efficiencies at the ports. The committee is in the process of finalising its recommendations, and may also lay down administrative reforms, other than the captive policy, that the port trusts should undertake.
THE WAY FORWARD In the past, several public sector units have approached various port trusts for setting up berths for captive use, but lack of a policy framework has made it difficult for the port trusts to take the proposals forward. However, it is anticipated that the new policy will open up new avenues for captive users and effectively utilise resources. Also, experts believe that this step will help attract large numbers of dedicated customers.
FROST & SULLIVAN STRATEGY WORKSHOP REPORT
FUTURE SUPPLY CHAIN
PRESENTING
STRATEGIES
India’s ascending fortune in the manufacturing sector over the last few years has opened several opportunities for the logistics industry. To understand the future requirements, Frost & Sullivan with Smart Logistics as media partner organised a three-day workshop – Future Supply Chain Strategies – in Bangalore, during July 14-16, 2010. A report... SHIVANI MODY OVER the last few years, the manufacturing sector in India has witnessed tremendous growth, which is fuelled by the entry of the multinational companies (MNCs). This growth has brought in huge opportunities for the logistics market as a facilitator for sourcing and distribution of products. Aimed at projecting future supply chain strategies and provide a growth map to the logistics industry, Frost & Sullivan recently organised a three-day workshop in Bangalore. Bringing together an eclectic mix of industry veterans, the workshop met with a huge success and provided a perfect platform to profit. During his welcome address, Anand Rangachary, MD–South Asia, Middle East and North Africa, Frost & Sullivan, said, “Lot many MNCs are eying this lucrative segment with the plethora of opportunities waiting to be tapped. Among the verticals that will boost the growth of the industry is customised healthcare. Apart from this, the increasing number of mobile subscribers and handsets is an indication of the tremendous growth in the telecom sector. Besides, outsourcing is also growing in the country. All these factors project a bright future for the logistics industry.” Seconding his thoughts, VG Ramakrishnan, Senior Director–South Asia Middle East and North Africa (Automotive & Transportation), Frost & Sullivan, said, “The total logistics market in India earned revenues of $75.19 billion in 2009. This is expected to reach $120.42 billion by 2014, at a growth rate of 9.9 per cent between 2009 and 2014. The transportation segment accounts for about 62 per cent of the total market, reiterating the fact that it is the most important logistics function for all industries. However, Indian logistics service providers (LSPs) fail to satisfactorily meet end-user expectations in terms of key performance criteria such as attitude of staff, process improvement capabilities and material safety. The need of the hour is to imbibe best in class practices to cater to these growing demands.”
(L-R): Tej Nirmal Singh, Director & Head-Supply Chain, Ericsson India; Prem Verma, CEO, TML Distribution Company; R Harikumar, GM-Supply Chain, Maruti Suzuki; Sameer Khatri, Chief International Business Officer, Gati; Gautam Dembla, Director, Speak Logistics; & Anand Rangachary, MD-South Asia, Middle East & North Africa, Frost & Sullivan, during a panel discussion on Future Need Assessment for Indian Industries - Logistics - Capability, Maturity - LSPs and End-users
training drivers and managing attrition. Also, other modes of transportation such as railways need to be explored. In addition, to optimise transportation costs, collaboration between end users will also become a necessity.” Giving the LSP perspective, Howard James Scott, Chief SCM Officer, Gati, said, “The infrastructure in the country is not up to the mark; for instance, the warehouse construction needs to be at par with the international standards. Conventional logistics is non-existent and companies in India need to adopt international best practices. LSPs need to become business partners for end users to unmask their full potential. The ability to perform will also depend on technology adoption by domestic LSPs.” Sanjiv Kathuria, Director–Sales & Marketing, TNT India, said, “Supply chain strategies are being driven by the changing environment and businesses. With decision-making becoming critical, the supply chains are becoming smarter in a highly unpredictable business environment. Moreover, the after-sales market is growing, thus increasing the complexity of service logistics. The goods and services tax (GST) will re-define the industry and bring about changes in the LSP networks.”
INDUSTRY PERSPECTIVES The three-day event saw a number of LSPs and end users discussing the challenges and specific strategies for supply chain for future growth of this sector. On the automotive front, Prem Verma, CEO, TML Distribution Company, a subsidiary of Tata Motors, said, “The market has shown a shift in the last five years, and we need to catch up with it. Three years from now, there will be six million vehicles and no drivers. Hence, companies will have to spend more on
GEARING UP FOR THE FUTURE With a growing industrial demand, the need for extensive supply chain as a facilitator for sourcing and distribution is on the rise. Also, the LSPs need to upgrade their services to cater to the increasing demands of end users. The three-day event, with its workshops, breakout sessions and panel discussions, presented practices to develop practical, feasible and sustainable supply chain models essential for the growth of an organisation.
AUGUST 2010 • SMART LOGISTICS • 13
REPORT
INDIAN RETAIL SOURCING, OPERATIONS & SUPPLY CHAIN SUMMIT ’10
PLATFORMING
GROWTH OPPORTUNITIES Wide geographic distribution of Indian consumers having varying preferences & habits as well as increasing consciousness for quality, demand and product prices, constantly challenge retail companies to keep the shelves full with the right products. With a vision to provide optimal solutions to address these challenges, Supply Chain Leadership Council with Smart Logistics as media partner, organised the India Retail Sourcing, Operations & Supply Chain Summit 2010, on July 16, 2010, in Mumbai. A report...
SUDHIR MUDDANA
EXPERIENCING a constant rapid socio-economic change, India is now witnessing consumption and retail explosions like never before. A few factors playing a role in this outburst include the decreasing average age of India’s population, which is 25 years, and these youths will quadruple their incomes in a decade. Also, nearly three million Indians are permanently changing their shopping preferences to organised retail outlets annually. The consumption and retail explosion is led by the organised retail players of India – through their single brand stores, multi-brand stores, cash-n-carry houses, food & beverage (F&B) chains, hypermarkets or departmental stores. The Indian Retail, at this pace of growth, is expected to become a $400 billion market in 2010-11. Currently, organised retail in India constitutes 5 per cent of this market but is growing at 30-40 per cent per annum as against the overall
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(L-R): Maj. Shashi Tiwari, Customer Care Executive & VP-HR, Training , Admin & Distribution Centre, The Loot (India); Harish Mehta, CFO, Giny & Jony; P V Sheshadri, Head – Warehousing Operations Future Supply chain Solutions; Ravinder Bajaj, Head - Supply Chain Management & Strategy, AFL Logistics; Lt Col Vijay Nair, General Manager Supply Chain, HyperCity Retail (India), during a panel discussion on retail operations & SCM
retail growth of 8-10 per cent. Also, food & grocery, which is expected to be the key driver of organised retail growth in India, forms 60 per cent of the overall retail market but only 11.5 per cent of the organised retail market. This sector is estimated to have grown by 21 per cent in 2009-10. Banking on consumer confidence, it is expected that organised retail will see more than 30 per cent growth in the current fiscal. To understand the ground realities and to steer the growth of the retail industry, the India Retail Sourcing, Operations & Supply Chain Summit ’10 was held on July 16, 2010, in Mumbai. The event provided a platform to explore and analyse reallife challenges pertaining to sourcing, operational and distributional aspects of retailing products in India – be it a pair of jeans, refrigerator, toothpaste, chocolate or hamburger. Chief Supply Chain officers of scores of Indian & foreign retail companies and
manufacturers of fast moving consumer goods (FMCG), consumer electronics, lifestyle products & apparel as well as the CEOs of logistics service providers and top consultancies attended the conference. With real-life case studies and involved interactions, the event focussed on the efforts made by leading retailers to make products reach the shelves correctly the first time with a constant focus on optimal cost and operation. The meet provided a clear picture to industry professionals that the strengthening of supply chain and sourcing channels as well as effective point-of-sale operation has replaced the front-end expansion as the first priority.
RETAIL IN INDIA While the last decade showed a strong promise for growth in organised retail due to increasing incomes and changing habits, it also showed that profitability does not vary directly with coverage. An
optimal retail supply chain and operation Bajaj, Head - Supply Chain Management will be the key to success. N Sukumar, & Strategy, AFL Logistics; PV Sheshadri, Sr VP-Supply Chain, Reliance Industries, Head – Warehousing Operations Future averred, “To realise its true potential, the Supply Chain Solutions; Lt Col Vijay organised retail sector needs to shorten Nair, General Manager Supply Chain, the supply chains, with the ultimate goal HyperCity Retail (India); Harish Mehta, of retailers picking up goods from a CFO, Giny & Jony; and Maj Shashi Tiwari, manufacturer’s facility.” He also said that Customer Care Executive & VP-HR, we are still lagging by several years in this regard. A S R Prasad, Business Head, Brand Distribution Services, Future Group, explained that for any retailer, 30-70 per cent of the business comes from the FMCG vertical. It is observed that typically, when a consumer walks into a store, often he does not find a particular brand, a product or a stock-keeping unit (SKU) that he is looking for. “For optimising the retail challenges, the automated replenishment system (ARS) is installed at the store to ensure better replenishment and lower inventory,” suggested Prasad. Also, a warehouse management system Juzar Mustan, CEO, AFL Logistics addressing the audience (WMS)-based palletised storage Training, Admin & Distribution Centre, can be used at the warehouse. The Loot (India). Juzar Mustan, CEO, AFL Logistics, The officials from HyperCity, Gini & voiced for the need for more and Jony and The Loot said that they have sensible outsourcing of retail supply chain attempted to outsource their supply management (SCM) along with greater chain function to a professional 3PL in autonomy for the third party logistics the last decade, but encountered several (3PL) and a longer-term view. bottlenecks. Gagan Seksaria, Associate While discussing their experiences, Director, Transportation & Logistics, learning and best practices associated KPMG, suggested that the scale and with retail operation, sourcing & SCM, service offered by 3PLs in India is different Mohit Wadhawan, National Customer from that a few years ago. He further Operations Manager – Modern Trade said, “This is largely owing to significant & CSD, Cadbury, and Sudipto Sen, private investment into logistics services Associate Vice President – Sourcing & companies over the last 3-4 years, Supply chain, Welspun, shared insights on allowing a few of them to break away their experiences with the supply chain in from the unorganised cluster and offer their company. Moreover, Marc Dragon, country-wide, technology-linked networks Supply Chain & Optimisation Leader, IBM and world-class services to their clients.” Asia Pacific, shared his experiences on He also urged the players in the retail how sensible application of cutting-edge sector to not consider their experiences technology can infuse cost and operational a representation of the current 3PL efficiencies in retail supply chains. capabilities, instead, consider adopting the RETAIL OPERATIONS & SCM global trends afresh. The event comprised a moderated FAST FOOD RETAIL panel discussion comprising panellists The officials of McDonalds India, Barista having various profiles & perspectives. Coffee and Jumboking Foods shared The discussion also summarised lessons their experiences on the role of changing related to retail sourcing, operation & operational and supply chain practices SCM from the last decade. It further in fast food retail, with respect to the laid the foreground for a successful year arrival of modern cold chain. Sriram ahead. The panel included Ravinder
Venkateswaran, Director - Supply Chain & QA, McDonalds India, explained that in new markets like India, retailers need to often assume several roles and go as far back as needed, thereby catalysing scale, skills and infrastructure that will ultimately support their core function. He recalled how McDonald’s worked for six years to set up its Supply Chain before opening its first store in India. Also, Dheeraj Gupta, Owner, Jumboking Foods, narrated his growth story from 500 vadapavs a day in 2001 to the current number of 35,000 a day. He also advised entrepreneurs to build their supply chains with great granularity, deeply involving the vendors in the process.
RETAIL IN CHINA The advent of organised retail in China offers lessons for retailers in India. Patrick Xu, Supply Chain Director, Best Buy China, and Rajiv Ranjan Sinha, Regional Transport Head – South Asia, IKEA Trading Hong Kong, shared their experiences of working with the retail industry in China. Xu shared insights from the Chinese retail sector, explaining how collaborative partnerships between vendors and retailers have broken down the quest for a control over retail supply chains.
THE ORGANISERS Supply Chain Leadership Council, the organiser of the conference, is dedicated to developing the largest and the most active community of supply chain professionals in India. The Council is focussed on delivering forums with bold and welltimed themes dedicated to the Indian logistics and supply chain sector, thereby providing an able platform for meaningful interaction within the industry and for consolidating the industry’s opinions & concerns towards policymakers. In her concluding remarks, Gautami Seksaria, Founder & Partner, Supply Chain Leadership Council, said, “There is a silver lining in the receding economic slowdown, which is perhaps most evident in the retail sector. The relaxed rate of growth in the last two years has allowed retailers to attend to critical operational functions as opposed to a frenzied expansion, thus creating a firm and reasonable platform for growth in the coming decade.”
AUGUST 2010 • SMART LOGISTICS • 15
CURTAIN RAISER INDIAN CONTAINER LOGISTICS SUMMIT ‘10
WITNESSING
RESURGENCE WITH PROMISING PROSPECTS Being so used to the double-digit growth in volume since 1990s, the sudden dwindling volumes and rates, due to the onset of global slowdown, resulted in the decrease in traders’ confidence. However, the last few months have seen a turnaround. Volumes are climbing, rates are soaring high and so is the confidence, which highlight a fact - Containers Are Back.
SUDHIR MUDDANA
LOGISTICS and warehousing play important role in managing the flow of goods. This, besides transportation, includes streamlining and controlling of the flow through value addition processes while simultaneously eliminating those that do not add value. The logistics industry is closely linked to sectors like ports, containers and shipping. India, coming out from a global economic downturn, is now set to see a renaissance in container logistics across multiple modes. Containerisation in India dates back to November 1973, when APL’s President, Taylor, started a 332-TEU vessel called Cochin. Today, an Indian double stack container train can carry half of that volume. Coastal ships today can carry thrice as much and ports can handle container ships 15 times larger. Today, a single Indian port can carry almost double of that in the year 2000. But, the growth of containerisation in India has not been as commendable as in some other Asian countries. While the underlying reasons have been discussed many times, the positive aspect is that India, recovering from the recent economic slowdown, will witness a resurgence in container logistics, both international & domestic and across multiple modes. This will, in turn, boost businesses for freight
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forwarders and logistics service providers.
PRESENT SCENARIO Q1 of the year 2010-11 saw a buoyant container traffic, registering a healthy growth of 21.3 per cent YoY (1.28 million TEUs) in April and May. In the same period, JNPT, India’s largest container port, saw a volume growth of 16.8 per cent YoY (0.75 million TEUs). It is believed that constant growth of the Indian economy, with GDP growth expected at 6-8 per cent over the next few years, as well as emergence of India as a global outsourcing hub, will facilitate container trade in the country. In the current decade, container traffic registered 12 per cent CAGR compared to the 9 per cent CAGR posted by the total traffic at major ports. This trend is expected to continue and container traffic is set to register 11 per cent CAGR over the next five years. The growth will be driven by adding new container terminals and increasing containerisation.
INDIA CONTAINER LOGISTICS SUMMIT ’10 To develop a better understanding of container logistics and its role in the Indian logistics industry, Supply Chain Leadership Council with Smart Logistics as media
partner are organising India Container Logistics Summit ’10, on August 27, 2010, in Mumbai. The event will see interaction among experts on new developments, key trends, innovation, policy initiatives, challenges and opportunities in the Indian container logistics business.
EVENT HIGHLIGHTS The event will have six sessions and interactive discussions efficiently arranged in a day. Most sessions will have two parts, with the first part having presentations by the speakers. The second part will have floor discussions and Q&A. A superinteractive panel discussion will also be held and moderated by an eminent industry expert. Dignitaries include Rakesh Srivastava, Joint Secretary (Ports & Admn), Dept of Shipping, GoI; S Hajra, Chairman & MD, SCI; Pradip Kumar Agrawal, Chief General Manager-Western Region, CONCOR; NN Kumar, Chairman in-charge, JNPT; Subhasis Ghosh-Director (South Asia), Maersk; Lloyd Sanford, PresidentMarketing & Commercial, Vikram Logistics; and others. Join this insightful discussion that will pave the way for future growth and be a part of this revolution, which is all set to change the fortunes of the Indian container logistics.
PRICE TRENDS Road Freight Index Chart for July 2010 The RFI stood at 174 Points for the month of July 2010 registering an increase of 3 points over July 2009.
IRFI TREND FOR JULY 2010
TRENDS JULY 2010
For Metros Ex – Kolkata rates registered on an average a highest increase by 4% where as Ex - Chennai on an average registered highest decrease by 6%.
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AUTOMOBILES The overall production data for April-June 2010 shows production growth of 34% over same period last year. Passenger vehicles segment in April-June 2010 grew at 33% over same period last year. Passenger Cars grew by 33%, utility vehicles grew by 25% and multi purpose vehicles grew by 39% in AprilJune 2010 over April-June 2009. For the period of April-June 2010, three wheelers sales recorded a growth rate of 15%, while passenger carriers grew by 17% and Goods Carriers grew at 10%.
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TRENDS FOR AUGUST 2010
COMMERCIAL VEHICLES: The overall sales of commercial vehicles segment registered growth at 55% in April-June 2010 as compared to the same period last year. While medium & heavy commercial vehicles grew at 83% and light commercial vehicles grew at 36% signaling an increase in capacity in the coming months.
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FORECAST FOR AUGUST 2010: The RFI in August 2009 over August 2008 had registered a decrease by 1% and 0.1% decrease over July 2009. The RFI stood at 170.96 for the month of Aug 2009 over 171.06 for the month of July 2009 registering a decrease by 0.1%. The RFI for the month of Aug 2010 can be expected to increase due to recent fuel hikes.
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Indian Road Freight Index (IRFI), a service introduced by Transport Corporation of India (TCI), is an index of weighted average lorry freight rates across various routes, calculated based on the route density and the dynamic freight rates of routes across the country. Knowledge Partner: Transport Corporation of India (TCI); website: www.tcil.com; e-mail: irfi@tcil.com
AUGUST 2010 • SMART LOGISTICS • 17
WORLD
EWS
■ LOGISTICS OUTSOURCING TO GROW BY
32 PER CENT
As per a research by Analytiqa, logistics spending across Argentina, Brazil, Canada, Mexico and the US is slated to increase by $106 billion by 2012, as the size of outsourced share of this expenditure is gradually growing by nearly 32 per cent. In the past, the US dominated the region’s logistics activity, however, it has been consistently outperforming in terms of growth as compared to smaller, developing markets of Argentina, Brazil and Mexico. Analytiqa’s research warns 3PLs regarding unique challenges in every country that they will have to overcome if they wish to be successful globally. Logistics industry has already seen a sharp decrease in market size with losses of over $20 billion over the 2007-2009 period. While targets for growth by industry sector will be unique to each national market, for 3PLs looking to win business, flexibility is a ‘must-have’. 3PLs must improve their responses to changes in volume, locations and deadlines. Nevertheless, there is an increasing demand for greater speed of response. On a country by country basis, emerging trends include: Brazil Brazilian supply chains continue to be hampered by costs that are significantly higher as compared to other countries, but growth potential arises from integrated supply chain requirements and greater levels of supply chain collaboration (such as shared user warehousing or distribution). Transportation infrastructure continues to suffer due to poor management but the award of global sporting events in the country (World Cup 2014 and Olympics 2016) will finally provide the stimulus to improve conditions. Argentina An increasing level of sophistication of logistics service provision is largely customer-driven, as demands for greater visibility of products, reverse logistics solutions and/or valueadded services more often than not originate from retailers or manufacturers, with logistics service providers reacting to these needs. Mexico The relatively high nature of logistics costs will eventually lead many manufacturers and retailers to outsource their supply chain activities as they seek opportunities for cost reduction. While automotive and retail markets will lead the way, there will be room for significant improvement in service provision across other industry sectors. Canada In order to survive, traditional trucking companies are expanding their expertise to encompass a wider spectrum of services. This is not only driven by increasing customer sophistication in their supply chain operations, but also by the competitive forces that exist between service providers and the consolidation of a fragmented service sector. United States As the region’s most developed and mature logistics market,
18 • SMART LOGISTICS • AUGUST 2010
the challenges faced by 3PLs in the US are somewhat different to those in South America. Among those analysed by Analytiqa, there are fears that at a basic level, the logistics sector will experience a severe skills shortage as the industry struggles to attract the level and quantity of talent to meet its growth objectives. Furthermore, Analytiqa forecasts that over the next five years, South America as one of the less mature logistics markets will continue to embrace outsourcing of their logistics services. Markets in South America are set for significant development, particularly of more integrated logistics solutions – combining warehousing and distribution – rather than the more basic levels of service provision that currently exist. Mark O’Bornick, Research Director, Analytiqa, says, “As the economies of Latin America shift from producer-led economies to consumer-led economies, supply chains will react, change shape and develop in line with the end markets they ultimately serve.”
■ BOEING FORECASTS $3.6 TRILLION MARKET
BY 2029
Boeing’s latest market outlook predicts an increase in demand for 30,900 new commercial airplanes valued at $3.6 trillion by 2029. Randy Tinseth, VP-Marketing, Boeing Commercial Airplanes, says, “The world market is doing much better than last year, but there are still challenges that need to be overcome. Looking at 2010, we see a world economy that is on path to recovery. “We expect the world economy to grow above the longterm trend this year. As a result, both passenger and cargo travel will grow this year. Airline revenue and yields are up, but fuel prices remain volatile,” adds Tinseth. The recession resulted in significantly reduced air cargo traffic in 2009, the base year for the Boeing forecast. From this level, the manufacturer forecasts global cargo traffic will increase at an annual average of 5.9 per cent through 2029. Boeing expects the world’s freighter fleet to increase from 1,750 to 2,980 airplanes in the next two decades and include 740 new-production freighters (worth $180 billion at today’s book prices) and 1,750 airplanes converted from passenger models. Large freighters with over 80 tonne capacity will account for 520 new airplanes. Moreover, the demand for mediumsized freighters with a 40-80 tonne payload will total 210. Virtually all standard-body freighters, with less than 45 tonne capacity, are expected to come from converted passenger airplanes, says a Boeing official. Tinseth says, “The inclusion of the high-traffic growth levels in 2010, following the recession, is driving our cargo forecast upward. However, the strength of the industry and its growth will continue to be driven by sound fundamentals – speed and reliability, consumer product innovation and global industrial interdependence.”
■ NAFTA SURFACE TRANSPORTATION RISES
■ SAUDI ARABIA LOOKS TO INVEST $100 BN
Trade using surface transportation between the US and its North American Free Trade Agreement (NAFTA) partners Canada and Mexico was 32.4 per cent higher in April 2010 than in April 2009, reaching $65.8 billion, according to the Bureau of Transportation Statistics (BTS) of the US Department of Transportation. The Transport Department officials say that it is the third consecutive monthly increase of at least 24 per cent from the previous year. Freight value in April 2010 still remained 11.4 per cent less than the value in April 2008, two years earlier. Surface transportation between these countries mainly consists of freight movements by truck, rail and pipeline. In April, 86.6 per cent of the US trade by value with Canada and Mexico moved on land. BTS also reported that the value of US surface transportation trade with Canada and Mexico fell 5.9 per cent in April 2010 from March 2010. US-Canada surface transportation trade totalled $39.9 billion in April, up 32.1 per cent as compared to April 2009. The value of imports carried by truck was 21.5 per cent higher in April 2010 compared to April 2009, while the value of exports carried by truck was 31.6 per cent higher during this period. Michigan led all states in surface trade with Canada in April with $5.5 billion. US-Mexico surface transportation trade totalled $25.9 billion in April, up 32.8 per cent compared to April 2009. The value of imports carried by truck was 31.2 per cent higher in April 2010 than April 2009 while the value of exports carried by truck was 28.6 per cent higher. Texas led all states in surface trade with Mexico in April with $9.1 billion.
In a major push to make the kingdom one of the world’s leading transport and logistics hubs by 2020, Saudi Arabia is targeting $100 bn investment in port, airport, rail, road and logistics centre projects over the next decade, according to reports in the Middle East. The Saudi Arabian General Investment Authority (SAGIA) says that it had identified 19 priority investment opportunities in those sectors, of which 15 would be based in the kingdom’s planned ‘Economic Cities’. “Saudi Arabia’s investment initiative offers large-scale project opportunities for contractors, builders, and operators of transport facilities. Not only that, lucrative opportunities for constructing and operating advanced transportation and logistics infrastructure will continue to open up,” stated SAGIA. The specific 19 investment opportunities identified to date, comprise projects in ports (5), air (3), rail (3), road (3) and logistics centre (5).
BY 32.4 PER CENT
■ APL FORMS ALLIANCE WITH JAPANESE
LOGISTICS FIRM
APL Logistics has formed an alliance with Japan’s Sumitomo Warehouse Co to jointly market global supply chain services. According to the agreement, Osaka-based Sumitomo will offer its warehousing and other logistics capabilities in Japan to APL Logistics customers. In exchange, APL Logistics, which is a part of Singapore’s NOL Group, will make its global services available to Sumitomo customers. The alliance partners have said they will jointly market services and offer preferential rates to clients. Jim McAdam, President, APL Logistics, says, “We’re delighted with this alliance because it dramatically strengthens the capabilities of both organisations. What’s more, it permits us to support each other through business leads and joint sales efforts with a broad international client base.” Shoichi Abbe, President, Sumitomo, says, “Our aim is to optimise our customers’ total supply chain.” Talking about the new alliance, Abbe avers, “Through this alliance, we can better provide logistics strategies and efficient logistics services from a global perspective.”
IN TRANSPORT AND LOGISTICS
■ DHL LAUNCHES NEW LCL SERVICE FROM
INDIA TO LOS ANGELES
DHL has announced the launch of its new direct Less than Container Load (LCL) service from Nhava Sheva, India to Los Angeles, USA. Operated by Danmar Lines, DHL’s in-house carrier, the new service will facilitate trade between India and the US and will offer customer services with a reduced transit time of 26 days between the two ports. Amadou Diallo, CEO–South Asia Pacific, DHL Global Forwarding, says,”The US is India’s 2nd largest export partner and 3rd largest import partner. The launch of this direct LCL route connecting Nhava Sheva to Los Angeles will further facilitate foreign trade between the two countries and support the growing needs of small and medium enterprises. This service will enhance strong global connectivity offered by DHL’s extensive LCL network and will help customers expand and strengthen their supply chain in the India-USA trade lane.” Adding further, Christoph Remund, CEO-DHL Lemuir Logistics, says, “The launch of DHL’s new LCL service from Nhava Sheva to Los Angeles is strategically planned in time to meet the growth of foreign trade amidst the global economic recovery. DHL dedicates substantial resources to continue developing and maintaining highly effective services that include traditional LCL services and multi-vendor buyers’ consolidations for shipments sourced from single and multiple countries.” Recently, DHL had launched an LCL consolidation weekly service from Cochin to Colombo, and with the introduction of this new service, they have further strengthened their network and ocean freight service offerings to support the needs of various customers.
AUGUST 2010 • SMART LOGISTICS • 19
INSIGHTS & OUTLOOK
HAZARDOUS GOODS TRANSPORTATION
COORDINATION & HARMONISATION – KEY TO SAFE AND EFFICIENT TRANSPORT OF HAZARDOUS MATERIALS “As the Indian economy continues to grow, with an increasing export market and growth in manufacturing, the transport of dangerous goods as a raw material or as part of the export market will continue to expand,” affirms Amitabh Khosla, Country Director, IATA India during an exclusive interaction with Sudhir Muddana. Excerpts… LOGISTICS OF HAZARDOUS GOODS - PRIME IMPORTANCE The logistics of hazardous materials or dangerous goods, as it is commonly known in the industry, is important to the economy of all countries as it translates into the availability of items that are used as raw materials, intermediates in the production of goods or as finished products. These
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can range from radioactive materials used in medical treatment; air bag modules containing small quantities of explosives or compressed gas present in almost all motor vehicles; flammable liquids used in antiseptics, medications, paints, solvents and glues; and toxic substances used in drugs, pesticides and cosmetics. These goods and materials need to
move through the supply chain and a coordinated and harmonised logistics industry is critical to the safe and efficient transport of these materials.
SAFETY CONSIDERATIONS There are a number of key safety principles set out in the transport regulations for dangerous goods to ensure that the risks
are minimised. These principles include: • All persons involved in shipping and transporting dangerous goods must have appropriate training; • Shippers (consignors) are responsible for compliance with the regulations, which includes correct classification, packaging, marking, labelling and documentation of the dangerous goods; • For air transport, airline personnel are required to use a checklist to validate, to the extent possible, that the dangerous goods shipment meets regulatory requirements.
TRAINING OF PERSONNEL Training is of prime concern while handling dangerous goods. Dangerous goods training must address three elements: general awareness/familiarisation training; function specific training; and safety training. For air transport, it is mandated that this training must be provided or verified, upon employment, with recurrent training at intervals of not more than 2 years. One area of training where air transport has taken a more aggressive stance is the safety risk posed by undeclared dangerous goods shipments, where the consignor, through lack of knowledge or deliberately presents goods for transport without correctly identifying that the contents contain or are dangerous goods. Imparting dangerous goods training to include recognition of what items could contain dangerous goods and then making it necessary for the employees of freight forwarders to receive such training will help detect undeclared dangerous goods before they get to the airline. This, in turn, will reduce the likelihood of dangerous goods incidents & accidents and therefore improve safety.
CONSIGNOR RESPONSIBILITIES Transport regulations hold the consignor responsible for correctly preparing the dangerous goods for transport. This process begins with • the correct classification of the substances or articles based on the physical and chemical hazard, • Packaging compliant with the UN specifications that set out the design, construction and test requirements for all packaging ranging from steel and aluminum drums to fibreboard boxes
and paper or plastic bags, depending on the substance to be transported, • Adequate communication through special markings and labelling of packages to indicate the hazards of a consignment. The hazard labels used for dangerous goods are designed to minimise the use of language and through the use of standard symbols and colours communicate the nature of the hazard contained in the package. Most shipments of dangerous goods must also be accompanied by a dangerous goods transport document (Shipper’s Declaration for Dangerous Goods in air transport) that describes the dangerous goods, the number and types of packaging and the quantity of the substances.
COMPLIANCE REQUIREMENTS The safe transportation of dangerous goods is achieved only when all participants in the transport chain are aware of, and comply with, the requirements in the regulations. Compliance is achieved when countries enact legislation that adopt or incorporate the requirements of the International Civil Aviation Organization (ICAO) Technical Instructions for air transport of dangerous goods, and ideally the provisions of the UN Model Regulations for road and rail transport. States must also have the required oversight and enforcement personnel to ensure that shippers, freight forwarders and transport operators are meeting those requirements. Increasingly important is the need for model harmonisation as multiple modes of transport are often used to move a single cargo. While international modal regulations have become more harmonised over the years, it is not necessarily the case for national road and rail regulations, which often lag behind the international regulations. Having harmonised regulations help all parts of the logistics chain by removing inconsistencies across the regulations that could lead to inadvertent breaches. It will also help in reducing costs through the removal of barriers to trade. With new products and fast paced changes in technology, dangerous goods regulations will also evolve to meet the new challenges without compromising on safety.
LATEST TECHNOLOGICAL DEVELOPMENTS IATA e-freight was launched to free cargo
processes of paper for all stakeholders from air cargo transportation. Till date, e-freight is a reality at 282 airports in 28 countries. In an e-freight world, dangerous goods consignments will require a robust solution. Currently, the shipper is required to provide a dangerous goods transport document (IATA Shipper’s Declaration for Dangerous Goods), which describes in detail exactly what dangerous goods are being shipped, the quantity, number and type of packages. The airline transporting the dangerous goods consignment has a legal obligation to use an acceptance checklist to validate, to the extent possible, that the consignment is in compliance with all regulatory requirements. And having accepted the consignment, the airline then has to provide detailed information to the Pilot-in-Command for use in the event of an emergency in flight. Currently, the majority of this process is paper-based and requires the freight forwarder, ground handling agent and airline employees to transcribe the data into various systems. IATA e-freight offers significant opportunities to reduce both the cost and time of accepting a dangerous goods consignment. The challenge is for the transport chain, shippers, freight forwarders, airlines and government authorities to ensure that the required information is available, that the information is protected from unauthorised use or misuse and that the standards set for this information allow the use of both existing and future systems.
EYEING IMMENSE POTENTIAL As the Indian economy continues to grow, with an increasing export market and growth in manufacturing, the transport of dangerous goods as a raw material or as part of the export market will continue to expand. To meet this demand, the logistics industry will need to step up with better knowledge and understanding of the regulatory requirements. This could translate into a review of government legislation as pressure mounts to bring best practices into India. This could also lead to improvements in transportation and storage facilities, as seen in a number of courier and cargo companies already investing in logistics facilities in India.
AUGUST 2010 • SMART LOGISTICS • 21
INSIGHTS & OUTLOOK
HAZARDOUS GOODS TRANSPORTATION
CONQUERING THE
CHALLENGES
Hazardous goods, if not handled properly during transit, can be a threat to people, property and the environment. With disasters occurring across the country, there is a clear need for good and efficient logistics of such goods. Such hazards occur due to lack of intelligent & systematic supervision, negligence and lack of focussed training. Proper identification of the problems, strong training & evaluation and simple & unified procedural norms and policies will help ensure secure transportation of such goods. SUDHIR MUDDANA
DANGEROUS goods, also termed as hazardous goods, include any form of solids, liquids or gases that can be detrimental to people, other living organisms, property or environment. As these goods can cause large-scale damage to their surroundings, good and efficient logistics is urgently needed to ensure their safe handling. Sanjay Tejwani, Director - Ocean Freight, DHL Global Forwarding, informs, “Logistics of hazardous goods are covered by stringent regulations to ensure that they are shipped safely and securely, minimising the risk to people,
22 • SMART LOGISTICS • AUGUST 2010
property and environment. In India, there still remain huge obstacles in the transport of hazardous products, ranging from technological and operational to cooperative issues.” Talking about distribution needs, Tejwani says, “India still lacks extensive end-to-end distribution network, which weakens the logistics network. While the urban distribution network is more reliable, rural distribution network is fragmented.” A recent example of the damage caused by hazardous goods is evident from the incident of chlorine gas leak at the warehouse of Haji Bunder port in Sewri,
Mumbai, in July this year. The incident had adversely affected people in the vicinity of the warehouse, with some suffering from mild to severe injuries. Mumbai Port Trust, in a statement, said that a leaking cylinder was one of the 100 odd cylinders that were received at the port way back in 1997 but not picked up by importers. In this regard, Ashok Chavan, Hon’ble Chief Minister, Maharashtra had pointed towards negligence. He had then said that there was no reason for the cylinders to be lying there. It is clear that there is a need for an efficient logistics of hazardous goods to avoid such disasters.
“Hazardous materials, including some chemicals, are crucial for the production of a number of essential products that protect our health, and drive our economy. People in India expect clean, safe water supply, access to life-saving medications and medical devices, aviation safety systems, energy-saving solar panels, automobile safety systems, etc. Generally, materials that help produce these products that fulfil these expectations are hazardous,” explains Daniel Rufus, Business Manager, DGM (India), and IATA-certified Dangerous Goods Instructor. While elaborating on the imporatnce of logistics of these goods, Rufus says, “The prime importance in the logistics of hazardous goods is given to the location of manufacturing facilities and access to these resources. However, the customer facilities that use hazardous material are often located elsewhere.”
DANGEROUS GOODS An equivalent term for dangerous goods, used almost exclusively in the US, is Hazardous Material (HAZMAT). These goods are often subject to chemical regulations, and include materials that are radioactive, corrosive, flammable, explosive, oxidising, asphyxiating, biohazardous, toxic, pathogenic or allergenic. Also included are materials with altered physical conditions such as compressed gases, liquids and hot materials. When dealing with the transportation of these potentially dangerous goods, it is important to arrange their packaging and transportation, whether by air, sea, road, rail or inland waterway, taking into account the international regulations. The United Nations (UN) Model Regulations is one of the prominent set of regulations highlighting the rules imposed on the various methods of transportation of hazardous goods. According to the regulations, each dangerous substance or article is assigned to a class that defines the type of danger a substance presents. The packing group (PG) subsequently classifies the degree of danger presented by the material and groups it according to PG I, PG II or PG III. The class, along with the PG helps understand the methodology for packaging, labelling and carrying dangerous goods, including inner and outer packaging, suitability of packaging materials, and the marks and label they must bear. Other regulations include training and
In India, there still remain huge obstacles to overcome in the transport of hazardous products, ranging from technological and operational to cooperative issues. India still lacks extensive end-to-end distribution network, which weakens the logistics network. SANJAY TEJWANI, DIRECTOR-OCEAN FREIGHT, DHL GLOBAL FORWARDING qualifications that dangerous goods drivers and safety advisors must hold.
CLASSIFICATION Before processing, packing or transporting dangerous goods, it is important to first assign them with the appropriate class based on the type of hazard they cause. United Nations uses the classes and divisions mentioned in the table below to classify dangerous goods. Moreover, the consignor is also responsible for classifying, marking and packaging of the dangerous goods. With regard to the types of hazardous goods currently transported in India, Tejwani avers, “India is home to a large consumer market and an even extensive chemical industry. Its size is estimated at about $35 billion, equivalent to about 3 per cent of India’s Gross Domestic Product (GDP). Over the last decade, the Indian chemical industry has evolved from being a basic chemical producer to an innovative industry. With investments in research & development (R&D), the industry is registering significant growth in the knowledge sector comprising specialty chemicals, fine chemicals and UN Class
Dangerous goods
1
Explosives
2
Gases
3
Flammable liquid
4
Flammable solids
5
6
Oxidising substances
Toxic substances
pharmaceuticals.” Further elaborating on the same, he adds, “Indian chemicals market is large and expected to grow at 4-8 per cent compound annual growth rate (CAGR) by 2014. The growth rate of petrochemicals and base chemicals is the fastest (6-9 per cent). Along with chemical-based cargo, the proportions of hazardous flammable petroleum products including kerosene, petrol, LPG, naphtha, etc are also gaining momentum in India.”
PACKAGING The packing group (PG) classifies the goods into three groups according to the degree of danger presented by them. These include PG I – great danger; PG II – medium danger; and PG III – minor danger. For the safe transport of dangerous goods, while trading in dangerous goods, it is necessary to first comply with packaging requirements. Packaging must be designed and constructed according to the UN specification standards. Also, it is important that packaging proves its competence by passing practical transport-related tests, such as dropping the package, holding in a stack and subjecting to pressure
Division(s) 1.1-1.6
Classification Explosive
2.1
Flammable gas
2.2
Non-flammable, non-toxic gas
2.3
Toxic gas
4.1
Flammable solid
4.2
Spontaneously combustible substance
4.3
Substance, which when in contact with water, emits flammable gas
5.1
Oxidising substance
5.2
Organic peroxide
6.1
Toxic substance
6.2
Infectious substance
Flammable liquid
7
Radioactive material
Radioactive material
8
Corrosive substances
Corrosive substances
9
Miscellaneous dangerous goods
Miscellaneous dangerous goods
AUGUST 2010 • SMART LOGISTICS • 23
Hazardous goods transportation continued
Some of the problem areas in hazardous goods transportation are: • Slow internal acceptance and willingness to handle dangerous goods due to unclear policies • A lack of understanding and capabilities to identify and manage risks in handling DG cargo • Building credibility and expertise in the chemicals sector may take longer than anticipated • A lack of understanding and capabilities to identify and manage risks • Lack of understanding of the logistics experts in the field • Chemical Industry in India is fragmented and dispersed – multi product and multi faceted. Inputs by
Sanjay Tejwani, Director-Ocean Freight, DHL Global Forwarding
demands. It must also meet the needs of the substance it is to contain. Finally, the packaging must be certified by a nationally competent authority. The UN-approved packaging is marked with the prefix ‘UN’, followed by codes listed in the relevant regulations relating to the national and international carriage of dangerous goods by road, rail, air and sea. On the other hand, the Vehicle Certification Agency Dangerous (VCA) Goods Office provides the certification for dangerous goods packaging within
the UK. Similarly, every country or place would have a particular marking for the goods, and a goods office that provides the necessary certifications. Finally, packaging must also bear the correct label(s) for the substance contained in the package.
LABELLING Apart from packaging requirements for dangerous goods, suppliers of the goods are, by law, also required to label their hazardous products and packaged chemicals
The Government of India has started taking stringent actions against offenders and those who do not comply with the set regulations. In addition to this, DGCA conducts inspections on a regular basis and have pulled up many who do not comply. Along with these measures, improvement is also required in sea ports and road transportation. Storage facilities for hazardous materials also need to be enhanced. DANIEL RUFUS,
BUSINESS MANAGER, DGM (INDIA), AND IATA CERTIFIED
DANGEROUS GOODS INSTRUCTOR
24 • SMART LOGISTICS • AUGUST 2010
with hazard symbols, warnings and safety advice. A wide range of internationally recognised symbols have been developed for marking hazard products, which enable people to know and understand the nature of hazards presented by the goods they are handling. Manufacturers must also provide instructions for the usage of goods. These can be on the label or a leaflet supplied with the product. Suppliers must provide material safety datasheets for dangerous products used in the workplace. Safety labelling requirements may vary between countries. Therefore, it is recommended to check requirements in destination countries before transporting the goods. For example, the requirements in the US are different from those in most European countries; thus, although dangerous goods from the US can be moved with their labelling, it is likely that they may require re-labelling before supply in Europe. While marking or labelling the goods, various precautions are to be taken to provide appropriate information on the types of goods packed, while meeting specified norms. For example, products and the containers used to ship dangerous goods must meet the applicable transport regulation requirements in terms of its labelling, marking, container specifications, shipping documents and other shipping requirements. These may vary from country to country. Also, the documents should be formatted as per the specifications set by the destination country. Some of the standard international labelling requirements include the UN number, which are internationally recognised. This is a four-digit number assigned for a hazardous material; for example, gasoline has the number UN 1203. It is also used for a class of materials, such as corrosive liquids, having the UN number 1760. These numbers are used more by people such as fire-fighters and other emergency response personnel during transportation emergencies. Apart from the UN number, other requirements include the International Maritime Organization (IMO) classes, flash point (the lowest temperature at which the material can ignite itself) and the Packing Group.
DOCUMENTATION WHILE MOVING DANGEROUS GOODS While moving dangerous goods, the
Hazardous goods transportation continued
There is lack of enough attention from relevant and concerned personnel, including handlers, importers, suppliers & exporters. Also, proper awareness among the personnel involved is lacking. There is a need for a focussed training on these materials. DT JOSEPH, FORMER SECRETARY (SHIPPING) consignment should accompanied by a valid transport document, declaring the description and nature of the goods. The documentation must comply with the specifications set by the dangerous goods regulations applicable by the country for the selected mode of transport. After the transport document is prepared, with appropriate information, it needs to be signed by the consignor. The Simpler Trade Procedures Board (SITPRO) is one such trade facilitation body, which focusses on the procedures and documentation associated with international trade, thus making it easier. However, the SITPRO transport document cannot be used for the movement of hazardous cargo by air. For the air transport, a dedicated air transport document can be used, e.g. the International Air Transport Association (IATA) Shipper’s Declaration of Dangerous Goods.
TRANSPORTATION The final step to the completion of the logistics chain, before the delivery of goods, is a safe and secure transportation mode. This includes movement of goods by air, road, rail or sea. For non-hazardous cargo, the compliance requirements during transportation are relatively less stringent. However, in India, strict rules are required for moving hazardous cargo. This is because the inland transport of many types of hazardous goods is done through local transport companies in trucks or passenger vehicles. It is recommended that only certain products satisfying particular criteria be transported in passenger vehicles. For example, in case of chemicals, if the chemical to be moved is not toxic, corrosive or flammable, and the quantity of product is <150 ft3 (4.25 m3) for a gas, ≤1 gal (4 ltr) for a liquid and <2.2 lb (1 kg) for a solid, the product does not require a hazard class for shipping.
SAFETY MEASURES Following are some of the operational
26 • SMART LOGISTICS • AUGUST 2010
precautions to be taken while moving and handling hazardous cargo. • Dangerous goods should only be shipped once prior approval has been taken from an ocean carrier with regard to the scheduling of sea freight shipment, and subject to surcharges on the ocean freight. Here, the shipper is responsible for identifying, declaring and providing the necessary documentation for shipping dangerous goods by sea. • Specialised vehicles must be used to transport the goods for which they have been designed or specially modified to handle. • All compressed gas cylinders, cryogenic liquid containers or chemical containers should be screened so as to detect and avoid any possible leakages and ensure adequate security before transportation. • The cylinder or container should be placed firmly so as to avoid movements while the vehicle is in motion. • No hazardous materials may be transported without a hazardous materials shipping paper, emergency response information, appropriate vehicle placards, as required, and proper labelling and marking, as per specified norms. • At the container freight stations, while filling the cargo in the containers, the hazardous cargo should be stored in a separate area reserved for the purpose. • Also, while shipping the containers carrying the hazardous goods, as a precautionary measure, the containers should be placed separate from each other and with sufficient space between them. • All liquid chemicals should be stored in steel or plastic drums, which then should be compulsorily palletised with appropriate stickers pasted on the drums. • While handling poisonous gases, it is essential for the personnel to wear a handling mask to guard against any
accidental leakage of poisonous gases. Explaining how to prevent further disasters from occurring due to poor management of hazardous goods logistics, Joseph said, “Storage, packaging, transport and handling must be done within a disciplined framework laid down by the Port, or DG Shipping or a competent authority associated with the management of hazardous materials. An intelligent and systematic supervision of all possibilities of occurrence of hazardous materials is the need of the hour. The securityoriented approach taken while dealing with terrorism should be adopted for hazardous materials as well. Any object that is opaque, covered, abandoned or left unattended should be examined for dangers from hazardous materials.” Also, elaborating on mitigating the risks, Tejwani explained, “Mitigating the risks associated with hazardous materials require applying safety precautions during their transport, use, storage and disposal. Proper packaging and securing of containers and appropriate labelling of cargo could prevent further disasters. Most countries regulate hazardous materials by law, and they are subject to several international treaties as well.” For ensuring smooth handling of dangerous goods, companies that manage, process or transport dangerous goods on a regular basis can appoint a Dangerous Goods Safety Adviser (DGSA). The advisor will help the company to comply with the Health and Safety at Work Act. However, for transportation of smaller quantities of dangerous goods other than those mentioned in the legislation, a DGSA is not needed.
RESPONSIBILITIES OF THE DGSA • Advising on the transport of dangerous goods • Monitoring compliance with rules for transport of dangerous goods • Preparing an annual report to efficiently manage transport activities Besides the above-mentioned responsibilities, the DGSA monitors procedures and safety measures, investigates and compiles reports on any emergencies, & advices on the potential security aspects of transport. Further, The DGSAs must have undergone an appropriate vocational training, and possess a certificate for the same. The Department for Transport should conduct necessary examinations and issue
the vocational training certificates for the person, based on the results.
FACTORS CONSTRAINING SAFE TRANSPORT Although there is a strong movement of dangerous goods within the country and also internationally, many challenges hinder the safe movement of these goods. Elaborating on the major problem areas in the transport of dangerous goods, D T Joseph, Former Secretary (Shipping), said, “There is a lack of enough attention from relevant and concerned personnel, including handlers, importers, suppliers & exporters. Also, proper awareness among the personnel involved is lacking. There is a need for focussed training on these materials. At the training centre, the training syllabus should be checked in consultation with handlers and supervisors for adequate information. Further, necessary facilities for sampling, testing, etc should be set up and made available round the clock. Public Health Laboratories should also be open to studying these materials and the dangers caused by them, and have trained personnel to deal with them, in both preventive and curative fields.” Transport by any route, be it road, rail, air or sea, has its own challenges. In the shipping mode of transport, Joseph avers, “International Maritime Organization (IMO) and its IMDG code-related matters should be taken more seriously, and implemented. Office of Director General of Shipping and the subordinate officers in the country should be sensitised towards this danger resulting from storage, handling and transport of hazardous materials.” According to Joseph, overcoming these problems requires proper coordination with public authorities, hospitals dealing in casesarising out of hazardous material. Further, various disaster mitigation authorities have come together to identify problems, strengthen training and evaluation as well as prevention and treatment of problems arising because of these materials.
is dear in terms of human loss and sufferings.” However, according to Tejwani, government is taking initiatives for petrochemical logistics. He says, “The Indian government has set in place policies and special economic zones to promote investment in its petrochemical sector. Several key initiatives and operational procedure for handling dangerous cargo have been introduced. However, there is immense scope for improvement, including infrastructure and trained personnel. India is currently struggling with the challenges of increasing regulatory compliance, customer demands, global market competition and internal pressures for reducing costs. The distribution channel in India is multilayered. At each level, there are associations comprising stockists or retailers that decide on the products and usually demand higher profit margins. Companies are unable to bypass the system and reach the customers directly.”
ENSURING SAFE MOVEMENT OF GOODS There is a growing need for a more simplified and co-ordinated procedural norms and policies, which will perhaps facilitate a smoother transit through the bottlenecks and also enhance safe transportation of the cargo that falls under the class hazardous material. With regards to the scope of logistics of hazardous goods as an industry in the country, Rufus says, “The scope of logistics of hazardous materials in India can be bright provided we comply with the regulations and have properly trained industry personnel and make people competent for managing and handling hazardous materials.”
GOVERNMENT POLICIES The government plays an important role in the formation of rules, regulations and policies in controlling the supply chain of these potentially dangerous goods. However, regarding the efficiency of the government policies on hazardous goods, Joseph avers, “Currently, there is no effective, co-ordinated policy for storage, packaging, handling and transport of hazardous goods. While the IMO has worked to some extent on this issue, the government is yet to make a policy on training professionals for supervising in this area.” Joseph explains that in the absence of competent personnel – surveyors and supervisors – who understand the latest technology, legislation, etc related to hazardous goods, it is difficult to understand the whereabouts of this market, and even more difficult to control accidents and disasters. According to him, no one wants to take up the responsibility for the poor logistics of the hazardous goods that result in disasters and damages. On this, he says, “No one wants to take the blame. They just want to blame somebody or the other. This blame game is easy but does not serve the purpose of helping people who have suffered from mishaps/disasters caused by hazardous materials. The knowledge and facilities necessary for handling such occurrences should be available. Fast and intelligent decisions should be taken to manage HAZMAT in the normal course, and when things go wrong, because the price being paid
AUGUST 2010 • SMART LOGISTICS • 29
INSIGHTS & OUTLOOK
RADIOACTIVE MATERIAL LOGISTICS
MOVING AHEAD WITH SURGE IN
GLOBAL DEMAND
Though flawless transportation of over twenty million consignments of radioactive materials of different activity ranges is being achieved worldwide, factors such as lack of material knowledge and understanding of regulations still remain a serious concern for logistics players. With a phenomenal increase in applications of radioisotopes in research and medicine, it is high time for companies to explore this untapped arena of logistics for future growth. SUMEDHA MAHOREY RADIOACTIVE materials (RAMs) are now extensively used in agriculture, manufacturing, non-destructive testing and mineral exploration. With such varied applications, it is imperative that radioactive materials are transported across the globe on an every-day basis. Then how is it that we have never heard of any major radioactive accident or leak? The answer is the immense precaution and perfection with which these materials are transported under stringent rules, regulations & safety measures governed globally by the International Atomic Energy Agency (IAEA) and the Atomic
30 • SMART LOGISTICS • AUGUST 2010
Energy Regulatory Board (AERB) in India.
RULES & REGULATIONS The Atomic Energy Act 1962 is the main legislation in India. Under the Act, Radiation Protection Rules, RPR 1971 were promulgated, and were revised to Atomic Energy (Radiation Protection) Rules, in 2004. Elaborating on the same, Dr D N Sharma, Head–Radiation Safety Systems Division, Bhabha Atomic Research Centre (BARC), avers, “In India, safety in transport of radioactive material is ensured by implementing the provisions of the AERB
Safety Code AERB/SC/TR-1 (1986), which are based on the IAEA regulations, for safe transport of radioactive material.” He further elaborates, “The objective of these regulations is to protect individuals, property and the environment from the effects of radiation during transport of the RAMs. The said code has already been revised, which is based on IAEA’s transport regulations (2005 Edition) and is due for publication.”
CATEGORIES OF RAMs TRANSPORTED With multiple applications of radioisotopes
emerging in the field of medicine, industry and research, the use of Cobalt-60, Cesium-137, Iridium-192, etc as gamma sources; Tritium (H-3), Phosphorus-32, Iodine-131, etc as Beta sources; and Californium-252, Am-241-Be, etc as neutron radiation sources has increased manifold. As the activity and nature of these radioactive materials vary from a few kilo Becquerel (kBq) to few peta Becquerel (PBq), the level of caution required for transporting these substances heightens. SA Hussain, Head–Radiological Safety Division, Atomic Energy Regulatory Board, explains, “Transport of radioactive materials comprises all operations and conditions associated with and involved in the movement of these materials. These include the design, manufacture, maintenance & repair of packaging as well as the preparation, consigning, loading carriage including in-transit storage, unloading & receipt at the final destination of radioactive materials and packages.” According to the classification of hazardous goods, RAMs belong to Class 7. There are two ways of categorising the transport of these radioactive materials. The first method, which is based on the IAEA method, classifies all sealed radioactive sources into five categories. This number is considered sufficient to enable the practical application of the scheme, without unwarranted precision. Within this categorisation system, sources in Category 1 are considered the most ‘dangerous’ because they can pose a very high risk to human health if not managed safely and securely. An exposure to an unshielded Category 1 source for only a few minutes may be fatal. At the lower end of the categorisation system, sources in Category 5 are least dangerous. However, even these sources could be deleterious if they exceed the maximum permissible dose limits, therefore, they need to be maintained under appropriate regulatory control. The second method recognises that security guidelines should include all types of RAMs, e.g. sealed sources, unsealed sources and irradiated nuclear fuel. Further, as these guidelines are to be used by specific users to establish their security levels, it is desirable to have a categorisation with the help of which the user (consignor or consignee) is able to identify the level of security applicable to the specific consignment being transported. Following is a classification of RAMs that
Criteria IP-1 IP-2 • General Design • General requirements for requirements requirements for all packages all packages • Additional • Additional pressure and pressure and temperature temperature requirements if requirements if transported by air transported by air •
Test requirements - normal transport conditions
•
Free drop (from 0.3 to 1.2 metres, depending on the mass of the package) Stacking or compression
IP-3 • General requirements for all packages • Additional pressure and temperature requirements if transported by air • Type A additional requirements
Each of the following tests must be preceded by a water spray test: • free drop (from 0.3 to 1.2 metres, depending on the mass of the package) • stacking or compression • penetration (6kg bar dropped from 1 metre) Source: World Nuclear Transport Institute
Table 1: Industrial Package Requirements
are commonly transported: (i) Reference sources; (ii) Consumer products (e.g. smoke detectors, luminous painted dials, tritium light sources); (iii) Uranium/thorium ores or ore concentrates, depleted uranium, unirradiated natural uranium fuel assemblies and other RAMs defined as low specific activity material (LSA) I/II/III in AERB’s safety code AERB/SC/TR-1, Safety Code for the Transport of Radioactive Materials; (iv) Surface contaminated objects defined as SCO I/II in AERB’s safety code document AERB/SC/TR-1, Safety Code for the Transport of Radioactive Materials; (v) Radiopharmaceuticals; (vi) Nucleonic gauges; (vii) Neutron sources used in oil-well logging; (viii) Industrial radiography sources; (ix) Manually handled brachytherapy sources; (x) Remotely handled brachytherapy sources; (xi) Teletherapy sources; (xii) Gamma irradiator sources; (xiii) Decayed sealed sources for disposal; (xiv) Uranium hexafluoride (enriched); (xv) Wastes arising from the nuclear fuel cycle; (xvi) Unirradiated enriched nuclear fuel; (xvii) Special nuclear material in different types
of packages; and (xviii) Irradiated nuclear fuel.
PACKAGING OF RADIOACTIVE MATERIALS It is the assembly of components necessary to enclose radioactive contents completely. It may, in particular, consists of one or more receptacles, absorbent materials, spacing structures, radiation shielding, service equipment for filling, emptying, venting and pressure relief devices for cooling, absorbing mechanical shocks, providing handling & tie-down capability, thermal insulation as well as service devices integral to the package. The packaging may be a box, drum or a similar receptacle or a freight container, tank or intermediate bulk container.
TYPES OF PACKAGES FOR RADIOACTIVE MATERIALS AERB’s safety code ‘AERB/SC/TR-1, Safety Code for the Safe Transport of Radioactive Materials’ stipulates the types of packages to be used for transportation of RAM. The code also prescribes the design specifications for different types of
Criteria Design requirements
Requirements • General requirements for all packages • Additional pressure and temperature requirements if transported by air • Type A additional requirements (seals, tie-downs, temperature, containment, reduced pressure, valves)
Test requirements normal transport conditions
Each of the following tests must be preceded by a water spray test: • free drop (from 0.3 – 1.2 metres, depending on the mass of the package) • stacking or compression • penetration (6kg bar dropped from 1 metre) Source: World Nuclear Transport Institute
Table 2: Type A Package Requirements
AUGUST 2010 • SMART LOGISTICS • 31
Radioactive material logistics continued
Packaging and Shipping Containers Generally, uranium ore concentrates (UOC) are transported in sealed steel drums with tight-fitting lids meeting UN design requirements for stowage, handling, and package integrity. Drums packed inside 20’ ISO The drums are loaded 20’ GP ISO shipping container into general purpose freight containers securely stowed to prevent movement or load shifting during handling or transport. This kind of packaging helps prevent any health hazard to people handling or otherwise coming into contact with the UOC. This shipping container is then placarded in accordance with the International Maritime Dangerous Goods (IMDG) Code. Source: World Nuclear Transport Institute
packages. The different types of packages used are excepted packages, industrial packages, Type A packages, Type B packages, Type C packages and others that include packages for fissile materials & uranium hexafluoride. According to World Nuclear Transport Institute, this classification relates to the activity and physical form of the radioactive material contained in the package. Radioactive material can be in a special form, i.e. indispersible or sealed encapsulated source or other than special form. The graded approach to packaging, where the integrity of the package is related to potential hazard, is important for efficient commercial transport operations. It also takes into account the different conditions of transport as characterised by IAEA in the form of conditions likely to be encountered in routine transport, normal conditions of transport (minor mishaps) and accident conditions. Depending on the activity, nature and the physical form of the material being transported, certain general design requirements apply to all packages to ensure that they can be handled safely & easily, secured properly & are able to withstand the effects of any acceleration & vibration. Excepted packages: In these packages, the allowed radioactive content is restricted to such low levels that they pose insignificant potential hazards, and therefore no testing is required with regard to containment or shielding integrity. A common example of an
32 • SMART LOGISTICS • AUGUST 2010
excepted package is the postal package used to carry radiopharmaceuticals for medical purposes. Industrial packages: Industrial packages are used to transport two types of materials: • Materials having low activity per unit mass (known as LSA material), e.g. hospital waste • Non-radioactive objects having low levels of surface contamination (Surface Contaminated Objects or SCO). Fuel cycle machinery or parts of nuclear reactors, whose surfaces have been contaminated by coolant or process water, are considered as SCO. Both types of material are inherently
safe, because the contained activity is low or the material is not in a form easily dispersible. According to World Nuclear Transport Institute, Industrial Packages (IP) are further sub-divided into three categories designated as IP-1, IP-2 and IP-3, which differ in the degree to which they are required to withstand routine and normal conditions of transport (Table 1). Some typical materials transported in industrial packages are radioactive waste of low and intermediate level, or ores containing naturally occurring radionuclides (e.g. uranium or thorium) and concentrates of such ores. Type A packages: These packages are used for the transport of relatively small, but significant, quantities of radioactive material. It is assumed that theoretically, this type of package could be damaged in a severe accident and that a portion of their contents may be released; hence, the amount of radionuclides they can contain is limited by IAEA regulations. In the event of a release, these limits ensure that the risks from external radiation or contamination are very low. Type A packages are required to maintain their integrity during normal transport conditions and are therefore subjected to tests simulating these conditions (Table 2). Type A packages are used to transport radioisotopes for medical diagnosis or teletherapy, technetium, generators used to assist in the diagnosis of certain cancers as well as some nuclear fuel cycle materials.
Criteria
Requirements
Design requirements
• • • •
Test requirements normal transport conditions
Each of the following tests must be preceded by a water spray test: • free drop (from 0.3 to 1.2 metres, depending on the mass of the package) • stacking or compression • penetration 6kg bar dropped from 1 metre
Test requirements - accidental transport conditions
Cumulative effects of: • free drop from 9 metres or dynamic crush test (drop of a 500kg mass from 9 metres onto a specimen) • puncture test • thermal test (fire of 800°C intensity for 30 minutes) • immersion (15 metres for 8 hours) Enhanced immersion test for packages carrying a large amount of radioactive material: • 200 metres for 1 hour
General requirements for all packages Additional pressure and temperature requirements if transported by air Type A additional requirements Type B additional requirements (internal heat generation and maximum surface temperature)
Source: World Nuclear Transport Institute
Table 3: Type B Package Requirements
Criteria Design requirements
Requirements • General requirements for all packages • Additional pressure and temperature requirements if transported by air • Type A additional requirements • Type B additional requirements (internal heat generation and maximum surface temperature) Each of the following tests must be preceded by a water spray test: Test • free drop (from 0.3 to 1.2 metres, depending on the mass of the package requirements normal transport • stacking or compression • penetration 6kg bar dropped from 1 metre conditions Test sequence on one specimen in the following order: Test • free drop from 9 metres requirements • dynamic crush test (drop of a 500kg mass from 9 metres onto a specimen) accidental • puncture test transport • enhanced thermal test (fire of 800°C intensity for 60 minutes) conditions A separate specimen may be used for the following test: • impact test (not less than 90 metres per second) Source: World Nuclear Transport Institute
Table 4: Type C Package Requirements
Type B packages: These packages are required for the transport of highly radioactive material. These packages should be able to withstand the same normal transport conditions as Type A packages, but because their contents exceed the limits set for Type A, it is necessary to specify additional resistance to release of radiation or radioactive material due to accidental damage. This type of package must be capable of withstanding expected accident conditions, without a breach of its containment or an increase in radiation to a level that would endanger the general public and those involved in rescue or clean-up operations. The adequacy of the package to this requirement is demonstrated by stringent accident conditions testing (Table 3). Type B packages are used to transport material as different as un-encapsulated radioisotopes for medical & research uses, spent nuclear fuel, and vitrified high-level waste. Type C packages: The 1996 Edition of the IAEA Transport Regulations introduced a requirement for a more robustly designed package – the Type C package – to transport the more highly radioactive material by air. Type C packages are designed to withstand extreme severe accident conditions during transport. These packages must satisfy all additional requirements of Type A packages and most of the additional requirements of Type B packages. Type C packages are submitted to a series of tests to prove their ability to withstand transport incidents and accidents (Table 4). This type of package has not yet been developed.
NUCLEAR FUEL CYCLE TRANSPORTS Nuclear power currently supplies about 16 per cent of the world’s demand for electricity, and makes clean, carbon-free, affordable energy available to people the world over. In order to sustain this
they can support a chain reaction. Such undesired chain reactions are prevented during normal and accidental transport conditions by the design of the package, the arrangement of the fissile material inside it as well as the configuration of multiple packages. Packages for uranium hexafluoride: The IAEA Regulations include requirements for packages containing uranium hexafluoride, which are specific to this material. These packages must withstand a pressure test of at least 1.4 MPa, a free-drop test, and a thermal test at a temperature of 800 °C for 30 minutes. In the back end process, the fuel used in a nuclear power plant is replaced or stored. This spent fuel still contains 96 per cent of the original uranium; about 3 per cent of waste products and 1 per cent plutonium. At this stage, the spent fuel can be shipped to temporary storage offsite pending final disposal or reprocessed to recover the uranium and plutonium at the reprocessing plant. The packaging for
Knowledge of ionising radiation, its health impact, safe handling and working with radiation and better understanding of transport regulations would lead to better functioning of the radioactive logistics chain. SA HUSSAIN, HEAD – RADIOLOGICAL SAFETY DIVISION, ATOMIC ENERGY REGULATORY BOARD
important source of energy, it is essential that nuclear fuel cycle materials continue to be transported safely and efficiently on an international level. Nuclear fuel cycle transports are commonly designated as front end and back end. The front end process involves all the operations, from mining of uranium to manufacture of new fuel assemblies for loading into the reactors, i.e. transport of uranium ore concentrates to uranium hexafluoride conversion facilities; from conversion facilities to enrichment plants; from enrichment plants to fuel fabricators; as well as from fuel fabricators to various nuclear power plants. During this transportation, the type of package used is of immense importance for the safety of the people involved. The types of packages for this process are described further. Packages for fissile material: Nuclear fuel cycle materials containing enriched uranium or plutonium are fissile, i.e.
this process also depends on the level of activity and nature of the material.
ENSURING SAFETY OF RAMs DURING TRANSPORT Another step in the transport of RAMs is detailed marking, labelling, and providing specific requirements of the material during transit.
Hussain avers, “Safety of the material is ensured by adherence to the AERB/ SC/TR-1(1986) Safety Code on ‘The Safe
AUGUST 2010 • SMART LOGISTICS • 33
Radioactive material logistics continued
NEED OF THE HOUR
Few things to remember • Plan routes to avoid areas affected by a natural disaster or disruption of the local law and order situation • Keep total transport duration and the number of modal transfers to a minimum • Disseminate information regarding the transport and related security measures on a ‘need-to-know’ basis • Do not leave packages or conveyances containing radioactive material unattended • Subject the radioactive material in transport and in temporary storage incidental to transport to security measures consistent with those to be applied to the material in use and storage. Source: AERB SAFETY GUIDE NO. AERB/NRF-TS/SG-10
Transport of Radioactive Material’. Safety during transport is achieved by proper marking, labelling, placarding and proper transport documents, which include consignor’s declaration, TREMCard (Transport Emergency Card), which contains emergency action plan for the vehicle crew or the person at the scene of an accident and instruction to the carrier in the language deemed necessary by the carrier.”
SECURITY OF RAMs DURING TRANSPORT The potential radiological consequences due to breach of security during such transport are no different in principle from the violation of safety requirements. According to World Nuclear Association, London, based on the type and quantity of RAM being transported, an assessment of security threat and potential consequences and a graded system of security measures should be put in place by the consignor.
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According to AERB, a few factors that should be considered while designing the transport security system for RAMs are quantity and physical/chemical form of the RAM; mode(s) of transport, transport schedules and route of shipment;
Although nearly flawless transportation of radioactive materials is being achieved regularly, the major concern in this type of logistics remains is awareness of the material being transported and point-topoint understanding of the regulations that need to be strictly followed. Hussain elaborates, “Knowledge of ionising radiation, its health impact, safe handling and working with radiation and better understanding of transport regulations (for the personnel involved in different logistic chain) would lead to better functioning of the radioactive logistics chain.” In addition, extensive R&D and technological developments are required in this field, as not much change has taken place since the 70’s, besides the introduction of Type C package designed mainly for transporting radioactive sources of high intensity through air transport.
FUTURE OF RADIOACTIVE LOGISTICS Currently, in India, the major share of the radioactive materials logistics is under the purview of the Centre, but with new applications emerging continuously in multiple fields, logistics companies will have immense opportunities to explore in this segment. Sharma highlights, “The need for radioisotopes in research, industry and medicine is ever increasing. With the handling range rising to several thousands of Curies, the radioactive logistics as an industry is growing at a rapid rate.” Also, because of the inherent nature of decay, the isotopes remain unusable after the depletion of the activity; thus,
The objective of IAEA regulations is to protect individuals, property and the environment from the effects of radiation during transport of the RAMs. DR D N SHARMA, HEAD – RADIATION SAFETY SYSTEMS DIVISION, BHABHA ATOMIC RESEARCH CENTRE
package(s); measures required to deter, detect and delay unauthorised access to the RAM, and identifying potential malicious acts during transport or storage. Further, procedures for maintaining information security should be developed so as to avoid predictable movement schedules.
these sources need to be replaced with a new source having higher activity. This involves the transport of isotopes from the user site to production site and vice versa by using different modes of transport. Thus, RAM logistics as an industry is slated for immense growth in the near future.
DIRECTOR, GATI VIEW FROM THE TOP
MOBILITY AND AGILITY ARE MANTRAS TO LEAD THE
GROWTH TRAJECTORY “The government needs to focus on providing relaxation in taxes to encourage investments. They should consider this sector at par with the infrastructure for enabling growth,” asserts Harry Himmat Lagad, Director, Gati, during an exclusive interview with KTP Radhika Jinoy. Excerpts… AN IDEAL SUPPLY CHAIN In a practical sense, an ideal supply chain does not exist. In today’s dynamic world, a supply chain design must fit the exact requirements of each customer. Hence, unless a company, be it a manufacturer or a service provider, understands the concepts of a ‘Customer Centric Supply Chain’, they will not be able to adequately satisfy every customer’s need.
SUPPLY CHAIN MANAGEMENT IN INDIA There is a total contradiction in the comparisons among the various supply chains in India. In a few cases, enterprises are willing to invest and provide bestin-class supply chain solutions to their customers, but in most cases, for both local and multinational companies, the focus on supply chains remains extremely poor. To that effect, highly qualified supply chain professionals who visited India returned disappointed, as they were unable to make a breakthrough in the short-term cost savings and ‘short cut’ adoption of supply chain strategies in the system.
GROWTH ENABLERS Most of the efforts lie with the government and its policies. There are
AUGUST 2010 • SMART LOGISTICS • 35
View from the top, continued
innumerable areas of development that the government can focus on for India’s bright future. Good road network and infrastructure, clear policies to enable free trade, tax refinements to enable logistics companies to make long-term investment in better facilities, and, most importantly, opening the doors of retail business are some of the growth enablers that can lead the Indian logistics industry on the growth curve. However, the second most important growth-enabling factor in the logistics industry in India is manufacturing industry. Manufacturers in India need to expand their vision and look beyond the short-term gains on tax standard operating procedures (SOPs) by limiting their activities. India has the capability of becoming a global supplier for a large number of products.
ADOPTING GREEN PRACTICES Almost all logistics companies have now started showing concerns for the environment. Gati is committed to continued exploration of all avenues to focus on the ‘greening’ effect, like adopting measures to increase fuel efficiency, having a ‘no paper’ policy within and outside of Gati, etc. We are also continuously on the lookout for newer opportunities in this continuous improvement process.
EMERGING TRENDS IN 2010-11 Modernisation of logistics infrastructure is the most important change currently
provision and we have been fast ramping up our portfolio of offerings in this regard. Today, we have a wide range of facilities, from our own shipping fleet, freight forwarding division, international network through our own offices and operations in Asia-Pacific countries, railway operations, etc. We now also have cold chain and supply chain solutions. The growing technology adoption in the industry is pointing towards rapid development. Retail, especially, will drive these changes. Bar Code scanning is fast becoming a norm everywhere. We still follow the full European Article Number (EAN) process, but this will undergo a change in the times to come. Gati has already advanced its technology front. We are now offering our technology, particularly our Warehouse Management System (WMS), on a software-as-aservice (SAAS)-based model. This is the world’s first system in this segment. Going forward, we would continue investing heavily in this sector.
TECHNOLOGICAL TRENDS ‘Mobility and Agility’ are the two mantras of tomorrow’s India. We need to adopt technology towards achieving this bright future. Proactive information provided live on mobile platforms and the ability to carry out transactions on this platform are key to provide best of services. There is a need to ensure that the underlying humungous and complicated networks are ready to move up the value chain. Speed
Speed is of essence in this dynamic world, be it the speed in reacting to a new product launch by a competitor or in providing the product to a ‘walk-in customer’ at a retail outlet. It is the consumer who decides the time-to-market and not a product or logistics company. shaping up, for example, construction of modern warehouses and modern handling equipment. Gati was the first company in India to initiate the modern ‘Mechanotronics’ type of warehouses for its customers. Till date customers are unable to visualise the benefits of such modern warehouses and continue to focus on short-term gains with the ‘godowns’ of yester-years. Yet another new trend shaping up is the one-stopshop solution provider. Companies are now looking at a single source of service
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is of essence in this dynamic world, be it the speed in reacting to a new product launch by a competitor or in providing the product to a ‘walk-in customer’ at a retail outlet. It is the consumer who decides the time-to-market and not a product or logistics company. While working on short time spans, the need for ‘visibility’ throughout the supply chain becomes all the more important.
SKILL DEVELOPMENT Skill development is the most important
of all factors. The intense focus on the ‘MBA’ factor results in the neglect of the essence of the backbone of India’s economy and future growth. India is in dire need for the ‘Bottom of the Pyramid’ skills, be it in the services sectors such as logistics or handling at the airports, checkout counters in retail or the ‘Tradesman’ sectors of plumbing, masonary, carpentery, etc. The colleges and technical institutions in the country should actually be focussing on this segment. Gati realised this chasm long ago. Over the last few years, Gati has founded its ‘Gati Academy’ to bring forth the ‘logistics wizards of tomorrow’. The institute trains and offers diploma and certificate level courses to a large number of young people. Gati Academy has also established three major centres across India and is now coming up with a large dedicated and exclusive campus on the outskirts of Hyderabad.
STUMBLING BLOCKS The major bottlenecks include availability of adequate numbers of skilled and trained people as well as an understanding of the true value of the supply chain benefits by customers so that their decisions to outsource are not based solely on ‘cost savings’.
FUTURE OF 3PL IN INDIA Before charting out the growth path, the industry needs to address two major concerns. The first is that today, India’s supply chain is far behind as compared to global standards. Also, the inefficiencies in these supply chains (due to poor infrastructure, lack of technology, etc) are costing the exchequer an additional burden of 5-6 per cent. This is an enormous burden on a mere two-trillion dollar economy. If, currently, we focus on this aspect alone, it should be sufficient for growth of most 3PLs.
FACTORS INCREASING LOGISTICS COST Factors responsible for the increase in logistics costs start as a product enters the design stage. In fact, most companies do not have a supply chain expert to look at such designs, which then lead to cost increase in most cases. During the lifecycle of a product, inefficient distribution strategies and marketing fundamentals further add to the woes. Furthermore, it should be kept in mind that most products also have a reverse
Some of the factors enabling growth are good road network and infrastructure, clear policies to enable free trade, tax refinements for logistics companies to invest for long term in better facilities, and, most importantly, opening the doors of retail business. cycle, which is the most expensive phase of the entire supply chain. Road transport is the most crucial step in the last mile delivery. Besides, the main line haul is done via road and, these days, also via railways. However, one should not consider these costs in isolation. The main reason of rise in costs is not the transportation, but the storage, maintenance and cost of carrying the inventory.
REVERSE LOGISTICS IN INDIA Reverse logistics is one area that has a more structured format for highend value products, eg laptops, mobile phones, etc. These products need the most sophisticated and end-to-end reverse value chains. Gati has designed such reverse logistics supply chains for a few mobile phone companies. We have been able to create tremendous value for
our customers. Reverse logistics is mainly practiced in organised retail. Once India experiences this boom, reverse logistics will be the most sought after speciality in the logistics market.
IMPACT OF GST The entire change related to the goods and services tax (GST) will be driven by customers. Irrespective of the presence or absence of GST, customers will not want their product availability to be affected. Hence, not many changes will be made in the location of the inventories or time to market. The process of manufacture and distribution may have some changes, though it will not directly impact delivery of the product to market.
NEED FOR GOVERNMENT’S INITIATIVE The government needs to focus on
providing relaxation in taxes to encourage investments. Government should consider this sector at par with the infrastructure for enabling growth. Another main factor to focus on is liberalisation of the retail sector.
CAPITALISING ON UNTAPPED GROWTH OPPORTUNITIES For making the most of the untapped opportunities, we initiated a programme few years ago. We knew that India will come out of the economic downturn earlier than the global market. We continued recruiting people and building up our strengths with the help from our key people. We initiated the improvisation from the topmost level. Thus, the core operations management team is now in place, and includes industry leaders from all over the world. The second level of management team is now being strengthened to gear them up for fresh challenges. We have already charted out our ‘go-to-market’ strategy, which will soon be announced. This will allow us to focus on customers as well as develop and offer new & better solutions.
AUGUST 2010 • SMART LOGISTICS • 37
SL EXCLUSIVE
INDIAN CABOTAGE LAW
TOWARDS A
TRANSFORMATIONAL PHASE The revival of the Indian cabotage law, which restricts movement of foreign vessels in Indian waters, will be a boon for the Indian shipping industry as it would project the coastal shipping as an excellent alternative to land-based transportation modes. Also, it would provide a much needed impetus for the implementation of the free market regime. But along with the apparent merits, there are demerits in adopting a protectionist approach as well... GEETHA JAYARAMAN IT is a common practice for countries all over the world to restrict foreigners in some critical sectors of their economy. Such restrictions are usually anchored on economic, political and security reasons. Under the cabotage law of India, movement of coastal trade is reserved for Indian flag vessels. At the same time, it restricts operation of foreign vessels in Indian waters. While the Indian flag vessels may be owned only by Indian entities, under the extant exchange control laws, foreign entities may invest up to 100 per cent in Indian ship owning and shipoperating companies. Such companies enjoy privileges granted to any Indian company and may acquire ships flying the Indian flag with 100 per cent overseas debt/ equity finance. “It is apparent that there may be merits and demerits in adopting a protectionist approach towards certain kinds of businesses and that is true for cabotage laws in India as well. However,
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decisions on the subject must be made keeping in mind the eventual beneficiaries viz the trade and cargo owners,” points out Gagan Seksaria, Associate Director – Transportation & Logistics, KPMG.
WHAT THE LAW STATES The Indian cabotage law restricts movement of coastal trade operation of foreign vessels in Indian waters. Currently, more than 90 per cent of India’s exports and imports by containers are transshipped through foreign hub ports like
Dubai, Singapore and Colombo. In order to reduce the dependence of Indian shipment on foreign hub ports, the Government needs to make certain policy changes, one of which is the relaxation of the cabotage law by invoking the powers vested with the Union Government under Section 407 (3) of the Merchant Shipping Act, 1958. Section 407 (1) of the Act bans the movement of foreign flag vessels along the coast. Anand Sharma, Director, Mantrana Maritime Advisory, says, “The Act states that no ship other than an Indian vessel
It is apparent that there may be merits and demerits in adopting a protectionist approach towards certain kinds of businesses and that is true for cabotage laws in India as well. However, decisions on the subject must be made keeping in mind the eventual beneficiaries viz the trade and cargo owners. GAGAN SEKSARIA, ASSOCIATE DIRECTOR – TRANSPORTATION & LOGISTICS, KPMG
or one chartered by a citizen of India shall engage in the coastal trade. If a foreign company is planning to ply in the Indian coastline, it has to obtain a license granted by the Director General Shipping.” Further, the law states that a foreign flag vessel can reach a certain Indian port, and unload & load cargo, but it must return without loading/unloading cargo at any other Indian port. Under the proposed relaxation, a foreign flag vessel will be allowed to move along the coast from one port to another to pick up containers meant for trans-shipment. Seksaria says, “Coastal shipping is an excellent alternative to land-based transportation modes and the purpose of all policy making must be geared towards allowing this alternative to develop, scale and prosper. Further, these should remain the only fundamental reasons for its better development within the framework of the present cabotage regime as opposed to a free market regime, in order to continue with this regime.”
THE NEED FOR REVIVAL
T
The Act states that no ship other than an Indian vessel or one chartered by a citizen of India shall engage in the coastal trade. If a foreign company is planning to ply in the Indian coastline, it has to obtain a license granted by the Director General Shipping. ANAND SHARMA, DIRECTOR, MANTRANA MARITIME ADVISORY the shipping fraternity, a re-look at the existing cabotage law given the growing importance of coastal shipping, following the developmental activities carried out at the major ports. Sharma avers, “In 2008-09, Indian ports handled 732 million tonne of cargo, approximately 20 per cent of which includes coastal traffic. Further, 60 million tonne of the cargo is associated with the
HE INDIAN CABOTAGE LAW RESTRICTS MOVEMENT OF COASTAL TRADE OPERATION OF FOREIGN VESSELS IN INDIAN WATERS. CURRENTLY, MORE THAN 90 PER CENT OF INDIA’S EXPORTS AND IMPORTS BY CONTAINERS ARE TRANS-SHIPPED THROUGH FOREIGN HUB PORTS LIKE DUBAI, SINGAPORE AND COLOMBO.
Maritime transport is an essential pursuit for socioeconomic development of any country. India has a significant coastal line that provides opportunity for growth of the international trade. However, the present cabotage law seems to make this growth difficult. According to
coastal movement of petroleum. This is a massive volume, considering the Indian coastal fleet. India has approximately 1.5 million deadweight (DWT) of tanker fleet
UICK TAKE • Cabotage law for coastal shipping in India is quite flexible. It is a guideline issued by Director General of Shipping (regulatory body). • The law evaluates ships on the basis of their flag of registration. • An international company with an Indian flagged ship is preferred over an Indian company registered out of India with a foreign flagged ship. • If an Indian flagged vessel is available for Charter, it has to be given the first right of refusal. • In a competitive bidding, if the foreign flagged ship is lowest (L1) and Indian Flagged ship is second lowest (L2) with a price difference of up to 10 per cent, the Indian flagged ship is asked to decrease its charter rate to match the price quoted by foreign flagged ship to win an order. • For hiring a ship in Indian Coastal waters, the company needs to float an enquiry to Indian National Ship Owner’s Association (INSA) with the specification of the prospective vessel specification intended to be chartered. In case of unavailability of vessel, INSA gives a No Objection Certificate (NOC) allowing charter hire of foreign flagged vessel.
with less than 50,000 DWT capacities. Only 10 per cent of this fleet is registered as coastal, and the remaining are oceangoing vessels. However, the rules do not restrict ocean-going tankers from carrying out coastal trade, but the reverse is true. Thus, ultimately, all of these 1.5 million DWT tankers can be used to carry coastal cargo.”
THE VALLARPADAM PORT The Vallarpadam terminal, India’s first world-class trans-shipment facility, has initiated the discussion of re-looking at the present state of cabotage law. Transshipment requires rapid inward or outward distribution of cargo from the waterside. Moreover, to attract cargo, a new facility needs to demonstrate to shipping lines the availability of sufficient and efficient feeder capacity at this terminal. The choice of a trans-shipment port for a shipping line is an important decision. And, if there is a need for the shift, the shipping line should allow deploying its own feeders if required or at least have the comfort and visibility of adequate and quality feeder capacity. Cabotage tends to blur this visibility. Seksaria says, “The government seems to be considering a relaxation of the cabotage laws only with respect to Vallarpadam, which demonstrates its understanding of the complexities of this business. It is also willing and flexible to create a fair operating framework for the investor, eg DP World, in this case. The experience from this initiative will allow the government to examine the overall issue in light of facts and numbers.”
FUTURE OUTLOOK The international shipping industry favours a relaxation of the Cabotage Law, indicating that the foreign flag carriers’ interest in this regard will be limited to the traffic to and from foreign countries. More specifically, containers trans-shipped through an Indian hub and originating in or destined for a location overseas will reduce the cargo cost, thus greatly helping the customer.
AUGUST 2010 • SMART LOGISTICS • 39
SL EXCLUSIVE
WAREHOUSING DEVELOPMENT & REGULATION ACT 2007
With the tremendous growth and expansion in the logistics industry, warehousing services have now become the prime focus of development. Better warehousing facilities and stringent regulatory environment are the need of the hour to support this growth. To effectuate this, the Warehousing (Development and Regulation) Bill was passed in 2007, which is yet to be enforced. Thus, the logistics industry awaits the enforcement of the Act to reap the immense benefits it promises. An update… SHIVANI MODY THE logistics industry in India is currently growing at a fast pace. Apart from focussing on the transportation issues, the industry is now also concentrating on developing warehousing services. In
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order to support the logistics sector, the parliament had passed the Warehousing (Development and Regulation) Bill on September 19, 2007. The Act, under the Ministry of Consumer Affairs, Food and
Public Distribution, was to be enforced by November 2009, and is yet to be implemented. Currently, in the discussion stage, the Act is awaited by the industry as an important step towards regulating
warehouses. In the past, warehousing receipts did not enjoy the fiduciary trust of depositors and banks, as there was a concern for non-recovery of the loans in cases of fraud, or mismanagement on behalf of the warehouse or insolvency of depositors. Besides, the legal remedies were time-consuming and inadequate. Even if banks wished to finance against warehouse receipt, they were limited to operators who they trusted or had to incur high costs to screen out appropriate warehouse operators. These issues led to the development of a negotiable warehouse receipt system for all commodities including agricultural commodities, which thus led to formulation of the Act in September 2007.
WAREHOUSING (DEVELOPMENT AND REGULATION) ACT, 2007 The Warehousing (Development and Regulation) Act 2007, besides making the warehouse receipts negotiable and tradable, will also provide additional advantages. Under the Act, a warehousing development and regulatory authority will be formed, whose main function will be to register & regulate warehouses, regulate & register accreditation agencies, specify requisite qualification for warehouse staff, make regulations for grading & certifying agencies, etc. It will also help regulate the process of trading of receipts including electronic systems for same and other related issues. In addition, the availability of a negotiable warehouse receipt system will facilitate increasing liquidity in rural areas,
The need of the hour is to make the act a law and enforce it. It is a welcome move as the first step towards bringing in a regulation for the industry. With larger number of global logistics players coming into the country as well as the international opportunity, implementing such a law becomes all the more important. SRINATH MANDA, PROGRAM MANAGER (TRANSPORTATION & LOGISTICS PRACTICE) – SOUTH ASIA, MIDDLE EAST & NORTH AFRICA, FROST & SULLIVAN
encouragement of scientific warehousing of goods, lowering the cost of financing, shorter and increased number of efficient supply chains, enhanced rewards for grading & quality and better price risk management. The government has also developed a strategy for successful implementation of the Act. The first step towards accomplishing this is to create awareness about it and schedule trainings to demonstrate the procedures involved. As per the planned outlay, the first three years of the 11th Five-Year Plan would require an expenditure of Rs 4.50 crore for organising training and awareness programme on the Warehousing (Development and Regulation) Act, 2007. Further, BE 2008-09, actual expenditure 2008-09 and BE 2009-10 will include expenditures of Rs 150 lakh, Rs 108.284 lakh & Rs 150 lakh, respectively. The authority will also undertake the task of sensitising the stakeholders and farmers with regard to the implementation of the Act. To spread awareness, the authority has already conducted
conferences at the national and regional levels, and will further organise training programmes and awareness campaigns for accreditation agencies, warehousemen and staff of the authority. According to the government officials, the Act is an effort to enable farmers to avoid distress sales by storing their produce in accredited warehouses. The implementation of the warehousing Act would be of immense benefit not only to farmers but also to the industrial and private sectors. Supporting all sectors, the Act will be an advantage for the logistics industry. Since this is a first step towards creating regulations for warehouses, the logistics industry is looking forward to enforcement of the Act. Srinath Manda, Program Manager (Transportation & Logistics practice) – South Asia, Middle East & North Africa, Frost & Sullivan, says, “The need of the hour is to make the act a law and enforce it. It is a welcome move as the first step towards bringing in a regulation for the industry. With larger number of global logistics players
WAREHOUSING DEVELOPMENT & REGULATION ACT 2007
AUGUST 2010 • SMART LOGISTICS • 41
Warehousing development & regulation act 2007, continued
Currently, most companies have their own warehousing facilities or avail the services of personalised clearing and forwarding (C&F) agents. Thus, there was no need for an Act on warehousing. However, these warehousing requirements are undergoing a change and the concept of outsourcing the warehousing needs is now emerging. With time, these services will expand and a regulatory authority can provide the necessary assurance for quality & security. PONRAJ PERISWAMI, SCM-BU INDUSTRY, SIKA INDIA coming into the country as well as the international opportunity, implementing such a law becomes all the more important.” Further elaborating on the need for such a law, informs Ponraj Periswami, SCM-BU Industry, Sika India, “Currently, most companies have their own warehousing facilities or avail the services of personalised clearing and forwarding (C&F) agents. Thus, there was no need for an Act on warehousing. However, these warehousing requirements are
ensuring better warehousing facilities and smoother operations. Manda believes, “One of the major problems faced by the industry is gaining access to finance and investments. With proper formulation and enforcements, the corporate will be able to access bank loans and tap into global opportunity with recognised credentials. Initially benefiting the bigger players in the logistics industry, the advantages will move down to other players and help the ecosystem as well.” On the same lines, informs Gautam
EXPECTED BENEFITS OF WDRA
undergoing a change and the concept of outsourcing the warehousing needs is now emerging. With time, these services will expand and a regulatory authority can provide the necessary assurance for quality & security.”
INDUSTRY PERSPECTIVES An authority will be set up to oversee the regulations and implementations of the Act. These regulations will help in
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Dembla, Director, Speak Logistics, “Availing loans from banks has been the most challenging task while starting our warehousing services. In the absence of the necessary assets as backup, the banks are not willing to approve the loans, despite having the customer support and various contracts in place. Even our investment in equipments is not sufficient to prove our credibility. Thus, equipped with the regulations and an industry norm,
the process can become more convenient and faster.” One of the warehousing requirements at present is to adopt modern technology. Speaking about the modern facilities, Amit Mukherjee, Group CIO & Head of Supply Chain, Spencer’s Retail - RPG Group, avers, “The act can bring in more regulation and the focussed attention can ensure enhanced services. This can even help upgrade the facilities and provide modern technology in terms of electronic systems and latest equipment for customers.” Further, discussing the warehousing requirements in the pharma industry, asserts D S Parikh, Senior Manager – Logistics, Lupin, “From a pharma perspective, warehousing requires the use of latest technologies. There is a need for temperature-controlled storages and even continuous, real-time information on products. As these products have a limited shelf life, adequate information should also be available online.”
LOOKING FORWARD The Warehousing (Development and Regulation) Act, 2007, has not been enforced yet. As this is the first time that an act related to warehousing has been formulated, the industry is looking forward to its implementation. The Act, after implementation, will ensure proper regulation in the industry and enhanced services. Mukherjee says, “At present, 8-9 licences are needed to avail warehousing services. Further, each state has its own regulations. Hence, a properly formulated act can resolve many of these issues and streamline the process.” In addition, the industry will benefit in terms of gaining access to bank finance & loans and move further into servicing international markets. With proper guidelines & regulation, multinational companies will also get an opportunity to enter the country and provide better services. The focussed attention on warehouses will also see adoption of the latest & modern techniques of operations and overall processes. This will facilitate faster movement of goods and more visibility during storage periods. The Act, when enforced, has the potential to regulate the warehouses across the country. Also, as this regulation will, in turn, support the overall growth of the industry, the logistics sector awaits its enforcement.
SPECIAL FEATURE
EXPRESS COURIER MARKET
CHARTING AN EXPRESS ROUTE The express courier industry has come a long way since its inception to become one of the most preferred means for transporting a variety of goods. However, the industry today faces several bottlenecks in the way of providing efficient and reliable services. Here, the government has a larger role to play in eliminating the bottlenecks as well as enhancing the infrastructure and allied facilities to make it a big business proposition in the years to come. KTP RADHIKA JINOY
TODAY , the express courier GROWTH DRIVERS delivery services from a wide spectrum of The growth of our economy is primarily industry has evolved from a primarily consumer segments is driving the market,” fuelled by domestic consumption. The document-centric service to becoming a says Chander Agarwal, Executive Director, middle levels of our society now have critical supply chain support for a large Transport Corporation of India. a greater purchasing power, leading to number of industries. According to a Today, the Indian express industry increased consumption, with a widening study conducted by Credit Analysis and provides value-added, integrated, geographic net to include the secondary Research, the industry is expected to time-bound, door-to-door delivery of cities and townships as well. Both services register a growth of at least 20 per cent documents, parcels and merchandise and manufacturing sectors have registered per annum in the next few years and goods. Growth in industries like electronics, significant growth in the last few years. more than double its size by 2012. The telecommunication, information With the Indian economy expected to domestic organised air and ground express technology (IT), banking, retail, autogrow about 8-9 per cent, the express markets are pegged at about Rs1,500 and components, textiles & apparel, gems & industry is expected to register doubleRs1,700 crore, respectively. The opening jewellery and pharmaceuticals is boosting digit growth in the next few years. “The up of banking, insurance, retail, aviation the demand of express industry. Also, increase in demand for efficient express & telecom sectors and their retail is an emerging segment having penetration in smaller cities attractive opportunities. All have considerably helped in the the above-mentioned factors Value-added services offered by Express industry’s growth. Anil Khanna, have spurred the movement service providers MD, Blue Dart Express, says, of goods. This will enable the “In an increasingly competitive industry see healthy double-digit • Door-to-door service environment where the focus growth in the coming years. • Track and trace facilities is on pruning inventory costs, With India being recognised as • 24x7 helpline facility the express industry provides an outsourcing destination, the • Proof of delivery the speed & reliability that meet manufacturing sector is likely to • Safety and security consignments the nature of current demand witness increased activities in the • Guaranteed time-bound delivery of unlimited choice and short medium to long term. The Indian • Convenient timings of pickups and deliveries. attention spans.” market today remains no more
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TO
SUCCESS limited to only the top metro cities but spans across tier II and III cities as well. The emergence of tier II and III cities as well as smaller towns is triggering the growth of the industry. R S Subramanian, Country Manager, DHL Express, explains, “The rural markets are growing at twice the pace of urban markets and rural India accounts for about 60 per cent of the total national demand. Therefore, a huge growth opportunity exists, which can be further leveraged with the improvement in the infrastructure.” Also, the small & medium enterprises (SME) sector is growing by leaps and bounds, fuelling the need for customised logistics services.
INCREASING COMPETITION Considering the huge opportunity presented by the Indian express courier industry, most of the international express companies have already started working on strategies to make a strong presence here. Besides, domestic players have started to offer a variety of services. Khanna says, “The express courier industry has become highly competitive.
Various airlines are now contemplating their entry into the sector. This is a result of the tremendous growth and potential of the industry in the backdrop of a progressive economy. Moreover, India is projecting strong and encouraging growth, and a large population is now entering the consumer segment. Businesses are now extending to smaller towns and cities of the country, giving immense scope for express providers. In fact, efficient express services now form the core of every successful business.”
However, a large fraction of players are entering the unorganised sector due to lesser obstacles. The domestic players are constantly striving to match up with the services provided by international players, which are currently dominating the business. Also, it is difficult for the players to sustain prices, considering the fragmented nature of the market and the resultant competitive pressures. Subramanian informs, “Considering that huge investments are required to set up a pan-India network, economics of
In an increasingly competitive environment where the focus is on pruning inventory costs, the express industry provides the speed & reliability that meet the nature of current demand of unlimited choice and short attention spans. ANIL KHANNA,
MD, BLUE DART EXPRESS
This has resulted in every player having an opportunity to find its niche to fulfill the growing demand for distribution from production until consumption.
scale play an important role. They offer superior service to clients compared with their unorganised counterparts, as they provide online tracking of cargo
AUGUST 2010 • SMART LOGISTICS • 45
Express courier market, continued
distribution facilities and other services. This has enabled organised players to garner a larger share of the express cargo distribution industry. Given their extensive networks and high service standards, organised players have captured 65 per cent of the express business, while unorganised or semiorganised players account for 25 per cent of the total market. The remaining 10 per cent is serviced by EMS Speed Post.” However, within the domestic sector, unorganised players offer a price advantage over organised players. As a result, the marketshare for the organised sector is only 45 per cent, while that for unorganised players is about 41 per cent. Further, the remaining 14 per cent marketshare lies with EMS Speed Post.
KEY CHALLENGES Today, the express service plays an important role in trade and distribution because of the time-sensitive nature of many goods. It is still the preferred option
C
ONTINUED INVESTMENT IN E-GOVERNANCE AND INFRASTRUCTURE PROJECTS THROUGH PUBLIC AND PRIVATE PARTNERSHIPS (PPP) WILL PROVIDE THE MUCH NEEDED DIRECTION AND SUSTAINED DEVELOPMENT IN INDIA.
operators is infrastructure. Khanna says, “Both air and ground express industries face this problem. Often, inadequacy of space at airports as well as air-side and city-side infrastructure is a problem. In addition, parking bays, city-side access and traffic congestion adversely impact both costs and service quality. Air express
Courier companies find it difficult to absorb the rising costs in the prices and eventually pass this on to consumers. However, due to the highly price-sensitive market, price hikes are not accepted by customers, and the express industry has to bear this cost, which affects the overall profit margins of the industry. CHANDER AGARWAL,
EXECUTIVE DIRECTOR, TRANSPORT CORPORATION
OF INDIA
for those looking for reliability, speed & security. However, the increasing cost of fuel has been a concern for the express courier market, often hindering the potential of the market. Fuel is a major cost component in the express business. In fact, the cost of diesel, a major input for the express industry operations has been steadily rising over the past few months. Any increase in the cost of fuel has adverse impacts on the industry. Says Agarwal, “Courier companies find it difficult to absorb the rising costs in the prices and eventually pass this on to consumers. However, due to the highly price-sensitive market, price hikes are not accepted by customers, and the express industry has to bear this cost, which affects the overall profit margins of the industry.” Another big challenge faced by express
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companies are constrained by the sizes of the facilities at airports, which have remained the same while the loads have increased manifold.” Further, another area of concern is the Postal Bill. “The proposed amendment in its current format is regressive, and not in tandem with the global best practices. This would adversely impact the growth of trade & commerce in the country. The amendment, if passed in its current format, would annul a 30year-old business that employs more than one million people. This would thus negatively impact many players across the country who have made enormous afforts in setting up infrastructure and build the business,” adds Khanna. Besides, other major obstacles to the growth of India’s express market include transport infrastructure and lack of understanding of supply chains.
COUNTERING CHALLENGES The government has now seriously taken up the issue of infrastructural challenges. It is contributing by drawing up robust plans for developing and upgrading both air & ground infrastructure, eg modernisation of airports, development of highways & roads, etc. Continued investment in egovernance and infrastructure projects through public and private partnerships (PPP) will provide the much needed direction and sustained development in India. “PPP in infrastructural projects and other such areas will accelerate development and propel the express industry for better performance. With the GST soon to be implemented in India, the third party logistics (3PL) market is poised to re-invent itself. Companies that adapt to the changing scenario not only create a differentiating factor for themselves but also successfully capture this major growth opportunity,” says Khanna.
GROWTH PROJECTIONS The demand for express services is increasing with every passing year. This, coupled with the advancement in technology & infrastructure and commitment of private players in this sector to offer quality services to customers, will facilitate the express industry to reach new heights. The opening up of the Indian economy to foreign investments is expected to attract more companies into the country, thereby accelerating market growth. The increase in demand for reliable and efficient express delivery services from a wide spectrum of consumer segments is expected to drive the market. The increased competition has given rise to a greater sense of urgency, to be the first to market while sustaining cost-competitiveness. Besides, customer expectations have also scaled up. Therefore, the industry needs to continuously innovate ahead of the curve while retaining the fundamental values of building customer trust. According to experts, the strong economic growth, increasing competition and current demand increase will force the express companies to innovate and increase the investments for enhancing infrastructural facilities. This will, in turn, boost the growth of the express courier market. By tackling the present constraints and with more opportunities coming in, the express courier is set to become a big business proposition in the near future.
TECH TRACK IT TRENDS IN LOGISTICS
Aries Global Logistics To Partner With Four Soft For 4S eCustoms FOUR Soft (4S), a global leader offering software solutions for logistics and transportation industry, has signed a deal with Aries Global Logistics, a leading US-based freight forwarding, customs brokerage and third party logistics company, for implementing its global freight forwarding application, 4S eTrans. These have also partnered for developing 4S eCustoms for US imports and several other import-related modules. Four Soft USA Inc has executed the contract. Aries Global Logistics is an existing customer of Four Soft. Rajshekhar Roy, CEO, Four Soft, said, “US Customs will be integrated into 4S eCustoms to enhance global reach of the application in compliance space for third party logistics providers. As we already handle over 25 per cent of customs transactions in the US with our legacy applications, this move demonstrates our commitment to provide continuous value to our existing customer base in North America. Our coverage of the marketshare will increase to 65 per cent upon completion of this development.”
4S eCustoms is an anytime, anywhere global customs compliance solution, with plug & play modules for different countries, designed to work in a multicultural, multilingual environment, as one package with interface capabilities with all products form FS enterprise and other standard ERP applications. 4S eCustoms exemplifies 4S’s value chain integration proposition, with seamless possibilities for integration with multiple ERP applications. With native browser access and a generic third party interface, 4S eCustoms is a highly interactive and cost-effective solution for the International Freight Forwarding and Customs Brokerage community. Apart from 4S eCustoms, 4S eTrans, a FS’s web-centric Freight Management System, is also capable of handling air, sea, road and multimodal transport management services. It has been built on J2EE platform with a native browser interface. The main function of 4S eTrans would be to provide the modern-day logistics operators with operational and financial control over their day-to-day functions, order to cash process of
the domestic and international freight movements. Equipped with an integrated freight accounting module and interface capabilities with external accounting systems, 4S eTrans provides a scalable and flexible Freight Management solution. Embracing these technologies, Frank D’Ambra, President, Aries Global Logistics, says, “Four Soft has been our strategic IT partner for several years. With more confidence in 4S systems, we now move forward to enhance our systems capabilities across all our business lines with the new web-centric technologies that our partner has to offer. We are confident that these implementations will validate opportunities to optimise our operations, improve services and smoothly address the needs of our global customers.” Further, Tim Sensenig, EVP – Global Business Development & Sales, Four Soft said, “We believes our longstanding partnership with Aries will allow us to implement a global process while retaining flexibility to offer regional and process variations.”
Savi Technology Introduces New Synchronising Solution
Zebra Unveils Latest Ultra-Wideband RTLS
SAVI Technology recently achieved SAP certification for its SmartChain Consignment Management Application (CMA) software platform version 6.0 based on the SAP NetWeaver PI technology platform. “SmartChain CMA helps bridge gaps among planning, inventorying, tracking and delivery processes,” said John McFadyen, Senior VP-International Operations, Savi Technology. SmartChain CMA integrates with SAP solutions to provide an automated solution to synchronise supply chain planning & execution operations for defence, public sector and commercial customers. Mohammad Avani, Senior Director - Product Management, Savi Technology, said, “Integration with
ZEBRA lately launched its Dart
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other SAP modules is currently under development. But we will continue to expand our SAP integration in various industries, eg oil & gas and aerospace & defence.” The SAP integration helps Savi’s SmartChain CMA platform & applications for asset, shipment and consignment management to link supply chain visibility information in-transit and onsite with operational planning tools, said company officials. Thus, shippers running SmartChain CMA with SAP solutions can adjust their supplies and deliveries to changes in demand or situational requirements. Also, SmartChain CMA linked to sensor-based data may provide greater awareness of asset conditions and security status.
ultra-wideband real-time locating system. It is designed for applications where long-range, multi-read, realtime location is required and is built on current Sapphire core capabilities. Designed for the extreme, regulated environments such as mining, petrochemical, etc, Dart will enable fast and accurate location of personnel & equipment, in indoor as well as outdoor environments. Capable of reading thousands of active RFID tags per second, it also provides stable temperature performance over a wide range. Dart is also certified for use in hazardous and explosive environments, as defined by the ATEX Directive in Europe.
Oracle Unveils Agile Customer Needs Management TO manage and automate the fuzzy front-end innovation process, Oracle has introduced Oracle’s Agile Customer Needs Management, as a part of the Oracle’s Product Value Chain suite. Hardeep Gulati, VP-PLM & PIM Product Strategy, Oracle, said, “We are broadening our product value chain leadership with the launch of Agile Customer Needs Management. This will allow companies to effectively manage creative ideas and customer requirements that will generate the maximum value for their R&D investment. Further, by providing enterprise 2.0 social features and an easy-to-use user interface, customers can leverage the collective intelligence of their employees, customers and partners to identify the features with the greatest market potential. This helps promote a culture of open innovation.” Agile Customer Needs Management will enable customers to easily capture and prioritise product ideas, customer feedback and product requirements from internal sources including product managers, engineers, sales & executives and external sources such as customers, design partners and suppliers. It provides multiple Enterprise 2.0 features such as tagging, reviewing and comments and an easy-to-use Web 2.0-based user interface to enable a collaborative, openinnovation platform. Moreover, it supports the innovation process for products across many industries including hi-tech, life sciences, consumer goods, retail and industrial manufacturing. The product also includes functionality for managing specifications and quotes for custom products for engineer-to-order divisions of hi-tech and industrial manufacturing companies. Citing the importance of Agile Customer Needs Management, Jon Chorley, VP– SCM Product Strategy, Oracle said, “We believe that it is critical for companies to treat the product dimension of supply chain as a holistic value chain challenge. This is why Oracle has developed a differentiated suite of integrated capabilities targeted at the overall product value chain.”
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IT IN LOGISTICS
TRANSPORTATION MANAGEMENT SYSTEM
LEADING TO
COST-EFFECTIVE, GREEN BUSINESS
PROPOSITION
Cost-effective and eco-friendly movement of products has always been a challenge for transport companies, however little has been talked about the measures to these prevalent issues. In such a scenario, adoption of Transportation Management System (TMS) has proved to be a lucrative option for companies. Here’s appraising on how this new system by the way of automation facilitates cost saving and optimises speed and efficiency in the transportation business.
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Table 1 outlines some common areas of savings with a TMS.
AUTOMATING SHIPPING PROCESSES
CARRIERS have long been making efforts to address issues related to cost reduction and customer service. There is also a need to think about greening the emissions and carbon footprints. At present, an important question to consider is whether it is possible for a carrier to significantly cut transportation costs and improve service to customers, while reducing carbon emissions without any additional efforts. A transportation management system (TMS) manages almost the entire process surrounding the shipment of freight. It helps to select the right carrier across all modes, rate the movement, tender the load, print shipping documents, track the load, prepare freight bill for other carriers and pay the freight bill from the carrier. The savings opportunities with a TMS are undeniable. The ARC Advisory Group has shown that companies can reduce their transportation costs by 5-25 per cent or more by using a TMS to streamline and automate their transportation planning and execution processes. With such savings, a faster return can be expected on the TMS investment.
Often, following the conventional process yields excellent and productive results – like baking cookies from scratch or building a soapbox derby car. However, in business, the conventional process is often slower and more error prone. Also, it is difficult to accomplish manual control of transportation costs. There is a multitude of criteria to consider when analysing the ‘who, what, when, where and how’ of moving goods, and managing these rules by only documentation can often leave much to be desired. Automating transportation processes such as mode & carrier selection and compliance requirements can save a lot of time and money. A TMS drives efficiency by automatically finding the most efficient mode, route and carrier for each shipment. The complex daily task of routing is performed automatically through sophisticated optimisation algorithms that provide the least cost solution while meeting customer requirements. Using static rules, selecting mode of transportation strictly based on weight, will not always determine the most efficient
UICK TAKE • Whether it is part of an Enterprise Level (ERP) System or from an integrated best of breed independent software vendor (ISV), TMS has become a critical part of any Supply Chain Execution (SCE) and Collaboration System in which real time exchange of information with other SCE modules is of immense importance. • TMS makes managing one’s transportation more strategic and simpler. The right TMS solution will give a real-time insight into the status of shipments automate manual processes and cut freight expenses. transportation. The system will also select carriers that are automatically based on the pre-negotiated lane rates and carrier availability. For example, if a customer wants to deliver only on three days of a week during certain time windows and use certain carriers. All business rules are established in the TMS, rendering the capability to plan hundreds of orders in minutes rather than hours. Leveraging multi-modal optimisation is another
Optimised LTL to multi-stop truckload or pool carrier consolidation Freight spend savings of 5-20% Improved efficiency in operations Reduced overhead of 10-30% Improved freight settlement/audit Freight spend savings of 2-5% Real-time visibility into inventory and shipment status Reduction in safety stock 10-15% Optimal mode and carrier selection Freight spend savings of 2-5% Table: Common areas of savings with a TMS
way to transport goods. Moreover, selecting the right carrier is challenging because a host of customer requirements and internal policies need to be considered, in addition to finding the least expensive alternative. A TMS can be configured to meet any number of customer demands & exceptions, facility configurations, business rules and distribution strategies. Hence, the transportation solution will automatically analyse all options with advanced load planning and optimisation tools to select the most efficient mode of
area for savings. Hundreds or even thousands of shipments can quickly be planned by way of optimal combination of consolidated loads, continuous moves, pooled shipments and backhauls across all available modes. The TMS can analyse each leg of a shipment and assess the situation for more efficient shipment mode options. For example, take the case of using less than truckload (LTL), moving from point A to C. Here, opportunities may be available to combine shipments to convert it into a full truckload (TL)
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Transportation management system, continued
from point A to B, and then shift to LTL from point B to C for monetary and environmental savings.
SHIPMENT TRACKING AND VISIBILITY
A
At present, people usually log in to their bank’s website to find the most up-to-date information on their accounts. The same logic applies for tracking shipments. A manual email and fax approach yields the most updated and accurate information. Reliable data are not always available while using labour-intensive and documentation-based processes that are prone to errors. A number of nextgeneration TMSs are available as web-based applications, which can be shared across a community of shippers, customers and transportation departments. Many of these systems even have mobile applications so that users can view shipment status from an iPhone or other mobile device. Shipment tracking in a TMS will provide shipment status to authorised users at any time because the system captures electronic data interchange (EDI) information from carriers on a real-time basis. Searches can be performed by bill of lading, order number, purchase order number, consignee or carrier. In-transit visibility provides an option of making changes when necessary, as managers are notified of exceptions before they can cause a problem.
FREIGHT BILLING It is important to check the money that may be left behind after the billing process is over. Working with many shippers with a multitude of rules and rates that are constantly changing is a challenging task. After receiving an invoice, it is often too arduous to go back and check whether the correct amount has been charged, and may result in the businessman paying some additional amount. This additional amount adds up quickly, which could actually be utilised elsewhere in the business. A next-generation TMS helps streamline the freight payment process in the system. Most bills are automatically validated and approved for payment. If the bill is of more than a specified tolerance, the system will flag the invoice and automatically send a note to the shipper, announcing the problem and requesting
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NUMBER OF NEXT-GENERATION TMSs ARE AVAILABLE AS WEBBASED APPLICATIONS, WHICH CAN BE SHARED ACROSS A COMMUNITY OF SHIPPERS, CUSTOMERS AND TRANSPORTATION DEPARTMENTS. MANY OF THESE SYSTEMS EVEN HAVE MOBILE APPLICATIONS SO THAT USERS CAN VIEW SHIPMENT STATUS FROM AN IPHONE OR OTHER MOBILE DEVICE. a resolution. This functionality virtually eliminates manual pre-audits, automates the match-and-pay process, automatically applies general ledger account codes as well as provides accurate transportation cost accruals & reporting capabilities.
FASTER IMPLEMENTATION OF TMS In the past, many companies had put off implementing a TMS solution because the protracted deployment time and the strain on the IT department along with a huge up-front investment rendered the project too daunting. Nevertheless, with the current on-demand, software-as-a-service (SaaS) TMS model, companies of all sizes can benefit from a TMS without the upfront cost and IT drain. On-demand TMS solutions are more affordable and faster to implement, bringing a quick time to value. Instead of paying a relatively large licence fee up-front, one needs to pay a monthly subscription fee, converting what was previously a capital investment into an operating expense. Instead of being installed on servers at the location of the business, the software is hosted in a secure data centre at the software provider to minimise time and cost spent on installation and maintenance. There is no need to deploy or administer infrastructure or software by the business’s IT department, and the TMS provider carries out all ongoing software updates and infrastructure maintenance. The software implementation time is reduced from many months, or even years, to weeks or a few months. With the SAAS model, there is a ‘network effect’ wherein the service becomes more valuable to the owner, as more people begin to use it. A company maintains relationships with many different
carriers and once they enter the system, communication and rules are simplified for everyone involved. In fact, in most cases, the carriers are built into the TMS carrier network, dramatically reducing the implementation time. The only remaining task is to load in the pre-negotiated lanes and corresponding rates.
GOING GREEN IS QUITE EASY Carbon footprint, greenhouse gases and carbon dioxide emissions are common terms but people are unsure of what to do about these or where to begin. For freight transporters, the pressure is on to reduce carbon emissions. Freight transportation is cited as the most polluting and fastest growing transportation sector. Moreover, a recent study on national surface transportation noted that freight is responsible for about eight per cent of the total carbon dioxide emissions in the US. The same report noted that the answer lies in modernising freight systems to make them more efficient so as to reduce emissions while simultaneously improving freight movement. A transportation management system can substantially affect managing a company’s carbon footprint. The first step includes the efficiencies gained through optimised route planning, mode selection and carrier choice. The second savings comes via the full, real-time visibility into shipments that a TMS provides. With realtime information and optimisation, there is an option to redirect shipments to a more efficient option. Considering inbound shipments coming from Asia, people have to contend with port issues, drayage, rail cars and trucking. With real-time carrier information, the transporter has the flexibility to make routing changes on the fly if more efficient modes are available.
CONTRIBUTING TO THE CHANGE Rising freight & fuel costs and customer demands for better shipment visibility make it all the more evident to automate processes. A TMS makes managing one’s transportation more strategic, and simpler. The right TMS solution will give a realtime insight into the status of shipments, automate manual processes and cut freight expenses. Further, the days of managing transportation options with spreadsheets and a fax machine could soon become a thing of the past. Courtesy: HighJump Software Inc
ELECTRONICS MANUFACTURERS SUPPLY CHAIN BEST PRACTICES
IN A TO B QUEST WOR UILD LD-C A LASS Inculcating best practices in manufacturing, developing trusted relationships with supply chain partners and following a modern approach to improve processes are a necessity in the modernday logistics. Additionally, tracking performance and countering potential challenges to avoid them from percolating to end customers are certain measures, which, if followed, can truly benefit an electronics company, making it reach a world-class level. ELECTRONICS manufacturers manage some of the most complex supply chains imaginable, pulling together materials and components from a vast array of suppliers often found across the globe. These companies are pressurised by consumers who increasingly demand more value and innovation at the least possible price. Globally, electronics manufacturers are involved in complex supply chains because of their customers’ demand for better, value-added innovative products at lower prices. Thus, electronics companies must swiftly design products, procure supplies and manufacture and ship finished products within narrow market windows. Any delays in introducing and delivering products, such as non-compliant materials or production defects, force customers towards competitors’ goods and erode
profits for products with limited shelf life. Suppliers to electronics manufacturers are critical allies in the struggle to reach market and satisfy customer demand, making supply chain management and collaboration a core strategy for electronics manufacturers. In order to effectively compete today and into the next generation, electronics manufacturers must introduce fresh ways to manage their supply chains to give them a world-class status. For reaching a world-class level of supply chain performance, electronics manufacturers must focus on the following three key objectives: • Recognise that supply chain management and collaboration is a core strategy, and that achieving worldclass performance improves both productivity and customer satisfaction. Surprisingly, many manufacturers are not interested in working closer
with their supply chain partners and developing collaborative relationships. • Support supply chain management and collaboration with resources, investments and best practices. Despite good intentions and awareness of the benefits of supply chain management and collaboration, many companies fail to support this objective with people and tools that enable their companies to execute and improve. • Rigorously monitor performance to continuously improve visibility into supplier and customer relations as well as optimise supplier networks. Many companies react to problems after they arise, which shows that systems supporting predictability are lacking, while giving them the ability to monitor and improve their returns from supply chain management and collaboration.
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Electronics supply chain, continued
WORLD-CLASS SUPPLY CHAINS Few electronics manufacturers have been able to achieve world-class supply chain management and collaboration. According to the Next Generation Manufacturing (NGM) study, only 7 per cent of the electronics companies rate themselves at a ‘world-class’ level for supply chain management and collaboration, and another 22 per cent believe themselves to be near ‘world-class’ status. Over onequarter of electronics manufacturers have made limited or no progress towards world-class supply chain status. Two groups—electronics manufacturers at or near world-class supply chain management and collaboration versus those furthest from world-class status—exhibit vastly different supply chain practices and performances. The ability of electronics manufacturers to attain superior performance with their supply chain strategies correlates with the importance they place on the strategy. About 42 per cent of electronics manufacturers indicate that supply chain management and collaboration is ‘highly important’ to their organisation’s success over the next five years. But even many companies that understand the importance of the strategy are still unable to attain world-class status due to their inability for execution (eg lack of best practices, tools or resources). Particularly interesting is the ‘importance gap’ between electronics manufacturers at or near world-class supply chain management as compared to those furthest from world-class status. About 63 per cent of electronics manufacturers at or near world-class supply chain management and collaboration rate the strategy as highly important, compared with only 34 per cent of electronics manufacturers furthest from the worldclass status. Focussing on the strategy is critical to achieve a world-class supplier management and collaboration.
INFORMATION TECHNOLOGY AS A RESOURCE Resources and investments support worldclass strategies and performances. Further, supply chain performance management demands visibility into actionable information and the employees must also be able to make real-time decisions via dashboards, scorecards, analytics, etc. Without making information available to dedicated employees, how can the supply chain be improved? Approximately 21 per cent of electronics manufacturers have less than 1
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per cent of their workforces dedicated to supply chain management. Similarly, 22 per cent of electronics manufacturers invest less than 1 per cent of sales (three-year average) into information technology (IT; hardware & software). Investments in both human resources and IT by electronics manufacturers at or near world-class supply chain management and collaboration offer a contrast. Approximately 44 per cent of electronics manufacturers at or near worldclass status have more than 5 per cent of their workforces dedicated to supply chain management (compared with 22 per cent of electronics manufacturers furthest from the world-class status). Further, 40 per cent of world-class performers have invested more than 5 per cent of sales into IT. These 40 per cent of electronics manufacturers that invest more than 5 per cent of sales into IT report their organisation at or near world-class supply chain management and collaboration, compared with only 14 per cent of electronics manufacturers that invest less than 1 per cent in IT.
arising in the supply chain in the absence of appropriate measurement systems and tools. Electronics manufacturers at or near world-class status understand this limitation, and are more likely to have advanced measurement systems in place. About 81 per cent of such manufacturers report having better than ad hoc measurement systems, compared with only 39 per cent of electronics manufacturers furthest from world-class supply chain management and collaboration. IT cannot instantly improve the supply chain of an electronics manufacturer. Indeed, without appropriate practices and processes in place, and dedicated staff to manage and execute, new tools may only add to the complexity and impair a company’s ability to identify and solve problems. But with the right strategic focus—supply chain management and collaboration—electronics manufacturers can close the loop on supply chain performance management, aligning supplier activities with sales and operations planning processes.
INFORMATION FLOW Visibility of information is critical to supply chain management and collaboration. Electronics manufacturers need to understand the activities taking place, from the furthest vendors to end customers. There is a need to ensure compliance of supplier components with product specifications and their availability in the right quantity and at required times. Can production accommodate new supplier materials for a new design? Is customer feedback flowing back up the supply chain so that all parties can respond and improve? Is supply chain performance managed such that it optimises the return on investment (ROI)? Most electronics manufacturers do not properly measure their supply chain performances. Approximately 20 per cent of electronics manufacturers have ‘no measurement system per se or reviews’ in place to assess the return from supply chain management and collaboration efforts. Another 29 per cent have only ‘ad hoc monitoring of basic measures and ad hoc reviews’. Only 9 per cent of electronics manufacturers report having ‘regular monitoring and review of company-specific metrics by CEO & senior staff and transparency & clarity throughout the organisation’. Most electronics manufacturers find it difficult—if not impossible—to be proactive and stay ahead of problems
PERFORMANCE DRIVES FUTURE SUCCESS Electronics manufacturers that apply best practices and resources for improving their production can expect tangible benefits for their companies as well as extended enterprises. Electronics manufacturers at or near world-class supply chain management are able to work differently and outperform their industry peers. NGM studies have reviewed the ability of electronics manufacturers’ supply chains to respond to unexpected customer demands for existing products. Approximately 1 in 10 manufacturers described their supply chains as highly advanced and responsive, with ‘real-time communication of demand signal and entire supply chain flexible to demand spikes— standard delivery times consistently met and just-in-time inventories’. But 45 per cent of electronics manufacturers report that some delay—major or minor— occurred while communicating demand signals and that excessive inventory was required to meet the demand. About 19 per cent of the electronics manufacturers at or near world-class status identified supply chain as highly advanced and responsive enterprises, compared with only 6 per cent of the companies with the world-class status. In addition, companies at or near world-class
status were less likely to indicate major or to new markets’. About 33 per cent of minor delays. electronic manufacturers still remain in Manufacturers have recently begun to conventional buy-and-sell relationships examine the size of inventories within the where suppliers are measured only on entire supply chain. Similarly, research is the basis of cost, quality and delivery now being carried out on the movement performance. of these inventories from original equipment manufacturers Chart 1: Organisation’s progress towards (OEMs) up and down the supply world-class supply-chain management and collaboration (Electronics manufacturers) chain. While many executives from electronics companies At or near world-class (WC) 6.5% 8.4% believe that they are managing supply-chain management (SC) inventories within their own 19.0% 22.4% plants and companies, it is clear from the new NGM study data that some of this management Furthest from world-class (NWC) included merely shifting supply-chain 43.6% management (SC) inventory onto suppliers or out to customers.
BUILDING AN EFFICIENT SUPPLY CHAIN About 53 per cent of electronics manufacturers report that the total value of inventory in their supply chains for their primary product—furthest supplier to end customer—has been reduced by 10 per cent over the last three years. Only a few electronics manufacturers have made substantial improvements—13 per cent have decreased inventories by more than 25 per cent over the last three years. Electronics manufacturers at or near world-class status are more likely to have some success in influencing inventory across their supply chains—65 per cent of them have reduced supply chain inventory by 10 per cent or more, compared with 40 per cent of electronics manufacturers furthest from world-class supply chain management. But, the inability of even world-class performers to make substantial inventory reductions in their supply chains shows the difficulty in completely removing inventory from large complex supply chains. Often, delivery and customer satisfaction are maintained only through higher levels of buffer & safety stocks. Approximately one-quarter of electronics manufacturers describe their supply chain as a competitive advantage in terms of flexibility and speed to market because of strategic partnerships with suppliers & customers. About 23 per cent of electronics manufacturers report ‘strategic supplies and customers are active participants in operations, continuous improvement and product development efforts and participate fully in strategic planning and identifying and responding
Superior supply chain performance management also helps manufacturers to improve internally, with exchange of ideas, best practices and resources between supply chain partners. For example, 42 per cent of electronics manufacturers at or near world-class supply chain management and collaboration report value addition per employee of more than $ 125,000, compared with 30 per cent of electronics manufacturers furthest from world-class status. These top performers were also more likely to have improved their valueadd performance over the past three years. Moreover, 76 per cent of electronics manufacturers at or near world-class supply chain management and collaboration had improved productivity by 25 per cent or more in three years, as compared to 57 per cent of electronics manufactures furthest from world-class status.
with better than ad hoc measurement systems had reduced inventory across their supply chains by more than 10 per cent over the past three years, versus 31 per cent of those with no measurement systems or ad hoc systems. • About 30 per cent of manufacturers with better than ad hoc measurement systems report that ‘strategic suppliers and customers’ are a competitive advantage, versus 16 per cent of those with no measurement systems or ad hoc systems. • Approximately 39 per cent of manufacturers with better than ad hoc measurement systems report valueadd per employee of more than $ 125,000, versus 27 per cent of those with no measurement systems or ad hoc systems. • Around 68 per cent of manufacturers with better than ad hoc measurement systems had improved productivity by 25 per cent or more over the past three years, versus 56 per cent of those with no measurement systems or ad hoc systems. Further, higher investments in IT correlated with better performances. For example, 20 per cent of electronics manufacturers that invest more than 5 per cent of sales in IT respond to unexpected customer demand with ‘realtime communication of demand signal and entire supply chain flexible to demand spikes’, versus 6 per cent of those spending 5 per cent or less on IT. Moreover, 74 per cent of electronics manufacturers that invest more than 5 per cent of sales in IT had improved productivity by 25 per cent or more in the past three years, versus 57 per cent of those spending 5 per cent or less on IT.
CORRELATING PERFORMANCES
TOWARDS ATTAINING THE GOAL
The presence of more advanced measurement systems for monitoring supply chain returns is critical to improving worldclass status, with these systems correlating strongly with improved performance: • About 66 per cent of manufacturers with better than ad hoc measurements systems are able to respond to unexpected customer demand without major & minor communication delays and excessive inventories, versus 43 per cent of those with no measurement systems or ad hoc systems. • Around 54 per cent of manufacturers
Electronics manufacturers at or near world-class supply chain management and collaboration are more likely than their industry peers to focus on supply chain management and collaboration as a strategy, apply human resources and IT towards it and to be rewarded for efforts with improved, above-standard performances.
1=No progress
2
3
4
5=World-class Source: Next Generation Manufacturing study
Courtesy: This article is an excerpt from the white paper, ‘Building A World-class Supply Chain’ by The MPI Group, sponsored by IBM Business Analytics Software.
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WAREHOUSING & DC
SMART WAREHOUSING
EVOLVING AT A FASTER PACE Even as warehousing braves through windstorms at the global front, smart warehousing has taken roots with technologically advanced and cost-effective solutions. With multiple initiatives slated to transform the face of this segment, warehousing service providers can now look forward to a developing profit centre with immense growth potential, yet untapped... PURNA PARMAR THE advent of multinational companies (MNCs) along with the growth of other industrial sectors in India has created a need for smart warehousing – a combination of technically advanced as well as cost-effective warehousing. The country is now providing good-quality, technology-driven warehousing. But, availability of only infrastructure is of no use. All factors, including government incentives, eco-friendly practices, state-ofthe-art equipment and technology must work in tandem to ensure convenient use
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of distribution and warehousing facilities by any customer. There are no restrictions on the use of warehousing facilities if the intra-logistics designing is done keeping in mind a broad mix of products. “The logistics industry in India is a $100 billion industry, of which warehousing industry constitutes more than $20 billion. However, the industry is still in infancy and driven by very few organised players. The logistics industry in India is a sunrise industry, and warehousing is one of its key components. Also, it is growing at a robust
rate of 15-20 per cent and is expected to grow at a rate of 30 per cent in the next few years,” says Vineet Kanaujia, GM–Marketing, Safexpress. India spends around 13.5 per cent of its gross domestic product (GDP) on logistics services, which amounts to Rs 4.3 trillion. According to industry experts, 27 per cent of this cost is accounted for warehousing, 24 per cent for inventory carrying and 6 per cent for order processing. Thus, the country spends approximately Rs 2.15 trillion on storage and warehousing, directly or indirectly.
The logistics industry in India is a $100 billion industry, of which warehousing industry constitutes more than $20 billion; however, the industry is still in the infant stages and driven by people like us. Growing at a robust rate of 15-20 per cent, warehousing has become one of the key components of this industry. VINEET KANAUJIA, GM–MARKETING, SAFEXPRESS Only 30 per cent of the industry in India outsources warehousing, compared with 76 per cent done globally. Further, only 31 per cent of total service providers in the warehousing space are organised players. While there is approximately 2,900 million sqft of warehousing space in the country, more than 80 per cent of these spaces measure less than 10,000 sqft, with 82 per cent of them not mechanised. Even the mechanised warehouses have only forklifts or hydraulic hand pallet trucks. These numbers clearly indicate an acute need for organised, large-scale, good-quality warehousing and storage infrastructure in the country. “Warehousing is an integral part of the goods & services ecosystem, and the total economic value added is far higher than the direct value addition. Its importance in the economy goes beyond just achieving equilibrium in demand–supply. To achieve this basic function today, the warehousing space supply needs to grow at a doubledigit rate over the next 4-5 years in order to fill the existing gap and be able
companies in India are upgrading their capacity, as a result of the huge demand for various agricultural products because of the increasing delivery system in future markets and the retail boom happening across the country. However, according to experts, delays in land acquisition and high costs are hindering the establishment of modern warehouses. “Today, intense competition is forcing the industry to cut down their product prices. Further, logistics is a major contributor to cost in the production of goods, while transportation and warehousing are areas where companies try to cut costs. With new players entering the warehousing segment, there is not much shortage of warehousing space, which prevailed earlier,” says AK Agarwal, Director, DRS Group. Another challenge faced by the warehousing segment is creating infrastructure. According to Kanaujia, only few players in the industry invest in building good warehousing facilities. He further adds, “One of the biggest challenges is to create infrastructure. One has to wait
Today, intense competition is forcing the industry to cut down their product prices. Further, logistics is a major contributor to cost in the production of goods, while transportation and warehousing are areas where companies try to cut costs. With new players entering the warehousing segment, there is not much shortage of warehousing space, which prevailed earlier. AK AGARWAL, DIRECTOR – DRS GROUP to service future demand,” says Anil K Choudhary, MD & CEO, National Bulk Handling Corporation (NBHC).
ROADBLOCKS India is currently witnessing another boom in the warehousing segment. Warehousing
for two to three years to recover their investments in warehousing. India would have a better supply chain system if more players invest in warehousing.” Meanwhile, Agarwal affirms that an important challenge faced by the industry is lack of state-of-the-art warehousing space,
qualified manpower and implementation of new technologies. “Still, many local and regional players are not well-equipped and financially strong to implement these, and because of cost-cutting by customers, warehouse owners are unable to maintain the return on investment (ROI). Another major roadblock is the unorganised status of warehousing and lack of unity between them or any association that represents them,” adds Agarwal.
TECHNOLOGIES OF THE FUTURE Technology forms a large component of a smart warehouse. Although it has enhanced the quality of our lives and made things more convenient, it comes with a cost, which is not affordable by small players in the industry. Nevertheless, companies now do not see warehouses as a cost centre but a profit centre in itself. The shelf life of products has now become shorter and they also quickly become obsolete. Thus, it is important to make one’s products available on the shelf at the time and place according to customers’ requirements. “As we have to process the material fast inside the warehouse, we need technology to expedite the process. Hence, we use new technologies like enterprise resource planning (ERP), radio-frequency identification (RFID), scanners, BIN locaters, Material Handling Equipments (MHEs), storage systems, etc for the same,” points out Agarwal. Discussing the technologies that would bring about a revolution in warehousing in the future, Kanaujia said, “Technology will be the backbone of warehousing in the future. Technologies like ERP, global positioning system (GPS), warehouse management system, track and trace systems enabled by GPS, etc will boost the warehousing segment in the years to come.”
EQUIPMENT UPDATE State-of-the-art equipment also contribute to building a smart warehouse. Equipment like fore-clutch, hi-tech machinery and high-quality plastic racks for storing goods can well be regarded as the equipment of future. According to Agarwal, it is important that manufacturers and their supplier & customers think and act alike. The latest technology in the industry is RFID, which helps in faster processing in terms of documents and physical movement of material. New storage systems are also being installed in
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Smart warehousing, continued
warehouses for optimisation of space for which new MHEs are also being used.
BEST PRACTICES In an industry as dynamic as distribution and warehousing, it is important to set basic industry standards and identify the best practices for their maintenance. A smart warehouse would follow practices like collaborative planning, forecasting and replenishment (CPFR), eco-friendly warehousing systems, among others. “The best practice is to follow CPFR. Here, planning is shared with all parties, internal or external, involved in manufacturing the product. It helps in preparing the goods within the required time and quantity. All partners are aware of the production schedule well in advance, and there are no inventory blockages or shortfall,” mentions Agarwal.
TRANSFORMING LANDSCAPE Manufacturers have now realised that a warehouse is important to keep their supply chain intact and updated for survival in
aspect. Application of new technologies has decreased the cost of many components, eg manpower, space, turnaround time for processing the material, loading and unloading, etc. “With the help of technology, processing of material has become safer & faster and the ultimate benefit is that the reduction in cost is being passed on to the customer. This could be achieved only if the products that are in demand are stored in strategically located warehouses and there is no excess inventory in the pipeline. This practice will significantly help in bringing down major costs, which existed earlier in the system. Meanwhile, pointing towards the enforcement of GST from April 2011 and the impact it would have on the logistics industry, Kanaujia avers, “Currently, we have tax systems such as the CST and LST, but implementation of GST would revolutionise the warehousing industry, helping to reduce cost drastically. Moreover, GST will help us to send our inventory at one go to different locations in different parts of the country and at
Warehousing is an integral part of the goods & services ecosystem, and the total economic value added is far larger than the direct value addition. Its importance in the economy goes beyond just achieving equilibrium in demand–supply. To achieve this basic function today, warehousing space supply needs to grow at a double-digit rate over the next 4-5 years in order to fill the existing gap and be able to service future demand. ANIL K CHOUDHARY, MD & CEO, NATIONAL BULK HANDLING CORPORATION today’s competitive business environment. “Earlier, godowns were used to dump the inventory, which was produced in mass for future sales, but now manufacturers make only the products that are in demand, and hence the utility of warehouses becomes more critical. They also share the information online about inventories they are holding with the planning team. Hence, there is often no need to manufacture the product, as it can be transferred from one branch to another, thus saving on capital,” shares Agarwal.
COST-EFFECTIVENESS While upgraded technology and equipment are some of the fundamental requirements of a smart warehouse, keeping it costeffective is also an equally important
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a standard cost for all locations. This would help in the growth of supply chain companies like ours. Now, companies would not need to first store the goods in one location and then look for another warehouse in another state where it is to be transported. They would instead have a centralised warehouse from where they can move their goods directly to the desired locations. Thus, companies would not require several warehouses in different part of the country. Instead the companies can build a centralised warehouse, which is equipped with stateof-the-art technologies and equipment. Moreover, they can also focus on their core competency and outsource their warehousing needs to the other company who is an expert in the field.”
GOING GREEN The entry of MNCs in the country has also led to the inclusion of international standards, like having eco-friendly warehousing. However, Agarwal has a different opinion on this. He says, “We do have some eco-friendly warehousing in India, but they do not match up to the international standards. Even the layout and design of the warehouses are important. In most of our conventional warehouses, the concept of safety and eco-friendliness has not been considered during their construction. However, now a certain change is being observed in the concept and people are taking into account all these aspects while constructing a warehouse.” Further elaborating on the same, he adds, “We have no choice but to follow the present-day trends and requirements. With all big MNCs coming into India, which strictly follow their social and eco-friendly responsibilities, vendors in India also have to follow their norms.” However, according to Kanaujia, Indian companies already have eco-friendly systems. “Eco-friendly warehousing already exists in India. In the last one year, we have built 10 new logistics parks, all of which are eco-friendly. We installed rainwater harvesting, solar systems, used natural sunlight with huge open roofs, etc. Moreover, our freight of vehicles also has smoke filters so that we can contribute to reducing carbon footprint as well. We are one of the largest companies in India, with 2 million sqft of warehousing infrastructure, whereas no MNC coming to India has made such investments in the warehousing segment. We are driving the eco-friendly revolution in India, while also maintaining the international standards.”
THE SILVER LINING The emergence of MNCs in India, vast geographic expand, a huge domestic demand; all these factors point to promising growth prospects for the industry. Yet in order for the industry to cater to this growing demand, companies need to adopt best in class practices and latest technologies. To this, Choudhary concludes, “Growth in the warehousing industry will have a positive cascading impact, resulting in the growth of various industries, development of infrastructure and economy along with huge opportunities for investors.”
EATON’S AEROSPACE BUSINESS LEADERSHIP SERIES
ELEVATING SUPPLY CHAIN STANDARDS TO NEW
HEIGHTS Faced with external adversities such as volatile fuel prices, spikes in metal prices, increasing global competition among others, the aerospace & defence industry has to endure the Herculean task of safely and securely managing its complex supply chain. Moreover, with the modern aerospace industry moving towards highly distributed, multinational and multi-stage operations, challenges are inevitable. By integrating all the processes of supply chain right from product design to after sales service, and by collaborating with the stakeholders, Eaton’s aerospace business has been elevating supply chain standards to new heights… PRERNA SHARMA IN an industry which is governed by long lead times in the production of low volume but highly engineered deliverables, creating a perfect supply chain is of the most crucial relevance but at the same time an intimidating task as well. The reasons for the same are many…The aerospace industry is an increasingly complex network of relationships. In a true sense, ‘radically changed’ is the phrase that best describes the aerospace and defence supply chain today. Vertical integration has disappeared over the past 20 years, and gone are the days when primes directly
used to manage most of their suppliers. Today, it is one of the most complicated operations to manage. Tier I & tier II suppliers now manage almost entire subsystem integration, and, with it, a huge segment of the supply chain. Today, more than ever, projects succeed or fail because of supply chain execution. Aerospace & defence (A&D) companies are under constant pressure to streamline manufacturing and business processes in order to decrease unit cost of production. Adding to that, factors such as demand volatility and faster order delivery
expectations pose greater complexities in the supply chain. The question arises as to how aerospace companies circumvent such major issues and design a successful supply chain model that provides maximum returns on investment in the shortest possible time? The answer lies in streamlining the supply chain to garner immense benefits in the future. Bringing tangible benefits in the supply chain operations while managing the daunting task of manufacturing complex components, Eaton has been exhibiting a strong and seamless supply chain
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Leadership series, continued
ACT Eaton is the first company to develop and deliver higherpressure hydraulic systems, which are currently operating on many military platforms. They have applied that experience to design the first 5000-psi hydraulic system for a commercial aircraft to reduce overall component, system volume and weight. Eaton continues to design higher pressure hydraulic components that can reduce overall platform weight, increase fuel efficiency and improve overall performance and reliability. network all around the world. Today, Eaton’s aerospace business acts as a premier innovator and stands amongst one of the industry’s leading designers, manufacturers and integrators of some of the aerospace world’s most advanced components range. These include hydraulic systems, fuel systems, motion control systems, propulsion sub-systems & cockpit interface and circuit protection applications. With a solid track record of more than 80 years involving hundreds of civil and military programmes, Eaton has emerged as the company of choice for a diverse group of leading commercial and military OEMs and their customers worldwide. Managing such a complex supply chain network wasn’t a joyride for them. Here’s the first hand account of how they have achieved such a remarkable feat in this complex territory called supply chain… Talking about the crucial role played by SCM in aerospace industry, Dan Carroll, VP–SCM, Aerospace Group, Eaton Corporation, observes, “There are a number of roles that supply chain management plays. First, we are responsible for sourcing all products and shifting our business to suppliers that are more capable and have a global presence. We are also responsible for procurement, which ensures that we procure only from approved suppliers under acceptable terms. We also lead supplier development, which helps select, consolidate and develop our global supply base. Besides this, we manage materials movement and logistics, which allows us to reliably meet our customers’ required dates at minimal cost by synchronising our supply chain. Finally, we support new product development by engaging right suppliers at the right time to meet the new programme’s quality, cost,
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risks, schedule objectives and prepare the entire supply chain for rate production.”
IMPROVING QUALITY OF PRODUCTS THROUGH SCM Most people still consider supply chain management to be all about managing transportation and logistics activities. But in reality, it is more than that...it encompasses the entire product life cycle of a component.
A380 Engine Driven 5000 psi Hydraulics Pump
Delving in depth on the same, Carroll says, “Supply chain management plays a huge role in product quality and begins with quality planning during product design. At Eaton Aerospace, we have initiated implementation of advanced product quality planning, which is an automotive industry discipline, to improve manufacturability through early supplier involvement.” Elaborating further on the same, he explains, “Later in the development process, we review the suppliers’ process capabilities and ensure readiness for production to support a flawless launch of the product. During production, we continually monitor our suppliers’ performance and look for declining trends in performance. We
deploy supplier development engineers to help our suppliers perform root cause analysis and put effective corrective actions in place. We go a step further to help our suppliers improve their quality systems so that we are able to prevent future quality spills.” Talking about their experience in India, he avers, “In India, we can go one step further by tapping into our large engineering support center at Pune. Eaton’s design engineers routinely meet Indian suppliers to assist in drawing interpretation, assess capabilities and work collaboratively on new products. Our sourcing processes heavily weigh quality performance when awarding business and we are always on the lookout for new suppliers who have better quality systems and robust manufacturing processes.”
UNIQUE PRACTICES AT EATON Exhibiting excellence in every field, Eaton has taken rapid strides in developing a strong supplier base globally with an aim to develop a perfect supply chain. Supporting this, Carroll says, “We believe that supply chain performance can act as the differentiating factor for us in the market and to realise this, we are striving to create unique supply chain practices. An example of a unique supply chain practice is our Supply Chain Shared Service Organisation that has been recently developed in India”. With India becoming one of the major outsourcing hubs, the criticality of supply chain can not be understated. Many companies have outsourced their customer and technical support services to India. Carroll elaborates, “If we benchmark other leading aerospace companies, you will find that we are one of the first aerospace companies to outsource a significant portion of our procurement, material planning and demand management processes to India. We are impressed with the level of talent available in the country. The people hired are service-oriented, hard working and willing to work in the US time zone. Their work is fully documented to drive efficiency and reduce errors. Additionally, the procedures are continuously revised to capture learning, increase process sophistication and reduce dependency on people back in the US.” As a result, the confidence to move a significant
number of key operational processes to India has been developed at Eaton. These processes have become integral to the company’s operations and have reduced the operating costs with improved performance.
HANDLING CRITICAL OPERATIONS The company has been taking all the efforts to reduce costs and wastes incurred due to a faulty supply chain. Highlighting this, Carroll avows, “For us, the most effective method for identifying opportunities to decrease waste and supply chain cost was to identify leading performance measures that predict how our supply chain will perform. For example, we noticed that plants that operate with an overloaded master schedule have poor customer delivery performance and high inventories. Their formal systems cannot be used to synchronise the supply chain because system due dates are not valid. Priorities are established independently by suppliers and expeditors, which lead to too much inventory that is not needed. It is reminiscent of a Mumbai traffic jam with all cars and buses trying to position themselves to be the next through the intersection. A lack of formal system co-ordination hurts overall throughput. So, we began measuring the percentage of work orders that are past their due dates and established a goal of less than 5 per cent for all plants. This has significantly helped us improve our delivery performance and reduce our inventory. In all, we have closely followed and managed roughly 20 leading process measures to synchronise our supply chain to decrease cost and waste.”
THE TRENDSETTER Aerospace industry is at the forefront in adopting the best-in-class technology solutions to move up the value chain. Supply chain is not far behind. Aerospace companies have deployed state-of-the-art tools and software to ensure a safe and secure supply chain. The rate of innovation
The future of supply chain management in India is bright. Many Indian suppliers are developing industry savvy and quality systems credentials needed to export components. If processes are fully automated, it won’t matter where people work. Automation will provide companies the opportunity to tap into India’s considerable engineering and business process talent. DAN CARROLL,
VP–SCM, AEROSPACE GROUP, EATON CORPORATION
is increasing and supply chain must stay abreast of emerging technologies. This is particularly true in the area of sustainability. Eaton is responding to customers’ demands for energy efficient solutions. As a power management company, Eaton is able to offer product innovations that help its customers become more fuel efficient. Supply chain plays a key role in commercialising these innovative products and solutions. Further deliberating on the same, Carroll elaborates, “Our customers are moving aggressively towards new replenishment models served via web portals, which has forced us to abandon the traditional make-to-order process. Eaton is proud to be a customer-centric company and we are working hard to develop the supply chain agility needed to conform to our customers’ chosen methods.” Aerospace’s end markets are shifting to emerging countries and the company is moving quickly to develop supply chain partners in those areas, including India. Eaton Aerospace is easily able to adjust to these regional shifts by leveraging the strength of its other industrial businesses that have been operating in these regions for many years. Companies are becoming increasingly concerned with supply chain risks and are spending significant time and resources on risk mitigation. Finally, many aerospace companies are adopting proven methods used by other industries such as the automotive industry to help
simplify supply chain and improve their quality. Talking about India advantage, Carroll opines, “When it comes to costs, India is at par with other emerging markets. Bear in mind that labour costs are a fraction of a product’s overall cost and other countries also offer economic zones to entice business investment. India’s advantage lies in its people who are entrepreneurial, well-educated and fluent in English. These factors can help lower overall product costs by offering better solutions at a higher level of value.”
SMALL STEPS YIELD BIG RESULTS Despite all the efforts to identify risks in advance, unanticipated risks will arise, and known risks will evolve. What separates winners from losers is the ability to monitor these changes and then mitigate risks before a delivery deadline is missed or a component fails testing. This ability is within reach. Effective supply chain risk management starts with incremental steps that lead to large changes over a period of time. Adjustments to existing business processes, technology, and employee training have a multiplier effect – they start changing the culture of supply chain risk management. Eaton has been a testimony to this. Enabling the three industry buzzwords of collaboration, visibility and integration, supply chain stakeholders can work together to ensure that there is no single point of failure.
“Effective leadership is putting first things first. Effective management is discipline, carrying it out.” Stephen R. Covey
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EQUIPMENT UPDATE
AUTOMATED RECEIVING SYSTEM
P U G N I P P E T S
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Today’s warehouse management and automated sortation systems are far easier to integrate than in the past. As a result, distribution centres are better able to implement automated receiving to improve efficiency and cut costs. Here’s a step-by-step procedure for designing an automated receiving system that would help in reducing handling costs by avoiding unnecessary movements. BRICK and mortar retailers, dot com retailers and distribution centres fight a constant battle to cut costs to stay competitive in the marketplace. One place everyone looks to reduce costs is in the distribution process because these savings directly impact bottomline. Today, the capabilities of modern warehouse management systems (WMSs) and scanning and sortation technology make it possible to save significant amounts of money at the dock door by automating the receiving process. Receiving is one of the most labour intensive, non-value added processes in a warehouse or distribution centre. Therefore, it makes sense to take any opportunity to make the process as efficient as possible. Automated receiving offers the potential to significantly cut operating costs, and it provides a way to streamline the entire distribution process, further reducing costs.
VALUE IN THE DISTRIBUTION PROCESS Products pass through a number of steps in traveling from receiving to shipping: • Receiving • Quality assurance • Put-away or storage • Order picking • Repacking • Shipping. All these steps add cost to a product, so each needs to be examined to determine where efficiency can be improved and costs reduced. The best place to start is the beginning – the receiving process. The reasons are obvious. First, manual receiving is inefficient and labour intensive; therefore, automating the process can improve efficiency and cut labour costs. However, while the main objective of any automation project is reduced labour cost, the reasons to automate receiving go well beyond labour savings. For example, manual receiving is also slow. To compensate, facilities must
store more product in Manual Automatic inventory to ensure that receiving receiving an adequate supply is with print/ available for shipping. apply Another reason to Number of dock doors 8 8 automate is that most Trailers/door/shift 2 2 facilities have limited Total trailers/shift 16 16 capacity. Making the Unload (people per door, per shift) 2 1 receiving process as Scan/Audit (people per door, per shift) 2 1 efficient as possible Put away/Picking labour (people) 12 10 could allow a company Total people per shift 44 26 to grow and ship more Average wage $17.50 $17.50 product without having to Cost per shift (8 hours) $6,160 $3,640 expand or build additional Yearly cost (260 days, 2 shifts) $3,203,200 $1,892,800 distribution centres. Yearly savings $1,310,400 Shipping a product to a Cost of automated receiving system $1,470,000 customer as quickly as ROI (months) 13.44 possible converts that Reduction in manpower 18 product into revenue and Table 1: Calculating the ROI on automated receiving profits. purchase order, labelling or marking Finally, making receiving product for storage or shipment, and more efficient can eliminate some of the moving products to another part of the costs associated with the other processes. warehouse or distribution centre. The In particular, automated receiving can process is complicated by many factors, significantly reduce the amount of product including sorting through and separating that needs to be put away in storage, and consolidated freight deliveries, consisting then re-picked for shipment. Both these of many different products of various steps are labour intensive and costly. shapes and sizes. THE RECEIVING PROCESS Automating the process can make all In its simplest form, receiving consists these steps faster and more efficient, and of unloading products from a truck, provides the framework for cross-docking, determining how many of each item was which enables product to flow through received in the shipment, recording the the facility as quickly and efficiently as receipt in the warehouse management possible. For example, equipment in system while matching the goods to a an automated line can read labels on in-coming boxes, send the data to the WMS to record receipts from suppliers, determine if there is demand for the product, label the product for shipping or put-away, confirm the accuracy of the process, and then route and deliver the boxes either to storage or to the shipping area. In the most efficient flow scenario through the distribution centre, the only human intervention is at the beginning – placing boxes on a conveyor – and at the end – loading a truck. Automated receiving can make the
A
UTOMATED RECEIVING SYSTEM AUTOMATICALLY RECORDS INCOMING PRODUCTS, LABELS THEM AND SORTS THEM FOR MOVEMENT TO STORAGE OR THE SHIPPING DEPARTMENT.
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Automated receiving system, continued
An schematic of Automated Receiving System
following steps more efficient: • Unloading trailers and recording inventory – This involves physically lifting packages, carrying them off the truck and placing them on pallets. In an automated process, a conveyor extends directly into the truck, and the only physical labour is placing cartons on the conveyor. This puts less physical stress on workers, enabling them to unload more cartons in a given time. An extendable conveyor offers the potential for the greatest efficiency gain, and the reduced labour costs quickly offset the conveyor cost. • Allocating product for storage or reshipment – This involves hand scanning bar codes and manually looking up the data to determine where to send each carton. In an automated process, bar codes are scanned automatically, and the system performs the data look-up to determine the proper allocation of each package. Automated receiving improves efficiency by greatly reducing or eliminating the handling and movement of pallets from place to place. • Labelling product for shipping – In a manual system, printed
64 • SMART LOGISTICS • AUGUST 2010
destination labels are applied manually to each carton before it is sent to another location in the facility. In an automated process, the labels are applied automatically to each carton, scanned and verified before the carton is sent either to storage or to the shipping area (cross-docking).
WHERE TO START The basic steps in designing an automated receiving system are: 1. Identify objectives. 2. Identify the process. 3. Design the system. Objectives – Typical reasons for installing
T
HE PERFORMANCE OF LASER AND CAMERA BAR CODE SCANNERS DEPENDS ON THE LOCATION AND ORIENTATION OF BAR CODES, BAR CODE SIZE AND QUALITY, AND DISTANCE FROM SCANNER TO CARTON. IF BOXES AND BAR CODES CAN BE ORIENTED PROPERLY, FEWER SCANNERS WILL BE REQUIRED.
an automated receiving system are labour savings, increased productivity (throughput per employee), increased accuracy, improved response time (faster fulfillment and improved customer service) and lower operating costs. Once objectives have been identified and prioritised, critical concept and design requirements will come into focus, namely: • Equipment/Process Redundancy – A system usually consists of two to ten distribution lines so that the failure of one line does not disrupt movement of packages through the facility. In addition, a back-up manual process should be in place for emergencies. • Floor space – Evaluate the amount of space available to install automated conveyors. • Item orientation or justification – For a single scanner to be used, boxes must be oriented in a specific way so that the scanner can read the label. This may require training and add to unloading time. Package orientation is less critical if multiple scanners are used. • Expandability – Consider the future needs of the facility, not only in terms of distribution lines but also in terms of the computer system needed to support data flow. • Information flow – Consider the amount of data that will be entered and how quickly the system will have to respond to ensure maximum flow of product through the facility. • Integration with other material handling equipment – Consider whether existing material handling equipment can be re-purposed, particularly in a cross-docking operation. Connection points between conveyors are of particular importance. Process – Most systems follow these steps: 1. Identify the carton (item) – Manual process involves hand sorting product by purchase order, followed by handling of the product and hand scanning. In an automated environment, the operator simply places each carton on the conveyor, in any sequence, and cartons are identified using fixed position scanners. Operator’s hands remain free to load cartons on the conveyor. 2. Item look-up and verification of correctness for a particular order or process – Manual processes require
the operator to find each purchase order and key PO and item numbers into a computer system. In an automated process, the scanned data is passed directly to the host WMS without operator intervention. 3. Download data to label printer and print labels. 4. Apply labels – In the manual environment, an operator applies individual labels by hand. The automated solution uses automatic using label printer applicator(s), eliminating manual handling. 5. Verify label placement, data and readability – This typically is not done in a manual environment. In an automated solution, the applied label is scanned and the data verified to provide additional accuracy. 6. Record data/activity and upload to corporate enterprise system – Automation provides data feedback to the WMS, confirming the disposition of the labeled carton. This level of data traceability is not typically captured, recorded and reported in a manual mode. System Design – Design usually addresses two issues: material handling and information flow. Material handling involves unloading or staging goods for processing. It also identifies areas of special importance, such as box sizes and weights, and hand-off points between conveyors or areas of the facility. A critical checkpoint in the design is expected throughput, which helps determine the number of conveyor lines that will be needed. Maximum throughput is the maximum capability of the labelling line, which may not be sustainable for more than short periods during the day. Average throughput is the end-of-day expectation, taking into account downtime, changeovers, box size and shape, etc. Information flow involves the interface to the enterprise system and where the data resides. Data storage can be either centralised on the enterprise system or distributed at the label system. In centralised data handling, a scanner reads a bar code and sends data to the host computer. The computer performs a look-up and sends data back to a label printer to prepare an outbound label. A second scanner then reads the label and verifies that it has been placed on the correct box, and sends data back
A
PPLYING LABELS TO THE SIDE OF A CARTON PROVIDES THE EASIEST AND FASTEST THROUGHPUT. TOP LABELLING REQUIRES ADJUSTABLE APPLICATORS AND CAN REDUCE THROUGHPUT.
to the host. In distributed data handling, all these functions are performed locally, with feedback to the central system only at the end of the process. Types of distributed data include ASN data, purchase order files, label formats and allocation algorithms.
PUTTING IT ALL TOGETHER Equipment needed to automate the receiving process includes: Extendable conveyor – Extending the conveyor into the trailer reduces handling
if the scanner can be located close to the conveyor. Means to integrate receiving, allocation and shipping systems – Software integrated with the WMS records each package received and determines its destination: shipping, quality audit, storage, repack. Labeling equipment – Labeling and tagging equipment automatically prints and applies labels that mark packages with their destination. Factors affecting the performance of label printer/applicators are the number of labels required per carton, label size, required throughput, label location (top, side, front, rear), stroke, print speed and maintenance requirements (stock change, head cleaning, low media sensors, etc.). In general, side application provides the easiest and fastest throughput. Applying labels to the top of a carton requires adjustable applicators and can reduce throughput. Front and rear apply modes are extremely complex to design. Label verification readers – Verification scanners and readers confirm that the correct marking or tag has been applied, and that it is readable. They also verify
Centralised vs. Distributed Information Handling System
Advantages
Disadvantages
Centralised Data
•
Real time, full time data control at the host computer Easy, on-the-fly record updates
•
Continual operation if enterprise system lost Less demand on host computer Eliminates message timing issues On-floor data management Greater speed and throughput
• •
•
Distributed Data
• • • • •
and facilitates unloading. It also eliminates the need to manually sort incoming freight for receiving. Bar code/RFID readers – Bar code scanners and RFID readers automatically identify products and record incoming products without manual data entry. Factors that affect scanner performance include the location and orientation of bar codes, bar code size and quality, and depth of field (distance from scanner to carton). Fewer scanners will be required if boxes and bar codes can be oriented properly as they come off the truck. Similarly, bar codes are easier to scan (with fewer errors) if they are larger and
•
• •
Inability to function if enterprise system connection lost Time required to transmit data to and from enterprise system can cause delays Potential loss of data control Limited ability to update and download records Difficult to respond to last-minute changes Near real time data
routing to the correct destination and reconcile of out-of-spec packages.
PROMISING PROSPECTS An automated receiving system can provide more efficient handling of packaging through a warehouse or distribution centre by greatly reducing labour costs. Following a logical, step-by-step process to evaluate needs and design the system can greatly improve productivity, accuracy and response time, while reducing overall operating cost. All this results in a rapid return on investment. Douglas Jones, Accu-Sort Systems Inc.
AUGUST 2010 • SMART LOGISTICS • 65
PRODUCT & ADVERTISERS’ INDEX
To know more about the advertisers in this magazine, refer to our ‘Product Index’ / ‘Advertisers’ Index’ or write to us at b2b@infomedia18.in or call us at +91-22-3003 4640 or fax us at +91-22-3003 4499 and we will send your enquiries to the advertisers directly to help you source better
Products
Pg No
Products
Pg No
Adhesive tapes & straps .........................................................................................29
Investment destination - Andhra Pradesh ...................................................37
Barcode & RFID technologies .............................................................................49
IT asset management .................................................................................................. 7
Cargo & courier ...............................................................................61, Back cover Commercial bonded warehousing ..................................................................... 7
Knowledge process outsourcing .......................................................................... 7 Material handling systems suppliers ................................................................... 3
Commercial documentation ................................................................................... 7 ODC transportation..................................................................................................25 Containerised transportation .............................................Back inside cover Project transportation...............................................................................................25 Custom clearance .......................................................................................................25 Smart logistics leadership series .........................................................................47 DHL import express worldwide ................................... Front inside cover Domestic after market service & spares logistics ..................................... 7
Taxation regulatory compliance under export promotion schemes ..............................................................................7
EngineeringExpo exhibition ..................................................................................... 4 Freight forwarding .......................................................................................................25
Ventilators ........................................................................................................................29
India container logistics summit..........................................................................43
Ware housing ................................................................................................................25
International trade ........................................................................................................ 7
Warehouses .................................................................................Back inside cover
Pg No
Advertiser
Tel. No.
Website
FIC
DHL Express (India) Pvt Ltd
+91-22-66789186
girish.meghnani@dhl.com
www.dhl.com
4
Engineering Expo
+91-09819430607
shamal@infomedia18.in
www.engg-expo.com
49
Great Eastern Impex Pvt Ltd
+91-124-2347431
sales@geipl.com
www.geipl.com
7
M&M Connect Advertising&Promotions
+91-80-40824600
info@indelox.com
www.indelox.com
25
MFC Transport Pvt Ltd.
+91-22-40341406
sudip.mukherjee@mfctransport.com
www.mfctransport.com
61, BC
Safexpress Private Limited
+1800-113-113
info@safexpress.com
www.safexpress.com
3
Schaefer Systems International Pvt Ltd.
+91-22-67410770
schaefer@ssi-schaefer.in
www.ssi-schaefer-asia.com
37
Search - Investment Destination - Andhra Pradesh +91-22-30245000
spmktg@infomedia18.in
47
Smart Logistics Leadership Series
+91-22-30034650
prachi.mutha@infomedia18.in
29
Sreelakshmi Traders
+’91-44-24343343
sreelakshmitraders@gmail.com
43
Supply Chain Leadership Council
+91-9004685180
amit@sclc.in
BIC
Vijay Logistics Pvt Ltd
+91-2135-675000
info@vijaylogistics.com
www.sreelakshmitraders.com
www.vijaylogistics.com Our consistent advertisers
FIC = Front Inside Cover, BIC = Back Inside Cover, BC = Back Cover
66 • SMART LOGISTICS • AUGUST 2010
Use this form for free additional Information on advertisements published in this issue. We will send your inquiries to the advertisers and ask them to send you the details or contact you directly.
HOW TO USE THIS FORM: • Please tick against the box of advertiser(s) you are interested in: • Mention specific product/ service you need, against the advertiser’s name • Complete all the details on this form. • Tear the form & mail it to us. (It is a prepaid mail) Tel.: +91-22-3003 4640 • Fax: +91-22-3003 4499
E-mail: b2b@infomedia18.in
PRODUCT INQUIRY FORM Adhesive tapes & straps
International trade
Barcode & RFID technologies
Investment destination - Andhra Pradesh
Cargo & courier
IT asset management
Commercial bonded warehousing
Knowledge process outsourcing
Commercial documentation
Material handling systems suppliers
Containerised transportation
ODC transportation
Custom clearance
Project transportation
DHL import express worldwide
Smart logistics leadership series
Domestic after market service & spares logistics
Taxation regulatory compliance under export promotion schemes
Engineering Expo exhibition
Ventilators
Freight forwarding
Ware housing
India container logistics summit
Warehouses
First Fold Here
ADVERTISERS’ INQUIRY FORM
DHL Express (India) Pvt Ltd
Schaefer Systems International Pvt Ltd.
Engineering Expo
Search - Investment Destination - Andhra Pradesh
Great Eastern Impex Pvt Ltd
Smart Logistics Leadership Series
Second Fold Here
Mfc Transport Pvt Ltd.
Supply Chain Leadership Council
Safexpress Private Limited
Vijay Logistics Pvt Ltd
Third Fold Here
GLUE
M&M Connect Advertising & Promotions Sreelakshmi Traders
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08 / 2010
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