Smart Logistics - July 2011 by Infomedia18

Vol. 02 | Issue 04 | JULY 2011

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VIEWPOINT

CEO – Publishing Sandeep Khosla

EDITORIAL Executive Editor Archana Tiwari-Nayudu Features Editor Prerna Sharma Senior Features Writer Sumedha Mahorey Senior Copy Editor Kimberley D’Mello Features Writer Sandeep Pai, Purna Parmar Product Desk Michael Anthony

DESIGN

n this era of uncertain business and market dynamics, the real winners are those who offer the right product, in the right time and at the right cost. And if we further explore this ‘check and mate’ market reality amid extreme competitive environs and feverish pace with which companies are trying to impress upon the ultimate customers, there are two aspects that come to the fore as critical elements to achieve the magic combination – that is managing the demand and the supply dynamics. Sounds simple? Far from it… as the most simple sounding things are often the most difficult to tackle. Demand and supply dynamics is one of them. Why? Because even though aided with the latest tools & techniques of demand mapping and predicting, it still remains an evasive dream for marketers to get the magic figures of demand forecasting, as demand remains ever changing and very difficult to predict, while supply has to keep pace with the demand trends. Given this reality, the boundaries that hold the key to success become the storehouse of colossal potential… these also go by the name of ‘warehouses’. These erstwhile storage spaces of finished goods and goods in transit to the next life cycle level, play a very critical role in driving profitability, as they hold the power to stack, store and most importantly, supply; thus keeping pace with demand. No wonder then that the warehousing sector is poised to become a $55-billion industry by the end of 2011 with around 45 million sqft warehousing space expected to be

Assistant Art Director Varuna Naik

STORING COLOSSAL POTENTIAL

Design Team Sanjay Dalvi, Uttam Rane Chief Photographer Mexy Xavier Photographer Neha Mithbawkar & Joshua Navalkar

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developed in India within the next five years. This growth will be supplemented by around 110 logistics parks. At present, warehousing accounts for nearly 20 per cent of the total logistics industry. This issue of Smart Logistics is dedicated to warehouses and how they are slated to play a much bigger role in not only making the whole supply chain process efficient and smarter, but also in passing on the profitability to the ultimate customer; a penny saved in warehousing is a penny earned by the customer. It talks of the myriad issues and opportunities that are part of this segment. To drive home the point of how critical a role does efficient and smart warehouses play in our lives, smart warehousing is India’s answer to solve the most gripping problem that India is grappling with, and that is food inflation. In India, over 20 per cent of agricultural products are estimated to be damaged annually due to the lack of adequate/ suitable storage and warehousing facilities. Overall, the value of damages to food grains caused by the lack of storage facilities is more than $11.11 billion (approximately `50,000 crore) per annum. With no dearth of food grains produce in our country and food regulation being a reality that we have in hand, safe and efficient warehouse coupled with last mile connectivity can work wonders for our economy and our food inflation woes will be resolved to some extent. So, here’s leaving you with a lot of food for thought. It also makes for a sumptuous read.

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JULY 2011 • SMART LOGISTICS • 5

CONTENTS

VOL. 02, NO. 04

JULY 2011

INSIGHTS & OUTLOOK: WAREHOUSING & DC Future Supply Chains’s First Food & FMCG DC: The Dawn Of New Age Warehousing

Have you ever wondered what would be the success pillar behind Future Group’s most profitable venture Sabse Saste Din? Backed by a robust supply chain arm, Future Supply Chains, this retail giant has been able to maintain its leadership stature in the market for years. Merely four years’ old in the logistics domain, the company has not only carved a niche for itself but has also redefined the supply chain landscape in India. Now, with the launch of India’s first food & FMCG DC, Future Supply Chains aims at redefining profitability for Indian customers by managing variability and reducing uncertainties.

INTERVIEW ‘Having Associated With India’s Biggest Retailer, We Understand Customers’ Pulse’

ANSHUMAN SINGH, MD & CEO, Future Supply Chains

Efﬁcient Warehousing Moving From ‘Godown’ To A ‘Super Store House’ Of Tomorrow

Design Dynamics Envisioning A Smart Warehouse

Indian Warehousing Gearing Up To Tackle Global Competition

Technology Trends 3 Biggest Mistakes In Deploying Voice Technology

Investment Scenario Driving A Warehousing Revolution

SL EXCLUSIVE

Eco-friendly Transportation Cut Fuel Bill, Say Yes To ‘Railways’ Transportation & Logistics Trends 2030 7 Routes To One Goal: Growth

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VE LUSI EXC PORT RE

SECTOR FOCUS Pharma Logistics Prescribing A Healthy Growth Model

Pharmaceuticals The Value-creating Supply Chain

Global Best Practices For Clinical Trials Thinking Global, Acting Local

Risk Management Integrating The Supply Chain

ALSO IN THIS ISSUE VIEWPOINT

NEWS, VIEWS & ANALYSIS Latest Happenings In The World Of Logistics

NEWS ANALYSIS Ship Repairing In India: Sailing In The Right Direction Warehousing Woes: Tackling The Food Crisis

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TECH TRACK

PRICE TRENDS

PRODUCT & ADVERTISERS’ INDEX

PRODUCT & ADVERTISERS’ INQUIRY FORM

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PORT REGULATORY BILL FACES TOUGH CHALLENGES At the recently held meeting of the Maritime State Development Council in Hyderabad, state governments have opposed the Centre’s move to bring the ports controlled by them under a regulatory framework. These maritime states include Gujarat, Maharashtra, Goa, Andhra Pradesh, Tamil Nadu, Karnataka, Kerala and West Bengal. In March, the Shipping Ministry had proposed a Port Regulatory Bill, which sought to bring all the ports – major ports controlled by the Centre and the minor ports under the states – under uniform tariff regulation. The objective was to remove the dichotomy in the sector. Currently, while the major ports follow the guidelines of the Tariff Authority for Major Ports (TAMP) to determine the tariffs, minor ports are not governed by any such norms. The new regulatory structure proposed in the Bill envisages one regulator for the major ports and state regulators for the ports under the jurisdiction of the maritime states. The Major Ports Regulatory Authority will replace TAMP. The regulator will issue general guidelines that will be applicable to all the ports. Another positive aspect of the Bill is that it provides for the creation of an Appellate Tribunal to adjudicate disputes between service providers and users or between port operators. Currently, except the court, there is no mechanism to resolve such disputes. The stand taken by the maritime states at the Hyderabad meeting comes out of the fear that the Bill will take away the freedom that private ports enjoy in setting their own tariffs for various services. This freedom, it is argued, is an incentive that attracted private investments to such ports. But, then, there are also private terminals at the major ports that are governed by TAMP regulations. States are also concerned that the Bill will undermine the authority of their maritime boards, which control the ports in the state. Some boards impose separate waterfront levies and other charges. So far, only three states have maritime boards, though the Centre has directed all maritime states to set up such boards at the earliest. Some of the state-controlled minor ports are bigger than some major ports in terms of the volume of cargo handled. Ports controlled by the Gujarat

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Government accounted for close to 80 per cent of the total cargo handled by all the minor ports in the last fiscal. Mundra Port, leading in the state, handled more than 50 MT in 2010-11 and hopes to raise the volume to 80 MT in the current fiscal. State governments enter into memorandums of understanding (MoUs) with private parties for the development of ports, on their on terms. This is different from the terms and conditions under which major ports award private terminals. Minor ports in some states own land that is disproportionate to the waterfront and the berth capacity of the port. Once the regulatory system, as proposed in the Bill, is in place, the state governments will lose their control over private ports. This may not be acceptable to them. At stake is something which they would not like to give up easily. With the states opposing, the Bill is unlikely to be passed in its present form. GK Vasan, Shipping Minister, has assured the state governments that the Ministry will not go ahead with the draft regulations without considering their views. This will be a temporary victory for the states. But the big losers will be the major ports. The Bill proposes to provide them some relief in terms of allowing them to set their own tariffs. Currently, the major ports have to send the tariff proposals to TAMP for its approval. Private terminals at major ports see this as a deterrent. They think that TAMP has outlived its utility. Its regulations are regressive and penalise those who perform better, they complain. Under the proposed regulation, all ports can set their rates according to the regulator’s guidelines. The current administrative set-up for the major ports is not at all conducive to their growth. The proposal to corporatise them has been pending for years. Capacity expansion at many ports is hindered by legal issues.

SIEMENS BAGS `167 CR CONTRACT FROM DELHI CARGO SERVICE CENTRE

L O G I S T I C S

VISAKHAPATNAM CONTAINER TERMINAL UNDER EXPANSION MODE The Visakhapatnam Container Terminal (VCTPL) is increasing its capacity to cater to the future needs. It has crossed the one-lakh TEU mark and has set an ambitious target of 5,00,000 TEUs by 2014-15. VCTPL, according to Capt Sriram Ravichander, the COO, has placed an order for procurement of four rubber tyre gantry cranes and two rail-mounted quay cranes. The first set of rubber tyre gantry cranes will reach in the next couple of months and the rail-mounted cranes by the end of the year. VCTPL is also making attempts to increase its storage space. An additional yard has been developed in a hectare in addition to the existing four hectares. VCTPL is making attempts to get 2.5 hectare (originally allotted to ONGC) from the Vizag port to meet its growing volumes. “The capacity will go up to five lakh TEUs by 2014-15. We are confident of finding cargo to meet our capacity, as the economy is gathering momentum and many of the new projects in the hinterland will be completed,” said Capt Ravichander. VCTPL, he asserts, has all the natural advantages and is bound to grow into one of best terminals in the country.

SERVICE TAX LEVY ON RAIL FREIGHT PUT OFF AGAIN The implementation of service tax levy on transport of goods by rail has been deferred, again. The levy will now come into effect from January 1, 2012 as against the earlier announced date of July 1. Given the high inflation situation in the economy, it is being felt that any service tax levy on rail freight would adversely impact domestic industry, especially cement and steel manufacturers. Such companies would have ended up paying more for rail movement of their inputs such as coal and also for their finished products. Even after the service tax levy on railway freight comes into effect from January 1 next year, rail movement of pulses, foodgrains, petroleum products for the public distribution system, organic and chemical manure and motor vehicles would be exempted from the levy.

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PSL TO INVEST UP TO `500 CRORE IN PORT CONSTRUCTION According to reports, steel pipe maker PSL, which recently got one of the largest gas pipeline contracts, is exploring options of entering the port construction business. The Ashok Punj-managed company is ready to invest up to `500 crore in building a jetty at Kandla Port, Gujarat, through the public private participation route. “The actual investment could be less than that and we are preparing a feasibility report on it,” informed Ashok Punj, MD. Recently, PSL got the contract to build the jetty from the Gujarat Government. According to PSL, port construction has

synergies with its pipeline business. The company has also formed a subsidiary, PSL Infrastructure and Ports, for such forays. On June 16, PSL had said that it has got an order worth `753 crore from state-run Gas Authority of India to build pipelines for a segment of the KochiKoottanad-Bangalore Mangalore gas pipeline that is 735km long. PSL will offer the pipelines from a manufacturing unit in the proximity that reduces the freight component, said Punj. Freight accounts for 10-20 per cent of the total delivered cost of the pipeline.

INDO-JAPAN JV ON CARDS FOR WESTERN SECTION OF RAIL FREIGHT CORRIDOR Dedicated Freight Corridor Corp India (DFCCIL), promoting the $17-billion rail freight corridor project, has decided that its 1,490km western part will be executed by a joint venture between Indian and Japanese infrastructure developers, selected through a bidding process. “The bidding process for `6,000 crore ($1.3 billion) phase-I development is expected to start in mid-June when we will invite pre-qualification bids from interested companies,” informed PN Shukla, Director – Operations & Business Development, DFCCIL. The $6.7-billion western part of the dedicated rail freight corridor will be executed in two phases, he said. Bidding will be invited only for the first phase now. This is a 1,000-km stretch between Rewari in Haryana to Vadodara in Gujarat, he added. The remaining 490km stretch would be completed in the second phase. The entire 3,300km dedicated rail corridor is divided in two parts, western and eastern. The Indian and Japanese joint venture model is being implemented only in the western part, which is funded by the Japan International Cooperation Agency (JICA). DFCCIL may develop a different model for the execution of the eastern part in consultation with its funding agency, the World Bank. The dedicated freight corridor project aims to build new tracks to transport containers and commodities at a maximum speed of 100km an hour, thereby reducing travel time by a third. It will also enable Indian Railways to recapture market share it lost to the trucking sector, which has among the lowest road freight tariffs in the world. Shukla said the first 1,000km stretch of the western part of the corridor could be developed by more than one company. “Land acquisition has been completed for 90 per cent of the stretch and work on the 650km line from Rewari to Iqbalgarh is expected to begin by March 2012,” he said.

ESSAR MAY INVEST `600 CR IN CANADA PORT FACILITY Essar Group is likely to invest almost `600 crore in a port facility in Canada to facilitate trade from its subsidiary, Essar Steel Algoma. Essar Ports, which is part of the telecom to steel conglomerate owned by the Ruias, did not confirm the proposed move but said that the existing Canadian port facility at Sault Ste Marie, where Essar Steel operates Essar Steel Algoma, needed upgradation. “The city council is insisting that we develop the port facility at Sault Ste Marie. But as of now, we cannot confirm anything,” said Rajiv Agarwal, MD, Essar Ports. Essar Ports had said last month that it was looking to complete investments of `11,700 crore by 2012-13 for enhancing port capacity and acquiring equipment. According to sources, the city council of Sault Ste Marie is backing a proposal to provide 25 per cent federal funding for the port’s development.

L O G I S T I C S

DP WORLD NHAVA SHEVA RECEIVES COVETED ENVIRONMENT AWARD DP World Nhava Sheva (NSICT), at Jawaharlal Nehru Port near Mumbai, received the prestigious Golden Peacock Award for Environment Management at a ceremony held in the city last week. NSICT was recognised for its many initiatives in environment management, some of which include optimising natural resources such as rain water, introducing compressed natural gas buses for staff, changing the equipment and administration building lights to light emitting diode lamps to reduce electricity consumption and organising an oil spill clean-up drive with employees to protect the mangroves & marine environment around the terminal. Home Minister P Chidambaram was the guest of honour at the ceremony. Receiving the award, Anil Singh, Sr VP & MD, DP World Subcontinent Region, highlighted that DP World is a signatory to the Copenhagen communiqué for climate change. “We are delighted that our environmental efforts in Mumbai have been recognised with this important award. We have initiated a wide range of environmental best practices across the region to make a real difference to the environment, in line with DP World’s overall commitment to preserving the environment in all communities in which we operate,” Singh said. Capt Alpesh Sharma, CEO, DP World Nhava Sheva, said, “Conserving our energy resources and developing the future of the country are the cornerstone of the responsible business practices NSICT undertakes, and this award is a testament to the hard work and dedication of every member of the NSICT team.” The Golden Peacock Environment Management Award was instituted by the World Environment Foundation (WEF) in 1998.

TATA MOTORS BAGGED `150 CRORE ORDER TO SUPPLY 1,111 TRUCKS TO SIDDHIVINAYAK LOGISTICS

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DEPB SCHEME LIKELY TO BE EXTENDED FURTHER The Duty Entitlement Pass Book (DEPB) Scheme for exporters is likely to be extended for a few months beyond its current termination date of September 30, it is learnt. The apparent reason for the move is the Commerce Ministry asking for adequate time to formulate an alternative to this popular scheme, which covers more than half of India’s export basket. According to the ministry, the September 30 deadline is unrealistic, given that there are as many as 2,750 items under the DEPB Scheme. Determining the appropriate drawback rates for all of them would require a lot of paperwork

and adherence to procedures, it reasons. Exporters estimate that the transition from DEPB to an alternative duty drawback would require at least 9-12 months. They want the scheme to continue till the introduction of the Goods and Services Tax. DEPB, which costs some `8,500 crore to the exchequer annually, was earlier scheduled to end on June 30. The replacement duty drawback scheme is expected to reduce the fiscal burden by `4,500 crore. Since its benefits are determined by the principle of averaging rather than actual tax content in the export product, DEPB runs afoul of the relevant WTO agreement.

DHL INVESTS €100 MILLION IN ASIA PACIFIC AIR NETWORK ENHANCEMENTS DHL, the world’s leading logistics company, has recently announced an investment of €100 million with three Boeing 747-400 Converted Freighters (BCFs) added to its Asia Air Network. Operated by Air Hong Kong, a joint venture between Cathay Pacific and DHL, the three B747-400 BCFs with a payload of 100 tonne each will service three high capacity routes six days a week – Tokyo-Hong Kong, Singapore-Hong Kong, Shanghai-Hong Kong. Currently, two A300-600 General Freighters (GFs) each with a 45-tonne payload, ply direct routes between Tokyo-Hong Kong and Shanghai-Hong Kong. By September 2011, these two A300-600GFs will be redeployed to service five weekly services between Beijing-Hong Kong and Manila-Hong Kong, replacing two 24tonne B727-200Fs planes, which will be retired. “The €100 million investment in three B747-400 BCFs – the biggest freighter aircraft in service – increases our capacity, connectivity and service reliability. It is a significant step up for DHL’s Asia Air Network – one we are confident of because we have a clear, market-driven approach to our business,” said Jerry Hsu, CEO, DHL Express Asia Pacific, adding, “By being close to our customers, understanding what they need, recognising the opportunities and being prepared to make strategic investments, that is how we will continue to grow our market share and deliver best-in-class services for our industry.” The investment in the Air Network comes on the back of the company’s recent announcement of an additional daliy intercontinental route from Hong Kong to Cincinnati, as a direct response to increasing demands for services from South China and Hong Kong to North America.

MARGINAL GROWTH REGISTERED AT INDIAN CONTAINER PORTS In April and May, India’s major container handling ports posted a six per cent increase in the volume of containerised traffic to 20 million tonne and a meager one per cent to 1.29 million TEUs in terms of number of boxes handled, according to figures released by the Indian Ports Association. Jawaharlal Nehru Port (JNPT) – the country’s biggest container handling port – handled 739,000 TEUs and recorded a two per cent decline year-on-year while Chennai saw 10 per cent rise at 273,000 TEUs. Kolkata handled 91,000 TEUs, up seven

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per cent and Tuticorin 80,000 TEUs, up six per cent. Mumbai and Kochi suffered marginal decline in throughput. In terms of total cargo handled, the country’s major ports in first two months of current fiscal posted 5.1 per cent growth at 99.7 mt. Kandla topped the list with 13.8 mt, followed by Visakhapatnam 11.85 mt, JNPT 11.2 mt and Chennai 10.2 mt. In the 2010-11 fiscal, the container throughput at the major ports posted a 10 per cent growth at 7.54 million TEUs and the total traffic 1.5 per cent at 570 mt.

L O G I S T I C S

FOUR SOFT INKS PACT WITH LOGISTICS DYNAMIC CORPORATION Four Soft (4S), a global leader offering software solutions for the logistics and transportation industry, has recently signed a new deal with Mexico-based Logistics Dynamic Corporation. As per the deal, Four Soft would offer its freight management application 4S eTrans and visibility system 4S Visilog on Software-as-a-Service (SaaS) model. Gabriel Quintana, CEO, Logistics Dynamic Corporation, said, “After a comprehensive evaluation study, we have chosen Four Soft as our prime IT vendor. Four Soft’s Freight management system 4S eTrans and its Global Visibility application 4S Visilog which is offered on SaaS model not only has the right mix of functionalities but also the technical expertise that suited our business operations. We strongly believe that Four Soft’s solutions are designed to help organisations like us, for whom timely delivery is a key service component. This will in turn reduce operational costs thereby enhancing service levels to our Global Customers.” Krishna Rallabhandi, VP & MD – America, Four Soft, said, “We are pleased to be selected by Logistics Dynamic Corporation as their integrated software solutions provider. We have been successfully offering our suite of advanced and integrated solutions on SaaS model this year. We are rightly positioned to address the challenges faced by international forwarding companies. We believe Four Soft’s Global control tower application 4S Visilog will help Logistics Dynamic Corporation enhance collaboration between customers, agents and carriers, minimise transaction costs, shrink delivery schedules and improve visibility & monitoring of goods throughout the entire supply chain, while 4S eTrans enhances the productivity of their operations.”

INDIAN RAILWAYS MAY SOON FIND ITS FUEL EXPENSES WIDENING BY APPROXIMATELY 9% (`720 CRORE)

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TAKE SOLUTIONS RELEASES XTENDED PROCESS CONTROL 5.8 TRADE MISSION TO US FOR COLD CHAIN DEVELOPMENT LAUNCHED Looking to increase opportunities in cold chain development, a delegation of 13 executives representing India’s public and private sector launched a trade mission to the US aimed at improving the country’s quality and safety of transporting perishables. India has become one of the largest producers of fruit & vegetables in the world. Yet a lack of infrastructure, capacity, technical experience and standards in handling & storage, result in 30 per cent of produce wasted each year. The delegation was hosted by the US Trade and Development Agency, the Global Cold Chain Alliance and Carrier Transicold, a unit of Carrier Corp that helps improve transport and shipping temperature control with a complete line of equipment for refrigerated trucks, trailers and containers. The delegation toured Carrier Transicold’s Athens, Ga. refrigeration manufacturing facility, learned about the latest in Carrier’s truck & trailer refrigeration innovation, and participated in a workshop on proper loading practices for refrigerated trucks & trailers. “We were honoured to share best practices in transport refrigeration with this delegation from India to help them develop safety standards and reliable methods of transporting perishables and frozen foods for both, domestic & export consumption,” said David Appel, President, Carrier Transicold. The delegation also toured Carrier Transicold’s customer Sysco Atlanta, LLC. Indian public sector participants included representatives from the National Horticulture Board; the Ministry of Food Processing and Industries; and Fresh and Healthy Enterprise, which was established by the CONCOR to create world-class cold chain infrastructure. “We are in the process of establishing a refrigerated transport test facility in India. Seeing the level of technology in Carrier’s facility was very useful and informative, particularly as we consider financing for transport refrigeration units under government promoted schemes and projects,” said Dr RK Sharma, Sr Deputy Director, National Horticulture Board.

TAKE Solutions, a technology solutions leader in the SCM and Life Sciences domain, reinforces its focus towards the external supplier market with the launch of Xtended Process Control (X.PC) 5.8 supplier relationship management software. The enhanced version advances purchasing cycles by offering new vendor-managed inventory and visibility features that provide external suppliers full-visibility into inventory levels across warehouses and external depots. As a result, suppliers are able to automatically manage and replenish materials to reduce inventory overage and ascertain products are received on time, thus lowering procurement costs, ensuring product availability and improving efficiency. X.PC enables organisations to reduce inventory discrepancies by managing the freight of inbound material better and controlling visibility to all parts not normally tracked in the ERP, as well as ensure product quality through part non-conformance. With the new vendormanaged inventory (VMI) capability, ERP data integration allows for quick views of on-hand quantity and demand from sales orders or manufacturing. In addition,

partners can quickly identify and respond to shortages of materials via a color-coded ‘inventory dashboard’, forecasting in 14day and 12-week timeframes; summary reports can be easily generated to keep track of all VMI activities. VMI also provides external suppliers a bird’s eye view into warehouses and external depots so on-hand inventory levels are monitored and maintained. Such visibility into supplier inventory levels provides buyers the required intelligence to respond and reschedule if and when supply chain disruptions occur. “We are seeing organisations shift towards online collaboration as a primary source for conducting inventory transactions between trading partners,” said Matt Walker, EVP, Supply Chain, TAKE Solutions. “This latest version of X.PC demonstrates our continued commitment to this space that has proven to reduce order processing time, improve on-time delivery and literally save millions of dollars annually to our customers’ bottom line. Furthermore, we are particularly excited about giving external suppliers more control and visibility into the inventory process.”

ABG SHIPYARD BAGS MAIDEN ORDER FROM DEFENCE MINISTRY

VISHAL SHARMA JOINS AS CEO OF GATEWAY RAIL FREIGHT

ABG Shipyard has won a contract to build two cadet training ships for the Indian Navy, Ministry of Defence (MoD). The order is worth approximately `970 crore. This is the largest single contract signed by the company with the MoD. With a length of 110 mt, the vessels will be built to an ultra-modern design and will be fitted with the latest sensors and state-of-the-art marine equipment and training aids. The vessel will also have a second bridge, exclusively to provide basic training to the naval cadets & trainees, to carryout disaster relief, search and rescue operations with the capability to carry light helicopter. The vessel will be designed to achieve a maximum speed of 20 knots. Commenting on the development, Dhananjay Datar, Group CFO, said, “This is our first order after bagging the licence to build warships. We will continue to increase our presence in commercial shipbuilding with equal emphasis on winning future contracts from the defence sector.”

Gateway Rail Freight has recently announced the appointment of Vishal Sharma as its Chief Executive Officer. Sharma joins with extensive experience in the logistics industry. His most recent role was the MD of Tuscan Ventures, a logistics-focussed private equity firm. Prior to Tuscan, Sharma was with AP Moller Maersk, the world’s largest container line, for over 13 years. Commenting on the new appointment, Prem Kishan Gupta, Chairman, Gateway Rail, said, “Vishal Sharma has a deep understanding of the container logistics business and strong commercial acumen, which makes him an ideal candidate to lead the next wave of growth at Gateway Rail”.

SHIPPING CORPORATION OF INDIA TO BUY 29 VESSELS FOR $781 MN JULY 2011 • SMART LOGISTICS • 11

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TNT EXPRESS LAUNCHES DEDICATED FREIGHTER SERVICE BETWEEN INDIA AND EUROPE TNT Express has launched a dedicated B767 freighter service between India and Europe, the country’s largest trade partner. The service will run five times a week between New Delhi and TNT’s European air hub in Belgium, with a stopover in Dubai on the way back to India. The new service will enable TNT Express customers to enjoy faster transit times, as well as offer improved control and visibility over shipments moving between India and Europe. The new B767 freighter service has a weekly capacity of 210 tonne and reflects TNT’s commitment to improving connectivity between India and Europe. Shipments depart from New Delhi at the end of each work day and arrive in Europe before the start of the next working day. The return flight allows

TNT to collect and uplift shipments from Europe on the same day. The introduction of the India-Europe service is part of TNT’s plan to expand its leadership position on Asia-Europe routes. TNT now operates flights to Europe from five strategic locations in Asia: New Delhi, Chongqing, Hong Kong, Shanghai and Singapore. Abhik Mitra, MD, TNT India, said, “TNT India has been recording year-on-year growth of more than 20 per cent in India. The addition of a dedicated TNT freighter from India will enable our customers to become even more competitive due to faster factory-to-market lead times and improved efficiency. With the frequency of our service, it will now take just one day for shipments to reach Europe from New Delhi.”

JAPANESE CONTAINERISED CARGO EXPORTS FROM MAJOR PORTS PROJECTED TO RISE 0.2 PER CENT Japanese containerised cargo exports will level off in fiscal 2011, which started on April 1, in the wake of the devastating earthquake and tsunami that hit the northeastern part of the country on March 11, a research firm predicted. Containerised cargo exports from nine major Japanese ports are projected to rise only 0.2 per cent in fiscal 2011 to 5.302 million TEU after increasing a healthy 8.8 per cent in the previous fiscal year. According to the latest version of the report by Nittsu Research Institute and Consulting, containerised cargo exports from the nine ports are projected to sink 4.1 per cent in the first half of fiscal 2011 from the same six-month period last year to 2.562 million TEUs. But they are projected to recover in the second half of fiscal 2011, growing 4.6 per cent from a year earlier to 2.740 million TEUs, as industrial production will return to levels seen before the March 11 twin natural disasters, the report says. Meanwhile, containerised cargo imports at the nine ports are projected to rise 4.5 per cent in fiscal 2011 to 7.321 million TEUs after increasing a robust 12.6 per cent in the previous fiscal year. Containerised cargo imports at the nine ports are projected to rise 5.1 per cent in the first half of fiscal 2011 from

12 • SMART LOGISTICS • JULY 2011

a year earlier to 3.680 million TEUs and then 3.9 per cent in the second half to 3.641 million TEUs. The nine ports, which include the Port of Tokyo, the Port of Yokohama, the Port of Nagoya, the Port of Osaka and the Port of Kobe, account for about 90 per cent of Japan’s total containerised cargo trade – both exports and imports. According to the latest version of the NRIC report, Japanese air cargo exports are projected to rise a paltry 0.2 per cent in fiscal 2011 to 1.132 million tonne after soaring 14.3 per cent in fiscal 2010. Japanese air cargo imports are also projected to rise only 1.0 per cent in fiscal 2011 to 1.235 million tonne after surging 14.5 per cent in fiscal 2010. The NRIC report also forecast that Japan’s domestic cargo transportation volume in terms of tonnage will fall 6.2 per cent in the first half of fiscal 2011 and then 1.8 per cent in the second half, resulting in full-year negative growth of 4.0 per cent.

DHL TO INDUCT THREE BOEING AIRCRAFT FOR €100 MN

L O G I S T I C S

GULF COOPERATION COUNCIL LOGISTICS INDUSTRY REGISTERS OVER 20 PER CENT GROWTH PER ANNUM INDIA PLANS STATE-OWNED PORT INVESTMENT COMPANY India plans to set up a state-owned company capitalised at $557 mn to invest in overseas ports and terminals to help boost international trade. Indian Ports’ Global will be established within a month, using funds collected from federal government-run ports. The company could help Indian shipping lines win a greater share of international trade by giving them easier access to overseas facilities. State-controlled Shipping Corporation of India also plans to buy around 110 vessels over the decade to benefit from rising global trade. “It will no doubt help India increase its influence,” said Anand Sharma, Director, Mantrana Maritime Advisory, adding, “The world is moving towards cross-border acquisitions to ease logistics bottlenecks.” About 90 per cent of India’s international trade by volume is transported by sea, according to the ministry.

US STEEL IMPORTS ROSE 5.6 PER CENT IN MAY US steel imports increased by 5.6 per cent in May from April, according to preliminary government figures. “The increase in imports in May reflected improved steel market conditions, principally in the flat rolled market, as semi-finished imports by domestic mills jumped by 38 per cent in response,” said David Phelps, President, American Institute for Imported Steel. Phelps said year-to-date imports reflect stronger demand & pricing, with nearly half of the increase coming from increases in imported semi-finished steel as domestic mills augment their hot-end melting capacity in response to improved conditions. “While there is a pause in the marketplace, data through May clearly shows the slow but steady improvement in the steel market over 2011, except, of course, for nonresidential construction,” he said.

NEWS, VIEWS & ANALYSIS L A T E S T

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US, EU AGREE ON SUPPLY CHAIN MUTUAL RECOGNITION The US and European Union (EU) plan to implement mutual recognition of their supply chain security programme by the end of October, according to a statement signed recently. Completing prolonged mutual-recognition discussions between Customs and Border Protection’s Customs-Trade Partnership Against Terrorism, and the EU Authorised Economic Operator Programme is one of 18 action items listed in the statement signed by three European Commission members and Homeland Security Secretary Janet Napolitano. Napolitano was in Brussels to address the World Customs Organization. “The terrorist threat must not be allowed to impair international trade and economic development,” the statement said. “Security policies should be riskbased, cost-effective and should facilitate

as well as secure transport operations.” The statement also called for strengthening air cargo security, controlling the flow of illegal goods from narcotics to nuclear material, extending and connecting government-private partnership programmes, compliance with security standards like the WCO SAFE framework and developing new technologies. The two governments also called for continued efforts by WCO and United Nations Organization to develop protocols for supply chain resiliency. According to the statement, supply chain “must continue to function and be able to recover from major disruptions… In the face of inevitable disruptions, international process and policies are to be in place to resume the movement & commerce and restore confidence in the security system.”

COASTAL STATES ASKED TO EXPEDITE SETTING UP MARITIME BOARDS As part of its initiatives to give a major boost to non-major ports, the Shipping Ministry has directed all the maritime states to set up State Maritime Boards at the earliest. While India’s maritime vision envisages non-major ports to handle about 51 per cent of the targeted throughput capacity of 3.2 billion tonne, of the entire ports sector by 2020, the combined capacity surpassed the one-billion-tonne mark earlier this year. Of all the maritime states, only three i.e. Gujarat, Maharashtra and Tamil Nadu, have maritime boards in place at present. Speaking at the 13th meeting of the Maritime State Development Council, Shipping Minister and Chairperson, GK Vasan, confirmed the assurance given by the maritime states to set up their own boards at the earliest. According to him, all major and non-major ports had also consented (at the meeting) to give priority berthing to Navy and Coast Guard vessels. Vasan also informed that a decision was taken that all ports, handling export-import cargo, should install a vessel traffic management system, manned by qualified personnel. Besides, all major ports from now on would have to install radioactive material detectors and implement port community system (PCS) for facilitating paper-less

transactions. On piracy, the minister said that as of now, 39 Indians were in the custody of Somali pirates. According to him, 189 Indian crew members have been hijacked by pirates since 2007, of which the government has been able to secure the release of 150, till date. Vasan said that discreet efforts were being made, in association with the Ministry of External Affairs (MEA) and the Indian Navy, to secure the release of the remaining sailors. He also said that a proposal was being worked out with the MEA and Defence Secretary, to have armed guards, comprising ex-navy personnel, on board ships that sail through the pirates-infested Gulf of Aden. On allowing ports to raise funds through the issue of tax-free bonds, Vasan said that his ministry was awaiting clearance from the Finance Ministry, which had in this year’s Union Budget, granted permission to ports to issue bonds worth `5,000 crore to raise long-term funds, this fiscal. Apart from JN Port, three other major ports have evinced interest in issuing these bonds, but the Finance Ministry is yet to come out with the guidelines. The government may either ask individual ports to issue bonds or it could be done through a dedicated financial institution, he said.

L O G I S T I C S

SHANGHAI SEA CARGO VOLUME TO RISE 10% ANNUALLY SCI TO DEPLOY FEEDER VESSELS BETWEEN MUNDRA & JNPCT Shipping Corporation of India (SCI) has informed that in view of three new rail mounted quay cranes (RMQCs) being commissioned at the main berth of Jawaharlal Nehru Port Container Terminal (JNPCT), some vessels of its ISE and IMED service, whose length is more than 260m, will be skipping JNPCT and proceeding to Mundra to discharge cargo there. This will be the full and final delivery in accordance with the applicable Bill of Lading terms & conditions. JNPCT is currently in the process of installing RMQCs. It has notified that as a result, the terminal will not be in a position to accommodate ships of over 260m length during the installation period as one of the berths will be decommissioned. To ensure that uninterrupted service is provided to its customers with minimum inconvenience, SCI plans to withdraw vessels from its other services and deploy them as feeders to ply between Mundra and JNPCT. It has advised that consignees desirous of taking delivery of their cargo at JNPCT will have to pay the relevant transhipment and feeder costs, which will be charged at actuals. Meanwhile, the EXIM trade laments that this will result in delayed deliveries and additional costs, impacting the country’s international trade. For one, consignees would have to pay extra for transhipping the cargo from Mundra to JNPCT. They also point out that because of the cabotage restriction, foreign main lines as well as feeder operators would not be able to move cargo from Mundra to JNPCT, which would have ensured prompt connectivity. According to a shipper, the available Indian tonnage is insufficient for the transhipment demand that is likely to arise.

JULY 2011 • SMART LOGISTICS • 13

NEWS ANALYSIS

SHIP REPAIRING IN INDIA

The Project 17 frigate, INS Sahyadri, being ﬁtted out at the Mazagon Dock, Mumbai

SAILING IN THE RIGHT DIRECTION Ship repairing is a service, which includes a number of smaller services on various parts & components of the ship. While the repairing activity is adjunct to shipyards and ports, the extent & complexity of these services vary. Realising the potential that this industry has to offer, the ship repair industry, in the backdrop of increasing EXIM trade activities, is all set to achieve global heights in the near future. SUMEDHA MAHOREY THE history of ship repairing in India dates back to the first dry dock built at Bombay Port in 1750 and the second one at Calcutta Port in 1781. For about two decades after independence, the Indian ship repair industry made booming business. Today, the potential size of the ship repair industry in India is around `44 billion, which includes repairing required by Indian and foreign vessels calling at Indian

14 • SMART LOGISTICS • JULY 2011

ports. However, only a small percentage of this business, equivalent to `10-12 billion, is executed by the Indian ship repair industry. Presently, major shipyards carry out both, ship repairing as well as shipbuilding activities. The industry is controlled

Major players There are 35 SRUs registered with the Director General of Shipping of which only Alcock Ashdown & Co, Chennai Port Trust, Cochin Shipyard (CSL), Garden Reach Shipbuilders & Engineers (GRSE), Hindustan Shipyard (HSL), Mumbai Port Trust (MbPT) and Mazagaon Dock (MDL) have been given the permanent approval.

by 10 large and 30-40 medium and small-sized shipyards apart from Naval Dockyards and Defence Shipyards.

FACTORS BOOMING SHIP REPAIR INDUSTRY’S PROSPECTS Ship repair is an ‘evergreen’ industry as all ships require periodic maintenance. India is strategically located in the Indian Ocean and hence, many ships from nearby trade routes call on Indian ports. This implies that there is a lot of potential for the ship repair industry in India. While most ship repairs are primarily undertaken in Dubai Drydocks and Singapore, Bahrain & Colombo Dockyards, the Indian ship repair industry is moderately regulated, with ship repairs being carried out by Ship Repair Units (SRUs), which operate under licences from the Directorate General of Shipping. The licence not only gives permission to carry out ship repair, but also offers benefits in the form of Customs Tax exemptions and so on. One of the main factors that boost the prospects of ship repairing in India is the age profile of the Indian fleet. Almost half of the Indian flag fleet is older than 20 years and older ships require frequent & extensive repairing and maintenance. This translates into a big opportunity for a ship repair yard in India. Another reason for the Indian ship repair industry to cheer lies in the fact that the country is located strategically on the international trade route and can attract ships plying from west to east for its ship repair activity. Currently, India has 35 SRUs as compared to China, which has 176 dedicated ship repair yards in addition to 316 shipbuilding yards. India, in comparison, has only one dedicated repair yard – Western India Shipyard. However, there are other ship repair yards that are coming up on the east as well as west coast of India. South Korea, Japan, and China are better known as shipbuilding countries. Ironically, Singapore, Dubai, Bahrain and Colombo have emerged as ship repair centres with Indian labourers in majority.

CHALLENGES GALORE The global ship repair market is estimated to be worth $10-12 billion, with Singapore claiming 20 per cent of the share. India, on the other hand, has a share of about $100 million. India is strategically located on the international trade route, which offers the country an increasing market potential for the ship repair business, as

ACT

Ship repairing is a service, consisting of a number of smaller services on various parts and components of the ship. While the repairing activity is adjunct to shipyards and ports, the extent and complexity of these services vary. The potential size of the Indian ship repair industry is approximately `44 billion, which includes repairing required by Indian and foreign vessels calling at Indian ports. However, only a minute percentage of this figure equivalent to `10-12 billion is executed. ship owners prefer to repair their ships without deviating much from their trade routes. But due to the lack of infrastructure and focus, the ship repair industry is not able to tap the potential that the business offers. Presently, there are 35 SRUs registered with the Director General of Shipping of which only Alcock Ashdown & Co, Chennai Port Trust, Cochin Shipyard (CSL), Garden Reach Shipbuilders & Engineers (GRSE), Hindustan Shipyard (HSL), Mumbai Port Trust (MbPT) and Mazagaon Dock (MDL) have been given the permanent approval. The major SRUs in the country are CSL, HSL, Western India Shipyard, MDL, ABG Shipyard, etc. Other shipyards usually have both, shipbuilding as well as repair facilities and sometimes these facilities and their supporting infrastructure overlap. The ship repair industry is highly competitive and has huge market potential. But despite this opportunity, there have been no private investments in ship repairs. Instead, most private shipyards have chosen to build lucrative ships rather than undertake repairs. Nonetheless, with the growing fear of pollution and stricter norms & regulations, ship repairing services are in demand. The Indian ship repair industry has a plethora of opportunities as Indian shipyards offer competitive advantages like low labour cost, trained & skilled labour and proximity to international shipping routes required for succeeding in the business. However, despite these advantages, the industry has not been able to cater to the needs of the Indian merchant fleet adequately due to factors such as: • High investment cost, taxes & labour laws • Deterioration of existing machinery/ equipment • Usage of obsolete methods and systems • Lack of suitable training for upgradation

of skills • Lack of emphasis on professional management techniques • Supply bottlenecks for raw materials & spares • Over dependence on public sector • Cumbersome government procedures • Extremely low labour productivity. The government should address these issues at the earliest in order to bring greater investment into the country.

FUTURE PROSPECTS With India being pegged as the next economic power, initiatives have been taken towards making the country a global hub for ship repair over the next five years. India has a business potential of `2,790 crore a year in ship repairing of which `1,400 crore is expected to come from foreign ships, according to Planning Commission. In view of the uncertainty of shipbuilding beyond 2012, Indian shipyards are gearing up to tap into the ship repair market. For instance, Bharati Shipyard is set to carry out ship repairing using the floating dock it acquired from Swan Hunter Shipyard. The government, on its part, will fully utilise the 13 dry docks and one floating dock at the various port trusts, with a view to realise its 11th Five Year Plan targets. It is proposed that CSL and HSL will be upgraded to world-class standards. This will require an investment of `10 billion. With 2010 turning out to be a shining era for India’s shipping sector, it is expected that in the next five years, India’s imports will grow by an average of 14 per cent annually, while exports will increase by an average of 13.58 per cent per year. With increasing import-export activity, the opportunities for the ship repairing industry will present a lucrative option for the ship building industry as well. With inputs from Mantrana Maritime Advisory

JULY 2011 • SMART LOGISTICS • 15

NEWS ANALYSIS

WAREHOUSING WOES

The high food price inflation is having a significant impact on the Indian consumer. What worsens this scenario is the government’s decision to hold back stocks rather that sell them despite not having adequate warehouses to store them. Adequate warehousing coupled with last mile rail connectivity can play a vital role in reducing food inflation in India. By drawing back the commodity from road transportation, last mile rail connectivity would bring down the cost of transportation. FOOD inflation has kept the country on the boil for several months now. The situation has assumed alarming proportions with deficient warehousing facilities creating supply side constraints, thereby leading the prices of wheat and rice to remain firm. Deficient warehousing can lead to many supply constraints. This includes pilferage of stock, wastage due to vagaries of weather conditions and rodent attacks among others. More than one million tonne of rice and wheat stocks are reportedly stored in the open,

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thereby subjecting the precious stock to the vagaries of different external elements. Notwithstanding, high price has been compounded further with the government’s decision to hold back stocks rather that sell them in the open market or export them.

SPACE CONSTRAINTS Prices are well expected to remain firm in the immediate and long-term because despite assurances from the Ministry of Food and Agriculture to ease supply side

constraints, there is no clear roadmap for creating sufficient warehousing infrastructure to store rice and wheat in place. As per estimates, a record 80 million tonne of wheat harvest is expected this year and according to recent reports, the wheat output has started to make way to Food Corporation of India (FCI) godowns in many parts of the country. Inadequate warehousing facility has compelled authorities to store wheat in open. The situation is critical in FCI godowns in Madhya Pradesh and Bihar.

Despite having negligible spare capacity to store wheat in the country, FCI has targeted a procurement of 24 million tonne of wheat this fiscal. As per the Ministry of Food & Agriculture, official rice and wheat stocks are projected to be about 42 million tonne – more than twice the minimum buffer stock norm of 16.2 million tonne. The answer to the anomaly lies in creating sufficient warehousing space. Ironically, with FCI being the sole food grains procurement authority, it will take its own time to create new warehousing facilities. According to a top Indian Infrastructure Development Corporation official, “The problem of deficient warehousing with FCI is further compounded with no regulations for the warehousing industry. There are no regulations that would specify the standard of warehousing industry.” The creation of warehousing standards is likely to bring in players for creating additional commodity storage facilities. Further, it will standardise storage procedures, thereby minimising wastage of food stocks.

WAGON SHORTAGES & CONNECTIVITY In order to deal with this scenario, it is essential to create additional warehousing capacity. But along with this, it is important to ensure adequate supply of wagons to transport rice and wheat. There should be spare wagon capacity to ensure regular off take of the commodity from warehouses. The Railways Ministry claimed to have a wagon holding of 42,907 units of BCN/A and 4,625 units of BCX wagons during 2008-09. The specified wagons are used by the Railways for transporting food grains. FCI, however, feels that the figures are less than adequate. Undoubtedly, Railways gives first preference to the transportation of food grains. However, adequate wagon availability would make the situation a little more comfortable. But improving the situation of wagon availability would take time. The Railways transported 35.51 million tonne of food grains during 2008-09 down from 45 million tonne in 2005-06, while in 2009-10, it transported 38.69 million tonne of food grains.

NEW INITIATIVES To transport increased volumes of food grains and minimise pilferage of food, the railways has set up rail side warehouse. Under the initiative, the Indian Railways

There has to be last mile connectivity initiatives from the Railways to transport the commodity from the mother warehouse, logistics parks or terminals storing the commodity. Last mile connectivity is important as the periphery of food grains consumption is large and is growing with the emergence of good numbers of wholesale points across the country. D BHOWMICK, SENIOR FACULTY – LOGISTICS, INDIAN INSTITUTE OF MANAGEMENT, KOLKATA

and Central Warehousing Corporation (CWC) initiated RWC Whitefield – a pilot project at Satellite Goods Terminal, Whitefield, Bangalore – which commenced in February 2002. Under the project – aimed to provide seamless door-to-door transportation – CWC had built stateof-the-art warehouses along the railway track in the goods yards. It also provided ancillary facilities in integrated goods sheds complex. Encouraged by the customers’ response, the Railways and CWC entered into a memorandum of understanding (MoU) in 2003 to develop rail side warehouses at 22 different locations on the same lines, according to the Railways Ministry. Rail side warehouses have become functional at 11 locations. As per the 2007-08 Budget, the Railways has proposed the setting up of 48 freight terminals over Indian Railways, of which, 16 freight terminals were handling more than 15 rakes per month. These 16 freight terminals are Ahmednagar, New Mulund, Ballabgarh, Gonda, Barbil, Noamundi, Lakshmi Bai Nagar, Saharsa, Danapur, Sukinda Road, Yamuna Bridge, Sanverdam, Sankaval, Gosalpur, Mandideep and Mandi Gobindgarh (the prime wheat and rice loading point in Punjab). According to the Railways, the total cost for improvements in the 16 freight terminals are approximately `57.58 crore. Liberalisation of siding rules is another initiative for efficient food grains storage and movement by the Railways. As per this concept, the Railways would share the cost of new sidings if the user industry comes with a long-term traffic commitment of 10 years or more commensurate with the Railways investment. Under this provision, capital cost of additional traffic facility works will be borne by the Railways. Under the liberalised siding rules, overhead charges of the railways have been rationalised and reduced. Further,

in all private sidings, except the cost of one commercial staff per shift, the cost of all other Railway staff will be borne by the Railways. However, in case of siding working on electric overhead lines, the cost of all the staff will be borne by the Railways. Additionally, the electrification of old sidings will be done by the Railways. The electrification of new sidings will be done by the siding owner. However, the maintenance of overhead equipment will be done by the Railway.

IMPORTANCE OF LAST MILE CONNECTIVITY Logistics industry experts feel that the Railways move to create additional rolling stock and fixed infrastructure are good initiatives. However, this needs to be dovetailed with efficient connectivity initiatives from the warehouses. D Bhowmick, Senior Faculty – Logistics, Indian Institute of Management, Kolkata, says, “There has to be last mile connectivity initiatives from the Railways to transport the commodity from the mother warehouse, logistics parks or terminals storing the commodity. Last mile connectivity is important as the periphery of food grains consumption is large and is growing with the emergence of good numbers of wholesale points across the country.” By drawing back the commodity from road transportation, last mile rail connectivity would bring down the cost of transportation by per tonne. However, most importantly, it will check down storage costs of FCI at present. FCI’s storage cost is estimated to be `2,400 a tonne. With burgeoning buffer stocks, it has already added over 20 per cent of the last year’s wheat and rice in storage. The annual carrying cost of tens of millions of tonne runs into several thousand crores, thereby adding already to the ballooning food subsidy.

JULY 2011 • SMART LOGISTICS • 17

TECH TRACK IT TRENDS IN LOGISTICS

Components for implementing item-level RFID launched LEADING UHF radio frequency identification (RFID) technology provider Impinj, Inc. has recently announced the launch of two critical components for implementing item-level RFID across retail markets and supply chains. Impinj’s Monza 5 tag chip and STP source tagging platform will enable widespread scaling of RFID retail inventory management solutions. Monza 5 is Impinj’s newest RFID tag chip. Designed for serialising items such as apparel, electronics, cosmetics, jewellery and pharmaceuticals, the chip breaks new ground in item-level tag performance. Monza 5 chips are optimised for singleuse tag applications that demand the highest read reliability and lowest applied tag cost. In addition, Monza 5 tag chips deliver

value on multiple fronts for item-level tagging – the design satisfies supplier and brand owner cost/performance requirements, maximises RFID business results for retailers and streamlines high volume inlay manufacturing. The STP source tagging platform is a UHF RFID reader system with hardware and software optimised to streamline high-speed commissioning during itemlevel tagging. Utilising Impinj Monza-based tags, STP is capable of encoding up to 1,750 tags per minute, thus enabling largescale deployments. STP simplifies source tagging by supporting both inline and bulk encoding solutions. “Building on Impinj’s industry leadership in RFID technology, Monza 5 tag chips will become the industry standard for item-

level tagging. We believe Monza 5 and STP bring to market exactly what retailers, suppliers and tag manufacturers need for item-level tagging to go mainstream,” said William Colleran PhD, President & CEO, Impinj. “A well-defined approach for tag commissioning that can deliver itemlevel RFID tags with no encoding errors is emerging as a critical requirement in the apparel sector. Source tagging solutions require strong throughput speed, write rate and cost requirements. As noted in ABI Research’s 2010 Passive UHF RFID Transponder IC Vendor Matrix, Impinj is positioned to innovate and implement products to meet these needs,” stated Michael Liard, Research Director – RFID and Barcode Scanning, ABI Research

Technology to streamline fleet New technology being tested data, analysis & reporting for global freight transport RYDER System, Inc has recently launched Ryder FleetCare, a web-based fleet management tool that provides customers with access to valuable information regarding the operation of their fleets. After successful testing in real-world conditions with Ryder customers, the company has initiated a US rollout through the fourth quarter of 2006. “As one of the pilot companies for Ryder FleetCare, we found the tool to be extremely valuable in helping us manage and track our fleet performance by location,” said Kent Hittinger, National Director – Operations, Celebration Foods. “Scorecard reports are automatically delivered to our sales and operations people monthly, giving us the ability to analyse fleet performance and make better business decisions.” Ryder FleetCare offers secure, immediate Internet access to a variety of performance metrics such as vehicle maintenance schedules, service calls, vehicle rental activity and fuel purchases among others. Reports can be customised and sorted in a variety of ways to analyse information by location or vehicle. “Ryder looks for ways to deliver value, service, and a productivity edge to our customers that will help them to understand and manage their fleet operations better,” said Tony Tegnelia, President – US Fleet Management Solutions, Ryder FleetCare. “Ryder FleetCare provides customers an easy way to obtain the critical business information they need to improve fleet performance and refine their transportation functions,” he added.

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PORT of Hamburg Schenker put into service 10 containers equipped with RFID technology. This is the first step in a practical test to examine the suitability of new security technology for global freight transport. The new containers will be used in a shuttle service between Hamburg and Hong Kong. An ‘RFID tag’, an electronic labelling, is used to improve the transparency of the supply chain. “This is pioneering work we are doing for our sea freight customers, especially for groupage shipments,” emphasised Dr Wolfgang Dräger, VP – Seafreight, Schenker. The container tag will be automatically registered at points where liability changes hands. This means that the shipment will become immediately visible at important transitional milestones in the transport chain. The first test phase commences with the partners at the port packing stations. The next step will involve the container terminals as well. Schenker will also test the ‘e-seal’, an electronic seal that documents any opening and closing of the container, as well as a range of other security devices that will keep tabs on the shipment. With annual sales of €8.9 billion, 42,000 employees and about 1,100 offices around the world, Schenker is one of the world’s leading providers of integrated logistics services offering land operations, air and sea freight as well as comprehensive logistics solutions and global supply chain management from a single source. Schenker is a part of DB Logistics, the Transportation and Logistics Division of Deutsche Bahn AG.

Industry’s first RFID-based EAS Solution for apparel retailers launched CHECKPOINT Systems, Inc, a leading global supplier of shrink management, merchandise visibility and apparel labelling solutions for the retail industry, recently announced its RFID Overhead EAS Solution, delivering benefits for both loss prevention and inventory visibility at the point-of-exit. This solution includes overhead RFID hardware with specialised onboard filtering software and new RFID hard tags and labels. “METRO Group is very optimistic about RFID-based EAS. We are confident that RFID builds on the usability of traditional RF EAS both for loss prevention as well as inventory visibility, thus enabling us to serve our customers better,” said Dr Gerd Wolfram, MD, METRO SYSTEMS. RFID Overhead EAS is a key component of an integrated solution delivering real-time inventory and related benefits, while serving as an enhanced EAS system, improving operations at the point-of-exit. It leverages open-standards RFID technology and delivers several new, important benefits for apparel retailers. The benefits include: • It leverages a single RFID tag for inventory visibility and loss prevention. The RFID Overhead EAS Solution uses one tag for multiple purposes, increasing efficiency at point-of-sale and cost-effectiveness over the long-term. • It provides an open entrance. Installed either suspended from the ceiling or fully concealed within it, the RFID Overhead EAS Solution enhances the store entrance’s appearance. • It enables retailers to know what was stolen. The RFID Overhead EAS Solution enables retailers to actually know what was stolen, the quantity and the dollar value, thereby helping them to maintain shelf availability and respond smarter to a theft event. • It enables retailers to fight all sources of theft. Apparel retailers now have the potential to distinguish among the actions more typical of a casual shoplifter from a professional thief or organised retail theft group, thereby enabling them to take action based on the size and scope of the event. • It enhances theft deterrence. Combined with Checkpoint’s Merchandise Visibility Solution, apparel retailers can enhance deterrence by displaying an image or description of the items that were stolen, warning shoplifters of the presence of a more sophisticated system and causing them to recalculate the risk. • It increases alarm integrity. By leveraging encoded tags, retailers benefit from the RFID Overhead EAS Solution’s ability to ‘ignore’ tags from other retailers, thus helping associates respond confidently to alarms and, at the same time, increase customer satisfaction. “The ability of a single RFID tag to deliver benefits for both, inventory management as well as loss prevention is an important advantage for apparel retailers seeking to maximise the value of their RFID investment. Determining the static location and dynamic directionality (movement) of merchandise are essential to address data integrity and loss prevention,” said Dr Bill Hardgrave, Dean, Auburn University’s College of Business.

JULY 2011 • SMART LOGISTICS • 19

PRICE TRENDS Road freight index chart for June 2011

IRFI TREND FOR JUNE 2011: The RFI stood at 175 points for the month of June 2011, which has registered an increase of 1 point in comparison to the same period last year.

ZONAL FREIGHT TRENDS The overall freight rates have increased significantly throughout India by almost 2% compared to the previous month. Ex-Kolkata rates have registered the highest increase by 8% compared to other metro locations. The freight rates from Ex-Kolkata are high due to less inflow of vehicles and more outgoing orders.

COMMERCIAL VEHICLES:

TRENDS FOR JUNE (Y-o-Y) 172

The cumulative sales of commercial vehicles registered a growth of 19.36% for

171

174 175

166

165

April-May 2011 as compared to the same period last year and the production grew at 18.43% in the month of May 2011 as compared to May 2010. Medium & heavy commercial vehicles grew at 4.6% and light commercial vehicles grew at 18.7%.

FORECAST FOR JULY 2011:

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Index trend for six years

However, the RFI in July 2010 over July 2009 had registered an increase of 3 points. It is expected that volumes and freight rates may increase marginally in the month of July 2011.

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

20 â&#x20AC;˘ SMART LOGISTICS â&#x20AC;˘ JULY 2011

Photo ©DINODIA

EFFICIENT WAREHOUSING INSIGHTS & OUTLOOK

MOVING FROM ‘GODOWN’ TO A ‘SUPER STORE HOUSE’ OF TOMORROW A major portion of a company’s business and profits depends on its storage area. Hence, it is of prudent importance that the storage area has adequate space to meet the business needs. In addition, it needs to be well organised and easily accessible to increase productivity. Companies need to move away from the yesteryear prevalent culture of ‘godowns’ and build efficient & super store house of tomorrow to deliver tangible benefits that would not only augment business growth, but will also signal better times ahead for the logistics industry in India. TRADITIONALLY , warehousing used to be limited to a ‘store’ (a small space very close to the production floor to hold raw materials) or a godown (small-to-medium space at a convenient location to store finished goods or sometimes even raw materials). Manufacturers often maintained their own godowns or stores and soon, they began realising the need for an intermediate buffer between the factory and the market location, mainly to maintain the supply chain gap and to augment marketing. Thus, warehousing started gaining prominence. Earlier, all activities in warehouses were manual and ‘engineering’ was not

accorded much attention. Gradually, the situation changed with the inclusion of activities such as labelling, slicing, packaging, and so on and so forth. Globalisation has opened up many lucrative business avenues. At the same time, it has brought forth challenges hampering the smooth forwardand-backward flow of material and information. In India, with globalisation and growing export opportunities, there has been a multi-fold rise in the scale of material sourcing, manufacturing and distribution by companies. In this scenario, an efficient supply chain mechanism is the key for every industry to achieve higher growth. Thus, logistics and supply chain

management have major significance in the current competitive business environment. Complex customer demand, globalisation and the availability of new technology have redefined the management of supply chains. To deal with increasing competition at the global level, companies, in the last two decades, started adopting the re-engineering strategy, which included outsourcing of logistics and supply chain activities. This trend is seen as an important step in the dynamic and ever-increasing business opportunity for logistics service providers (LSPs), thereby resulting in the growing presence of multinational LSPs in the country.

JULY 2011 • SMART LOGISTICS • 21

Efficient warehousing, continued

Some easy-to-implement methods to improve efficiency of warehouses: • Discard obsolete equipment and inventory at regular intervals • Place popular items in prime pickup areas • Place occasionally used or consumed items in interior storage sections that do not clog movement of regularly used items • Identify underused areas within the warehouse and find means to gain more productivity from such places • Examine the workflow of each department that has a linkage with the warehouse and identify if any stage of goods movement can be eliminated or smoothened • Adopt technologies that enable rapid movement and easy tracking of goods within the warehouse.

professional security personnel at warehouses, all resulting in higher cost of operation and erosion of margins for service providers. • Lack of skilled, trained warehousing personnel and training systems There is an acute shortage of professionally trained and skilled warehousing personnel in India. The required training entities, facilities and systems to develop skilled personnel are also significantly low (almost negligible). As a result, the warehousing industry is struggling to match customer demands in terms of services and quality.

EFFICIENT WAREHOUSING OVERVIEW OF THE INDIAN WAREHOUSING MARKET Warehousing services commenced in India about 50 years ago with the establishment of the Central Warehousing Corporation (CWC) in 1957 and Food Corporation of India (FCI) in 1964 by the Government of India to strengthen the country’s food grain storage capacities. Later, CWC’s operations extended to cover industrial goods as well. The Indian warehousing market can be broadly segmented into two categories, namely government-controlled and private sector-controlled. While the former is represented by governmentowned entities such as FCI and CWC, the latter consists of all the third party logistics (3PLs) warehousing providers such as Om Logistics, Safexpress and numerous unorganised storage services providers. In India, costs incurred on warehousing activities account for about 26 per cent of the country’s total logistics spend. This is defined as the warehousing market. As of 2010, the Indian warehousing market

was valued at $21.15 billion. However, the Indian warehousing industry is facing a few serious challenges that need to be addressed to ensure growth prospects. They include: • High levels of damage and pilferage during storage In India, over 20 per cent of agricultural products are estimated to be damaged annually due to the lack of adequate/ suitable storage and warehousing facilities. Most warehouses do not contain facilities/systems to store agricultural products such as food grains, vegetables, fruits and dairy products; and also meat & seafoods. Overall, the value of damages to food grains caused by the lack of storage facilities is more than $11.11 billion (`50,000 crore) per annum approximately. In addition, many cases of pilferage during storage at service provider warehouses are reported by customers. This puts significant pressure on service providers to employ advanced security systems, tracking systems as well as increased

Characteristics of Warehouses

Private Warehouses • Owned or leased by the product owner • Control is fully with the product owner • Changes can be made to integrate the warehouse with the rest of the logistical system • Provides market presence to the product owner • There is no profit to be added to the cost

Public Warehouses • Available to companies on hire • Overheads get distributed over a large customer base • As warehousing is their core business, public warehouses offer expertise in management • Flexibility of location • Significant economies of scale, several users and resultant volume, benefits in transportation costs

Figure 1: Types of Warehouses and its Characteristics, 2010

22 • SMART LOGISTICS • JULY 2011

Contract Warehouses • Contract warehouse operators take over logistics responsibility from manufacturing company • Long-term relationship and customised service • Expertise of management • Shared resources with several clients

Source: Frost & Sullivan

Both logistics end users and service providers have been constantly trying to discover means to improve logistics performance and warehouse operations. This is an area where supply chain managers can focus to gain maximum efficiency for minimum cost. To gain maximum efficiency from the warehousing operation, a number of best practices can be adopted to improve warehouse goods handling productivity and overall customer satisfaction. Although best practices in logistics and warehousing vary from industry to industry and by the type of products shipped, there are a number of best practices that can be applied to most end user companies. When considering the level of effort involved in warehouse operations, the greatest expenditure of effort is found to be in the picking process. To gain efficiency, the labour time in picking orders needs to be reduced. This can be achieved in multiple ways. Companies with the most efficient warehouses were found to have the most frequently picked items closest to the shipping areas to minimise picking time. This is achieved by constantly reviewing the sales data to ensure that the most frequently picked items are stored close to the shipping area. Warehouse layout also plays an important role in achieving greater efficiencies. Minimising travel time between picking locations can greatly improve productivity. However, to achieve this increase in efficiency, companies must develop processes to regularly monitor picking travel times and storage locations. Among the primary parameters used to evaluate efficiency of a warehouse are ‘average inventory days of raw materials maintained’ and ‘average inventory days of finished goods maintained’. The ‘Annual

45%

a) Average inventory days of raw materials maintained

b) Average inventory days of finished goods maintained

Share of Total Responses (%)

38% 29%

30%

Bar Coding

59%

WMS

41%

33%

32%

16%

RFID

19%

17% 15%

ASRS 7%

13%

10% 7%

Voice 7% picking

1% 0%

1 day

Up to 1 week

1 to 2 weeks

Figure 2: Average inventory levels of logistics end users in India 2010

Indian Logistics Benchmarking Study’ conducted by Frost & Sullivan found that over one-third of the logistics end users maintain above 15 days of inventory for both, raw materials and finished goods. This implies a tremendous inefficiency in warehousing. Another parameter to measure warehouse efficiency is response time for customer orders (also called outbound consignments). Frost & Sullivan’s study found that more than 55 per cent of the logistics end users take more than a day to respond to a customer order. Integration and use of technology in

Above 15 days

Cannot say

Figure 3: Prominent Logistics Technologies for Warehouse Operations — Usage Level of End Users in India 2010

Source: Frost & Sullivan

logistics operations is a compulsion today and companies that still use hard copy document management in warehouse operations don’t find it efficient and the process is prone to human errors. To combat this and to maximise efficiency, leading end users have adopted technology, which includes some of today’s most advanced systems. In addition to handheld radio frequency readers and printers, companies are adopting pick-to-light and voice-recognition technology. However, the adoption of technologies suitable for warehousing operations is

Source: Frost & Sullivan

still significantly low in India, as found in the study. Barcoding and warehouse management systems (WMS) are the only two technologies with notable penetration among end users. Efficient warehousing or improving warehouse efficiency can be achieved through a mix of better planning, better management and appropriate integration of technology into warehouse operations. Srinath Manda, Program Manager – Transportation and Logistics Practice, South Asia, Middle East and North Africa, Frost & Sullivan

Our search for authentic and informative articles… solicits original, well-written, application-oriented, unpublished articles that reflect your valuable experience and expertise in the logistics industry. You can send us articles, case studies and industry updates. The length of the articles should not exceed 2000 words. The article should preferably reach us in soft copy (either E-mail or CD). The text should be in MS Word Format and the images in 300 DPI resolution and JPG format. The final decision regarding the selection and publication of the articles . shall rest solely with Rs

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JULY 2011 • SMART LOGISTICS • 23

INSIGHTS & OUTLOOK

DESIGN DYNAMICS

ENVISIONING A SMART WAREHOUSE A warehouse is a planned space for efficient accommodation and handling of goods & materials. Hence, when designing a warehouse, one needs to ensure that the full available cube of a building is utilised for storage while maintaining the desired degree of accessibility. The technical and physical aspects of warehouse design vary, but the most critical elements that need utmost attention are its flawless operational capabilities and flexibility. It should be a competitive asset that not only serves today’s but also tomorrow’s distribution needs. ANY discussion involving the supply chain or its constituent parts should always start with the function of supply i.e. to ensure that the customer receives the right item at the right place in the right quantity & condition at the right time and right price while ensuring minimum total cost to the organisation. Achieving these objectives depends on effective management and is becoming increasingly

24 • SMART LOGISTICS • JULY 2011

important as the requirements of the industry and consumers become more stringent & demanding. For example, the concept of ‘just in time’ with its aim of reducing buffer stocks and work-inprogress in manufacturing, demands that every objective in the above list shall be met. Failure to achieve any one results in a stoppage of production with consequential decrease in customer service and possible

loss of business. That may be obvious for ‘Just in Time’ operations, but what is not appreciated by many is that it applies to all supply chains in all industrial sectors. Effective management to achieve these objectives is also needed to control the cost of the supply system. There are various estimates that have been made to quantify the costs associated with storage and handling. In fact, there are very few

companies that know these costs to any degree of accuracy and yet, the total cost of distribution, depending on the nature of the business undertaken and the size of the enterprise, can be between five per cent and 15 per cent of the total sales revenue. Another indicator of the importance of efficient storage and handling in the manufacturing process is that typically, products will be handled 50 times during the course of manufacture. A final, but most important, observation is that according to the industry surveyed, materials handling and storage activities account for between 25 per cent and 50 per cent of industrial accidents.

ESSENTIALS OF A WAREHOUSE A warehouse can be defined as a planned space for the efficient accommodation and handling of goods & materials. Within the definition, there are three key features; planned, accommodation and storage & handling. The role that a warehouse performs in the business cycle will depend on the nature of the operation. In some cases, it will be purely a staging post for the bulk-breaking for onward delivery

Principles of warehouse design and operations • Load unitisation • Minimise total movement • Safety, security and sound environment • Flexibility • Minimium total system cost to customers. Storage, in this case, is minimised, but handling becomes a very important activity. In other cases, such as a finished goods warehouse, there may be a requirement to build up stocks and hold them in store for a considerable period of time until the market is ready. A good example of this is the buildup of confectionary stocks prior to a national festive season such as Songkran in Thailand, Christmas or Easter in the West, Lunar New Year in China or Diwali in India. In either case, it is important that the operation is planned so that the flow of product into, through and out of the warehouse, is kept as smooth as possible and adequate resources are in place to cope with unforeseen problems.

PURPOSE OF A WAREHOUSE A warehouse is a store where goods not currently or immediately required are kept and looked after until they are required. It acts as a buffer between supply and demand. Demand can rarely be as certain and supply often, even less so. Market forces and political, financial & natural events will all have an effect on them and the warehouse cushions the resultant fluctuations in supply and demand. In manufacturing, a regular flow of raw materials in step with production is vital to maintain constant output. A warehouse may be used to store materials to guard against possible supply interruptions, while at the same time, the finished products have to be stored until required to meet customer orders. However, in making the decision as to whether a warehouse should be included in the supply chain, the effects of warehousing costs should be taken into account. Policies, which maintain the flow of goods and materials and which minimise the stock holding costs, should always be pursued. Options such as calloff, scheduling and consignment stocks should be considered.

JULY 2011 • SMART LOGISTICS • 25

Warehousing design, continued

OBJECTIVES OF WAREHOUSE DESIGN The objective of warehouse design is to attain the ‘best’ combination of the maximum utilisation of storage space in cubic capacity terms and the minimisation of handling operations. While attempting to do this, each is constantly tradedoff against the other. The compromise achieved must be such that the degree of effectiveness of the warehouse is in line with the role that is being performed. In many cases, there may be instances where 3-4 roles are being performed at the same time and then, the problem lies in ensuring that one specific role is not given undue priority with the effect that the performance of the whole warehouse is sub-optimised.

movement. Sometimes these may be in conflict. The most common flow profile is the U-shaped flow. The U-shaped flow is usually associated with instances where the goods receipt and goods dispatch functions are located at the same end of a building. In warehousing, this enables the use of ‘popularity storage’ systems or layouts. These are designed to minimise the total movement by locating fast moving items to locations close to the receiving and dispatch bays. As a result, the most frequently picked items are moved to the shortest distances. The same concept can be applied in a manufacturing environment with the flow of locating goods inwards and associated storage along one side of the building progressing in a ‘U’ shape via

There are four basic factors that affect warehouse and design. Each of these factors plays an equally significant role. They include: • Flow: The positioning of areas for various warehouse activities should contribute to the smooth flow of operations. • Accessibility: The requirements of levels of accessibility must be achieved especially in the pick face and fast moving stock holding areas with the minimum compromise to the use of space. • Space: Maximum use must be made of available space in terms of the cubic capacity of the warehouse for storage and stock processing purposes and the minimum given up for associated functions such as working areas, empty pallet storage, battery charging, etc. • Throughput: The principles of flow, accessibility and space must be balanced to enable the demands of throughput in terms of volume passing through and the time parameters to be met.

FACTORS AFFECTING WAREHOUSE DESIGN & LAYOUT Flow: Control of flow is assuming greater importance in materials handling, warehousing and storage. It is concerned with the controlled and uninterrupted movement of materials, people and traffic with, if possible, no cross-flow clashes, areas of high traffic or work density. It is also concerned with the awareness of where material is located within the system and the status (for e.g. in use/ empty, etc.) and location of handling and storage equipment. The ability to control a system and rapid & accurate data on locations and systems status are vital for system operation and for the management to quickly respond to changing situations & customer requests. Thus, there is a close link between the organisation of a logical & smooth flow and the minimisation of

26 • SMART LOGISTICS • JULY 2011

production operations, work-in-progress, storage, assembly, testing, packing and dispatch. The advantages of having a common receiving/dispatch dock are: • Higher utilisation of docks and associated handling equipment • Potential for less total area required for both operations • More flexibility • Higher degree of control of security and working environment. ‘Through flow’ requires separate loading bay facilities located at opposite ends of the building. This can be inflexible and necessitates all goods travelling the total length of the building. Operational control is more difficult & less flexible and can make future expansion of the building more difficult. But there are situations where a through flow is more desirable. They include instances where:

• A finished goods warehouse is attached directly to a manufacturing facility • There is a high risk of interference or confusion between goods in and goods out • The goods inwards vehicles are of a very different design & size from the goods out vehicles • Cross-docking operations are conducted with no stock held in storage. Sometimes, it may be desirable to combine the features of both. For example, there may be a requirement to cater for both cross-docking (i.e. no storage) operations and normal storage & picking operations in the same facility. In such a case it will be possible to share dock facilities and resources if required at peak times with the crossdocked products moving straight across from receiving bay to the marshalling area where they will be merged with items for the same destination that have been picked from storage. Layout & design is a compromise and it is rare that all requirements are catered to without some crossing points. The aim is to minimise the occurrences and the effects. Some handling equipment can cause interruption to material flows and can constitute a physical barrier to other flows. For instance, a roller conveyor running the length of a building cannot be crossed by other flows unless particular measures are designed in to allow crossing to take place (for e.g. overhead conveyors, hinged sections, bridge facilities, etc). These still can have the effect of slowing down a crossing flow or causing some degree of obstruction. Accessibility: There are two considerations for accessibility – the accessibility of the site as a whole and the accessibility of the stock help within the warehouse. The accessibility of the site is quite often not considered in detail. Considerations will depend on the role of the warehouse and its links with the rest of the supply chain. Factors to be taken into account may include: • Access to major roadways and routes • Access to railheads • Access to airports • Road widths and traffic ratings • Traffic bottlenecks • Vehicles to be accommodated and their turning circles • Local traffic regulations and curfews

• Local industrial/residential environment • Low or weak bridges • Road/rail crossings. The degree of accessibility of stock required to be designed into a warehouse can vary considerably depending on the type of product being stored and handled. For instance, for fast-moving items having a fairly long shelf life, such as soft drinks, being handled by the pallet load, one only needs to access a row of pallets. Strict ‘first in - first out’ (FIFO) need not be followed. However, pharmaceuticals, which are slow moving, have greatly varying shelf lives and are issued by specific lot and batch number. Its accessibility needs to be right down to individual package level. Space: The use of the available cubic space must be optimised with maximum utilisation of storage, picking and other operational processes. In fact, the evolution of storage and handling equipment has been to enable the full available cube of a building to be utilised, while maintaining the desired degree of accessibility. The equipment is designed such that the height can be exploited without resorting to structural support from the buildings itself. The buildings can still be relatively cheap weather-proof envelopes with the weight of the stores being supported by the equipment directly onto the floor. This approach can only be followed if the floor is constructed to the highest standards in terms of flatness & durability. The price of land varies from country to country, but it is usually a very significant proportion of the warehouse cost. The cost-effective use of the ‘footprint’ of land is therefore extremely important. Although some storage and handling equipment may initially appear to be expensive, when the total cost is assessed, it may be that the reduction in the land requirement more than covers the extra cost of the equipment. In some environments, this may not be the case. For instance, in Hong Kong, the price of land is so high that the footprint has to be minimised by building extremely tall, vertical warehouses with many floors. This, however, is an exception and generally, the cost of land in most other countries does not warrant such measures. On an annual basis, up to 40 per cent of the total cost of running a warehouse can be attributed to providing, maintaining and servicing the building. Due to the high

proportion of cost attributed towards these, a lot of effort has been made over the past few decades to improve the use of the storage cube by developing new storage & handling media. It is therefore, important to make the best use of space in the design and operation of storage and handling systems by, in turn, making the best use of the total building cubic capacity and not merely concentrating on floor area. An essential aspect of achieving this is to plan the layout in a space-efficient way and to select items of storage and handling equipment that in themselves do not take up huge amounts of cube. In such a scenario, the detailed considerations include: • Disposing of obsolete stock • Minimising total stock holding compatible with customer service requirements • Fully utilising the head room • Utilising mezzanine floors • Minimising aisles and gangways compatible with unrestricted movement • Careful positioning of services, pipes, etc. • Random stock location system wherever possible. The cost of constructing a building expressed as a price per unit of internal volume tends to fall as the height of the building increases until a limit is arrived at. Subsequently, the cost per unit volume starts to increase, but at a lower rate of climb. For a portal frame building, the volume costs follow a relationship. The optimum height in terms of volumetric cost is approximately 10-12 mt. The evolution of forklift trucks from the counter-balance truck, through reach trucks, very narrow aisle (VNA) trucks and double-deep VNA reach trucks has enabled greater use of the storage cube; thereby ensuring higher storage efficiency due to the narrower aisle widths required to access the stock. Throughput: By throughput, we mean the volumes, formats and characteristics of the different products moving through the operational flow. The throughput data is the most important data for collecting, collating and analysing. The more detailed the information, the better the outcome of the analysis will be and the better will be the design of the warehouse.

LOAD UNITISATION Load utilisation is the assembly of

individual items or packages, usually of a similar kind, that enables convenient, composite – mechanical or manual – movement, depending on its location in the supply chain. Examples of unit loads include pallets and stillages, tote boxes & trays, small containers, intermediate bulk containers (big bags), ISO containers and bricks stacked and banded for movement by forklift trucks. An example of load unitisation, which also illustrates the interrelationship between unit loads and packaging, is the situation with jars of instant coffee. The consumer buys the coffee packages in single vacuum sealed jars. The retailer buys and handles the coffee from the wholesaler in the form of shrink-wrapped cardboard trays containing possibly 24 jars – the unit load for handling in the retail premises. The wholesaler and manufacturer probably handle and store the product in their unit load: complete pallets of, say, 40 trays.

ADVANTAGES OF LOAD UNITISATION Load utilisation offers several advantages. These include: • Minimising frequency of movement • Maximising the use of space and enabling the use of standard storage and handling equipment • Speeding up loading and unloading of transport • Minimising damage & pilfering. Choosing the most suitable and economically viable unit load by type and size is one of the most important decisions when setting up a storage & handling system. It dictates the type and amount of handling equipment required & the manpower levels required to operate them, along with the type of storage equipment to be used. This has a major influence on the overall system cost.

MINIMISE TOTAL MOVEMENT The more the movement that occurs in any system, the greater is the cost in terms of handling equipment and people. Consequently, there is a greater risk of damage to material & people. System layout, design and operation should be such that the total movement within the process is minimised as will be the costs arising from that movement. Methods of minimising movement include: • Locating those parts of the flow that have a high density of movement between them.

JULY 2011 • SMART LOGISTICS • 27

Warehousing design, continued

• Popularity storage i.e. locating the faster moving items closer to processing areas so that total travel distances are minimised. • Separating order picking stock from reserve stock. • Using load unitisation techniques. • Utilising specialised storage and handling equipment designed to minimise the movement of personnel. • Utilising computerised techniques for equipment management and routing.

SAFETY ASPECT The warehouse is arguably one of the most hazardous areas to work. This is because there are people and machines working in close proximity. The machines are often quiet when operating and this is exacerbated by a possibly high level of background noise. A final, but most important, observation is that materials handling and storage activities account for between 25 per cent and 50 per cent of industrial accidents – depending on the industry surveyed. Hazards to people include manual handling risks resulting from excessive weight or frequency of movement, or awkward lifting and handling operations. In addition, there are the more obvious risks from poor operation or malfunction of equipment. Forklift trucks can be driven too fast or be overloaded so that they overturn or tip over, goods can fall or be knocked over, people and trucks can collide with stacked goods, and so on and so forth. The safe operation of equipment depends on a very high level of training and then, continually assessing performance and retraining where necessary. It also depends on a well-designed layout and operational flow. The greatest area of activity that contributes to lost time or reportable accidents is in injuries caused due to manual handling activities. Fire is a significant risk & distribution management and fire insurance companies have become acutely conscious of potential loss if a warehouse does catch fire. Warehouse design, warehouse location and warehouse operation should all take account of the risk. Wherever warehouse design, relocation or building changes of use are being considered, the local area fire authorities and fire insurance companies should be consulted at an early stage in the design exercise.

28 • SMART LOGISTICS • JULY 2011

PRODUCT SECURITY In handling and warehousing, goods tend to be at risk by the very nature of the operations undertaken. They can be in transit, sitting on loading docks or marshalled in large quantities, where they are easily accessible to damage and theft. The degree of security should reflect the value and attractiveness of the goods. The objective should be to minimise damage or loss within the system i.e. the goods are physically in the building, but records do not have the correct location or quantity. A good system design, layout and operation can minimise the occurrences of damage in a warehouse by provision of adequate space for movement and access to stock, a good design of packaging & unit loads and a high degree of operator training & supervision. System loss should not occur if the recording systems for goods in and out, and stock balance and stock location are well designed and operated. Techniques of stock checking and such devices as the use of check digits in stock location all help to reduce errors. Delivery drivers should not be allowed into the building and visitors and staff car parks should be sealed off from the main access to the warehouse with ‘pedestrian only’ gates that can be manned by security staff. Loss by theft, external or internal, is minimised by maintaining up-to-date stock records supported by frequent checking, good supervision and selection of staff & operators and use of security staff, surveillance equipment, intruder detection equipment & patrols.

IMPORTANCE OF WORKING ENVIRONMENT A working environment is important for the following reasons: Operator comfort and ease of working: Consideration needs to be given to working temperature & humidity, as well as ventilation to remove fumes from engines, shrink-wrapping machines and battery charging. Lighting levels should be set so that operators can clearly make out colour codes, product and location identification numbers, etc. This approach makes sound commercial sense. Good operator working conditions reduce the chances of error, increase productivity and encourage trained staff to stay. Thus, overall operating costs are reduced. Product preservation: Environmental factors, particularly temperature, humidity and

lighting, can affect product quality during storage, depending on the product. Some products need to be held within a certain range of temperature and humidity. Packaging can also be affected, even if the product may be fairly stable. Some products are light sensitive and have to be either packaged appropriately or held in a ‘light limited’ environment. For equipment: Where there is a high degree of natural humidity and a tendency for condensation to form on equipment, maintenance procedures should be established to counter the effects.

FLEXIBILITY IS KEY The principle of flexibility must be borne in mind throughout the design and operating processes. A considerable part of warehouse design is based on historical data concerning throughputs, but the building may be in operation for many years into the future. Therefore, the building must be of a simple, basic design that allows its role and abilities to change as the business develops. Once the building has been erected, changes to the structure tend to be expensive and difficult. Modern storage and handling equipment is designed to be self-supporting and to be erected and dismantled fairly easily. Therefore, the principle of flexibility can be exploited while optimising the cost by keeping investment in the building as low as possible and investing more in the acquisition of storage and handling equipment. It may also be desirable to consider the site itself. If land prices are moving upwards, it may be best to buy, or at least organise an option to buy within a time limit, the adjoining land to facilitate extension to the initial build. Colin Airdrie is the MD of Logistics Bureau (Asia). Colin is a Post-Graduate Diploma in Management Sciences from the University of Manchester Institute of Science and Technology, and a Fellow of the Chartered Institute of Logistics & Transport. His key skills include retail supply chain strategy development and implementation, optimising logistics operations in South East Asia and China, logistics facilities design, construction & implementation, logistics network design and inventory management. Colin has a total experience of 41 years (15 in Asia) in logistics & supply chain operational and strategic management & consultancy. E-mail: cairdrie@logisticsbureau.com Website: www.logisticsbureau.com

INSIGHTS & OUTLOOK

FUTURE SUPPLY CHAINS’S FIRST FOOD & FMCG DC

THE DAWN OF NEW AGE

WAREHOUSING

Have you ever wondered what would be the success pillar behind Future Group’s most profitable venture Sabse Saste Din? Backed by a robust supply chain arm, Future Supply Chains, this retail giant has been able to maintain its leadership stature in the market for years. Merely four years’ old in the logistics domain, the company has not only carved a niche for itself but has also transformed the supply chain landscape in India. Now, with the launch of India’s first food & FMCG DC, Future Supply Chains aims at redefining profitability for Indian customers by managing variability and reducing uncertainties. PRERNA SHARMA

RECENT years have witnessed the emergence of supermarkets, malls and hypermarkets. The modern trade has made shopping a recreational & fun experience. The preferences of consumers are evolving

30 • SMART LOGISTICS • JULY 2011

rapidly. With these changing perspectives and ever-evolving consumer demand, the need to manage the complex supply chain is no less than walking a tight rope. In such extremities, the nature of

the complexities gets all the more aggravated while managing the supply chain and distribution of food & FMCG. Complexities further augment when it comes to managing lakhs of SKUs in

a day and yes, we are not scaring you by putting numbers to this tumultuous task. It is the reality that Future Group deals with everyday and continues to work around ideas and innovations to improvise efficiencies in the supply chain infrastructure of India. But before we decode the excellence of India’s retail king in efficiently managing high volumes, let us first understand why managing a food supply chain is complex and difficult? Firstly, it is due to its perishable nature and short shelf life of products as compared to other supply chains such as electronics, home needs, consumer durables, etc. Secondly, it requires a robust infrastructure of warehouses & transportation network connecting

suppliers, manufacturers, distributors and retailers. The complexity of food supply chain increases further because of food safety & regulatory requirements, product recalls, product traceability requirements, effective handling of customer complaints, and high order frequency & low volumes. So, what is needed to manage this unique and complex supply chain? • A well organised supply chain infrastructure of warehouses and transportation covering all the major cities • Sophisticated cold chain for perishable products, which ensures cost efficiency and guarantees safe delivery of products • A warehouse management system to ensure traceability of products and minimise losses due to product expiry • State-of-the-art warehouse infrastructure equipped with sophisticated material handling equipment to aid cross docking, flow through, which will reduce transit times and inventory • Vehicle tracking abilities GPS/GPRS to continuously evaluate the time to destination. Having recognised all these factors to seamlessly manage a complex food supply chain, Future Group has once again proved to others what it takes to become the retail giant of the country on the back of a robust supply chain network, fully enabled and managed by Future Supply Chains. Incorporated in 2007, Future Supply Chains is India’s first fully integrated IT-enabled end-to-end supply chain solutions provider, from the point of origin to the point of consumption. Over the years, Future Supply Chains has developed expertise in managing supply chains across categories like fashion, food, home, consumer durables, electronics & IT, pharmaceuticals, auto and general

merchandise. They have expanded their services portfolio, added new lines of businesses and, in a very short period of time, enhanced capabilities exponentially. The company runs its end-to-end services for customers across all the stages of storage & movement and links it through technology to provide online real-time visibility across the supply chain. From a portal that links its customers to its vendors to a portal that lets customers view the real-time status of the consignment to vehicles that are monitored 24X7, the company has brought in the world’s best technology and automation. Its superior transparency, control at every stage of the movement helps its customers take informed decisions & manage variability, reduce uncertainty and thus, redefine profitability.

OPERATIONAL INTRICACIES In its ambitious journey to achieve 100 per cent fill rates and zero shrinkage in the food & FMCG category, the company has recently launched its very first food & FMCG distribution centre in Lonad, Bhiwandi, Mumbai. The new distribution centre will handle all major FMCG brands, staples, fruit & vegetables, Future Group’s private brand products and several FMCG brands handled by Future Supply Chain’s own distribution services arm for modern trade. Having started its operation from June 2011, this warehouse has been designed to take care of a large and scattered vendor base. The moment one enters the premise of the warehouse, its expanse and the streamlined movement of goods would astound one with the kind of precision that has been maintained. The minutest of details have been kept in mind while designing the warehouse. Knowing that it has to manage lakhs of SKUs in a day, the warehouse is a classic example of what

The Vantage Point • Future Supply Chains has gained and mastered the art of managing the food supply chain due to its association with Food Bazaar. • Availability of the most advanced warehouse management systems to ensure all aspects like First In First Out (FIFO), lot management, product traceability, product recalls, etc. • It deploys transport management system with vehicle tracking facilities to track product movement at every stage of transportation (real-time visibility). • Strict adherence to standard operating procedures, which ensures food safety at each stage of product handling.

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Future Supply Chains’s first food & FMCG DC, continued

Many Firsts To Its Credit • First end-to-end supply chain services provider in the consumption domain in India • Current warehousing storage space of 6 million with an additional 10 million in pipeline • Handling an average throughput of 1 million units a day going up to 4 million units at peak time. • Implemented a best in class Warehouse Management System (WMS) • First Indian supply chain services company to implement state-of-the-art Put To Light (PTL) System • First Indian supply chain services company to successfully implement Vehicle Visibility System (VVS) in all its dedicated fleet of vehicles, enabling real time online tracking of consignments. • Servicing about 400 customers exclusive of Future Group, through its various lines of businesses a new age warehouse should look like. Talking about the need for such a hi-tech warehouse, Anshuman Singh, MD & CEO, Future Supply Chains, informs, “A Big Bazaar receives as many as 50 trucks per day. In India, the Big Bazaars are situated right in the heart of the city unlike the

western markets with a large back-end warehouse. But in India, the back-end warehouse is not possible looking at the scarcity of the land. Here, everything has to be right in the shelf. Our aim is to send goods in a ‘shelf ready’ condition to the stores so that minimum time is required

to stack goods at the proper place. With the volume scaling up, we require new age warehouses. That’s the driving force behind developing such state-of-the-art warehouses in the country.” Let us take a look at its operational intricacies and understand the art & science behind warehousing efficiency... The process begins after the manufactured goods from FMCG reach the FMCG DC. The pre-receiving process has all the verifications in place including preliminary checks like MRP, shelf life of the product, etc. The receiving process starts with the unloading of the truck where the goods are loaded onto multiple pallets with ASN being assigned to each pallet. The material is then scanned through a warehouse management system that allocates further categorisation of the materials to either cross-dock, breakpack or put away. The label contains the necessary information like EAN, pack key, case weight, type of allocation, SKU ID & description, ASN number, category as well

Having associated with India’s biggest “Our mission is to improve the top line & bottomline of the customers by working as their partners in terms of increasing the fill rate and reducing the overall operating cost and thereby redefining profits,” avers Anshuman Singh, MD & CEO, Future Supply Chains. COMPLEXITIES OF MANAGING RETAIL SUPPLY CHAIN Retail supply chain is one of the most complex supply chains to manage. Each product category has a unique supply chain requirement. Each requires a different treatment for handling, storage and transportation. On top of that, we have to handle huge volumes as well. We operate under 30 unique supply chains and within that we have different product categories. We @ Future Group handle more than 2 million (20 lakh) SKUs. Here comes the challenge of handling 2 million products, replenishing goods in around 1000+ retail stores all around the country every day and making sure that the shelves are filled with the right

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product. This becomes crucial in a market where organised retailing is still at a very nascent stage. At the same time, it provides immense opportunities to all the retails to grow by leaps & bounds. Retail variability in India is very high as it is an evolving market. Organised retail market is growing at a pace of 20-25 per cent.

WHAT PROMPTED YOU TO SET UP FSC? Looking at the growth of Future Group entities, we wanted to expand the scope of supply chain. Projecting promising growth prospects of all our business units, we had set-up a separate logistics unit nine years ago. I think it was a smart move by the company

as promotional tags. By virtue of which, all the transactions within the warehouse can be tracked. The count is verified and put on to the conveyor. Automation verifies the exact quality of material received to be dispatched, thereby enabling greater accuracy in inventory levels. Boxes for break-pack are moved to the put-to-light staging area for sorting. If the boxes are in the category of full-case cross-dock, then it is directed to print & apply for dispatch. The boxes for put-away are mapped by a pallet ID and are stored in dedicated racks till the DC receives the stock transfer order from the store. The merchandise is then picked using the warehouse management system. The warehouse management system when integrated with PTL ensures proper put away, precise picking and packing, optimisation of labour & cost and enhanced accuracy of order. The precision of pick is enhanced by ensuring that any dispatch, if incorrect at outbound weighing system, is rejected. The box gets automatically labelled, sealed and sent to

the dispatch area. In the dispatch area, the boxes are repacked into the roll cages. These roll cages are imported from the best manufacturers in Israel, Britain and China and have been designed to minimise damages and avoid pilferage. The roll cages are directly wheeled into the vehicles, which are designed with taillifts for loading and unloading of roll cages. Future Supply Chains runs a dedicated fleet of GPS-enabled vehicles, which will facilitate real-time online tracking. With the latest technology clubbed with the expertise of warehousing operations integrated with express transportation, Future Supply Chains will bring in optimum operational efficiency to boost fill rates, accuracy, quality maintenance and timely delivery to retail stores. This, in turn, will help increase the sales of the brands and the retail stores. Currently, the Group is serviced by the brands direct to the store. “We have set ourselves an ambitious goal of achieving 95 per cent+ fill rate & zero shrinkage and benchmark

for this distribution centre,” said Singh, adding, “The distribution centre will be a living lab that demonstrates the best in supply chain management with the best of hardware & software integration to address the need for improving efficiency and attaining dynamic growth in the retail sector. This first-of-its-kind offering, which integrates the supply chain from vendor to retailer, furthers the mission of Future Supply Chains to reduce uncertainty and manage variability for the purpose of increasing the sales and profitability of all our customers.”

STORE & MOVE IN SYNC Future Supply Chains’ integrated software & hardware provides online real-time visibility across all legs of ‘Store’ and ‘Move’ in the supply chain cycle, which helps customers take informed decisions. What sets the ‘Store’ leg at the DC apart is that it has multiple, best of breed technologies and software applications integrated to ensure the highest accuracy

retailer, we understand customers’ pulse knowing that the Indian retail sector is set to grow by leaps & bounds. It also provided us a business opportunity to simultaneously expand our base in supply chain. It is an independent identity of Future Group. We offer supply chain solutions to all players in the consumption business. We not only handle the supply chain of the group but also handle network design, planning & modelling, vendor management, etc. In a nutshell, we manage the end-to-end supply chain of the company.

retail network in the country. For the brand owner, it is a single-window reach into India’s modern retail. Our unique strengths arise from our pan-India reach, existing organisation to cater to modern trade and institutional customers as well as robust and reliable logistics infrastructure of Future Supply Chains at the back-end. In addition, we are capable of handling activities related to placement, category management, merchandising and retail promotions if the brand owner so requires.

BRAND DISTRIBUTION SERVICES

A PERFECT GROWTH PARTNER

The FMCG distribution system in the country is fragmented and unwieldy. A new brand entering the market needs to have multiple distributors at multiple locations to make the process time and cost-effective. Given these significant gaps, we felt the need to set up brand distribution services, leveraging on our existing capabilities of providing supply chain services to the extensive network of Future Group stores across the country. Brand Distribution Services help brands gain national distribution reach by taking over the task of distributing the products across the burgeoning modern

India is not the country where people can offer higher cost because of better services. People want better service at the same cost or better service at a lower cost. That is exactly the vision of our Group to offer customers what they desire. Our mission is to improve the top line & bottomline of the customers by working as their partners in terms of increasing the fill rate and reducing the overall operating cost and thereby redefining profits. Fusion of Indianness with the world’s best techniques and processes, enables us to become a thought leader in consumption supply chain, namely fashion,

food, general merchandise, furniture, consumer durables & electronics.

INDIA’S FIRST FOOD & FMCG DC The distribution center will be a living lab that demonstrates the best in Supply chain management with the best of hardware & software integration to address the need of improving efficiency and the dynamic growth of retail sector in India. This first of a kind offering which integrates the supply chain from Vendor to Retailer furthers the mission of Future Supply Chains to reduce uncertainty and manage variability for the purpose of increasing the sales and profitability of all our customers.

FUTURE ENDEAVOURS Having associated with India’s biggest retailer, we understand customers’ pulse. We believe in working with our customers as their partners. In our constant pursuit to serve our customers in a better way, we are planning to develop 10 million sqft warehousing space and are working on creating a full-fledged express logistics network across the country. Exploring international logistics and modern trade distribution are going to be future focus of our company.

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Future Supply Chains’s first food & FMCG DC, continued

SMART SOLUTIONS Roll Cage The deployment of roll cages in the movement of goods helps in the dramatic reduction in tail lift delivery accidents, safe movement of cages up and down slopes & across uneven or broken surfaces as well as huge productivity gains when moving empty nested cages. It reduces cage handlingrelated injuries, sickness and compensation claims, moves multiple cages over large distances with ease and reduces employee fatigue.

Tail Lift A tail lift is a mechanical device permanently fitted to the back of a van or a lorry. It is designed to facilitate the material handling of goods from ground level or a loading dock to the level of the load bed of the vehicle, or vice versa. The use of a tail lift can obviate the need to use machinery such as a forklift truck in order to load heavy items on to a vehicle, or can be used to bridge the difference in height between a loading dock and the vehicle load bed.

Put To Light Technology Put to light technology is the only technology of its kind in the country. It dramatically improves the efficiency and accuracy of dispatches to the stores. This is the first ‘Put to light’ technology installation in India. It is primarily a light-directed sorting system, which significantly enhances speed as well as accuracy of distribution of products to retail outlets with lesser manpower. It is highly scalable on both fronts – number of SKUs as well as number of stores. The intelligence built into the system simplifies the job to be done for the team & significantly reduces scope for human error. As a next step of verification, all the packed boxes are weighed through a highly sophisticated print and apply system. in the least time. A back end ERP is integrated with a world-class warehouse management system, which, in turn, works seamlessly with the first-of-its-kind in India – ‘Put to light’ Sortation System – a light-directed sortation mechanism, which is further integrated with the conveying system, Auto On Line Weight Check System and finally, an Auto Print and Apply System. WMS provides complete visibility of inventory in the warehouse and

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contributes by substantially improving the productivity, order fulfillment and accuracy. This entire system has been implemented in the Food-FMCG warehouse, which enables category and SKU-specific segregation, packaging and makes the products shelf ready. Once the boxes are ready for dispatch, they progress towards the ‘Move’ leg. Future Supply Chains has implemented the ‘Secure Guaranteed On time In Full Floor Ready’ (SGOTIFF) practice, through use

of roll cages. The boxes to be dispatched to the retail store are repacked into roll cages. This entirely integrated system of ‘Store’ and ‘Move’ leaves no room for error, cutting downtime at the warehouse and the retail store and delivers goods to retail stores, which do not need any further sortation by the store staff. The merchandise simply has to be placed on the designated shelves. The Future Supply Chains team has integrated warehouse management system processes with Automatic Replenishment System (ARS). ARS ensures generation and availability of correct assortment with correct quantity of all major fast moving items on store shelves all the time. Unlike the traditional PUSH system, ARS works on actual demand, considering shelf stock, base stock level and past sales trend. Instead of manual order generation, ARS triggers replenishment orders automatically to the nearest DC for storage. Other initiatives like stock aging analysis, increasing use of cross-docking & packaging standardisation have further improved inventory turnover and reduced markdowns and stock-outs. Enabling the warehouse management system and put-to-light is the automation through conveyor systems, print and apply & weigh check systems. The conveyors divert boxes as per their allocation in the warehouse. The print and apply systems automatically label the boxes for dispatch. The weigh check systems at inward and dispatch check for any discrepancies in stock quantity or type. These systems further minimise errors to ensure that the right merchandise reaches the right store in the right quantities at the right time.

ENTERING THE NEXT PHASE OF GROWTH Having deployed the most advanced technological solutions in its warehouse, the company has demonstrated its aggression towards bringing about a transformational supply chain landscape into the Indian soil. While this warehouse is just the starting point, the company aims to add eight more dedicated food-FMCG DCs to cater to different zones in the next 12-15 months. In this growth extravaganza, the company does not believe in going solo… it is making all possible efforts to train & educate vendors on the latest technologies. With such a proud start, Future Supply Chains is making a headway into the league of world-class logistics service providers.

INDIAN WAREHOUSING INSIGHTS & OUTLOOK

L A B N O O L I G ETIT P M O C The Indian industry is gearing itself to challenges of globalisation and how! Undoubtedly, Indian players are facing enormous pressure owing to the impact of liberalisation and globalisation of the Indian economy. But emulating their global counterparts is no easy feat. It requires strenuous effort, cultural transformation and change in outlook. Warehousing has come under focus as a critical enabling factor that is helping companies achieve this. But if companies seek to enhance their competitiveness and meet customers’ demands, they need to invest in warehousing facilities. Thus, the only hope for Indian companies is to become competitively stronger by focussing on the customer, competition and competencies. PURNA PARMAR AND KIMBERLEY D’MELLO INCREASE in manufacturing costs, wages and transportation at a time when budgets are tight have forced companies to pass on the burden partially to consumers. High logistics & warehousing costs in India indicates that

Indian companies are inefficient and less competitive as compared to their foreign counterparts. Hence, in order to compete globally, companies will need to offset a large part of the increase in cost by improving efficiencies in operations.

NEED FOR A COMPETITIVE WAREHOUSE In today’s business scenario, warehouses have evolved from being cost centres to profit centres. Today, the top notch companies are understanding

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Indian warehousing, continued

the importance of SCM and especially warehousing. The need to deliver the right amount of goods at the right time and at the right place has become more critical. Now, warehouses not only offer storage but also provide more valueadded services, which result in saving cost & time and delivering the product faster to the end customers. With automated warehouses offering value-added services, the impact of technology is fundamentally changing the role of logistics management in organisations. Logistics costs in the country comprise about 12-13 per cent of GDP, as against 8.7 per cent in the US, 10 per cent in Europe, 11.37 per cent in Japan and 16-20 per cent in China. Given the size of India’s GDP, a one per cent reduction in logistics cost could result in huge savings. Critically examining logistics cost drivers will enable Indian firms to gain a competitive edge in the global marketplace. Key focal points helping Indian firms gain a competitive advantage include warehousing and changing global trends in customer demand/service apart from statutory compliances, pressures on costs and working capital management. These have all necessitated Indian supply chains to closely look at their warehousing.

BUILDING ON FLEXIBILITY In order to successfully deal with volatile market conditions, companies need to ensure that their warehouses are flexible. According to Arif Siddiqui, Director, Coign Consulting, warehouses built on scalability with an objective to meet high standards of efficiency will be able to meet customer demands. “Before investing, organisations must keep the design of the warehouse in mind. The warehouse must fulfill basic height parameters. It should meet additional requirements like free movement of inventory depending on the inflow and outflow of traffic movement,” he adds. Agreeing with Siddiqui’s views, N Sukumar, Sr VP – Supply Chain (SME Cell), Reliance Industries, says, “Investing in a flexible warehouse implies that you are only investing in a non-moving floor, everything else is flexible and reusable.”

ADDING VALUE Companies have begun to realise that a plain clearing & forwarding agent (C&FA) model does not yield results anymore. It

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is important to get involved in strategic partnership alliances with logistics providers. This is especially relevant in today’s scenario where the emphasis is on time-to-market and value adds. Elaborating on the need for the same, Sukumar emphasises, “3PL service providers will need to demonstrate unquestioned mastery and leadership in their area of operation. For example, if a customer wants them to store 6mt-long pipes, the 3PL should be able to provide quick, innovative solutions to the client. Once you give the client the confidence that you can do it and demonstrate what you have promised, the client will think twice before approaching another company.” There are various other factors that help a company add value to the warehousing services and further build its competitive quotient. Discussing the various factors, Siddiqui explains, “The types of services that a warehousing company can provide to support the overall supply chain include, picking and packing systems, sub-assembling operations, bundling, inserts, component issues, reverse logistics, etc. These are the value-added services that a warehousing company should look at. In addition, WMS including information-based value additions like inventory tracking on SMS and email, front entry system integration, sales & order system integration, transportation management systems, etc., are the valueadded services that will enhance the visibility of inventory and shipments.” Nowadays several companies are offering value-added activities inside the warehouse like tagging, labelling, MRP pasting, kitting & bundling, says Varun Kumar, GM – 3PL Marketing, DRS Group. “By deploying the latest IT technology, companies have reduced manpower as well as the timeframe for processing material and inventory in the warehouse along with buffer or safety stock in their SCM pipeline. The speed of reaching the goods to end customer has reduced after adopting new WMS software like EMS, WMS & SAP and new techniques and material handling equipment.”

ADOPTING BEST PRACTICES Organised retail has evolved over the decades in India. In the next 3-5 years, the country will have world class facilities. Moreover, concepts such as first in first out (FIFO), first expiry first out (FEFO), etc., have now become critical elements for any warehouse to comply with. Apart

from these, Siddiqui avers that systems like product barcoding, uniform SKU codes, advance cargo notice (ACN), location mapping & strict adherence to basic operation processes (from dock-in to dockout), standard processes and operations & processes specific to the customer are enablers of good warehousing practices. Similarly, other factors such as in & out processes, equipment maintenance apart from proper infrastructure like building layout, traffic & material handling facilities, proper allocation of internal space and trained manpower are equally important. Discussing other best practices, Sukumar opines, “Best practices to ensure the smooth flow of inventory begins with an effective planning process that provides for optimal warehousing in terms of quantity as well as time. These translate into well thought out floor layout & design and ensure swift material movement in and out of a warehouse.” Indian companies have to understand the importance of warehouses and their implications on their business. The best practice nowadays is the implementation of collaborative planning forecasting & replenishment (CPFR) and collaborative transport management (CTM), where the future production plan is not only shared with internal customers but also with suppliers and vendors, feels Kumar. “This results in proper planning of manpower, assets and infrastructure to complete the job well on time and save the additional unexpected cost. Once the information is shared with warehousing team, they can plan the flow of inventory inside the warehouse well in advance. They can allocate work to their team and arrange for additional resources required to complete the job, thus resulting in errorfree and fast & safe movement of material. But in order to adopt global practices, we need to change our mindset and believe in CPRF,” Kumar explains, averring, “The induction of new IT technology, software for warehousing activity and new storage & material handling equipment can help increase productivity in the warehouse.” He adds, “Training warehouse staff and educating them about the new warehousing technologies is another important factor. Currently, barely 10 per cent of Indian companies invest in training their warehouse employees. This trend has to change if Indian companies want to be at par with their multinational counterparts.”

CREATING A SAFE WORKING ENVIRONMENT Apart from adopting best practices, Indian companies also need to create a safe working environment for their warehouse employees. Explaining the need for the same, Sukumar says, “In highly populous economies, there is a natural tendency to attach a low value to human life. Therefore, issues like safety and health have traditionally taken a back seat. But things are changing with economic development and we should look forward to the adoption of more and more good distribution practices (GDP) in time to come.” Expressing the need for creating a safe working environment for warehouse staff, Kumar explains, “Issues like health, safety and environment compliances have a huge impact on individuals and society at large. It has been proved that increase in one degree of working temperature reduces the productivity by more than five per cent. Ironically, the basic infrastructure in most Indian warehouses remains the same. Most warehouses are traditional. They have retained the ACC sheets, are low in height and have no proper ventilation. Working under such conditions, especially during summer, is not really a good working experience for employees.”

AUTOMATION TRENDS Companies are not in awe of automation anymore. In fact, many companies are actually toying with various levels of automation to augment warehouse productivity and reduce costs. According to Siddiqui, there are three levels of automation and upgradation. The first level includes building design and engineering, the second includes material storage and handling equipment, while the third includes information technology systems. “The successful integration of all these elements are essential to ensure the smooth flow of vehicles, products and data storage,” he says. Talking about how India needs to go about the process of achieving the same, Sukumar elaborates, “India needs to begin from the base level, i.e. from simple racking systems to examining technologies that optimally automate processes. Storage, retrieval and handling to loading are areas where many simple productive automation efforts can be undertaken. Our decision to automate should balance business needs effectively rather than being viewed as an opportunity to eliminate manpower.” Adding another perspective to the adoption of automation, Kumar says, “RFID tags are the latest automation trend. These can indicate the complete history of the product right from its initial stage to the final stage. But India will take some time to adopt this latest automation trend since its cost is high considering that less volumes are consumed. We have to implement new software available for warehouses and new storage & material handling equipment in the warehouse operations.”

the warehousing industry are bright. However, companies will have to face challenges like efficiency and returns on investment. On the other hand, the customers’ willingness to pay for these services is below the desired levels. LSPs also need to sharpen their skills in order to exhibit themselves as specialists in the supply chain systems and gain higher credibility in the eyes of the customers who then may be willing to pay that premium.” Discussing the future prospects of the warehousing industry in India, Kumar says, “The Indian industry is now realising the importance of warehouse operation and have now started investing in procedures to modernise their warehouses with regards to infrastructure and equipment. Now, upcoming warehouses and logistics parks have world class standards and facilities. Business houses have very well understood that without upgrading their warehousing operations they cannot compete in the market. This has resulted in increased investment in warehouses. It is indeed a very good sign.”

CHANGING PERCEPTION FUTURE GROWTH PROSPECTS India, being the only other promising emerging economy after China, is bound to witness a spurt in business activity. Naturally, all areas of the supply chain, including warehousing, will see the best of times in the next decade or so! Therefore, manufacturers, transporters, 3PL service providers and even the government will need to proactively gear up to deal with this enhanced level of activity and efficiency. Siddiqui claims, “The future prospects of

The definition of warehousing has transformed over the years. It has evolved from being a mere godown to a value-creating distribution centre. Earlier, companies did not feel the need to focus on making their warehouses more efficient. But now, there is a change in the mindset. As warehousing gains prominence in the country, the need to make it more efficient is slowly but surely making its way up in the list of every company’s list of priorities.

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INSIGHTS & OUTLOOK

THE

TECHNOLOGY TRENDS

BIGGEST MISTAKES IN DEPLOYING

CE VO i TECHNOLOGY Voice warehouse solutions enable companies to achieve efficiencies that translate into measurable operational gains over traditional picking solutions such as handheld scanning and paper/label-based methods. By applying voice solutions to perform a range of assignments across their warehouse, companies can further extend the economic and business benefits. Voice technology could fail due to blunders such as settling for a consumer-grade voice recogniser, assuming that voice is a hardware decision and the failure to plan for change. Avoiding these mistakes will not only guarantee success but will also help warehouses maximise their returns on investment. VOICE technology has the potential to deliver substantial cost savings and quality improvements in warehousing operations. Now a mainstream best practice, voicedirected operations are gaining wide acceptance, and in tough economic times, many companies are rightly looking to voice as a strategy for doing more with less. While there are many successful examples of voice technology in action, unfortunately, the landscape is also dotted with failed deployments, cost overruns and unmet expectations. When a voice project fails, the organisation has made one of the three biggest mistakes in deploying voice technology. None of these mistakes is related to warehousing experience or implementation technique. They are not tactical mistakes made during deployment. Instead, they are strategic errors made

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during the evaluation phase, before taking a decision on specific voice technology. When a strategy is right, tactical mistakes can be corrected. When a strategy is wrong, flawless tactical execution cannot compensate. By understanding these mistakes, one can avoid them and maximise return on investment (ROI). Following are the three biggest strategic errors companies make when evaluating voice technology:

MISTAKE #1: SETTLING FOR A CONSUMER-GRADE VOICE RECOGNISER A warehouse is not a library. It is an active workplace where noise is produced from many sources, often unpredictable ones. Most voice recognisers are not designed to operate in such an environment, where forklifts whiz by, conveyor systems start

& stop, doors raise and lower, heavy trucks come and go, temperature control equipment is running and background noise fluctuates wildly. Within this demanding environment, voice solutions must optimise high-volume repetitive tasks. ROI is only achieved by incremental improvements consistently realised across thousands of tasks. Without near-perfect voice recognition across an entire shift, one cannot succeed. A system that recognises a phrase one moment (for e.g. a truck starting its engine), but cannot recognise the same phrase the next moment, will not deliver the results needed. A seemingly small deterioration in recognition accuracy translates into big losses in productivity & acceptance as workers are forced to repeat what they have said. With the growing interest in voice

in the warehouse, some vendors have rushed to cash in, thereby flooding the market with offerings based on consumergrade speech recognisers. Often, after a voice deployment has failed, one will hear comments like ‘voice does not work’. In reality, it was the choice of a consumergrade recogniser that did not work and most companies – even those with very noisy environments – are succeeding with voice by using industrial-grade voice recognisers. Many solutions with consumer-grade recognisers evince that user training of the recogniser is not needed. Such speaker independent systems are designed to recognise the prevalent dialogue of just one language. But this ‘benefit’ is actually the problem, since such a recogniser must trade recognition accuracy for sufficiently wide dialect coverage, no two speakers being exactly alike. Users therefore have to train the software, so that recognition problems do not occur. The short time spent in training is paid back, usually within the first four working days, by nearflawless recognition that eliminates the need for workers to repeat themselves.

MISTAKE #2: THINKING VOICE IS A HARDWARE DECISION Voice in the warehouse is no different from other high technologies. Original solutions were proprietary and customised. The first voice vendors manufactured every aspect of the solution – hardware, accessories and software. They pioneered the ‘voicededicated’ device – a wearable computer with no screen, keyboard or scanner that was engineered for voice. Some could only be programmed via a proprietary scripting language. A lot of effort went into the ergonomic design of voice-dedicated devices and manufacturers emphasised on engineering quality. In some cases, the name of the voice computer suggested the device was the solution, which led to a lopsided view that overemphasised hardware. Over time, forward-thinking vendors based their software on open industry standards such as VoiceXML and Internet protocols. As is always the case with high technology, open software leads to open hardware – which, in turn, leads to wider customer choice and lower cost. Today, the voice market is at the crossroads between the proprietary, closed systems of the past and the open products of the future. Vendors promote

messages based on their traditional strong points. In such a scenario, how can one separate fact from fiction? Here, it is vital to understand a voice vendor’s business model – whether it is a software company, a hardware manufacturer, or a systems integrator who resells software and voice devices? Armed with a little knowledge, one can decode a vendor’s message.

MISTAKE #3: FAILING TO PLAN FOR CHANGE Best in class warehouse operators run agile facilities. These are the companies which can implement business process changes with seeming ease. Developing an agile warehouse does not happen by accident. But voice technology can sometimes be part of the problem rather than the solution. Companies can fall into the trap of buying a voice solution that is ‘built to fit’ their business. While on the surface this seems to be a great idea, strategic thinkers need to probe deeper. A point solution is fixed in stone and can only be modified by the vendor – for a fee and over a period of time. Because voice systems become mission-critical, they delay progress when the cost to change them becomes prohibitive. For years, voice vendors delivered customised-point solutions geared to voice-enable today’s operation – not tomorrow’s. Distribution executives were later frustrated by the high cost and time required to implement what seemed like simple changes. With their hands tied, they could not move forward. After implementing voice, one might need to alter the business process. Companies add products to their business, change warehouse locations and acquire other companies with their own distribution facilities. They may need to add new verification steps, refresh voice devices with units from a new supplier, or move to a new version of the warehouse management system (WMS). All these changes are software-related and the choice of voice software could either enhance or hinder agility. To avert this, what are the criteria one needs to keep in mind? The first step in planning for change is to bring in a voice software product as opposed to a point solution. When buying a product, look for: • A track record of software releases made available to customers as part of

their maintenance service • A roadmap of future releases to which customers can contribute ideas • A community of customers to whom the same base code-set has been delivered. The second step is to ensure that the software product is modern and engineered for change. For this, the following three capabilities are essential: • Adaptability The product must have an array of features that facilitate change. Voice solutions should be assembled ‘building block’ style, via a graphical studio. There should be adapters having pre-built integration for major WMS packages. In short, most features that are expensive to change with traditional voice offerings should be planned for and there should be an adaptive software framework for voice. • Portability The same voice application should be portable across many voice-capable devices. Most vendors use one set of code for one manufacturer’s device, and a different set of code for another. Portability is delivered only if the software product uses open standards and is engineered to be truly device independent. • Scalability The voice solution needs to have enterprise-level features. It should support multiple operating systems, database management systems (DBMS) and web servers – yet be architected – to be independent of which infrastructure combination is chosen by the customer. It should have enterprise voice management facilities that make it possible to control all aspects of the voice solution across multiple warehouses from a central point.

VOICE SOFTWARE FOR MODERN WAREHOUSES To avoid these strategic errors, it is important to understand three things. First, a software having voice recognition that is 99.9 per cent accurate is required. Second, voice is not a hardware decision. Third, planning for change is what separates best in class companies from their competitors. Selecting voice software on this basis not only empowers voice self-sufficiency in the warehouse, but also ensures that the leveraged area offers maximum ROI. It makes warehouses agile and delivers flexibility for the future. Courtesy: Voxware Inc

JULY 2011 • SMART LOGISTICS • 39

INSIGHTS & OUTLOOK

INVESTMENT SCENARIO

DRIVING A

WAREHOUSING

REVOLUTION

In the last decade, India has seen the emergence of hi-tech, custom-made, temperaturecontrolled and other specialised warehouses for food, pharmaceutical and retail sectors, thanks to the shifting focus of logistics as well as 3PL companies to the lucrative and costsaving opportunity put forth by warehousing. With priority focus and promising results in sight, investments are flowing in, leading to emergence of logistics parks and free trade warehousing zones. With many such prospective avenues in the offing, the warehousing industry is slated to witness a surge in growth in the years to come. SUMEDHA MAHOREY THE image of warehousing business has dramatically changed over the last decade. According to reports, the warehousing sector is poised to become

40 â&#x20AC;˘ SMART LOGISTICS â&#x20AC;˘ JULY 2011

a $55-billion industry by the end of 2011 with around 45 million sqft warehousing space expected to be developed in the country in the next five years. This growth

will be supplemented by around 110 logistics parks. At present, warehousing accounts for nearly 20 per cent of the total Indian logistics industry. With this

percentage poised to soar upwards in the near future, proportional investments are being made into this business.

redefine the way supply chain functions in our country today.” Arshiya’s free trade and warehousing zone (FTWZ) has been a major landmark TURNING INTO A MONEY in this investment boom. In Phase I, the MACHINE company aimed at approximately 10 With the retail boom and the need lakh sqft of total 165 acre FTWZ in for increased capacities for agricultural Sai village, Panvel; 10 lakh sqft of total goods, warehousing has seen multiple 135 acre FTWZ in Khurja; five lakh sqft investments. Also, increasing delivery of total 130 acre FTWZ in Domestic system in futures market and the entry Distripark in Khurja; and 10 lakh sqft of of third party logistics (3PL) players has total 110 acre FTWZ in Nagpur, with a complemented this growth momentum. total investment of `2,628 crore. Of the upcoming SEZs have necessitated The entry of global 3PL players is fast above projects, the FTWZ at Panvel is the development of logistics parks for changing the dynamics of the logistics already functional. the domestic market as well as for model in the country to a strategic Private equity (PE) funds are also part global trade. Proximity to existing and function. Changing business models and of this lucrative investment opportunity. proposed manufacturing units & SEZs, the entry of global 3PL players has led According to a report by Cushman and accessibility to consumer markets, good to shifting dynamics of the Indian logistics Wakefield, a real estate consultancy firm, geographical location and infrastructural services. Today, companies perceive PE funds are expected to pump in about development are the various parameters logistics as an end-to-end strategic 10-15 per cent of their total investments that make Kolkata one of the highest function that improves efficiency and in warehousing and logistics, over the potential destinations for the Indian reduces cost. It is no more just a mere next two years. Some of the major supply chain & logistics industry.” necessity. investments in recent times include Kotak CHANGING FACE OF Some of the major investments in Realty’s recent investment of `200 crore WAREHOUSING warehousing in recent times include in a warehousing joint venture with DRS Warehousing has witnessed a revolution Future Supply Chain Solutions’ initiative Group. Saffron Asset Advisors plans to in India. Commenting on the same, to set up 12 large-scale logistics parks launch a warehousing fund around March Kanaujia highlighted, “The demand for across nine cities in the next 3-5 years. next year, to which it will dedicate at least high-tech, ultra-modern warehouses Anshuman Singh, MD and CEO, Future 10-15 per cent of its total investments. will grow exponentially in the coming Supply Chain Solutions, had recently Red Fort Capital has also allocated years. With the phasing out of Central said that it plans large-scale warehousing about US$50 million for warehousing Sales Tax (CST), manufacturers will facilities in the future including one million projects, which it will invest over the next readily outsource their warehousing sqft warehousing facility in Tamil Nadu. one year. Gurgaon-based Fire Capital is requirements to 3PLs. This will help At present, the company has nearly also planning to launch a similar fund manufacturers save costs and focus on five million sqft of warehousing capacity sometime soon. Other investments include their core business. Having envisaged this in 50 small-scale facilities in various parts India Equity Partner’s (IEP) investment huge potential for providing warehousing of the country. National Bulk Handling of $10 million in Swastik Roadlines; support to customers, we have planned Corporation (NHBC) is also planning Ashmore Alchemy Investment Advisors to add 5 MT of warehousing investment of $10 million in capacity within four years. With Siesta Logistics Corporation The entry of global 3PL players is fast changing plans in place for expanding and Mayfield Fund and SIDBI the dynamics of the logistics model in the country the existing capacities with Venture Capital investment to a strategic function. Changing business Food Corporation of India of $11 million in Fourcee (FCI), Central Warehousing Infrastructure Equipment, models and the entry of global 3PL players has Corporation (CWC) and among other investments. led to shifting dynamics of the Indian logistics 17 other state warehousing services. Today, companies perceive logistics as THE TIME IS NOW! corporations, warehousing an end-to-end strategic function that improves In a couple of years, Indian capacities are slated to increase efficiency and reduces cost. It is no more just a warehousing business is poised in proportion to manufacturing mere necessity. to come up to global standards output by the end of 2011. Safexpress has also joined the warehousing investment rally. In a recent statement, Vineet Kanaujia, GM – Marketing, Safexpress, said, “There is a huge growth opportunity for warehousing business in India. Special Economic Zones (SEZs) are one of the major driving forces for warehousing business in India. A large number of

ODAY, COMPANIES PERCEIVE LOGISTICS AS AN END-TO-END STRATEGIC FUNCTION THAT IMPROVES EFFICIENCY AND REDUCES COST.

big-ticket investments in warehousing at key industrial hubs across the country.” He added, “We will be creating five million sqft of additional warehousing space across the country in the next couple of years, adding to our already existing warehousing space of five million sqft. Once ready, these logistics parks will

and provide services that are presently unthought-of. With soaring investments, shifting focus to specialised warehousing and the entry of global 3PL players into the Indian warehousing business fray, the time is also right for logistics entrepreneurs to enter this lucrative and fast-evolving market. If not now, then when else?

JULY 2011 • SMART LOGISTICS • 41

ECO-FRIENDLY TRANSPORTATION

Illustration By Sanjay Dalvi

SL EXCLUSIVE

CUT

SAY

FUEL BILL,

YES TO ‘RAILWAYS’

India has a well-connected rail network, yet it spends millions of dollars on importing fuel, a major portion of which is used by the road transportation sector. Thus, utilising road transportation not only proves costly, but also emits harmful greenhouse gases, which have an adverse impact on the environment. To repair the damage, the Indian Government needs to offer rail transportation the much needed fillip and efficiently manage the existing road transportation infrastructure. SANDEEP PAI INDIA needs to sustain an economic

WORRYING EMISSIONS

growth of nine per cent over the next 20 years to eradicate poverty and meet its human development goals. However, meeting the energy requirements to fuel a growth of this magnitude in a sustainable manner has posed a major challenge for the country. But that is not all that India needs to worry about.

In its bid to ensure accelerated growth, India’s carbon dioxide (CO2) emissions are also on the rise with the growing energy consumption. A bulk of the emissions comes from burning of fuel (which unfortunately India imports) for the transportation sector. Thus, in effect, the country is not only paying millions of dollars to import the fuel, but also damaging the

42 • SMART LOGISTICS • JULY 2011

environment in the long run. This situation is turning even more alarming as India faces the prospect of an inflating import bill in the next few years to feed a rapidly expanding economy thirsting for oil. High global crude prices have fed inflationary expectations and will most likely exert pressure on India’s trade deficit in this fiscal year. Oil prices rose to 32-month peaks in April due to tensions

in the Middle East and North Africa, but a combination of a stronger dollar and signs of cooling in China has brought the prices down. Brent crude recently fell 68 cents to $111.89 a barrel. Last year, India’s oil import bill was US$106 billion when the average crude oil price was at US$55-60 per barrel. It hovered between US$43 and US$70. But now, with the oil price reaching US$120 per barrel, the situation has turned much more difficult for India.

NEED FOR RAIL FREIGHT So what is the best way to control the use of oil, reduce the inflating import bill and prevent environmental degradation? According to experts, the best way to deal with this crisis is by increasing focus on rail transportation. Experts believe since rail transportation is nine times more energy-efficient as compared to roads, the Government of India could reduce the emission of greenhouse gases (GHG) by up to 25 million tonne (mt) and save up to `15,000 crore on the fuel import bill over the next decade. The savings on account of the fuel import bill would be more than twice of India’s annual high speed diesel (HSD) import bill, which was at `7,006 crore in 2010-11. Ironically, the share of railways in hinterland cargo transportation has reduced progressively over the years with the spread of road network. At present, the rail network accounts for 36-38 per cent of the total hinterland cargo transportation as against 88 per cent in 1950-51. Given the distinct possibility of an oil-constrained future and India’s rising import dependence, there is an urgent need to arrest and reverse the falling trend of rail share in freight transport. Currently, the highest share of rail freight among the major countries is only around 40 per cent – roughly similar to the share in India – though many are actively trying to increase the share of rail in freight. However, given that the share of rail in India is decreasing and for the reasons of energy security mentioned above, it is advisable to look at interventions that will reverse this trend and set ambitious targets for rail freight. As a principle, Lloyd Stanford, Founder & Director, Applied Logistics India, said, “The idea is that rail should be the major freight mode along key corridors while road, with its much greater reach and flexibility, should be the preferred mode to take the freight from this ‘spine’ to the interior parts of the country not served by rail.”

If railways succeed in attracting a larger share of The average energy intensity of freight traffic, as pointed out in rail freight in India, both diesel and the ‘Integrated Energy Policy’ electric, is about 0.18 MJ (million report, they will have to: • Significantly increase joule) per tonne-kilometre as against investment in rail 1.6 MJ/tonne-km for road freight. infrastructure (including long-pending socially desirable lines. The dedicated freight corridors) Prime Minister had given an in-principle • Cut down the cross subsidy from approval for this project earlier this year. freight to passenger traffic or be However, for the country to fulfill the compensated for it directly by the strategy of encouraging rail transportation government & introduce competition for the movement of cargos, stakeholders • Provide time-tabled freight services need to be a little more proactive. • Develop multi-modal logistics parks to facilitate door-to-door service ROADWAYS’ CONTRIBUTION • Increase containerised cargo movement Along with railways, there is also a by rail and adapt to businesses other need to investigate how road freight than bulk cargo business efficiency could be enhanced. India offers • Improve its operational efficiency as highly competitive, low-cost road freight reflected in measures such as net services. However, there is considerable tonne km per wagon per day and net room for improvement in its operational tonne km per employee. efficiencies. The possible reasons include It is recommended that a level playing sub-optimal utilisation rates of trucks, field be provided between rail and road, inefficient border crossing & toll regimes, by providing similar financial and other lack of hub-and-spoke like arrangements incentives to rail. for efficient dispersal of heavy loads onto In its interim report, the Planning smaller trucks for last mile connectivity Commission’s expert group on low and excess trucking capacity. The country carbon growth strategies has projected needs to move towards more multi-axle that increase in the cargo transportation and tractor-trailer trucks. These issues through rail network would help reduce need to be further investigated to identify the fuel import bill by `9,000 crore to the key bottlenecks and thereby improve `15,000 crore over the next 10 years. road freight efficiency and suggest solutions During the same period, the GHG to overcome them. emissions from the sector could be brought down by 14-25 mt. The variation TIME FOR ACTION depends on the GDP’s growth rate The Indian Railways has taken some as well as the government’s efforts to initiatives towards encouraging rail freight. improve the rail freight share. Currently, it allows for some private GOVERNMENTS’ INITIATIVES investment in its rolling stock. It has also The government has already stated its identified a few auto hubs around the intention to increase the rail share in country to be served by rail and is also the total freight transportation market. trying to encourage similar sectors as well. Recently, Planning Commission member These moves made by the Indian Railways BK Chaturvedi, in a public announcement, are still woefully insufficient. Thus, there is had expressed that improving the share of considerable scepticism over whether India rail transportation is a key concern for the could actually make the leap to increase government in 12th Five Year Plan. Most rail movement within any foreseeable of the hinterland transportation in India is time. This is primarily because the current done via roads. “We want to increase the problems vary from poor lead times, share of cargo moved by rail to 50-60 per inefficient routing to timings. However, if cent over the next few years,” Chaturvedi the government intervenes in a big way had announced. and encourage private players to operate The Railway Ministry proposes to a portion of the freight carriers, then India create a non-lapsable dedicated fund will save massive amounts in the fuel for the 12th plan period. The fund called import bill. This, in turn, will also prove Pradhan Mantri Rail Vikas Yojana will be to be an important step in environment used for building new lines and completing protection.

ACT

JULY 2011 • SMART LOGISTICS • 43

SL EXCLUSIVE

TRANSPORTATION & LOGISTICS TRENDS 2030

Routes To One Goal: Growth

It might almost be possible to believe that state-of-the-art logistics services are uniformly available in all corners of the globe. Take a closer look and significant differences soon become apparent, together with the challenges that global logistics companies will need to face in the coming years. Emerging markets will clearly play a central role. But what will the T&L industry in these countries look like in 20 years? Will logistics’ centres of gravity shift eastward or southward? What new hubs and spokes will develop in global transportation networks? Who will be the leaders in the logistics industry in emerging markets? Will the future belong exclusively to high-tech service offerings, or will simple, reliable services also play a role? Here’s decoding answers to all such questions... BRAZIL, China, India, Mexico, South Africa and Turkey all ‘emerging’, but with unique fundamentals for growth in logistics, is a multitude of groupings of countries regarded as ‘emerging markets’. However, emerging countries differ significantly from each other with regard to the size of the economy, the political & regulatory framework, the geographic location, the structure of the population and many other macro-economic factors. These determinants form the basis for domestic

& international trade and are critical for the logistics industry. To provide a thorough sense of how emerging countries are evolving, here’s taking a closer look at seven emerging markets – Brazil, Russia, India, China, Mexico, Turkey and South Africa. The first four, often referred to as BRIC countries, represent the largest emerging economies and are foreseen to overtake some of today’s leading industrialised economies in future. Their importance for the global

logistics industry today and in future is beyond question. Mexico, Turkey and South Africa likewise are among the group of well-advanced emerging countries. In terms of international trade and exchange of goods, each of them represents an important link between different regions of the world: Mexico links North and South America, Turkey bridges Europe and the Middle East and South Africa is a key point of entry to the African continent, especially from Asia and the Americas.

BRAZIL Brazil has already implemented several free trade zones. The creation of the free trade zone in Manaus in the State of Amazonas is a real success story about fostering economic growth in the Amazon region. Imported foreign goods are tax free, provided they are consumed within the zone or are exported abroad. These fiscal benefits also apply to certain specific areas of the Western Amazon region, which cover the states of Acre, Amazonas,

44 • SMART LOGISTICS • JULY 2011

Rondônia and Roraima. Mainly due to the Manaus free trade zone, the area gradually increased its participation in the Brazilian GDP in recent years, now representing the fourth highest GDP in Brazil. It accounts for 1.4 per cent of the economy of the country. Its international airport ‘Eduardo Gomes’ represents the second largest in Brazil measured by freight tonne and its port is the most important cargo handling port in the whole Amazonas

region. Due to the free trade zone in Manaus, Amazonas has grown significantly above the Brazilian national average for the last 10-20 years. Another important trigger for logistics activities can be seen in the common market of the south (Mercosur), which includes Brazil, Argentina, Paraguay and Uruguay among other associated members. At present, the member countries form a customs union, but their aim is to become one common market with free movement of labour and capital in the long-term. In August 2010, Mercosur’s member states agreed to one external tariff in relation to third parties. The longawaited agreements mean that transport volumes handled in the intra-Mercosur area will benefit from streamlined customs procedures, as goods destined for external markets will now need to clear customs only once. Consequently, import and export lead times could be reduced. This development should have a positive impact on logistics costs, which represent one of the biggest challenges for the transportation and logistics (T&L) industry in Brazil. A number of industries should benefit from the region’s strong economic growth prospects. For example, some automotive analysts expect Mercosur to attract US$4 bn a year between 2010 and 2016. That is significantly more than the US$2-$2.5 bn annually raised during the previous six-year period. Logistics service providers serving automotive companies stand to benefit if the investment results in the expected ramping-up of production. Brazilian logistics service providers should try to collaborate with multinational

companies using Brazil as a manufacturing base for exports and should ensure that they have networks in place to take advantage of growing trade within Mercosur. In the recent years, Brazil’s level of investment averaged only around 17 per cent of GDP, in sharp contrast with a number of Asian emerging markets, where rates of investment sometimes reach double the level. Studies of the Brazilian National Development Bank estimate that the T&L industry will require approximately US$64 bn for the fouryear period (2010-2013), primarily to finance infrastructure investments. Private participation could be an important source of capital. However, such arrangements are relatively new for the infrastructure sector in Brazil. Important steps taken since the 1990s towards fiscal sustainability, as well as measures taken to liberalise and open the economy – notably Mercosur and free trade zones – have significantly boosted Brazil’s competitiveness and provided a better environment for privatesector development. However, foreign direct investment (FDI) needs were and continue to be large. Solid regulation and legislation protecting and stimulating this presence are inadequate or missing. While Brazil has passed a few isolated customs regulations in the recent years, such as changes to duties on imported advertising materials in 2002, the country remains slow to pass new customs legislation and enforcement can also be a challenge. According to the Central Bank, during 2007 and 2009, Brazil received approximately US$108 bn in FDI. Just US$3 bn (~3% of the total) were directed to the T&L industry; in comparison, US$28 bn went to the mining & metals

sectors and US$17 bn to financial and related services. A strong, well-functioning regulatory environment that considers the long-term nature of infrastructure projects and incorporated risks of such investments is one critical success factor necessary to attract foreign investment to the transportation & logistics sector in Brazil. Increasing concessions and PPP programmes will also be key. Due to the upcoming sports megaevents (FIFA World Cup in 2014 and the Olympics in 2016), the demand and the urgency for investments is tremendously higher than elsewhere. The Brazilian Government has already initiated a new Growth Acceleration Programme (PAC 2) that will provide US$880 bn for infrastructure, mostly roads and railways, ports and waterways, as an economic stimulus programme to be invested between 2011 and 2014. But this will not close all bottlenecks and there is an inescapable need to recruit the private sector to help fund, build and operate required projects. This is already true for some mega projects such as the high-speed rail connection between Campinas-Sao Paulo-Rio de Janeiro, where multinational investors from Japan, France and Germany have shown interest. Logistics service providers will profit from the upcoming mega-events and the increased investment flows in the short and medium-term. In order to sustain Brazil’s growth rates until 2030, a reliable regulatory framework will need to be implemented. If achieved, such stability would trigger massive foreign investments in the T&L industry, thereby lowering logistics cost and fuelling growth.

CHINA In 2008, China’s T&L market was estimated at over US$506 bn. The industry exhibited growth rates of more than 20 per cent in the first quarter of 2010, following consistent expansion rates of more than 25 per cent since 2006. This strong growth is expected to continue. Indeed, China’s T&L industry represents one of the most attractive growth areas in most Chinese provinces and has already attracted significant amounts of capital. Numerous foreign transport and logistics companies have already made direct investments in the Chinese T&L market in recent

years. Some are looking for opportunities to set up their own businesses, while others are seeking to form joint ventures with domestic companies active in the express market or to acquire private logistics companies in China in order to expand their networks and provide more value-added services to existing clients. Enhancing services in comprehensive logistics is an expanding trend and distinctions between different subsectors of the logistics industry will be much less clear in the future. Merger and acquisition activity among logistics companies will increase in

JULY 2011 • SMART LOGISTICS • 45

Transportation & logistics trends 2030, continued

order to enlarge the scale of enterprises and enhance the value of services provided. The expansion of service coverage and density of service network is also expected. Even though China’s logistics industry has recorded tremendous growth rates in terms of FDI and has strongly benefitted from those investments in the past, their relevance for the country may actually decrease in the future. Since China’s domestic economy is growing at a rapid pace, the domestic demand for logistics services will grow strongly in the future. This growth is based on a rising domestic consumer base rather than FDI. Much of the domestic demand will originate from China’s emerging markets, many of which are outside the three Chinese megacities – Beijing, Shanghai and Guangzhou on which foreign investors are focussing. While multinational logistics service providers active in China provide high-end products and services, which aim to deliver value to customers by providing timely delivery and reliability, lowcost solutions provided by domestic courier companies currently represent approximately 60 per cent of the logistics market. The demand for those low-cost and low-service logistics primarily originates from thousands of small Internet shops looking for CEP providers able to deliver at very low prices. Since delivery

volumes are extremely high, even small logistics companies can realise profits. However, as the size of China’s middleclass population strongly increases in the next 20-30 years, the demand for high-end logistics services will climb simultaneously. As a result of the corresponding reduced volumes, the provision of low-cost services as a profitable business model will diminish in the short to medium-term. According to the China International Freight Forwarders Association, labour cost advantages of small courier companies will decline over the next 5-10 years. Future customers will place a much stronger emphasis on reliable delivery rather than price, an area where multinational logistics services have a strong advantage over small domestic courier companies, which frequently dispute with customers over lost parcels. Logistics providers with a service portfolio characterised by low-cost and low-service have to improve the scope of services in order to maintain competitiveness. China’s CEP market promises attractive growth rates for both, domestic as well as foreign logistics service providers. However, logistics service providers, which will be successful in the longterm will be those who carefully observe changing customer needs and are able to provide the required products & services.

INDIA Goods transportation by road is mostly in private hands with only a small proportion of it being corporatised. Bus operations, on the other hand, are mostly in the government’s hands. Forced by a strong need to reduce the country’s fiscal deficit, the first wave of privatisation started in the early 1990s. Thus, a segment of India’s bus operation is with private organisations. Nevertheless, privatisation of bus transport may not have been entirely beneficial. At present, many state road corporations in India have had to take over activities from the private sector as many of them have faced heavy losses and are not able to operate without governmental support such as the ones operating in Madhya Pradesh. In addition, private road transport organisations are frequently the target of criticism. Levels of dissatisfaction about the reliability, punctuality and quality of services from these organisations seem to be on the rise among users. It will be interesting to observe if the Indian Government increases its control over the road transport sector, even though funds for road-related investments are scarce. The private sector is also involved in rail transportation, but continues to play a minor role. The government has involved private players in the operation of container trains and is likely to offer a small portion of passenger operations for private tender as well. India’s seaport industry has not yet experienced significant privatisation. Most of India’s seaports have higher loading and unloading times than their international counterparts. The average size of Indian ports is much smaller than international standards, thus resulting in up to 20 per cent higher costs for shippers. The required investments to enhance India’s seaport infrastructure are enormous and cannot be met by the government. Consequently, further privatisation of ports is being considered as a possible solution to meet this tremendous financing requirement and to increase performance levels.

46 • SMART LOGISTICS • JULY 2011

Privatisation of T&L operations will play an important role in India in future. While some parts of the transport network are deemed strategic assets by the government and unlikely to be fully privatised, a wide range of opportunities for the private sector exists. Companies generating finance and improving their performance, will have the potential to earn healthy profits. While there have been significant levels of investment in transport infrastructure, interest in T&L services has remained low. In the case of infrastructure investments, projects are automatically eligible for exemption from the FDI caps, which may have helped increase interest in such investments. In contrast, in the airline industry, the government still maintains caps on FDI although there have been some moves towards liberalisation. For example, in the aviation sector, the Indian Government has increased the limit for FDI into scheduled air services at 49 per cent and non-scheduled, chartered and cargo air services at 74 per cent. However, foreign airlines are not yet permitted to operate in the domestic sector. Press reports indicate that foreign airlines might consider investments into India, if the regulatory environment changes. The Indian Government has already eliminated FDI caps for the Indian shipping industry, with the result that 100 per cent FDI is now permitted in this sector, although the first such investment was made only a number of years after the regulatory changes took effect. Despite their cautious investment behaviour, multinational logistics companies are eyeing the Indian T&L market, anticipating excellent business opportunities in the future. India’s GDP is growing by around 7-9 per cent annually, while its manufacturing sector is seeing strong double-digit growth rates. Planned infrastructure investments of over US$300 bn should also provide a solid foundation for outstanding growth rates

in the T&L industry. Indeed, the T&L industry in India grew at compound annual growth rates of more than 16 per cent from 2007 to 2010, thereby resulting in an overall market size of more than US$100 bn. In particular, India’s third party logistics (3PL) market is an attractive business opportunity for logistics service companies and should provide further impetus for growth. The 3PL market makes up more than 50 per cent of the total logistics market in developed countries, but is still at a nascent stage in India. Today, Indian 3PL service companies often do not possess sufficient capabilities to provide any services beyond conventional transportation contracts. Many are not able to respond to the increasing demand for value-added services such as customs clearance, cross-docking, reverse logistics, labelling or packaging. The strong growth in manufacturing industries is likely to intensify competition and many Indian companies will need to optimise their supply chain mechanisms. Manufacturing companies may place greater focus on their production activities and as a result, may begin outsourcing logistics processes to 3PLs. As a consequence, strong outsourcing activities will be observed in the Indian market over the next two decades.

Not surprisingly, multinational logistics companies are carefully observing the dynamics of the Indian T&L market and seeking opportunities to participate in the growth story of the country. Attractive business opportunities will arise not only due to the increasing demand for logistics services, but also from the market’s high inefficiency and fragmentation. The cost of logistics as a fraction of India’s GDP is extremely high. While logistics costs of Western Europe and North America make up 8-10 per cent of their GDP, India currently spends more than 13 per cent of its GDP on logistics. Those logistics service providers, which are able to help companies increase efficiency in their logistics processes may realise significant profits. Increasingly, investorfriendly frameworks and outstanding growth opportunities in the Indian logistics industry are attracting the attention of multinational logistics companies. Many of them have already entered the market successfully and the number & pace of further entries will increase. The enormous market size and low competition for reasonably priced, quality service provision will attract foreign logistics providers. Value-added logistics services also look set to increase in importance. Overall, the Indian T&L market is likely to be even more hotly contested in the future.

MEXICO Indeed, there is a strong level of interest in Mexico from multinationals across industry sectors. According to a survey conducted by the UN, Mexico is the sixth most attractive location worldwide for multinationals. The strong flow of FDI and estimated US$15-$20 bn 2010, confirms the country’s popularity as an investment destination. It is expected that the rate of investment will rise from current levels of around 20-25 per cent of GDP by 2020. This investment landscape is also reflected in the Mexican logistics market where multinational players dominate the demand for logistics services that is witnessing rapid growth. Mexico’s logistics market is split into two distinct segments – the export economy that relies on cross-border logistics for 95 per cent of its traffic and the domestic economy. The logistics market servicing Mexico’s exporters is sophisticated and relatively mature with consolidation of suppliers. Three hundred multinationals are responsible for 90 per cent of Mexico’s exports. Cross-border logistics in Mexico have achieved their efficiency levels thanks to the investments by players such as UPS, FedEx and DHL as well as YRC, Kühne+Nagel and Panalpina among others. Their technology and global best practices have been essential in raising competitiveness. Multinational logistics companies continue to invest heavily in Mexico. Mexico’s free trade policy in recent years has further supported its export-oriented economy. More than 90 per cent of Mexican trade is under free trade agreements with more than 40 countries & regions, including the European Union (EU), Japan, Israel and much of Central and South America. Changes in Mexico’s customs regulations in recent years have greatly expanded programmes similar to free trade zones and well beyond conventional ‘Maquila’ operations previously available to importers. Maquiladora or Maquilas are assembly operations in the North of Mexico, which import material and equipment on a duty-free and tariff-free basis

for assembly or manufacturing purposes. The more elaborate Strategic Private Bonded Warehouse programme i.e. the REFIE has existed since 2003 and offers benefits similar to those of the US free trade zones and the EU Processing under Customs Control (PCC) programme. The REFIE regime affords attractive tax advantages. The main benefit consists of exemption of VAT triggered by the sales of goods subject to the regime. As it relates to income tax, REFIE locations are not deemed to be a permanent establishment for foreign parent companies and therefore, reductions or exemptions for income taxes may be allowed for activities performed within the REFIE. The EU-Mexico free trade agreement is one of the most comprehensive in the global economy. Most critically, the North American Free Trade Agreement (NAFTA) revolutionised trade and investment in North America, representing 82 per cent of Mexican exports. Moreover, the close proximity to the US and NAFTA membership gives Mexico an important advantage when trading in the US market. The country has signed a number of additional free trade agreements in recent years, fostering rising international Mexico trade and investment. Mexico is supported by an independent central bank and is now well-placed to register sustainable growth. Mexico’s growth and export rates have been negatively impacted by the entrance of China to the World Trade Organization (WTO). The US is Mexico’s most important export partner and the country has lost notable market share to China in a range of areas, including textiles and electronic devices such as televisions or personal computers. Due to low production costs, some US-headquartered manufacturing companies relocated their production facilities from Mexico to China. Nonetheless, as noted, Mexico’s overall investment flows are still set to increase over a 10-year forecast period.

JULY 2011 • SMART LOGISTICS • 47

Transportation & logistics trends 2030, continued

RUSSIA Thinking about creating new transportation routes is important for Russia due to its geographical location. Russia connects the Chinese and European markets and represents the shortest way from Europe to Asia. Nonetheless, today Russia is not considered an important transportation corridor, as the main trade between Europe and Asia takes on seaways. Russia will aim to take advantage of its beneficial position in future. To realise this vision, Russia needs to develop its railways and roads in order to ensure rapid and cost-effective transportation options. Russian Railways is already planning to build several high-speed railways. The first one will be constructed between St Petersburg and Moscow. Currently, the Russian economy is vulnerable to oil market fluctuations and dependent on the world economic situation. The government is drafting policies directed at changing its export structure from exporting primary products and resources to exporting integrated & advanced technology products and services. If this policy succeeds, it will be necessary to develop new markets and ways of selling these products & goods. New transportation corridors will need to be developed and existing ones significantly improved. Russia is already looking at options. One plan under consideration would ‘revitalise’ the Northern Sea Route as the shortest seaway between Europe and Eastern Asia, along with the development of land routes connecting Asia and Europe. The Shanghai Cooperation Organisation (SCO) aims to facilitate the international road transportation between its member states, especially between Russia and China. Since China is interested in using the land connection to accelerate its exports to Europe and Russia, both the countries are interested in this new ‘silk road’. The continuing work of the SCO member states aimed to develop ‘international transportation and simplify border crossing procedures in the region’ is regarded as a first step towards the realisation of this plan. The government sees the T&L industry as one of the key priorities for the economy. It is willing to actively use public private partnership (PPP) tools to develop infrastructure projects. To

facilitate PPP activity, a law on concessions has been introduced and a special investment fund to finance infrastructure projects has been created. Russia also plans to use special economic zones (SEZs) as a lever to achieve its objective to create new transportation corridors. Russia has established around 20 SEZs; major objectives are to create optimal conditions for foreign & domestic investments and to develop modern industrial complexes able to produce highquality products. The resulting production is intended to stimulate the economy and the Russian export base. About US$300 m of investments are planned by 2020. Even greater levels of investment are being made in enhancing sea routes. Around US$3.5 bn of investments are planned for the Sovetskaya Gavan seaport SEZ located in Khabarovsk region, including participation from private investors. The development of this port is important for Asia & Russia. Sovetskaya Gavan will serve as the transport outlet of Baikalo-Amurskaya Magistral (the major railway connecting East and West Russia), thus facilitating intermodal transfers. It will also develop transportation connections with China, Japan, North America and the rest of Asia Pacific. Russia’s geographic position allows the country to connect Asia and Europe. LSPs offering efficient services on the emerging transport corridors will serve as an enabler for intensified trade between the economic heavyweights. The logistics market in Russia is not yet saturated. Vice Prime Minister Sergey Ivanov has estimated its potential at US$150 bn by 2015. The overall number of players in the market is fairly small, particularly in comparison with Europe or even China. The market is currently dominated by Russian companies, although some foreign players are very active in Russia and are constantly increasing their presence in the market. Many experts are optimistic about the prospects of multinational logistics service providers in Russia, because leading international logistics service providers are more competitive than Russian domestic players due to bigger financial resources and leading experience, especially in the 3PL and 4PL sectors.

SOUTH AFRICA Emerging markets such as China and South Africa fared well during the recent economic downturn. As a result, freight flows between these countries continue to strengthen. Asia’s heavy industry has been an important source of demand for iron ore & coal and South Africa remained an important source of these commodities. At the same time, European demand for these commodities weakened. The emergence of China as one of South Africa’s main trading partners has had a tremendous impact on the economic feasibility of certain hub and spoke initiatives, some which revolve around linking South Africa’s Waterberg region to major export points. The Waterberg coal basin contains almost half of South

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Africa’s coal reserves & extends into Botswana as well. The basin currently suffers from insufficient rail connectivity to ports and faces three export options. The first involves extending the existing rail connection to Richard’s Bay – a major coal export point. However, this option may not be a priority for the rail infrastructure owner, Transnet, or for most of the mining owners of the Richard’s Bay Coal Terminal, who do not have an interest in the Waterberg basin. The second option is to connect the coalfields westwards to the Namibian coast. The Port of Walvis Bay has been identified as a potential end-point of this trans-Kalahari connection. However, the shift of coal demand from Europe to Asia raises questions

about directing the coal westward during its land-based journey. The same shift of demand, however, provides additional support to the third option, moving the coal eastwards to Mozambique. The two primary port options for coal exports from Mozambique are ports in Maputo and Beira. The importance of developing at least one of these transport routes will grow as coal mines located elsewhere in South Africa will deplete and coal demand from Asia will continue to grow. The continuity of demand for South African

commodity resources has also played a role in major investments being made in preexisting freight routes such as OREX – a dedicated iron ore rail track connecting the Sishen mines to the port of Saldanha. It is 862km-long and designed to support some of the heaviest trains in the world. The heavy rail can handle loads of up to 30 tonne per axle. African LSPs who operate on the new transport corridor will be able to profit from this growth, leading to a competitive marketplace for logistics in the region.

TURKEY Logistics is a young sector in Turkey, which has made progress in recent years. Turkey, being advantageously positioned between the Middle East and Europe, serves as a transfer centre between these regions. Authorities claim it will become a logistics base; some assert it already plays the role. The Turkish logistics market has experienced a 20 per cent growth rate over the last five years and is forecast to increase to US$120 bn by 2015. Double-digit growth rates in the industry have attracted many international players. Fierce competition exists and is on the rise in the market, between both, domestic & international logistics service providers and within each group. Consequently, all logistics companies have tried to differentiate themselves by offering different and extended services to their customers. Quality improvements in logistics services and constantly rising service standards were the results. The logistics industry in Turkey has already developed significantly past the point where logistics is regarded as mere transportation. In the domestic market, increased efficiency, transparency and accountability on the part of government administration offices (for e.g., during customs clearance) could help remove current growth obstacles of the logistics market in general and the CEP segment in particular. Probable legislative reforms in the framework of the EU integration process will tip the balance in favour of liberalisation and have a profound impact on the domestic market. While the logistics market has expanded threefold since 2002, the share of 3PL service providers has increased only marginally. Large players providing value-added services are leading the market, with revenue gains of more than US$100 m. There is still room for growth for 3PLs which are able to effectively market their extended services. According to forecasts about the sector, 3PLs will focus their efforts on structuring and public relations activities in the near-term. Outsourcing is expected to continue. The markets for CEP and 3PL services are not yet saturated

OPPORTUNITIES IN STORE The world’s supply networks are changing. New trade corridors are already becoming visible and those companies and countries able to capitalise on them will benefit the most from the evolution of global trade. As emerging markets continue to grow, there will be a host of opportunities for logistics service providers of all sizes. Some of these will stem from the sharing of a whole range of good practices that are

and both the segments are likely to extend the range of local service offerings significantly by 2030. Turkey has great potential with its young population and its dynamic market conditions. Traditional consumer behaviours, which rely on using the national post office, seem to be changing as CEP services become available countrywide. Public ports are undergoing a fundamental change in status, at a time when growing demand for service is creating pressure. Turkey is pursuing a port privatisation process to increase efficiency and infrastructure capacity. The anticipated continuation of this process of commercialisation and privatisation of ports should have a beneficial impact on service capacity & efficiency. In a few years’ time, private ports are expected to handle around 50 per cent of the container traffic. The official privatisation schedule of the Turkish Government begins with ports, but additional waves of privatisation are also planned. Highways, maritime operations, bridges, railroads and many other state-owned structures are scheduled to be privatised. At least for transport infrastructure, the privatisation process will mainly be completed by 2030. The privatisation of ports, airports and the national post will contribute to the competitiveness of Turkish players in international markets. The privatisation process encompasses enormous market opportunities for strategic investors in transport infrastructure or for transport operators. Turkey’s strategic location ensures a prominent role within future transit networks. It is set to provide value-added services in different business areas. Liberalised regulatory arrangements are improving access to foreign capital to the market in which local & international companies compete. Logistics service providers should start to strategically diversify their service portfolio since competition might get even fierce after the privatisation process. They need to implement dynamic and adaptive company structures in order to respond to the changing market dynamics.

commonly used in developed markets, but not yet fully implemented in many emerging markets, while others may involve emerging markets providers who are able to act as advisors to those entering their marketplace, to help scout out suitable acquisition targets. Most importantly, though, logistics companies will need to develop or fine-tune their own specific strategies for operating in diverse emerging markets. They will need

to understand how government regulation in each market affects them, be it changing customs procedures, the establishment of free trade zones, incentives for FDI or new sustainability requirements. This may mean adapting their service portfolio not once, but many times, as demand patterns change and emerging markets develop. The article is an excerpt from ‘Transportation & Logistics 2030’ by PricewaterhouseCoopers

JULY 2011 • SMART LOGISTICS • 49

ONE ‘Q’ MANY VIEWS

PHARMA LOGISTICS

PRESCRIBING A HEALTHY

With Indian pharma expanding across borders, the market for ‘Made in India’ drugs is on a chain management. Due to increasing incidences of spurious drugs, mishandling and other such of care – recognise the importance of traceability. For pharma companies to become successful, it presenting the thought-provoking insights of pharma companies as well as 3PLs in designing a

The major challenge facing pharma logistics is continuously maintaining critical temperature during storage and transportation of pharma products, maintaining the delivery schedules and meeting deadlines. For this, a strong and effective cold chain network is required. Despite the growth in the cold chain industry, there still exists a major gap in the supply & demand of cold chains in India. Poor packaging is another hurdle that leads to damages while handling. – VINEET AGARWAL, Executive Director, Transport Corporation of India

Logistics is a key element of the clinical trial process. It subsumes 20-30 per cent of the total cost of the drug discovery process. As clinical trial materials are sensitive to temperature excursions and perishable in nature, the efficiency of the trial will depend on the efficiency of the supply chain in many ways as the integrity of clinical trial material is of utmost significance. Given its importance, logistics service providers must be truly global and have established robust processes in place to facilitate the storage and distribution of clinical trial materials. – SANJIV KATHURIA, Country Director – Sales & Marketing, TNT India

The business model for logistics has evolved over the last 50 years. It has moved from being a single national service provider to owned depots concept to clearing and forwarding agents to consignee agents. It is now moving towards a more logistic driven approach i.e. how fast one can service. With the Goods and Service Tax soon coming into force, there would be no tax on inter-state movement. The single overriding factor would be customer service and prompt delivery of goods. – SHIRISH GHOGE, Senior Director – Supply Chain, Institutional Business & Public Affairs, sanofi-aventis Group India

The healthcare industry spends $23 billion annually on order management distribution, transportation and inventory management. Approximately $11 billion of these costs are unnecessary – caused by redundant, non-value-added activities. In fact, prior to 2004, only 30-40 per cent of medicines in unit-dose packaging with barcodes were available. Since RFID improves both security and product handling, it may soon ﬁnd a permanent place in pharma packaging. – ANDREW TAY, President – Asia Pacific, Zebra Technologies

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GROWTH MODEL

high growth curve. However, this growth has to traverse many hurdles when it comes to supply occurrences, stakeholders in the pharma supply chain – from the point of production to the point is important to critically examine each leg of the value chain and derive a tangible solution. Here’s seamless supply chain network…

The pharma industry has to adhere to speciﬁc and important mandates to ensure customer safety, especially those related to product tracking and traceability. Counterfeiting, diversion, mishandling, mislabelling and unintended prescription of drugs are major concern areas faced by pharma companies. The ability to track and trace products across all manufacturing processes and distribution touch points, right from the point of production to the point of care, not only ensures product safety and security, but also supports efforts to improve productivity and proﬁtability. – S SRIDHARAN, MD, Take Solutions

Even though India has emerged as a manufacturing hub for pharma companies all over the world, the supply chain model has not changed much with the evolution of companies. It is estimated that 45-55 per cent of a drug’s market cost is its logistics expenditure. An organised supply chain will help pharma companies connect directly with the patients/end consumers and thereby improve their corporate image. It will enable companies to maintain the correct inventory level, free capital that would have been locked up in inventory, deliver goods on time and allow for a faster cash turnover. – RAJESH KUMAR, President – Pharmaceutical Packaging Innovation, Bilcare

Pharmaceutical industry faces unique challenges such as adhering & complying with stringent regulations, using specialised temperature packaging and monitoring devices, evaluating cost-effective & validated distribution processes, shipping to and from research labs or hospitals. In addition, lack of cold chain infrastructure, air connectivity, lack of skilled manpower and regulatory obligations are also key issues that need to be addressed. A new industry standard and yardstick for reliability, quality and proﬁciency is the need of the hour. An independent audit body for certiﬁcation of the entire supply chain will add credibility and avoid bottlenecks. – RS SUBRAMANIAN, Country Head, DHL Express India

Pharmaceutical Logistics involves critical movement of products and medicines for the Pharma and Clinical Research Organization (CRO) where delays or delivery disruptions will reduce the efﬁcacy of the product. Given the sensitive nature of the goods handling, storage and transporting are very critical and necessitates dealing with specialized partners who can provide the required storage space and logistics support. Through temperature validated solutions, pharma companies not only distribute their products to a wide market but also ensure timely delivery and in the right condition. – ANIL KHANNA, MD, Blue Dart Express Inputs by Team Modern Pharmaceuticals and Sumedha Mahorey JULY 2011 • SMART LOGISTICS • 51

SECTOR FOCUS

PHARMACEUTICALS

THE VALUE-CREATING SUPPLY CHAIN

The Indian pharmaceutical industry is witnessing an unprecedented growth in the recent years. But it still has to match with the global pharma, which by virtue of its strong supply chain linkages has been able to reach to the lowest end of pyramid in the most efficient manner. While challenges remain to be tackled, what requires immense attention here is the awareness and its integration with the whole value chain that make for a pharma value chain. In essence, the industry needs to be in sync with the value-creating supply chain. AT one time, the pharmaceutical supply chain only featured on the boardroom agenda when things went wrong. Today, it is subject to much greater scrutiny, as companies everywhere focus on how best to launch new drugs, assure the safety & supply of those drugs, and simultaneously cut costs. Manufacturing and distribution typically account for about 40 per cent of the headcount and 60 per cent of the capital employed in a large pharmaceutical firm, so they are obvious areas in which to look for savings and short-term productivity improvements at a time of declining growth. But short-term cost and productivity measures are not enough to meet the fundamental challenges that the pharmaceutical (pharma) industry now faces. The quality of a company’s manufacturing and distribution can either impede its progress in getting products to market or accelerate that process and become a means of creating value. The supply chain of the future must be smart, efficient and agile.

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HURDLES ENCOUNTERED After decades of growth, pharma is under enormous pressure, especially in the US – which accounts for 49 per cent of the worldwide market. Intense competition, increasing use of generics, the might of the managed care providers and government measures to curb soaring healthcare budgets have all restricted its financial performance and driven shareholder returns down. Most companies are also struggling to replenish their pipelines and replace the revenues they are losing as numerous blockbusters come off patent. This veritable ‘sea of troubles’ explains why the share prices of the industry leaders languish, despite the fact that global sales grew nine per cent in 2003 – a rate companies in some other sectors might envy. The situation has been compounded by several recent changes in regulation. The Sarbanes-Oxley Act of 2002, the most far-reaching reform of the US securities laws since the 1930s, imposes much stricter reporting requirements on all public companies. The US Food and

Drug Administration (FDA) has also issued an edict on current Good Manufacturing Practices (cGMP) for the 21st century, which has more immediate relevance for supply chain executives. Lastly, pharma is on the brink of a scientific and technological revolution that will ultimately transform both, the nature of the medicines it makes and how it makes them. With this as the backgrounder, a better understanding of the molecular sciences and massive advances in computing power would eventually enable the industry to develop targeted treatment solutions or healthcare packages for patients with specific disease subtypes as indicated in Figure 1. These targeted treatment solutions will be made using biological methods of discovery and development; they will be aimed at particular patient subpopulations; and will measurably modify the diseases for which they are prescribed. They will also include biomarkers, devices, preventative medicines and a network of services for diagnosing, treating, monitoring and supporting patients, which will improve persistence and compliance.

In future, pharma will not only make the white powders, creams and tablets it has traditionally produced, it will manufacture a complete mix of biopharmaceuticals, parenterals and diagnostics. Making targeted treatment solutions will generate greater revenues than conventional drugs and offset the increasing competition from generic producers. But this will require restructuring of the entire pharmaceutical

companies have supply networks that are accidents of history rather than being consciously designed to face the future. Worse still, the economies of scale the supply chain once enjoyed, are gradually disappearing, with the expiry of the patents on a large number of blockbusters and a corresponding drop in product volumes. A substantial percentage of manufacturing costs are fixed and cannot

Figure 1: A scientific and technological revolution will result in the development of targeted treatment solutions.

value chain, including the fixed asset base and downstream distribution.

A SUPPLY FRAMEWORK CREAKING AT THE JOINTS

be easily reduced, so shrinking volume throughput drives up the cost of goods sold (COGS) and erodes profit margins. In all, IBM’s research indicates that there is now a marked upward trend in COGS, and that it could climb from the current average of 22 per cent towards 30 per cent over the next five years, unless the industry continues to consolidate – either through mergers or as a result of changes in national law. But the future holds even bigger challenges, as technological advances and greater product diversity increase the complexity of the manufacturing base.

The pharmaceutical supply chain is illplaced to cope with this impending revolution because it is already creaking at the joints (see Figure 2). In the past, it could rely on receiving the capital it required, but internal competition for funds is now increasing, as research and development (R&D) costs soar and many companies react to the difficulties they are experiencing by pumping additional cash into already huge sales teams, even though the evidence suggests that the primary care market is saturated. The spate of mergers and acquisitions that has reshaped the industry over the past two decades has also created problems. At least 50 per cent of all mergers fail to live up to expectations, and a few produce the dynamic environment required for innovation. In fact, they more often prove to be short-term palliatives or mechanisms for squeezing out costs. As a Figure 2: The supply chain is under enormous strain. result, many pharmaceutical

Biologics are more fragile and more difficult to scale up than small molecules, often involve novel drug delivery techniques and are more vulnerable to impurities in the manufacturing process. For all these reasons, it is far more difficult to produce biologics than it is to produce conventional chemical compounds. Demand for biomarkers and medicines targeted at patients with specific disease types will also be much lower than it is for mass market drugs – and such products will have to be formulated and packaged more diversely, with a corresponding increase in the number of stock-keeping units to be tracked. Thus, with the development of targeted treatment solutions, pharma will need new technology platforms that are capable of dealing with biopharmaceuticals, chemicals, diagnostics and electromechanical engineering. But the more complex a manufacturing process is, the more expensive it is and the greater the capital expenditure required to buy the equipment. Moreover, much of the cost of manufacturing drugs is ‘designed’ during development and cannot be eliminated without returning to the regulators – a move at which companies understandably balk, given the effort that has gone into getting them approved. The shift to targeted treatment solutions will accelerate product development, locking in manufacturing costs at a much earlier point in the product lifecycle. At present, it typically takes about 10-12 years to discover and develop a drug. With biological techniques, simulation and in-life testing, that process could be reduced to as little as 3-5 years as shown in Figure 3. All these changes will intensify the financial risks involved. Product innovation of any kind increases a company’s total capital at risk and the danger that it will not achieve its projected cash flows. But if it wants to make targeted treatment solutions, it will also have to invest that capital much sooner than before and avoid incurring additional running costs as a result of inappropriate product features. The globalisation of the supply chain might, perhaps, ameliorate some of the difficulties; countries like China and India

JULY 2011 • SMART LOGISTICS • 53

Pharmaceutical logistics, continued

Figure 3: The shift to targeted treatment solutions will accelerate product development and time to market dramatically.

are now becoming viable centers for pharmaceutical manufacturing. India has also signed the Trade-Related Aspects of Intellectual Property Rights (TRIPS) Accord with effect from 2005, which will increase its potential as a location for large-scale production to serve the global market. However, no company will want to make its most innovative medicines in any place where its intellectual property might be vulnerable. And though the growing stability of some emerging economies is creating new opportunities for low-cost manufacturing, it is also increasing the risks in downstream distribution. With worldwide product sourcing, parallel trading becomes easier, thus threatening the industry’s profit margins and the integrity of its products alike. It is no coincidence that the annual number of counterfeiting investigations conducted by the FDA has risen fourfold since 2000 or that the regulator is concerned by the prospect of drug reimportation into the US. In short, the supply chain is already subject to considerable commercial and technological stresses and is about to come under additional strain with a change in the manufacturing regulations. In August 2002, the FDA introduced the first fundamental shift in its policy for regulating drug manufacturing and product quality since the launch of paper-based GMPs 25 years ago. This new compliance agenda calls for the application of modern risk and quality management techniques; the replacement of product-based site inspections with GMP systems-based inspections; and demonstrable scientific understanding of the entire manufacturing process, from development through scale-up to production. But very few, if any, pharmaceutical companies have physical assets and manufacturing,

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quality & compliance processes that are capable of meeting these requirements. Moreover, their quality systems focus on ‘testing quality in’, and their manufacturing operations are not organised in a manner that facilitates systems-based inspections. They lack sufficient scientific understanding of the manufacturing processes that they are using to adopt Process Analytical Technologies (PAT) for monitoring those processes continuously and avoiding the bottleneck created by endproduct testing. They could only acquire such an understanding by returning to development – a route that would be neither economically nor physically feasible for a complete product portfolio.

STRATEGIC VISION FOR THE FUTURE To put it simply, a majority of today’s pharmaceutical supply chains are in poor shape for the 21st century. Over the years, the industry has sacrificed its leadership in manufacturing technology and its advanced process engineering know-how to regulatory fears and costcutting, thus leaving the supply chain ill-equipped to comply with the FDA’s current requirements or produce the new treatments now beginning to emerge, as molecular sciences and powerful computing tools transform the development of medicines. If the supply chain is not to become a barrier to drug commercialisation, then it must be completely redesigned. In the short-term, pharmaceutical companies will have to optimise their supply chains and customer-facing processes to drive out costs, increase their capital efficiency and improve their productivity – a delicate balancing act that involves assuming greater risk without impairing performance. In the longer term, they will have to restructure

their supply chains and the savings they make in the short-term will help finance that process. But redefining and redesigning the supply chain is not an easy job. It requires accurate assessment of a company’s existing and future product portfolio, the sources of value creation within the supply chain, and the fit of its people and sites. It also demands some difficult choices about the kind of business in which the company plans to engage. The industry giants have traditionally made ‘one-size-fits-all’ drugs that share certain therapeutic and economic features, but, as totally new types of treatment emerge, they will have to specialise to a much greater extent. Figure 4 shows various options, and the sort of supply chains they will need. Those companies that choose to make targeted treatment solutions, for example, will need to build high-tech manufacturing facilities that are closely allied with a strong R&D base, superb manufacturing skills and excellent scientific and analytical capabilities. Those that choose to become volume manufacturers will need to focus on mature and stable product technologies, using massive scale, low cost and high service to capture the value from increasing global volumes of off-patent drugs. And those that choose to become ‘network integrators’, rather than manufacturers in their own right, will need to create integrated supply networks of different design and technology suppliers, specialist producers and distributors – much as Cisco Systems has done in the networking systems sector. In fact, even if they decide to outsource both, their high-tech and their volume manufacturing, all pharmaceutical companies will have to acquire new skills as network integrators, since they cannot afford to surrender control over the design, integration & orchestration of product flows through the factory and on to the patient. But the strategic choices they make about where and how to specialise will enable them to differentiate themselves much more effectively than before. The following sections cover the five areas of manufacturing and distribution on which pharmaceutical companies will have to concentrate their efforts, if they are to create a supply chain that fulfills their future requirements: • Demand synchronisation and strategic sourcing

• Scientific manufacturing • New product and process development • Restructuring and asset rationalisation • Techniques to extend their reach to the customer. The first task is to increase productivity and maximise the efficiency of a company’s existing manufacturing facilities; the second is to ensure that its supply chain conforms to the FDA’s new compliance agenda; and the third is to reorganise its plant, processes & people to gear up for the future.

DEMAND SYNCHRONISATION AND STRATEGIC SOURCING All pharmaceutical companies must improve the productivity of their manufacturing assets and capital efficiency over a sustained period of time. In other words, they must learn to make better use of their plant & people and reduce their fixed costs. Three elements are essential here – a lean manufacturing culture; long-range modelling and an integrated supply network. Although six sigma – the methodology for measuring & reducing product variation – sets a target of six standard deviations between the mean and the nearest specification limit, most pharmaceutical companies still manufacture for standards of just two sigma. Adopting a six sigma culture helps a company increase its productivity and reduce cycle times by eliminating waste. It also saves money; moving from two to four sigma typically effects a 15 per cent cut in costs. Creating a model of the economic and physical forces influencing the supply chain and simulating the end-to-end process (including market demand, capacity and costs), enables it to identify which levers it should pull and what effect they will have. Lastly, building a network of trusted suppliers and integrating them in the supply chain ensures a comprehensive model and makes it easier to coordinate responses to a change in demand, supply or production. Synchronising the manufacturing process involves sharing information on the design and movement of the products being manufactured, using track and trace technologies like radiofrequency identification (RFID) to provide realtime data on their progress along the production line. However, it can deliver substantial productivity gains, as well as

reduce the amount of capital that is tied up in stock.

SCIENTIFIC MANUFACTURING The FDA’s new compliance agenda will also force many companies to transform their supply chains. The regulator reasons that concentrating on GMP systems rather than products or profile classes will enable it to monitor companies more effectively with the limited resources it has at its disposal, because the systems are used to manufacture many different kinds of product. So, if it finds a problem with a particular system, it can shut down the whole plant. But though this is a dark cloud, it comes with a large silver lining. The FDA recognises that in exercising its duty towards the patient population – to ensure that only products which are safe and efficacious reach the marketplace

be introduced all at once, so companies should start with their most important systems & products and cascade the changes gradually throughout the rest of their manufacturing facilities. They should also balance the remedial steps they take with an understanding of the root causes of failure in their systems and processes. That said, those firms that can demonstrate their scientific mastery of the products and processes they are using will enjoy some considerable advantages. The FDA recently granted GlaxoSmithKline approval to use a rapid detection technology for controlling the manufacturing quality of a prescription nasal spray, for example, which will enable the company to release the spray to market within 24 hours, up to 80 per cent faster than with traditional methods. Similarly, such companies will have a head

Figure 4: Here are three examples of the future roles the supply chain might fulfill.

– it has sometimes stifled innovation. Its new agenda accordingly signals that it is ready to help, with faster regulatory approvals for companies that use PAT to demonstrate their scientific knowledge of the products they are making and the processes they are using to make them. Thus, there is now an opportunity to improve the performance of the pharmaceutical manufacturing function substantially, by understanding and managing the quality criteria that are critical to patients by acquiring a full scientific grasp of the processes that will be used to manufacture a drug while it is in development. Here, PAT will be used to measure & monitor key control points and release productivity gains further down the production line; and shift from quality control to quality management throughout the supply chain. However, the structural and systemic changes required to ensure product quality and demonstrate scientific knowledge cannot

start in terms of getting their products to market. They will be able to obtain postapproval changes to the manufacturing process more easily and rapidly than their rivals. And they will be able to create barriers to generic competition with process patents. In short, they will be able to turn their manufacturing into a valuecreating activity and set themselves apart from the crowd.

NEW PRODUCT AND PROCESS DEVELOPMENT Matching supply with demand and implementing PAT retrospectively in the parts of the manufacturing base to which it can be applied are relatively short-term measures. In the longer term, however, the pharmaceutical supply chain must also gear up for a new pipeline that includes many complex products. If it is to do this successfully, it will have to play a much more active role in the early phase of development when a lot of the

JULY 2011 • SMART LOGISTICS • 55

Pharmaceutical logistics, continued

characteristics of a product that determine how it is subsequently manufactured are first defined. Many companies in other sectors already integrate the design, development and production of their goods. But this approach, which is elsewhere known as product lifecycle management (PLM), has equal potential in pharma. It requires the construction of an integrated product and process data backbone spanning everything from early development to marketing and sales. Three areas are particularly important for manufacturing purposes: formulation and process development, utilising design principles that support PAT; product & process data management; and the use of preferred technologies to support science-based development. Creating a collaborative design-supply chain that straddles the entire product lifecycle has various benefits. It reduces the problems arising on the production line as a result of design features that make the manufacturing process unnecessarily difficult; it makes transferring a product from one manufacturing site to another much easier; and accelerates new product introductions. Lastly, it provides an effective channel for communicating feedback from the marketplace to refine the development & manufacturing of future products. The industry also needs to improve its quality management. At present, most pharmaceutical companies do not design new products for six sigma manufacturing. In future, however, they will have to introduce ‘quality by design’ principles into new product and process development, and increase their manufacturing process capabilities with a concerted drive towards 4.5 sigma. That implies that they will have to integrate key design partners in the design chain, use predefined technology platforms wherever possible and acquire new manufacturing & process engineering skills to support the production of totally different treatments. Collectively, these measures will enable pharma to accelerate new product & process development, and hence, new product introductions, dramatically.

RESTRUCTURING AND ASSET RATIONALISATION Redesigning the new product introduction process to prepare for the advent of targeted treatment solutions is vital, but

56 • SMART LOGISTICS • JULY 2011

F THE SUPPLY CHAIN IS NOT TO BECOME A BARRIER TO DRUG COMMERCIALISATION, THEN IT MUST BE COMPLETELY REDESIGNED.

it only covers a small part of product commercialisation. All companies have limited resources. So, it is imperative to direct those resources – be it capital, plant, skills or management time – to the areas of the business that create most value. Yet most pharmaceutical firms are currently looking backwards, not forwards. They have supply chains that are engineered to manufacture the small molecules they have traditionally discovered and developed, rather than a much wider range of products, many of them biological rather than chemical in nature. They will therefore have to ultimately reorganise their manufacturing assets and, while doing so, take a zerobased view of the business, since a piecemeal or step-by-step approach to the restructuring of an organisation and its assets does not work. The six activities performed by the pharma supply chain that have the greatest potential to add value are: • Control of product quality and patient risk exposure • Intellectual property creation via new products and processes • Strategic sourcing via tax-effective supply networks • Use of innovative manufacturing process technologies and expertise in working with such technologies • Orchestration of the performance of the end-to-end supply chain • Distribution and channel management. Most pharmaceutical companies manage all six core skills very well internally. They find it much more difficult to deal with external designers and suppliers, or to supervise their products once they are out of the warehouse. But the ability to work with external organisations is becoming much more important. In future, they will therefore have to devote a greater share of their resources and management time to such activities. They will also have to develop the infrastructure they need – whether they choose to become volume manufacturers, high-tech manufacturers or

network integrators, or adopt any other supply chain model. So, for example, a company that wants to focus on targeted treatment solutions will need to concentrate its capital investment in a small number of sites and equip them with the most promising new manufacturing technologies – drawing on the concept of ‘smart factories’. It will likewise need to minimise its investment in mature technologies by selling off old plants and outsourcing the production of commodity drugs to contract manufacturers or joint venture partners. Some of the industry leaders have a hundred or more manufacturing sites, as well as numerous regional and local warehouses. In practice, they probably only require about 10-15 high-tech sites around the world to support their future production needs. The rest of their manufacturing could potentially be outsourced. Again, however, it is crucial to keep control over strategic sourcing, supply integration and channel management, these are activities that should not be outsourced to a third party.

TECHNIQUES FOR EXTENDING PHARMA’S REACH TO THE CUSTOMER Pharma also needs to extend its reach to its customers. The industry currently delegates distribution to wholesalers and third party logistics (3PL) providers, and is weaker than most other sectors when it comes to channel management. This has several undesirable consequences. It limits the amount of information about patient demand and product flows that is passed back to the manufacturer; encourages parallel importing from cheaper into more expensive regimes and prevents a company from being able to guarantee the integrity of its products beyond the warehouse door. Parallel trading costs pharma billions of dollars a year, but most of that money goes to the importers and pharmacy chains rather than healthcare payers and patients. IMS Health, the market research firm, estimates, for example, that although the level of parallel imports into Germany was about €1.3 billion in 2002, the saving for payers was just €126 million. Moreover, most such imports are repackaged or relabelled, which increases the risk of errors (such as insertion of the wrong product or prescription guidelines) and makes it more difficult for pharmacists to distinguish counterfeit from genuine drugs.

Given these problems, it is important that pharmaceutical companies take control of their own downstream distribution, both to maximise the potential of the different channels they use and to protect patients from mistakes and fraud. They must reengineer their distribution models to push the boundaries of product supply from the warehouse to the point-of-dispensing as shown in Figure 5. One technique is to go direct – to deliver the most Figure 5: The supply chain will extend its reach to the customer. innovative and expensive products straight to retail pharmacies, hospitals and specialist clinics through channel-to-market innovations. If without using wholesalers. In fact, with they do these things, they can expect repeat prescriptions for some drugs, such to see margins recover, to enjoy better as oral contraceptives, there is no reason market intelligence and channel control, to why companies could not supply patients accelerate the point at which sales peak, directly, too. Wholesalers would still to reduce planning inaccuracies and to be have a useful role to play in distributing more effective in curbing counterfeiting. mass-market drugs with high volumes; SUPPLY CHAIN TRANSFORMATION indeed, they could make a far larger and When it comes to building an excellent more valuable contribution than they are supply chain, there are no short cuts and currently doing, by assuming responsibility there is no single solution. The scale of for packaging such products and managing the required change depends on three their distribution on a regional rather factors – the depth and length of the than a national basis. They are also in R&D productivity gap, the pace of an ideal position to mass-customise technological progress and the length of certain products with different drug and time it takes management to act. Some packaging combinations for different pharmaceutical companies recognised customer segments, and to help in the the challenge in the late 1990s and are battle against counterfeiting, using RFID now in the midst of making the transition; to track products as they travel from the others have just begun the process; yet warehouse to the patient. others, cushioned in some cases by strong A second, and complementary, product portfolios, remain in denial. But approach is to manage the funds used to it is clear that the industry is undergoing support pharmaceutical distribution and a fundamental transformation – and that channel management more effectively. if the supply chain is not to inhibit that Carmakers have long relied on an transformation, it must be reinvented. It extensive network of dealers to distribute must become smart, fast and efficient, their products, and used a mixture of without being expensive. So how should incentives and bonus schemes to motivate companies respond? The journey that the them. Pharmaceutical companies can industry must undertake can be organised apply the same principles in managing in three stages over a time span of five the performance of their wholesalers or six years. and 3PL providers and also in negotiating Stage 1: This stage addresses the basic with important customers. There are strategy formation; the elimination of significant opportunities, particularly in the products and assets that are unlikely to US market, for improving customer-facing comply with the FDA’s new agenda; the processes such as contracting and pricing. introduction of six sigma manufacturing In all, pharmaceutical companies must techniques; and the identification of key create much stronger relationships with technologies and partners. the retail pharmacies and hospitals that Stage 2: This stage focusses on asset dispense their products, and focus much rationalisation with the first wave of site more clearly on the needs of patients

disposals and commissioning of smart factories; the reengineering of new product processes; innovations in channel management; and the development of science-based submissions. Stage 3: This covers the renewal of the remaining asset base; widespread use of channel management and the embedding of risk management procedures.

TREADING ON THE PROFITABLE PATH To sum up, a scientific and technological revolution is taking place, which will ultimately enable pharma to make profitable new medicines both, for conditions it cannot treat very well at present and for conditions that have previously resisted all treatment. But that same revolution is posing problems with which the supply chain has never had to contend before. As a greater volume and variety of new products – large & small molecules, biomarkers and devices – move into clinical development, the industry’s pipeline will become wider and more complex, and the demands placed on manufacturing and distribution will become correspondingly heavier. The only question is how individual pharmaceutical companies will respond to this development. They can either concentrate on alleviating the short-term pressures they face or take the long view and, in doing so, recognise the real contribution that the supply chain can make. Negotiating contracts, procuring materials, getting them to the people who manufacture the products and shipping the finished goods to customers is often seen as an unglamorous, albeit essential, part of the business. But the supply chain can either obstruct or enable future growth. It can be used to help accelerate time to market and the maximise revenues from new products; to impede generic competition; to protect patients from taking counterfeit drugs and to stem the financial leaks beyond the factory gate. If managed properly, it can prove to be a major source of valuecreation. Courtesy: The article is an excerpt from the whitepaper, ‘Pharma 2010’ by IBM Business Consulting Services.

JULY 2011 • SMART LOGISTICS • 57

SECTOR FOCUS

GLOBAL BEST PRACTICES FOR CLINICAL TRIALS

THINKING GLOBAL, ACTING LOCAL Storage, handling and distribution of temperature-sensitive drugs symbolise an important component of the global pharmaceutical supply chain. Growth in the pharmaceutical market in conjunction with the complexity of the clinical supply chain and global regulatory environment has mandated that supply chain partners have thorough knowledge of appropriate regulations, local requirements and industry best practices related to the storage, handling and distribution of temperature-sensitive products. All partners should work towards achieving their common goal – ensuring that each patient and site is supplied with the correct medication at the right time and in the right condition. THE pharmaceutical industry has been increasingly outsourcing non-core services such as packaging, labelling, analytical testing and logistics as a means to drive down costs. And now, with companies under intense pressure to shed fixed assets, manage costs and increase efficiencies, they are turning to strategic outsourcing partners to fill global supply chain needs. From large pharmaceutical companies intent on downsizing facilities to biotech and mid-size pharmaceutical companies that do not have the scale required to compile and distribute investigational drugs to sites located in emerging regions of the world, all have recognised how labour and regulatoryintensive as well as capital-intensive clinical development is for their organisation. The clinical supply chain comprises a series of discrete functions that map

58 • SMART LOGISTICS • JULY 2011

up to an integrated distribution network responsible for packaging, labelling & shipping investigational drugs and managing re-supply as well as returned product from all over the world. Having the infrastructure to accomplish this is no small task and requires a team of skilled experts across a multitude of areas, annual training & certification and stateof-the-art equipment with high annual maintenance requirements. The alternative is to assemble expertise either from a series of outsourced specialty providers and integrate those activities, or partner with a clinical supply chain management organisation.

CRITICALITY OF SUPPLY CHAIN The clinical supply chain impacts dozens of functional areas and is critical to a company’s success. A supply chain that

is not managed properly can negatively impact the lead time for conducting clinical trials and hamper the launch of a new product. While the industry often focusses on subject enrollment and recruitment as the single driver of trial success, it is equally important that the right drug is at the right site at the appropriate time, in compliance with local regulations, so that the patients can be treated and the trial can proceed. Organisations recognise the tremendous benefits that a well-managed supply chain can provide to both, the top and bottom line. Hence, they are trending towards a model that outsources most of these activities to proven and trusted outsourcing partners whose core capabilities lie in supply chain management and who are equipped to address traditional as well as new, supply chain

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challenges, such as: • Navigating a web of evolving government regulations for drug importation • Dealing with highly sensitive products requiring special handling and controlled environments • Managing complicated logistical issues in countries plagued by limited infrastructure and experience. Short-term cost and productivity measures are not sufficient to meet the fundamental challenges that the pharmaceutical industry now faces. With the rising tide of biologics and the expansion of clinical trials to the less developed regions of the world, any company that wants to prevent the risks and exploit the emerging opportunities will need to radically overhaul its supply chain. The supply chain of the future must be smart, efficient and agile. According to a recent report, the development of new R&D network models that help to distinguish the core competencies of a company, its strategic partners, academic alliances and service providers can help target productivity issues and achieve cost savings of 40 per cent or more. As these new models continue to emerge and evolve, outsourcing companies specialising in supply chain management will become more important strategic partners.

GLOBAL CLINICAL TRENDS While the advantages of going global are many, globalisation has, by necessity, significantly focussed on the supply chain model. Thanks to globalisation, the number, size and complexity of clinical trials are expected to rise dramatically, thereby forcing sponsors to manage new challenges in the clinical supply chain and efficiently complete trials. Many sponsors do not have the staff, resources or knowhow to efficiently manage the regulatory requirements, the import & export challenges, or even the temperature requirements for a new generation of high-cost, highly sensitive investigational products. Today’s clinical trials involve investigators in sites from Shanghai to Mumbai; from Kiev to Krakow, often themselves fairly new to the process of clinical development. According to a survey, only 13 per cent of clinical trial material shipments arrived on time and even then, one in 10 was incomplete. This survey suggests that there is a great deal

of room for improvement. The increase in the number of clinical trials migrating to sites in Asia, Africa, the Middle East, Eastern Europe and South America has been accompanied by a host of new issues from a supply chain perspective. This expansionist movement shows no sign of stopping either. ClinicalTrials.gov, the registry of clinical trials taking place in the US and around the world, recently included more than 72,000 trials taking place in 166 countries. There are a host of obstacles – internal and external – that can impact the clinical supply chain. The sheer number of the different parties involved in the clinical supply chain – from manufacturing to quality control to the clinical teams to supply managers to the regulatory groups – itself makes the process unmanageable. The complexity of the process is multiplied when the number of countries or regions involved increases, not to mention the numbers of patients involved in studies. Further complicating the model is the complexity of the study design or data collection process. At the core of this process is the compound, which may be stable or unstable or highly sensitive to temperature changes, air or humidity. The biggest challenge of all, however, is the globe itself. Different time zones, local nuances in both, regulation & culture and substandard infrastructures are all logistical obstacles that will continue to challenge outsourcing providers and sponsors alike for the near and long-term.

BEST PRACTICES As the number and complexity of global trials increases, the lack of a proper supply chain management strategy sharply raises the likelihood of issues and even delays in clinical trials, thereby resulting in significant costs to sponsors already facing economic pressures. As such, large and small pharmaceutical companies will increasingly require supply chain management expertise to take a project management approach to deliver specialised skills early in the planning stages. This will help companies improve efficiencies for a number of processes, including pack configuration, multilingual labelling and inventory control, which, in turn, will ensure the receipt, packaging, storage and distribution of clinical trial materials worldwide. This outsourcing approach allows quality assurance (QA) teams to support every project; it

ensures standard operating procedures (SOPs) are strictly implemented and that current good manufacturing practices (cGMP) are rigorously executed. Clinical supply providers have exposure to large multinational trials and thousands of protocols every year across numerous therapeutic areas. As a result, providers are able to develop industry best practices for clinical logistical support, thereby permitting synergistic partnerships, better regulatory strategies and developing an overarching global strategy with local tactics.

DEVELOP LOGISTICAL SUPPORT Develop a comprehensive logistics plan Managing the many moving parts of a supply chain is one of the most timeconsuming and intricate factors involved in the clinical process. Logistical support involves engaging strategically placed facilities and depots around the globe to ensure that a supply chain solution, which addresses both, the regional and countrylevel requirements of a clinical programme, is executed. An experienced logistics team brings unsurpassed knowledge to the challenges associated with shipping investigational products across the globe. Additionally, the increased complexity of trials taking place in secondary and tertiary regions requires special handling of biologics, including vaccines and monoclonal antibodies, which require controlled temperature conditions during shipping and storage. From a logistical perspective, the increase in trials of biologics means the stakes could not be higher since the loss of temperature control requires the replacement of costly product. First and foremost, complying with the good distribution practice (GDP) during the movement of a product is mandatory to ensure that material integrity is uncompromised. A capable supply chain partner needs to have the resources to manage, track and transport all types of products, including temperature-sensitive compounds. An outsourcing partner can also monitor materials in transit by using different types of technologies, including radio frequency identification (RFID) transmitters that can continuously monitor temperaturesensitive products. An expert in logistics can also ensure that products do not sit for extended periods in the Customs, where the risks of temperature excursion threaten the viability of a product.

JULY 2011 • SMART LOGISTICS • 61

Clinical trials, continued

DO YOU KNOW? Supply Management Process and System Specification: Make higher-level decisions earlier to minimise drug and supply waste without compromising on patient’s safety. Interactive Response Technology: Observe and control critical trial details at every site in the study through any real or virtual desktop by using interactive response technology. Retain total control of any investigational product or ancillary supplies used by an investigator site from the day it is planned, designed, packaged, managed, quality controlled, re-supplied, replaced or expired. Clinical Liaison and Site Feasibility Support: Know how to best receive and handle investigational products. By understanding the dynamics of site demand & supply, sponsors can best support clinical research functions at the investigational site level with accurate forecasts and appropriate supply of investigative product or ancillary supply without waste. Resupply Management: Knowing the end points, the goals around patient compliance, and the cost-containment requirements, a process can be designed and engineered to cost-effectively optimise a sponsor’s supply chain. Serving local markets in their own language, experts listen first, hear needs and are motivated to serve as an extended team to meet the demands of a clinical protocol.

Another key strategy is the use of a premium courier company having local presence to assist with managing the often time-consuming Customs clearance. Ground handling on arrival, especially with respect to temperature-sensitive materials, is a highly vulnerable point in the clinical supply chain. The use of performance metrics in selecting the right courier companies can go a long way to ensuring reliable and on-time delivery of a product. The use of a centralised, regional distribution center to receive trial materials improves distribution and logistics efficiencies while limiting the times when a trial drug must pass through the Customs. The coordination of Customs’ local transit is also a prerequisite to ensure successful supply chain management. The distribution center will receive, book & inventory trial drugs using standard operating procedures (SOPs) and a single information technology (IT) system to ensure transparency and prevent inventory issues over the course of a trial. Inventory control with respect to biologics is particularly critical because the shelf life of a product is not definitively known in the early testing stages. The product could fall out of specification during the course of a trial. The job of the supply chain manager does not end after trial materials arrive at individual clinical sites. The supply

62 • SMART LOGISTICS • JULY 2011

chain manager must work closely with each site to ensure that storage locations for temperature-controlled drugs are appropriate, controlled & secure, and that the staff understands these special requirements. That is when an understanding of local language and culture comes in handy, along with good relationships. In many countries, including China, India and Japan, a high level of cultural courtesy can make it difficult for people to say no. The ability to not just interpret, but truly understand what is actually being communicated is essential, as it helps save time and money for all concerned.

SYNERGISTIC PARTNERSHIPS Get started as early as possible It is important that providers and sponsors work together early on the protocol design, which allows the outsourcing partner to engineer automated solutions & consolidate non-sequential steps to speed up progress and reduce the risk throughout development. Similarly, having an outsourcing provider onboard earlier when, for example, a global trial is in the planning stages rather than when the pressure to ship products to clinical sites is building, can make a big difference. Sponsors should utilise their supply chain partner as an integrated support system, rather than the provider of

discrete functions. Additionally, a fair amount of time and money can be saved when streamlining the clinical supply chain if both, the project management plan and the supply chain plan are done in collaboration. By communicating early on, the partners can address any number of questions before they arise. They could gain an understanding of the impact of import & export regulations on trial and project timelines, develop a strategy for resupply & returns earlier on in the process, and as a whole, partner to ensure that the project plan is devised to minimise the administrative burden on the sites themselves so that they can focus on the clinical concerns of the trials.

HARMONISE REGULATORY STRATEGIES Work collaboratively with regulatory authorities Perhaps, the single most important factor enabling globalisation is the substantial progress to date in the harmonisation of regulatory strategies. In order to ensure seamless drug development, the sponsor companies and service providers will need to work in collaboration with regulatory bodies across the globe to develop more common approaches that can eliminate waste, assure patient protection and streamline the ability to effectively design & deploy a global clinical trial. Ever since its formation in 1990 by regulatory authorities and researchbased industry representatives of Europe, Japan and the US, the International Conference on Harmonization of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) has improved the way drugs and vaccines are developed and registered by eliminating redundancy. Driving the need to rationalise and harmonise regulations were concerns that are even more relevant today than they were then. Today’s clinical supply experts must have the requisite knowledge to develop & register new products and streamline the process across an ever-expanding landscape of countries and regions.

REDUCE WASTE AND RISK Reduce overages and control risks According to Fisher Clinical Services estimates, there is an upward trend of 200 per cent waste in the supply chain. Accordingly, there is tremendous focus is being placed by pharma and biotech

customers in managing their internal resources. Sponsor companies are focussing on the broader cost of resources that need to be applied internally to assure a risk-free clinical supply chain. Sponsors typically have a 20-week timeline from final protocol to putting clinical trial supplies in the field. Those supplies can range from the investigative drug to a series of equipment and other ancillary products required by the protocol. These accompanying supplies can range from an ECG machine to home tests for patients, to even food supplements. A holistic approach to the clinical supply process that takes into account all inbound supplies to an investigative site and develops a plan to optimise the shipping and thereby streamline what is sent to the site can yield unexpected and sometimes substantial benefits for everyone. Administrative burden is reduced on the sites and the CRAs tracking the materials and economies of scale from consolidating shipments can even reduce the overall logistics budget.

chain team. An outsourcing partner can communicate across silos and connect with all of the functions involved – from logistics to manufacturing to study teams – across geographies and divisions to manage the internal & external communications and planning. However, to achieve optimal results, there must be trust and open communication between the sponsor and outsourcing partner. The service provider cannot overpromise and underdeliver – the stakes are too high. Likewise, the sponsor needs to readjust its management model from one based purely on transactions and projects to a strategic model based on long-term and mutually beneficially relationships. The most successful models are ones where a sponsor has looked to partner with a provider that can help him access all challenging geographies, rather than a select region only. Sponsors who have developed the sort of trust with their outsourcing partners that allow them to share plans in advance can gain the benefit of these providers investing for them in regions or technology.

DEVELOP AN AGILE STRUCTURE Cut across silos As companies’ pipelines ebb & flow, gaps develop. This makes it economically unfeasible for sponsors to carry the costs associated with these products internally. An outside provider, because of its scale of operations, can be more flexible with its resource deployment. Larger outsourcing providers can offer 10-15 times the scale and capacity of the sponsor, which can dramatically help reduce overages and waste in the process. Increasingly, multinational contractors and joint-venture partnerships have established services in tertiary markets to address the industry’s hunger for globalisation, as well as the integration of discovery & clinical services. As the secondary and tertiary contract marketplace expands, it will enable pharma players to selectively tap into expertise and technological advances within specific markets, thus providing greater R&D flexibility and helping companies maximise their return on offshore investment from variable overheads through improvements in productivity, competitive pricing and without locking in significant investment in fixed overheads abroad. Third parties often have the ability to span across organisational structures better than the company’s internal supply

ESTABLISH A GLOBAL TEAM Team management Globalisation of the pharmaceutical industry is taking place at every level, including the workforce level. Multinational programmes have grown to include nontraditional markets. Establishing a strong global team takes time and the hurdles are particularly high when the team is spread across continents and time zones. A clinical trial supply expert brings more than the resources to establish a global team – he/she also brings in a deep understanding of the various cultures and experiences in creating a shared sense of mission & goals within the clinical supply chain and with their clinical partners. While every multinational clinical trial requires an entire cast of specialists to achieve success, all too often, these time-sensitive and complex programmes dissolve into various camps and fail to recognise that all contributors are united by a common mission. Identifying the right partner means more than years of experience or training, it requires ensuring that these teams work well with others, understand a multi-cultural environment, operate well under pressure and adjust to tackle unexpected challenges. This uniting concept translates across borders, regions, countries, languages and cultures.

ADOPT GLOCALISATION Implement local tactics All clinical trials are local. A global clinical trial plan is necessary, but too often, the approach to clinical trials planning, materials planning and patient recruitment is done under the guise that global means everybody is the same. What sponsors need to consider, and this is where a global outsourcing partner can lend assistance, are the local challenges involved with the clinical supply chain and a proactive plan for addressing and managing those risks. In the near-term, offshore investment has focussed on many of the secondary emerging economies, such as the BRIC (Brazil, Russia, India, and China) nations, to contract preclinical and clinical research. In the longer term, the tertiary, third-tier economies will emerge to capitalise on specific skill sets and take advantage of the cost differentials and/or infrastructure benefits to attract additional offshore investment. Tertiary markets, such as Australia, Argentina, Chile, Turkey, Pakistan, Peru, South Africa, Ukraine and Vietnam are increasingly evolving to fill market niches and service smaller specialist companies, thereby tapping into a rapidly growing marketplace. A supply chain partner with local expertise will become an invaluable asset.

THE NEED OF THE HOUR In today’s challenging financial and global environment, with higher cost investigational drugs, one of the most critical considerations for clinical development is minimising risks in the clinical supply chain. A set of tasks that were historically seen as in-house activities by pharmaceutical organisations are increasingly being outsourced to organisations having more capacity, a broader footprint and available resources to help them with the growing complexity of clinical programmes and the expanding network of clinical sites. It is critical for clinical & clinical supply teams to initiate planning and collaboration early in order to proactively plan for any potential challenges that would delay the shipping of drugs to sites when it is needed. Sponsors should look to partner with an organisation having demonstrated expertise, the ability to work across geographies & cultures, a keen understanding of local and international requirements and that offer models for support at multiple levels. Courtesy: Fisher Clinical Services

JULY 2011 • SMART LOGISTICS • 63

SECTOR FOCUS

RISK MANAGEMENT

Organisations become vulnerable if risks in supply chain management are not identified and contingency plans are not developed at the time of crisis. Thus, the decision-making activities of risk management process must be applied to the supply chain to recognise and mitigate a threat. THE cold chain refers to a system of storing and transporting products within the recommended safe temperature range (frozen, refrigerated or controlled environment). Maintaining the cold chain is essential, as products that are temperature sensitive can become less effective or even get destroyed if exposed to a temperature above or below the recommended range. The loss of product effectiveness is cumulative and cannot be reversed.

forms the foundation of the entire risk management process. • Risk analysis: This step attempts to estimate the level of the identified hazards and risks in terms of severity of harm and the likelihood of occurrence & detection. It provides a quantitative or qualitative estimate of each risk. There are various tools used to analyse the risk – like a ‘qualitative’ tool, such as risk ranking, and a ‘quantitative’ tool, such as Failure Mode & Effects Analysis (FMEA) and Cause and Effect

(C&E) matrix. • Risk evaluation: It compares the identified and analysed risk against the given risk criteria. To achieve this, a level of tolerable risk must be defined against which the risk analysis output can be compared. Risk evaluation allows the decision making step of risk control.

RISK CONTROL It involves decision-making activities that result in action, i.e., reduction of

RISK MANAGEMENT Risk management is defined as a systematic process for the assessment, control, communication and review of risks across the product and service lifecycle. The level of effort invested may vary from case to case, but essentially should commensurate with the specific risk. Risk assessment encompasses several aspects that help in determining the quantitative or qualitative value of risk related to a concrete situation and a recognised threat. • Risk identification: The purpose of the risk identification stage in the overall process is to determine ‘What can go wrong?’ It is defined as ‘a systematic use of information to identify hazards referring to the risk question or problem description’. Hence, risk identification is a starting point and

64 • SMART LOGISTICS • JULY 2011

Risk assessment Risk identification Risk analysis Risk evaluation

Risk review Review criteria Measurement tools Feedback of the review

Risk control

Risk management

Risk communication Internal stake holders External stake holders Who/What/When/How?

Risk reduction Risk acceptance

Risk assessment

Tool

Risk control

risk. Risk control has a wider ambit than risk management. It is a process of procedures, policies and systems that an institution or organisation needs to manage the risks. This process contains some key elements like: • Risk reduction: This process agrees to take action to reduce and avoid the identified risks, including allocation of resource and investment where appropriate. The risk reduction step focusses on processes for control or avoidance of risks. • Risk acceptance: This process is a decision taken by an organisation to continue to operate without any action to reduce a given risk. The purpose of risk acceptance is to formally record the decision by the senior management and communicate it to the business and relevant stakeholders.

Details

Critical process

Maintaining cold chain product within the desired temperature range

Critical process parameters

Temperature range, e.g., 2-8°C

Risk event

Deviation from temperature range, 2-8°C

Potential hazards

Identify risks with product quality, customer safety, business, etc.

Risk ranking

High risk

Tolerance level

Specify tolerance, e.g., >8°C, for 30 minutes Risk evaluation

Component

Details

Policy decision

Maintenance of temperature

Actions required

Temperature monitoring of facilities and transportation

Resources

For equipment, facility improvements

Involvement

Organisation roles and responsibilities

Risk identiﬁcation

Risk analysis

Risk reduction

Table1: Process of risk management

RISK COMMUNICATION Risk communication is an effective internal and external communication critical for the success of any risk management process and is an ongoing part of the risk analysis exercise. Communication and consultation with internal and external stakeholders as far as necessary should take place at each stage of the risk management process.

RISK REVIEW

reduction was to select a complete data-logging solution that can cover temperature monitoring of the following areas. The internal facilities including manufacturing, packaging & cold room stores; and external facilities including cold rooms at distribution centres, transport vehicles, etc. The technologies used are wireless data-logging system with real-time multi-location monitoring and Global Positioning System (GPS)-based monitoring.

data-loggers with sensors for temperature control are placed in the refrigerated compartment of each vehicle. The GPSbased communication box linked with the radio receiver facility is placed in the driver’s compartment, and the GPS modules are configured with a server. The deliverables include real-time temperature data of all cold rooms at user-defined intervals; multimedia alerts via telephone, fax, email, hoofer, etc; fleet management and temperature data of refrigerated vehicles on the move and automatic reporting with audit trail for risk review.

Risk review is required to ensure that the results of the risk management process CONFIGURING THE SYSTEM are periodically re-visited and actively For configuring the system, some factors evaluated in response to events and must be considered. Wireless data loggers new information. It is about being able TAKING THE RIGHT ACTION with temperature sensors are placed at to demonstrate and verify the status and The risk management process is an each measurement point spread all over effectiveness of risk management. ongoing cyclical process, which includes a the territory for temperature regulation at There are immense benefits of systematic approach to control risk management that or eliminate critical risks as include improving business There are immense beneﬁts of risk management well as identify any new risks. relationships between suppliers Appropriate actions should be and customers, potentially that include improving business relationships taken based on the output of reducing costs, minimising between suppliers and customers, potentially the risk management process. cost of compliance, improving reducing costs, minimising cost of compliance, For cold chain, it is necessary business efficiency, increasing improving business efficiency, increasing to select the right technology confidence, reducing liability conﬁdence, reducing liability as well as avoiding that is easy to use, as well as as well as avoiding waste and waste and scrap. expandable and adaptable both scrap. for facilities and transportation PROPOSED SOLUTION FOR RISK the facilities. Radio receivers are installed vehicles. This helps in proper integration MANAGEMENT at every location to receive data from the throughout the supply chain. Table 1 shows an example of the process data loggers at user-defined intervals. All Ajit Tamhane, Director, of risk management in which there was these locations are connected by LAN Lisaline Asia Lifesciences Technologies a lack of temperature data at various and WAN or through Internet. E-mail: ajit.tamhane@lisalineasia.com facilities as well as during transportation. For monitoring the temperature Courtesy: Modern Pharmaceuticals Hence, the action proposed for risk of refrigerated vehicles, wireless

JULY 2011 • 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

Air freight & road transport ............................................................................... BC

Modern food processing ........................................................................................29

Barcode & RFID technologies .............................................................................19

Pallets..................................................................................................................................37

Commercial bonded warehousing .................................................................FIC

Plastic pallets ..................................................................................................................37

Commercial documentation ...............................................................................FIC Project logistics ........................................................................................................... BC Containerized transportation ................................................................................. 7 Reverse logistics ......................................................................................................... BC Domestic after market service & spares logistics .................................FIC Supply chain management - design & planning ...................................... BC Exhibition - Engineering Expo ..........................................................................BIC Freight management - sea freight ................................................................... BC

Taxation regulatory compliance under export promotion schemes ...........................................................................FIC

International trade ....................................................................................................FIC Inventory management .......................................................................................... BC

Warehouses ..................................................................................................................... 7

IT asset management ..............................................................................................FIC

Warehousing ................................................................................................................ BC

Knowledge process outsourcing ......................................................................FIC

Warehousing & storage solutions ....................................................................... 3

Pg No

Advertiser

Tel. No.

E-Mail

Website

Alfa Supply Chain Solutions Pvt Ltd

+91-2522-645274

siddhartha@alfasolutions.in

www.alfasolutions.in

BIC

Engineering Expo

+91-9819552270

engexpo@infomedia18.in

www.engg-expo.com

Great Eastern Impex Pvt Ltd

+91-124-2347431

info@geipl.com

www.geipl.com

Kamikaze B2B Media

+91-22-26395102

harish@elscconclave.com

www.elscconclave.com

FIC

M&M Connect Advertising & Promotions

+91-80-40824600

info@indelox.com

www.indelox.com

Modern Food Processing

+91-22-30034651

b2b@infomedia18.in

www.mfponline.in

Schaefer Systems International Pvt Ltd

+91-22-67410770

schaefer@ssi-schaefer.in

www.ssi-schaefer-asia.com

Sintex Industries Ltd

+91-2764-253500

pallets@sintex.co.in

www.sintex-plastics.com

Vijay Logistics Pvt Ltd

+91-2135-675000

info@vijaylogistics.com

www.vijaylogistics.com

Our consistent advertisers COC = Cover-on-Cover, FIC = Front Inside Cover, BIC = Back Inside Cover, BC = Back Cover

66 • SMART LOGISTICS • JULY 2011

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 Air freight & road transport

Modern food processing

Barcode & RFID technologies

Pallets

Commercial bonded warehousing Commercial documentation

Project logistics

Containerized transportation Domestic after market service & spares logistics Exhibition - Engineering Expo Freight management - sea freight

First Fold Here

Plastic pallets

Reverse logistics Supply chain management design & planning Taxation regulatory compliance under export promotion schemes

International trade Warehouses

Inventory management IT asset management

Warehousing

Knowledge process outsourcing

Warehousing & storage solutions

ADVERTISERS’ INQUIRY FORM Modern Food Processing

Engineering Expo

Schaefer Systems International Pvt Ltd

Great Eastern Impex Pvt Ltd

Sintex Industries Ltd

Kamikaze B2B Media

Vijay Logistics Pvt Ltd

M&M Connect Advertising & Promotions

Third Fold Here

GLUE

Second Fold Here Alfa Supply Chain Solutions Pvt Ltd

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07 / 2011

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