Smart Logistics - June 2011

Vol. 02 | Issue 03 | JUNE 2011

` 100/-

VIEWPOINT

P 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, Sudhir Muddana, Purna Parmar Product Desk Michael Anthony

DESIGN

assion finds paranoiac parallels… the phrase ‘music to ears’ may have nothing to do with musical instruments but it has everything to do with instruments that you deal with… or should we say, everything that you ‘wheel and deal’ with! If auto is a craze driving the whole nation, then what drives this sector has to involve crazy performance expectations. After all, it is this sector that is creating a ‘green revolution’ of its own kind… India earns its green dollars and the rest of the world turns green with envy as the nation is fast catching up to become the most preferred auto hub.

With the auto giants queuing up to set up base on Indian soil, the Indian automobile industry is slated to overtake the European market and become the world’s fourthlargest automobile market by 2015.

Coming back to music, composing music is to do with the fundamental elements of a song or instrumental work, such as melodies, harmonies, rhythms, etc. Arranging is the process of taking these ideas and developing them with musical instrumentation & additional harmonies, melodies and percussive lines as appropriate. Sometimes, the edges between musical arrangement and composition can get blurred… sounds similar to the automotive assembly and delivery process? Imagine a component manufacturer, an original equipment manufacturer (OEM), a car manufacturer and a logistics provider… blurring boundaries of their individual processes with peculiarities to create and roll the wheels for a synchronised and wellorchestrated rhythmic growth… a dream vehicle… the clunk, honk or the vroom… creating music for the ultimate customer!

Assistant Art Director Varuna Naik

ORCHESTRATING RHYTHMIC GROWTH

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

PRODUCTION DESK Ambika Karmarkar, Akshata Rane, Dnyaneshwar Goythale, Lovey Fernandes, Pukha Dhawan, Varsha Nawathe, Ravikumar Potdar, Sanjay Shelar, Abhay Borkar

CORPORATE Associate Vice President Sudhanva Jategaonkar Marketing & Branding Ganesh Mahale, Prachi Mutha, Shibani Gharat, Jagruti Shah

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Coming away from the musical trip, auto logistics in India is problem-poked, but full of hope. This segment will only restrict its growth to its own aspirations, and that is a fact. While the opportunities are huge, so are the lacunae.

While opportunities will find abode wherever there is a growth ecosystem, we need to deal with perpetual problems like fragmentation, lack of professionalism among logistics service providers, intense cost focus from the OEMs and poor infrastructure, among others.

It is a well received fact that effective supply chain management in India is a blend of global best practices, tailored and implemented in order to account for local challenges.

But the big difference between the Indian logistics industry and its global counterparts is the evolution of the industry itself. While comparing India to the rest of the developed world, where the auto industry is at a considerably more advanced stage of evolution, India is just about reaching the success point. And this maturity changes the whole dynamics, be it customer’s need and expectations, the capabilities of providers, or most importantly, the infrastructure, which enables efficiency & effectiveness of solutions.

Efficiency and effectiveness of solutions is the critical key. An integrated player having seamless and reliable offerings in both, the international as well as domestic arena, backed by technological tools for providing complete visibility from the shipper’s door to the end customer’s door, can address every challenge encountered by this robustly growing segment. To keep up with the dramatic growth of India’s automotive market, the logistics sector will have to play the lead role, helping it to unfold its growth spectacle… Are the prospects of this growth saga music to your ears?

Archana Tiwari-Nayudu Executive Editor archana.nayudu@infomedia18.in

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JUNE 2011 • SMART LOGISTICS • 5

CONTENTS

VOL. 02, NO. 03

JUNE 2011

SL EXCLUSIVE: JAPAN EARTHQUAKE AFTERMATH Rethinking Global Supply Chain Strategies Such has been the stronghold of Japan in the global map that the aftermath of the earthquake has not only been felt by Japan, but throughout the globe. While this natural disaster has impacted the strong manufacturing foothold of the country, it has also resulted in global supply chain inefficiencies. In such a scenario, is it worth depending on ‘Just-in-Time’ practices or does the entire industry have to rethink their global supply chain strategies?

Cost Optimisation Fashioning An Agile Supply Chain

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42 SMART SUPPLY CHAINS

VIEW FROM THE TOP ‘Cost Optimisation In A Supply Chain Does Not Drive Margins Alone’

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Godrej Consumer Products (GCPL) Adopting A Customer-Centric Approach

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Pirojshaw Sarkari, CEO, Mahindra Logistics

SMART SOLUTIONS INSIGHTS & OUTLOOK Auto Component Logistics Gaining A Competitive Standing Finished Vehicle Logistics Witnessing A Paradigm Shift Service Parts & Profitability Unlocking Profits Through Effective Pricing Logistics & Laws Ensuring India Gets A Good Business Deal

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Outsourcing Equipment Pooling A Smart Way To Do Business

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TECHNOLOGY TRENDS Tech Track Aligning IT With Business Using IT To Solve Business Complexities

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WAREHOUSING & DC Streamlining Billing Procedures Conquering 3PL Billing Challenges

CASE STUDY Enabling IT Infrastructure TVS’ Tryst With ERP

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‘We See Technology As A Game Changer In The Freight Forwarding Industry’

EQUIPMENT BUYING GUIDE Electric Lift Trucks Uplifting Material Handling Capabilities

VIEW FROM THE TOP

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

SECTOR FOCUS

PRICE TRENDS

Rail Freight Taking The Public-Private Partnership Route

PRODUCT & ADVERTISERS’ INDEX

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ALSO IN THIS ISSUE VIEWPOINT

Rajat Khosla, Country Manager India, FedEx Trade Networks

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PRODUCT & ADVERTISERS’ INQUIRY FORM

5 8 14 66 67

NEWS, VIEWS & ANALYSIS L A T E S T

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HALDIA DOCK II TO BE IMPLEMENTED THROUGH PPP ROUTE The Kolkata Port Trust (KoPT) plans to invite Expressions of Interest (EoIs) soon from firms seeking probable participation in the implementation of Haldia Dock II (commonly known as Shalukkhali) project through the public private partnership (PPP) route.

The project, estimated to cost more than `1,300 crore, will be in two parts viz., Haldia Dock II North and Haldia Dock II South, each having two berths.

While one berth will be mechanised, the other will be multipurpose. Each berth will have the capacity of four million tonne.

The railway network will comprise about 8-10 km of new line, marshalling yard and other facilities.

About 300 acre will be needed for the project, 160 acre of which has already been provided by the State Government.

The balance quantity will be obtained through reclamation of land from the Hooghly river. KoPT sources are hopeful of awarding the contract to the selected

bidder by February next year. The draft licencing agreement is being finalised by a Mumbai-based law firm, while the proposal for upfront tariff has already been placed before the Tariff Authority for Major Ports (TAMP) for consideration.

The Public Private Partnership Approval Committee should consider the shortlisted bidders around August and the price bids should be opened around October/November, the sources stated.

Meanwhile, KoPT authorities are working on modifications of certain clauses as incorporated in the request for quotations (RFQs) earlier invited for the transloading operation proposed to be undertaken at a suitable location. The amendments are being considered in the wake of feedback obtained from a large number of the firms that responded to the RFQs raising several points, including some legal issues. KoPT authorities also consulted a Mumbai-based law firm in this regard.

MAJOR PORTS HANDLE 6.3% MORE CARGO IN APRIL Major ports in India under the Union Government’s jurisdiction handled 49.55 million tonne (mt) of traffic in April, registering a 6.27 per cent growth against the same period last fiscal. The growth was supported to a large extent by higher volumes of petroleum products, coking and thermal coal handled in ports. The ports carried 4.42 mt of incremental cargo of these three commodity groups. The dip in the handling of iron ore was 2.5 mt. This dragged the net addition to the total traffic to 2.92 mt, according to data provided by the Indian Ports Association.

The ports under the state governments handled 34 per cent of the total cargo in India in 2009-10, according to the Shipping Ministry. In specific terms, the volumes of commodity groups and the corresponding growth or fall are: 15.5 mt of petroleum

products (15.29 per cent growth over last April); 9.88 tonne of containerised cargo (5.97 per cent growth); 4.57 mt of thermal coal (28.83 per cent growth); 2.94 mt of coking coal (84 per cent growth); 0.61 mt of raw fertiliser (91.8 per cent growth) and 0.49 mt of finished fertiliser (down 28.39 per cent). Cargo handled in smaller quantities, which are clubbed in ‘other cargo’ group, also witnessed a 4.64 per cent growth, with the ports handling 8.32 mt of other cargo.

Mormugao registered a 16.25 per cent dip in cargo handled primarily because of the dip in iron ore. However, despite this, Mormugao handled 4 mt of iron ore, continuing to be the port that handled highest volume of iron ore. Visakhapatnam handled the second-highest volume of iron ore with 1.28 mt.

L O G I S T I C S

SHIPLIFT FACILITY COMMISSIONED AT GOA SHIPYARD Defence Minister AK Antony formally commissioned the first and second phases of infrastructural modernisation projects of Goa Shipyard (GSL), a defence undertaking, at its shipyard in South Goa. The commissioning of these phases at a project cost of `400 crore will enhance its infrastructure by two repair berths, transfer area and shiplift piers in addition to the shiplift facility.

The commissioning of the shiplift facility was synchronised with the launching of the third in the series of Naval Offshore Patrol Vessels indigenously designed and being built by GSL for the Indian Navy. This planned modernisation programme is aimed at creating new facilities and infrastructure while augmenting the existing facilities in order to achieve the qualitative and quantitative objectives of building & delivering quality ships at competitive cost with shorter construction periods, increased capacity, product mix and shortened delivery times, said an official spokesperson of GSL.

MAERSK’S LARGEST VESSEL LANDS AT COCHIN PORT Maersk Line’s MV Spring R, which recently berthed at the International Container Transhipment Terminal (ICTT), is the largest vessel to call at the terminal so far. It is a 3,500-TEU vessel having Length Overall (LOA) of 247 mt. MV Maersk Izmir having LOA of 232 mt was the largest vessel to have berthed at ICTT before MV Spring R. Spring R is a mainline vessel currently serving in the FW2 service of Maersk Line, between East Africa and Far East, said a press release. The vessel berthed has 243 TEU import discharge for Kochi and 287 TEU trans-shipment to various other South Indian Ports.

NEW CARGO AIRLINE TAKES WING Air China Cargo (ACC) has started operations as a joint venture cargo carrier between Air China and Cathay Pacific Airways. The airline has its principal operating base in Shanghai and will soon have a fleet of 12 Boeing 747-400 freighter aircraft. Choosing Shanghai as its principal operating base ensures that

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ACC is well positioned to capture business opportunities out of the Yangtze river delta, which accounts for two-thirds of China’s air cargo business. In addition, the cargo belly space provided through Air China’s domestic & international passenger network will also provide string impetus to ACC’s global business development.

GATI NET PROFIT SLIPS TO `3.6 CR IN Q3 DESPITE HIGHER REVENUES

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GOVT APPROVES `1,354 CR ROAD PROJECT IN NE STATES The Central Government approved a `1,354 crore five-year project ending in 2016, for the construction, upgradation and improvement of the 433.8 km-long road in six north-eastern states.

The Cabinet Committee on Economic Affairs gave its nod to the project christened ‘ADB-assisted North Eastern State Roads Investment Programme’.

A centrally sponsored scheme of the Ministry of Development of the North Eastern Region, the project would benefit around 4.8 million people living around the project. Others would also reap the benefit in terms of lower transport

costs and faster transit time, an official statement said.

In the first tranche, a 74.7-km road in Assam, 93.4-km road in Meghalaya and 34.2-km road would be constructed or upgraded/improved; while in the second tranche, funds would be used for the same in around 63-km road in Assam, 93.2-km in Manipur, 55-km in Mizoram and 20.3km in Tripura. Ministry of Development of North Eastern Region has been entrusted with the job of overall coordination with the Asian Development Bank & participating states and also monitor the progress of the project.

‘GLOBAL CONTAINER SUPPLIES TO REMAIN TIGHT’ Shippers and carriers can expect container supplies to remain tight this year as the industry tries to catch up from box manufacturers’ lost year of 2009, the World Shipping Council (WSC) said. In an analysis of container supply, WSC said that the shortages will force shippers and cargo interests to plan and forecast carefully to ensure that they have containers when & where they are needed.

The report notes that supply and demand were thrown off kilter due to recession, which, in 2009, produced the first-ever annual decline in global container shipping volumes. The production of new containers, which had averaged three million TEU a year, virtually ceased. Chinese manufacturers resumed production last year, but production during 2009 and 2010 totalled to only 2.95 million units. “As a result, at the start of 2011, the global container fleet had approximately three million fewer containers compared to the levels to which the industry had become accustomed to,” the report said.

WSC said that the global container supply now totals 18.605 million containers or 28,535 million TEUs. This year, manufacturers are expected to produce about 3.5 million TEUs — 60-65 per cent of maximum production capacity of 5.5-5.7 million TEUs. Factories could produce up to 4.5 million TEUs without adding staff or production lines, but are unlikely to do so without firm orders in hand, WSC said.

With global container volumes approaching pre-recession levels, WSC said that container supplies appear tight by several benchmarks, including ratios of container inventories to vessel container slots, loaded containers to container inventories and container scrapping rates. Alphaliner forecasts that the ratio of containers to vessel slots will drop to 1.99 by year-end from 2.03 in 2010 – the lowest ratio on record, which is far below the 2.99 ratio of 2000.

L O G I S T I C S

KANDLA PORT TO HIKE CAPACITY TO 125MTPA BY 2013-14 GOVT CAN TRIM FUEL IMPORT BILL BY SHIFTING FOCUS TO RAIL MOVEMENT By increasing the focus on rail transportation, the government 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. This is because, rail transportation is much more energy-efficient as compared to road transportation. The savings on account of the fuel import bill would be more than twice of India’s annual highspeed diesel (HSD) import bill, which were at `7,006 crore in 2010-11. 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.

The Planning Commission’s Expert Group on Low Carbon Growth Strategies, in its interim report, has projected that the increase in cargo transportation through rail network would help reduce the fuel import bill.

In the same period, GHG emissions from the sector could be brought down by 14-25 million tonne. The variation depends on the GDP growth rate, as well as the extent of intervention that the government carries out to improve the rail freight share.

RBI MOVE ON NBFCs MAY HIT TRUCK FINANCING Funding for new and used commercial vehicles will be hit following RBI’s decision to do away with priority sector lending status for bank loans to non-banking finance companies (NBFCs), say transport associations. With 90 per cent of commercial vehicle sales financed by NBFCs, the move by RBI is expected to hurt the small road transport operators as it would be tough for them to access finance, which will also become more expensive. Although there is no industry data, it is estimated that the finance to new commercial

vehicles is about `50,000 crore.

RBI, in its monetary policy announcement, recently said NBFCs can no longer avail themselves of loans under priority sector lending from banks.

Transport associations feel that this move would stifle their existing route to buy commercial vehicles.

Commercial vehicle financing NBFCs typically function as intermediaries between banks and small road transport operators. Therefore, banks’ lending to these NBFCs was counted as ‘priority sector’ lending – a regulatory obligation.

This helped NBFCs get finance from banks at concessional rates, which they passed on to the small road transport operators. Chittranjan Dass, Secretary General, All India Confederation of Goods Vehicle Owners Association (AICGOA), said that the move by the banking regulator would create a multi-dimensional adverse impact and jeopardise the road transport system.

AICGOA represents the state associations of Tamil Nadu, Kerala, Maharashtra, Orissa, Karnataka and West Bengal, among others.

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ICTT ADDS TWO NEW EMPTY CONTAINER HANDLERS AT VALLARPADAM The International Container Transhipment Terminal (ICTT) has inducted two new empty container handlers to its existing infrastructure at ICTT in Vallarpadam.

The addition of this equipment, specifically dedicated to handle only empty containers, will enhance the speed of empty evacuation from the terminal, thereby resulting in faster turnaround of trucks. A faster turnaround of trucks at ICTT would mean additional trips, thereby reducing the logistics cost of empty container movement to and from the terminal. The two empty container handlers from KONE with a capacity of eight tonne were recently commissioned at the ICTT. These

are versatile machines specifically designed for empty container handling with the same ease as operating a forklift truck.

With advanced safety features including fire smothering system, high fuel efficiency and tremendous ease of operation, these machines are highly ecofriendly with state-of-the-art container handling capabilities. The specialty of the machines is the ergonomic cabin, which ensures low operator fatigue with useful information displays such as fuel efficiency, operating parameters and safety signals. Energy efficient and reliable LED lighting are also used in this equipment, a release said.

MAERSK TO HIKE US-INDIA FREIGHT RATE Danish shipping giant and the world’s No.1 container line, Maersk, will hike US-India freight rates, according to sources in the shipping industry. Effective from June 1, the east-bound rates from the US to ports in the Indian subcontinent will be up $120 per TEU, $150 per FEU and $190 per 45-ft container. The increased rates will also apply to shipments to the Red Sea and West Asian ports.

Maersk had recently announced a general rate increase of $250 per TEU from June 1 on all Asia-Europe routes, i.e. west-bound trade, indicating that the increased rates will apply to all dry & reefer cargo moving from Asian ports and all destinations in North Europe & the Mediterranean. The shipping line had announced freight increases in March.

Meanwhile, other European container operators have also announced freight increases on west-bound routes. Thus CMA-CGM, France’s No. 1 and the world’s No. 3 container line, has announced a rate increase of $225 per TEU from June 1 on Asia-North Europe routes. The revised rates will apply to shipments from all ports in Asia. Geneva-based Mediterranean Shipping Company had announced its plan to implement a freight increase of $100 per TEU in May on India-East Africa route, the sources add.

SAIL PLANS TO INVEST IN NEW PORTS, TERMINALS In a bid to have captive cargo handling facilities on the east coast, Steel Authority of India (SAIL) is mulling, among other things, investments, including equity participation, in the construction of a new port or berths, terminals or the creation of a similar facility to cope with the projected rise in the import of dry bulk cargo.

In fact, SAIL has already invited Expressions of Interest from firms keen to provide total logistics solutions to handle the imports, covering discharge, handling & storage and finally, evacuation of the materials out of the port to steel plants.

SAIL’s import of coking coal is

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projected to rise to 11.7 mt in 2011-12, 14.3 mt in 2012-13 and further to 18.5 mt in 2014-15 from 10.2 mt in 2010-11.

In 2014-15, the production of hot metal is estimated to go up to 23 mt, up from 14 mt in 2010-11.

Currently, coking coal accounts for more than 90 per cent of SAIL’s import of raw materials. However, in future, the imports of dolomite and coke are indicated to meet the requirements of plants located at Bhilai, Bokaro, Burnpur, Durgapur and Rourkela.

Now, SAIL uses ports at Haldia, Paradip and Visakhapatnam for routing its raw materials as its plants are mostly located in the east.

L O G I S T I C S

ESSAR PORTS PLANS TO DOUBLE HANDLING CAPACITY Essar Ports, the new entity that will replace Essar Shipping Ports and Logistics (ESPLL) on the bourses after the completion of the demerger process towards the end of the month, is expected to get better earnings visibility. This is primarily due to the fact that it has scaled up volumes with the company planning to further double its cargo handling capacity and divert onefourth of its capacity to handle third-party (or merchant cargo) contracts in the next two years.

Currently, ESPLL’s port division handles about 88 million tonne of cargo at its Hazira (30 mt) and Vadinar (58 mt) facilities. Almost the entire capacity is for Essar Group of Companies on a take-orpay contract, which are usually long-term contracts valid for 15 years. “As merchant volume ramps up, the margins should further improve as merchant pricing at its Hazira port is 10 per cent higher than contract pricing and 20 per cent higher at its (upcoming) Salaya facility,” reports Credit Suisse analysis.

COAL INDIA PLANS TO BUILD THREE NEW RAIL LINKS US 3PL MARKET FORECAST TO GROW 10.9% The US third-party logistics market is set to grow at 10.9 per cent this year over 2010 to a record $141.2 million, as the industry’s growth slows down following last year’s strong recovery, according to a report by Armstrong & Associates.

The expansion forecast in 2011 marks a slowdown from last year’s 18.9 per cent rebound from 2009, when Armstrong & Associates reported the first annual decline in the 3PL market since the firm began tracking results in 1995. The growth last year gave the 3PL operators $127.3 million in gross revenue, slightly better than the pre-downturn peak of 2008. Armstrong said that the international transportation management segment of the business led the growth last year, expanding 30.1 per cent over the year before.

The final figures for last year left the compound annual average growth rate for the US 3PL market from 1995 to 2010 at 12.7 per cent.

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MUNDRA PORT FULL-YEAR NET RISES 41% ON HIGHER INCOME JAPAN PARLIAMENT APPROVES FTA WITH INDIA Japan’s Parliament gave the green signal to a Free Trade Agreement (FTA) with India, thereby paving the way for the accord to take effect as early as this summer. Formally called the Comprehensive Economic Partnership Agreement between Japan and India, or the IJCEPA, the agreement will eliminate import tariffs on most products traded between the two economies.

The House of Councillors, the upper house of the Diet of Japan, approved the FTA by a majority vote at its plenary session. The House of Representatives – the more powerful lower house – had approved the FTA at its full session recently. The FTA was signed in Tokyo in February by then Japanese Foreign Minister Seiji Maehara and Indian Commerce and Industry Minister Anand Sharma, after about four years of negotiations. The Japan-India FTA will eliminate import tariffs on about 94 per cent of bilateral trade by value within 10 years. According to Japanese Government figures, Japan exported $7.2 billion worth of products to India and imported $4.2 billion worth of goods from the South Asian country in 2009.

US FREIGHT TONNAGE TO RISE 24% BY 2022 The US freight tonnage will grow 24 per cent through 2022, with trucking hauling 70 per cent of all freight by that year, the American Trucking Associations (ATA) said. Trucking’s total freight market share will climb three percentage points through 2022, while railroads will lose 0.7 percentage points of their share of overall tonnage, ATA said. By 2022, the railroads will move 15.3 per cent of total freight tonnage in the US, according to the ATA’s US freight transportation forecast to 2022. “The trucking industry continues to dominate the freight transportation industry in terms of both tonnage and revenue,” said Bob Costello, Chief Economist, ATA.

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ALLCARGO TO BUILD CONTAINER TERMINAL AT JNPT Allcargo Global Logistics is planning to build a container freight station at Jawaharlal Nehru Port Trust (JNPT) by the first quarter of 2012 and is looking at acquisitions in India and overseas. “We are also expanding our warehousing facilities across India to become a leading third party logistics player,” said Adarsh Hegde, Executive Director, Allcargo Global Logistics.

The company has earmarked `200 crore for expansion in this fiscal. It currently operates three container freight stations in Mundra, Chennai and Mumbai, Hegde added.

The company is targeting a turnover of `5,000 crore by 2013-14, Hegde said. It recently bought two small bulk ships to enter into coastal shipping. “We are keen on coastal shipping and have purchased two new vessels with an investment of `35 crore. With power plants likely to be set up at various locations, our intentions are to capture that market,” he said. “We are looking to acquire companies in India and abroad and our intention is to become a $1-billion company,” he said.

Allcargo Global Logistics has been aggressively expanding its operations abroad and recently purchased controlling stake in two Hong Kong-based companies. It also increased stake in its subsidiaries in the UK and Argentina. The company aims to expand its warehousing space to 4,00,000 sqft by 2012 from the current levels of around 1,00,000 sqft at an investment of `40 crore. It has warehouses in Goa and Mumbai and is planning to build new facilities in Indore, Nagpur and Hosur.

PORT OF LA PLANS $3 BILLION FOR EXPANSION The Port of Los Angeles will spend more than $3 billion in the coming decade to deepen its access channel, expand marine terminals, add on-dock rail capacity and improve traffic flow through street and bridge improvements in the harbour area.

The capital improvement programme is needed to accommodate a projected significant increase in cargo volume, better handle the container ships of 8,00010,000 TEU capacity and reduce pollution from port operations, said Michael Christensen, Deputy Executive Director, Port of Los Angeles. Christensen said that projects to expand existing container terminals will add about 200 acre. Also, the port has a long-term project at Pier 500 that could result in a new 200-acre terminal.

Expansion projects at existing facilities are in various stages of development.

The port recently celebrated a second

phase expansion project of the China Shipping terminal that added a second vessel berth. Further expansion will result in another wharf extension and backland expansion to nearly double the size of the facility to 142 acre. Los Angeles is close to completing a wharf extension at the TraPac terminal to allow for berthing of two vessels simultaneously. Additional expansion will add an on-dock rail yard and a larger gate complex.

The port will increase the APL terminal by 40 acre, a project that should move rather quickly, Christensen said. The port also plans to reconfigure wharf and backland areas at the Yang Ming and Yusen terminals and to replace the wharf and deepen the berthing area at the Evergreen terminal. Pier 500 is a long-term project that still requires environmental clearances and design work. The site is now being used as a dredge disposal site.

PE, M&A ACTIVITIES IN LOGISTICS, TRANSPORT SECTORS TO GET FURTHER MOMENTUM Merger and acquisition (M&A) and private equity (PE) activities in the transport and logistics sector in India during the first five months of 2011 have seen a significant increase as compared to that for the same months last year. Last month witnessed five deals, including Warburg Pincus putting $100million in Continental Warehousing

Corporation, Fidelity Growth Partners investing $13.5 million in Transpole Logistics and Aqua Logistics taking over Nikkos Logistics. There have been over 160 deals in the infrastructure sector in the last five years alone making it one of the most active M&A sectors in India today.

JUNE 2011 • SMART LOGISTICS • 11

NEWS, VIEWS & ANALYSIS L A T E S T

H A P P E N I N G S

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JAPANESE FREIGHT FORWARDERS EXPAND IN INDOCHINA Two Japanese international freight forwarders – “K” Line Logistics and Yusen Logistics – expanded their operations into Indochina, a Southeast Asian region sandwiched between China to the east and India to the west.

“K” Line Logistics said that it established a new subsidiary in Hanoi, Vietnam’s capital, to further expand its operations in the country by ‘offering improved quality and closer service to customers’.

In Vietnam, the company previously had only representative offices in Hanoi and Ho Chi Minh City, the country’s commercial hub.

The new subsidiary, “K” Line Logistics

Vietnam is capitalised at $300,000. It is a joint venture with Hanoi-based Marina Logistics & Agencies.

“K” Line Logistics owns a 51-per cent stake in the joint venture, while Marina Logistics & Agencies holds the remaining 49 per cent stake.

Meanwhile, “K” Line Logistics Vietnam opened a branch office in Ho Chi Minh City on June 1.

The company is the logistics arm of Kawasaki Kisen Kaisha (“K” Line), Japan’s third-biggest shipping firm by group sales, after Nippon Yusen Kabushiki Kaisha (NYK Line) and Mitsui OSK Lines (MOL).

PROFITS OF SHIPPING COMPANIES TO REMAIN UNDER PRESSURE The profits of shipping companies are expected to remain under pressure this fiscal in the wake of a drag in the freight market.

Even though there has been a marginal recovery in freight rates, over supply of ships globally are keeping a lid on the rates. Analysts do not expect a full recovery in the market before 2013. “Despite the pick-up in trade growth, the net addition to fleet during 2011-12 would be significant and the world trade growth is unlikely to absorb the incremental capacity, notwithstanding the cancellations and slippages.

The downtrend in the shipping industry is likely to be prolonged,” a recent report by ICRA points out.

The Very Large Crude Carrier (VLCC) rates, for instance, nudged up from an average of $2,754 a day in January this year to $10,683 and $14,477 in February and March, respectively, before tumbling to $552 in April. Currently, it is hovering around $1,000 a day. Similarly, the Baltic Dry Index has been hovering between the 1,350 and 1,490 mark in the last four months, as against the 3,297 mark in the April-June 2010 quarter.

The fall in charter rates had prompted some domestic ship owners, who had their fleet on long-term contracts, to renegotiate the rates. “From the perspective of the industry, we continue to have a cautious outlook for the freight market for the next 6-12 months. But as a company, we are well hedged, as our fleet of 25 vessels are on long-term contracts ranging from three to five years,” AR Ramakrishnan, MD, Essar Shipping said.

HYDERABAD INTERNATIONAL AIRPORT SET TO BECOME INDIA’S FIRST PHARMA CARGO HUB The Rajiv Gandhi International Airport in Hyderabad is all set to become India’s first pharmaceutical cargo hub, with Lufthansa Cargo recently certifying the airport and its dedicated pharma zone facility as one of its key cargo hubs in South Asia for transporting temperature-sensitive pharmaceutical products. Lufthansa, operates three freighters to the airport every week, with plans to increase the frequency in future.

The pharma zone is a temperaturecontrolled facility for handling temperature sensitive pharma products, with Lufthansa

12 • SMART LOGISTICS • JUNE 2011

stationing its own fleet of cooling containers called Opti-Coolers. The facility, which became operational in January 2011, can provide temperature-controlled handling for over 30,000 tonne of pharma products. It has cooling chambers to manage temperatures from 2-8 degrees to 15-25 degrees. “In the last three years, temperature-sensitive cargoes reflected a 40 per cent growth year-on-year in Asia, while in India it was about 170 per cent.

For us, India is a source for cargo,” said Christopher Dehio, Sr Manager – Global Key Accounts, Lufthansa Cargo.

L O G I S T I C S

ADANI ACQUIRES AUSTRALIAN COAL PORT FOR `9,000 CRORE JNPT EYES TAX-FREE BONDS TO FINANCE DREDGING WORK The Jawaharlal Nehru Port Trust (JNPT) proposes to tap the tax-free bonds route to finance the `1,400 crore dredging work to deepen and widen the port’s main channel. The government, in the Union Budget, has sanctioned `5,000 crore tax-free infrastructure bonds for port development. JNPT seeks `1,000 crore out of this proposed bond issue for the dredging project. The Shipping Ministry is awaiting guidelines from the Ministry of Finance for the issue of taxfree bonds. JNPT recently invited fresh bids for awarding the dredging contract.

Contractors can submit their bids before June 27. The dredging project, which is crucial to the development of the port, has been pending for the past six years. JNPT has three container handling terminals under it; one run by itself and two by private parties. It is in the process of building a fourth container terminal.

L Radakrishnan, Chairman, JNPT, said that the port had earlier approached Japan International Cooperation Agency (JICA), which is keen to finance the project. But there is a problem. JICA can approve the project only in December 2011. “If we wait for JICA, we could lose a full year. So, we are looking at other avenues. We could tap the `5,000 crore tax-free infrastructure bonds announced in the Budget,” he said.

He said the port has decided to go for a new method of ‘assured depth’ contract. Under this, it is the contractor’s responsibility to ensure the assured depth, even if he encounters any unexpected and additional geological hurdles. “The contract value under this method may be higher, but we will get the assured depth and we will be assured that no additional cost arises out of geological surprises,” said Radhakrishnan. He said the port proposes to set up a special purpose vehicle for raising the finance, in which, JNPT will hold 90 per cent of the equity and the balance 10 per cent will be held by the Mumbai Port.

NEWS, VIEWS & ANALYSIS L A T E S T

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ADPC EYES $40-50 BN PROJECTS FROM INDIA BY 2015 The Abu Dhabi Ports Company (ADPC), which is developing the 417-sqkm Khalifa industrial zone – Kizad – between Abu Dhabi and Dubai, is eyeing $45-50-billion worth investments from Indian companies by 2015, a senior company official said.

“ADPC targets a 12-15 per cent of the total investments from Indian companies in Kizad,” said Khaled Salmeen, Executive VP – Industrial Zones, APDC. “India and the UAE have a long history of trade and business relations that facilitates our presence. We believe that Kizad offers Indian businesses a great opportunity to expand their presence with facilities and advantages that justify doing business in Abu Dhabi,” he said.

The company, which has completed the first phase of the project of 51sqkm with an investment of around

$7.2 billion, has signed memorandums of understanding with 23 companies from different countries for setting up their operations in Abu Dhabi.

ADPC has launched an international marketing campaign wherein it plans to visit six countries including the US, Germany, the UK, South Korea, China and India to showcase the capabilities of Kizad.

ADPC is looking at investments from sectors like pharma, aluminium, steel, engineering products manufacturing, petrochemicals, chemicals and construction.

Kizad is a cornerstone of the Abu Dhabi economic vision 2030, which also highlights the drive to diversification of the economy in pursuit of sustainable growth less dependent on the oil and gas industries, Salmeen said.

GOVT TO INVITE `10,000-CR BIDS FOR DELHI-MUMBAI FREIGHT CORRIDOR Work on the much-delayed dedicated railway freight corridor is expected to begin with contracts worth `10,000 crore to be awarded before the end of the current financial year. The contracts would be for the western arm of the `77,000-crore Dedicated Freight Corridor project. The western arm includes the 1,500-km-long Delhi-Mumbai stretch that is expected to ease and ramp up Indian Railways’ freight traffic between Dadri near Delhi and Jawaharlal Nehru Port Trust (JNPT) in Mumbai traversing through Haryana, Rajasthan and Gujarat.

Overall, `10,000-crore bids would be invited by the government this year for awarding civil engineering contracts for Package I & II of the first phase of the western corridor. This would be followed by bids for awarding electrification and signaling works in six months.

Freight traffic on the Golden Quadrilateral linking Delhi, Mumbai, Chennai and Howrah — and its two diagonals Delhi-Chennai and MumbaiHowrah — carries more than 55 per cent of revenue earning freight traffic of Indian Railways. The existing routes of Howrah-Delhi on the eastern corridor and Mumbai-Delhi on the western corridor are highly saturated, thereby creating the need for dedicated routes.

Once commissioned, the project would mark an inflexion point in the 150-year-old history of Indian Railways, which has, so far, run only mixed traffic across its network, failing to capture the high demand for freight movement.

The corridor would enable freight trains to run at an average speed of over 65 kmph as against the current 22 kmph.

The government also plans to develop Delhi-Mumbai Industrial Corridor (DMIC) with manufacturing zones along the freight corridor. The western corridor is being developed in two phases. Phase-I consists of the 950-km-long Rewari-Vadodara section. Civil engineering works for this phase is being awarded in three packages of Rewari-Ajmer, AjmerPalanpur and Palanpur-Vadodara.

Phase-II consists of the 565-km-long Vadodara-JNPT stretch.

DFCCIL has already tied up `4,500-crore funding as loan from the Japanese Bank of Industrial Cooperation for the first phase of the western corridor, which is likely to be commissioned in March 2016. “Funding of `11,500 crore for Phase-II is also being tied up with the Japanese Government. They are currently appraising the project and the next appraisal is due in July,” the official said.

Phase-II is expected to be commissioned in December 2016.

NMPT NET SURPLUS TOPS `100-CR MARK FOR SIXTH YEAR

MORE MAINLINE SHIPS HERALD 50% JUMP IN NEW MANGALORE PORT BOX TRAFFIC After registering a 27.66 per cent growth in container traffic during 201011, the New Mangalore Port is now targeting a 50 per cent growth in the current fiscal. Last year, the port handled 40,158 TEUs. “We are targeting to handle at least 60,000 TEUs of containers during the current fiscal,” said P Tamilvanan, Chairman, New Mangalore Port Trust.

The container volume has been growing over the past few years.

Cashew is the major container cargo for the port, which mainly handles bulk and oil cargo. With the port beginning to handle mainline vessels, the volume of container traffic is expected to go up, he said.

The port also expects the volume of export cargo such as coffee, cashew, fish meal, candle and reefer cargo to go up, said Tamilvanan. During 2010-11, coffee, fish meal and candle recorded a growth of 83 per cent, 101 per cent, and 36 per cent, respectively.

The port handled 5,899 TEUs of containers till May 17 during the current financial year against 3,981 TEUs handled in the corresponding period last fiscal, thereby recording a growth of 48.17 per cent.

Tamilvanan said that Karnataka is a major importer of raw cashews from African countries.

MINISTRY OF ROAD TRANSPORT AND HIGHWAYS TO INVITE BIDS FOR 10,000 KM HIGHWAYS IN 2011-12

JUNE 2011 • SMART LOGISTICS • 13

PRICE TRENDS Road Freight Index Chart for May 2011

IRFI TREND FOR MAY 2011: The RFI stood at 174 points for the month of May 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 decreased significantly throughout India by almost 1% compared to previous week. Ex-Delhi rates have registered the highest increase by 4%. This is due to lesser availability of trucks and more demand & Ex-Kolkata rates have registered a highest decrease by 6% due to excess availability of trucks from North & South zones.

TRENDS FOR MAY (Y-o-Y)

COMMERCIAL VEHICLES: The cumulative sales of commercial

171

171

173 174

167

161

vehicles registered a growth of 8.22% in April 2011 as compared to the same period last year. Medium & heavy commercial vehicles grew at 0.07% and light commercial vehicles grew at 14.43%.

FORECAST FOR JUNE 2011:

2006-07

2007-08

2008-09

2009-10

2010-11

2011-12

Index trend for six years

Through the RFI in June 2010 over June 2009 had registered an increase of 3 points. It is expected that volumes and freight rates may remain relatively flat in the month of June 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

14 • SMART LOGISTICS • JUNE 2011

VIEW FROM THE TOP

CEO, MAHINDRA LOGISTICS

‘

COST OPTIMISATION in a SUPPLY CHAIN does not drive margins alone

’

“Each solution and each customer is unique and so is their requirements. Cost optimisation is all about the value one can provide to his customers. It is more about partnership, technology, agility and ultimately, differentiation. Fuel and manpower form the largest segments of the cost pie, but cost management alone rarely offers long-term advantage,” says Pirojshaw Sarkari, CEO, Mahindra Logistics, during an interaction with Sudhir Muddana. Excerpts…

WINNING STRATEGIES TO CATER TO THE VAST AUTOMOTIVE MARKET The winning strategies to cater to the vast automotive market will be centred around a few important areas. These include integrated solutions that span the supply chain, the inclusion of technology as a cornerstone for every solution and the ability to understand the supply chain imperatives of each customer & tailoring solutions for the same. Though the Indian logistics companies are surely improvising

16 • SMART LOGISTICS • JUNE 2011

on these aspects, still a lot remains to be done.

PERFORMANCE & PROSPECTS OF THE INDIAN LOGISTICS INDUSTRY The Indian logistics industry will continue to witness a robust compound annual growth rate (CAGR) of around 11 per cent over the next five years. However, third party logistics (3PLs) will grow at a considerably accelerated CAGR of 20 per cent.

INDIAN LOGISTICS INDUSTRY VIS-À-VIS ITS GLOBAL COUNTERPARTS Most original equipment manufacturers (OEMs) in India already understand that effective supply chain management in India is a blend of global best practices, tailored and implemented in order to account for local challenges. But the big difference between the Indian logistics industry and its global counterparts is brought about by two factors. First, the evolution of the industry, wherein the industry, as a whole,

is at a considerably more advanced stage of evolution in most mature economies.

This is mostly in terms of customer need and expectations, and also in terms of the capabilities of providers. The other differentiating factor is infrastructure, which enables efficiency and effectiveness of solutions. This is one area where the government’s assistance is essential.

IMPACT OF GST The implementation of the Goods and Services Tax (GST) will make the supply chain more efficient and effective. Its implementation will also ensure reduction in the number of depots and warehouses to more efficient transportation systems & optimal inventory on wheels, which will, in turn, improve supply chain performance and cost.

CHALLENGES FACED WHILE INTEGRATING SUPPLY CHAIN Honestly, the biggest challenge today is the availability of skilled and trained human resources. There are no real challenges encountered while integrating supply chain links, but the big challenge that one could encounter in the process

is posed by scarce human capital.

INFRASTRUCTURAL BOTTLENECKS The infrastructure has been improving over the past few years. But the biggest bottleneck has been the pace with which it is being developed. Most companies have recognised these deficiencies and have been working their way around these bottlenecks for decades. However, things are changing rapidly. Also, the packaging standards coupled with constant training on loading and unloading practices need considerable improvement in India.

OUTPERFORMING AND OUTWITTING YOUR COMPETITORS The single-most important aspect to outperform and outwit one’s competitor is the adopted approach. If an OEM and a logistics service provider (LSP) look at the supply chain challenges and approach the solution as partners, that in itself, will help improve the competitive scenario.

SUPPLY CHAIN COST OPTIMISATION Each solution and each customer is unique and so is their requirements. Cost optimisation in a supply chain does not

drive margins alone. It is all about the value one can provide to his customers.

It is more about partnership, technology, agility and ultimately, differentiation. Fuel and manpower form the largest segments of the cost pie, but cost management alone rarely offers long-term advantage.

CUTTING-EDGE TECHNOLOGY Technology solutions in the supply chain can be broadly classified into transport management systems and warehouse management systems. They both either integrate with or exchange data to/from a customer’s (or partner’s) ERP. For example, we, at Mahindra Logistics, have recently invested in the Oracle Transport Management System, which allows us to optimise transportation operations for our customers across industry verticals.

YOUR EXPANSION PLANS We plan to continue growing aggressively while consistently expanding and enhancing our service portfolio. We will continue to work along with our business partners while managing customer expectation through technology embedded in transportation.

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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100/-

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So, join our endeavour to provide relevant and useful content to our readers… rush your articles, write-ups to

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archana.nayudu@infomedia18.in

JUNE 2011 • SMART LOGISTICS • 17

INSIGHTS & OUTLOOK

AUTO COMPONENT LOGISTICS

GAINING A COMPETITIVE Illustration By Uttam Rane

STANDING

India has proven product-development capabilities and proximity to emerging markets.

Moreover, it is also proving to be an ideal investment destination for original equipment manufacturers (OEMs), especially after the global economic downturn. Furthermore, companies in India are compliant with global automotive standards and offer the advantage of low manufacturing costs due to economies of scale, low labour costs and local sourcing of tools and components. Nonetheless, while trying to meet the increasing global demands, the auto component logistics sector is faced with challenges like poor infrastructure facilities and low IT penetration. They, therefore, have to work towards overcoming these hurdles to enable a smooth logistics process and enhance efficiency.

SUDHIR MUDDANA THE Indian auto component industry has grown from being a relatively small domestic industry to one that supplies high-value and critical components to global automotive giants. Poised to grow by

18 • SMART LOGISTICS • JUNE 2011

over four-fold to US$113 billion by 2020, the industry is one of the frontrunners in the global auto components outsourcing market. According to the Automotive Component Manufacturers’ Association

(ACMA), the total passenger car production in the country will jump four times to reach nine million by 2020.

Although a major chunk of this will come from the fast growing domestic market,

exports are likely to form around 35 per cent of the total market by 2020.

A recent ACMA report states that the turnover of the auto component industry is about US$26 billion in 201011 – up by 18 per cent from US$22 billion in 2009-10. The report states that in 2009, 40 per cent of the auto component industry was dominated by body and structural products, 20 per cent by engines & exhausts, and 10 per cent each by suspension and braking parts, transmission & steering parts, electronics and electrical & interiors. By 2015, body and structural products will account for 35 per cent of the auto component industry, while engines and exhaust will account for 20 per cent, suspension & braking parts, transmission and steering parts and electronics & electrical parts will account for 13 per cent each & interiors will account for nine per cent.

MEETING GROWING GLOBAL DEMANDS Along with the growing domestic demand for auto components, the global demand is also increasing. According to the ACMA report, it has been estimated that exports from the auto component industry in 2010-11 have been worth US$ 5 billion.

In order to meet the high global demands, the Indian auto component industry has to cut down on overall costs, including the cost incurred while moving components from the manufacturer’s door to the assembly unit, without compromising on high quality standards. Therefore, while companies are in the race to provide world-class products to customers, they also need to look at how to reduce the costs of logistics involved in moving the components. Elaborating on the same, Sanjiv Kathuria, Country – Sales & Marketing Director, TNT India, says, “The auto component logistics is a complex and sophisticated process. It requires ‘Justin-Time’ (JIT) delivery of raw materials and components during the process of manufacturing in order to reduce high inventory costs. Auto component logistics is a critical flow for any original equipment manufacture as any delay on the component delivery to production line can lead to costly line stoppages.”

However, due to the increasing cost of maintaining these in-house logistics activities, component manufacturers are now opting to outsource their logistics activities to 3PLs. With a view to tap this opportunity, international players, such as DHL, have entered the Indian market with their sophisticated and specialised services for the automotive components industry.

Today, in the Indian automotive logistics industry, 3PL operators have an over 15 per cent share, which is higher than the average 10 per cent share of the

procedures associated with the shipment of components, among others, mar the prospects of companies involved in auto component logistics. Although India has the world’s largest, well-connected road network, the express highways, which cater to about 40 per cent of the freight traffic, comprise a mere two per cent of the total network. In addition, the average speed on Indian roads is as low as 20 miles per hour, as compared to 60 miles per hour in many western countries. Also, most of the sea freight in India is handled by only two of its 12 ports, as the others

Nitty-gritty of an inbound supply chain solution A robust inbound supply chain solution needs to exhibit the following: • Visibility & Control - Full Order-to-Delivery co-ordination - Transparency over inbound transportation flows - Receive proactive exception reporting - Good risk control and reliable contingency planning - Regular management reporting • Flexibility - To work with a provider who works 24x7 - Having a range of products and solutions readily available - To work with a provider who initiates service recoveries immediately after a delay occurs • Dedication & Control - Works with people who understand the transportation needs of the auto industry - Works with people who continuously innovate - Works with a dedicated global automotive account team - Works with a service provider who understands the suppliers’ demand • Cost Effectiveness - Optimum supply chain costs in terms of transport, inventory, internal, service failure costs, as well as cost of supplier non-compliance.

Sanjiv Kathuria, Country – Sales & Marketing Director, TNT India

overall logistics industry. The 3PL industry receives almost half of its revenues from the automotive sector, and its share is expected to grow around 24 per cent annually to reach 60 per cent by 2012.

With the Indian automotive industry set to grow at a robust annual average of 13 per cent over the next five years and global companies increasingly sourcing components from India, the opportunities for 3PL players are very promising.

OPTING FOR 3PLs

OVERCOMING LOGISTICS CHALLENGES

Until recently, most original equipment manufacturers (OEMs) preferred to keep their logistics activities in-house.

A number of factors, including increasing costs, poor infrastructure, low IT penetration and lengthy bureaucratic

are not fully utilised. Moreover, the long shipment approval time of 3-5 days and other prolonged documentation processes inflate the average cost per shipment in India to $1,200 as against $300-350 in countries such as China and Singapore.

As the Indian transport infrastructure fails to meet international standards, logistics costs are increased to about 13 per cent of GDP as against eight per cent in the US. Most auto components are transported by road, which indicates that intermodal transportation such as railways and sea/inland waterways are not used optimally – a major drawback for the Indian logistics industry. Using railways and seaways are cheaper options

JUNE 2011 • SMART LOGISTICS • 19

Auto component logistics, continued

as compared to the traditional road services. On an average, transporting goods by rail costs one-forth of the cost incurred while transporting using roads.

Transporting via sea is not only cheaper, it also ensures less CO2 emission. Thus, logistics service providers seeking to bring down their transportation costs need to pioneer the use of more than one mode of transportation.

Apart from this, technology also plays a crucial role in reducing overall costs and

• Maintaining security of goods and proactive exception reporting.

An integrated player having seamless and reliable offering in both, the international as well as domestic arena, backed by technological tools for providing complete visibility from the shipper’s door to the end customer’s door, can address these challenges. With teams having an industry-specific knowledge base, innovative solutions would be customised and implemented. Similarly,

Innovative supply chain solutions offering competitive advantage • Product de-proliferation capabilities: There is a need to bring out a new product development process to enable optimal cost and time to market. Simultaneously, de-proliferation strategy initiatives have to be implemented considering various analyses.

• Optimised supply chain: A majority of the existing supply chains have evolved due to past policies and not necessarily due to holistic business considerations. Developing world-class operations involves evolving a robust manufacturing strategy. The existing infrastructure in India is being upgraded as new tax laws are emerging, domestic & global demand is growing and emerging hubs of manufacturing & distribution are emerging. The future is in the large national logistics parks that provide economies of scale and scope.

• Order-to-Delivery capability: Globally, OEMs are ramping-up their Order-to-Delivery (OTD) capabilities. This will impact the entire supply chain with a significant impact on auto component suppliers. OTD is driving new operational and supply chain capabilities across the automotive ecosystem and impacting the areas of product development, material supply, manufacturing, distribution & management information system.

• Agile and visible supply chains: Companies are yet to completely leverage IT for decision making and workflow. There is a need for supply chain visibility enhancement systems and automotive executive information system. increasing logistics efficiencies. To attain these, logistics service providers need to keep abreast with the latest technologies being used in other parts of the world and adopt the same.

According to Kathuria, the exponential growth in the auto industry provides logistics service providers tremendous opportunities. However, they need to address a few challenges in order to penetrate further into the auto logistics market. These include: • Providing customised integrated logistics solutions at competitive prices • Lack of skilled logistics professionals having in-depth knowledge and the ability to devise customised solutions • Increasing competition leading to unhealthy price wars

20 • SMART LOGISTICS • JUNE 2011

with right investments in material handling equipment and long-haul close-bodied vehicles backed by global positioning system monitoring would go a long way in mitigating most of the above-mentioned challenges.

Adding to this, Kathuria opines, “Majority of Indian auto component logistics service providers focus only on providing basic logistics operations such as transportation and warehousing facilities. Logistics service providers need to equip themselves with a highly efficient infrastructure in order to achieve the Justin-Time objective.”

GOVERNMENT SUPPORT While service providers and auto component manufacturers need to work around the existing infrastructure, the

Indian Government will have to introduce additional initiatives that will lead to a number of much-needed improvements in the industry.

The country needs to establish logistics parks, implement Excise Duty exemption and improve support facilities & service cost mediation. One such step has already been taken by introducing the simplified fiscal regime to replace the Central Sales Tax: the Value Added Tax, a uniform and single-point service tax regime. This has brought in efficiencies in the Indian supply chain by speeding up transportation across the country and reducing multiple checkpoints & laborious documentation.

Additionally, the government has already initiated improvements in the country’s road infrastructure, including the construction of the 5,900km-long Golden Quadrilateral highway network, which connects Delhi, Mumbai, Chennai and Kolkata. Another similar project is the development of the 7,300km NorthSouth East-West (NSEW) Corridor. The government is also building dedicated freight corridors (such as Western and Eastern Freight Corridors) for both, road and rail under public private partnerships in order to decongest the already saturated freight transport capacity of the Indian roadways and railways. Logistics service providers, on their part, need to modify their operational structures and increase their use of railways and inland waterways.

OVERCOMING THE ROADBLOCKS India is undoubtedly emerging as a global hub for production. With most global manufacturing companies setting up their base in India, auto component manufacturers have also moved into the country to exploit the domestic market.

In fact, many of them have made India an auto component manufacturing hub.

However, in order to attain robust growth, the country requires logistics management to play a pivotal role of not only being a mere enabler, but also acting as a differentiator.

If logistics service providers and auto component players tackle the issues such as poor infrastructure, lack of skilled logistics professionals and unhealthy price wars, among others, which are plaguing the growth of the auto component industry, the Indian auto component industry could gain a more competitive standing in the global automotive industry.

INSIGHTS & OUTLOOK

FINISHED VEHICLE LOGISTICS

WITNESSING A

PARADIGM SHIFT

The rapidly growing demand for vehicles has made the automotive industry one of fastest growing sectors in the Indian economy. But the supportive logistics sector is not able to match up to the expectation of this growing sector due to factors such as fragmentation, lack of professionalism among logistics service providers (LSPs), intense cost focus from the original equipment manufacturers (OEMs) and poor infrastructure, among others. If LSPs and OEMs seek to collaborate for a better tomorrow, it is high time that they take the much-needed initiatives to meet their goals.

SANDEEP PAI RECENTLY ,

Society of Indian Automobile Manufacturers (SIAM) President Pawan Goenka commented that the Indian automobile industry is expected to grow at the rate of 15-16 per cent in 2011. This growth will span across all categories, viz., two-wheelers, fourwheelers and commercial vehicles. This statement is of paramount importance as it would have an unprecedented impact on the Indian economy. The Automotive Mission Plan 2006-2016 suggests the following reasons. According to the

22 • SMART LOGISTICS • JUNE 2011

plan, by 2016, India would emerge as the world’s seventh-largest car producer (it is currently the eleventh-largest car producer) and retains the fourth-largest position in the world truck manufacturing sector. Further, by 2016, the automotive sector would double its contribution to the country’s GDP from the current levels of five per cent to 10 per cent. Also, its contribution to the manufacturing sector would rise to 30-35 per cent from the current level of 17 per cent by 2016.

A study by Booz & Company, a Global

Management Consulting Company, the Indian automobile industry is slated to overtake the European market and become the world’s fourthlargest automobile market by 2015. It will sell almost six million units annually by 2020.

THE AUTOMOTIVE GROWTH STORY The growth figures projected by Goenka are in sync with the automotive plan and Booz & Company’s projection. However, if various targets have to be achieved, then

firstly, it is essential to increase production for domestic consumption & exports and secondly, there has to be a world-class logistics system in place for delivering the produced cars. According to SIAM, the cumulative production data during AprilJanuary 2011 indicated a growth of 27.45 per cent over the same period in 2010, while in March 2011, production grew at 20.62 per cent, as compared to March 2010. The industry produced 1,79,16,035 million vehicles of which 75 per cent and 17 per cent were produced by the twowheelers and passenger vehicles segments, while the contribution of three-wheelers and commercial vehicles segments were four per cent each.

THE ENABLING FACTOR As per current statistics, even though production is accelerating at a brisk pace owing to the entry of auto majors in the country, the logistics sector has not been performing in sync with the industry.

Experts believe that the reason for this lag in the logistics sector is that the sector is unable to keep up pace with the dramatic growth of the Indian automotive market. Apart from that, some of the other reasons responsible for this lag include lack of trust between carmakers and providers, human resources & driver conditions, fragmented nature of the industry and least utilisation of intermodal rail. During the period April-March 2011, the overall automobile exports registered a growth rate of 29.64 per cent, while the passenger vehicles segment registered marginal growth at 1.64 per cent and commercial vehicles, three-wheelers and two-wheelers segments recorded a growth of 69.51 per cent, 55.86 per cent and 35.04 per cent, respectively.

The exports could have been much higher, but the limitation is that even today manufacturers in India are still debating over what services are better left in the hands of the manufacturer and what can be trusted to an outsourced provider. The logistics market remains hugely fragmented, particularly on the outbound side, and the number of small, unorganised companies is 65 per cent of capacity. This fragmentation is reflected in service levels. Original equipment manufacturers (OEMs) do not want to have a monopolistic situation with their providers. Nearly 67 per cent of OEMs were not happy with the efficiency of their providers, a recent survey highlighted.

THE TRUST FACTOR Many auto majors, have, time and again, acknowledged that there is a trust deficiency and to resolve the crisis, they need to treat logistics providers as business associates and not as mere vendors. Lloyd Sanford, Founder & Director, Applied Logistics India, says, “OEMs should treat Logistics Service Providers (LSPs) as partners. OEMs have to step up in this regard and should comply by the Vendor Management Index (VMI). This will benefit LSPs in a big way. VMI is going to be a very critical component of the supply chain especially after the coming up of Free Trade Warehouse Zones (FTWZs) in India.” While OEMs need to trust LSPs more, LSPs, on their part, need to improve if they seek to build stronger relationships with carmakers. This will help LSPs eventually gain longer contracts and more outsourcing in areas beyond transportation.

ARISING NEED GAPS There are various factors plaguing the logistics networks in India. Highlighting the same, V Anand, GM – Sales Logistics, Hyundai Motor India, says, “Finished vehicle logistics is characterised by much higher damage rates as compared to Europe or China, while the network and route planning appears to be very poorly organised. Much of this is the result of infrastructure or capacity shortages.

According to an estimate, about 20 per cent of fleets are idle because of driver shortages.” “Fleets were being used extremely inefficiently, with many trucks picking up vehicles at Hyundai’s plant only 7-8 times per year and a large portion of the fleet moving empty for return loads,” he adds.

Elaborating on the other hurdles encountered, Anand discusses about how height restrictions on some roads or bridges have meant that trucks needed to detour several hundred kilometre, while heavy congestion has led to more night driving, and hence, more accidents. The amount of toll crossings and fees (including the bribe) to pay at borders is also staggeringly high.

Nonetheless, there is hope that the longawaited arrival of GST will be the solution to their mounting problems. Although its implementation has been postponed to April 2012, OEMs are hopeful of its implementation. Commenting on the problems faced by LSPs, Sanford opines, “LSPs, on the one hand, are pressurised

by the cost and on the other hand are expected to deliver very high quality and professional services. But if LSPs have to deliver better, OEMs have to bail them out in certain aspects. LSPs and OEMs sign year-long contracts, which offer LSPs lesser opportunities to invest in upgradation. On the other hand, if the contract duration is increased to five years, then LSPs will have the resources to invest in a variety of aspects because of stability in income.”

Therefore, for LSPs to overcome this challenge, they ought to collaborate and invest in capacities & systems.

RAILWAYS TO ENHANCE EFFICIENCY In order to enhance the efficiency of Indian automotive logistics, railways should be used extensively. While the global average of vehicles that move by rail is 25 per cent, India’s figure stands at a mere five per cent. For India to make this leap, it would need an investment of at least `2 billion for 100 trains. The Indian Railways has already taken initiatives to encourage automotive transportation through rail. It has identified 10 auto hubs around the country, which could be served by the railways. Apart from this, it permits private investment in its rolling stock. While this move was intended to come entirely from carmakers or logistics providers, to this date, very few are willing to spend that money. With additional hurdles like poor lead times, inefficient routing and timings, there is considerable scepticism over whether India could actually make the leap within any foreseeable time. In an effort to tackle the crisis, the Indian Railways, which is 100 per cent government-owned, would take initiatives to increase automotive transportation through rail.

RISE TO THE OCCASION The message is loud and clear! If logistics players seek to function in sync with leading auto makers, then they ought to gear up to meet the increasing car sales. But above all, LSPs and supply chain executives need to work towards improving their processes. Irrespective of the limitations posed by India’s infrastructure, they have to pay attention to their human capital and update their equipment. If all goes well, then it would have cascading positive repercussions on all those involved in the supply chain – be it LSPs or OEMs. The growth of LSPs will boost manufacturing, which will in turn offer a fillip to India’s logistics sector.

JUNE 2011 • SMART LOGISTICS • 23

INSIGHTS & OUTLOOK

SERVICE PARTS & PROFITABILITY

UNLOCKING PROFITS THROUGH EFFECTIVE PRICING

Service parts manufacturers seek to make profits even in tough economic environments. When it comes to service parts, profits can be unlocked through effective pricing. But prior to this, manufacturers ought to free themselves from the constrictive myths related to service pricing.

They have to be intelligent enough to understand the difference between common pricing facts and myths, which could be holding them back from realising profits.

TODAY, consumers think twice before buying ‘big ticket’ items – from office equipment to home appliances, from heating, ventilating and air conditioning (HVAC) systems to automobiles. In businesses and households across the country, ‘conspicuous consumption’ has been replaced with cautious frugality, a mindset in which ‘making do’ is a virtue. In such a marketplace, service parts come to the fore, as consumers repair equipment rather than replace it. For manufacturers of service parts, this is a good reason to take a fresh look at how they price their products. Yet, many service parts manufacturers do not price their products in ways that optimise their returns. Their pricing strategy is neither coherent nor robust because they have fallen victim to one or all of the ‘myths of service pricing’.

These are six common beliefs that inhibit effective price management of service parts:

24 • SMART LOGISTICS • JUNE 2011

Myth #1: We do not have enough hours in the day to manage pricing for every part.

The service parts business is known for its complexity. Manufacturers typically produce multiple models of products, which change over the years, and sell hundreds of thousands of service parts to support those products. Given these volumes, it is hardly surprising that companies would focus on pricing the ‘best’ service parts – those fast movers with the highest revenues – and leave all the others to be priced with an easy broadbrush approach. While it seems logical on the surface, this approach grossly suboptimises the pricing of most of the parts (even the ‘best’ ones). Our experience suggests that in many companies, at least 60-80 per cent of parts are not ‘right priced’ to match market conditions and company strategies.

The solution – to manage pricing

at an individual part-number level – sounds daunting, especially when adding headcount is impossible. How can it be done? By organising parts into segments and by applying strategies and tools to analyse and act upon large data sets continuously.

Segmentation is the grouping of parts based on common characteristics such as market dynamics, lifecycle position, customer value and sales volume. Pricing strategies can then be determined for each segment and pricing can be managed at a segment level. For example, parts that are extremely competitive could be grouped into a commodities (or hypercompetitive) segment. The strategy for this segment should be to price parts at market prices. Another potential segment could contain captive parts that could be priced higher because there are no substitute competitive products in the market. Finer segments might mark pricing

4%

Price/Profitability Waterfall

-28%

100%

Move from managing part profitability at the gross margin level...

Material Cost

-1%

-2%

Variable Cost

0%

0%

0%

0%

38%

Other Cost 2007

42%

Profit Before Tax 2007

-1%

Other Fixed Cost 2007

0%

-1%

Support Cost 2007

-1%

Selling Expense 2007

0%

Fixed Marketing 2007

45%

Other Variable Costs

Service Expense 2007

Actual Material Cost 2007

Net Revenue 2007

Actual Supplier pkg Cost 2007

Cash Discount 2007

Revenue Deductions

Other Deductions 2007

Inventory Programs 2007

XYZ Discount 2007

Quantity Discount 2007

ABC Discount 2007

Gross Revenue 2007

-1%

Fixed Warehouse Cost 2007

...margins should be managed at the part-level using economic profit with an understanding of PBT

-24%

Economic Profit 2007

-1%

Service Var Mktg 2007

71%

Freight Outbound 2007

-1%

Warehouse Expenses 2007

-1%

Variable Profit 2007

-2%

Freight Inbound 2007

-2%

Fixed Cost

Chart 1: A total cost perspective makes true profit aparent

to meet or beat a specific competitor for a specific set of parts.

Using segmentation, Deloitte was able to propose prices for one manufacturer’s 3,00,000 parts. The relevant attributes used to segment parts for this company included the position of the part in its lifecycle, the part’s market share, the intensity of competition and the part’s perceived value and pricing elasticity.

Segmentation is tailored to each ‘product portfolio’ to take into account factors that drive business for parts in their portfolio – it may differ across different groups.

An analysis of the parts in each segment helped the pricing team develop segmentspecific pricing strategies.

This process of applying defined pricing strategies to individual parts within a segment can be automated and updated as conditions change. With the right tools, on-going analyses of segments can validate price and margin, while performance remains in-line with the intended strategy for the segments.

Myth #2: Gross margin is a good indicator of profitability.

Most businesses manage their profitability by gross margin targets. Our experience indicates that while gross margin is an accurate measure of profitability, it may not be the most effective for two reasons: • It does not take into account all the cost-to-serve elements for the part, which together are frequently higher than the cost-to-buy (used to compute gross margin).

• It does not reflect the value of the part

to the customer, which should affect the selling price.

Chart 1 shows one specific part number and the other costs that chip away at a part’s ‘profitability’ beyond total actual part costs. While total actual part cost measures the acquisition cost of the product, it does not include the costs of marketing, promotions, discounts, incentives, rebates, storage, transportation and shipping, to name a few. When these costs are included, the true profitability of the part is 38 per cent. While a 38 per cent true profitability might be great for this product, for other parts, the result was a ‘negative profitability’. As a result, the manufacturer was able to focus on those parts with ‘negative profitability’ and price them differently.

The price/profitability waterfall is a way to examine and quantify the costs that impact the ‘pocket margin’, which is the actual margin that the company realises

or puts ‘in pocket’ after all charges and costs are recognised.

Chart 1 is called a waterfall, as it helps companies identify where the profit is ‘leaking’ by displaying all the ‘cost to serve’ elements and where certain actions, including price increases, would be effective. A total cost-to-serve view makes it apparent that actual profitability is always less than what the gross margin indicates.

While some of these costs can be controlled (for example, marketing spend); others cannot. This also highlights parts where vendor concession is essential and gives companies a ‘script’ for having those negotiations. By understanding cost drivers, a manufacturer can expose and execute opportunities to improve profit.

One manufacturer, making pricing decisions based on gross margin, frequently decided to reduce part prices to increase sales volume. At the same time, marketing ran promotions on the same parts, in effect reducing prices even more over a six-month period. Essentially, the company discounts the parts twice, thereby causing rampant margin erosion. This could have been avoided by including promotion costs in the margin metrics. Instead of using gross margin as an indicator of profitability, a service parts manufacturer should consider other metrics, which take into account all the cost-to-serve elements for the part.

Myth #3: Pricing responsibility is owned by the finance group.

An effective pricing approach is impossible without cross-functional collaboration and organisational alignment. But in many manufacturing companies, the functions that touch the part – finance, sales, purchasing and marketing – have very different goals and performance metrics.

Finance may focus on profit before tax for

P&L Manager Marketing Product Line Manager

Sales

Purchasing Analyst

Pricing Analyst

Central Pricing Support • • • • • • •

Gather data (including costs, competitive information, and sales) Perform competitive analysis Develop product and customer value proposition Perform customer and product profitability analysis Perform pricing analytics on margin performance Conduct compliance analysis and design contract frameworks Recommend prices

Field Pricing Activities • • • • • •

Sell to and service accounts Gather competitive information Identify value propositions by account Manage account compliance to contract Identify, monitor, and report pricing trends within account base Identify unmet needs and develop proposed solutions

Chart 2: A functional structure integrates cross-functional pricing activities

JUNE 2011 • SMART LOGISTICS • 25

Service parts & profitability, continued

Sales ($ million)

the entire business unit or product family; the level of competition, saying in effect, of competitive products in the past? marketing may focus on gross revenue “We sell a lot of part A, so there must be How quickly will competitors respond and gross margin by the commodity group a lot of competition” or “We do not sell to our price changes? The answers to and sales may focus on gross volume and much of part B, so there is probably not all these questions will vary, product by gross revenue by region. much competition.” In other scenarios, a product and will be provided by analysing Frequently, they do not communicate manufacturer might assume that similar competitive prices. effectively about parts pricing. parts are equally subject to competition MARKET INSIGHTS DRIVE HIGHER The establishment of high-performance or that a part coming off warranty MARGINS ‘pricing teams’ can help a company to automatically faces stiff competition.

All these ‘gut feelings’ must be tested One manufacturing client, an automotive align the goals and metrics of several by integrating competitive data and original equipment manufacturer, lacked functional areas. The team can gather performing a competitive analysis as a both, a consistently executed pricing cross-functional data in order to perform part of the pricing process. A variety of strategy and a view of the competitors’ a holistic analysis of revenue and margin sources of competitive data is available pricing. Deloitte undertook an effort performance before recommending prices. in the marketplace and manufacturers to evaluate the outside providers of The process for achieving alignment begins could consider using a combination of competitive data. The data exposed by answering the following questions: third-party research firms, such as catalog many opportunities to adjust prices. After • What are the roles of each function? subscription services, ‘mystery shoppers’ analysing the purchased data, the company • What is the ideal pricing process? and ‘web scrapers’ to conduct this made an initial strategic pricing decision to • Who has responsibility and research. Companies do not need to buy price some parts at a 20 per cent premium accountability for each individual step data on every part, but rather pick a subset relative to specific competitors. For some in the pricing process? that provides sufficient market insight. parts, prices needed to be lowered; for • Who do team members report to?

Competitive data provides perspective on others, prices could be raised. In short, How do they work together? a part’s relative position in the marketplace refined pricing could increase both, margin • What metrics work most effectively and should be integrated into the process or volume. for the company overall? of pricing analytics and price setting.

Further analysis of the data yielded • How do we resolve disagreements on As for the second hypothesis – tremendous additional insights. Reducing strategy? having competition automatically means prices to a 20 per cent premium over The same metrics (such as economic conservative pricing – the problem is that competition was not always the best idea, profit, variable margin and/or profit it implies a ‘one size fits all’ pricing strategy. since sometimes, the volume increase before tax) can be used by all the parts A more effective strategy is to know when needed to reach the break even point of an organisation to drive towards an and how to be price positioned relative was simply too great. In that case, the integrated pricing strategy and process.

This type of alignment is relatively to competition. An analysis of competitive OEM decided on an additional pricing simple to achieve and execute; with a data over time can provide some key policy – when the required break even clear definition of roles & responsibilities, insights about price positioning. For was over 25 per cent, prices would not the project team knows what to do and example, how does a part’s competitive be lowered. how to do it. The P&L Manager defines position change during its lifecycle? Is Myth #5: We do not have the time or revenue and profitability goals for the the manufacturer a price leader in the data to implement lifecycle pricing. team and enables the team to arrive at ‘early’ stages and a price follower in the The concept of lifecycle pricing is simple. a consensus about pricing actions. The ‘peak’ stages? If so, in the ‘early’ stages, The price of a part changes over the different business functions are focussed on a manufacturer could command a higher part’s lifecycle phases commensurate with the same metrics – revenue & profitability price to capitalise on the absence of changes for their competitors’ situation – and work towards achieving these goals. competition or could be priced lower to and each lifecycle phase has an associated Myth #4: We have a lot of competition for deter competition from entering into the optimal pricing strategy. By identifying the every part, so we price conservatively. market space? What premium would the current lifecycle phase for a given part, a This myth has two assumptions, both market pay for ‘original equipment parts’? manufacturer can make decisions that will of which companies need to test: How has pricing affected the volume optimise profit over time as illustrated in 1 We have lots of competition for Chart 3.

Different life cycle events and pricing triggers should be tracked closely at a Product level, such as: • End of warranty period • Competition enters • Competition exits every part So the concept is good, but is Note: these are thought Competition Competition starters and potential enters beginsto exit 2 If we have competition, we must lifecycle pricing really done today approaches. This is not based on actual data. price conservatively. across a large product catalog?

Let us begin with the first Given the increasing availability Price Structure Price Standard Level Product assumption. When considering the of data through ERP systems and Business Lifecycle Strategy marketplace, many manufacturers other external sources and pricing Pricing Power Market talk about ‘gut feeling’ and an tool sets, it is possible to collate Place inhered ‘feel for the market’. Rather all the needed data to arrive at than following a disciplined approach a lifecycle pricing strategy that is Competitive Pricing.

Manage warranty Margins vs Volume costs High servicing and inventory to collecting data and using it to practical and executable. However, tradeoffs costs.

Manage costs to Captive pricing. optimise margins Higher margins set prices, they use proxies, such as lifecycle pricing certainly requires Chart 3: Different life cycle events should affect pricing volume or customer feedback, for integrated processes and robust 0

2

4

6

8

10

Ag e

26 • SMART LOGISTICS • JUNE 2011

12

14

Lifecycle pricing provides immediate margin pop

Account for differences in product lifecycle

Sales (Qty) in Dealer Retails Channel

Product Line A – Sales By Age of Vehicle 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 -

0 1

2 3 4

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Age of Vehicle Product Line B – Sales By Age of Vehicle

8,000 7,000 Sales (Qty) in Dealer Retails Channel

In a pilot programme, a manufacturer decided to determine a lifecycle pricing strategy for two products.

Culling the data for each, the pricing team was able to define lifecycle stages based on product consumption over the lifetime of similar parts.

For example, during years 0-1, product A is in its early lifecycle; years 2-3 are the growth stage; during year four, product A has peaked, and from year five on, it is in decline. Until year four, product A could potentially command a high price. By year four, the company could adjust the part’s pricing in one of the two ways 1) Price aggressively - Knowing volume will decline anyway due to increasing competition

6,000 5,000 4,000 3,000 2,000 1,000 0 1

2 3 4

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Age of Vehicle

Chart 4: Lifecycles vary by part; so should pricing Brake Pads and Drums – Pricing Strategy by Segment

None for Transmission Parts

None for Transmission Parts

None for Transmission Parts

None for Transmission Parts

None for Transmission Parts

Price Freeze

Price Freeze

Price Freeze

Price Freeze

Price Freeze

Early

Growth

Peak Lifecy cle stage

Declining

End

Competitive

Competitive Pricing Competitive Pricing Competitive Pricing Competitive Competitive –5% Premium to –5% Premium to –10% Premium to Pricing –at Jasper Pricing –at Jasper Jasper Jobber Jasper Jobber Jasper Jobber Jobber Jobber

Captive

Variable Margin Management –50%

Competitive Position

Variable Margin Management –45%

Commodity

Variable Margin Management –40%

Warranty

Competitive

Variable Margin Management –35%

Commodity

Competitive Position

Captive

Transmission on Parts – Pricing Strategy by Segment Variable Margin Management –30%

Warranty

systems for tracking performance as parts move through different stages over time.

Given the large number of SKUs in a typical parts manufacturing company, the potential complexity of lifecycle pricing quickly becomes apparent. It is therefore essential to answer the following questions routinely: • Do we need to price every part according to its lifecycle stage?

• How can we define and capture the triggers for various lifecycle events?

For example, how do we keep track of competition entering or exiting the field?

• How do we obtain supersession data and determine the true lifecycle stage of a part? How do we manage lifecycle pricing if there are multiple parts in a supersession chain?

• How do we determine lifecycle when a single part has multiple applications?

While these are all big issues, manufacturers’ who tackled them systematically have not only improved profitability significantly but have made their day to day pricing work load lighten.

Myth #6: Now is not the right time to invest in a pricing solution.

In today’s economic environment, manufacturers may be reluctant to make larger investments in just about anything, including pricing technology. Even with a strong business case, it is tough to get large project approval. In addition to those hurdles, other concerns can be intimidating: Is the company’s data good enough? How much will a data source cost? Are the other requirements in place (people, capabilities, skills, processes and policies) without which, the data could be (or already is) useless? It can also be difficult to overcome internal executives as they are tempted to say, “We have gotten by for years. Why not just keep doing what we have always done?”

There is a single answer to all those objections: return on investment (ROI)!

The ROI from better pricing is so significant that, in many cases, an investment in pricing technology will pay for itself in a single pricing action. And, by incrementally implementing a solution, a manufacturer can use immediate gains to fund future expansion of capabilities and tools.

Having real-time data to make pricing decisions will rapidly improve margins in a significant way. Also, many pricing tools

Variable Mgn Mgmt – 40%

Variable Mgn Mgmt – 40%

Variable Mgn Mgmt – 40%

Variable Mgn Mgmt – 50%

Variable Mgn Mgmt – 60%

Competitive Pricing Competitive Pricing Competitive Pricing Competitive Pricing Competitive Pricing – $30 premium to – $25 premium to – $20 premium to – $30 premium to – $35 premium to Raybestos at list Raybestos at list Raybestos at list Raybestos at list Raybestos at list

Competitive Pricing Competitive Pricing Competitive Pricing Competitive Pricing Competitive Pricing – $10 premium to – $5 premium to – Par with Bendix – $20 premium to – $30 premium to Bendix at list Bendix at list at list Bendix at list Bendix at list

Price Freeze

Price Freeze

Price Freeze

Price Freeze

Price Freeze

Early

Growth

Peak Lifecy cle stage

Declining

End

Chart 5: Strategies based on lifecycle stage and competitiveness

2) Price low - To maintain volume in years 5-7.

For product B, the peak comes sooner, but the decline is more gradual. Clearly, the two products needed different lifecycle pricing strategies as indicated in Chart 5.

An analysis of the different lifecycle stages for each part led the company to develop market-driven, lifecycle pricing strategies. Implementing these strategies resulted in an incremental seven per cent margin improvement for the manufacturer.

bring best practices and consistency to the processes surrounding pricing – a form of process reengineering embedded in the technology solution that many parts manufacturers urgently need. And finally, a recent market survey showed that many companies are building their parts pricing capabilities. If your competitors become more sophisticated in pricing, they will gain a true and meaningful advantage.

A PROFITABLE SOLUTION A pricing solution does not have to be complicated. In our work, we routinely ‘prove the concept’ with a manual analysis of the company’s data on tools such as excel or SQL. For one manufacturer,

we identified $75 million in profit improvements and the company was able to realise $25 million of that immediately (within the first year). To realise those gains, the manufacturer invested in pricing software to enable part number level analytics that would identify and harvest profit opportunities over time. Given the pressure to reduce headcount, just about every manufacturer of parts needs truly useful pricing processes and tools. What company can afford not to find a better way to become profitable?

Courtesy: The article is an excerpt from the whitepaper, ‘Service Parts & Profitability’ from Deloitte.

JUNE 2011 • SMART LOGISTICS • 27

INSIGHTS & OUTLOOK

LOGISTICS & LAWS

ENSURING INDIA GETS A GOOD

BUSINESS DEAL

Photo ©DINODIA

Foreign trade has gained immense importance in India in the recent years. India’s Foreign Trade Policy implies, in its preamble, that while incorporating the existing practice of enunciating an annual EXIM Policy, it is necessary to go much beyond and take an integrated approach to the developmental requirements of India’s foreign trade. By doing so, India’s EXIM Policy has laid down guidelines for the country to become a major player in the world trade.

28 • SMART LOGISTICS • JUNE 2011

IMPORT to and export from India, i.e. foreign trade, is governed by various Acts, regulations and policies notified by the government from time to time.

One of most important policies of the government is the Foreign Trade Policy or the EXIM Policy, which is regulated under the Foreign Trade Development and Regulations Act, 1992. The Directorate General of Foreign Trade (DGFT) is the main governing body in matters related to the EXIM Policy, which has a term of five years and is effective till March 2014.

Foreign Trade Policy acts as a catalyst for the development and regulation of foreign trade by facilitating imports into and augmenting exports from India, depending on the existing economic climate, export promotion measures, demand & supply conditions, world economy, etc. In addition, the Handbook of Procedures Volume-II provides crucial information in matters related to the Standard Input Output Norms (SION). Based on SION, exporters are provided the facility to make duty-free import of inputs required for manufacturing export products under the Duty Exemption Scheme or Duty Remission Scheme.

Basic customs duty Surcharge on customs duty Additional duty Special excise duty Motor vehicle cess Special additional duty of customs

35% 10% 16% 24% 0.125% 4%

Duty structure

Under the EXIM Policy, certain goods for import and export are placed under restricted categories. The Central Government has the powers to make provisions for prohibiting, restricting or regulating the import or export of goods.

For example, the import of secondhand goods and second-hand capital goods is restricted. Some of the goods are prohibited for import and export; whereas some goods can be imported or exported against a licence. The Central Government has the power to issue a notification under which export or import of any goods can be declared as prohibited. This can either be absolute or conditional. The policy also provides penalty to attempt the export of improper

goods and in the case of prohibited goods, a fine amounting to five times the value of the goods may be levied.

LAWS FOR IMPORT OF CARS The general law for importing a car suggests that one person can import only one car, regardless of whether it is a new car or a used one. The import of cars with part payment is not permitted. In other words, any payments towards the purchase of a car shall not be outstanding.

Also, the car that is to be imported in India should be a right-hand drive and must indicate the car speed in kilometre per hour. It should facilitate the practicing of the existing driving rules in the country.

In the case of a used car, it is essential to ensure that the car being imported should not be more than three years old from its date of manufacture. Also, the imported vehicle should have minimum five-year roadworthiness from the date it is being imported into India.

Apart from this, it should also be accompanied with an assurance for providing service facilities within the country during the five-year period. Every individual vehicle being imported should have with it a declaration indicating the period of roadworthiness supported by a certificate issued by any of the testing agencies.

A certificate issued by a testing agency stating that the used vehicle conforms to the original homologation certificate issued at the time of manufacture has to be submitted by the importer. The vehicle also has to conform to the provisions of the Motor Vehicle Act, 1988 on the date of import. The imports of new cars would be allowed only through Nhava Sheva in Mumbai, and Kolkata & Chennai ports, while second-hand vehicles can be imported only through the port in Mumbai.

Depreciation percentage Period of use

Depreciation allowed

For every quarter during 1st year

4%

For every quarter during 2nd year

3%

For every quarter during 3rd year

2.5%

For every quarter during 4th year and thereafter Duty structure on cars

2%

Under the Export Promotion Capital Goods (EPCG) Scheme, the imports of cars and sports utility vehicles/all-purpose vehicles is permitted to hotels, travel agents, tour operators or tour transport operators and companies owning/ operating golf resorts.

However, these entities should have a present total foreign exchange earning of `1.5 crore or more and precede three licencing years. These imported vehicles shall be registered and used for tourist purpose only. The amount of duty saved under all EPCG authorisations issued in a licencing year on the import of a car shall not exceed 50 per cent of the average foreign exchange earnings from the hotel, travel & tourism and golf tourism sectors in the preceding three licencing years.

Parts of cars and sports utility vehicles/ all-purpose vehicles, such as chassis, etc. cannot be imported under the EPCG Scheme.

REQUISITE FOR IMPORT OR EXPORT Prior to import, an importer has to obtain the Importer-Exporter Code Number, which is either granted by the Director General or the officer authorised by the Director General.

Import without license The import of cars for non-commercial use without import licence is permitted upon the payment of full Customs Duty, by the following categories of importers: • Individuals coming to India on ‘Transfer of Residence’ for permanent settlement after staying abroad for two years • Resident Indians gifted with a car as an award in any international event/ match/ competition • Legal heir/successor of deceased relatives residing abroad • Physically disabled persons • Companies incorporated in India having foreign equity participation • Branches/offices of foreign firms • Charitable/missionary institutions registered with the Ministry of Welfare and the Ministry of Home Affairs, Government of India • Honorary Consuls of Foreign Countries on the recommendations of the Ministry of External Affairs, Government of India • Journalists or correspondents of foreign news agencies having an accreditation certificate with the Press Information Bureau, Ministry of Information and Broadcasting, Government of India.

JUNE 2011 • SMART LOGISTICS • 29

Logistics & laws, continued

All such import shall carry a ‘no sale’ condition of two years, which shall be endorsed by the Customs authorities on the passport/registration documents at the time of import and by the regional transport authorities when these vehicles are presented for registration in India.

Companies having foreign participation and branches of foreign firms are permitted to import a maximum of three cars. All such imports, except by physically handicapped persons, shall not involve any foreign exchange remittance from India, either directly, or indirectly.

DGFT may, however, permit relaxation of these conditions or imports by any other category not listed in this public notice under special circumstances.

EXTENT OF CUSTOMS DUTY Presently, the rate of duty on the import of a car effectively works out to 101.91 per cent, which comprises of the following: For ascertaining Customs Duty, the value of the car is determined in the following manner: • Manufacturer’s invoice value is accepted wherever such an invoice is available • When no such invoice is available, the value is determined on the basis of the world car catalogues available with the department or on the basis of the manufacturer’s price list, wherever available. Normal trade discounts are allowed to be deducted wherever the value is taken on the basis of world car catalogues.

• The value of a second-hand car is arrived at in the above manner after allowing the deductions for depreciation as per the schedule below. It is subject to a maximum of 70 per cent.

IMPORT LAWS Laws In The US The transportation sector is mainly governed by the Department of Transportation (DOT) and Environment Protection Agency (EPA). DOT establishes an overall transportation policy for the US, including highway planning, development & construction; urban mass transit; railroads; aviation and the safety of ports, highways and oil & gas pipelines. EPA ensures the protection of public health and the environment by regulating air pollution from motor vehicles, engines and the fuels used to operate them.

There are several other federal agencies

30 • SMART LOGISTICS • JUNE 2011

that govern the transportation law, including the Federal Highway Administration, Federal Railroad Administration, Federal Aviation Administration and Federal Maritime Commission, among others.

Prior to importing a vehicle, it is essential to ensure that it conforms to the US safety standards, bumper standards and air pollution control (emission) standards.

Any imported vehicle, which does not conform to the US laws are brought into compliance, exported or destroyed.

Vehicles that are less than 25 years old are required to comply with all the applicable Federal Motor Vehicle Safety Standards (FMVSS) in order to be imported permanently into the US. The original manufacturer has to affix near the driver’s side door of the manufactured vehicle a certification label stating that the vehicle meets the US standards.

In the case of vehicles, which do not conform to US standards, the importer must contract with a DOT-registered importer (RI) to modify the vehicle and certify that it conforms to all applicable FMVSS. There is also a procedure of providing a bond for one-and-a-half-time of the vehicles dutiable value, which is in addition to custom entry bond.

Dutiable Entry New or used foreign-made vehicles imported into the US, either for personal use or for sale, are generally dutiable at the following rates: Autos Trucks Motorcycles

2.5% 25% Either fee or 2.4%

Duty rates are based on the price paid or the payable price. Most Canadian-made vehicles are duty-free. There are various exemptions available to a US resident, who is returning either from travel, work or study.

Laws In The UK At the time of importing a vehicle for use in UK, it must be registered and taxed with the Driver and Vehicle Licensing Agency (DVLA) within two weeks of its import.

The vehicle should not be a previously permanently registered one. The new vehicle should have a reasonable delivery mileage, which means that the vehicle being driven from the pick up point to home using a direct route. For left-handdrive vehicles, a certificate issued by the

Vehicle Certification Agency (VCA) is required, which shows that changes have been made to the vehicle, making it suitable for use on UK roads.

An imported used vehicle, on the other hand, should be less than 10 years old and meet the required standards, like European-type approval standards, UK construction and use, and Road Vehicle Lighting Legislation, which should satisfy DVLA. Cars, motorcycles and light goods vehicles, first registered in another European member state, must have a certificate issued by VCA under the Mutual Recognition Scheme.

SINGLE VEHICLE APPROVAL SCHEME Similar to the US laws, the Single Vehicle Approval (SVA) Scheme is a preregistration inspection for vehicles that has not been approved as per British or European standards.

The purpose of the scheme is to ensure that these vehicles are designed and constructed to suitable safety standards before they are used on public roads. The ‘standard’ and ‘enhanced’ SVA refer to the different levels of inspection carried out on a vehicle depending on the vehicle’s class. Standard SVA inspections applies to particular classes of goods vehicles and special purpose passenger vehicles, which includes left-hand-drive, seat belt anchorages, protective steering, brakes, etc.

PROMISING GROWTH In the recent years, foreign trade has gained tremendous importance in India and India’s spectrum of trade connections with other countries in the world grows wider with every passing year.

The country’s EXIM Policy has several clauses, which offer an all encompassing and comprehensive view of India’s foreign trade. These clauses need to be implemented in order to ensure overall development of the country’s foreign trade.

The EXIM Policy states that reasonableness and consistency among trade and other economic policies is important for maximising the contribution of such policies to development. Following these guidelines will certainly help India become a major player in world trade.

Courtesy: Solomon & Co

ENABLING IT INFRASTRUCTURE

CASE STUDY

“Excellent firms do not believe in excellence but only in constant improvement and constant change,” opined Thomas J Peters, an American writer on business management practices.

Carrying this thought forward is TVS Logistics Services (TVSLSL). Serving its customers in the automotive industry with niche services has helped TVSLSL stay ahead in the competition curve and grow at phenomenal pace. The company owes its growth to technological best practices that have now become a part of its DNA. Leveraging IT solutions like ERP, GPS, Biometrics to coordinate over 140 locations, the company has been able to successfully manage its complex logistics supply chain.

TRANSPORTATION and logistics in India is a still quite a pseudo mature and fragmented industry that, more often than not, operates sans technology. But it is reassuring to know about a domestic player that has not only defined and systematised the hitherto disparate processes of its logistics supply chain, but also set benchmarks of excellence before going global with its services. TVS Logistics Services (TVSLSL), a Chennai-based third party logistics (3PL) company, has crossed many a milestone in its 15-year journey to become one of the leading 3PL players of the country.

FACING CHALLENGES HEAD-ON Considering that the company is handling logistics for the automotive industry, the tasks involved in servicing one customer order are quite complicated, as typically in a manufacturing facility, over 50,000 parts are required at any point in time, of which about 5,000 are fast moving. Shedding more light on the challenges that mar the 3PL industry, Harinath Chakravarthy, CIO, TVS Logistics, says, “A 3PL service

provider has a tough role to play as the job involves dealing with multiple suppliers to service a single order for its clients.

There are specialist providers in the supply chain, like trucking agencies, labour providers, stand-alone warehouses, and so on and so forth. It is time consuming to derive performance consistency from each agency involved. The only way in which we can survive in such a big and complex ecosystem is by having access to real-time information. Only technology can enable this.”

Today, despite these requirements, TVSLSL ensures the timely availability of components for production with virtually bare minimum inventory, by deploying the necessary pieces of technology across its processes and locations. It provides end-to-end solutions to its customers by coordinating between them and their suppliers. “Our strength lies in delivering these complex services by bringing a certain amount of intellectual horse power to the table and making sure that every thing, at every stage in the supply chain, works,” avers Chakravarthy. The entire

process is orchestrated using different types of IT solutions. From sophisticated operations and supply chain automation solutions to global positioning system (GPS) and biometric devices; to a range of analytics and web-based solutions to enable real-time access to information, to other IT hardware, like servers, laptops, personal digital assistants (PDAs) to allow end-point access to information for executives on-the-move and many other technology tools.

ERP EXPERIENCE Maintaining automation in the supply chain and visibility across each stage has always been crucial for TVSLSL. But the company’s operations witnessed an enormous transformation after it deployed the ERP system in 2005. Prior to this, the company was using homegrown IT systems and a specialised accounting package. So, what led the company to switch over to an ERP system? Chakravarthy replies, “Given the kind of growth that we were experiencing, we felt the need to opt for a more sophisticated and integrated IT

JUNE 2011 • SMART LOGISTICS • 31

Enabling IT infrastructure, continued

solution, like the ERP system.”

When the process to zero in on an ERP solution began, the company started evaluating some of the available solutions based on a couple of key criteria. Chakravarthy recalls, “We wanted a system that could offer most of the required modules directly out-of-the-box

the modules of the ERP system, Prince Sudersanam, GM – Base Component Development, Ramco Systems, says, “Ramco has deployed its web architected enterprise application with functions catering to 3PL players. This includes modules like, transportation management, warehousing operations, procurement,

TVS Logistics Services’ (TVSLSL) rich mix of technology tools: • Ramco’s ERP suite • Mobile gateway integrated with the ERP system, which allows transmission and receipt of information feeds via SMS & e-mails.

• An integration middleware platform that facilitates integration of new technologies with the existing technology platforms.

• DELL servers to host software applications.

• A customers’ web portal created to serve as a self-service access point, where suppliers can log in and request for payments and route it to the accounts module in the ERP system. Customers can also check the status of their order & suppliers can check their performance in a particular month.

• Interactive learning gateway: This is an online learning portal meant for TVSLSL employees for imparting training on IT, behavioural training, simple disclosure training; basic induction into the TVS Logistics Group, and so on and so forth. It has an interactive voice module that gives a score to the user after every training session.

• Specialised applications integrated into GPS and telematics devices.

• Biometric solutions: The company makes use of a biometric device to record employees attendance and shift-wise starting & closure time.

There is also a special biometric device, which the company uses while operating at locations inside its customer’s facility. As soon as a shift starts, this device sends an alert in case an employee does not report.

• PDAs are being used by all professionals on-the-move.

• Video conferencing solutions are being used for communication exchange between locations. without the need for any modifications.

Since we were experiencing expansion across regions, in India and overseas, this demanded language support and compliance with local laws & regulations and we needed a vendor who could provide it as part of the solution, as much as possible. Also, at a time when the technological lifecycle is as short as five years, we wanted to opt for a solution that could make it possible for us to port all components from today’s technology platform to tomorrow’s world, and that too, economically.”

Considering the breadth of various given systems vis-à-vis our requirements, Ramco System’s ERP solution was the best fit, admits Chakravarthy. Enumerating

32 • SMART LOGISTICS • JUNE 2011

sales, financials and human capital management.” In addition, Ramco has provided TVSLSL a powerful Business Intelligence solution, Sudersanam adds.

MANAGING THE SUPPLY CHAIN TVSLSL mainly deals with customers in the automotive industry and so, the terms and conditions in the contracts that it undertakes incentivises a company for ontime performance and penalises it heavily for non-compliance. This is because any stock-outs or delays in transit can lead to disruptions in the production process at the customer-end; thereby causing huge losses. Therefore, one thing that TVSLSL cannot afford to get wrong is managing its supply chain. However, achieving this was

an extremely challenging task. Narrating the complexities, Chakravarthy explains, “When TVSLSL decided to automate its operations, the core team studied the Indian market to map its expectations from the ERP and SCM systems. Logistics companies have unique requirements and dynamics. Because of these inherent complexities, most big players in the 3PL domain, like TNT and DHL, have opted for homegrown systems. They usually never buy IT solutions, off the shelf.” “Considering this, we decided to build a supply chain management (SCM) application. But then the question was, with whom do we build this solution? We mapped our requirements and then went into a discussion with Ramco Systems.

Its team then put their technical hats on and suggested a few solutions to us. This entire brainstorming process – chalking out the solution, contract creation and supplier intervention, end-to-end contract servicing – took 3-4 months,” he describes. The SCM module handles domestic transportation, international transport, time-to-market warehousing, material handling solution, and so on and so forth. It has been jointly built by TVSLSL and Ramco Systems.

THE PROCESS OF IMPLEMENTATION When TVSLSL started the implementation of the ERP system, the timeframe was aggressive. Keeping the complexity of TVSLSL’s requirements and size of the application in view, a phased approach was adopted for implementation. It has taken close to a year and above to bring the business operations into the system, informs Sudersanam. “The new solution was different from what was being followed. Process re-engineering and change management were the key factors for its successful implementation. These were addressed through comprehensive employee training programmes,” he elaborates. TVSLSL laid a lot of emphasis on putting together a dialogue framework with employees as it believes that keeping employees informed is very important.

Chakravarthy says, “We have created joint task forces at lowest levels. This helps create a knowledge pool, which, in turn, ensures speedier decisions even at the lower level.” TVSLSL has already got the Ramco ERP system implemented across all its divisions. In addition, work to implement the solution in its overseas

subsidiaries and joint venture companies is underway.

LEVERAGING IT TO THE FULLEST To leverage IT more effectively, TVSLSL has made two significant technological movements after implementing ERP. Divulging the details, Chakravarthy reveals, “We have upgraded to a new GPS technology stack to track vehicles and consignments in transit, which has alert generating capabilities. This capability has been integrated with the Ramco ERP system. We have also integrated the ERP system with biometric devices. Apart from this, we have a system of using smart cards to keep a check on who is moving in and out of the organisation. This data is pooled into the ERP system’s payroll module.” Having IT systems on board has helped TVSLSL achieve efficiencies of scale.

BENEFITS OF USING ERP SYSTEM The ERP system has enabled access to real-time information, not only to the management and employees, but also to

the company’s partners and customers.

Customers get status alerts on shipments via the mobile gateway, about potential delays or on time placements. It has also greatly helped in reducing costs. Because of better streamlined processes in the first six months of deployment itself, the overall expenditure has come down by three per cent. The ERP system has helped TVSLSL scale much faster irrespective of the high growth that it has been experiencing.

For instance, if earlier, 10 people could support a transaction volume of three crore per person, the same 10 people with the existing infrastructure can now support a transaction volume twice than before.

ON THE FAST TRACK Ever since its inception, TVSLSL has adopted the best automation tools to better its various functions. Talking about the same, Chakravarthy explains, “The company always wants to be on the top of the next-generation technology curve.

Thus, we are constantly working towards identifying what needs to be eliminated and what needs to be constantly changed.”

The company is also working on the

creation of a solutions service pack for its customers. Elaborating on the same, Chakravarthy says, “We want to create a pack where we have solutions that are placed in the form of components; so that when we require a set of 2-3 solutions for servicing an order in a certain market, we are able to pick and choose components from this buffet and serve the customer. We are putting our heads together to build such a solution with the help of Ramco Systems and a few other specialised vendors.”

Another area that the company aims to focus on is to actively reduce the overall total cost of ownership of IT in the next three years. The company also plans to innovatively monetise its sophisticated analytics capabilities by generating specialised analytical reports for its customers as part of its support services offerings.

In future, TVSLSL plans to add to its IT portfolio by finding solutions to meet its business challenges with the help of IT. This will certainly ensure that the company remains on a fast-growth track.

Courtesy: Ramco Systems

I I I Does your supply chain have an eagle’s eye?

Is it still a hidden

talent?

Affirmation will lead you to us…watch this space for the most-awaited talent hunt for the real movers & shakers!

Sounds exciting?

Be a part of the hunt; write to

prerna.sharma@infomedia18.in if you want to recommend any exceptional young talent in your organisation.

Brought to you by

JUNE 2011 • SMART LOGISTICS • 33

VIEW FROM THE TOP

‘

COUNTRY MANAGER INDIA, FEDEX TRADE NETWORKS

We see

TECHNOLOGY as a GAME CHANGER

freight forwarding industry

in the

’

“The most challenging and exciting task for freight forwarders is to find the most efficient and cost-effective solution to meet every customer’s needs,” says Rajat Khosla, Country Manager India, FedEx Trade Networks, during an interview with Purna Parmar. Excerpts…

ATTAINING SUPPLY CHAIN EFFICIENCY AND DRIVING DOWN COSTS As part of FedEx, we have unmatched capabilities to provide customers with solutions for their entire supply chain. We offer customers access to other FedEx operating companies and their products.

As an international freight forwarder, we focus on customers whose shipments are less time-sensitive as compared to FedEx Express, where the shipments are time-definite in nature. In cases where the shipments are less timesensitive, FedEx Trade Networks offers them several options, such as changing the mode of transportation, to help them reduce their cost depending on their timelines.

FEDEX’S OFFERINGS FedEx Trade Networks offers customers in India expanded integrated freight forwarding services, resulting in numerous

36 • SMART LOGISTICS • JUNE 2011

benefits, which include: • Enhanced global freight forwarding services and end-to-end multimodal solutions • Direct access to local personnel having industry experience and local expertise to meet customer needs • Strong local market presence, intelligence, global capabilities, brand recognition, service quality and innovation • A broad portfolio of services, including FedEx International Direct Distribution, supply chain visibility and online FedEx trade tools, such as World Tariff, and trade & customs advisory services • Seamless support across other FedEx operating companies and enhanced access to the FedEx global network.

FedEx can leverage its collaboration with other FedEx enterprises, such as FedEx Express and FedEx TSCS, to provide Indian customers with the flexibility to suit their international

trade needs without compromising on FedEx service standards.

FREIGHT FORWARDING OFFERINGS We see technology as a game changer in the freight forwarding industry. It will give customers an edge, visibility and improved control so that they can take better decisions on their transit times and cost.

EVOLUTION OF FREIGHT FORWARDING INDUSTRY Going forward, technology will play a crucial role as it offers visibility and control and helps take better decisions on managing the supply chain and logistics. We have witnessed a steady growth in our international trade. In fact, a look at the data released by the Ministry of Commerce will reveal that the volumes have been growing steadily, which implies that the industry currently

has larger volumes to deal with. EXIM trade has been taking place on a large scale. According to the data, in 2010-11, the total exports touched $245.9 billion, while the total imports stood at $350.3 billion. Another change that has taken place in the industry is the consolidation of players with larger and more established organisations. The industry is still significantly fragmented, but there is an emergence of the larger enterprises.

Apart from these, service offerings have evolved as well.

FACTORS SUPPORTING THE GROWTH OF THE FREIGHT FORWARDING INDUSTRY The freight forwarding industry has grown significantly over the past few years on the back of the strong economic growth witnessed in India.

EXIM trade has witnessed sustained growth, thereby driving the demand for efficient global freight forwarding services.

The Indian industry today caters to a global market, especially in segments such as engineering, gems & jewellery, auto, textiles and pharma. These segments have witnessed strong growth – exports of engineering goods crossed $60 billion in FY10-11, thereby registering a growth of 84.76 per cent; while the drugs & pharmaceuticals sectors exported products worth $10.32 billion in the same period. These industries require freight forwarding services to access international markets.

DRAWBACKS OF INSUFFICIENT AIR FREIGHT INFRASTRUCTURE IN INDIA Good infrastructure will help the logistics industry achieve sustainable growth.

Unfortunately, the condition at airports is not conducive for facilitating trade.

Inadequate parking bays and single runways at certain airports, cargo handling/customs clearance capabilities, which lead to congestions and undue delay in clearance of goods, are some of the factors that adversely impact the Indian consumer, producers, importers and exporters.

Fostering private public partnerships is a positive step in this direction. A wellmanaged and strategic tie-up will yield results in the long-run. Specifically, there should be improvements in infrastructure.

Ensuring the same will help India carve a niche for itself in the global logistics industry.

IMPROVING INDIAN FREIGHT FORWARDING LANDSCAPE The key areas for improvements include the reduction of dwell time at airports & ocean ports and faster connectivity to ocean ports from inland points. The trade and logistics infrastructure in India has not kept pace with the development in the logistics industry. Another key challenge is the tax structure, which adds to the cost and delivery time in distribution. In the recent past, there have been optimistic steps towards achieving world-class infrastructure in the country. Infrastructure development is gaining significance in tier2 and tier-3 cities too. We look forward to more such investments that will help build the nation’s infrastructure and put us on the world map of countries with outstanding facilities.

THE EXIM TAX ISSUES YOU FACE IN INDIA Streamlining the taxation process would be key in driving efficiency across the supply chain. It is important to arrange for a dialogue between the government, industry and customers to ensure that the needs of the marketplace are highlighted. The government should also look at the speed of execution of these taxation processes and bring them into operation at the earliest in order to leverage the economic growth to its full potential.

MOST CHALLENGING TASK FOR A FREIGHT FORWARDER The most challenging and exciting task for freight forwarders is to find the most efficient and cost-effective solution to meet every customer’s needs. Customers in diverse industries have varied logistics needs for each individual shipment. It is a unique challenge we face in freight forwarding as we have to find the right mix of transportation solutions to ensure that shipments reach their destinations on time.

FLEXIBLE FREIGHT FORWARDING SOLUTIONS AND VALUE ADDED SERVICES We provide International Direct Distribution (IDD) service, which offers great value and flexibility to our customers.

This solution is ideal for shippers, like our e-commerce customers, who have several small shipments at origin. These small shipments are consolidated and

then transported to the US and Canada as a single shipment. At the destination country, they are de-consolidated and delivered directly to specified retailers and customers. By using the FedEx Trade Networks IDD service, customers can now bypass the distribution centre, as packages can be labelled at the origin and delivered directly to the customers. This helps customers reduce significant cost and save on time. We have been getting encouraging enquiries for this service from Indian customers as well.

YOUR EXPANSION PLANS In India, our company is well-positioned to provide customers with reliable global coverage and a seamless experience around the world, helping them to reduce costs while offering them a competitive advantage. FedEx Trade Networks offers customers a broad portfolio of services, including FedEx International Direct Distribution, supply chain visibility and online FedEx trade tools such as WorldTariff and trade & customs advisory services.

FedEx Trade Networks will work closely with the other FedEx operating companies to provide an integrated solution to our customers and to offer them our quality, technology, service & value-added services like Global Order Logistics, Trade and Customs Advisory Services and IDD services.

We will leverage our collaboration with other FedEx enterprises such as FedEx Express and FedEx TSCS to provide Indian customers with flexibility for their international trade needs with the same reliable FedEx service standards.

FIVE THINGS THAT YOU WOULD LIKE TO CHANGE ABOUT INDIAN LOGISTICS To my mind, following are the five things that should be addressed on an immediate basis to change the dynamics of the Indian supply chain: • Improve the trade and transportation infrastructure in the country • Simplify the complex tax structure • Leverage more technology solutions to improve efficiency • Have access to a pool of qualified & trained employees • Adopt global standards and practices to ensure efficiency improvement across the supply chain.

JUNE 2011 • SMART LOGISTICS • 37

SL EXCLUSIVE

JAPAN EARTHQUAKE AFTERMATH

RETHINKING GLOBAL SUPPLY CHAIN STRATEGIES Such has been the stronghold of Japan in the global map that the aftermath of the earthquake has not only been felt by Japan, but throughout the globe. While this natural disaster has impacted the strong manufacturing foothold of the country, it has also resulted in global supply chain inefficiencies. In such a scenario, is it worth depending on ‘Just-in-Time’ practices or does the entire industry have to rethink their global supply chain strategies?

PRERNA SHARMA HIT by an earthquake of magnitude 8.9 on March 11, 2011, the Japanese economy has been struggling to get back to normalcy. This natural disaster has not only claimed 30,000 lives and injured scores of people, it has also impacted the dynamics of the global supply chain.

Interestingly, it is not only Japan, but the entire world, which is reeling from the aftermath, as the fortunes of other economies are closely linked with the economy of Japan. From Apple Inc’s

38 • SMART LOGISTICS • JUNE 2011

new iPad to the US pick-up trucks and many of the world’s airplane kitchens – the spectrum of Japan’s manufacturing is broad.

Japan is a major producer of many items, including auto components, semiconductors, LCD displays, etc.

Disruptions in the production of these will lead to the supply chain disruptions of these items in the world market, which will, in turn, delay the production of highend gadgets like smart phones, iPads, LCD

TV, laptops, etc.

With Japan being such a pivotal country for hi-tech supply chains, the disaster also sparked concerns about the short and long-term impacts it would have on global supply chain operations. As per a recent survey by eyefortransport, a majority of respondents only saw a minor disruption (52 per cent) with only 11 per cent expecting a significant disruption. It is interesting to note that most executives expect the impact to continue over the

long-term. The statement that executives expect a ‘moderate’ rather than ‘significant’ impact is rooted in the fact that they will have time to make alternative sourcing plans for necessary components and materials before initial suppliers run out.

prior forecasts.

In recent years, the north eastern region of Japan, including the area most severely damaged by the disaster, has 60% been the focus of the 50% Japanese auto sector’s efforts to decentralise 40% its manufacturing 30% operations. For years, the 20% domestic industry had LOWER SUPPLY, taken advantage of the 10% FEWER CHOICES northern region’s lower 0% The recent turbulence costs and developed Minor Distruption Moderate Disruption Significant Disruption experienced by Japan infrastructure.

But Source: Eyefortransport Survey Results had a snow-balling impact decentralisation was not on the supply chain just adopted due to cost operations of the entire besides curbing exports to a limited extent, advantages, it was also world. With the part production going Japanese plants are continuing operations, a policy of risk mitigation, focussed on offline, the movement of goods to & from which is good news for countries that reducing the chance of natural disaster Japan also witnessed a major drop. depend on Japanese imports. interference, which posed a threat to Production outside Japan has also Complexities and intricacies in modern major manufacturing operations. Despite been disrupted, as factories in Europe, automotive supply chains make it difficult this policy, it is clear that the domestic North America and the rest of Asia scale to gauge the immediate and mid-term and global auto industry’s value chains back due to shortage of parts. Japanese effects of the devastating events in Japan. remain vulnerable. Disrupted supplies automakers have not forecasted what But the global auto industry has recently of seemingly insignificant components impact production cuts will have on proven to be adaptable to rapid change. can halt distant global operations. For earnings, but analysts have been slashing According to the PwC’s latest Autofacts’ example, an important paint pigment plant forecasts ever since the disaster. The 2011 Q2 assembly forecast, near-term in Japan is the sole source for specific evidence of deeper and long-running topline growth in 2011 will be marginally vehicle paints and supply interruption output disruptions because of a shortage lower as a direct result of the ongoing has caused problems in production of key parts, including semiconductors challenges emanating from the pivotal scheduling around the world. Further, from Japan, comes, as major automakers developed Asia-Pacific area (Australia, the sheer length of supply chains dictates grapple with complications caused by parts Japan and South Korea). Despite a weaker that the full scale of industry problems factories that have been shut down or are outlook stemming from the turmoil in may take considerable time to surface. running using limited power in Japan.

Japan, the global assembly will largely be The earthquake and tsunami exposed Nearly two months since the massive balanced by a stronger than the previously the auto industry’s inherent structural earthquake in Japan, the global auto estimated growth in developing Asiarisks and will mandate a re-evaluation of industry is still struggling to obtain key Pacific (China, India, Indonesia, Malaysia, global manufacturing and supply chain risk auto supplies ranging from transmissions Pakistan, Philippines, Taiwan, Thailand, management strategies. to paint. In line with this, global auto Vietnam), North America, and Europe.

IMPACT ON INDIA majors such as Toyota, Ford and Honda An additional effect of the slightly lower The Indian stock market fell by 0.8 per have postponed the launch of their latest global assembly prospects for this year cent after the Japanese earthquake made product into the market because of slower is a 2012 vehicle production outcome headlines. But the market recovered the production cycles and most importantly, that may finish significantly ahead of part shortages. One of the key concerns has also arisen out of electronics supply chain because of Japan’s grip on the India has banned the import of processed food and drinks global electronics market. Japan exported from Japan. While this is not a significant quantity, the 7.2 trillion yen (US$91.3 billion) worth ban will be reviewed after three months or so, given the of electronic parts last year, according to fear of radiation. This has been the practice for several Mirae Asset Securities. countries and some countries distinguish between According to Anis Chakravarty, Director, Deloitte Haskins & Sells, it is products coming from the affected areas and those from too soon to comment on whether there the rest of the country that has not been affected. This will has been an overall recovery in trade. The definitely affect the exports of Japan and its own balance manufacturing impact has been restricted of trade position. to disruptions in the supply chain, MADAN SABNAVIS, Chief Economist, CARE Ratings particularly of automotive parts. However, Impact Of Japanese Earthquake & Tsunami On Hi-Tech & Electronics Supply Chain

JUNE 2011 • SMART LOGISTICS • 39

Japan earthquake aftermath, continued

very next day. It is projected that since Japan accounts for less than three per cent of total Indian exports, the disaster in Japan would have a marginal impact on the Indian economy. Also, automobile companies will be adversely affected by the crisis, as they depend on Japan for the supply of many critical auto components. Chakravarty opines, “In the Indian context, with the signing of the Free Trade Agreement between India and Japan, there is a potential for bilateral trade to expand manifold in the coming years. However, the current bilateral trade between India and Japan is limited and

suppliers of their suppliers’ suppliers. Take, for instance, Mitsubishi Gas Chemical and Hitachi Chemical, who control about 90 per cent of the specialty resin market used to bond parts of microchips that go into smart phones and other devices.

The factories of both companies were damaged in the quake. In another instance, the compact battery in Apple’s iPods relies on a polymer made by Japanese company, Kureha, which holds 70 per SUPPLY CHAIN WOES cent of the market, and whose factory Concerned with the economic impact was also damaged. of product supply disruptions to both, Anil Devli, CEO, Indian National local and global businesses have been Shipowners’ Association, informs, “The impact of varied magnitude has been felt by many from the highly critical items used We do see supply chain dynamics changing. However, in manufacturing to the very mundane the major change is in planning redundancies. We are consumer items. It has disturbed the already seeing companies working towards this. I am sure round-trip ability of transport providers as the next step, alternate plans will be made to ensure and a consequent rise in the costs of transporting cargo into Japan. uninterrupted supply of inputs.

Corporate analysts have cited ANIL DEVLI, CEO, Indian National Shipowners’ Association radioactivity as one of the major reasons for such a downfall in trade. Among threaded throughout the turmoil. Few stands at approximately US$11 billion or the worst hit sectors are automotive industries have been spared from the roughly in the range of 2-3 per cent of the and electronics. While companies might supply shortages of components, ranging overall trade. Therefore, the catastrophe normally have expected suppliers with from semiconductor chips to metal has had a limited impact on business. modest damage to get back to speed forgings and rubber. Toyota and Honda Marginal effects may continue to be felt quickly, continued aftershock quakes and have shut down temporarily within Japan; on electronic goods and auto spares for now, the fear of radioactive contamination Apple may see delayed shipments of the a short period (until Japanese operations has extended supply disruptions for quite recently released iPad 2; and Boeing’s are stabilised) and it may result in interim some time now. As per the recent new 787 Dreamliner could see further price rise in these industries. However, I research figures, about 13 per cent of delays to the already-beleaguered aircraft do not see this becoming a major issue. the worldwide auto output has been lost programme.

From an investment perspective, there due to parts shortages. All these factors One thing that is coming out strongly were initial apprehensions of capital are putting tremendous pressure on the from these evidences is that a company’s outflow from India and reduction in companies and are forcing them rethink supply chain risk profile is not driven only portfolio holdings. However, here, as well, their sourcing strategies to wither the by the direct supplier network, but their the impact has been limited. Inbound FDI impact of such unforeseen calamities. suppliers’ suppliers and perhaps, even the from Japan is approximately eight per But will these lessons really lead cent, which is likely to be to changes in supply affected as the capital will chain thinking, or will Expected Disruption To Hi-Tech & Electronics be retained at home for the short-term pain reconstruction efforts.” some companies are Supply Chain As A Result Of Japanese Crisis Similarly, Madan experiencing from the Sabnavis, Chief Economist, current Japan disruption CARE Ratings, says, will quickly be forgotten 60% “Japan is not a major once things return to 50% trade partner for India normal? Interestingly, this with exports and imports scenario has also put the 40% accounting for around popular management 30% 2-2.5 per cent. But to practice of ‘Just-in-Time’ 20% the extent that we are under the scanner. exporting to Japan, there It is still arguably the 10% would be a tendency for most favoured practice 0% Disruptions will be Disruptions will Disruptions will be an increase in demand in normal time to go long-term, and will be short-term long-term, but at for both, food as well lean, but during times of be significant a moderate level as non-food products, crisis, companies should Source: Eyefortransport Survey Results given the severity of the have a contingency

40 • SMART LOGISTICS • JUNE 2011

crisis in Japan. The entire reconstruction process of the affected townships would entail substantial demand for materials, especially basic metals and engineering goods, which will open up an additional avenue for our producers. Therefore, we can expect our exports to receive a boost, though the extent should not be overstated given that Japan is a small trading partner for us.”

plan in place.

When lead times are counted in days, or even hours, disruptions from natural disasters can cause a significant upheaval in a hi-tech supply chain. Though the potential for disruption is always present, extensive planning for natural disasters is almost impossible. However, swift planning and action can make all the difference between a minor interruption and a major supply chain disaster.

Having said that, every natural disaster and supply chain disruption is accompanied by a lesson to learn for the future. Here are some thought-provoking insights from Michael Burkett, Analyst, Gartner on streamlining supply chains in such times: Establish an Overall Supply Chain Risk Management Framework Ensuring readiness for any unplanned disruption is a critical first step. Companies should establish an overarching supply chain risk management framework.

Any risk management framework must accomplish three goals – risk assessment, treatment and ongoing management.

This framework outlines five phases that constitute an iterative, actionable supply chain management process. It includes strategise and design, assess & identify, analyse, respond and monitor & manage.

Strategic Supplier Management Lays a Foundation for Effective Response Supplier failure on components can wreak havoc on a supply chain. Take, for instance, the case of Palm, which, in 2001, suffered a $250 million loss and 95 per cent decline in stock value when a supply issue led to delays in releasing the m500 handheld device. The recent Gartner research found a vast majority of these disruptions could have been prevented with the right visibility and proactive supplier management practices. It is highly recommended that manufacturers put a variety of best practices, processes and technology in place to mitigate supplier risk. This starts by segmenting suppliers; layering risk categories to the supplier segmentation, such as geographical, financial & quality concerns; and then, forming a picture of the business impact by supplier if a crisis occurs. The techniques used to manage this risk are predictive analytics, various monitoring methods, close collaboration and dual sourcing, wherever appropriate.

Document Manufacturing Processes and Assets to Speed Plant Restart Manufacturing plants disrupted by a

It is too soon to comment on whether there has been an overall recovery in trade. The manufacturing impact has been restricted to disruptions in the supply chain, particularly of automotive parts. However, besides curbing exports to a limited extent, Japanese plants are continuing operations, which is good news for countries that depend on Japanese imports.

ANIS CHAKRAVARTY, Director, Deloitte Haskins & Sells shutdown must restart quickly while ensuring quality and throughput are not negatively impacted. Companies strive for a segmented view of their capacity and available resources, and design flexibility into the manufacturing network. This should be supported by standardised work processes and business continuity plans to shift resources to flexible capacity at other sites in a cost-effective fashion.

In cases where equipment is damaged, a complete overhaul and repair will be required. A full record of asset designs, complete with part lists and alternative part supply sources, will also be critical in this case. Visibility to work in process and the current plant capability and capacity as they come back on line is needed to support customer service requests and supply chain planning processes.

A manufacturing intelligence layer that connects the plant to its customers, suppliers and contract manufacturers (especially when they are leveraged to fill a specific capability or reach a core market) can support this capability. Consider implementing a manufacturing architecture that allows Internet usage, regardless of the local technology applications that may be disabled.

ENSURING SAFE IMPORTS First it was toxic toys from China and now, the fear of radioactive materials from Japan. How conscious are we while importing potential danger is one of the biggest questions that the industry needs to address. To this, Chakravarty explains, “The government should ensure that imports into India are safe. I understand that radiation-free certificates have been made mandatory for food imports.

However, I am not aware if a policy has been formulated for non-food imports.”

Sabnavis added that India has banned the import of processed food and drinks from Japan. While this is not a significant quantity, the ban will be reviewed after

three months or so, given the fear of radiation. This has been the practice for several countries and some countries distinguish between products coming from the affected areas and those from the rest of the country that has not been affected. This will definitely affect the exports of Japan and its own balance of trade position.

WITHSTANDING THE IMPACT Though India has been marginally hit by the earthquake in Japan, there are still no clear signs of revival that can address the impact looming over Japanese car manufacturers.

To this, Chakravarty avers, “I believe that the trade curbs will be temporary and supply constraints will ease within the next couple of months. However, overall reconstruction is likely to take at least a year. The parts shortages and resulting production shutdowns caused by the Japanese earthquake and tsunami could cause the global auto industry to rethink how it sets up its supply lines.” Sabnavis is of the view that while the situation appears to under control, one would have to get an official clearance at the level of the Japanese Government on the spread and threat of radiation effects in the country. As the situation is dependent on the extent of spread, it would be hard to gauge the extremity of the situation.

However, the rebuilding work could be expected in the next couple of months, which will lead to higher development activity in the affected areas.

In a nutshell, planning for a crisis is the first step towards responding to a major supply chain disruption and ensuring processes are in place for managing the event as it unfolds.

With various companies’ contingency plans in place, the impact can be withered as far as short-term measures are concerned. For others, it is still a wait and watch situation that will depend on how soon Japan gets back to normalcy.

JUNE 2011 • SMART LOGISTICS • 41

SL EXCLUSIVE

COST OPTIMISATION

FASHIONING

AN

AGILE

SUPPLY CHAIN Changing the mindset of the top management to focus on and invest in the supply chain is the biggest challenge for companies today. However, as the Indian economy enters buoyant growth phase, there emerges a need to make the supply chain agile though cost optimisation. Optimising logistics and transportation costs is often not a plus, but a must. Discussions in the boardrooms have included supply chain and its power to create a service differentiation; enhance revenue and decrease costs. Moreover, companies that integrate supply chain efficiency with their longterm goals will have a distinct advantage over their competitors.

PURNA PARMAR THE Indian logistics industry has evolved alongside an equally robust economic growth observed in the country. However, in comparison with other developing countries, the overall logistics cost in India is much higher. This has made it important for companies to relook at their supply chain models and make it agile to global competition using cost optimisation.

While this may look like a simple matrix, it is a huge task to balance the two; but therein lies the opportunity. According to industry leaders, cost optimisation strategies and tactical successes within supply chain management in the Indian environment is not just a challenge for individual companies, but a task for the entire industry in order to grow and expand their horizons.

IMPORTANCE OF COST OPTIMISATION For decades, supply chain has been viewed by the top management as a

42 • SMART LOGISTICS • JUNE 2011

cost that needs to be consistently driven down, reducing the wide concept of supply chain management to the least rupees per kilometre or per square feet. However, as business becomes global and more competitive, supply chain management has found its place on the priority agenda of companies as an essential ingredient determining the overall strategy. Explaining the nitty-gritty of supply chain management (SCM), Dr Rakesh Sinha, COO – Marketing & Operations), Godrej Consumer Products, says, “It is imperative to understand the significant impact of both, efficient as well as inefficient SCM. A company’s top management must understand how SCM can increase revenue without increasing marketing spends or capacity and reduce cost through lower inventories and a progressive reduction in conversion cost over the years. We have a replenishmentbased supply chain management, which

has helped Godrej achieve significant market share gains across several products and saved hundreds of crores in avoiding premature capacity expansion.”

STRIKING A BALANCE There exists strong trade-offs between providing the highest service levels & availability of goods and cost leading supply chains. Supply chain professionals are often encountered with a similar situation as they are stuck between the sales head and the finance head of the company. Balancing these trade-offs in an increasingly dynamic market environment can be challenging, but truly fruitful.

Elaborating on the dynamics of supply chains, Major Shashi Tiwari, VP – BD & SCM, The Loot (India), explains, “Poor supply chain management, especially by companies retailing fast moving consumer goods, is supporting the development of new age business models such as The

Loot, which thrive on unsold inventories in the hands of global brands. However, it is important to understand the dynamics of the market as it might be an equally challenging task. SCM heads need to learn the art of balancing inventory and cost, particularly, in an apparel business, where fashion trends keep changing. For instance, if in a particular month skinny jeans are in fashion then the supply chain head needs to ensure that this product is readily available across all stores. Similarly, when a particular product is fading out of fashion, the SCM head must sense this market trend and quickly try to move those stocks out of the stores to avoid costs additions to the supply chain.”

PROCUREMENT & PACKAGING Getting procurement right is an essential ingredient for managing the overall supply chain cost optimally. The same holds true for packaging. It is important for SCM heads to know how by extracting up to 2.5 per cent more procurement value per rupee spent can help attain higher cost optimisation. This can be based on simple principles of centrally managed supplier partnerships on an effective technology platform, encouraging innovation at supplier level. This also includes coaching the process of sourcing and SCM at supplier procurement level, reducing supplier base and, in general, focussing on long-term, non-price reduction based approach.

Similarly, strategic sourcing has been an important factor in helping a company attain higher cost optimisation. Elaborating on the same, Shashank Raodeo, GM – Automotive Logistics, Mahindra & Mahindra, explains, “The importance of strategic sourcing in attaining higher cost optimisation cannot be overemphasised.

A five per cent reduction in material cost through strategic sourcing of raw materials may result in a one per cent increase in operating profit. This, in turn, is equivalent to 10 per cent increase in sales. This is an important function for companies with limited headroom due to several external and competitive factors.”

However, there are certain myths surrounding cost optimisation though procurement. Discussing the same, Saurabh Tiwari, Lead – Strategic Sourcing & PMO–Asia Pacific, Kraft Foods India, says, “Vendors tend to think that cost reduction is equal to price reduction.

One needs to ponder over whether it

is for real or has procurement, in the way we communicate, made it appear so?

Another common myth is that vendors feel more cost reduction is equal to more negotiation as it is the easiest way to get reduction. However, as procurement professionals, we must learn to overcome these mindsets. A few innovations in the total cost of ownership (TCO) can help us attain higher cost optimisation in the supply chain.”

VANTAGE POINT Another important factor that would help companies attain higher cost optimisation would be a strategically located warehouse and manufacturing unit. Discussing the benefits of the same, Sushil Agarawal, Head – Supply Chain, Nokia India, observes, “Owing to its factory location in a Chennai SEZ, Nokia’s arrangement with the Tamil Nadu Government has helped the company waiver its sales taxes. This, in a way, has created a GST environment for us even before its implementation.

This arrangement is being fully utilised while operating a direct factory to statelevel warehouse delivery model, which has further helped us bring down our onhand inventory cost by 20 per cent and reduce our transportation and warehouse cost by 10 per cent and 35 per cent, respectively.”

Adding to this, Vineet Jain, Head – Distribution, Yum!, says, “Collaborative development of a logistics decision criteria matrix allows us to determine the most cost optimal mechanism to supply to each retail store. This also helps us identify a common reference point for the entire team and create the platform for the expansion of Yum! from the current 300 restaurants to over 1,000 by 2015.”

Talking about the feat achieved, he further adds, “We achieved this through various price matrix. Before opening a store in a particular location, we determined the kind of supply chain we could use.

For instance, a cold chain with frozen chicken would give us higher shelf life and transit time, so we would need to service the store only twice a week and the distance we can cover can also be longer. Whereas in a normal supply chain, we would have to service the store daily and that too within a radius of 100 km.

Thus, depending on the proximity to the warehouse and the optimal supply chain route, we were able to decide the most apt location for our store.”

ATTAINING COST OPTIMISATION THROUGH TECHNOLOGY The last decade has witnessed supply chain heads as well as logistics service providers experimenting with technology.

Supply chain companies have gradually recognised the value and importance of technology and are now more open to technology upgradations to make their supply chain agile and attain higher cost optimisation. However, given India’s ground realities, peculiarities and complexities, supply chain managers have been able to create and successfully draw results from India-specific innovations on the supply chain front. Stressing on the importance of IT in effective SCM, Vikram Kole, Sales Manager – India Region, DSI Online, avers, “IT and other technology services have played an important role in helping logistics companies attain higher customer satisfaction and gain greater control over their supply chains.

Technology has also played an important role in helping SCM heads capture error points; thereby injecting accountability at all levels of the supply chain.”

However, Kole believes that in order to attain higher cost optimisation, technology must penetrate through all levels of the supply chain process. For instance, a truck driver, who is operating at the ground level, does not understand the complex IT software or the ERP systems installed at the warehouse. However, if trained, he can operate simple devices, like a mobile phone, and impart ground-level challenges faced on a day to day basis. Through this easily available mobility device, an SCM head can attain greater support, integration and transparency in the SCM.

A DISTINCT ADVANTAGE A famous case study demonstrates that Wal-Mart’s optimised supply chain costs as well its core business of buying and selling goods have fetched it the leading position in the retail industry. Optimising logistics and transportation costs is often not a plus, but a must. In certain industries, it is the difference between break-even and profit. In economic downturns, it may be a ticket to survival. While there is no doubt that the current economy has created a renewed focus on cost management for most organisations, those who use this opportunity to align cost-cutting measures with their long-term strategic goals could emerge winners with a distinct competitive advantage.

JUNE 2011 • SMART LOGISTICS • 43

SECTOR FOCUS

RAIL FREIGHT

TAKING THE

PUBLIC-PRIVATE

PARTNERSHIP ROUTE

For long, private players have been eying a share in the most lucrative rail segment pie, which, by far, remains under the control of the government. While a lot has been said and done, the results are still far from materialising. Key to encouraging private partnership in the Indian Railways would depend on the policies, incentives, framework, and most importantly, the execution of such policies. In order to root out inefficiencies, there needs to be collaboration and not competition between railways and private operators.

PURNA PARMAR INFRASTRUCTURE development is a critical enabler to economic growth.

Logistics infrastructure – covering the road, rail, waterways and air network of a country – is the backbone on which the nation marches ahead. Although the urgency to develop India’s logistics infrastructure has been realised in the past decade, the task at hand is daunting. India’s logistics infrastructure is insufficient, ill-equipped and ill-designed to support the expected growth rates of 7-8 per cent over the next decade. This expected 2.5-fold growth in freight traffic will further increase the pressure on India’s infrastructure.

44 • SMART LOGISTICS • JUNE 2011

INDIAN RAIL INFRASTRUCTURE According to a McKinsey report on Indian infrastructure, logistics infrastructure is a critical enabler of India’s economic development. Recognising this pivotal role, the logistics infrastructure spend has been tripled from around US$10 billion in 2003 to a planned amount of approximately US$30 billion in 2010. Despite this increase, the country’s network of roads, rail and waterways will be insufficient as freight movement increases about threefold in the coming decade. This shortfall in logistics infrastructure will put India’s growth at risk. Since a large part of India’s

future logistics network is still to be built, the country has a chance to optimally build infrastructure to meet the growing demand. Doing so requires an integrated and coordinated approach in which the development of each mode – railways, waterways and roads – is matched to the needs and the existing assets are better utilised. India needs to increase its use of rail in particular.

PLIGHT OF PRIVATE PROJECTS The government’s plan to transform the country’s crumbling transport infrastructure through private participation has not

made much headway. While a little over a year remains in the current plan period, the projected private investment of `2,11,600 crore in railways, roads and airports has already been lowered by 60 per cent to `86,700 crore. Not surprisingly, Indian Railways, which has resisted privatisation for years, has fared the worst. The Planning Commission recently slashed the expected private investment of `50,354 crore – or, 20 per cent of the overall investment of `2,61,800 crore – in the railways for the current plan period by as much as 83 per cent to `8,316 crore. This comes as disappointing news, given that the public private participation model has proved to be a major success in the telecom and highway development.

The Ministry of Railways has issued several policies aimed at building infrastructure with private participation in the past two years. Crucial projects on offer via public private participation include new engine manufacturing units in Marhoura and Madhepura in Bihar, high-capacity freight bogey manufacturing factories in Dalmianagar in Bihar and Majerhat in West Bengal and the Sonnagar-Dankuni section of the Dedicated Freight Corridor.

INDUSTRY RESPONSE TO PUBLIC PRIVATE PARTICIPATION The industry’s response to these schemes has, however, been somewhat toned down due to a host of reasons, which include ill-designed model agreements and the railways’ insistence on majority stake in projects, which have ensured delays in awarding public private participation projects, believe experts. The Madhepura locomotive project in Bihar, conceived in February 2007 at an investment of `1,290 crore, is an example. Bids to select a joint venture partner were invited in May 2008. The Ministry of Railways shortlisted Alstom, Bombardier and Siemens through competitive bidding and issued draft requests seeking proposals, in September.

However, none of them applied for the financial bid. The ministry then decided to set up the unit as a railways production factory, which was approved by the Cabinet. In December 2009, the ministry decided to revert to the joint venture mode and a fresh request for quotations was issued in March 2010. The ministry shortlisted Alstom, Bombardier, Siemens and GE Transportation and final bids will be invited soon, claim sources.

Commenting on the various policies that the Railways have formulated, Sajal Mittra, CEO, Arshiya Rail Infrastructure, says, “In FY2010-11, the Railways introduced a number of policies such as the Special Freight Train Operator (SFTO) Policy, the Automobile Freight Train Operator (AFTO) Policy, the Auto and Ancillary Hub Policy and the Private Freight Terminal (PFT) Policy. However, while all the policies, except the PFT Policy, have received cold responses from the private sector, the PFT Policy has only received a lukewarm response. Private players have not shown much interest in these policies, as they have failed to offer the required incentives and a conducive framework for private players to invest in such initiatives.”

“An ideal public private participation would be one where the government frames policies that give the right kind and the right amount of incentives to encourage private players to invest in the industry. It would also need the setting up of realistic deadlines and adherence to such deadlines for the implementation of such policies. Apart from that, it would also need to make sure that people framing such policies and the ones executing them are aligned and work towards the gain of the rail industry and Indian economy as a whole,” he adds.

WHY PRIVATE PLAYERS ARE NOT TOO KEEN? Apart from expectations of a greater role in running a project, the lack of adequate concessions and assured off-take often dampen private players’ interest in projects. A case in point is the SonnagarDankuni section of the Dedicated Freight Corridor. While 14 top infrastructure companies have evinced interest in the project, talks have remained inconclusive owing to their demand for a change in the project model. “We had initially said that the project would be on a design-buildfinance-transfer basis. But the companies said that they wanted a design-buildfinance-operate-maintain-transfer basis in addition to appropriate concessions. This is currently being discussed. The Indian Railways has never done this before,” exclaims a senior rail ministry official.

“Another issue is the government’s insistence on a majority stake in projects.

The rail ministry was initially unwilling to accept less than 51 per cent stake in public private participation projects.

However now, it has come down to 26 per cent. The government’s stake should be less than 26 per cent,” he adds.

Public private participation is about sharing risk and ownership and the rail ministry has been touchy about this issue. However, the entire concept is still new for the Indian Railways. “The lack of a proper policy document detailing the government’s thinking on public private participation makes private players apprehensive of railway projects.

Another issue is the lack of transparency in the public private participation and its execution,” opines PK Agrawal, Chief General Manager, Container Corporation of India. Mittra, on the other hand, avers that Dedicated Freight Corridors (DFCs) are a much-needed logistics infrastructure in India. “DFCs are bound to have a substantial impact on the logistics industry in India and are expected to significantly de-bottleneck logistics operations in the country. However, the project progress has been extremely slow and has fallen far behind schedule. Although land acquisition is proving to be one of the major challenges, the fact that the Indian Railway’s financial position has been deteriorating for the past couple of years could also be one of the reasons why investments in such key projects are going off track. The railways need to relook at their strategy, they need to have a pragmatic approach towards land acquisition and implementation and not only chalk out a time-bound plan, but also focus on executing these plans with utmost determination.”

With an aim to promote the same, former Railways Minister Mamata Banerjee had said in her Budget speech last year that policy guidelines on private investment would be made simple, easy and investment-friendly. Ironically, a month before the current financial year comes to an end, her ministry is still struggling to finalise a workable public private participation policy. The ministry last month had set up a six-member committee to do the task. It has, so far, only had ‘general’ discussions on the concept of public private participation, says a senior railway officer.

CHALLENGES IN RAIL FREIGHT The present environment in the CTO industry is highly restrictive. There are various direct as well as indirect restrictions on CTOs, which have led to a stagnant

JUNE 2011 • SMART LOGISTICS • 45

Rail freight, continued

growth in the industry.

Initially, when the ministry had introduced the PCTO Policy, it encompassed the movement of all commodities – EXIM as well as domestic – over the entire rail network in India.

Subsequently, restrictions cropped up.

Initially, the restrictions were commodityspecific and coal, coke, ores, and minerals, which constituted nearly 60 per cent of the overall commodities moved by railways, had restricted movement in containers.

Thereafter, the ministry has brought out a series of rate circulars, which notified nearly 130 commodities. The haulage rates payable by the operators to the railways for the movement of these commodities in domestic containers has been hiked by over 100 per cent, thereby leading to a de-facto restriction on the domestic movement of these commodities in containers. As a result, the overall domestic business model for the movement of these commodities has become difficult. Moreover, no customer would be ready to pay such a high rate.

Access to private sidings had also been restricted for quite some time by the Ministry of Railways. Recently, it has permitted private players access to private sidings. However, this comes with many ‘impractical’ and ‘unfair’ strings attached.

What is more surprising is the fact is that all of this comes at a time when there is immense optimism in the country and growth & development of all the major sectors seem to be on the right track.

There is a surge in freight volumes and a large amount of surplus cargo, which should ideally move by rail, is being currently transported by road. To top it all, the railways has been facing an acute shortage of funds and is in desperate need to regain its financial stability. The future growth can only be met if the ministry acknowledges the consequences of such policies and allows the CTO industry to grow and tap its full potential.

SCOPE FOR PRIVATE PLAYERS Although the Railway Ministry has opened very limited avenues for private participation projects, it has outsourced most of their operations to private players. According to Agarwal, even within this limited radius, there lies a huge opportunity in terms of value-added services and other high-tech applications.

There can be a good engagement with retail players for supply chain tie-ups,

46 • SMART LOGISTICS • JUNE 2011

common manufacturing units and testing facility, on a cost-sharing basis.

Commenting on the scope of public private participation models, Mittra observes, “Public private participation can be implemented in almost all aspects of rail transportation such as investment in infrastructure projects, rail-linked logistics parks, rail-linked auto & ancillary hubs, private terminals, rolling stock, handling equipment, examination facilities, manufacturing units, etc. The public private participation framework can also be further expanded in freight operations, through tailor-made industry-specific freight carrier policies for various industries like petroleum, oil & lubricants, iron and steel, heavy machinery, project cargo, coal, minerals, ores, etc. on the lines of the auto freight train operator. This will lead to an overall boost in the movement of these commodities by rail as there will surely be a growth in volumes and shortfall in capacity if the Indian Railways remains the sole carrier of such commodities.”

SOLUTION AT HAND With so many hurdles along the way, the dream of building a robust rail freight looks bleak. But in order to redress this crisis, the Railway Ministry needs to encourage private participation. Elaborating on the same, Mittra explains, “The railways need to encourage public private participation wherever possible. It needs to realise that public private participation holds the key to Indian Railways achieving the goals set in vision 2020. Public private participation allows the Indian Railways to build partners, which not only invest in infrastructure, but also market services, build clientele, grow volumes and revenues for the railways and most importantly, lets the railways focus on other important aspects like infrastructure augmentation & upgradation, etc. Hence, the key to encouraging private participation in railways would depend on the policies, incentives, framework, and most importantly, the implementation & execution of such policies.”

Highlighting the need to have a transparent public private participation scheme, Agarwal says, “We need to have a transparent and long-term policy. The government must initiate policies that can build the confidence of the investors. It should not be one-sided and should keep the investors’ interest in mind.”

In addition, the railway ministry needs to focus on establishing an effective public

private partnership (PPP) framework, which is required to give a fillip to ensure sustainable growth of this sector. PPP will ensure timely investment in rolling stock and in creating core infrastructure to create a transition of freight movement from road to rail. Elaborating further, Mittra adds, “The key to success lies in collaboration and not competition among railways and private rail operators to root out inefficiencies. A failure to infuse a strong PPP will result in higher product costs for the consumers, lower margins for Indian business houses and offer a low impetus to the growth of the economy.”

“Also, there should be adequate emphasis on better operational performance (e.g. reducing empty runs), competitive transit times and service levels, which will help retain existing customers and regain volumes lost to road. Simultaneously, the Indian Railways should also optimally utilise the underutilised/non-utilised infrastructure, facilities, terminals, land, etc. and generate business from such assets. It also needs to cut down on operational costs & overheads and provide competitive rates, focus on coming up with innovative freight marketing policies, reward innovative solutions from operators with a better rebate and thereby encourage better performance & investments in customised inventory and expand the target market,” he adds. The increased investment in railways needs to be used to create rail capacity on high-density corridors and to support the movement of a greater volume of traffic on existing track infrastructure. This means more spend on DFCs, rolling stock and other additions such as new tracks, rail line doubling and gauge conversions. While five DFCs are needed, there are plans to complete two by 2020. To fulfill this aspiration, spend on DFCs in the overall allocation to railways should be doubled from around seven per cent to close to 15 per cent.

This increase in investment, needs to be supplemented with the development of logistics parks and last-mile road and rail links, which can facilitate better integration across modes. But in order to ensure holistic infrastructure development, the Ministry of Railways must increase the participation of private players. Rail and road must complement each rather than compete with each other. It is only then that India’s dream of building a robust rail freight will become a reality!

GODREJ CONSUMER PRODUCTS (GCPL)

SMART SUPPLY CHAINS

ADOPTING A

CUSTOMER-CENTRIC

APPROACH

With brands one can believe in and service excellence one can count on, Godrej Consumer Products (GCPL) knows what makes India tick today. This prognosis, along with the best in class technologies and end-to-end electronic linkages, has ensured that the company is able to deliver its promise to its customers. While meeting their growing demands, GCPL has changed the face of its supply chain from that of a traditionally forecast-based to a lean one carrying minimum inventory at every stage. This dramatic shift in its approach has truly been a positive sign for the company; thereby making it the most preferred brand for Indian customers today.

SUDHIR MUDDANA IN an FMCG market, characterised by cut-throat competition, the only competitive advantage that any company can boast about is its ability to reach the last mile before its competitors. The wide geographical distribution of Indian consumers and increasing consciousness for quality, demand and product prices are some of the major challenges faced

by FMCG companies. The metamorphose in the concept of shopping has changed in terms of its format and consumer buying behaviour. Hence, FMCG companies have to strive to ensure that the shelves are

always full with the right products. Adding to these are the major challenges faced by all supply chain companies, which include lack of infrastructure, skilled workforce and increasing costs. The key to success for FMCG companies is, therefore, determined by speed to market while maintaining costs and reducing inventory levels.

Handling a diverse profile of products makes the supply chain even more complex. Here, forecasting and planning are very critical processes that can make or break the existence and profitability

of a product. While many companies are in the race for selling their products in the consumer markets, Godrej Consumer Products (GCPL) has outwitted other FMCG companies by making its supply chain more responsive.

PRODUCTS PORTFOLIO Handling a large portfolio of leading household and personal care products, from soaps to shampoos to hair dyes, GCPL’s supply chain is considered a forerunner among India’s FMCG companies. Its brands include Goodknight,

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Godrej Consumer Products (GCPL), continued

What makes GCPL’s supply chain unique?

• No dependency on forecasts: This means that there is no excess or shortage of inventory at any stage in the supply chain.

• Using a replenishment supply chain model: It is more responsive than the traditional forecast-based model as products are dispatched only when there is a demand.

• Use of technology: Using software with simple user interfaces helps the company to interact with the vendors, distributors, directly or indirectly, on a daily basis.

• Collecting data on a daily basis: This helps in analysing the sales that takes place on a daily basis throughout the country. Accordingly, data can be analysed and the necessary steps can be taken.

• No human intervention: The system determines how much of stock is to be sent from one node to another. People are employed only to manage exceptions.

Cinthol, Godrej No.1, Expert, Hit, Jet, Fairglow, Ezee, Protekt and Snuggy, among others. GCPL is one of the largest marketers of toilet soaps in the country and is also the leader in hair dyes and household insecticides. In addition, its ‘Goodknight’ brand has been placed at an overall rank 12 and continues to be the most trusted household care brand in the country in Brand Equity’s Most Trusted Brands Survey 2010. Driven by their mission to enhance the quality of life of consumers in the high-growth markets by offering superior-quality & affordable home care, personal care and hygiene products, GCPL has managed to create an efficient supply chain to serve their wide range of customers not only in cities and urban areas, but also in rural markets.

DEPENDENCY ON FORECASTS Like most FMCG companies, GCPL also followed the system of forecasting when it came to deciding the demand pattern of its customers. However, with time, it realised that there was a dire need to innovate and craft solutions that would not only help it outsmart its competitors, but also ensure that it satisfies its customers’ demands by ensuring that the product reaches the right place. Explaining the consequences surrounding the adoption of the forecasting technique, Dr Rakesh Sinha, COO – Marketing & Operations, GCPL, says, “Around 5-10 years back, the entire planning and execution – purchase, manufacturing and finished goods dispatches – were based on forecasts.

This implied that based on a particular sales forecast, we produced certain items, procured raw material & packaging

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material and made those numbers available at various clearing and forwarding agents.

However, as a result, we came across cases where we landed up with excess inventory in a particular region where a particular product did not do well and vice versa. Due to such mismatch, around month-end, there would be a lot of hectic activity either for relocating stocks or producing more to meet the increasing demand in some areas.”

CHANGING FACE OF SUPPLY CHAIN In order to overcome the challenges faced due to forecasting, GCPL changed the face of their supply chain to a more responsive process. In fact, GPCL is one of the first and only FMCG companies in India to implement a replenishment model based on Eliyahu M Goldratt’s Theory of Constraints (TOC). Confirming the same, Sinha says, “Now, we have moved to a replenishment-based supply chain and have de-linked it completely from forecasting. Based on actual sales in various areas – up to the distributor’s sales and not only our own sales to distributors – we determine what needs to be supplied & produced, and which types of raw materials are to be procured.

In addition, we get daily data of how much of which product has been sold by each of our distributors.” “Currently, we have close to 1,400 distributors and nearly 350 products,” Sinha adds.

Implementing this model has made GCPL’s supply chain more responsive. It has made the supply chain completely consumer-driven and not internal-centric.

So now, based on the requirement of demand, the products are manufactured

and replaced at the distributors’ end. This has helped to bring inventories down to zero, thereby, overcoming the hurdles posed by losses and extra inventory.

While the model is based on TOC, an interesting fact about GPCL’s supply chain is that all of its end-to-end processes, i.e. connecting the raw material orders to the final consumer pick up of its products are an innovation in which it has pioneered.

This is an innovation beyond what is traditionally done under TOC, which is usually applied till the production level and not the raw material procurement level.

TECHNOLOGIES: MAKING PROCESSES SIMPLER After implementing the replenishmentbased model, the company had to collect data pertaining to the sales done throughout the country on a daily basis. This is where the technology deployed by the company proved to be beneficial. Explaining the vital role played by technology in ensuring supply chain efficiency, Sinha avers, “Technology largely involves automating the operations of distributors & super stockists and having a steady feedback mechanism. It is more about electronic transfer of data, which helps us view the inventory and what needs to be sent.” According to Sinha, the use of the following different systems has benefitted GPCL: • Sampark started around 10 years back, when GPCL connected the distributors electronically. The FMCG company has its Sampark Distributor Management System installed at its key distributors, which accounts for 80 per cent of its sales. The system helps GPCL receive and maintain stocks as well as sell them to various retail outlets. Sampark touches base with Godrej’s overall computer. There is a daily exchange of information such as payments, stock inventory, credit and debit notes, etc.

• Sahayog ensures GPCL’s electronic linkage with vendors, where information gets exchanged on a daily basis. The system displays the fresh purchase orders, the payments that have been made, quality report on products supplied, acceptance and rejection of materials, etc. If vendors dispatch materials to GPCL’s site against orders, they would enter the details that are directly accessible to the system. So, the moment the truck reports at GPCL’s factory gate, GPCL is already

aware of the truck’s contents.

• Sampoorna is the electronic linkage between the distributors and retailers.

So, when a distributor transacts with a retailer, Sampoorna ensures that GPCL gets each and every detail of the same.

This system helps GPCL keep track of all the movements and transactions in the most granular way.

Commenting on how these software have facilitated the coordination between GCPL and its distributors and vendors, B Yatin Prakash, Owner, Gopalkrishna Agency and distributor for GCPL in Malad and Goregaon, Mumbai, explains, “I have been working solely with Godrej since the last 11 years and the reason I continue to do so is because of the Sampark system, which they have had in place for the past 10 years. Sampark is a very simple and user-friendly software. It is a multi-company user software that helps distributors work for other companies as well as those who handle multiple customers. Also, the software is systematic and provides in depth reports on the minutest of details.

So, dealing with Godrej, is a great working experience.” Sharing a similar experience, Vijay Tamhane, Owner, Jejurkar Enterprises and a GCPL distributor in Navi Mumbai, says, “Godrej’s supply chain is one of the best. It has always given us good service.

After the development of Sampark, the order replenishment system has become systematic. It has eased out a number of processes.”

BOOSTING THE BRAND VALUE The transformations done by GCPL have not only increased the brand value, but have also increased the reach of their products. Justifying the same, Sinha says, “Godrej is known as a trustworthy & reliable company. It has always strived to make a product available at the nearest store when a consumer demands it.

Godrej’s supply chain is designed to improve GPCL’s ability to respond faster to demand.”

Efforts to enhance brand value are seen at every stage of the supply chain, from the vendors to distributors to the salesmen. Commenting on the distributor’s efforts to build the brand name, Prakash says, “With respect to the products, we not only make sure that they are placed in the required categories, but we also ensure timely distribution of the products from our end. Also, we constantly try to feed in as much

details about the various retails into the system so that the company has all the information and can analyse it as & when required. This helps them distribute the right products to the customer depending on their affordability.” “Since Godrej also targets the middle-class market, its products are the best in terms of quality and affordability. Godrej has never compromised on the quality of its products. If the company cannot afford the quality, it discontinues the production of that product. That is why we are proud to sell its products,” he adds.

BEST PRACTICES FOLLOWED GCPL follows a number of best practices, which helps the FMCG company manage a seamless supply chain. Explaining the

in several areas,” he adds.

In addition to the best practices followed within the supply chain, GCPL strongly believes in collaborating with its competitors to reduce costs and improve efficiency. Elaborating on the same, Sinha says, “We do collaborations in areas where it is permitted within the laws of the land. For example, the law prohibits any group of companies to form a cartel for fixing prices or other trade terms. So, we strictly avoid that. But wherever there are collaboration opportunities, such as common transport or a common way of retailers generating their demand estimate on consumer product companies, we go ahead and collaborate. There is a forum called Efficient Consumer Response (ECR), which is a collaboration between

Godrej is known as a trustworthy & reliable company. It has always strived to make a product available at the nearest store when a consumer demands it. Godrej’s supply chain is designed to improve GPCL’s ability to respond faster to demand.

DR RAKESH SINHA, COO – MARKETING & OPERATIONS, GCPL same, Sinha says, “One of the best practices is that we are completely consumer-driven. So, whatever has moved out should be replenished on a daily basis. Secondly, if we see the rate of consumption/consumers demand going up, then the buffers that we keep at each node – the inventory – should also go up.

The inventory norms at each node should be dynamic enough to take care of the change in demand. Thirdly, we monitor the exceptions on a daily basis where the product may be short on supply and take expeditious action. So, the management of the supply chain has to be purely by exception. How much to send from one node to another is determined by the system and not by any person. So, people are employed in the supply chain to manage exceptions in case something is delayed or some product is out of stock.”

According to Sinha, these practices are making the supply chain more responsive.

“We have done a lot of things, but we still have a long way to go. So, each time we improve the supply chain, we have a competitive edge over our competitors.

We already have a big competitive advantage over other FMCG companies

all FMCG companies and retailers. Godrej is one of the founding members of ECR and is very active in it.”

Godrej has not only captured a major share of the urban market, it has also penetrated into rural and remote areas.

Expatiating on the same, Sinha explains, “There is daily monitoring & reporting of stocks from all the distributors, including the super stockists, who are connected electronically. This process of collection of data on the day’s sales and the amount of remaining stock takes place around midnight. After this feedback, the previous link accordingly arranges for the materials. This is one part of being more responsive in rural areas. In addition, we are opening more sub-stockists in remote villages and improving the infrastructure of super stockists and sub stockists, which are clearly in line with our strategy of growing faster in rural areas.”

GREEN INITIATIVES GCPL believes in adopting green practices.

It encourages warehouse owners to use natural lighting. This not only saves costs, but also brings down the carbon footprint.

Talking about the initiatives taken by

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Godrej Consumer Products (GCPL), continued

the management to go green from end-to-end, Sinha says, “One project that we are working on and are halfway through is reducing the total tonne-km that our supply chain handles. For example, if a product produced in a particular plant has to reach a far off destination, we consider transporting it using the shortest route so that the distance it travels from the production level to the consumption level is the least. This implies less number of trucks on highways, less amount of diesel consumed and less pollution. That is one way of going green.”

“Secondly, most of our godowns and factories have been designed in such a way that they consume low levels of energy.

For example, during the day, we do not switch on any lights in the factory; rather we use the natural light from the roof. In addition, there is recirculation of water that takes place within the factories. We do rainwater harvesting in all the factories and use the effluent water for gardening around the factories. Also, most of our factories have zero discharge facilities and meet the pollution norms.”

DISTRIBUTORS’ CONTRIBUTION While the company has done its best by adopting simple technology for data exchange, best practices to boost efficiency and maintain eco-friendly logistics, its distributors and vendors are also doing their bit. Being an exclusive distributor for GCPL, Prakash says, “We make sure that there is transparency between the company and the retailers.

We make the retailers understand that the Sampark system is given by the company and provides the prices for the products along with the retailer margins. This, in turn, helps increase the trust between the customers and the company along with its products.” Talking about the benefits of working with GPCL, Tamhane says, “We have been working with GCPL for the last 15 years. In addition to Godrej, I am a distributor to other companies as well.

However, there are certain additional benefits that we receive while working with Godrej. For example, if we are given a secondary target for the month to do a certain amount of business and we meet the target, then the company provides my team, including the salesmen, with incentives. So, while GCPL does its bit, we do exclusive marketing for them. We make sure that the company’s products do much better and are a preferred

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choice in comparison to the products of its competitors.”

INCREASING GLOBAL PRESENCE AND MARKET SHARE In addition to the efforts that GCPL is taking to expand its reach and brand identity within the country, they also have a strong emerging presence in markets outside India. With the acquisition of Keyline Brands in the UK, Rapidol and Kinky Group in South Africa and Godrej Global Mideast FZE in the UAE, it owns international brands and trademarks in Europe, Australia, Canada, Africa and the Middle East. As part of increasing their global footprint, they have also recently acquired Tura, a leading medicated brand in West Africa, Megasari Group, a leading household care company in Indonesia and Issue Group and Argencos, two leading hair dye companies in Argentina.

Discussing their strong emerging presence in markets outside India, Sinha says, “We acquire companies where entrepreneurs who started a particular business did exceedingly well. However, beyond a certain point, when they found it difficult to grow further, they sold out to Godrej. These are highly efficient companies having a strong consumer demand for their own brand in their own geography.” Stating the key learning from these acquisitions, he adds, “The major learning has been not to disturb that equation. So, if a particular brand of an acquired company is doing very well, then make it grow under the same geography under the same brand. The improvements we bring to those companies are in terms of the structure, processes, management & planning systems, etc. and in some cases, the product development, which our local R&D supports.”

While the learning from the acquisitions has been immense, Godrej also implements these learnings in India.

Explaining the same, Sinha says, “Some of the acquired companies are very strong in modern retail. The reason for this is that modern retail evolved much earlier in their countries. So, they are very good in the sales and promotion of their products. There is also a lot of learning in terms of

how to make an innovation work. There are some companies that have been very innovative where the innovators have a way of quickly judging how innovation is doing among the consumers and tweak it to make it succeed. So, we have learnt a lot about making an innovation flourish after launching a product. For example, our Indonesian company, Megasari, has a number of innovative products and their pre-launch and post-launch processes are excellent. We are implementing those principles and learnings in India.”

CUSTOMER-DRIVEN SUPPLY CHAIN Driven by international acquisitions, improving market conditions, deeper rural reach backed by the robustness of its supply chain, GCPL provides a number of takeaways for the entire FMCG fraternity.

With a vision to further improve the agility of its supply chain in order to respond faster to demand in the coming years, Sinha concludes, “It should be a completely consumer-driven supply chain and not an internal-driven supply chain.

So, someone, like me, should not have a role to play in terms of deciding what needs to go from one place to another.

However, in terms of designing, there is always scope for improvement. But all in all, it should be a self-running supply chain based on what the consumer needs. Human intervention should only be permitted in exceptional cases and for improving overall supply chain agility.”

Adopting the replenishment model will enable FMCG companies ensure that while they maintain minimum inventory at every stage in their supply chain, their product reaches the market when the need arises. By doing this, they will not only retain their present customers, who use and trust the brand, but it will also help them win more customers who might be using their competitor’s products.

OUTSOURCING EQUIPMENT POOLING SMART SOLUTIONS

A SMART WAY TO DO BUSINESS Emerging as a smart business proposition, equipment pooling is being touted as the next big thing in the world of logistics. With the aim to promote the shared use of resources, the concept has also been in the limelight owing to its eco-friendly status. Providing a perfect platform for profit to companies is CHEP India, which by virtue of its unique offerings, has been enhancing supply chain efficiencies as well as providing sustainable growth pastures. With over 200 customers and growing over the past three years, it certainly sounds like a smart way of doing business.

PRERNA SHARMA POOLING

is the sharing of standardised returnable and reusable packaging such as pallets, crates & containers by multiple customers across business verticals and geographies. Many companies run their own pools of pallets and crates, but this can be expensive & inefficient. Outsourcing the management of a pool refers to finding a professional

pooling partner who will ensure that one has the right equipment, for the right job, in the right quantity and at the right time for all supply chain requirements. The key point is to understand how customers in these countries are reaping the benefits of equipment pooling in which the pooling partner takes care of the capital expenditure and logistics of providing,

maintaining, tracking & relocating equipment in a business. This would ensure that one would need to pay for the equipment only when using it.

The following are the advantages of using equipment pooling service: • It eliminates the need to invest capital in pooling equipment • There is no cost of running the pooling

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Outsourcing equipment pooling, continued

equipment network • It offers value-added advice on which equipment solution will best take care of one’s material handling needs • One can receive quality equipment whenever and wherever needed • It helps in the management and control of equipment when being used and takes responsibility when returned • It advises on how to manage equipment efficiently by providing training and education.

Automotive success story

BENEFITS OF OUTSOURCING LOGISTICS

Today’s automotive industry is challenged by production capacity. Each car produced is effectively sold into the market. In such a scenario, CHEP’s system, which has been specifically designed for line-side presentation, can streamline the supply chain. Thus, components from a manufacturer can seamlessly reach the assembly line without any manual intervention.

CHEP has also mentioned space savings. Its foldable crate offers a foldable 5:1 ratio, thereby enabling 80 per cent in space savings. CHEP crates only require 20 per cent of the space vs. what conventional packaging would require. It can track equipment and provide reports to customers, thereby offering them much more visibility of their actual cycle times to help them reduce high inventories.

Outsourcing logistics is a vital and increasingly common way for businesses to focus on what they do best. Companies can gain from their pooling partner’s experience of operating numerous other supply chain systems for diverse businesses around the world. They also benefit from access to equipment control expertise, which, in turn, helps one minimise losses and reduce the cost of controlling material handling equipment.

The immense benefits achieved by outsourcing equipment pooling are: • Gaining benefits of load unitisation provided by pallets and crates.

• Benefitting from a continuous pan-India supply of industry-standard platforms offering greater transferability with less handling and less cost.

• It is easy to transfer equipment between a business and others, as and when needed.

• One only has to pay the hire charges for the equipment used and not the fixed costs of procuring and maintaining the equipment.

• One can benefit from reusable

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After implementing the pooling concept, auto component suppliers have benefitted in terms of reduction in damage & component contamination due to its superior packaging and reduction in handling. It also ensures cleanliness of crates each time required, storage efficiencies due to CHEP’s unique foldable crate design, standard crate sizes, which fit the standard pallet footprint of 1,200x1,000 for bulk movements, environment-friendly as well as compliance with ISO 14001 and asset tracking of crates & other equipment to minimise losses.

Streamlining the supply chain

packaging rather than one-way alternatives such as cardboard & wooden boxes.

• One can avoid having obsolete equipment on their balance sheet • One can outsource the expense, labour and skills required to run an equipment pool to the pooling partner.

• One can benefit from the regular innovations in pooled equipment platforms and systems, without outlaying capital.

TYPICAL USER STIGMA While the concept of equipment pooling has already gained acceptance in the global

marketplace, it is slowly and steadily diffusing into the Indian market as well. Talking about its widespread awareness in the Indian market, Pranil Vadgama, President, CHEP India, informs, “The Indian industry has started benefitting from outsourcing their pallet & crate requirement to CHEP. Currently, the equipment is used at the point of manufacture for in-house goods movement within the manufacturing area and temporary storage. However, with the vast thrust on infrastructure development across the nation, the day is not far when consolidated palletised loads will move across the supply chain.”

Today, eight of the top 10 FMCG

companies in India use a CHEP pooled pallet. The concept of equipment pooling is also aggressively being adopted by the automotive industries with movement taking place between original equipment manufacturers (OEMs) and their suppliers.

But the road to success was not easy for CHEP. To this, Pranil reverts, “To make the process smooth, the first thing we did was identifying companies, which were looking for continuous improvement in the supply chain i.e. the progressively thinking organisations, which would help us convert this concept into reality. It was then that we realised that there are many international and domestic companies, which are serious about improving their processes.”

When asked about their value proposition for customers, he explains, “Our initial message to them was simple: we are offering a value proposition, we would like to study your supply chain, we have been doing it for over 50 years and we have a huge portfolio of customers globally. This is fundamentally our expertise.” “Fortunately, the companies, which were looking for change, did not consider us a startup. We were just starting operations in India, but some of them knew CHEP from their interactions outside India. They felt that we have a wealth of knowledge and market experience globally. But we had to prove ourselves. Leading companies such as Pepsi, Coke, United Breweries, Bisleri, Unilever, Nestle, P&G, Future Group, Maruti Suzuki, Tata Motors, M&M, Fiat, TAFE, etc., asked us to conduct pilots with them, which were all successful. Every business, which we have won here, was on the basis of a proof of concept (POC).

We kept proving it to them every time that using CHEP’s services & products would deliver savings in their end-to-end total supply chain cost.” Improvement in pallet & crate management, reduction in damage to the components sent to OEMs, producing or improving the handling of crates or pallets, etc. are all a result of savings. With over 200 customers in India, this certainly does not look like a concept anymore!

GREEN POOLING With widespread awareness about environmental concerns, companies are increasingly evaluating the environmental impact of their supply chains and scrutinising raw materials used in production as a

part of their commitment to protect and preserve the environment.

Efforts are being made by the industry, government and businesses not only to protect & preserve valuable natural resources but also to look for ecological supply chain best practices. Consumers are becoming more conscious and the young generation, in particular, is focussed on environmental sustainable options in its decision making process. CHEP’s returnable plastic crate system for produce meets environmental standards and offers financial value in the supply chain. An independent lifecycle study from RMIT University Melbourne, Australia found that the CHEP system generated significant benefits for customers compared with a single-use corrugated cardboard packaging system.

Based on the results of the study, the estimated benefits on a daily basis are: • More than 175 tonne of greenhouse gas emissions saved • More than 1.2 million litre of water saved • More than 20 tonne of solid waste avoided.

The study complies with the ISO 14044 methodology for environmental systems and has been reviewed by two independent industry experts.

The assessment took into account the environmental impact of the entire product and system lifecycle, including inputs to manufacture and the full end of life processes for both packaging systems.

The key results from the study highlight the sustainability efficiencies of the CHEP system when compared with a singleuse corrugated cardboard system. The efficiencies identified include greenhouse gas emissions were 70 per cent less than a single-use corrugated cardboard system; 95 per cent less solid waste than the single-use corrugated cardboard system because of a reduction in manufacturing process waste, even if all the cardboard is recycled after use; it takes 85 per cent less water to wash the CHEP crates than is required for the manufacture and recycling of a single-use corrugated cardboard system.

In India, we are witnessing the same level of advocacy, focus and interest from the industry. CHEP already provides returnable plastic crates in the automotive industry replacing the conventional cardboard packaging where benefits are already being realised by

auto component suppliers and OEMs across India. Using the CHEP solution means fewer truck movements due to lower equipment relocations, which has a direct impact on reducing greenhouse gas emissions. The CHEP system of pooling, where standard returnable packaging, is shared across multiple customers is highly environmentally sustainable. For example, due to pallet pooling fewer trees are felled as individual entities would no longer need to purchase their own pallets but join part of a pool in sharing those resources.

Presently, the equipment pooling concept is not a reality in India, but is being fast adopted in almost 150 entities across the country.

CHEP pallets contain 23 per cent of recycled wood through the use of composite blocks. As a result, CHEP saves around 3,56,000 pine trees each year from deforestation or some 890 hectare of forests. These non-cut trees produce an extra 23,293 tonne of oxygen each year and will absorb around 3,20,000 tonne of carbon dioxide (CO2) over the next 10 years.

CHEP plants use composite blocks from recycled wood for all pallet block repairs by which process, CHEP will have saved the environment the deforestation of around 1.5 million trees or the equivalent of 3,750 hectare of forest producing some 891K tonne of oxygen and allowing a carbon sink of 1,350K tonne over a period of 10 years. CHEP pallets are exclusively produced from the renewable resource of high quality pine and spruce timber stemming from sustainable well-managed European forests, which grow each year by an area the size of Cyprus (8,000 sqkm/800,000 ha). The CO2 production through the manufacturing of a wooden CHEP pallet is negative – 40 kg of CO2 emission saving per pallet – as compared with an actual production of 230 kg CO2 from a pallet made of plastic, or even up to 1,350 kg of CO2 from a pallet made using aluminium.

EXPANDING SUSTAINABLE HORIZONS With such promising offerings in place, equipment pooling has the potential to change the way the logistics industry functions today. It would not only reduce supply chain inefficiencies, but it would also provide industry players a way to collaborate in order to ascertain the sustainable dynamics in the long run.

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TECH TRACK IT TRENDS IN LOGISTICS

Highly flexible, cost-effective Jaguar TMS for carriers, 3PLs and shippers INCREASING operational complexity caused by shifts to demand-driven logistics practices, increased collaboration and continuing globalisation, mean greater challenges for those seeking to match demand with supply. In such a scenario, it is imperative to provide flexibility and solutions that forwardthinking enterprises need to overcome supply chain challenges. The new Jaguar Transportation Management System (TMS) is an industry-unique transportation management technology for carriers, 3PLs and shippers. Jaguar TMS is highly flexible, cost-effective and can be purchased either as purchase/install or SaaS. The goal of this system is to deliver customer-driven products that are the best solutions in the transportation management market,

said Les Hamashima, CEO, Transite, the company which developed Jaguar TMS. Jaguar Transportation Management System consists of the following aspects: • Jaguar TMS: It offers the ability to manage and automate aspects of the logistics cycle, from creating a shipping order to executing freight audits and reports. Customers are allowed to initiate orders, track shipments in real time and notify parties of any change in status. The supply system is placed under one parallel operated data system that will send & receive electric data interchanges (EDI) and efficiently decrease repetition in order entry.

• Jaguar Contract Manager: This is a sophisticated contract management and transportation or freight pricing

system. With its ability to rate any type of truck load (TL), less-than truck load (LTL) and parcel shipment, it manages every facet of the pricing process. It allows easy management of transportation agreements, transit times, rate bases and vendor routing guides.

• Jaguar TDP: Transite’s Jaguar Transportation Development Platform (TDP) is an industry-unique transportation management platform for carriers, 3PLs and shippers. Jaguar TDP delivers the core functionality of rating and pricing management; while offering the customer the flexibility to build their own transportation management applications within the platform, or outside the platform.

Skepr takes logistics software to the cloud ABF launches new SKEPR, a cloud-based logistics solution ‘pay-as-you-go’ basis. All one needs to get mobile logistics for all companies with simple logistics started is an Internet connection.

Currently, Skepr is used by small requirements, was recently launched. application for logistics providers, web-shops, distribution Most logistics software is tailored to suit agencies, brands/agents and small product large companies having complex logistics iPhone manufacturers. While MS Office, fax/email/ requirements. This makes these solutions expensive for smaller companies having generic logistics needs.

Skepr software is a low-cost alternative for these smaller companies. It provides complete visibility of business logistics and works on a management by exception basis. This means Skepr users only focus on what is important. By preventing mistakes and providing timely status updates to all parties involved, Skepr makes the logistics process more efficient and less time consuming. It offers full visibility right from order to delivery.

Skepr streamlines the order entry processes and manages inventory, incoming & outgoing shipments and keeps all parties involved up-to-date on milestones.

Using Skepr will reduce time and money spent on solving issues & unnecessary communication with customers and suppliers. Skepr is offered on a monthly

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phone and other manual processes are error-prone, too time consuming and not scalable at all, Skepr has proved to be an alternative solution to corporate software that is often too big, too cumbersome to work with and too expensive!

With Skepr, one can put their existing business online and work with simple web screens, which will help one save time and prevent one from making mistakes.

One can see all the inventory, orders and transport information regardless of where the warehouse locations are and that too in as many locations as one wants to.

Moreover, the same process and same rules are used throughout the entire Skepr network. Skepr puts one in control and keeps one up-to-date on the steps. Time to say goodbye to double or triple data entries, phone calls, faxes, manual alerts and confirmations processes!

ABF, a provider of customisable supply chain solutions, has launched a new mobile logistics tool ABF Mobile for iPhone. The new tool is now available as a free download on the iPhone App Store, it is designed for the iPhone or for use on the iPads. Using ABF Mobile, ABF customers can track, get rates, find locations, and schedule a pickup using their mobile devices. Mark Rippy, Manager – Internet Initiatives And Market Analysis, ABF, said, “This new tool exemplifies the company’s focus on providing technological solutions that enable its customers to better manage their supply chains.” “Through our ongoing assessment of customer needs, ABF continues to lead the industry in developing user-centric applications via Internet-based technology,” Rippy said.

New port flow control solutions to improve productivity of ocean ports EFFICIENT and effective ocean ports are critical to helping economies securely and competitively advance their domestic & international trade. This efficiency requires cooperation between the community members involved in moving goods in & out of a port, including ocean carriers, freight forwarders, customs brokers and truck carriers. By securely sharing and using electronic data relating to such things as shipment scheduling, booking & movement, port community members can use the ports and their own limited resources more efficiently. Enabling the same, Descartes Systems Group recently announced its new port flow control solutions that harness the data and connected community on Descartes’ Global Logistics Network (GLN) to improve the productivity, performance and security of ocean ports. “Ports are in a constant battle to retain and attract new customers. To remain competitive, port communities must extend their reach and services to the broader logistics community,” said Steve Banker, Service Director – SCM, ARC Advisory Group.

“Port communities need to provide multi-party logistics services that create efficiencies across ocean supply chains by addressing the needs of the port community and its international logistics services providers, importer, and exporter customers,” he added.

Descartes’ Port Flow Control solutions link port community members and existing systems to provide a secure platform for exchanging and accessing shipment data.

This data can then be leveraged to make efficient use of assets, such as advance notification systems for cargo pick-up and delivery & real-time scheduling of assets for cargo movement & secure trade lanes within the port.

Linking to Descartes’ GLN can help port communities quickly gain access to the larger international logistics community and multi-party services to stay ahead of their competitors. “Efficient seaports play a vital role in promoting trade productivity. We are excited about extending GLN services to this new community and market to manage shipment flow at ports,” said Cindy Yamamoto, VP – Global Logistics Product Strategy, Descartes.

New TMS Technology to help clients manage their transportation spend better WITH an aim to offer a more complete solution than other TMS systems currently available in the market, FreightCenter.com, a nationwide provider of online freight and logistics services, recently announced the launch of their web-based transportation management system (TMS). Packaged as an on-demand TMS service, clients can leverage the benefits of FreightCenter. com’s advanced freight technology to streamline their supply chain. In addition, this TMS platform is an entire front-end website packaged to help customers maintain control of their identity and quickly bring their business online. “Our goal is to provide clients the ability to better manage their transportation spend in a more efficient manner than currently available TMS solutions,” said Doug Walls, CIO, FreightCenter.com. “Our seamless service, innovative technology

and complete front-end website packages ensure clients optimise operations to take their businesses to the next level,” he added.

The technology offers complete backend technology that includes custom rates, automated quoting, booking, scheduling & tracking, a built-in CRM system, flexible and secure controls for users & customers and extensive reporting. Fully-functional front-end customer websites allow companies to offer online transportation solutions for their customers using the visibility of their own branding and identity. Offering open browser capability, the TMS also works with iPhone, iPad and Android mobile devices. The system highlights include complete, customised rating and booking system; fully functional turnkey websites quickly up and running, among others.

JDA unveils transportation & logistics management suite WITH an aim to help shippers, carriers and 3PLs manage their multi-modal logistics network complexities more effectively, JDA Software Group has recently unveiled JDA Transportation & Logistics Management 6.3.4. The technology focusses on freight order management capabilities convergence and ongoing innovation. This latest release includes freight order management and inbound visibility convergence as well as valuable new functionality to further drive integrated planning and execution.

Raghav Keshav, Chief Product Officer, JDA Software, said, “Leveraging our rich tradition of investment in powerful optimisation technologies, JDA continues its commitment to ensuring ongoing transportation management innovation for our customers.”

JDA Transportation & Logistics Management 6.3.4 integrates the Manugistics-developed JDA Freight Order Management into a joint platform that leverages the suite’s i2 and Manugistics synergies. This integration approach enables shared data between all JDA Transportation & Logistics Management solutions and drives a more integrated, closed-loop set of processes. With JDA Freight Order Management, companies can gain control of inbound moves with critical visibility into incoming order information.

Reducing supply chain costs and uncertainty, the integrated solution enables collaboration between vendors & shippers at the purchase-order level and sends ready-to-ship confirmations to the JDA transportation management system to effectively create an efficient inbound transportation plan. The JDA solution can define fixed plans/routes while also providing the flexibility to make opportunistic plan modifications as required. Another feature is the ability of the JDA solution to upload negotiated rates with leading package delivery companies and import rates from any source directly into the system to perform freight auditing down to the container level.

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INFOR TECH

ALIGNING IT WITH BUSINESS

Illustration By Sanjay Dalvi

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to (IT) y y g o l o ma echn factors y of t n o e two abilit mati infor t of thes ed. The hat will f o w r s en ce powe e alignm e to suc ue-add is l, it need e h t s l e i h .T rpr exc form ged o va vera lignment an ente rn it int ishes to nd trans e l e r u IT a ion w nd t al fo age a s hav pion iness and e is cruci mation a rganisat ir advant m a ch nc he for bus an o chain through their allia sea of in ence, if ent to t y l p Sup e value ct, but age the tiator. H nvironm i e t crea contrad n to man t differen usiness osition. b e n o i o k e e oft ganisat al mar late th ded pr p c d r an o it a criti , manipu value-a a e T I k o a t te in m tegra hain to in supply c their

O C S S E N I S BU A recent survey by CIO Asia magazine ‘State of the Asian CXO 2010’ revealed that hard-pressed CXOs in seven AsiaPacific countries were gearing up for battle after two years of lean budgeting.

According to the survey, their top two concerns were the increasing complexity of the business environment at 72 per cent and difficulty in achieving information technology integration at 53 per cent.

There is no doubt about the everincreasing complexity of modern business or its fast pace. Look at the supply chains.

DHL is the world’s leading logistics company and it has been involved in the relatively quick evolution of the supply chain from cost-effective solutions to competitive advantages and its current transformation into a value add. DHL Global Customer Solutions has created and managed single supply chains for customers in all product sectors that stretch across multiple locations in

56 • SMART LOGISTICS • JUNE 2011

multiple continents from manufacturing hubs in Asia to end-consumers in the US and in reverse as Asia’s own buying power grows.

NEED FOR BETTER BUSINESS INTELLIGENCE What fuelled the current transformation is the need within organisations to seek better business intelligence and inventory control to increase their competitive advantage and control costs. There is an exponential demand for information from outside the organisation too – from partners, as a result of more specialist third-party partnerships, and from customers, whose online buying habits have involved them more directly with aspects of the supply chain than ever before. Thanks to the Internet, information can be transmitted quickly, and people are accustomed to having information about anything, anywhere and anytime –

and that includes an organisation’s supply chain.

There is no shortage of information.

In fact, the reverse is true. For example, it is estimated that four exabytes (4.0 x10^19) of unique information will be generated this year – more than in the previous 5,000 years. Or to put it another way, there is more information in one week’s worth of the New York Times than a person in the 18th Century would be exposed to in a lifetime.

SCOPE OF IT Information technology (IT) has enabled companies to reach out to the market faster and wider. It has allowed us to create a global village with goods manufactured and sold across borders far more easily than before. The amount of information that is available to executives today creates a larger foundation on which business strategy and direction can be based. But

with this bounty comes challenges. Markets are moving and evolving at speeds faster than we can grasp. So, how do executives determine the right information for the right tasks? How does one manage the dynamic balance between IT and business objectives?

How an organisation gears up to manage the information deluge and turn it into value-add is today’s critical market differentiator. Those organisations that stand out are the ones which have achieved IT integration, used the complexity of modern business environments to their advantage and turned their supply chain into a value-add. The annual AMR top 25 supply chain ranking by Gartner Research is continuously dominated by companies that exhibit the ability to balance operational excellence with innovation excellence. Top five ranked companies for 2010 are Apple, Proctor & Gamble (P&G), Cisco Systems, Wal-Mart Stores and DELL. They are the supply chain champions.

It comes as no surprise that Apple has taken the lead as champion of champions.

Top ranked by AMR for three years in a row, Apple has transformed the supply chain into a value chain largely by taking an ‘outward-in’ approach. Apple focusses on what the consumer wants, their needs and what they are willing to pay.

Subsequently, IT is built around this focus.

Apple dominates because it consistently brings both operational and innovation excellence to endure some of the most competitive markets in the world.

BEING A PART OF THE CHAMPION’S LEAGUE What Apple, Cisco Systems, P&G, Wal-Mart and DELL share is that they have successfully managed to marry IT and business alignment. So what can an organisation do to join the champion’s league? Champions consistently exhibit the following three themes: they think ‘outside-in’, they do not practice ‘one size fits all’ and they adopt good management practices. Together, these elements provide increasing value to the organisation.

To be a winner, an organisation must think ‘outside-in’. Customers define the ‘value’ of a product and service, not company executives. For some customers in some sectors, price matters. For others, fashion dictates. An organisation’s ability to understand what its customer

I

T CAN BE INNOVATED TO ENABLE OPTIMUM ACCURACY IN ORDERTAKING, AND TO ENSURE THAT COMMUNICATION BETWEEN THE SALES AND MANUFACTURING DEPARTMENTS IS FAST AND RELIABLE.

wants will enable it to develop the right pricing strategy, launch the right product, procure the right supply chain, maintain or re-invent its business model.

In order to achieve all this, companies need good IT platforms that enable them to integrate information into business planning. If an organisation does not know what its customers want, it needs to stop and ask questions within the company.

The Internet makes it easier to profile customers and build dynamic databases.

CHANGING MARKET DYNAMICS E-commerce is to the information revolution what the railroad was to the industrial revolution. The railroad mastered distance, whereas e-commerce has eliminated it. Today, one can purchase an item online in UK and have it arrive from Russia in good time and in great condition. This ability is changing markets and industry structures; products & services and their flow; consumer segmentation,

consumer values & behaviour; jobs and labour markets. To achieve success, every business must become globally competitive, even if it manufactures or sells only within a local or regional market, because competitors could be anywhere on the planet.

Supply chain champions like Apple and Cisco Systems know that one size does not fit all. The success of technology in one company or product does not mean that it will achieve the same result with an organisation. Many companies – like P&G – have different supply chains to cater to their diverse product range because each product category has various lifecycles and requires different supply chains.

For example, the lifecycle for fashion products are short. The very first iPad will soon be obsolete with the launch of the iPad 2. Market dynamics are extremely difficult with these products. There is a need for a multi-channel approach and pricing point is key. For highly engineered products, the focus is on inventory control.

Around 10-15 years ago, companies were filling their warehouse with goods resulting in huge amounts of inventory in their balance sheet. The trend now is for companies to operate inventory levels as low as possible, which means managing demand and forecasting well that requires a high level of IT visibility. From a supply chain point of view, staple products are the easiest since it basically requires managing inventory levels to make sure an organisation meets demand. On the other hand, community products are

TOP FIVE TIPS FOR BETTER CO-ORDINATION • Apply demand-driven principles to coordinate and integrate the functional areas of supply, demand and product management in order to better sense, shape and respond to changes in market demand.

• Take a cue from the leaders when designing your supply chain strategy.

Think outside-in, starting with your customers and working back through your trading partner network to design a profitable response.

Remember that one size does not fit all. Define how many supply chain types you have and design a customised response for each.

• Balance operational excellence with innovation excellence for superior overall performance.

• Focus on acquiring, mentoring, growing and retaining supply chain talent.

• Measure your supply chain as your customer experiences it. Use the right supply chain and product metrics to consciously manage performance, and foster a culture that embraces measurement for continuous improvement.

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Aligning IT with business, continued

dependent on pricing. Companies cannot force their vendors to reduce prices. Instead, they need to employ the right information to determine correct price points.

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BUILDING AN APT IT NETWORK

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To optimise IT investment, it needs to be married to good management practices and particularly to improvements in lean Supply chain champions like Apple and performance and talent management Cisco Systems know that one size does before the IT investment. The not fit all. message is clear: to become a supply chain champion, companies The success of technology in one must evaluate their processes first. company or product does not mean Hanging expectations on IT alone that it will achieve the same result with to drive process efficiency will not an organisation. work.

For, CIOs who often find Many companies – like P&G – have themselves having to convince different supply chains to cater to their CEOs and CFOs to part with funds diverse product range because each and invest in IT for a better future, product category has various lifecycles this is one of the most challenging. and requires different supply chains.

IT continues to evolve and change even during bad times. Companies products, the focus is continually on that stop moving forward will information to help reduce costs and suddenly find a big gap to fill when good inventory, to provide transparency into times return – a scenario that many key costs across the company and its companies are finding themselves in after partners and allow for high visibility into the economic downturn of the past three inventories along the supply chain. years.

UICK TAKE

Understanding the product and the supply chain is the first step towards building and developing the type of IT networks, the kinds of applications and the integration that companies • need to ensure the right information flow for maximum operational effectiveness. IT can be innovated to enable optimum accuracy in order-taking, and to ensure that communication between the sales and manufacturing departments is fast and reliable. There is also the need to focus on creating interfaces between 3PL systems and customers’ ERP systems to manage the increasing drive towards zero inventory levels that require fast, accurate information and speed of order fulfillment.

IT requirements change depending on the product or service. For example, for fashion products, IT needs to deliver rapid coordination between designer and the suppliers, provide a good view

CRITERIA FOR INVESTING IN IT

MANTRA TO STAY AHEAD

IT is a huge enabler, but companies cannot simply invest in IT and expect massive changes to overall productivity.

In CIO Asia magazine’s 2010 study, over 46 per cent of CXOs said that

To catch up, more money needs to be invested and that requires a lot more justification and a lot more change management. That is why management consultant Peter Drucker argues in favour of two budgets – operating and future – in Management Challenges For The 21st Century. Future budget is especially pertinent to IT departments, dependent on consumer demand, product innovation and so on. Companies need to continuously invest in IT so that they will be well prepared to meet customer demands and keep ahead of the game.

From DELL’s exceptional rise in the 1990s to Wal-Mart’s use of supply chain visibility and applications of metrics to supply chain activities to achieve cost savings, and of course, champion of champions, Apple’s continuous domination of the Top 25 Supply Chain ranking, it is clear that success comes in many models.

However, what connects these success stories is that every company has achieved the right balance between IT & business and created value. This is a continuous and dynamic process because IT is continuously evolving, led by consumers’ need to have information at their finger tips.

ACT

To be a winner, an organisation must think ‘outside-in’.

Customers define the ‘value’ of a product and service, not company executives. For some customers in some sectors, price matters. For others, fashion dictates. An organisation’s ability to understand what its customer wants will enable it to develop the right pricing strategy, launch the right product, procure the right supply chain, maintain or re-invent its business model.

of the availability of components & manufacturing capabilities and set up responsive feedback mechanisms from retailers and end customers. For highly engineered products, IT needs to provide order configuration management, visibility into supply & capacity across product lines, coordination of change-management information and decisions among designers, assemblers, and component suppliers.

For stable products, supply chain information should focus on details of costs & distribution, but this information is less urgent. However, for commodity

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business process optimisation was their top technology priority. However, for the value of IT investments to be measured fairly and for its impact to be felt, it has to be accompanied by good management practices. For example, a London School of Economics-McKinsey survey and analysis of 100 companies in France, Germany, UK and US found that investing to become a high-user of IT without improving managing practices raised productivity by only two per cent. Investing in IT while improving management practices, however, raised productivity by 20 per cent.

Richard Owens, CEO (Asia Pacific), DHL Global Customer Solutions

Illustration By Uttam Rane

STREAMLINING BILLING PROCEDURES WAREHOUSING & DC

One of the most significant and often overlooked differences between private warehousing and 3PL public warehousing is that the revenues of a 3PL public warehouse are derived solely from the ability to effectively bill its customers by tracking and capturing costs in a timely and effective manner. Without a proper system in place, most 3PLs scramble through paperwork every month trying to make sure they do not miss all of the billable activities. Identify billing bottlenecks & challenges, putting a plan of action together and implementing that plan will help 3PLs improve overall billing process flows and generate more business opportunities.

DISCOVERING A BETTER BILLING PROCESS

THIRD party logistics (3PLs) face many challenges, particularly when they want to implement a solid billing process.

The ultimate goal is to integrate each customers’ unique set of circumstances into one cohesive process that tracks and captures costs in an efficient streamlined manner. Both 3PLs and their customers appreciate the difficulties and complexity in agreeing on an acceptable billing method – one in which both companies can profit. For the 3PL, the task is knowing the client’s obstacles, addressing them and implementing the right operational procedures. Finding the right software solution is therefore, a key component for helping both, 3PLs as well as its customers through the process.

The following key areas will enable a better billing process: Supporting Multiple Customer Billing Schedules Since 3PLs/public warehouses bill for services on a transactional basis, strong billing procedures and a WMS billing management module is critical in ensuring a 3PLs’ success. In order to ensure that customers are billed properly, each 3PL must implement processes and/or systems to address the following: • Different billing protocols and rates by customer: Every 3PL customer has different billing rates. Making billing rates uniform is not a profit-optimising strategy for a 3PL. In fact, in the 3PL world, custom pricing and pricing flexibility are mandatory.

• Capture billing charges at the time transactions and billing events occur in real-time.

• Different billing periods.

Customer schedules help 3PLs automate their processes. However, if a system is not in place, the process can be done manually, even though it is not the optimum practice. The two scenarios below are typical of a 3PL trying to maximise profit: Scenario 1: The customer is a major player, who anticipates shipping out 500 orders a week. However, he has some hazardous product and requires kitting or assemblies. In such a scenario, the 3PL considers the following customer

billing schedule: Prep work: Have a standard rate sheet as a reference for all customers to: • Establish split periods as it provides more competitive pricing to the customer.

• Offer a short window of free storage days as it gives the customer an incentive to move the product quickly.

• Establish storage rates based on pallet count.

• Attach special handling fees for hazardous material because the product needs to be stored in a staticfree area requiring special equipment to handle.

• Attach kitting and assembly fees because 50 per cent of the orders require kitting.

• Use a standard pallet handling fee on all in/out transactions.

• Establish internal policies to capture warehouse activities that are not included in the customer schedule. If a WMS is in place, this should be an automatic process.

In the above scenario, a schedule that is unique to this customer and provides advantages to both parties based on the customers’ unique set of circumstances has been created. An additional benefit here is having a formal pricing strategy in place as well as established internal policies that can be used for other customers.

Scenario 2: This customer ships a few orders a month. However, the product has been stored in the warehouse for

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Streamlining billing procedures, continued

longer periods of time. The customer requires monthly inventories. Moreover, the product is bulky and takes up more warehouse space.

In this scenario, the billing process may include the following: • Establishing a recurring storage period method using monthly storage rates • Establishing storage rates by cube because the size of the product takes up more warehouse space • Attaching cube handling fees, which are more than standard carton handling.

• Attaching an order handling fee for handling large items • Establishing inventory and cycle count fees per carton • Establishing internal policies to capture warehouse activities that are not included in the customer schedules, including special forklift handling and repositioning bulk stored pallets on the floor.

In the above scenario, the pricing strategy is mutually beneficial because this customer has the advantage of paying only for the space used despite storing his goods for a longer period of time.

This unique pricing schedule is not only competitive for this customer, but it also addresses the unique facility overhead and square footage challenges that this customer presents.

unsuccessful public warehouses is the ability to cover the fixed cost of warehouse space. 3PLs must manage billing to cover variable expenses such as labour and fixed expenses such as rent, racking, electricity and purchased equipment. Managing open space in the warehouse and recouping these fixed costs through charging storage fees could be the difference between profit and loss.

There are two primary types of storage charges that are billed by a 3PL. They include: - Initial Storage with Split-Periods – Initial storage covers the storage fee from the time of the receipt of goods to the first recurring storage period.

- Recurring Storage – Typically done monthly, it takes a snapshot of the inventory level and bills for the next month’s storage in advance.

It is important to note that industry best practices are to bill storage in advance.

This not only aligns with how the storage space is paid by the 3PL in advance via rent or mortgage payment, but also takes into account that a 3PL must manage space so that it is available for customers’ potential space needs during the month.

Some public warehouses and industry sectors do bill in arrears for the actual space used each day of the month. This is not only difficult to measure, but also

ACT

The difference between successful and unsuccessful public warehouses is the ability to cover the fixed cost of warehouse space. 3PLs must manage billing to cover variable expenses such as labour and fixed expenses such as rent, racking, electricity and purchased equipment. Managing open space in the warehouse and recouping these fixed costs through charging storage fees could be the difference between profit and loss.

The concept behind customer pricing schedules is to give flexibility to 3PLs by attaching standard rates to a customer based on the customer’s unique requirements and the 3PL’s own operational constraints. It is a process that standardises the billing strategy, while preserving price customisation and flexibility. The capturing of transactional and storage billing charges are variables in each customer billing schedule.

Getting Paid for Warehouse Space in Advance The difference between successful and

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extremely time-consuming to audit.

A majority of 3PLs set up and use recurring storage. There are, however, a few drawbacks that such 3PLs should consider: • Customers are savvy too, and can manipulate their shipments to reduce the period close storage charges. This practice would put a strain on the 3PLs operational processes around month end.

• Using a storage billing method that includes free days could potentially provide the customer with a way to

completely avoid storage billing. In case one opts for recurring storage, which includes free days, one has to regularly review and monitor. Free days allow the customer to store product at the 3PL warehouse with an added incentive to ship the product out before the free days expire, removing any storage fees. For split periods, this is how many days to wait before determining initial storage fees.

Covering Labour Costs Labour costs are recouped by charging transaction fees, which cover the variable cost in supporting a customer’s warehousing and fulfillment needs.

Here, a 3PL needs to address a myriad of challenges such as determining what transaction fees need to be created and applied, what type of unit can be billed and, if possible, what can the 3PL do to automate and simplify the process.

Remember, capturing and tracking costs are the primary source of revenues of for 3PLs. There are four main categories of transaction fees: Handling Fees are related to standard warehouse processes i.e. receipts, shipments, etc. A majority of work like picking & packing, inventory cycle counts, pallet handling and, in some cases, the processing of an entire order, is performed in the handling category. It may take only 10 minutes to pick a single order, but it is critical that these activities include a charge to the customer because this is where the most time is spent.

Material Fees require a tangible product purchased to satisfy a customer’s requirements. The majority of these fees includes pallets, cartons for packing and may also include media, paper & supplies that are used as part of a kit or an assembly. In some cases, one may receive labels from the customer with the task of labelling or relabelling a product. Here, the labour would be classified in handling fees, while the actual materials will be billed via materials.

Accessorial Fees are inherent in all 3PLs even if they do not actually extend these charges to their customers. Standard accessorial fees include factors like driver wait time, document faxing, reprinting of documents, shrink-wrapping and cancelling an order. There are hundreds of accessorial fees that a 3PL can charge for.

These fees depend on the 3PL’s business model & competitiveness. It is therefore,

critical for business processes to have means to capture these charges at the time of the transaction since it is difficult to remember accessorial fees when billed once a week or once a month.

Freight Fees involve a transportation activity. Regardless of whether one owns a fleet of trucks or outsources transportation, it is a standard practice to charge for all these activities. There are a lot of hidden costs that customers may not see including driver pay, fuel, vehicle maintenance, tolls, insurance and rentals. Adding freight fees will help cover a portion of these expenses or act as profit centers.

Without a proper system in place, the 3PL may struggle with creating and applying these transaction fees to warehouse activities. There are several ways to improve this process; one of those is to capture the transaction fees as it occurs in the warehouse. In order to achieve this, the 3PL should go through the steps of creating transaction fees for each one of its customers and then, applying the charges as activities are normal activities that are performed throughout the day. As each warehouse activity takes place, users will manually enter or the system will automatically attach transaction fees to the activity.

Another improvement method includes the use of a wireless mobile device tracking for each completed activity in real-time. Adding mobile capabilities removes paper-based errors and allows warehouse employees to capture charges in the warehouse.

Invoicing for Swift Payment Collections Most 3PLs scramble through paperwork and sticky notes every month trying to make sure they do not miss all of the billable activities before closing their billing periods. They are just too busy to investigate better solutions to help them with closing their billing periods. There are typically two different ways that a 3PL captures charges for transaction costs: - Capturing charges at the time of each transaction (which is recommended) - Capturing charges at the end of the period through reporting on past activities.

There are pros and cons to both these billing methodologies, with the former having the advantage of not missing accessorial charges since they would be captured at the time of transaction.

It is important to note that there is a

difference between capturing charges and the time in which they invoice. Charges, including storage, are typically captured daily with the total not billed until the end of a period. The most typical period

S

INCE 3PLS/PUBLIC WAREHOUSES BILL FOR SERVICES ON A TRANSACTIONAL BASIS, STRONG BILLING PROCEDURES AND A WMS BILLING MANAGEMENT MODULE IS CRITICAL IN ENSURING A 3PLS’ SUCCESS.

is monthly. Period closing does not need to be a challenging task. With the proper SaaS WMS, all billable transactions and storage activities are captured for each customer. In most systems, it is possible to adjust or cancel charges, if necessary.

For those who do not have a plan in place, consider this during the closing period: - Review transactions by customer.

- Add, edit, remove or cancel adjustments and transactions.

- Generate recurring storage charges by customer.

- Freeze and lock transactions to avoid future changes to transactions which have been billed.

- Print an invoice or transfer charges to an accounting system to print invoices.

Another point to consider is to get those invoices sent out on time. Customers expect to receive invoices on-time each month and with great accuracy.

Professionalism is always being measured, even in the best relationships.

The need for sending a corrected invoice the moment you recognise errors with the original submitted invoice can harm business growth as well as a 3PLs relationship with its customer. In such a situation, it is time to seek alternate methods to improve this process, even if it is only incremental steps. Take full control during close out periods. Set the timelines with the staff and use a system that will help automate the process.

If it takes more than one hour to go

through this process, there is room for improvement.

Communication of Billing Details The last time-consuming task for most 3PLs is customer invoicing. The best practice is to provide billing visibility to customers throughout the month, so when the monthly invoice arrives, there are no surprises. Providing access for a 3PL customer is not only instrumental in collaboration; it can be a deal-breaker when a 3PL is entertaining new business, especially if the 3PL cannot offer web visibility. In fact, it is just not enough to provide access to view inventory. Today’s savvy customer wants to be able to run billing reports, view current billing charges and download or export these charges.

With this type of access in the market today, the 3PL is bound for trouble if spreadsheets or legacy systems are still in use. In addition to inventory updates, customers want visibility to view current up-to-date billing charges – including storage and transaction fees – allowing them to make informed procurement and shipping decisions quickly, confidently and well in advance. Providing access also indicates that a 3PL is willing to share new technology with the customer, thereby proving its ability to streamline process flows and stay in tune with new technologies. Customers who have access to a web-enabled WMS system can log in 24x7x365 to check inventory levels, run stock status reports, review transactions and validate billing charges. For those customers who do not have access, the old spreadsheet sent via email or fax can still be used, but the tide is turning and customers demand more.

A STEP IN THE RIGHT DIRECTION Taking that step to identify billing bottlenecks and challenges is a giant step in the right direction. Putting a plan of action together and implementing that plan will allow 3PLs to improve overall billing process flows and win more business. Do not let billing be the bottleneck; instead allow it to be a catalyst to grow the business by keeping existing customers and winning new ones.

See what is available in new technologies – expensive deployed systems are rapidly being replaced with dynamic, web-based strategies that are affordable and include state-of-the-art functionality and are easy to implement.

Courtesy: 3PL Central

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EQUIPMENT BUYING GUIDE

ELECTRIC LIFT TRUCKS

UPLIFTING MATERIAL

HANDLING CAPABILITIES Taking rapid technological strides, the electric lift truck has endured many alterations to finally transform to become the customer’s preferred choice. The electric lift truck has dramatically improved in terms of lift and travel speed. Moreover, it is eco-friendly, requires less yearly and lifetime maintenance and experiences less downtime, thereby uplifting the work environment.

IT is true that electric lift trucks are not suitable for every application. Throughout the past decade, however, there have been a number of changes in the lift truck industry and the material handling work environment that have been beneficial for the electric lift truck and have advanced its opportunities. Electric lift trucks are environment-friendly as they are reliant on batteries and produce no exhaust emissions. This improves air quality for employees and customers. Plus, there is no possibility of damage to the work product from engine exhaust, which can occur when using Internal Combustion Engine (ICE) trucks. With these qualities, as well as their use of cushion tyres, electric trucks are perfectly suited for indoor use in warehouse applications.

Considering the fact that they have fewer moving parts and no engine or exhaust noise, electric lift trucks produce one quarter of the noise of ICE lift trucks.

The lower noise level and lower vibration levels also help to reduce operator fatigue, which, in turn, improves productivity and safety. Electric lift trucks offer considerable cost advantages over the life of the unit and can perform as well as ICE lift trucks

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in many cases. New battery types and charger technologies can eliminate the need for battery replacement, thereby minimising storage space requirements in most multi shift applications, while providing significant advantages for the environment and workers’ health and safety.

ELECTRIC TRUCKS V/S ICE LIFT TRUCKS There used to be a notable difference between the performance of electric and ICE lift trucks. The performance of electric trucks could not surpass that of ICE lift trucks in terms of lift and travel speed.

However, the performance of electric trucks improved over the past few years, the gap between the two is narrowing.

Only 30 years ago, the market comprised of about 60 per cent ICE lift trucks and 40 per cent electric trucks. But today, it is vice versa. Although there are many benefits to owning electric lift trucks, there are buyers who are still hesitant to make the switch from ICE lift trucks to electric trucks.

One obstacle encountered while using electric lift trucks instead of ICE lift trucks

is the perception that electric lift trucks do not perform better than ICE lift trucks.

For a large majority of applications, this is no longer true. With today’s AC motor technology, electric lift trucks are able to perform along side ICE trucks in many applications.

A second obstacle is the belief that electric lift trucks cannot operate in wet applications. More often than not, an ICE lift truck is a better-suited option for outdoor applications, but the gap is soon closing. There are electric lift trucks fitted with pneumatic tyres and designed for outdoor use, for travel up and down ramps and for operation in inclement weather.

Another barrier is the perceived disadvantage of owning and changing batteries. In the current economy, customers are crunching numbers. They are concerned about having to pay for battery storage and the floor space required for replacement batteries. The recent advances in charger technologies, however, have decreased the need to replace batteries in many applications.

Keep in mind that fuel for ICE lift trucks must also be stored on site.

ECO-FRIENDLY MODEL

Figure 1: Fuel cost comparison: Electric Vs.

• Approximately 30 per cent longer service life than ICE trucks • Less downtime than ICE trucks, meaning increased productivity for electric lift trucks

POWER TO PERFORM Under most operating circumstances, today’s battery-powered lift trucks perform like ICE units in acceleration, run speed, lifting ability/capacity, ramp incline speed and climbing capabilities. Electric trucks can work in more confined areas and often, in narrower aisles than ICE lift trucks, creating a significant increase in storage space. Electric trucks are often able to provide a more cost-effective solution for warehouse storage, while getting the job done for a lower total operating cost.

NEW TECHNOLOGY: ZERO BATTERY CHANGES Advanced battery and charger technology – like fast charging and opportunity charging – means that the batteries do not have to be changed in most lift truck Electric

Cost ($)

Electric lift trucks are Internal combustion lift trucks superior to ICE models 5,000 lb. Electric 5,000 lb. LPG when it comes to pollution.

Fuel used per work shift 41 KWH 6 gal. LPG It improves indoor air Cost of LPG fuel $.010 kwj $2.50/gal* quality by eliminating Cost per 8 hr. work shift $4.10 $20.00 internal combustion exhaust Operating shifts per year 260 260 within a facility. It is no Annual fuel cost $1,066 $5,200 longer necessary to vent Potential fuel cost savings: $4,134 per year outside air into a facility to *fuel costs may vary. offset internal combustion exhaust or to exchange air shown in the Figure 1. as frequently through HVAC systems, Overall, electric lift trucks have a which is good for the environment and lower lifecycle cost than ICE lift trucks, has the added benefit of reducing heating which can save buyers approximately one and air conditioning costs. If electricity is dollar or more per hour for each piece of generated by renewable sources such as equipment, equating to between $2,000 wind and solar power, then electric lift and $6,000 annually per vehicle (actual trucks are truly emission-free. However, savings may vary depending on conditions the environmental impact of an electric and applications). In addition, the latest truck is more than just being emissiongeneration of electric lift trucks have: free. Electric trucks use no engine oil, • 40 per cent increase in travel speeds transmission fluid, radiator fluid or filters when compared to earlier DCthat have to be changed on a regular powered models basis. These waste items can be very • Improved performance – faster harmful to the environment if they are acceleration, travel speed and lift not handled and disposed of properly. speed Converting a rider lift truck from liquid propane (LP) to electric in a 2,000-hourLP Gas (000’s) per-year application results in an annual 80 carbon reduction (CO2 and CO) of 70 approximately 20,000 lbs.; the equivalent of driving from New York City to Los 60 Angeles approximately seven times. In 50 addition, due to the battery industry’s 40 efforts, more than 97 per cent of all 30 battery lead is recycled, which makes it 20 one of the most highly recycled consumer 10 products.

0

ECONOMIC BENEFITS Studies have shown that electric lift trucks cost less to own over their lifetime when compared to ICE lift trucks. Electric lift trucks have lower fuel costs than ICE lift trucks. They have a longer useful life, require less yearly & lifetime maintenance and experience less downtime. The overall lifecycle cost of electric trucks is less than ICE lift trucks primarily due to fuel costs.

The cost to recharge an electric truck can range from $1.50 to $4.50 per shift, while LP fuel costs can range from $18 to $25 per bottle, costs that fluctuate based on local and national variables. Rising diesel and ICE truck operating costs are now forcing customers to look for alternatives.

The operational savings and longer running life will more than offset the difference in the purchase price of an electric forklift as

0

1

2

3

4

5

This comparison chart shows the total cost of ownership for electric vs. ICE lift trucks, including the cost of two batteries and one charger at year zero. Over five years, an electric lift truck saves more than 18 per cent in total costs.

• Increased productivity – AC power maintains performance as battery voltage drops, while DC performance is directly related to voltage • Longer battery run time – improved efficiency with fewer stops required to recharge.

• 40 per cent lower maintenance costs when compared to ICE trucks, due to: - Fewer moving parts to fix or replace - Reduced number of seals, hoses and fluids to maintain - No engine maintenance • 70 to 80 per cent lower fuel costs than ICE trucks

applications. Simply charging the truck during breaks or shift changes makes them ready to run when needed.

THE BEST AVAILABLE OPTION The electric lift truck may not be the best option for every application need.

However, with the technological strides in the lift truck industry throughout the past decade, the electric lift truck has undergone alterations and advances that should not be overlooked and today, may be the best solution for an application where it has been ruled out in the past.

Courtesy: Yale Materials Handling Corporation

JUNE 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

Freight management- sea freight ..................................................................... BC

Commercial vehicles ................................................................................... 34 & 35

IAX FCL services.........................................................................................................21

Containerised transportation ................................................................................. 7

Inventory management .......................................................................................... BC

EngineeringExpo exhibition ................................................................................BIC

Project logistics ........................................................................................................... BC

Everest pre-engineered steel buildings ........................................................FIC

Reverse logistics ......................................................................................................... BC

Exhibition - EngineeringExpo ............................................................................BIC

Supply chain management-design & planning .......................................... BC

Forklift spares................................................................................................................... 3

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

Freight forwarding .......................................................................................................21

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

Pg No

Advertiser

Tel. No.

E-Mail

Website

BC

Alfa Supply Chain Solutins Prv Ltd

+91-2522-645274

siddhartha@alfasolutions.in

www.alfasolutions.in

BIC

Engineering Expo

+91-9819552270

engexpo@infomedia18.in

www.engg-expo.com

FIC

Everest Industries Ltd

+91-11-41731952

mgarg@everestind.com

www.everestind.com

15

Hannover Milano Fairs India Pvt Ltd

–

–

–

4

Indian Machine Tool Mfg. Association

–

–

–

34, 35

Mahindra Navistar Automotives Ltd.

+1800-200-3600

–

www.mahindranavistar.com

21

MFC Transport Pvt Ltd.

+91-22-40341477

mfc@mfctransport.com

www.mfctransport.com

7

Vijay Logistics Pvt Ltd

+91-2135-675000

info@vijaylogistics.com

www.vijaylogistics.com

3

Watrana Traction Pvt Ltd

+91-11-27456600

sales@forkliftspares.com

www.forkliftspares.com

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

66 • SMART LOGISTICS • JUNE 2011

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E-mail: b2b@infomedia18.in PRODUCT INQUIRY FORM Freight management- sea freight

Air freight & road transport

IAX FCL services

Commercial vehicles

First Fold Here Inventory management

Containerised transportation

Project logistics Engineering Expo exhibition Reverse logistics Everest pre-engineered steel buildings

Supply chain management-design & Exhibition - Engineering Expo

planning

Forklift spares

Warehouses

Freight forwarding

Warehousing ADVERTISERS’ INQUIRY FORM Mahindra Navistar Automotives Ltd.

Engineering Expo

MFC Transport Pvt Ltd.

Everest Industries Ltd

Vijay Logistics Pvt Ltd

Hannover Milano Fairs India Pvt Ltd

Watrana Traction Pvt Ltd

Indian Machine Tool Mfg. Association

Third Fold Here

GLUE

Second Fold Here Alfa Supply Chain Solutins Prv Ltd

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