Smart Logistics - October 2010 by Infomedia18

October 2010

Vol. 01 | Issue 06 | OCTOBER 2010

Rs 100/-

Vol. 01, Issue 06

VIEWPOINT EDITORIAL Executive Editor Archana Tiwari-Nayudu

COLLABORATION CONTINUUM

Features Editor Prerna Sharma Senior Features Writer Sumedha Mahorey Senior Correspondent Shivani Mody (Bengaluru) Features Writer Sandeep Pai, Sudhir Muddana, Purna Parmar, KTP Radhika Jinoy (Delhi) Correspondents Desk Geetha Jayaraman (Delhi) Copy Desk Swati Sharma Product Desk Michael Anthony

DESIGN Assistant Art Director Varuna Naik Design Team Sanjay Dalvi, Uttam Rane Senior Photographer Neha Mithbawkar

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

CIRCULATION/SUBSCRIPTION General Manager Sunder Thiyagarajan sunder.thiyagarajan@infomedia18.in

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cores of profound words have been spared for the ‘cause’ of Collaborative Partnership, and you get extreme cases of either too complicated or too simplified one liners to define this term. Having picked up two extreme examples for you, it goes like this: collaborative logistics creates a synergistic environment in which the sum of the parts is greater than the whole, and the other one reads… it’s a business practice that encourages individual organisations to share information and resources for the benefit of all! Confused? More than often, ‘speaking from the thrones’ does nothing but confuse the audience because the ground realities are completely different. We can go on writing and publishing about how and why to collaborate, what are the seemingly tangible benefits and why it will be more of a critical need than an optional inclusion in the business strategies of tomorrow. So how does it work? Well, incidentally, collaboration is at the rescue yet again! This time, we at Smart Logistics collaborated to bring this proactive industry to come together and talk, discuss, deliberate, agree, contradict but ultimately chart out a path for all of us to work together to bring value and build relationships in this logistics value chain. In your hand is a very special issue of Smart Logistics, which is like a reflector…the more light you shed on it, the more it shines and shows a clear path. As the cover and the personalities that dominate the cover page cheer, ‘United For The Cause Of Collaboration’, the views and opinions of

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

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these dominating personalities are not to be missed. Also, something that should not be missed in this edition is the special report, which Smart Logistics along with PricewaterhouseCoopers (PwC) as the knowledge partner, has exclusively drafted for the Leadership Series 2010 and for you. This report draws upon a rigorous mix of desk research and the results of a survey among select subject matter experts from India. It gives a detailed and in-depth illustration of the realities of the new economic compulsions that have started dawning on logistics companies. Increasingly, there is a realisation that ‘Going it alone’ is no longer viable. No matter how prudent your risk management capabilities are, it may be difficult to absorb the shocks rendered by the globalised economic network. To be meaningful and effective, collaboration must go well beyond vague expressions of partnership and aligned interest. The collaboration continuum extends across the ecosystem of players with the type of collaboration and maturity of collaborative relationship, affecting the scope and impact of collaboration on the participants. We present the collaboration continuum and the key features of collaboration across this continuum.

AHMEDABAD - Shashin Bhagat Tel: 079-39826432 sipdahmedabad@infomedia18.in

HYDERABAD - Kalyan C Tel: 040-30647600 sipd.hyderabad@infomedia18.in

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INDORE - Ameya Gokhale Tel: 0731-3074876 sipd.indore@infomedia18.in

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PUNE - Rohit Dass Tel: 020-66031234 sipd.pune@infomedia18.in

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KOLKATA - Debranjan Sarkhel Tel: 033-2265 8637 sipd.kol@infomedia18.in

SURAT - Sunil Chaporkar Tel: 0261-2630181 surat@infomedia18.in

COIMBATORE - Prakash N Tel: 0422-3092600 coimbatore@infomedia18.in

LUDHIANA - Jasmeet Singh Tel: 0161-3026198 ludhiana@infomedia18.in

VADODARA - Samarth Vohra Tel: 0265-3926500 vadodara@infomedia18.in

OCTOBER 2010 • SMART LOGISTICS • 5

FOREWORD

PwC

SV Sukumar Executive Director – Consulting Services (Operations & Supply Chain), PricewaterhouseCoopers

Recognition of logistics as one of the core elements of a company’s competitive advantage is the evolving trend across industries. In the wake of very optimistic economic and industrial growth outlook, transportation and logistics function has several responsibilities to fulfill in order to live upto the expectations. Taking a pragmatic and a determined approach is crucial for every company to address these opportunities and corresponding challenges that come along. Business leaders, in cognizance of the long-term trends in their markets, must ensure a sustainable positioning of their organisations by developing an understanding of: What will be the drivers for future growth of transport and logistics industry? Will the bottlenecks in transport infrastructure be overcome? Will the supply chains of the future still be global in nature? Or will we be experiencing a shift back to regional supply networks? Is the maxim of ‘competitive collaboration’ across the transport and logistics ecosystem an imperative for the future? How best do we unlock the synergies of collaboration? Competitive collaboration in logistics is a phenomenon that addresses these questions. Our objective is to bring forth insights about the developments in the industry. The price of oil has long been a key factor for logistics, with the extreme price fluctuations seen during the past 2 years and the increasing importance and awareness of the carbon footprint of transportation, the industry is more than ever challenged to develop forward looking solutions. A shift in consumer behaviour may be an additional parameter influencing the supply chains of the future. This study draws upon a rigorous mix of interviews as well as discussions with select subject matter experts from India, PwC experience and secondary research. The report is meant to be food for thought, our ‘stimulus package’ for in-depth discussions among industry leaders, strategists and other subject matter experts – and we are happy to be part of that debate. We hope you will find competitive collaboration in logistics inspiring and welcome your feedback.

6 • SMART LOGISTICS • OCTOBER 2010

CONTENTS INSIGHTS & OUTLOOK: COMPETITIVE COLLABORATION PROVIDING A WINNING EDGE

VOL. 01, NO. 07

OCTOBER 2010

SMART STRATEGIES Supply Chain Collaboration & Partnership A Competitive Tool For Efﬁcient Functioning Collaborative Partnership Harnessing Mutual Beneﬁts Supplier Collaboration Moving Ahead In A Symbiotic Way

34 38 40

EVENT PREVIEW Sl Leadership Series 2010 Collaborate To Excel Speakers’ Corner Collaboration Inspires Innovation & Evolution

44 46

Kenneth F Koval, VP - Operations, FedEx Express India

62 81

PREVIEW Engineering Expo Projecting ‘A Promising Pune’ Hitech Material Handling Show Inspiring Innovations

8 • SMART LOGISTICS • OCTOBER 2010

SECO Tools In The Quest Of A Cutting-edge Supply Chain

Risky Business How To Protect Your Supply Chain?

WAREHOUSING & DC

48 ALSO IN THIS ISSUE

Jarif A Siddiqui, Director, Coign Consulting

‘There Is A Need To Expand The Domestic Premium Model As It Is Currently Under-served’

LEADERSHIP SERIES

Warehouse mobility in Supply Chain Taking Efﬁciency To The Next Level

Juzar Mustan, CEO – Logistics, AFL

‘Collaborative Partnerships Will Improve The Image And Quality Of Logistics Companies’

Greenﬁeld Ports Creating Avenues To Augment Growth

SUPPLY CHAIN MANAGEMENT

VIEW FROM THE TOP ‘Trust And Solidarity Between Players Is The Biggest Barrier In The Way Of Collaboration’

SL EXCLUSIVE

VIEWPOINT FOREWORD NATIONAL NEWS WORLD NEWS PRICE TRENDS TECH TRACK NEWS ANALYSIS: NEW MARITIME POLICY PROMISING GROWTH HAVENS REPORT: ICLS 2010: ENABLING TRANSFORMATION THROUGH SHARED VISION PRODUCT & ADVERTISERS’ INDEX PRODUCT & ADVERTISERS’ INQUIRY FORM

5 6

10 14 72 73 78 80 82 83

Cover Images Courtesy: Neha Mithbawkar

NATIO AL EWS ABG SHIPYARD DEDICATES POLLUTION

CONTROL VESSEL TO INDIAN COAST GUARD ABG Shipyard, recently commissioned Pollution Control Vessel (PCV) ‘Samudra Prahari’, at Naval Dockyard. This is the first dedicated vessel in the Asia Pacific region, for combating environmental disasters caused by oil spills. The vessel, built and delivered by ABG Shipyard, Samudra Prahari is by far one of the most advanced PCVs. It has the capability to recover and store 300 tonne of spilled oil from the sea, as also to continuously recover and transfer oil through floating barges. In addition, the vessel is fitted with a state-of-the-art integrated platform management system, which provides the ship with the unique capability of controlling all machinery, including main engines, from six different locations throughout the ship, with the use of portable stations, or even laptops. On the need for such vessels, Mehernosh Shroff, Chief Engineer, Sea Worthy Shipping Services, said, “We need more of such vessels to help us curb disasters like the recent oil spill. Although it is important to train our coast guards on how to optimally utilise these vessels, we need PCVs that can operate within the 15-m limit. Hence, it is an important acquisition for the Indian Coast Guard.” Equipped with a maritime helicopter and an advanced external firefighting system, this 94-m, 4,300 tonne vessel will be the largest vessel to be inducted to the Indian Coast Guard, which would considerably enhance its capabilities in coastal protection. The ‘Infra Red Surveillance System’ installed onboard is an additional capability for the ship’s crew to detect targets at night.

MANUFACTURERS AND 3PLS URGED TO

GEAR UP AS THEY DISCUSS GST The long awaited GST is likely to be implemented soon. Considering this, Sushil Solanki, newly appointed Commissioner of Customs, JN Port, Nhava Sheva, who is a part of the GST committee, indicated that GST is most likely to come into force on October 1, 2011. During his guest session at the Annual India After GST: Manufacturing, Logistics & Beyond Summit, organised by the Supply Chain Leadership Council. Solanki also informed that in contrast to the general belief, the evolving Indian GST framework is one of the most objective and forward looking initiatives. When asked whether Mumbai Octroi will be subsumed within GST, he indicated that while it should, the annual octroi collections in Mumbai of Rs 8,500 crore is greater than the budgets of 12 Indian states, making it a challenge to arrive at a decision on, and therefore is most likely to stay. Most organisations are in advanced stages of preparations towards a smooth transition into a GST regime, suggesting that the preparatory process deserves at least 8-9 months to be able to fully take in this opportunity. According to Rakesh Sinha, COO, Godrej Consumer Products, the GST will lead to a complete rehaul of regional

10 • SMART LOGISTICS • OCTOBER 2010

warehouses and CFA locations based on total delivered cost mechanism independent of state boundaries. While Deepak Gupta, Sr GM-Logistics, PepsiCo India (Fritolay) said that his organisation is in the midst of a GST-based supply chain transition, which is likely to save the company at least 5 per cent in the supply chain cost. Juzar Mustan, CEO, AFL Logistics, and Chairperson of the summit, addressed a large gathering of manufacturers, retailers and 3PLs, sharing findings on how an as-is network of an existing large manufacturer comprising 112 primary freight lanes can be successfully served by 39 primary freight lanes through a GST-aligned hub-and-spoke system. This would lead to halving of inventory levels at branch level and a saving of 11 per cent on supply chain cost. His counterparts from Future Supply Chain Solutions and DIESL suggested that manufacturers would find outsourcing of logistics an easier decision in a post-GST era. The expected delay in the implementation of GST by six odd months may be a blessing in disguise for companies that are still not fully prepared to reap the GST opportunity available to functions across an organisation but especially procurement, manufacturing and logistics.

TT LOGISTICS TO FORAY INTO CUSTOMS-

BONDED TRUCKING TT Logistics (TTL), a subsidiary of the Chennai-based TTK Group, and the General Sales Agency for British Airways’ world cargo in India, is entering the Customs-bonded trucking business. It will initially invest Rs 10 crore in the business, according to Arun Vasu, Chairman & MD, TT Group. The business in the aviation sector is pegged at approximately Rs 120 crore and is annually growing at about 10 per cent. The Customs-bonded players handle approximately 120,000 tonnes of cargo every month, with only three or four organised major players. Companies help airlines in quick cargo evacuation from the airport and move the cargo to an off-dock warehouse or to location where customs officials verify the documents and cargo, avoiding payment of demurrage fees for late clearance of cargo. TTL will provide its airline customers, including British Airways and two other airlines, with dedicated trucks on a commitment basis to handle all their transhipment cargo. The service will be in sync with the schedule routes, allowing airlines to book their space online directly from their respective origin airports. All transhipments will be provided with an escort vehicle to ensure smooth transit. Vasu informed, “TTL will invest an additional Rs 10 crore into the business by the first year of operations. It will start its operations using Chennai as the hub while networking into Bengaluru, Hyderabad, Kochi, Thiruvananthapuram, Kozhikode, Mumbai and Coimbatore.” The Group expects a turnover of `20 crore from this new business by the end of the first year. It will also provide

doorstep cargo pick-up services for companies operating within export-oriented units. The company also plans to start a Customs-bonded warehouse near Chennai airport in the next one year.

NDR GROUP SETTING UP 7 INLAND

CONTAINER DEPOTS Logistics service provider Kribhco Continental Multimodal Logistic Park, part of the Hyderabad-based NDR Group of companies, is in the process of setting up seven Inland Container Depots (ICDs) across the country in the next three years, at an investment of Rs 560 crore. The company has laid the foundation for its second ICD at Timmapur in Mahboobnagar district of Andhra Pradesh, and is expected to be operational by December. N Adikesavulu Reddy, Chairman, NDR Group of Companies, informed that the seven ICDs would be set up in Ahmedabad, Bengaluru, Chennai, Panipat, Tuticorin, Ludhiana and Indore. The Timmapur ICD is being set up at a cost of Rs 111 crore. The facility will have a full-fledged logistics park on a 50-acre property and 30,000 sqm of warehousing space. It is expected to significantly reduce logistics costs for movement of industrial and agri-products from this region.

Subsequently, the company hopes to establish 800 m of additional berth length for container handling in the Southern basin facility of the port before March 2013. At present, Mundra has a total of eight berths in operation, including eight multi-purpose berths for dry and liquid bulk cargo and four container berths for super post-Panamax vessels. The company COO also indicated the company was keen to set up another single point mooring (SPM) in the ocean from where very large crude carriers (VLCCs) would be able to supply crude oil or refined petroleum products to tank farms operated by IOC and HPCL within the SEZ.

BALMER LAWRIE PLANS FOUR MULTI-MODAL

LOGISTICS HUB The state-owned diversified conglomerate Balmer Lawrie is planning to set up four multi-modal logistics hub in four zones of the country — east, west, north and south. “We are planning to set up a multi-modal logistics hub in Vizag (Visakhapatnam) and eventually in other parts of the country. We have signed a memorandum of understanding with Vizag Port Trust for the same,” said SK Mukherjee, MD, Balmer Lawrie.

ADANI MOOTS RAPID EXPANSION TO DRIVE

MUNDRA PORT & SEZ GROWTH Mundra Port and SEZ, an Adani Group concern, has embarked upon rapid expansion of cargo-handling capacity and logistics options at its private port and special economic zone (SEZ) on the West Coast of the country to drive growth. “A bottoms-up approach is what we have started with,” said Captain Unmesh Abhyankar, CEO, Mundra Port and SEZ. “Among the proposed infrastructure projects, Mundra Port and SEZ aim to enhance the number of berths for handling consignments of coal, liquid fuel, fertilisers, cars and other products being imported or exported through the port.” The company will also enhance its privately developed railway link between Mundra and Adipur to cater to four times the existing capacity and has sought approvals for commencing commercial operations at its private airport in the SEZ, which will give exporters an alternate route to ensure that their time critical shipments reach the port. “The company plans to set up as many as 20 new berths at the Mundra Port under its Vision 2020,” Abhyankar said, adding that the first three berths will be established at its Western Basin facility by March 2011. The first three new berths will add another 1,320 metre of berth length to the port. “Subsequently, the company will add and operationalise another 500 m of berth length by December 2011. A dedicated liquid berth capable of handling Aframax oil tankers will also be established by the end of 2011,” he added.

OCTOBER 2010 • SMART LOGISTICS • 11

National news, continued

According to Mukherjee, each hub would cost approximately Rs 250 crore, depending on the value of the land. Regarding the Vizag project, Mukherjee said, “Currently, we are working on the feasibility of the project — both technical and financial. Location will be finalised in five to six weeks.” Approximately 60 acres of land would be required for the Vizag project. An MoU for the same was signed four months ago. Mukherjee further added, “Each multi-modal logistics hub would take two years to be completed from the day the construction work starts.” Multi-modal logistics hubs offer logistics solution through rail, road and sea. The company also plans to venture into green energy by installing wind power project in Tamil Nadu for captive use. It also plans to invest Rs 7 crore and would have a capacity of 1.2-1.3 megawatt.

COAL IMPORTS THROUGH EAST-COAST

PORTS ON THE RISE Coal imports through the East-Coast ports of Paradip, Gangavaram and Visakhapatnam are showing an upward trend, while iron exports have recorded a downtrend. Between April and August, East Coast Railway (ECoR) loaded imported coal at these ports at the rate of 19.2 rakes a day as against 17.8 rakes in the same period last year, each rake loading on an average 3,900 tonne. The iron ore loading for exports through these ports dropped from 4.1 to 2.5 rakes a day, during the same period. Also, the overseas demand for the ore has been less than satisfactory. Moreover, the drop in iron ore loading has been the restriction imposed by the Orissa Government on mining operations in Keonjhar area. However, ECoR officials are hopeful of achieving higher loading soon, as there is partial easing of the restriction. Interestingly, the iron movement along the 450-km long Kirandul-Kottavalasa (K-K) line showed an impressive jump during the period when the average daily movement of rakes along the line was 13.1, up from 9.3 during the same period last year. This was achieved despite more than 100 per cent rise in rainfall in Visakhapatnam area in the past few months. While improved law and order situation has been a contributing factor, the ECoR officials attribute it to better traffic management through various measures such as construction of new lines, additional loops and improved signalling system. During the period under review, ECoR’s coal loading posted 9.2 per cent growth at 25.32 million tonne (MT) compared with 23.18 MT. “We could have loaded much more but for non-availability of coal due to myriad problems facing the coal producer,” observed ECoR officials. The average detention of rakes at the loading points was four and half to five hours. “We are geared to load easily up to 30 rakes a day and on an average 28-29 rakes, but till August, the daily average loading was 26.5 rakes, since dropped to 20 rakes a day,” the ECoR officials added.

12 • SMART LOGISTICS • OCTOBER 2010

LANDLOCKED STATES CAN OWN PORTS NOW Gujarat Government has taken bold initiative to permit landlocked states like Madhya Pradesh, Punjab, Chhattisgarh and Rajasthan to have their own ports on the 1,600-km-long Gujarat coast. Maheshwar Sahu, Principal Secretary, Industries and Mines Department, Gujarat Government, informed, “We will facilitate the landlocked states to take advantage of our coastline.” Owning a port outside a nation’s geographical limits has long been in vogue. For instance, if Britain had Hong Kong in China for a century, China now has one at Gwader in Baluchistan, Pakistan; Myanmar and Nepal have been offered ports by Bangladesh. In India, however, this is perhaps for the first time that a coastal state is offering ports to landlocked states. Gujarat, which pioneered the port privatisation policy, leading to emergence of Mundra, Dahej and Pipavav as privately run ports, also has a foreign port operator, DP World, which runs a terminal at Mundra. The State Government is also inviting various states to the ‘Vibrant Gujarat Global Investment Summit’ to be held in January 2011 with the port and other proposals.

GROWING COASTAL SHIPPING ACCOUNTS

FOR 27 PER CENT OF TRAFFIC Accounting for 27 per cent of the total traffic, coastal shipping has grown at 4.39 per cent compounded annual growth rate (CAGR) during 1999-2000 and 2000-01, said A Subbiah, Chairman In-Charge, Tuticorin Port Trust. Thermal coal, petroleum coke, iron and steel material, salt and industrial coal are some of the major import cargo unloaded at Tuticorin Port for coastal shipping trade. Furthermore, some of the major export cargo loaded via coastal shipping at the port include sulphuric acid, phosphoric acid, gypsum, ilmenite sand, construction material, caustic soda lye and containerised cargo. For the year 2009-10, the port handled 65.03 lakh tonne of coastal cargo primarily consisting of thermal coal, containerised cargo, sulphuric acid, phosphoric acid, industrial coal, pet coke and caustic soda lye. The port also handled about 71,979 TEUs in 2009-10 in coastal shipping. The coastal container traffic from Mundra and Pipavav ports accounts for the major share at 43,614 and 11,724 TEUs, respectively. The coastal movement to Kandla Port is about 5,053 TEUs and Okha Port is about 1,012 TEUs. The total share of ports from Gujarat is about 62,585 TEUs out of 71,979 TEUs handled. “The exporters from Gujarat have found coastal shipping from the Gujarat Port to Tuticorin Port quite economical because of the excellent facilities and productivity of the terminal at Tuticorin and Gujarat Ports. As a result of the concessional tariff given by Tuticorin Port for coastal traffic, coastal movement of cargo is expected to pick up in the years to come,” Subbiah added.

WORLD

EWS

CHINESE EXPORT SURGE SLOWS DOWN China’s export volume in July climbed 38.1 per cent as compared to that a year earlier. Imports expanded even more slowly, indicating a decrease in the rapid economic expansion in the country. Imports posted a year-on-year increase of 22.7 per cent, down from that in June, which was 34.1 per cent. China’s closely watched trade numbers indicate the strength of the global economic recovery. The country’s economic growth slowed from 11.9 per cent in the first quarter to 10.3 per cent in the second quarter. A weakness in China’s demand for imports could affect other economies, including producers of raw materials, who have benefited from China’s demand for commodities to fuel its development and exports. In recent months, Chinese officials have worked to control the country’s rising real estate market. Some analysts have also said that they expect the European debt crisis to slow sales to Europe, which is China’s largest export market. However, this has not happened so far. Chinese exports to Europe have risen 36.4 per cent in the last month and China’s trade surplus with the European Union increased 56.3 per cent. Exports to the US increased 29.4 per cent, as the Chinese trade surplus with the US increased to 39.5 per cent.

KOREAN AIR OPENS NEW CARGO TERMINAL

IN UZBEKISTAN

Korean Air, confirmed in the latest IATA statistics as the world’s largest cargo carrier for the sixth successive year (at 8.225 billion freight tonne-kilometre), has opened a new cargo terminal in Uzbekistan with an aim to improve its growth in Central Asia. The airline is developing Navoi International Airport as a regional logistics hub, and has built a 150,000 sqm cargo terminal on the basis of its state-of-the-art design at its Incheon (Seoul) hub. The facility has an initial capacity of 1,00,000 tonne cargo per year and includes cold storage. It can be expanded to handle 5,00,000 tonne cargo as required. The first scheduled freighter call is a three-times-a-week B747-400F service from Incheon to Milan via Navoi. Korean Air is exploiting fifth-freedom rights to provide more competitive freighter service directly from China to the US and Europe, as previously, they had to fly back to Korea before going to onward destinations The carrier has also re-launched its cold chain service, now branded Variation-Pharma 1, 2 and 3 to enable Korea customise its offering to meet specific supply chain needs of global pharmaceutical companies.

GLOBAL FREIGHT RATES SUBDUED IN

SEPTEMBER

Global freight rates, both in the tanker and dry bulk segments, continued their downward journey, forcing ship owners to keep a slice of their fleet idle as the rates at times did not

14 • SMART LOGISTICS • OCTOBER 2010

even cover the operating costs, the whole of last month. Shipping analysts feel that tanker rates, which touched distress levels, may get some support in the next few weeks, especially with an expected increase in heating oil demand in the US and Europe that could lead to increased movement. However, the dry bulk segment is unlikely to post any significant recovery, especially with Chinese steel production slated to be cut. Freight rates for very large crude carrier (VLCC) fell from an average of $37,368 a day in April 2010 to $7,109 and $2,475 in August and the beginning of September respectively. The rate touched a low of $1636 on September 29, forcing many tanker owners to keep their fleet idle. Similarly, in the Suezmax segment, the daily earnings of a vessel tumbled from an average of $26,869 in May this year to $8,625 and $3,305 in the last two months. On the dry bulk front, the Baltic Dry Index hovered between 2,737 and 2,446 in September, after touching a high of 3,836 in May this year. “Weakness in the dry bulk freight rates is expected to continue in October. We remain cautious as steel production in China continues to moderate which necessitates a drop in iron ore inventory levels,” states a report by ICICI Securities. The report further points out that new building order for dry bulk vessels declined from 93 to 68, while that for tankers increased from 32 to 38 in September. Analysts feel that in the long run, the new building orders may keep freight rates subdued.

EU TO IMPLEMENT NEW PORT STATE

CONTROL RULES

In a recent decision, the European Union (EU) will implement the new port state control (PSC) rules from January 1, 2011. According to the European Commission, the EU countries have already harmonised port state control inspection standards. But from next January there will also be, for the first time, a full coordination of all the port state safety inspections carried out in the EU. The new EU wide system will rely on an advanced information tool known as “THETIS” that will track all safety inspections on ships carried out in ports in the EU and provide a risk analysis that will determine the frequency and priorities for inspections by the authorities of EU member states. Regulations adopted last week by the commission specify the criteria for assessing the risk profile of ships using company performance and the flag state performance as determined using THETIS. The new rules will also see the introduction of a new online register to “name and shame” shipping companies that are performing poorly on port state controls inspections, while ship owners with strong safety records will be given good public visibility. Companies and states that show up as performing poorly will be subject to more intensive, coordinated inspections in EU ports.

KLARIUS GROUP INVESTS GBP 850,000

IN UK TRANSPORT AND LOGISTICS INFRASTRUCTURE

The Klarius Group has announced a substantial GBP 850 thousand investment in its UK logistics infrastructure; combining a fleet of new vehicles, loading equipment, software and training. The move comes as the group turnover increases due to high export demands from Quinton Hazell world-wide sales offices and new UK customers. Paul Hannah Klarius Group International Business Development Director comments, “same-day delivery that can be relied upon one-hundred-per cent by our customers is a cornerstone of our business growth, operating our own fleet and managing our own logistics enables us to guarantee the reliability of delivery that is so essential to our customers. The investment also allows us to improve efficiency while also retaining delivery flexibility.” Klarius Operations Manager Charles Greaves adds, “We can add an item from stock to a delivery in as little as 10 minutes before the lorry leaves the depot. Being able to deliver this level of service on a national and international level is what sets us apart from other suppliers and manufacturers. The fact that we now offer ninety-nine per cent availability of over 10,000 parts in our range just serves to underline the gap in service and between ourselves and a collection of ‘next best’ suppliers.”

AIRLINES EARN $4.4 BILLION IN Q2: IATA According to IATA, all the world’s airlines attained a cumulative Q2 net profit of $4.4 billion which is excellent in comparison to the $620 million loss made in the same period last year. It also improved over a $1.9 billion loss in the 2010 first quarter. According to the organisation’s latest Airlines Financial Monitor released recently, global operating profit for Q2 that ended on June 30 stood at $7.72 billion, reversed from an

operating loss of $285 million in the same period in 2009. IATA last month raised its 2010 net profit forecast for the airline industry to $8.9 billion. However, IATA warned in the

financial report that passenger and air cargo traffic growth started to slow significantly in August. According to the report, passenger capacity is now rising faster than demand, causing load factor to slip. Report also adds that average fares are now appearing to be leveling off. The report stated that there was ‘an absolute fall from July to August in the seasonally adjusted data for air travel and freight,’ predicting that greater uncertainty about economic prospects is likely to be slowing demand in coming months. IATA said that high load factors are beginning to lose altitude. Having reached all-time highs earlier this year, there has been a slippage of around 1.5 per cent. In August 2010, loads were no better than seen at the same time in 2007, the previous peak. The organisation said that improvement in passenger yields has also slowed in recent months and has yet to regain pre-recession levels. In fact, the improvement of fares on international markets appears to have stalled. It projected that a further slowdown in the pace of fare improvement should be expected in the next few months.

EUROPE’S GLOBAL EXPORTS DECLINE

WHILE IMPORTS RISE IN AUGUST

According to Container Trade Statistics, a British information service, European exports to Asia, North America, India and the Middle East and Australasia/Oceania dropped in August. On the other hand, European imports increased from Asia, North and South America and Australasia/Oceania but not from India and the Middle East. However, European exports to Asia from Europe maintained a declining trend that started back in April. From July, exports declined 5.6 per cent and 5.9 per cent from July of 2009. Talking about the exports scenario, even in Europe, the exports from Europe’s Mediterranean ports were not as weak as those from North Europe with the West Mediterranean just turning positive in July. European exports to Australia and Oceania dropped 10.4 per cent from July while imports from that region were up by 1.5 per cent and up 24.67 per cent year-on-year. Exports from Europe to India and the Middle East in August were 1 per cent lower than in July despite being 5 per cent higher year-on-year. European exports to North America, however, were weaker, falling 8 per cent from July. Year-on-year growth remained positive at 10.6 per cent. European exports to South America increased 2 per cent over July. Imports from South American to Europe increased 5 per cent from July. While the exports from Europe decreased, the region showed an increasing trend in their imports. European imports from Asia were up 2.16 per cent overall from July to August and 16.36 per cent higher than August of last year. Imports on the backhaul trade showed a greater decline of 4.6 per cent from July to August even though they were 9.8 per cent higher than in the previous year. Also, European imports from North America in August were up 6.8 per cent from July and up 8.9 per cent from August last year.

OCTOBER OCTO BER 2010 • SMART LOGISTICS • 15

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OCTOBER 2010 • SMART LOGISTICS • 17

REPORT

COMPETITIVE COLLABORATION & COLLABORATIVE PARTNERSHIP

PROVIDING A WINNING EDGE

While India Inc earmarks its growth trajectory for the next decade, supply chain is going to be a differentiating factor in providing it a distinct lead in the global marketplace. Though the hurdles are many, yet a carefully crafted supply chain network will prove to be a winning edge in its growth bandwagon. The success mantra lies in evolving a collaborative partnership between the entire spectrum of value chain be it manufacturers, retailers or logistics service providers and harmonise what we call as an ideal supply chain. This exclusive report, brought to you in association with PricewaterhouseCoopers, brings to you critical insights into what lies ahead for the Indian logistics industry and provides a roadmap for collaboration in order to gain mutual benefits. THE Indian growth story, GDP Growth the performance over the 12.00% past years and the promise of sustained economic growth in 8.00% the future, has been a point of 13.0% 13.0% 11.4% discussion across the globe. 9.9% 4.00% 7.5% Over the last five years, the compounded annual growth Japan India US Europe China (CAGR) rate of close to 8 0.00% 1994 1997 2000 2003 2006 Source: KPMG, Goldman Sachs Research Estimates per cent has been propelled by robust industrial growth Graph 1: Growth in Indian GDP, manufacturing GDP Graph 2: Logistics cost as % of GDP (graph 1). mature markets (fig 1). For instance, rail A sector wise view reveals that economic growth. and coastal shipping costs in India are manufacturing sector growth has been As per the World Bank Logistics approximately 70 per cent higher than consistent over the past two decades, Performance Index, ’10, India stands at those in the US. Likewise, road costs in registering a CAGR of more than 7.3 per 47th position, behind not just developed countries but also ranked the lowest India are higher by about 30 per cent. cent over the last decade. amongst the BRICS. This not only results in higher prices and However, achieving the robust Poor logistics quality in India is a result lower competitiveness, but also hampers projections of growth is contingent upon several factors, including, the concurrent development of transport and logistics Government Policy Large number of check points (inter-state, octroi, etc) industry in the country. − Motor Transport Workers Act (duty hours, rest requirements, etc)

A SERIOUS SITUATION DEMANDING ATTENTION India spends 13 per cent of GDP on logistics, which is more than what the US (9.5 per cent) and Germany (8 per cent) spend (graph 2). The benchmark of transportation costs by mode demonstrates that India’s logistics infrastructure is inefficient compared with

18 • SMART LOGISTICS • OCTOBER 2010

Industry Structure Transportation Practices Shipper Hidden costs

− Financing incentives for small sized truck owners − Motor Vehicles Act (driver licensing, over loading, emission norms etc) Unwanted movement on account of taxation Separation between owner & trucking company Overloading of vehicles, Poor Truck Maintenance, Side Payments Reduced expectation on quality of service, Focus on direct costs only, End of month batching Safety, Pollution, damages to roads ~30% stock outs & 45 days channel inventory

Table 1: Various challenges faced by logistics industry today.

Logistics Efficient Frontier Government Policy

Non scientific Warehousing

+ + Fragmented

Industry Structure.

+ +

Low entry Barriers

C: Same service, lower cost

Transportation Practices

+ Shipper Practices & Expectations

Hidden Costs

AL Current State

Customer Service Future State

B: Better service, at optimal cost Collaboration with trading partners

Current Performance

Unwanted movement of goods

Policy Status Quo

D: Better service, better cost Collaboration through implementation of a synchronised “National logistics policy”

Collaboration with Shippers possibly at industry level

Price Based Competition

End of Planning period syndrome

T1 Current Logistics Costs Rs

Figure 1: Dynamics in road transportation

Figure 2: What different stakeholders can achieve along the logistics frontier.

of the expectations that have evolved over time. Net cause and effect of this is decreasing sensitivity to the direct, indirect, hidden, and opportunity cost sequence by the concerned players/stakeholders, while in reality, the costs have

increasing significance to the economy. Breaking from this vicious loop would require building significant partnership with trading partners, within industry, and at the government policy making level (figure 2).

THE LOGISTICS IMPERATIVES As companies push along to pursue their aspirations for exponential growth, and as the markets become increasingly complex, supply chain logistics will become a critical differentiator and a source of competitive advantage. The whole question of supply chain and logistics will be more central to overall organisational competitiveness than it has been ever before. The ecosystem of suppliers, customers, service providers, stakeholders and competitors will determine choices to be made in the long term. It is understood that several key forces will influence logistics and supply chain industry in the times to come. These include globalisation, rising logistics costs, increasing risk, labour cost rise, sustainability, and growing volatility. PwC envisages that companies will have to manage some key emerging logistics imperatives to remain relevant.

THE LOGISTICS IMPERATIVE I Need for sharing risk and rewards Companies that have been historically sourcing from inside the country are now exploring opportunities for sourcing across the globe. Across sectors, major players such as Sterlite, Reliance, Bharti, etc, are increasingly tapping global markets to source critical input materials for their businesses, Thereby, increasingly getting exposed to volatility or fluctuations in the global marketplace. Impact of crude oil price fluctuations has been felt even in programmes such as the flagship rural roads programme steered by Government of India. The programme faced stiff resistance from contractor community on accord of sharing of losses due to crude price fluctuations. Crude price has direct impact on price of bitumen, one of the major materials, used in road construction. During the first half of 2008, the volatility in bitumen price was

Need For Risk Management Systems LSP companies will need to have inbound logistics entailed multimodal appropriate risk management systems and multi-vendor sourcing, leading to in place to manage uncertainty. Some inherence risk of delays, losses in options include hedging for oil price transportation and wastage due to fluctuations, organising operations high variety of input materials. in a less energy-dependent way and pricing that passes Risk sharing contract oil price fluctuations on to Fixed Price Contract customers. Risk sharing based pricing model (graph 3) can be a competitive tool in this direction. This model has been implemented by a 500 750 1000 1250 1500 leading Indian engineering Expected Cost player for its inbound logistics contract. The Graph 3: Risk sharing based pricing model.

The collaboration resulted in the engineering firm entering into a medium-term partnership with a LSP based upon a risk sharing model. • Moving from a firm fixed price contract to a cost plus fixed fee risk sharing contract for an inbound logistics service provider. • Measurement of risk and quantification of key drivers of risk to develop a value at risk model. • Development of contract as a fixed cost and risk cost component pricing. • Development of sharing model for risk cost.

OCTOBER 2010 • SMART LOGISTICS • 19

PwC Report, continued

as the share of fuel cost in the expense sheet is very high, any hike in fuel price is accompanied by blockades as well as protests. Oil price volatility is a significant risk for the sector, even though soaring oil prices (graph 4) are unlikely to be the primary driver for fundamental change, with over four-fifths of the increase in transportled demand for oil likely to come from China, India and the Middle East. PwC research reflects managing and developing structures to share oil price linked risks as an import parameter for collaboration. Oil price volatility would also clearly impact future global economic growth, or could even lead to a decline in the world GDP. The logistics service provider (LSP)

Collaborative partnership is about sharing transportation space to maximise gains.

Road Trip Expense - India

Figure: Oil Price Projections 2009 Projection 2008 Projection

150 125

10%

15%

100 15%

52%

50 History

Projections

25 2000

2005

2010

2015

2020

2025

2030

Fuel cost

Toll expense

Sources: PwC, US Energy Information Administration (EAI), Annual Energy Outlook ’08 &’09

Graph 4: Oil price projections (2008 & 2009)

very high, and a basic analysis revealed that contractors would have all their margins eroded. This led to disruption in work and thereby impacting programme’s progress (graph 5). The logistics sector is no exception with respect to feeling the impact of fuel price volatility. More so, in the Indian scenario,

THE LOGISTICS IMPERATIVE II

Maintenance

Driver expense

Other on road expense

Source: Study by IIM, Calcutta and TCI Logistics

Graph 5: Road trip expense-India

sector is cyclical in nature, so slower global growth or a global contraction would have a significant impact on the industry. Decisions to outsource manufacturing in low-cost countries and distribution patterns may need to be re-evaluated if oil prices increase substantively.

most of the optimisation still remains local. Attempting to enter Need for Supply Chain to support dynamic supply portfolio new markets with new or existing products is always fraught Large global companies face numerous challenges in today’s with challenges; players need to optimise their networks to have tumultuous economic climate. One of the biggest is creating insight into the true cost of products sold in different markets. dynamic supply chains that help a company achieve and maintain They need to measure absolute gains, i.e. gains from lower high performance despite major fluctuations in demand & supply, unit costs of products, adjusted for losses, from delays and significant changes in commodity availability and prices, big swings uncertainty, regulatory and tax issues, and huge logistics costs in in currencies, unforeseen geopolitical events and the need to emerging markets. Currently, logistics effectiveness and supply align to both mature and emerging chain optimisation are areas where high growth markets. Also, in addition companies feel the least onfident Initiatives Priority ( Last 2-3 years) to knowing the location of necessary in peer performance comparision Manufacturing Excellence 1 materials at all times, companies also (table 2). Faster product cycles, Sales & Operations Planning 2 need visibility into the inventories of new sources of supply, and everOrder to Delivery Cycle 3 other players in the value network. This more-complex global networks Sourcing & Procurement 4 allows them to monitor overstocking increase the need for companies Logistics Excellence 5 and under-stocking of component parts, to continually optimise their value Sales Excellence 6 coordinate production strategies and chain networks. New Product Development 7 set pricing strategies based on available To get continuous network Supply Chain Network Structure 8 Source: PwC estimates information about supply & demand. optimisation off the ground, Table 2: Priority list for companies While companies are globalising, companies must carefully consider

20 • SMART LOGISTICS • OCTOBER 2010

CASE IN POINT Dynamic Sourcing A globally leading apparel company that serves private-label apparel firms in Europe and North America operates what might be called a ‘smokeless’ factory. Over the years, it has evolved from a trade broker between the West and East into a multifaceted coordinator of manufacturing. Although it maintains a network of 10,000 suppliers in 40 countries, it does not own any of them. Value levers of the model: • The firm coordinates each process in the supply chain right from raw material sourcing,

factory sourcing, manufacturing control, shipping consolidation, customs clearance and local forwarding logistics. • Using its buying power and the trust it has developed with its supply base, the firm can shrink the delivery cycle for time-sensitive products considerably. • This allows customers to make purchases closer to their target completion dates, providing them with substantial savings in the form of fewer inventory • The company maintains a highly granular up-to-date view of supplier performance.

their investment in the needed people, organisational, process, and technology capabilities. Optimisation of the global network can no longer be done just every three, five or 10 years. With

Company Company

3rd Tier

2nd Tier

1st Tier

Source: Adapted from Mini Maestro Model, MIT Sloan

Figure 3: Distribution model of the company

dramatic changes continuing to impact global networks, leading companies are building the capabilities to look holistically at their operations on an ongoing basis.

THE LOGISTICS IMPERATIVE III Need for automation Continuous real-time control of flow of goods eliminates disturbances in the supply chain PwC research shows that achieving real-time control of the logistics process is a viable goal. Real-time control is also seen as having a significant positive impact on the sector, with experts giving it high marks both for impact and desirability. Technology will permit strong oversight, thereby facilitating early communication and resolution of any disruptions that may occur. Inaccurate deliveries are one common disturbance in the supply chain and can cause significant additional costs; these may be reduced through new tracking mechanisms. Other disturbances to the supply chain such as incorrect storage or expired products can also be managed more effectively, as real-time control systems allow logistics managers to take appropriate counter measures more quickly. Further, by gaining a more comprehensive understanding of how and why disturbances arise, companies may be able to fine-tune the supply chain to avoid future incidents. Strong IT systems are therefore, increasingly a core competence to ensure competitiveness. Experts are convinced that by pairing advanced information technologies with intelligent transport systems, companies can improve transport efficiency, resulting in significant savings and higher margins enabling faster processes, higher flexibility, better service levels, and better communication.

Cost of labour The debate of outsourcing is again raked up. This time it is not about loss of jobs in the developed economies but even questions the fundamental reason for outsourcing i.e. cost arbitrage. Increasingly, the so-called developing economies have been the major outsourcing destinations due to availability of low cost labour. But the supply-demand equations are taking over even in these markets. In these developing economies viz. China and India, there is significant action even in the domestic market. Scarcity of labour is already felt in these markets. In India,

OCTOBER 2010 • SMART LOGISTICS • 21

PwC Report, continued

39 Shortfall based on qualification Shortfall based on employability

7.5

1.5 Graduates/Post Graduates

Engineers

Vocationally trained

Sources: CII-BCG Report “India’s Demographic Dilemma”, 2006

Graph 6: Estimated shortfall in qualiﬁed personnel (2007 – 12) in lakhs

increased by 18-20 per cent year-on-year as against 3-5 per cent in the developed economies. Industrial labour disputes on the rise Over the last decade, there has been a decrease in the number of reported labour disputes in the country. However, the problem continues across industries, across public and private sector organisations. For instance, in the recent months, few shutdowns have been seen at Nestle’s Pantnagar plant. Auto majors such as Mahindra & Mahindra and Hyundai have also witnessed strikes of late. The same is the case with MRF. In the public sector, besides bank employees, thousands of workers and officers of oil companies, MTNL staff and Airport Authority (AAI) have been on the warpath.

significant amount of labour efforts are consumed by the 0.12 booming infrastructure sector. The demographics of India may suggest an abundant 0.09 supply of labour. India’s working age population (age group 20-50) is expected to be around ~60 per cent by 2020. 0.06 As a comparison, the figure is 42 per cent for China and 36 per cent for France. This demographic advantage should 0.03 translate into an abundant supply of working age people to fuel the drive for industrial growth. Unfortunately, a de0.00 averaged picture of the demand-supply of skilled people 2000 2001 2002 2007 2008 indicates a major mismatch. According to a study conducted Sources: Business World – Sep 2009, PwC Analysis by Boston Consulting Group in 2008 along with CII, as the Graph 7: Mandays lost index per dispute demand mix for people shifts more towards graduates and trained people (graph 6), an availability issue starts arising. Considerable change is evident on the nature and magnitude Besides, at an overall economy level, 23 per cent of the of the disputes in recent years. The number of man-days lost due incremental demand is expected to be for graduates and to labour disputes remains significantly high (graph 7), affecting vocationally trained personnel as compared to about 10 per overall productivity. cent today, leading to a shortfall of qualified talent. According According to the Central Government’s Labour Bureau, the to the study, a shortfall of about 2 lakh engineers, 4 lakh nonnumber of workers affected by strikes had almost doubled from engineering graduates/post-graduates, and 1.5 lakh vocationally 2007 to 2008. The Bureau believes that figures do not reflect the trained personnel may occur over a five-year period. This problem trend as often disputes are not being reported as workers accept is further exacerbated if the aspect of employability is considered, it quietly or the units they were working for are very small. given the wide-spread disparities in education across the country Logistics sector including the logistics function of the driven by available infrastructure, facilities and capabilities. organisations are typically labour-intensive. The increasing There is also increasing demand for skilled human resource problems of labour cost, availability and the issues of disruption from multinationals across the world. An estimated 48 million may lead to companies looking for alternatives such as automating jobs will invite skilled manpower from across the world by 2020 some of the labour functions. Automation of logistics function as per the estimates from National Skill Development Report by would require capital investment and pooling of demand for Planning Commission 2009. such function may be the most efficient way to utilise capital The surge in demand for labour in the developing economies machinery. User companies may look to a service provider to such as India and China has led to increased cost of labour. Over bear the cost of capital investments and the user companies may the last five years, the labour cost in developing economies has pay per usage.

Collaborative logistics inspires

i 22 • SMART LOGISTICS • OCTOBER 2010

ovation And

THE LOGISTICS IMPERATIVE IV Need to be agile and flexible The speed and severity of the economic downturn in the latter half of 2008 has highlighted the importance of having flexible and robust supply chains. In many industries, demand dropped precipitously. Traditional supply chain planning activities rely purely on the examination of historical patterns of demand to determine production level, raw-material purchases, transport capacity, and further important factors. Such systems are often ill-equipped to manage unanticipated drops in demand; in some cases a severe external shock might result in bankruptcy. PwC research shows that longer and more global supply chains are especially at risk. Supply chains, which are able to respond more quickly to changes in demand, or pull rather than push inventory and parts, stand a better chance of withstanding severe shocks. One way to achieve more robust and flexible supply chains may be an increased level of information sharing and collective decision making amongst autonomous supply chain partners. If supply chain partners exchange their knowledge more intensively, it may be possible to achieve superior operational performance in terms of flexibility in supply chains. Demand Volatility The demand for consumer goods, capital goods and intermediates has shown significant variability over the past several months (graph 8). The impact of the economic climate has induced more complex behaviours from buyers leading to variability and strain on the supply chain. In such a scenario, companies have to contend with significant variability in demand. Consumers’ purchasing decisions have a strong influence on manufacturing supply chains. PwC’s research anticipates that consumer behaviour is likely to change in various ways. While consumer patterns vary in different regions, they will also continue to demand more specific goods, greater control over the logistics process, and will more actively intervene in the delivery process of the goods they order. SKU Proliferation Consequently companies have to cater to consumer preferences leading to proliferation of SKUs (graph 9) and this trend is no recent phenomenon. If we look at the last two decades, the

options available with the consumers have grown manifolds, catering to specific tastes of groups of consumers. For e.g. Maruti was known for its flagship Maruti 800 model a couple of decades ago and now the range has expanded to 15 models. Fifteen years back, ITC had about 40 SKUs to manage, which has increased to more than 10 times now. Companies see increasing value in catering to specific tastes and by extension, they would be willing to cater to individual customers and their unique tastes. Going forward, realisation of consumer preferences will have a huge implication on logistics planning, design and execution. The supply chain logistics has to cater to the fluctuating requirements while ensuring customer service level and satisfaction. Elongation of Supply Chains Two key factors have led to increasing elongation of supply chains in India: Need for Wider Reach A large component of consumer demand in the country is driven by the estimated 70 per cent of rural population in India, making it imperative for players across industries to focus on ensuring reach of their supply chains to these remote rural locations. The rural consumers, living in more than 6,00,000 villages across the country, account for well over 60 per cent of the national demand for several product categories and have seen their income levels rise over the last 10 years. The number of rural households in the lower and lower middle classes decreased from 83 per cent in 1998-99 to 70 per cent in 200607 and is set to fall at a rapid rate over the next 20 years; the comparative fall for urban India has been from 53 per cent to 27 per cent. The figure (graph 10) below illustrates the differential growth rates between urban and rural consumption for specific personal care products. The higher growth rates of rural consumption indicate that companies with an extensive supply chain network will have a better opportunity to serve such growing demand segments and potentially increase market share. This would be a challenging task given the infrastructure, geography and significant channel fragmentation. Globalisation A closer look at the rate of growth of manufacturing industry and the concurrent growth in manufacturing-led exports reveals that

700.0

Consumer Goods

Capital Goods

600.0

500.0

1000%

400.0

300.0

250% 200.0 Jan’ 2008

Jul’ 2008

Jan’ 2009

Jul’ 2009

Jan’ 2010

Auto

Sources: Ministry of Statistics and PI, India

Graph 8: Volatility in Index of Industrial Production

FMCG Sources: PwC estimates

Graph 9: SKU proliferation - 1995 to 2010

OCTOBER 2010 • SMART LOGISTICS • 23

PwC Report, continued

Argentina 14.30%

Hair oil

Brazil 20.40%

Turkey Hungary

13.50%

Coconut oil

Egypt

22%

Thailand Russia

14.60%

Shampoo

Malaysia

10.30%

Poland India

12.20%

Toothpaste

China

17.40% Urban

All India - Rural

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

Source: AC Nielsen Research

Graph 11: Manufacturing GDP growth (FY 199-2009)

Graph 10: Urban and rural growth rates - personal care products

25% 21% 20%

15% 11%

35%

10%

20% 5%

0% India

Korea

China

Russia

Ukraine

Japan

Germany

China

Brazil

Spain

Source: 2009 Euromonitor International

Graph 12: Manufacturing exports growth (FY 1998 - 2008)

Rest

Source: PWC Research

Graph 13: Global sourcing locators for Indian companies in steel

year-on-year the growth is fuelled by the growth in the exports. It is apparent while manufacturing grew at CAGR 6.8 per cent over the last 10 years (graph 11); the exports grew at 11 per cent CAGR (graph 12), in sync with the globalisation trends. PwC research shows a CAGR of 9 per cent in traffic volumes across the thirteen major ports in India over 2003 to 2009, reflecting the growth in export and imports driven by

globalisation. According to a survey conducted on globalisation trends, estimation suggests that there will be an increase (per cent of business managed outside the home country) of at least 20 per cent across industries. Globalisation and the pursuant adoption of global sourcing by industries such as manufacturing, automotive, etc. (graph 13) have also had a resultant impact of elongation in the supply chains.

THE LOGISTICS IMPERATIVE V

related emissions are growing significantly. India and China lead the list in terms of the average annual growth rate of emissions, followed by the rest of Asia. While the fuel efficiency of transport vehicles is improving, gains are more than offset by increases in

Need for Green Logistics PwC sees reducing emissions as posing a greater challenge to logistics companies over the next twenty years than obtaining a sufficient supply of energy. Whether or not, they see it as a business opportunity, logistics providers will most likely need to track, document and disclose their caused CO2 emissions in the future. Pressure on the sector is not only coming from governments though. Customers are increasingly demanding that their LSP providers demonstrate environmental and social responsibility. Transportation accounts for more than 13 per cent of CO2 emissions worldwide, with road freight transport representing the largest – and growing – portion. Achieving a substantive global reduction of emissions will therefore, necessitate a significant decrease in transport emissions. In developing markets, transport-

24 • SMART LOGISTICS • OCTOBER 2010

Illustration By: Sanjay Dalvi

8) Larger means of transport

11) Monopolies in mega-cities

350

32000

300

31000

250 No of Ships

Impact on T&L

10) Autonomous systems

30000

200 29000

150

28000

100

27000

50 0 1

26000 2005

Gross Tonnage/Ship

Overseas Shipping 9) Modal shift

2006

2007

2008

2009

100

Year

Estimated Probability (%)

Source: Shipping Statistics, Ministry of Shipping

Source: Transportation and Logistics 2030, PwC

Graph 14: Impact on T&L

Graph 15: Overseas shipping statistics

vehicle numbers and utilisation. A 2009 PwC survey around green logistics undertaken at logistics companies in Germany showed that 70 per cent did not offer green logistics products. One instance of companies looking at green supply chains came from PwC interactions with CEO of a global logistics provider, speaking on how environmental issues are affecting his firm. During the conversation, he mentioned, “Customers are more conscious of environmental issues and the impact of their business on the environment and in terms of resource utilisation. We have developed an environmental calculator, which calculates the environmental benefits of our pooling model. This is a strong

selling tool. We are also growing a total pallet management model, which reduces transportation costs significantly, takes trucks off the road and reduces the carbon footprint.” Some of the other common steps taken by companies to accomplish the above are: • Deploying energy saving- and/or alternative energy-driven transportation • Reducing the distance of transport by optimising distribution models • Operating vehicles more efficiently by innovating systems (for example route planning software), rewarding drivers for more fuel-efficient driving behaviour.

THE LOGISTICS IMPERATIVE VI

planning and development of requisite infrastructure over the coming years. Currently, trucks on Indian roads take about twice the time that an average truck in the US takes to cover the same distance (graph 16) owing to infrastructure constraints and the various check posts that the trucks have to pass through leading to increased waiting times. Stoppages on the road, toll and check posts amount to more than 50 per cent of the stoppage time. The total stoppage time may vary between 10-25 per cent of the journey time. There is a high-variability in transportation performance. Inefficiencies also are abound in Indian ports and cargo handling. The average turn-around time (TAT) at ports is also comparatively high (graph 17). In India, it is at least 4-5 times higher as compared to that in Srilanka and Thailand. Recognising these challenges, the Eleventh Five-Year Plan proposed a large increase in logistics infrastructure spend from

Overcoming Infrastructure Challenges PwC research finds that globally logistics players are viewing a greater prevalence of larger means of transport as a valid lever to compensate for rising transportation costs and realising greater economies of scale (graph 14), however, in India, infrastructural inadequacies will militate against this trend, since road infrastructure and ports are already struggling with the current sizes of transport modes. Even at a conservative annual growth rate of 7.5 per cent, India’s freight traffic is likely to double from the current levels by 2020. Belying the global trends, we also found that over the last half decade, even though there has been a steady increase in fleet numbers, a trend towards lower capacity ships is in evidence in India (graph 15). The movement towards larger means of transport coupled with the inefficiencies in the current Indian transport and logistics presents a humungous challenge to

100

USA 80

China

India 20

100

0 India

Graph 16: Truck speeds in different countries

Sri Lanka

Thailand

Singapore

Hongkong

Graph 17: Port Turn-around Time (hrs)

OCTOBER 2010 • SMART LOGISTICS • 25

PwC Report, continued

Evolution of the disribution structure of companies led by ﬁscal considerations has resulted in complex & fragmented distribution structure... Growth

Initial Phase

Market in a New State

Stock all SKU’s in the warehouse

Illu

str

Estabilish Warehouse in the state

ive

Use smaller capacity transportation/part loads

Push stock to create transportation economies

Manufacturing Location Warehouse Location

Attach Sales & Supply Chain Organisation to each warehouse

Regulatory Change Benefit Proposed Tax reforms such Streamline tax structure, Growth for 3 PL as GST Rail Haulage opened to pvt. • Better time efficiency Players • Improved quality of services Leasing of Wagons Easier for pvt. Companies to expand Automation of customs and Saves time compared to manual processes tax filings Table 3: Beneﬁts of charges by Government

US$65 billion or 1.5 per cent of GDP in the Tenth Plan period to US$160 billion or 2.3 per cent of GDP. This is even more than the amount that India plans to spend on power during the same period. Despite the large increase, the planned spend is

insufficient. It would at best result in a 15-20 per cent increase in road and rail network capacity. While efficiencies may be built through improving the infrastructure and also the regulatory aspects, efficiencies may further be improved through better asset care (maintenance) and utilisation. Initiatives including standardising equipment, containers & pallets and allowing for sharing of transportation and storage space by two or more businesses will bring in efficiencies with

respect to logistics cost. Regulatory Landscape Indian logistics sector has been historically plagued with inefficiencies attributable to the byzantine tax structures and laws. The good news is that the government is moving towards removing some hurdles (table 3). This has led to encouraging private sector participation in the Indian infrastructure sector, overall investments in infrastructure went up by 21 per cent to `307,282 crore in the year 2008-09. An ideal tax structure may still be a fantasy. But the steps are in the right direction and it will be our hope that the proposed changes are implemented at the earliest.

THE UNDERLYING NEED FOR COLLABORATION The realities of the new economic compulsions have started dawning on the companies. Increasingly there is a realisation that ‘doing it alone’ is no longer viable. No matter how prudent your • risk management capabilities are, it may be difficult to absorb the shocks rendered by the globalised economic network. Companies have to be Vertical collaboration scrupulous about answering some Shipping of the questions that are arising in Integrated Infrastructure Supplier Planning this new economic paradigm. • Am I aware of all the risks that Horizontal LSP am exposed in this globalised collaboration market? Do I have counters LSP to mitigate them? Or do I Shipper 2 SShipper1 have someone who is willing Inter modal collaboration to share it with me for a LSP reasonable price? • Is it efficient, in this uncertain Aviation Customer scenario, to handle hundreds of supplier and channel relationships with a definite Table 4: Collaboration model ecosystem commitment of volumes? Or

26 • SMART LOGISTICS • OCTOBER 2010

should I be able to tap capacities as and when required at an optimal cost? Am I willing to invest in capacity, capital equipment and worry about their utilisation and locked capital during a slowdown? Or do I want to convert the non-strategic fixed asset costs to variable costs in order to be able to weather down adverse market Surface Surface Transport Transport situations? Integrate Logistics • How do I survive in this Policy ‘grow or perish’ business when I don’t have an understanding of serving other markets? Do I take LSP small incremental steps to learn Shipper 3 and expand? Will the competition Industry Collaboration allow me to take one-step at a time? Or should I leverage a partner that understands and has Railways a set-up to serve? • How do I manage the need for skilled manpower? • Do I have to be more

eco-conscious? Will it become a business imperative? I do not understand it? Is it not complex and cost ineffective? Can someone help me do it in an efficient way? The answer to all these crucial issues lies in understanding the notion of competitive collaboration and collaborative partnership. Competitive collaboration among businesses including providers, users, competitors and institutions is the way for the future, we believe co-opetition in various business processes will gain increasing acceptances as a means to cut costs and achieve competitive advantages. The scope of this collaboration extends beyond the ecosystem of user and provider to include industry to industry, institution to institution, service provider to service provider and further combinations of these entities (figure 4). Competitors may increasingly look to partner in order to provide some aspects of logistics services more effectively (e.g. warehousing and/or transport of products). Logistics service providers may also collaborate in other ways; for example, they could co-operate in order to handle the challenges of mega- and inner-city supply. For instance, if several LSPs were able to agree to run deliveries only one day per week in a congested urban area, with each provider accessing the city on a different day and performing last mile deliveries for all the cooperating competitors, they could significantly optimise network and route planning. Technology-oriented logistics service providers could position themselves as high-tech logistics providers providing the latest edge technology for interaction and manipulation. Thus, they would offer almost every possible ITC interface, so that customers are able to actively intervene at any time of the delivery process.

Strategic

Tactical

Arms Length

Model Attributes: Partnership JV, Value Based, Risk Sharing, Long term (5+ years) Service attributes: Industry domain skills, BPO, PM, and Tech Integration & Continual Improvement

Model Attributes: Shor term (1 to 5 years) Service attributes: Traditional logistics services, Modular product offerings, focused cost reduction

Model Attributes: Short-term, transactional Service attributes: Run-off-the-mill; Modular

Figure 5: Operational view of collaboration

To give an example, customers could easily track the current location of a specific good in real-time and change its destination and delivery time frame via a mobile device. Collaboration between the users and the logistics industry could be strategic, tactical and/or arms length in nature. To be meaningful and effective, collaboration must go well beyond vague expressions of partnership and aligned interest. The logistics service provider and the customer must leverage each other on a strategic and operational basis so that when working together, they perform better than they would separately (figure 5). Opportunities exist for a closer collaboration between users and providers through, investment in the relationship, deeper industry knowledge, and proper expectation setting. This, in turn, will have a direct correlation on overall customer satisfaction.

AREAS OF COLLABORATION The collaboration continuum extends across the ecosystem of players with the type of collaboration and maturity of collaborative relationship impacting the scope and impact of collaboration on the participative players. Here, we present to you the collaboration continuum and the key features of collaboration across that continuum (table 4). Vertical Collaboration Collaboration among the value chain partners is the key to success of an organisation. Relevance of logistics for competitiveness makes the LSP an important partner for present day businesses. Companies may collaborate with their LSPs and trading partners to bolster capacity to support growth as well as add capabilities to enhance customer service. This will also improve efficiencies by drawing on expertise of the partner and improve planning accuracy by bettering information visibility. Collaboration between shippers (users) and LSPs can be across a range of areas including sales and operations planning,

manufacturing planning, sourcing logistics, warehousing and distribution logistics. Table following this section illustrates some of the areas of vertical collaboration. Horizontal Collaboration Horizontal collaboration is a powerful means to improve overall efficiency of logistics in the industry. Sharing of freight trip At an operational level, this may mean effective utilisation of logistics assets. A simple case may elucidate the opportunity: In a traditional user (shipper) and LSP relationship, both the parties would be working to improve their efficiencies to improve profitability. However, the approach would reap benefits only on business processes that may be controlled independently by each party. There abounds considerable opportunity to improve on what could be termed as hidden costs. One such hidden cost is associated with asset repositioning.

OCTOBER 2010 â&#x20AC;˘ SMART LOGISTICS â&#x20AC;˘ 27

PwC Report, continued

TRANSACT

Relationship maturity

ENGAGE

WIN

FORMS OF COLLABORATION

VERTICAL Managing Information Warehousing & Flow Transportation Works to reduce Is able to invest in planning cycles thereby assets in line with improve replenishment the company goals for growth eg. Rural Supply Chain, Modern Trade etc. Generates long term Understands the forecasts and is able divers needs across to hold leadership the company product workouts for portfolio and makes capacity building and capital allocation investment accordingly eg. High Axle Trucks, Specialised Fleet Designs, Cold Chain. Reports performance Is able to manage regularly and is able the foot print in to influence corrective accordance with the action in the company long term objectives while maintaining cost Leads to S &OP Able to chalk out process for the investment plans in company across accordance with long portfolios term growth plans of the company Takes charge of Adopts modern performance in any practices like cross of the markets in dock, replenishment which the LSP has systems to improve reasonable control flow through and influence reduce storage Involved in the S&OP Participates in process in mid year Assessments and reviews shares information on a regular basis Lag data sharing Locational and Space mechanisms on S&OP decisions are taken in discussions with the company Absence of any data sharing on performance

Perceived as managing an outsourced operation in the supply chain

INSTITUTIONAL Integrated Logistics Infrastructure Policy Capacity Planning Consolidation in Capacity exchange Standardisation of Collaboration Growth projection warehouse capacities for sharing real design of pallets, between Shipping, based capacity through aggregation by time information rakes, containers, Railways and addition planning logistics orchestrator. on capacity enabling pooling Surface, Transport for ports, airports availability on of capacities and ministries for and highway routes to enable reusability with integrated planning development reverse haul industry body being for corridor partnering and the custodian of all development sharing of capacity standards Last Mile Logistics

HORIZONTAL Asset Sharing Standardisation

Sharing of warehouses and transportation fleets across competitors; effective utilisation

Collaborative development information sharing and availability for warehouses Standalone Warehouse contracts

No operating model exist, any aspects of load sharing is a by chance activity

Planning for seamless inter modal logistics networks Simplification of tax and regulatory polices to enable multi modal transport and logistics

Leading players develop their own standard which is driven by the convenience of the user

Focus on individual sectors without looking at streamlining end to end flow

Policy making is plagued with an intention to reduce capital budge outlay

The collaboration continuum – key features

While the above case points to collaboration between two players in the same industry or outside industry, there are other approaches that may require more than a few to participate from the industry or outside but at the same time promise to deliver considerable value.

Container pooling and standardisation Several trends are emerging in the logistics industry that moot collaboration among the industry partners. Container pooling is one such trend that is increasingly practiced in developed markets and is also catching up in India.

CASE IN POINT Strategic Collaboration For Enhancing Shareholder Value In Action… A leading LSP partnered with a globally leading food products company to manage their total supply chain from global sourcing units to the market delivery to end customer. Involving an elongated asset bearing cross continental supply chain with separate control towers and market delivery channels the said service provider managed and orchestrated a number of supply chain providers. The partnership resulted in a collaboration across key areas, such as:

28 • SMART LOGISTICS • OCTOBER 2010

• Stock holding days getting reduced to 11 days for snack foods • Stock turns in excess of 36 per annum • Local production merged to reduce transport costs and increasing load optimisation • Documentation management for exports managed by the LSP • Damages in the supply chain reduced to <0.01 per cent • Value Add Services such as ingredient

labelling performed on site Three main areas of value were delivered to the customer: • Increase in market freshness and increase in shelf life-warehouse shelf time reduced from 23 to 11 days • Reduction in number of service providers • Order response time and service levels increased-order to shelf dwell life reduced from 45 days to 3/11 days.

Recasting The Distribution Network A leading FMCG’s initiative is a classic case of recasting the business model around a path-breaking distribution network. It also establishes the concept of strategic partnership and collaboration between the company and its channel partners. Till the late 90s, the company prided itself on setting ambitious targets to expand distribution cover in its mission of increasing volume growth in urban and rural markets through a widespread network of distributors.However, the company was overburdened by the cost of such an extensive distribution network. As 85 per cent of its turnover came from top 30 cities, such a large distribution network was not justified.This challenge was also manifested in issues faced by its distributors. As the distributors handled smaller volumes, their return on investment was considerably low. To improve returns, the distributor

focussed on increasing their reach through direct servicing to higher number of retail outlets. However, as the product portfolio consisted of high margin & low volume products, the turnover per outlet was low, which resulted in increased cost of reach. As the distributors’ volumes were low, the replenishment from the company to distributors was less frequent, thereby increasing distributors’ inventories. This resulted in unattractive return on investment for the distributors. The other effect was the inability of distributors to extend credit to retailers, which resulted in gaps in product availability at the outlets. The company responded in a path-breaking but quiet move of rationalising its sales and distribution structure. It countered the challenges of the channel design and network strategy by slashing its distributor

Companies, especially auto makers are moving away from single-use wooden boxes to returnable and re-usable solutions. While this could help in eliminating challenge of disposing used packaging, it will create a pile-up of returnable containers and the supply chain will have to deal with those. So the real value comes from container pooling. This is an arrangement where a provider can own the containers and the user companies can share the containers by renting them. This will in turn increase the utilisation of containers and containers may also be used across applications as determined by the pooling company. As is clearly visible, scale really helps in extracting value out of this model. CHEP, a global logistics provider, is using such an arrangement worldwide. The company owns about 300 million pallets & containers and at any time about 3 million containers are on the move. However, one of the important hurdles in achieving scale in such pooling approach is the lack of standardisation. While there are standards that are emerging in developed markets such as Germany’s VDO standard for automotive industry and component suppliers such as JCI and Lear already have containers overlapping, the hurdle is more pronounced in India. Global auto companies such as Ford, General Motors, Chrysler and major tier suppliers are already taking steps that may lead to an agreed pooling protocol. However, in India, the requirements are India-specific and this may throw a challenge for standardisation across the value chain. One of the other challenges includes the need for protection of parts/units shipped. This may call for specific package dimensions. The key is to strike a balance between need for specific package requirements and advantages of standardisation. If companies in the industry can agree upon a manageable set of standard containers, then there may be a lot

network to one tenth of its size. In this model, the organisation operates through close to 30 key distributors across India. By shifting to this structure, the organisation could replenish these larger distributors more frequently and thereby reduce their inventory levels. In turn, the distributors had to invest in better IT systems and warehousing & distribution infrastructure to service the larger geographies assigned to them, which gave better information and control over sales. In order to increase sales efficiencies for distributors, direct coverage was reduced and the wholesale throughput was increased especially for mass-selling lines such as ointments & lozenges. The core principles that guided such a dramatic shift in distribution strategy were collaboration with distributors, managing distributors’ inventory & RoI and focus on secondary sales.

to gain for the ecosystem as a whole. Leveraging shared network infrastructure Sharing of network infrastructure is a concept that is quite prevalent in telecom industry. Several models exist categorised under active (receivers, transponders and other communication equipment) or passive (sheds, towers, real estate, security and other facilities) infrastructure sharing. This has provided new market entrants a rapid way to roll-out services. Several governance related initiatives have also been taken around sharing, charging of fees. This has brought substantial benefit to both the service providers and the users. A similar model may also be applicable in the logistics and distribution context, where companies leverage existing warehouse and transportation infrastructure of a competitor or other businesses in order to reach out to the market. However, multi-brand distribution centres are not common in India. Regulatory mandates that prevent establishing hub and spoke model of distribution as it calls for additional taxes at the point of consolidation. However, companies are exploring opportunities, especially in the automotive sector to come up with an arrangement for sharing distribution infrastructure. Industry bodies such as SIAM (in case of auto) may also play a crucial role in clearing any hurdles in the process for collaboration. The above model is also very pertinent to the logistics sector because of the high degree of fragmentation. Partnerships with other LSPs can provide the wherewithal to offer service for a larger user requiring access to several markets within India. An extension of this idea would be 4PL orchestration where a central organisation can aggregate demand i.e. requirements from user companies

OCTOBER 2010 • SMART LOGISTICS • 29

PwC Report, continued

CASE IN POINT Consider a scenario where two companies, Company A (Blue), Company B (green) (may be competitors or shippers from different industries), have contracted a dedicated trip from Chennai to Delhi on a weekly basis (figure 6). The route passes through 4 – 5 states including Tamil Nadu, Andhra Pradesh, Maharashtra, Madhya Pradesh, Uttar Pradesh and Delhi. If for instance, the blue company has some delivery to be made from a plant in

Tamil Nadu to a warehouse in Maharashtra and green company has a shipping to be done from Madhya Pradesh to Delhi every week, such a combined hiring of the trip from Chennai to Delhi may address part of the asset positioning cost. This, besides improving cost effectiveness for the shippers, can also positively impact the carrier through better asset utilisation and address some of the issues such as driver turnover through more regular driver schedules.

Green company delivery from Bhopal to Delhi

Bhopal

Blue company and Green Company share schedules and hire trip from Chennai to Delhi on a weekly basis

Nagpur

Blue company delivery from Bhopal to Delhi

Chennai

Figure 6: Leveraging shared network infrastructure

on one side while pooling supplies (transportation, warehousing infrastructure and other value added services) on the other. Joining hands in infrastructure investments As discussed earlier, infrastructure is one of the critical bottlenecks adversely impacting logistics. Competitors can also collaborate to create or enhance common infrastructure that can address bottleneck issues and issues of inefficiencies. For instance, significant issues are faced by auto OEMs to export finished goods. However, majority of the auto OEMs operate out of ports in Mumbai, Mundra and Chennai. Besides, absence of roll-on & roll-off (Ro-Ro) facilities in the ports and smaller parking spaces act as major constraints. There is tremendous competition among ports and private investors are also getting into building port facilities. With more than 5,00,000 small cars exported already each year, opportunity is ripe for the industry players to get together to address capacity issues. OEMs are already exploring opportunities to partner to build dedicated terminals.

Institutional Collaboration Institutional collaboration extends the continuum across the key policy and execution players in the government, who shape a vision for India’s logistics infrastructure. It is expected that collaboration will be a critical enabler for such efforts. It also stresses the paradigms for collaboration between industry and government in specific areas of logistics enablement. Institutional collaboration will reduce recurring losses to the economy and improve capital efficiency in the long run. Collaboration would mean development of synchronised logistics policy on infrastructure and regulatory front to support a balanced and planned modal mix for the projected increase in freight traffic and flow. The policy should support development of organised node and branch network for country wide logistics corridors. This would also require ensuring better co-ordination between multiple national and state-level bodies responsible for developing logistics infrastructure & facilitating easier access to and optimal allocation of scarce resources such as investments, equipment and people.

CASE IN POINT Strategic Collaboration In Action… Joint Venture for capability building for integrated logistics solutions India’s leading LSP entered into a joint venture (JV) with a leading Japanese firm to provide end-to-end logistics solutions for a leading auto maker. The auto maker’s requirement for justin-time logistics was fulfilled by the LSP by moving up the value chain through knowledge, technology and best practices acquired via the JV. The JV resulted in collaboration across key areas, resulting in: • Supply and demand chain development • Supply chain design and re-

30 • SMART LOGISTICS • OCTOBER 2010

engineering • Site and facility location planning • Distribution network planning • Customer service review • Value-added services such as material handling and cross docking. Two main areas of value delivered to the customer, automaker: • Offering full range of logistics services to the auto maker from inbound transportation from suppliers across India and abroad to outbound

transportation of vehicles and spares • Just-in-time and in sequence delivery, removal of on-site inventories. The success of the partnership is indicated from the logistics player, handling both outbound and inbound logistics for the automaker in India, unlike other country units with separate providers.

Development of multi-modal logistics parks Another area in need of significant institutional collaboration for planning and execution is the development of multi-modal logistics parks which require demarcation of land for logistics parks at key points where different modes such as rail, road, water and air overlap, near major cities, or along key traffic corridors in India. Development of such multi-modal parks equipped with the necessary infrastructure to ensure seamless movement of freight across modes, will to a great extent determine the efficiency and scalability of logistics industry in India. Enabling development of common standards This refers to acquiring access to better equipment such as larger trucks & better designed rail wagons and developing common standards to aid inter-modal transport that ensure consistency in containers, pallets and cranes. Promoting research institutions for long-term impact of industry specific modal requirements, better quality roads, enhance standards in transportation and researching of means to reduce costs. Manpower and skill development in logistics The anticipated growth in logistics industry will lead to increased demand for requisite logistics skills. For example, demand personnel will grow across areas such as warehouse managers, logistics managers, coastal seafarers and truck drivers. This in turn will require collaboration between government & industry for investment aimed at upgrading the training infrastructure and also industry & educational institutes for collaborating to develop courses, technology, engineering colleges, marine training institutes and driver training institutes to help meet growing demand.

Enabling Collaboration Developing and maintaining a supply chain relationship, requires considerable time and effort. Certain enablers that can facilitate the task: • Common interest: Both parties have a stake in the outcome of the collaboration to ensure ongoing commitment. • Openness: Collaboration partners must openly discuss their practices & processes. Sometimes, this means sharing information that is traditionally considered propriety. • Mutual help: When addressing supply chain problems or opportunities, look for cross company solutions. • Clear expectations: All parties need to understand what is expected of them and the others in the relationship. • Leadership: Without a champion, collaboration will never be accomplished. • Co-operation, not punishment: Focus on jointly solving problems, not looking for someone to blame. • Trust: This must be evident throughout both organisations – at every management level and functional area. • Benefit sharing: In a truly collaborative relationship, partners share the pain, the risks and the losses. • Technology – advanced technology is essential to enable a collaborative relationship across the supply chain. Without the other relational enablers in place, advanced technology means nothing; however, definite benefits can flow from the right technology, which: • allow a company to communicate with its suppliers at all levels; • can help break down barriers between companies; • speed up information flows; and • can turn data into useful collaborative information. It should be emphasised that technology in and of itself is not enough – a human contribution is essential.

BARRIERS TO COLLABORATE Leadership risk tolerance Empirical research has shown that the propensity to take action based on option evaluation and corresponding risk impact is a factor of the hierarchial level of the decision maker in the organisation (graph 18). A typical view of the supply chain and logistics is that of a support function and the leadership of the function does not typically reside in the firm’s leadership level. It is our contention that the risk reward equation of strategic collarboration makes it imperative that such decision be taken at senior management level, however traditionally logistics function resides with the supply chain function, which in turn lies under the operations, hence the risk taking ability required to succesfully execute collaborative relationships has always been a missing link, hence a barrier to the potential for collaboration. Growth led profitability versus efficiency led profitability Shareholders perceive growth in profitabilty through top line growth more favourably compared to cost reduction/ efficiency driver profitability (graph 19). Shareholders place a higher value on companies that improve their bottom lines through growth [value creation focus] than through efficiency and cost cutting [value delivery focus].

OCTOBER 2010 • SMART LOGISTICS • 31

PwC Report, continued

Risk Tolerance (fraction of intrinsic value)

.01%

.1%

10%

100%

Absolute Market Value Growth

.001% Board Corporate/ CEO SCM Head

20 15 10 5 0 Profitable Growth

Logistics Head

Cost Cutting

Unprofitable Growth

Shrinking

Source: “Getting the Value out of Value Based Management, a Global Survey on Best Practices” INSEAD

Graph 18: Risk tolerance (fraction of intrinsic value)

Graph 19: Shareholder value perception - share price driver

Some of the barriers that contribute to failed collaboration include… • Failure to reach an understanding on shared goals, expectations, responsibility areas and capabilities • Inadequate support from top management • Inadequate trust • Poor communication • Lack of benefit/risk sharing arrangements • Transactional methods of partnering • Failure to measure collaborative advantages • Start up factors such as initial costs, inadequate time invested by partners The resultant effect is lower prioritisation on leadership agenda of issues such as collaborative partnerships in logistics to drive efficiencies as a lever for profitability. Typically, this lack of focus also prevents concerted efforts on exploring avenues for collaboration. Control on the partnership Maintaining an equal control on the collaborative relationship

between a LSP and the industry user company becomes a challenge. PwC interactions with industry leaders brought to the fore this common area of friction both from the user and service provider’s side. The chief supply chain officer of a leading cement player expresses his concerns in this area as ‘quite frequently the tug of war for control over the governance of a collaborative relationship proves to be its undoing’. Shift of power in the value chain Some of PwC interactions also brought to fore the belief that collaboration may shift away some of the power to make decisions. A collaboration of incomplete trust and hence, low transparency between partners may become a classic case of prisoner’s dilemma where partners are not able to identify the win-win scenario. Hence, sharing of decision making may be viewed as a way of losing control and eventually losing value. Operational issues Generally, collaboration starts with contracts between involved parties. It is very essential to have a clear contract that communicates the same to all the involved parties. This ensures that the

CASE IN POINT Opportunities To Collaborate... Helping Reach New Markets An industry leading company in the FMCG sector recently launched an innovative new model for reaching the rural customers, faced with the need to directly access consumers in villages with populations of less than 10,000 without compromising on the cost benefit equation; the industry leader employed a combination of innovative distribution and technology practices, in the process giving pointers to the supply chain collaboration areas of the future. The key areas that arise from the experiment point to collaboration opportunities in the area of technology integration, last mile transportation planning and demand information systems

32 • SMART LOGISTICS • OCTOBER 2010

The company aimed to: • Develop means to extend credit based supplies to rural retailers • Capture lost sales due to lack of influence and control on the last mile wholesalers servicing rural retailers • Exercise direct control on the SKU mix in rural markets The key measures taken were: • Use of digital maps to identify last mile reach and develop micro-level distribution dashboards • Developing strategies to increase rural

Source: Forbes India, 24 Sep ’10 Issue

reach through insights from digital dashboards • Ensuring last mile distribution reach through entrepreneur based locally mobile network, carrying pre-defined SKU sets and extending credit based supplies to rural retailers.

expectations among the partners are set at the very start. For a successful collaboration, it is also essential for the parties to not work in a transactional mode. For instance, companies (user organisations) are used to negotiate price on a regular basis and depending upon their buying power force the partner to accept low price. However, this idea is

directly conflicting with the thought of collaboration, which is essentially achieving a win-win situation for the partners. It is important for the partners to view it as a repeated game. This enables ready sharing of information amongst the partners and the enhanced visibility will allow the partnership to maximise value.

COLLABORATION IS THE WAY FORWARD… Collaboration is the future, unlocking the value of collaboration across the continuum by examining challenges, identifying opportunities and building common grounds will be the management challenge of the coming decade. Logistics service providers are ideally placed to reap the benefits of the booming growth of consumer spending and

the Indian economy the need of the hour is to introspect and visualise what can be and must be done better. Companies that employ an open-minded approach to collaborate with their competitors, with clients and with the government to move to the next orbit of service delivery will emerge eventual winners in the long-term.

KNOWLEDGE PARTNER

PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. At PwC, we push ourselves - and our clients - to think harder, to understand the consequences of every action and to consider new perspectives. Our goal is to deliver a distinctive experience to our clients and people around the world. In India, PwC (www.pwc.com/India) offers a comprehensive portfolio of advisory and tax & regulatory services; each, in turn, presents a basket of finely defined deliverables. Complementing our depth of industry expertise and breadth of skills is our sound knowledge of the local business environment in India. We are committed to working with our clients in India and beyond to deliver the solutions that help them take on the challenges of the ever-changing business environment. PwC has offices in Ahmedabad, Bangalore, Bhubaneshwar, Chennai, Delhi NCR, Hyderabad, Kolkata, Mumbai and Pune. “PwC” is the brand under which member firms of PricewaterhouseCoopers International (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way. CONTACTS

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MUMBAI S.V. Sukumar, Executive Director E-mail: sukumar.sv@in.pwc.com

•

CHENNAI Suneel Aiyar, Associate Director E-mail: suneel.aiyar@in.pwc.com

Akash Srivastava, Managing Consultant

Aditya Saxena, Senior Consultant

Nikhil Pingle, Prinicipal Consultant Phone: +91-22- 6669 1500

Manikandan Balsubramaniam, Principal Consultant Phone: +91-44-4228 5000

GURGAON K. Jayaraman, Executive Director E-mail:k.jayaraman@in.pwc.com

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BANGALORE Suneetha Nagaraj, Principal Consultant Phone +91-80-4079 6000

DISCLAIMER The information contained in this document is for general guidance on matters of interest only. The application and impact of laws can vary widely based on the speciﬁc facts involved. Given the changing nature of laws, rules and regulations there may be delays or omissions in information contained in this document. Accordingly, it should not be used as a substitute for consultation with professional and competent advisors. While we have made every attempt to ensure that the information contained in this document has been obtained from reliable sources, PricewaterhouseCoopers (PwC) is not responsible for errors or omissions, or for the results obtained from the use of this information. All information provided in this document is with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability, and ﬁtness for a particular purpose. In no event will PwC be liable for any decision made or action taken in reliance on the information in this document for any consequential, special or similar damages, even if advised of the possibility of such damages.

OCTOBER 2010 • SMART LOGISTICS • 33

SUPPLY CHAIN COLLABORATION & PARTNERSHIP

SMART STRATEGIES

A C MPETITIVE T

L For EFFICIENT Functioning

In today’s competitive scenario, a successful supply chain entails better understanding of the operations and coordination between partners, suppliers and customers. With India moving ahead at a rapid pace, all avenues of cost, especially supply chain cost need to be looked at. Thus, innovations in collaboration and partnering, constant technology upgradation as well as cost reduction would go a long way in enabling a seamless supply chain network in the country. TODAY, competition has become intense, and hence attracting, retaining and growing with customers is a challenge. If this is the challenge of the forward linkages or downstream supply chain, then that on the backward linkages or upstream is being near real-time with suppliers. These challenges need to be efficiently met to optimise the overall gains in supply chain and ensure that all players in the supply network are convinced of competitive equity in business. Competition is increasingly changing from simply soliciting the customer to ensuring value enhancement and making him feel the difference in value and pay accordingly. Here, supply chain efficiencies and responsiveness make significant difference to organisational success. N Kumar, Vice Chairman, Sanmar

34 • SMART LOGISTICS • OCTOBER 2010

Group, mentioned in one of his interviews, “With India coming of age, and becoming more and more competitive globally, it is important to look at all avenues of cost. One of these costs is the supply chain cost. Considering the overall issue of the raw material supply to the customer, reduction in cost and improvement in the supply chain is readily available with the manufacturer or with the service provider. Therefore, in this competitive scenario, each end, be it within the factory or handling outside the factory, is crucial. According to me, the cost of supply chain is the key issue.” As it can be noted, supply chain issues relating to collaboration and partnership go beyond the company to encompass its suppliers, channel partners and customers. This brings linkages of three major processes of

supply chain, namely, supplier relationship management, internal supply chain and customer relationship management. Supplier collaboration is an often practised subject over decades, including in India. For example, the success of the then Maruti Udyog and now Suzuki Motors India is the result of successful transfer of technology, development of vendors in the Delhi & National Capital Region as well as around the cluster and effective production planning. Another reason for its success is appropriate synchronisation with supplies from vendors. Similar initiatives for vendor development including technology development are being taken around Bharat Heavy Electricals Limited (BHEL). Not only public sector companies but several private sector companies have

Supply chain collaboration & partnership, continued

also successfully adopted these initiatives. Today, we see ITC successfully adopting efficient procurement process and price discovery through an e-choupal initiative. The primary objective of the project was to bring efficiency to ITC’s procurement process. Another important development was that it led to empowerment of rural farmers where e-choupals have been established. The e-choupal initiative directly links rural farmers with the company for procurement of agriculture and aquaculture products such as soybeans, coffee and prawns. Traditionally, these commodities were procured by companies like ITC from agricultural markets in small towns, which formed a hub. A long chain of intermediaries was involved in buying the produce from farmers and moving it to the markets. This is similar to the white revolution led by AMUL and the National Dairy Development Board (NDDB), wherein farmers supplying milk are integrated to operations plan of dairies in the cooperative sector. There were numerous collaborative initiatives for developing and synchronising operation plans to reach a leadership position. Supplier collaboration not only involves technology transfer, capital and product development but also addresses softer issues and behavioural aspects like recognising the vendors and also giving them a forum to put forth their views. Vendor meeting became one such initiative, which developed partnering attitude with the suppliers. Companies like Ranbaxy are known for conducting vendor meetings on a routine basis. In one of his interviews, S Rathinam, Director - Finance, BGR Energy, mentioned, “In some of the divisions, we have structured vendor meets. Once a year, we convene the meeting outside the office, and request them to come in large numbers. Moreover, the vendors attend these meets and express their views and opinions. We also share with them our long-term expansion plans and our business plans for the next three years so that they gear up for working on them. We also select some of the best performing vendors and award them once in a year.” On forward linkages or downward supply chain in the distribution channel, today the challenge lies in linking up processes and creating visibility in the market. For example, earlier, if the products moved from mother warehouse, one would get discrete data from C&F

36 • SMART LOGISTICS • OCTOBER 2010

agents. Today, we have the technology to track beyond. Further, order management processes are well linked to achieve efficiency. This is not only done by Fast Moving Consumer Goods (FMCG) companies but also by supply chain functions like small parcel handling, financial services and so on. The topics discussed earlier are mainly related to processes and business function in the supply chain. The other key area that helps in collaboration and partnering in supply chain is technology deployment.

TECHNOLOGY FOR COLLABORATION Supply chain collaboration solutions provide application software designed to plan replenishment, manage orders and provide visibility to lower fulfilment costs and improve on-time delivery performance. This helps meet supply chain objectives of optimising supply chain costs and enhance customer satisfaction. Collaboration solutions can be oriented to supply side or demand side of the enterprise. Supply side-oriented collaboration solutions would allow enterprises to plan collaboration around forecast and capacity coordination, short-term order execution as well as shipment and inventory tracking. Some solutions also enable lean supply processes such as vendor-managed inventory (VMI), pullbased (Kanban) replenishment and other just-in-time (JIT) programmes. Today, the demand for integrating vendors, focal organisation and service providers is critical. For example, when a milk-run route is established for supporting an auto OE, there could be a route call for six times a day, as service to line could be planned accordingly. For some reasons, the short-time window route needs to

NNOVATIVE SUPPLY CHAIN COLLABORATION SOLUTIONS ENABLE A NETWORK OF PRIVATE EXCHANGES, WHICH CAN BE DEFINED AS A HYBRID OF PUBLIC AND PRIVATE MARKETPLACE MODELS BASED ON THE ENTERPRISE SUPPLY CHAIN STRATEGY.

be adjusted to the production schedule by altering route calls increasing at some points or dropping a few and still maintain service. Such adjustments call for involving not only the vendors through production department of OE but also the transport service provider or else he could make calls as per schedule. A collaborative tool that supports operations even at that granular level is important. A wellstructured supplier collaboration solution would give enterprises a long- and shortterm collaboration on forecasts, schedules, inventory & orders and enforce process discipline through business rules. Demand side-oriented collaboration solutions would link every phase of order management, from capture to invoice and settlement, and with close integration to demand management and order planning loops, creating a single face to the customer across disparate processes, nodal points and enterprise systems. Collaboration would involve short-term adjustments of credit limits of channel partners or linking sale points to serve a customer. For example, if an automobile buyer visits a showroom and wants to book a specific model and if it is not available on demand, a typical approach is to put the demand through ERP interface and through a discrete step inform customer after receiving confirmation from the OE. However, a customer would be more satisfied if the dealer can have a two-way communication, where he could check the availability of stock with nearby dealers or on the production run or at least instantaneously give a tentative schedule. Further, a well-structured customer collaboration solution would give enterprise an ability to capture order with the help of electronic data interchange (EDI), mobile, web, call centre, planning and other sources. It would also help configure build-to-order (BTO) and engineer-to-order (ETO) processes, enable real-time order promising, enable integrated pricing and manage returns. Enhancing customer collaboration and collaborative replenishment solutions would enable companies manage various aspects of their replenishment programmes, eg, collaborative forecast adjustments, customer demand changes and performance management. Generally, replenishment solutions enable forecast analysis, promotion collaboration, demand change liability/flexibility management,

replenishment and monitoring. A generic characteristic of the collaboration solution is to allow the user to better understand the operations and coordinate the business activity with partners, suppliers and customers. Because of multiple stakeholders in an enterprise supply chain, a supply chain collaboration solution would empower trading partners in improving their inventory positions at stores and distribution centres. In brief, a supply chain collaboration solution should support full-scale Collaborative Planning, Forecasting and Replenishment (CPFR) programmes. Innovative supply chain collaboration solutions enable a network of private exchanges, which can be defined as a hybrid of public and private marketplace models based on the enterprise supply chain strategy. Typically, such solutions connect trading partners to private markets and provide content and community to the trading partners participating in the site. For example, metal junction and coal junction in India are initiatives where buyers and sellers along with other supply chain partners deal online for transactions in steel and coal, respectively.

Collaborative solutions become meaningful when the focal organisation operates on its own as well as with contract manufacturers. This is noted in the case of consumer products group, FMCG and electronics industry and so on. On the forward linkages, one can see the utility of handheld in capturing order, coordinating with distribution centres and interface with finance to adjust credit limits. Motorola has equipment that are used for tracking a variety of assets on the distribution network. Productivity and asset utilisation can be improved by avoiding error-prone manual capture. Men on field can do more productive work as synchronisation with operations plan improves efficiency. Besides Motorola, other players like Intermac and a host of companies from China and Taiwan are commercialising such technologies for collaboration.

PEOPLE FUNCTION FOR COLLABORATION Collaboration and partnering involve people. Processes and technology interface with people. Two things need to be cleared: first, trust among partners

and, second, importance of appropriate contract clauses. Trust among partners and mutual respect for optimising profits are essential. This often happens in case of a strategic orientation. The trust is reinforced with clear understanding of roles and responsibilities by different players spelt clearly with clear remuneration, rewards and penalties.

MOVES FOR THE FUTURE Supply chain collaboration and partnering is set to take the enterprises a long way ahead. It would not only be with suppliers but also with channel partners. Proliferation of technology and step reduction in technology costs would encourage more innovations in collaboration and partnering wherein technology is deployed with process changes and right approach of people. IT companies, pure-play supply chain integrators and focal organisations are constantly innovating for nextgeneration moves. Dr N Chandrasekaran, VP- Corporate Affairs, Take Solutions. Views mentioned here are personal and not necessarily of the company with which he is associated.

OCTOBER 2010 â&#x20AC;˘ SMART LOGISTICS â&#x20AC;˘ 37

SMART STRATEGIES

COLLABORATIVE PARTNERSHIP

HARNESSING M TUAL BENEFITS Although the Indian logistics industry is witnessing continuous improvements in its supply chain, companies are striving towards reducing overall costs while providing better customer services. Thus, it is now time to go beyond the conventional supply chain routes, and adopt smart logistics by leveraging on the strengths of others, be it competitors or customers.

SUDHIR MUDDANA

COMPETITIVE collaboration and collaborative partnership go beyond general partnership. Here, two or more companies pool resources together to achieve the objectives that neither was able to meet individually. Companies share information, knowledge, risk and profits. Sharing requires an understanding of how other companies operate and make decisions. By collaborating, companies can not only provide optimal customer satisfaction but also leverage the services of their partners, thereby reducing overall individual costs. The logistics companies can efficiently harness a number of benefits from collaborative partnerships, as elaborated further.

ENHANCED QUALITY Quality in supply chain refers to the value of supply chain in terms of strategies and competitiveness. Logistics companies need to have an efficient strategy in place to enhance the customer’s experience. To ensure this, it is essential that the companies have a good decision-making capability. As collaboration involves a combination of the resource and personnel of more than one company, logistics companies can explore the decisionmaking skills of their

38 • SMART LOGISTICS • OCTOBER 2010

partners, evaluate them and adopt them to their advantage while delivering products at the right time and in the right condition.

IMPROVED TRANSPORTATION NETWORK In order to reach the huge customer base in the country, it is important for a logistics company to have a strong transportation network. This is essential because it would involve goods available to customers not only in urban areas but also in distant urban areas as well. However, often, the value of products to be delivered to the customer may not cover the costs incurred by the company on account of transportation. In such a case, by collaborating with another company, it can leverage the transportation services in order to save the exceeding costs. This can be explained with an example; consider that the cost of transporting 100 products from Mumbai to Pune is `40,000. For delivering these products, the logistics company needs to utilise its truck that has the capacity to carry 200 products. As the truck has space for 100 more products that may go unutilised, the company incurs a loss. In such a scenario, the company can collaborate with another logistics company that is sending its products to Pune. Thus,

logistics companies can reduce their transport cost, while leveraging the facilities of their competitors.

AVAILABILITY OF WAREHOUSES Similar to the sharing of transportation services, there is a huge cost incurred in using and maintaining warehouses across the country owing to the ever-increasing prices of real estate. Having products stored at most locations is the dream of every company, as it decreases the chances of stockouts for the area and also saves on transportation costs. For instance, a company has warehouses at Delhi and Mumbai, and wants to store some of its stock at Chennai as well, renting a warehouse is an expensive affair. Thus, the company can collaborate with another logistics company having a warehouse in Chennai, for space to stock the required products. This, in turn, helps to reduce overall costs of companies.

REDUCED INVENTORY It is often noted that a company may have limited reach within the country. Moreover, the reach of one company activity may be different from those of another company. Also, for most companies, it is difficult to estimate the products and quantities demanded by their customers across different markets. Even if a company makes correct estimations, it still needs inventory buffers to cope with the dynamic demand variability. This reduces the capital efficiency of the company. In such a case, by collaborating, the companies can extend their reach and provide faster services to a wider set of people. Collaboration comes at virtually no cost, while reducing much of the variability from the forecasting calculation. Also, because transportation network and the warehouses of other logistics companies are used, the customer need not maintain a large inventory at the store. He can rather make more frequent orders for the products and have them delivered within a short time. On the

Simple operational coordination between suppliers and customers can help in dramatically reducing the costs. Systems, processes and organisations can be linked together more effectively to increase the throughput and flexibility of both supplier and customer organisations, and thus help sustain the business. other hand, stockouts can also be avoided; hence, when the customer needs more stock, he can order for it and be assured of a quick delivery.

ENHANCED PUBLIC IMAGE For any manufacturer, be it in the retail or automotive, the most important aspect is its customer loyalty. For any manufacturer, the customer is the king, and he should be satisfied with the services he is paying for. Therefore, it is important that when a customer needs a product, he must receive it in the shortest possible time. With products being delivered at the right time in the right condition, the trust of customers in the product strengthens because they know that the product will reach them on time in the safest possible manner. If the customer is satisfied with the manufacturers’ capability, it reflects on the strong supply chain involved in the customer’s experience. The enhanced public image improves the image of the collaborated companies as well as the individual company under collaboration.

collaboration, companies are exposed to the technologies used by their partners or competitors. Therefore, the companies within collaboration can leverage the technological skills of one another to enhance their own technologies and reduce their lead times while maintaining the quality of the network.

REDUCED COSTS The most crucial factor for any logistics company is to reduce the overall costs incurred in the supply chain activities. This includes costs for transportation, warehousing, technology, etc, that can be reduced by lowering transaction cost, reducing travel, eliminating the number of cycles, waste reduction, etc. With collaboration, logistics companies share the overall costs, which would otherwise be incurred by a single company.

GAINING THE COMPETITIVE ADVANTAGE Like in any other industry, there is huge competition in the logistics industry as well. Each logistics company is striving to develop the best supply chain network, to acquire more number of tie-ups with industries and become the number one company. However, it is clear that maintaining a large transportation network, warehousing availability and skilled workers is a difficult task, as it involves enormous investments, thereby increasing the total costs of the supply chain network. Therefore, by collaborating, companies have the advantage over other logistics companies with regard to supply chain network capabilities.

LATEST TECHNOLOGIES

A KEY TO SUCCESS

Supply chain management is completely dependent on technology, which connects each link of the supply chain. It is difficult to manage a supply chain network without the adoption of latest technology. In such a case, it is important to be upto-date with the latest technologies used at every stage of the supply chain. With

These benefits ultimately help in the growth of individual companies. Once companies understand the advantages of collaboration, they will be ready to make the necessary commitment to initiate collaboration with their customers or competitors so as to harness greater benefits.

is all about achieving e v i t ti e n p o i m t o a C greater co-ordination or b a l col and integration OCTOBER 2010 • SMART LOGISTICS • 39

SMART STRATEGIES

SUPPLIER COLLABORATION

MOVING AHEAD in a SYMBIOTIC WAY Although outsourcing manufacturing activities and other services to low-cost regions saves production costs, it has not given stupendous results. Outsourcing and off-shoring have further subdivided the supply chain, making brand owners dependent on remote suppliers for business results. Suppliers are an important link in outsourcing, which most enterprises tend to ignore. Thus, companies need to develop a symbiotic relationship with key suppliers, so as to ensure significant benefits for both partners. IN the last 30 years, outsourcing has shifted from a novelty to a generally accepted business practice for manufacturers in the Western world. Many enterprises now outsource most of their manufacturing functions to lower-cost regions, especially in the areas such as electronics and high-tech. Outsourcing is said to save money on production, though it has not yielded excellent results. Today, outsourcing and off-shoring have increased the number of tiers in the supply chain. These reduce the visibility of brand owners who have to depend on remote suppliers for business results. Thus, it is important to involve key suppliers in the decision-making process, to resolve supply chain issues.

OUTSOURCING IS HERE TO STAY A recent study by Duke University

40 â&#x20AC;˘ SMART LOGISTICS â&#x20AC;˘ OCTOBER 2010

reports that companies continue to send work off-shore. Although there has been some political pressure to reverse this trend, the recent economic turmoil has increased the financial pressures on the manufacturers to outsource services. Between 2005 and 2008, the number of companies in the US with an off-shoring or outsourcing strategy was reported to have more than doubled, with a few planning to relocate these activities back to the US. In fact, 60 per cent of the companies currently off-shoring agree to have aggressive plans in place for expanding these activities. Footwear and apparel were the early adopters of outsourcing and off-shoring, but now, electronics & high-tech have taken this to a new level. For instance, global suppliers, such as Cisco, report

that 95 per cent of its production is outsourced, giving it a massive global supply chain. Some companies have completely outsourced their manufacturing services, while others have retained core products in-house and outsourced the non-core ones. In either case, the competencies required to manage a supplier should be similar to those needed to manage inhouse production. Sharing of production information between departments and work centres is crucial, as the output of one serves as an input for the next. For instance, product changes and coordination of engineering releases; schedule and inventory information constantly needs to be reviewed, planned and coordinated; and demand changes that will impact the downstream supply chain.

Much of the outsourced jobs flow to low-cost regions such as China, India and Eastern Europe. Manufacturers are keen to benefit from the dramatically lower labour costs in these regions, however distantly located they may be.

BUT BETTER RESULTS ARE ELUSIVE However, this phenomenon raises certain questions. Has off-shore outsourcing paid off for manufacturers? Is the transition from ‘make’ to ‘buy’ as smooth as it needs to be for flawless execution and solid return on investment (ROI)? While labour and material costs are reduced by 26 and 18 per cent, respectively, the management and overhead costs are being trimmed only slightly, which reduces the overall savings. There remains a gap between aggressive plans to ‘go global’ and realisation of the anticipated returns. Many companies claim loss of potential benefits due to lack of efficient processes and supply chain coordination. Also, managing supply chains that extend to third-party manufacturing partners worldwide needs more flexibility.

INCREASED DATA EXCHANGE IS REQUIRED “Simply off-shoring more functions is not the solution. For achieving tangible savings, companies need to get the process right,” says Arie Lewin, Professor - Strategy and International Business, Duke University, and Director - Center for International Business Education and Research. Traditionally, manufacturers have a double standard with regard to communicating and collaborating with suppliers versus internal operations. This probably happens because the supply chain organisation often looks upon internal operations as a customer. Although this is true, the internal operations also function as a supplier of materials and information, and they require same inputs that any supplier needs for flawless execution of operations. Even within mature supply chain organisations, the relationship with the supplier is distant, and information is provided only on a ‘need-to-know’ basis. While such a relationship may have been sufficient in the past, today’s competitive pressures and the economy demand more flexibility from a company’s supply chain. Also, there are a number of barriers to globalisation, including several that are of particular importance to supplier collaboration, eg, lack of supply chain

flexibility, lack of internal competencies to manage external partners and inability of partners to meet flexibility requirements. It could be argued that most of the barriers are influenced by the quality of the collaboration process with regard to communicating changes in demand, supply, process requirements, quality requirements, cost targets, etc. The way these factors are managed will determine the level of flexibility or agility of the extended supply chain of a company. Certainly, there has been good progress in initial collaborative tools of the tactical nature, with most supply chain managers now capable of quickly sending and receiving electronic documents such as MRP forecasts, purchase orders (POs), expedite notices and ship signals. From the tactical perspective, the state of supplier collaboration is in good order. Trading partners are able to exchange official documents, such as spreadsheets and reports, since the start of the outsourcing boom. For years, Electronic Data Interchange (EDI) systems have sent transaction notices across the supply chain, provided the partners have the required technology infrastructure. Then why are there still issues? Can solid decisions not be made quickly by sifting through a pile of transaction notices? Can tradeoffs not be balanced, issues resolved, and business results delivered by wading through massive spreadsheets? Are these tactical tools not enough?

NEED FOR A MORE COLLABORATIVE RELATIONSHIP The concept of a ‘maturity model’ has been applied in many ways to supply chain management. A PRTM Supply Chain Maturity Model has been developed for this purpose. This model has four phases of maturity with respect to the way companies manage their supply chains, particularly the level of collaboration with supply chain partners. At each level, more meaningful sharing occurs between supply chain partners. The level of efficiency in communicating any changes in demand, supply, process requirements, quality requirements, cost targets, etc, determine the flexibility of the supply chain and, possibly, the profitability of an enterprise. Faster and better decisions can be made by sharing more high-level information and working more collaboratively with key remote suppliers. Also, with a complete view of the facts, the issues can

be resolved faster. Colleen Crum, Oliver Wight Americas, explains the difficulties in achieving flexibility while maintaining control. She states, “Supply chains, fully integrated within one company and multi-enterprise networks, need to return to the fundamentals (well-designed processes that utilise best practices and are operated by knowledgeable people). They also need to leverage the advances of IT in communicating information across a supply chain to facilitate better decisionmaking and collaboration.” She further elaborates on the factors responsible for inefficiency in a supply chain, “Inefficiencies, poor customer service and other wastes in a supply chain are inevitably the result of (1) poor decisions made by people and (2) poorly designed processes that lack integration.” Many manufacturers are still guarded when communicating with remote suppliers and provide them with minimal information on a strict ‘need-to-know’ basis. They use a technology that is difficult to implement and modify, and does not provide a mechanism for collaborative decision making. Thus, today’s supply chain environment calls for bringing key suppliers into the decision-making process, enabling brand owners to resolve supply chain issues at an early stage.

SUPPLIER SEGMENTATION IS KEY Various commodity components can be bought from suppliers, which does not require high-level processes and technology sophistication. The company should focus on a few key suppliers that represent the majority of the spend on components, and supply components to products representing a major part of a company’s revenue; and long lead-time components having potential for excess or obsolete inventory.

SUPPLIER COLLABORATION IS VITAL For an effective supply chain, collaboration with suppliers needs to go far beyond simply the tactical exchange of data. There is a need for sharing business strategies, mutually investigating risks and threats, jointly looking at opportunities, developing and linking plans & targets, as well as treating the key supplier as an extension of the business. This is the most effective way to extract better results from today’s complex, outsourced supply chains. Courtesy: Kinaxis Corp.

OCTOBER 2010 • SMART LOGISTICS • 41

SINGLE LARGEST CONVERGENCE BREAKTHROUGH INNOVATIONS O 360 PERSPECTIVE

Envisioning The Future Of Manufacturing

INTERACTIVE DEMONSTRATIONS NS NSTR ST S T

BREAKTHROUGH INNOVATIONS Inspiring Seamless Material Handling

For the ﬁrst time in India, there an event that promises to deliver future solutions for the complete manufacturing & engineering industry. HiTech Manufacturing Show is a ﬁrst of its kind event bringing the entire industry under one roof. With HiTech Manufacturing as a backdrop for the entire value chain, the show also has HiTech Material Handling and HiTech Automation as concurrent shows to complement the growth process and future of the industry.

Factories of Tech Future | Future Designs | Business Strategies

CUTTING EDGE TECHNOLOGY Innovations and Solutions for an Automated Future

17-19 Feb, 2011 | NSE Ground, Goregaon, Mumbai Contact: Prachi +91 9820373804 or hitech@infomedia18.in or SMS hitech to 51818

First in Business Worldwide

SINGLE LARGEST CONVERGENCE BREAKTHROUGH INNOVATIONS O 360 PERSPECTIVE

Envisioning The Future Of Manufacturing

INTERACTIVE DEMONSTRATIONS NS NSTR ST S T

BREAKTHROUGH INNOVATIONS Inspiring Seamless Material Handling

Factories of Tech Future | Future Designs | Business Strategies

CUTTING EDGE TECHNOLOGY Innovations and Solutions for an Automated Future

17-19 Feb, 2011 | NSE Ground, Goregaon, Mumbai Contact: Prachi +91 9820373804 or hitech@infomedia18.in or SMS hitech to 51818

First in Business Worldwide

EVENT PREVIEW

SL LEADERSHIP SERIES 2010

COLLABORATE TO EXCEL Gone are the days when manufacturers, retailers and logistics service providers used to work in silos. The new competitive era demands increased interaction between all the ends of the spectrum. In short, new age supply chain demands transparency, visibility and agility throughout the value chain. This requires a transformational change in the way industry perceives its customers & competitors. Breaking the shackles of traditional supply chain boundaries and providing a unique dimension to the supply chain of tomorrow is SMART LOGISTICS Leadership Series 2010. Under the theme of competitive collaboration and collaborative partnership, this maiden event will mould the future of Indian logistics industry. Be ready to accept the leadership challenge on October 22, 2010 in Mumbai. MODERN day retailers and manufacturers are faced with the growing complexity of converging forces of globalisation, growing customers’ demands as well as their varied preferences. To top it all, spiralling transportation costs and the risk of going lean are pushing businesses to explore new ways to reinvent their smart chains and build additional flexibility into their networks. Dazed by such burgeoning adversities, how are supply chain executives dealing with these challenges and how do they see the supply chain of the future? The answer lies in harnessing a strong relationship with your customers as well as competitors. Sounds strange…this is a new age mantra to excel in the global marketplace. If leveraged properly, competitive collaboration has the potential to bring a paradigm shift in the way the logistics industry perceives its competitors. Having established such strong relationships, companies globally have been successful in creating a seamless supply chain network. Demonstrating an inspirational benchmark for other companies, SMART LOGISTICS brings to you first-of-its-kind initiative in India,

44 • SMART LOGISTICS • OCTOBER 2010

which is all set to revolutionise the future of Indian logistics industry by way of competitive collaboration and collaboration partnership. Though in their nascent stages, competitive collaboration and collaborative partnership hold immense potential in solving the ideal supply chain maze. In a nutshell, collaboration is all about opportunities for greater coordination and integration between logistics service providers & service users. Steered by the veterans of both the worlds, the summit will chart out the future course of action for the logistics and supply chain industry of today and tomorrow.

THE INCEPTION POINT Successful supply chains are based on mutually beneficial relationships between suppliers and customers. Thus, it becomes important to extend the scope of sustainable value creation by sharing intelligence and know-how about environment & emerging regulatory issues, apart from emerging technologies, so that suppliers and customers can collaboratively strengthen each other’s performance. This ultimately helps in distributing cost of ownership, enhancing

product differentiation, and ensuring customer loyalty. Collaboration and transparency then creates a ‘reciprocal value creation’ in the supply chain, where both suppliers and customers are better equipped and enabled to recognise and quantify each other’s value contributions to a successful, smart, lean & green supply chain. Based on such strong fundamentals, the event would unfold into three sessions.

UNVEILING THE EVENT Always worried about your RoI? Investing your time to be part of this one day summit as an evolved speaker and an involved participant is a sure way to get enriched. The high energy environment and solution oriented approach will unfold by way of 3 main sessions, one panel discussion, brainstorming session and several path-breaking case studies aptly placed to bring home the point and make the participation interactive and solutionoriented. Explore the potential of competitive collaboration Get the complete lowdown on how

to assess potential opportunities and partnerships for Competitive Collaboration in this domain. As one of the most crucial aspects of Competitive Collaboration, you’ll want the most in-depth exploration possible. Gain the maximum benefit from practical examples of how a Competitive Collaboration forerunner approached the issue, theoretical advice from industry experts with top-value strategies and the opportunity to apply these lessons to your business through benchmarking with industry peers. Initiate & develop trust in relationships Discover proven methods of measuring, establishing and cementing trust within Competitive Collaboration during initiation to ensure maximum profitability. Companies benefiting from Competitive Collaboration are of the opinion that trust and clearly defined processes for information sharing are a must during the initiation stage. Discover the best ways to ensure a successful collaboration from the start. Brainstorming session This is an interactive session, which will

ensure maximum involvement of the audience. In this session, the attendees will be involved in problem-solving discussion. Small groups will be formed, which will be given the task of presenting solutions to particular cases. The aim behind this is to put forth unforeseen scenario in front of supply chain professionals and seek innovative approaches to sort those critical issues. Overcoming common obstacles This session would unfold the common obstacles faced by both the user community as well as service providers. Through this session, service providers & users aim to conquer the common demons. Together they would discuss and deliberate upon the issues which are hampering their smooth functioning and would chart out the growth plan. Interactive panel debate This will be a lively and high voltage debate about overcoming common hurdles faced by both the user community as well as service providers. This will also provide an opportunity to ask the experts more

specific questions about the obstacles pertaining to one’s business.

LOOK AT THINGS DIFFERENTLY Maximise your time by exploring the topics and issues most critical to your business and harness greater benefits emerging out of competitive collaboration. Utilise the experience of your peers and hear what steps they have taken towards researching the viability of competitive collaboration in the supply chain; what has worked and what hasn’t. Through this initiative, we aim to present plethora of opportunities, which have remained unexplored till date. As we strive for the sky, this initiative, we admit, is just a speck towards that spectacle. This one-day summit will formulate a consortium wherein an eclectic mix of user as well as service providers’ community will meet regularly to discuss and deliberate on the issues faced by the industry and would strategise the best possible alternative to resolve the issue. Here’s your chance to be a part of this game changing revolution. Be a part of this unique initiative, be the change you always wanted to be!

‘Collaborating Companies Should

Maintain Strong Business Ethics’ “Competitive partnership can play a very big role in establishing a seamless supply chain,” informs Sushil Sawant, AVP – India Operations, Godrej Tyson during an interaction with Purna Parmar. Excerpts… adopted in the industry but has not got an impetus.

A PERSPECTIVE INTO COLLABORATIVE PARTNERSHIP Collaboration between competitive companies is not a new phenomenon, it has been happening since a long time. Although the scale of this defers at each level, depending on the need. In cold chain industry, this has been a very lucrative approach where a company may be providing logistics and supply chain management process for two indirectly competitive companies. By & large, the concept has been widely

TANGIBLE BENEFITS Competitive partnership can play a very big role in establishing a seamless supply chain. It helps in reducing the overall cost of the end-product. Moreover, availability of a variety of products at a same location at the same time becomes easy and this further results in higher consumer satisfaction.

FACTORS THAT AID IN COLLABORATION First & foremost, companies should maintain strong business ethics. Both

the companies must have a transparent relationship, especially when they are launching new products or introducing new schemes. Secondly, security of data or information is very important. In collaboration, most companies have access to vital data and protection of this data against misuse is very crucial. Thirdly, leveraging on the growth of the company also holds immense importance. In collaboration, each of the companies gain from the growth of the participating company and this also applies to failures. Hence, keeping a close watch on the progress of the collaborative company is vital.

OCTOBER 2010 • SMART LOGISTICS • 45

EVENT PREVIEW

SPEAKERS’ CORNER

COLLABORATION When manufacturers, retailers and logistics service providers team up, it’s a win-win situation for all. is the keystone that can be embraced to achieve a competitive edge in the global logistics industry. nutshell, competitive collaboration and collaborative partnership are all about opportunities for

As India is poised to become the global manufacturing hub, it needs efficient supply chains to cater to the ever-growing demands of the customers in the most efficient manner. This calls for collaborative partnership in supply chains to move towards better efficiencies. Collaboration will provide the competitive edge to companies, thereby enabling all the business partners to prevail and grow. If strategically implemented, collaboration can be the driving force of an effective SCM and make India the manufacturing hub of the world. OSCAR DE BOK, SVP South Asia & Indo China, DHL Supply Chain

Collaborative partnerships ensure that knowledge and skills are shared and disseminated thereby, leading to instant productivity with minimal waste during lead times, crunching learning times and consequently higher gain for the service users as well as the provider. Offshore logistics is a leading example of such collaborative partnerships. ANIL DEVLI, CEO, Indian National Shipowners’ Association

Collaboration between users and the logistics industry could be strategic, tactical and/or arms length in nature. To be meaningful and effective, collaboration must go well beyond vague expressions of partnership and aligned interest. Logistics service providers and customers must leverage each other on a strategic and operational basis so that when working together, they perform better than they would have separately. Opportunities exist for a closer collaboration between users and providers through investment in the relationship, deeper industry knowledge, and proper expectation setting. This, in turn, will have a direct impact on overall customer satisfaction. SUNEEL AIYAR, Associate Director - Supply Chain, PricewaterhouseCoopers

46 • SMART LOGISTICS • OCTOBER 2010

Inspires NNOVATiON

EVOLUTION With every industry targeting to achieve cost efficiencies through multitude of actions, collaboration Evolution through innovation leads the change and creates an aspiration to go an extra mile. In a greater coordination, integration and collaboration between logistics service providers and users.

Collaboration is a key phase in supply chain modernisation. The many entities that exist in a supply chain would be surprised to know that day-to-day problems and challenges they come across are effectively indeed common. By coming together and using standards in supply chain solutions, a common base can be tapped into, which will enable savings to be shared amongst those who are part of the common pool. PRANIL VADGAMA, President, CHEP India

The success of the McDonald’s supply chain system has been in its ability to foster and sustain collaboration and partnership amongst almost all of its stakeholders, be it the owner operators or the supplier partners. Collaboration amongst all the key supplier partners and sharing of best practices between them has significantly helped in reducing system redundancies and enabled time to market. In all, we feel that sustaining and fostering this collaboration among suppliers will help in a long way by generating unique competitive advantage and long-term wealth from the system as a whole. SRIRAM VENKATESWARAN, Director – National Supply Chain & QA, Hardcastle Restaurants, McDonalds India

In today’s complex and comprehensive supply chain scenario, a new rationale has become dominant – the formation of new alliances with supply chain partners – a reality which has amplified the speed of technological change and competitiveness in global & regional markets. Partners unite in order to diversify risks inherent in developing new technologies, processes and physical operations or to take advantage of the complementary competencies of partner’s developmental skills. This is an increasing trend in India and will become much more appropriate as more MNCs realise that they cannot do everything themselves. HOWARD JAMES-SCOTT, Chief – SCM, GATI

OCTOBER 2010 • SMART LOGISTICS • 47

VIEW FROM THE TOP

CEO, AFL LOGISTICS

A PERSPECTIVE ON COLLABORATIVE PARTNERSHIP When we consider the current status of Indian markets with respect to logistics efficiency, the following few observations can be made: • There is a fairly dispersed demand with major demand clusters forming around densely populated metros and towns in North, West and South. On the other hand, manufacturing is largely scattered in states with tax and labour advantages while 2-3 ports on the west coast account for nearly 75 per cent of all imports. This leads to huge load imbalances in transportation. • Multi-modal movement is yet to take hold resulting in goods being transported in less than optimal modes. • Lack of packaging and product code standards hinder the use of shared infrastructure. For example, companies deploy a variety of pallet types and sizes in warehousing and transportation, which requires a wide range of handling equipment not available with every player. • Within organisations, there is often a lack of collaboration between functions. For instance, in many manufacturing and retails outfits, logistics does not participate in marketing and merchandising decisions. This fragmentation and imbalances are likely to stay. So what do we do when we are in such a state of affairs? One way is to start thinking about collaboration – collaboration between partners and between competitors. Think about more than 40 per cent under-utilised vehicles moving from East to West or North. If we could collaborate to optimise vehicle utilisation moving towards East (fewer vehicles for the same load), and consolidate loads returning from the East (higher load density per vehicle), we could easily reduce under-utilisation by half. Most importantly, it would result in major cost reductions which is the need of the hour.

THE CHANGE AGENTS The factors, to my mind, are wide and varied. Some of them include: • Overcoming diseconomies of operating scale: The fragmented nature of industry, especially in transportation with many small and regional players does not provide sufficient scale for large investments. The same perspective is evident in warehousing with C&FAs and dedicated services providers still retaining a large share of this market. They are unable to make the right enhancements in design, equipment, processes and to attract good talent. • Competitive pressure on price is squeezing operating margins of both cargo owners and service providers. We can continue to keep margins relevant by removing sub-optimisation in loads and distribution network and this calls for collaboration between players. • In many parts of the world and also in India, there are growing anti-trust concerns for industry-led collaborative initiatives. While this appears negative at first, it is in fact spurring development of new collaboration models that leverage on transparency to build trust and receptivity. • There is an increasing need for a single ‘voice of industry’ on common issues facing the industry as a whole. This requires industry players to collaborate in understanding what the issues

48 • SMART LOGISTICS • OCTOBER 2010

Trust And Solidarity Between Players Is The Biggest Barrier In The Way Of COLLABORATION “We need to break-down compartmentalisation and old paradigms about competing in the marketplace, and embrace a mantra of ‘together we can share more’ to surge ahead. I believe this will be driven by one or two players taking the lead and showing the way forward,” asserts Juzar Mustan, CEO – Logistics, AFL during an exclusive interaction with Prerna Sharma. Excerpts… are, how they impact business, what remedial measures are required and then go forward as a group.

GROWTH DRIVERS I think, growing business complexities as well as fast changing consumer preferences with vast domestic demographics are going to be one of the major drivers of attaining collaborative partnerships between the manufacturers, retailers and logistics service providers. By and large, some of the major growth drivers are: • Maturity of players both on the user and service provider side: A new generation of leaders trained in strategic thinking and willingness to chart new paths is a formidable driving force behind some recent attempts at collaboration. • Although we are not quite there yet, I believe technology is available that allows sharing of information and at the same time provides for the security of such data. Interoperability of technology will, of course, continue to be a challenge but we can see some light at the end of this tunnel. • A few parties with a keen interest in developing a real freight exchange have emerged with some exciting new business models that will rely on collaboration. The good news about these new exchange models is that they do not rely solely on price discovery and transaction automation. They will also have built-in mechanisms for supplier qualification, collaborative design, decision support analytics and financing infrastructure.

TANGIBLE GAINS First & foremost, lower cost of logistics is definitely one measurable gain. Another gain is increased efficiency in other logistics metrics such as reduced lead times and greater penetration to rural markets. Collaboration also moves people away from the perennial argument about who owns a particular cost and instead focusses on win-win outcomes. This is evident when many large corporations in the west have reported that collaboration between partners is a better alternative to gain-sharing arrangements.

packaging, products codes, etc. earlier and this is a current barrier. I am confident that this one will disappear fairly soon when we realise that the benefits of interoperability of equipment and network become obvious to everyone. Last though not the least, the industry pegs its success to that of its customers and hence it owes a measure of care in ensuring that none of the collaborative efforts end up in potential anti-trust domain. This is a barrier because it is easy for collaborative initiatives to stray into such areas as cartelisation, whether or not

Collaboration will require a paradigm shift in how we view competition and harness technology to alleviate some of our long-held concerns. HURDLES ON THE WAY I think, trust and solidarity between players is perhaps the number one barrier. We need to break-down compartmentalisation and old paradigms about competing in the marketplace, and embrace a mantra of ‘together we can share more’ to surge ahead.. I believe this will be driven by one or two players taking the lead and showing the way forward. Secondly, confidentiality of information was and still is a concern. Especially when crucial pricing and promotion information will be passed externally. Technology available today will be able to somewhat address this problem by making only need-to-know data available to a restricted set of partners, with robust security controls. I mentioned standardisation of

these are real or perceived. I think this can be overcome with strong stewardship of the industry by players from all walks and readiness to be transparent about the workings and outcomes of such collaboration.

THE PARADIGM SHIFT… I believe many good things will come about from such collaboration but one that I wish to see is a true collaborative freight exchange on scale that even developed economies will want to emulate. The stakeholders of such an exchange will include cargo owners, transporters, government agencies and industry associations. To me, this exchange will really transform our transport industry while still retaining a place for the smalltime truckers and brokers.

OCTOBER 2010 • SMART LOGISTICS • 49

VIEW FROM THE TOP

DIRECTOR, COIGN CONSULTING

Collaborative Partnerships Will Improve The Image And Quality Of Logistics Companies “One of the key factors that help in the development of collaborative partnership & competitive collaboration is the clusterisation of the industry,” opines Arif A Siddiqui, Director, Coign Consulting, in an exclusive interview with Sudhir Muddana. Excerpts…

A PERSPECTIVE ON COLLABORATIVE PARTNERSHIP The existence of collaborative partnership & competitive collaboration has been present within the Indian industries for a number of years. But the industry has not consciously or unconsciously recognised the tangible benefits of the collaboration be it with the competitors or customers. It is a known fact that one vendor is a channel of distribution for a number of companies. What does this imply? It implies that collaboration has been an integral part of every business directly or indirectly. It can happen at every part of supply chain be it in transportation or shared space in warehousing among many others. For instance, pharmaceutical companies as well as FMCG companies, have been using the same clearing or forwarding agents over the years. This is a classic case of collaborative partnership. On the other hand, the concept of 3PL is one example of competitive collaboration wherein, one logistics company leverages on the core competency of another. This phenomenon synchronises the entire logistics operations and at the same time offers substantial benefits in terms of cost savings, infrastructure, etc. Consider two companies, both distributing their products to the same customer. If each of them, while

50 • SMART LOGISTICS • OCTOBER 2010

distributing their products is using only half the container space, it can lead to excess cost incurred. To save this extra cost, companies can collaborate and share the container space while traversing in the same direction, thereby resulting in optimal utilisation of resources. The same holds true when the container returns empty. In such a situation, companies can utilise the concept of reverse logistics.

BARRIERS TO SUCCESS

DRIVING FACTORS

IMPACT ON LOGISTICS INDUSTRY

One of the key factors that help in the development of collaborative partnership & competitive collaboration is the clusterisation of the industry. Factors one must consider to enhance collaborations among logistics counterparts include knowing ones core competencies, standardisation of service pricing and the unit of measurement.

Due to the fragmented nature of the industry, small logistics companies often remain unnoticed, even though they are capable of delivering efficient services like their organised counterparts. Here lies the importance of collaboration. By way of collaborating with small distributors or for that matter, local distributors, organised players can efficiently manage the task of distributing goods & services to the distant places. In turn, it gives an opportunity to the small players to be at par with the big players and get due recognition of their services. And if we succeed in doing so, the Indian logistics industry will witness a paradigm shift in terms of the organised nature of the industry. All in all, collaboration will improve the image and quality of logistics companies, which in turn will help in the growth of the logistics industry.

TANGIBLE BENEFITS These partnerships lead to tangible benefits, which include exchange of skill & knowledge, costs leveraging opportunities, overall increase in competence and expertise, sharing of experiences on processes, etc. With the help of both types of collaborations, companies can create requirements that get standardised and eventually support the growth of the complete logistics industry.

A few barriers in the path of successful collaborative partnership are lack of domain knowledge, limited access to information on supply chain, lack of adequate infrastructure, customer immaturity, inappropriate adoption of latest technological advancements, inadequate support from the government in terms of regulations & policies.

VIEW FROM THE TOP FEDEX EXPRESS INDIA

THERE IS A NEED TO MODEL AS IT IS “Globally, the market is mature and people understand the need up fast in India,” informs Kenneth F Koval, VP - Operations,

PERFORMANCE OF THE INDIAN EXPRESS INDUSTRY The logistics industry is witnessing a boom in investments, which spells well for the industry. Moreover, rural areas are developing at a fast pace, with demands from these areas increasing each day. As people in these regions have more disposable income, they are able to afford the best of services. Considering this trend, companies are now looking towards catering to rural regions and reaching out to other remote locations as well. With the growth of manufacturing sector, even the businessto-business segment is reflecting a positive growth trend, resulting in booming prospects for the Indian logistics industry, especially for the rural areas. We are even witnessing the development of special economic zones (SEZs) in the neighbouring areas of metro cities, which will further boost the need for express logistics in the country. Globally, the market is mature and people understand the need for premium services and are also willing to pay for such services. This trend is expected to catch up fast in India. The real issue in India for any service provider is creating a good customer base and increasing volumes. There is a need to expand the domestic premium model, as it is currently under-served. A huge opportunity in the domestic market awaits to be tapped for servicing the needs of the customers. Moreover, logistics industry is growing at a nearly double-digit pace, with the current growth at 30 per cent in India. In the international landscape, the pharma sector has more scope, while the domestic market has more scope for automotive, hi-tech industry and electronic goods.

EVOLVING TECHNOLOGY USAGE The growth momentum witnessed in the logistics industry has resulted in increased technology adoption by service providers. The same is true for the express market, which is striving to provide efficient and faster services to customers. On the other hand, customers too are adopting latest technology tools as a value-added service for tracing their consignment, reliability, safety and security as well as product information. With the track-&-trace capability, customers are now able to keep track of the transit times and movement of goods. This process has now become easier, as the customer can trace goods with the help of a reference/tracking number or an email. Also, customers can now book shipments online,

52 • SMART LOGISTICS • OCTOBER 2010

EXPAND THE DOMESTIC PREMIUM CURRENTLY UNDER-SERVED for premium services and are also willing to pay for such services. This trend is expected to catch FedEx Express India, in an exclusive interaction with Shivani Mody. Excerpts…

calculate costs and pay online, which makes the process easy for them. This capability has heightened the growth momentum of the industry.

CHALLENGES FACED BY LOGISTICS PLAYERS One of the major challenges faced by the logistics players in the country is infrastructure, be it road, rail or airways, which has immense scope for improvement. Another issue that needs to be addressed is the regulatory environment for the logistics industry in the country. There is a need for a standard tax route in the country and we believe that the introduction of goods & services tax, to be implemented from April 2011, will be a step in the right direction. Besides, the unorganised nature of the industry is creating a hindrance in its growth rally. For competing on a worldwide scale, India needs to dramatically transform the industry. Thus, there is a need for consolidation and centralised facility, which will adopt state-of-the-art technology and new-age equipment in order to achieve this goal.

network on a priority basis. In the coming years, we expect a transformation in the rail services environment. Also, in most cases, the rail network is the best mode of transport; for instance, in the Eastern regions of the country, the rail network is more reliable than the roadways.

FOCUSSING ON ‘GREENER’ SUPPLY CHAIN SOLUTIONS Green technology and services are fast becoming a part of the GenX supply chain solution. But, implementation of these solutions is time-consuming. Among the energy-efficient solutions available for the industry are fuel-efficient aircraft, electric and hybrid vehicles, bicycles for crew, gas vehicles and green technology (eg, IT system). Where possible, we have

We firmly believe in developing a strong leadership and building conscious leaders for the future.

MULTIMODAL TRANSPORTATION For our offerings, we mostly focus on air and road services. Often, we use rail services for specific sectors. With the issue of sustainability gaining prominence, it will become important to use the most eco-friendly and efficient method of transportation. Over the years, the upgradation and development of airports as well as improved road infrastructure have supported the growth of multimodal transportation. This has had a direct impact on the logistics services. Movement of goods via rail network is limited in the country, having an enormous scope for development. The government is currently focussing on developing the rail

implemented the use of electric vehicles and bicycles for our staff. We are also implementing the latest technology to reduce the usage of paper where possible.

FEDEX’S CONTRIBUTION TO ROBUST GROWTH India has witnessed exceptional levels of economic expansion and, despite the recent global economic meltdown, the economy currently reflects strong performance in manufacturing and export-oriented industries. We are also committed to providing better services for the domestic market. As a part of

our strategy, we will add gateways as per requirement for the growing market. One such instance is the addition of a third gateway at Bengaluru for FedEx, which connects Delhi and Mumbai in order to enhance the FedEx customers’ access to the international market. The advantage of adding a gateway in Bengaluru is that the city and its neighbouring areas are a major component of India’s economic expansion, with the southern region of the country contributing approximately 20 per cent to GDP of India.

FACTORS DRIVING GROWTH OF THE EXPRESS INDUSTRY The express industry in India has enormous scope for growth. Various factors supporting the growth of the express industry are: • Overall economic growth of the country, especially the manufacturing sector, which will lead to growth and expansion of trade & business in the international and domestic markets; • Growing awareness of ‘Just In Time’ concept; • Evolution of a smart supply chain infrastructure; • Emergence of IT and IT-enabled services such as e-commerce and mobile commerce; and • Vibrant business opportunities in emerging economies like China and India. This will be an advantage for India, as more business opportunities will come into the country. The enhancements in IT services business will further support this growth.

DIVERSIFICATION STRATEGY We plan to connect metro cities with other important locations by providing the network capability to better serve our customers. As a part of our strategy,

OCTOBER 2010 • SMART LOGISTICS • 53

View from the top, continued

with the share of Europe and the US in India’s exports at 23.8 and 16.5 per cent, respectively, between 2008 and 2009, the start of our new flight operations from Bengaluru opens up immense possibilities for South Indian companies trading with Europe, the Middle East and the US. Some of the key enhancements offered by the new flight operations include – later pick-up times for customers by up to 90 minutes in Bengaluru, and access to the full FedEx suite of services, including the shipment of heavyweight express freight. In addition, customers in Bengaluru will now be able to ship perishable, valuable and dangerous goods through the new service. Therefore, as a hub in the Southern region, new flight operations will assist in establishing direct connections between India and other regions of trade, such as Europe, the Middle East and the US. The FedEx premium domestic express delivery service is also expanding its next business day service from 14 to 58 origin cities in the coming few months, starting August 2010. The 58 cities selected for the domestic express service expansion contribute to 40 per cent of India’s GDP. Further, these cities allow FedEx to offer

a more defined and diversified product portfolio to and from major cities across India. FedEx has added satellite cities like Secunderabad, Tirupur, Chinchwad, Pimpri, Thane and Navi Mumbai into the service points since August 2010, with more cities benefiting from the services in the coming months. Added to this, we have implemented dynamic pricing mechanism into our system. We calculate costs based on fuel price, which keeps fluctuating. Thus, with a fall in fuel prices, the benefits, with lower charges, are passed onto the customers. Initially, we had difficulty implementing this mechanism, but customers have shown positive response upon realising the benefits it provides.

TRACING FEDEX GROWTH JOURNEY With the growing economy, we are all set to strengthen our international and domestic services across the country. One such example is the launch of the new flight operations from Bengaluru. This, coupled with the expansion of domestic services, broadens market opportunities for customers doing business both locally and internationally by leveraging the reach

of the worldwide network of FedEx. Our service enhancements are part of an ongoing focus by FedEx to strengthen its foothold in India while bolstering the trade links between Asia and Europe. FedEx started ramping up its services in March 2005, with the launch of the air cargo industry’s first express direct flight from mainland China to Europe. This was followed by a second flight in September 2005, thus doubling the capacity between Europe and Asia, with a stop in Delhi. This addition made it the first overnight express daily flight between India and China. In October 2009, FedEx launched its first premium express domestic service. As of August 2010, this service is available from Ahmedabad, Bengaluru, Chennai, Coimbatore, Delhi, Faridabad, Ghaziabad, Gurgaon, Hyderabad, Jaipur, Kolkata, Mumbai, New Delhi, Noida, Pune, Secunderabad, Tirupur, Chinchwad, Pimpri, Thane and Navi Mumbai to 58 destinations. With our enhanced services, companies in India will be able to access our entire product portfolio, which will serve as a value add for their customer offerings as well.

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54 • SMART LOGISTICS • OCTOBER 2010

GREENFIELD PORTS SL EXCLUSIVE

CREATING AVENUES TO AUGMENT GROWTH With major ports like JNPT and Mumbai port expecting a surge in traffic owning to fast recovery in business post recession, the importance of Greenfield port projects, that provide new infrastructure and better connectivity, has gathered momentum. These projects not only help reduce congestion at major ports, curb demurrages and loss of foreign currency but also provide the much needed capacity for increased transportation and warehousing.

SUMEDHA MAHOREY THE Indian shipping sector has over the years played a crucial role in logistics. Today, approximately 95 per cent of the country’s trade by volume and 70 per cent by value moves through maritime transport. With 12 major ports and 200 minor ports, India is counted among the leading merchant fleets all over the world. The major load of this traffic is handled by Jawaharlal Nehru Port Trust (JNPT) and the Mumbai Port with a total traffic of 560 MT during 2009-10. With an ever-increasing traffic, and a strong hope of fast recovery from recession, major ports are bound to witness a huge surge in movement through sea in the near future. But

with rising traffic, issues like congestion, demurrages and loss of foreign exchange also emerge. Thus, there is an urgent need to expand and develop greenfield sites, besides making technological upgradation in terms of cargo handling, container terminals, port layout and allied infrastructure.

GREENFIELD PORT PROJECTS: A NECESSITY Greenfield port projects do not involve remodelling or demolition of any structure and are carried out on a new master plan. Providing insights into the same, Anand Sharma, Director, Mantrana Maritime Advisory explains, “Greenfield

port projects are those in which infrastructure is set up from scratch, while if you are adding infrastructure to the existing project, it becomes a brownfield project.” Elaborating further on the need for such projects in India, Sharma says, “When you are looking at port activities, these cannot function in isolation as they are the gateways for trading, importexport; thus, a port will have to have connectivity on both sides – inland and the merchant side. Apart from this, connectivity should also be developed from the port to the consumption centre or port to the production centre. In case of existing major ports in India, capacity saturation has already been attained.

OCTOBER 2010 • SMART LOGISTICS • 55

Greenfield ports, continued

Adding capacity by way of brownfield expansion would enable expansion of ground facilities but limit expansion of the connecting infrastructure like rail/road. In such a scenario, greenfield ports are developed at strategically advantageous location.”

INVESTMENT PROPOSITIONS As India targets to achieve and sustain a GDP growth of over 8-10 per cent in the next decade, investments in the port sector are of immense significance. Affirming this, Manish Saigal, Executive Director and Head – Transportation & Logistics, KPMG, avers, “It is not surprising that in the 12th Five-Year Plan (200712), approximately `90,000 crore, double of the target in the 11th Plan, has been marked for investments in the ports sector. Greater than two-thirds of this is expected to come from the private sector indicating the scale of opportunity available. Overall, the current scenario offers significant opportunities for the private sector in areas such as development and operation of Greenfield ports and terminals, hinterland connectivity, port based storage and multiple support services such as dredging, piloting, bunkering, etc.” According to Saigal, investments in greenfield port projects are likely to continue. He says, “Currently, around 24 greenfield port projects involving a total investment of approximately `60,000 crore are expected to be commissioned over the next 15 years.”

the capital commitment tends to be much higher. This allows the operator to use tariff as a leverage to compete.” Additionally, some of the major advantages of greenfield port projects are land availability and enabling point for market determined investment. Stressing on the same, Capt Sandeep Mehta, CEO, Mundra Ports & SEZ deliberates, “Typically a large tract of land is available in the vicinity of new ports for efficient planning of port back-up area including warehousing. Industries like power plants, steel, shipyards, chemicals, inter alia can be developed in this area. General purpose or sector specific SEZ can be developed inclusive of port. Apart from this, an added advantage lies in master planning the entire tract of land to ensure planned development. Development of this kind of port also enables flexibility in business model, limited or no intervention from regulators, and capacity creation in line with market demand from port services.” According to Mehta, added

with growing projected traffic, ports need to expand their capacities aggressively. S Hajara, Chairman & MD, Shipping Corporation of India elaborates, “Lack of synchronisation in logistics infrastructure development leading to operational problems, sub-optimal returns/yield from port assets, inability to create integrated transport network are the key challenges that need to be tackled on an urgent basis.” Delving in-depth on the Indian scenario, Hajara says, “As per an estimate, only 6 per cent of GDP as compared to 20 per cent by China is being spent on infrastructure improvements. This leads to inefficiencies, increasing logistics costs & undue delays, long waits and increased down times. There is an immediate need to develop hinterland connectivity, more private sector investment and participation.” Thus, with Indian trade poised for a quantum jump in the next decade, massive port capacity additions and de-bottlenecking with both quantity and quality infrastructure is vital.

In case of existing major ports in India, capacity saturation has already been attained. Adding capacity by way of brownfield expansion would enable expansion of ground facilities but limit expansion of the connecting infrastructure like rail/road. In such a scenario, greenfield ports are developed at strategically/logistically advantageous location. ANAND SHARMA, DIRECTOR, MANTRANA MARITIME ADVISORY

AIDING PROFITABILITY Investing in greenfield port projects is often a trade-off between risks and competitive advantage. Pointing these out, Saigal asserts, “Greenfield projects are under much less regulatory constraints than the major ports including not being subject to the guidelines of TAMP on tariff fixation. Besides, since a greenfield master plan does not have legacy challenges and are likely to be situated out of metropolitan areas, most greenfield ports have the opportunity to offer higher automation & efficiency, greater connectivity & evacuation possibilities, deep draft and eco-friendly operations.” Adding further on some of the key opportunities, he avers, “The lease or royalty outgo by developers of greenfield projects to the authorities is typically lower than that for a terminal under a build-operate-transfer (BOT) scheme at a major port, although

56 • SMART LOGISTICS • OCTOBER 2010

advantages lie in exploring expansion opportunities. He explains, “New berths/warehouses/ports back up can be created in line with market demand situation instead of statutory obligation. Flexibility in engineering the location of berths and dimension of the same so as to optimise between upfront and recurring cost is another opportunity that can be encashed. Berths can be created based on newer and evolving ship sizes and trends in maritime trade. Greenfield projects also enable development of new waterfront to cater to modern shipping and creation of deep drafts.”

RESOLVING LOGISTICAL CHALLENGES Presently, capacities at various ports in India, apart from the major ports are marginally ahead of demand. However,

Setting up of greenfield port projects will add the much needed quality capacity to port infrastructure in India as well as help in spreading the current concentration of port capacity across the coastline. Deliberating on the overall infrastructure development, Saigal says, “Port capacity must be synchronised with associated infrastructure capacity such as road, rail and port based storage or else the overall capacity benefit will be limited to the constraints of the weakest link in the transportation chain. Lack of appropriate evacuation infrastructure including multi-modal opportunities would continue to hamper overall transportation efficiencies that the trade expects.” As per Saigal, this approach towards integrated development is critical to the emerging trade related trends in India, which are increasingly concentrated

TRAFFIC GROWTH AT INDIAN PORTS In Million Metric Tonne 600 500 400

based on geographical concentration of industries that are major port users as well as traditional trade corridors. Certain states have been able to score over others by focussing on key issues including land acquisition, tax incentives, water and power connectivity, attractive concession fee/periods, etc.”

RESULTANT INFRASTRUCTURE FACILITIES

300 200 100 0 2002-03 2003-04 2004-05 2005-06 Major Ports

2006-07 2007-08

2008-09

Minor Ports

Source: IPA yearly Handbook

Major ports have shown an annual compounded growth of 10% vs 15% for Minor Ports

around the rise in container volume and containerisation, import of coal for power projects, energy & refinery projects and the success of these vital, positive trends is dependent on good and sufficient port infrastructure. Another challenge that is affecting port management in India is the lack of connectivity by rail and road. Mehta affirms, “Railway connectivity is essential for scalability of port business. Thus, port developer may have to invest in railway line development, which includes optimising the alignment, purchase land/ right of way for the line, upgrade the same from time to time, conversion from single track to double track, etc.” Apart from these, some of the major issues that

hence the need to develop in-house talent emerges. Marketing perspective: As per Mehta, a new port has to be marketed to prospective customers in the initial stages to build credibility of tariffs, level of service, infrastructure availability, etc. At this stage, timing of capacity creation should be controlled as idling of berths makes the project unviable. Hence too much capacity should not be created too soon.

STATES ATTRACTING GREENFIELD INVESTMENTS Currently, Gujarat, Maharashtra, Andhra Pradesh, Orissa and Tamil Nadu are the leading states in that order in terms of

Typically, large tract of land is available in the vicinity of new ports for efficient planning of port back-up area including warehousing. An added advantage lies in master planning the entire tract of land to ensure planned development. CAPT SANDEEP MEHTA, CEO, MUNDRA PORTS & SEZ are being faced by the logistics industry in setting up greenfield port projects are: Social infrastructure: It is difficult to attract quality human resources at greenfield sites, necessitating upfront investment in townships, schools/education, healthcare, entertainment complexes, etc. Quality manpower, well-trained manpower for port sector is not readily available and

greenfield ports totaling over 40 projects, both operational and proposed. While detailing on the emergence of these states on the logistics map of India, Saigal points out, “The key drivers behind the emergence of certain states as preferred destinations for greenfield investments lies in the favourable regulatory framework, business environment and demand drivers

Greenfield capacity addition in the ports sector will further catalyse development of related infrastructure mainly catering to hinterland connectivity and storage. Backing this, Saigal highlights, “Hinterland connectivity under National Highway Development Programme and National Rail Vikas Yojana are already in progress. Other few key projects include the Golden Quadrilateral, port-focussed highway construction/up gradation programmes (NH-41: from Kolaghat on NH-6 to Haldia, NH-17: Suratkal-Nantur Section connecting the New Mangalore port), and new/additional railway networks such as Gandhidham-Palanpur, ArsikeriHasan-Mangalore, Rewari-Ajmer-Phulera and Obulavaripalli – Krishnapatnam. A key development likely to significantly alter the logistics landscape of India is the dedicated freight corridors project – Western DFC from JNPT to Dadri, Eastern DFC from Son Nagar to Ludhiana via Khurja and the inter-DFC connectivity from Khurja to Dadri are expected to give a major boost to the port-based activities in the Delhi-Mumbai and DelhiKolkata industrial belt.” Further, port-based Special Economy Zones (SEZs) are also lined up for development. For example, Mundra and Rewas ports are the two minor ports with SEZs. Also, SEZ has been notified near select major ports: Cochin, Kandla and New Mangalore.

EVOLVING PROSPECTS According to Hajara, with the Indian economy anticipated to regain the pace of growth in 2010-11, as that of pre-recession period, the shipping infrastructure needs to grow to keep up pace with India’s EXIM trade. With massive capacity additions, the Indian logistics industry is poised for a complete makeover in infrastructure and the allied facilities, giving the economy the much needed boost to aim for a higher growth target in the future.

OCTOBER 2010 • SMART LOGISTICS • 57

LEADERSHIP SERIES SECO TOOLS

IN THE QUEST OF A CUTTING-EDGE SUPPLY CHAIN Machine tools, being precision components, require utmost care while dispatch. Not only this, the complexity aggravates with changing market dynamics and shorter lead times. Such situations demand the adoption of a lean and smart supply chain that can best manage the task of handling such components with utmost safety while maintaining a shorter lead time. As pioneers in the metal cutting industry, Seco Tools Group has managed to manufacture and deliver their products to their customers worldwide, in the shortest possible lead-time with precision quality. Selecting the right logistics partners and taking a step-by-step approach towards designing a flawless supply chain infrastructure has helped the company in achieving remarkable logistics feat... SUDHIR MUDDANA CONSIDERED as the backbone of almost all the industry verticals, supply chain has become a key differentiator in gaining a competitive edge these days. It is on the basis of a strong supply chain network that companies promise the delivery of their products to the end customers in the shortest possible time with utmost safety and security. The process becomes even more difficult while dealing with global markets owing to factors like varied customer preferences and market diversities. In such a scenario, establishing a seamless supply chain network becomes a priority in order to attain optimum customer satisfaction. The complexity grows with increasing precision levels in handling goods & services. This is a peculiar case in machine tools supply chain where each and every component has unique handling requirements. Under such circumstances,

58 • SMART LOGISTICS • OCTOBER 2010

companies find it difficult to manage this complex supply chain. Seco Tools Group comes across as a live example, showcasing its dominance in delivering products with perfection. The success attained by the company can be gauged from the fact that despite the economic slowdown in 2009, the Group managed to maintain its premier position in the metal cutting industry by fine-tuning its production and shortening delivery times. Company officials claim that their unparallel supply chain network has acted as a major cornerstone in its growth story even in tough times. One of the fastest growing cutting tool manufacturers in India since 1996, Seco Tools India has been successful in offering technological and cost reduction partnerships to the Indian industry. Its stateof-the-art production facility is situated in Koregaon Bhima, near Pune. For Seco

Tools, the proximity to its customers is vital in having a better understanding of its business and to effectively address its customers’ needs. With a business mission to develop, manufacture and globally market & deliver metal cutting solutions that satisfy customer requirements for quality, service and cost-efficiency, the company is in a constant endeavour to improve their supply chain network.

SUPPLY CHAIN WITH A GLOBAL PERSPECTIVE Owing to a strong supply chain, Seco Tools has been successful in delivering products to customers at a much faster pace. However, at every step, the company has been trying to approach what could be called ‘An Ideal Supply Chain’ by shortening lead times while maintaining the quality. Identifying success

factors of an ideal supply chain, Nils Edlund, Senior VP – Supply Chain, Seco Tools Group, elaborates, “Good understanding of the market as well as synchronised manufacturing operations with logistics and inventory management make up for a strong supply chain infrastructure. In line with this, we constantly strive to improve our system as we have daily operating process-planning as well as forecasting to ensure smooth operations.” He further adds, “For a global company like us, inventory management is of critical importance. We require thorough planning & forecasting to predict the demand and meet customers’ orders on time. From a global supply chain perspective, we try to synchronise the front-end connection and understand from the market & sales and then link that back to the production units. We also need to consider how we should distribute the products and where to stock the end-products to ensure timely delivery of goods.” Terming vendor management as a crucial link of the entire process, Edlund informs that sub-suppliers play a major role in establishing connect with our customers as well as in synchronising supply chain network.

MANAGING DOMESTIC SUPPLY CHAIN Supply chain in India has always been a challenging task owing to factors like customs duty, lack of state-of-the-art infrastructure facilities, etc. Deliberating

on the challenges faced by the company in efficiently managing its supply chain framework, Amul Shinde, Deputy GM – Logistics, Seco Tools India, explains, “Surprisingly, the vast expanse of the country is posing one of the biggest challenges for companies in this domain. The process further gets complicated as we penetrate into regional markets with the introduction of local barriers. However, I believe that it is a misconception.” Transforming this obstacle into opportunity, the company has been able to create a well-established supply chain base in India. While giving an insight into Seco Tools’ diverse market presence in the country, he adds that over the years, we have been able to establish a strong supply chain network, wherein goods are delivered in the maximum timeframe of 72 hours, which is counted from the moment the order is placed.” While the company has managed its domestic supply chain exceptionally, it is now integrating it with the global supply chain. Delving in depth on the same, Shinde describes, “The shipments from Singapore come to Delhi and from Delhi, they reach directly to the customers. In order to ensure a smooth order flow, we have devised an innovative concept, called ‘break-bulking’. With the introduction of this concept, the shipments are packed right at the origin as per the order placed by the customer, which significantly reduces time and ensures safety. Moreover, they are custom-cleared in bulk within 6 hours, and after break-bulking, they are distributed without any changes in packaging. The readymade packages are simply breakbulked and sent for further distribution to Coimbatore, Chennai, etc.” This is a classic example of achieving success in the domestic boundaries amid all the surmounting challenges. The morale lies in understanding the routes well and optimising the logistics processes as much as possible, right from the beginning to reduce the lead time.

OVERCOMING GLITCHES Although the company has been able to build an incredible supply chain network, it still faces many challenges, both as a customer and a supplier. On the challenges faced in the country, Shinde says, “I would prefer to interpret it from the perspective of the customer as well as the supplier. As we are also customers for other organisations, we expect dynamic

actions, eg, the supplier should be aware of our requirements. For enabling this level of understanding, forecasting and marketing intelligence at the front-end needs to be strong. Here, we face this challenge, as the emerging markets of India and China are the most dynamic of all and are driven on the outsourcing of auto components. Further, a majority of customers and orders come from India, as most of the Indian customers are into automobile and power generation.” Explaining the need for forecasting, he avers, “While considering cutting tools and raw materials, about 20-30 raw materials can be used to manufacture nearly 30,000 different products, making the ratio huge. Thus, it is important to understand what to stock, when to stock and where to stock. Moreover, forecasting is of prime importance, as it is similar to a retail shop, wherein customers want to select what they require and what’s in demand.”

LEAD-TIME REDUCTION While conducting a global survey, the company observed that customers were looking at shorter lead times and reliability. In its continuous improvement process, the company is trying to internally organise several programmes within different factories to reduce lead times. According to Shinde, lead-time includes the back-office support, time reduction in the production processes and also lead-time reduction at the subsupplier’s end. In order to help employees to conform to lead times, the company has launched an internal project ‘LIFE’. Thus, at the back-office, everyone tries to be as much efficient as possible. In the shopfloor also, they are monitoring and encouraging workers & managers to come up with solutions to reduce waste and yield products at a faster speed. “Consolidation is now happening at the sub-suppliers’ end as well. To ensure smooth flow of operations, we keep the sub-suppliers informed about the latest demands trends, their probable impact on business while we continuously seek to encounter these oscillations. Therefore, from a business partner’s perspective, we share our plans with the sub-suppliers in a transparent manner.” This helps maintain reliability between the company and the sub-suppliers. “There is a mutual trust, which is the key to tightly maintain all the links of a supply chain,” he adds. It is not one company against its

OCTOBER 2010 • SMART LOGISTICS • 59

SECO Tools, continued

competitors, but it is the value chain of one against that of another. In order to succeed, a company needs to build the best value chain that includes the sub-suppliers, partners, as well as the sales channels. Citing an exvample, Shinde says, “While attending seminars, I often come across this concept. For example, Tata Motors and Maruti are not competitors, but it is their supply chains that compete with each other in the quest to satisfy the customers in the best possible way.”

INNOVATIVE PACKAGING With regards to machine tools, packaging plays an important role while delivering the products safely to the customers. Being precision components, even a slight error in handling these machine tools, can result in significant damage, thereby Tools stored in Racks impacting the image of the supplier. It helps to carry out the required processes In such situations, it is of paramount at a faster rate while making product importance to conform to certain criteria information more visible throughout the while packaging products. supply chain network. “A distribution Being a global company, the standards of centre is like a small factory. First, goods packaging are decided at a global level are received, stocked and then distributed. and are followed as standard production Managing all these requires adoption of parameters everywhere. In line with this, state-of-the-art technology. Because the parameters followed by the company quality is always our first priority, quality for a smooth delivery are: assurance is preferably done by system • Packaging is one aspect that has a direct support using barcodes,” explains Edlund. impact on aesthetics. Thus, these are well-designed and their logo provides IMPORTANCE OF 3PLs information on how and where to use Bringing in innovative products to the the product. Further packaging also market in the quickest possible time provides necessary guidelines for safely amid increasing competition acts as the handling products. key differentiator for any company in the • The secondary packaging is also machine tools segment. Thus, companies important, as it carries the primary want to concentrate more on reducing packaging and ultimately reaches the the lead-time, and put more emphasis on customer. It is important from the resource management and finances, while marketing point of view as well as for outsourcing the supply chain to the people the safety of the product. Therefore, who have the expertise in the same. the company processes secondary Shinde says, “We have combinations of packaging according to the market and the second party logistics (2PL) and third logistical conditions. party logistics (3PL). We innovate as per Explaining the importance of efficient market demands and are open to further packaging, Edlund opines, “We consider changes when it comes to ensuring that packaging as a part of the product. When the product reaches its destination at the customer receives a shipment from us, a faster speed.” Supporting this, Edlund the packaging should protect the products opines, “One cannot be the first in all inside, along with conveying the image areas. One needs to focus on one thing and message, with easy handling.” at a time. It is important to understand TECHNOLOGY ADOPTION how we can be unique in a particular In order to have a good supply chain, it is area rather than trying to be the best in essential for it to be technologically-driven. all. Because we want to build the best

60 • SMART LOGISTICS • OCTOBER 2010

supply chain, getting the best team together is a fundamental requirement.”

SELECTING LOGISTICS PARTNER It is fundamental to select the right logistics partner to cater to the needs of the company in an efficient manner. While selecting the logistics partner, Seco Tools strictly follows the concept of RIB (reliability in the basics; quality, cost and delivery). The company, to which the logistics responsibility is outsourced, must satisfy the RIB criteria, have a good technology adoption rate and be flexible to adapt to market changes. Seco Tools used recession as an oppoptunity to build for future uptime and make the RIB stronger. Also, an important aspect to keep in mind is the variations in the supply chain network according to the nature of products. Providing insights into the same, Shinde points out, “Selecting a proper supply chain is of immense importance. The supply chain is driven by the nature of the product and the nature of its consumption. First, a customer survey should be carried out and then the best-fit strategy should be adopted for the supply chain. It is important to understand and be clear on what one requires from the supply chain. Therefore, we first identify the needs of the customer, eg, off-the-shelf availability, information on the stocks, availability at their fingertips and then the delivery of the product.”

EXCELLING AT ALL FRONTS Although the requirements of customers are more or less the same in terms of the machine tools segment, the markets can still be different. With dynamic markets in countries like India and China, there is a strong requirement for a more efficient supply chain. On these lines, Edlund concludes, “With a well-trained & skilled staff and continuous efforts to improve the supply chain, logistics companies need to follow a more strategic approach.” By taking step-by-step measures to create a dominant supply chain network in the country, the company has been excelling at all fronts with its sheer determination and grit to be the best.

India Inc. Spearheading Ecological Balance Participate in the Siemens Ecovatives Awards 2010 TM

In Association with

Process Advisors

Corporate India has been making its mark in the global market. Now, it aims to make another, very positive one, on the environment. Maintaining ecological balance is high on its agenda and India Inc. is willing to walk that extra mile to achieve it. If you believe that your company has deployed innovative processes to ensure a positive impact on the environment, please nominate for the Siemens EcovativesTM Awards 2010. Visit http://ibnlive.in.com/siemensecovatives/ to participate and let the world know of the change that you managed to bring. Your effort will go a long way in inspiring others. Last Date for Nomination 25th October 2010.

Projecting ‘A Promising

SHIBANI GHARAT

Pune is emerging as a preferred manufacturing hub owing to massive investments and lucrative projects that the region has attracted during the past one year. These projects have had a major impact on the local industry and have also played a pivotal role in changing the dynamics of the region. Assisting the trade & industry and keeping the growth spiral alive in Pune are trade shows like Engineering Expo that help the entire industry to converge effectively under one roof.

What does General Motors, Mercedes Benz, Bajaj Auto, Volkswagen, Tata Motors, Apollo Tyres, Alpha Laval, Force Motors, Piaggio Vehicles, Bharat Forge, Mahindra & Mahindra, Kirloskar Oil Engines, ThyssenKrupp, TCS, Wipro, Patni, Honeywell, Whirlpool, Matsushita, LG have in common? Besides being colossal in their respective industry verticals, they all have a manufacturing facility in Pune. Pune, once known as the ‘Oxford of the East,’ is growing strength by strength to become the ‘Detroit of the East.’ From educational institutions to foreign institutional as well as direct investments, the city has a new face and identity today. Presently, almost every foreign company wants to be a part of Pune’s flourishing manufacturing belt.

PUNE, AN INVESTMENT HUB The city has been a favourite destination for several MNCs since time immemorial. It has a vast pool of engineering and management talent. Its propinquity to Mumbai, favourable climate and a cosmopolitan culture have contributed to the growth of this city. Moreover, the opportunities that Pune offers in infrastructure and its allied sectors are tremendous. Besides, the distribution of SME clusters in Pune follows a logical pattern of proximity to industries. During the last few years, this region has seen a plethora of gigantic investments. In the last year alone, three massive

new plants owned by General Motors, engineering and machining, electronics, Volkswagen and Mahindra & Mahindra were plastic and rubber components, etc, inaugurated here. The new projects include located in satellite towns of Ranjangaon, Fiat-Tata joint venture at Ranjangaon with a Pimpri-Chinchwad and Talegaon. proposed investment of `4,000 crore, GM’s `1,400 crore investment with a further `900 crore Vibrant competition has helped in expansion, Volkswagen’s project of `3,800 crore, increasing competitiveness, spur Mercedes’ `250 crore innovation and boost efficiency. investment and Mahindra & Mahindra planning Mangesh Agarwal, GM, CFFI India a huge `5,00,00 crore investment by 2012. Bajaj Auto proposes `300 crore SMEs GAINING MOMENTUM investment in two- & three-wheelers and Pune SME clusters are the ones that a further `1,000 crore investment in a car have benefited the maximum from these plant. In January, automotive component manufacturer ZF India inaugurated a investments. Apart from economic gains, manufacturing facility in Pune. In April these big manufacturers have helped the 2010, China-based SANY Group, a leading industry by bringing in latest technologies, global major in construction machinery technical knowledge and efficient industry, inaugurated its first manufacturing management system to the region. facility at Chakan, near Pune. “There is a dramatic impact on These companies usually zero in on technology upgradation in the region Pune component manufacturers for over the past few years. Companies like localisation of their products to suit the Volkswagen apply the latest manufacturing Indian conditions. From engines to raw technology in their units. They demand materials, hydraulic parts, auto components, products that are compatible with their material handling and storage equipment, technology. This has resulted in an increasing everything is local. This has helped the demand among the local companies industry at Pune massively with generation to match the quality and technology of significant employment opportunities standards of these big organisations. They for the local populace. They set up their have started accepting automation in a manufacturing units in various industry big way,” says Milan Supanekar, Director, clusters like automobile, auto components, Welding Technologies India. SMEs have

Pune | 19-22 Nov, 2010 Engineering Expo, organised by Infomedia 18, is one of the engineering industry’s biggest events in the country. The 2009-10 edition of Engineering Expo saw business transactions worth over Rs 150 crore. Launched in Ahmedabad in the year 2002, the event today boasts of a fabulous visitor turnout. The Expo is a preferred destination for SMEs and manufacturing & engineering companies to transact, network, tie up, and exchange ideas for the growth of the industry. The Engineering Expo 2010-11 is scheduled to take place in four cities, starting off at Pune in November 2010 and proceeding to Ahmedabad, Indore and Chennai in subsequent months.

There is a dramatic impact on technology upgradation in the region over the past few years. Companies like Volkswagen apply the latest manufacturing technology in their units. They demand products that are compatible with their technology. This has resulted in an increasing demand among the local companies to match the quality and technology standards of these big organisations. Milan Supanekar, Director, Welding Technologies India

some inherent advantages as compared to large enterprises in terms of greater flexibility in operations for responding efficiently to changing customer needs. Vibrant competition among the local companies to attract the attention of big companies is now being seen in this region. “This competition has helped in increasing competitiveness, spur innovation and boost efficiency,” says Mangesh Agarwal, GM CFFI India, Durr Ecoclean. He believes that there is a notable change in the quality of the products, especially after the big manufacturers have turned their attention to Pune.

become a necessary objective for the survival and viability of the enterprises. The challenge for any company in a competitive set-up is to remain competitive and consistently deliver value to customers. “It is also necessary for a manufacturer to deliver proper post-sales services and back-up support,” opines Supanekar. One of the strategies these companies can implement to remain competitive and deliver customer value despite their smallscale of operations is by way of promoting their products and services. Jagdish Gajjar, Manager – Operations, J K Automation, explains, “Spreading awareness about your products and services will surely help your organisation in getting that extra edge over your competitors. Word of mouth publicity is not enough.” There are several channels for promoting one’s organisation and products. Creating product presentations and catalogues, advertising in B2B publications are some of the tried and tested methods to spread product awareness. “We offer in-house seminars with references and case studies; we also get our prospective clients to come and visit our plants,” says Agarwal. But there is a common point of agreement that the most efficient way of spreading awareness about products and services is by participating in exhibitions. Exhibitions and trade shows have been used as an effective marketing medium to find new customers, improve business relationships with existing customers, introduce new products and services, and deliver many other meaningful and tangible business outcomes.

SURVIVING IN A COMPETITIVE SET-UP

AN IDEAL PLATFORM TO SHOWCASE BUSINESS

The SMEs in Pune operate in a dynamic business environment where growth has

Engineering Expo is a complete manufacturing & engineering trade fair to

display one’s products and services. It is one of the most preferred platforms to grow business, as selected by 1000+ companies that participated in the previous editions of the Expo. More than 55,000 industrial buyers benefit from Engineering Expo, every year. Over the years, it has become one of the most lucrative platform for business growth. “Engineering Expo has helped us in spreading awareness about the products that we offer,” points out Anand Rajadhayaksha, Manager-Advertising, Nilkamal. “Every year, we introduce new designs and sizes of material handling crates & bins to suit diverse applications in various industries like automobiles, pharmaceuticals, engineering, electricals & electronics, hospitality & catering, logistics, textiles, supermarkets, retail, food & beverages, agriculture & seafood, etc. Expo brings all the industry verticals together under one roof, making it easy for us to market our products effectively to various organisations,” he added. Seconding Rajadhayaksha’s point, Supanekar states, “Participating in the Expo has helped to create awareness about our five-year old company. Moreover, we were able to acquire bulk purchase orders in the past,” says Supanekar, whose company supplies almost 90 per cent of their materials to JCB. With the flourishing industrial environment, the opportunities for businesses are budding in Pune. Efforts in the right direction will help the domestic industry in Pune to amalgamate with the global market and be a driving force for the industrial growth of Maharashtra, and hence, India. Initiatives like Engineering Expo will prove to be principal platforms for this thriving industry to grow to limits beyond measure.

SUPPLY CHAIN MANAGEMENT

RISKY BUSINESS

HOW TO

PROTECT Y O U R

SUPPLY CHAIN? Various external factors that are beyond the control of an enterprise can easily disrupt an otherwise stable supply chain. Such factors put companies under pressure to design a profitable supply chain strategy that helps increase productivity, minimise risks and enables immediate response to demands. Although managers are now more aware of the vulnerability of their supply chains, most are reluctant to implement new manufacturing practices. Thus, enterprises need to go the extra mile to mitigate such risks and keep supply chain costs as low as possible, avoiding unnecessary losses.

IN today’s volatile market environment, companies have never been more vulnerable, considering the high risks to their supply chain. In response, increasing number of companies are now looking to implement or augment their risk management strategies. The growing awareness and importance of supply chain risk management can be attributed to a number of business trends: • Leaner supply chains: Need less inventory, are cost savers and avoid liability, but in case of events, there is no buffer to recover. • Global sourcing: Has limited visibility, difficult communication and stretched lead times.

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• Higher customer expectations: Consumers expect instant service while supply chain slowdowns result in lost customer confidence. • Variability in demand, shorter product lifecycle. • Increasing commodity costs and tighter logistics capacity, making it difficult and more expensive to ship goods. These trends have been further exacerbated by major events over the past several years – from increased regulation to natural disasters and a volatile economy – that have only magnified the risk of supply chain disruption. Regardless of how well planned or well managed a company’s operations are, enterprises face external factors beyond their control that can easily disrupt the supply chain. Companies with the most effective risk management strategies address both anticipated and unanticipated supply chain disruptions. They are able to assess the impact, evaluate the alternatives for taking action and, most importantly, implement an effective response as quickly as possible.

ASPECTS OF SUPPLY CHAIN RISK MANAGEMENT An effective supply chain risk management strategy demands two essential components: • Proactive risk assessment and mitigation • Response to unanticipated supply chain disruptions. With strong risk mitigation strategies in place, a company is able to handle a variety of supply chain events. Further, in case of occurrence of unanticipated events, a company must be prepared to respond quickly and effectively or risk suffering financial and customer service losses.

ASSESSMENT AND MITIGATION There are three key phases to proactive management of risks in the supply chain: Visualise and understand risks that apply to the supply chain: General categories of risk include natural calamities, flu/ pandemic, economic risks, political risks, transportation and unstable demand or supply. For example, if the supplier is located in a region known for significant seismic activity, the question that arises is whether an alternate source for that supplier is available in case a serious

earthquake strikes? Measure and prioritise the risks based on likelihood of occurrence and business impact: Risk mitigation will depend on the assessment of likelihood of the occurrence of the risk and its impact on the business. A risk that is likely to occur but has little impact on business might have a low mitigation priority. This is the same for a risk that has a larger impact but has less chance of occurring. However, a company will have a high priority for addressing a risk that has a high chance of occurrence and a significant business impact. The drivers of risk (political landscape, consumer behaviour and economy) continue to change; hence, risks should be reviewed on a regular basis to ensure that new and changing factors are continuously considered. Decide on risks needed to be addressed and develop mitigation strategies: According to priority, mitigation strategies need to be developed for the risks identified. Mitigation strategies can include creating and developing alternate sources, establishing alternative transportation routes and product redesigning to leverage more easily accessible items. Mitigation strategies should be modelled and tested to ensure their feasibility. If one strategy does not yield acceptable results, different strategies must be developed and considered.

RESPONSE AND IMPLEMENTATION Response to events in the supply chain can take two forms: • Responding to an anticipated supply disruption by implementing the mitigation strategy. • Responding to an unanticipated supply disruption. In either case, an effective and instantaneous response is critical and can indicate the difference between an insignificant blip and a full-scale crisis. Also, technology plays a key role in this process. A successful supply chain risk management tool should incorporate the following capabilities:

Visibility into the entire supply chain: The tool must integrate with multiple disparate ERP systems, including systems supporting the supply and distribution nodes. Event detection and alerting: The supply chain should be constantly monitored and it must trigger an alert when a disruption occurs, so as to initiate the implementation process of risk management strategies. Analytics: The full suite of supply chain analytics needs to be modelled in the tool to ensure a better understanding of the

OMPANIES WITH THE MOST EFFECTIVE RISK MANAGEMENT STRATEGIES ADDRESS BOTH ANTICIPATED AND UNANTICIPATED SUPPLY CHAIN DISRUPTIONS. THEY ARE ABLE TO ASSESS THE IMPACT, EVALUATE THE ALTERNATIVES FOR TAKING ACTION AND, MOST IMPORTANTLY, IMPLEMENT AN EFFECTIVE RESPONSE AS QUICKLY AS POSSIBLE. impact of a potential supply chain event. These analytics need to be performed in real-time when responding to an unanticipated supply chain disruption. Simulation: Simulation can be used to model different risk scenarios, propose mitigation strategies and compare the effectiveness of various response alternatives. Collaboration: Evaluation must be done as a team, of several possible mitigation alternatives to ensure that the response alternatives are reasonable and align with corporate objectives.

STRATEGIES TO MANAGE RISKS An effective supply chain risk management strategy addresses assessment of risk and mitigation, as well as response to events. If companies implement this approach, with specific emphasis on increased visibility and collaboration across their supply chain, they will be better equipped and prepared to recover faster from anticipated and, more importantly, unanticipated, supply chain disruptions. John Westerveld, Product Manager, Kinaxis Corp

OCTOBER 2010 • SMART LOGISTICS • 65

WAREHOUSING & DC

WAREHOUSE MOBILITY IN SUPPLY CHAIN

TAKIN

EFFICIENCC TO TH NEXT LEVE A warehouse is the heart of any business, through which nearly everything in a business traverses. Extending mobility in the warehouse brings about a new level of efficiency, accuracy and visibility. Documentation processes are automated, enabling checks to ensure picking, packing and shipping of the right item, and automatic tracking of assets without human intervention. Also available is a rich dataset, providing real-time view of inventory in the warehouse, order status, etc. Thus, warehouse mobility enables an enterprise-wide mobility, creating a collaborative information architecture for a leaner warehouse operation and a more profitable enterprise. WAREHOUSE is a critical hub in a business for both manufacturer and distributor. Everything must pass through this central depot, from raw materials to finished goods waiting for shipment downstream to a distribution centre, retailer or endcustomer. Mobility enables real-time processing throughout the warehouse, with an impact on each warehouse function. Following is an in-depth look at all critical warehouse process areas, the issues faced by each function, how mobility addresses those pain points and the advantages an enterprise can expect.

RECEIVING Process pain points Manual procedures in the receiving function upon shipment arrival at the facility present several issues. Manual reading of labels and reconciliation on paper are time-consuming and can translate into a number of inventory errors. Labels on shipments may be damaged or illegible, delaying processing, and causing congestion at the receiving dock. A major lag occurs between arrival of shipment and when they are visible in the inventory system.

66 â&#x20AC;˘ SMART LOGISTICS â&#x20AC;˘ OCTOBER 2010

Business pain points Significant business disadvantage may include slow processes in receiving that translate into long dock-to-stock cycle times, lower employee productivity, poor inventory visibility and accuracy that translate into erroneous out-ofstock conditions and lost sales, and lack of visibility into orders that prevents the ability to further streamline and reduce costs in the receiving process via cross docking. Solution: mobility If workers at the receiving dock have real-time access to the purchase order database along with bar code scanning or the ability to read RFID labels, it is easy to automatically identify and reconcile incoming shipments. Worker receives proper processing orders, ie, staging accurate shipments for putaway or cross-docking and handling any errors in the shipment. The speed of the receiving function increases, as the same workforce can process more shipments. Dock-to-stock cycle times are also reduced. The increased visibility of the inventory allows for intelligent putaway conveyance for items that are low in stock, reducing the opportunity for costly out-of-stocks that may impact the order fulfillment process. Further, instant visibility into the order system enables cross-docking to effectively reduce handling time and costs for incoming shipments.

PUT-AWAY Process pain points Manual processes in the put-away function result in several issues: • Congestion in the aisles due to limited throughput. • Lack of visibility into products on the warehouse dock waiting for processing. • Misplaced inventory, causing false outof-stocks, lost sales and additional expense associated with the purchase and storage of additional product to replace ‘lost’ inventory actually sitting on the warehouse shelves. Business pain points The process pain points affect warehouse operations in numerous areas: • Poor utilisation of costly warehouse space. • Low employee productivity and putaway throughput. • Poor inventory visibility and accuracy.

Solution: mobility With real-time access to inventory systems in the put-away function, one can automatically deliver the right storage area and the most efficient route to that location to a worker’s mobile handheld or hands-free computer. A quick scan of the bar code on the shelf tag (or RFID shelf tag) ensures correct position of the item and also provides a record of the location of a particular shipment. Items reach the shelves in the shortest possible time, warehouse workers can increase throughput and a detailed & exact location of all inventory is available. As a result, the same number of workers can process more put-away orders each day. Also, inventory visibility improves. It reduces out-of-stocks, stocking inventory levels and related warehouse space requirements. It also provides information for implementing first-in first-out (FIFO) or last-in firstout (LIFO) inventory management. This has significant positive impact on the company’s profitability analysis and tax liabilities. Material handling equipment (MHE) asset utilisation improves through reduced travel time in the warehouse aisle, which reduces wear & tear and maintenance requirements for vehicles.

CROSS-DOCKING Process pain points Paper-based processes in the cross docking function result in the following: • Lack of real-time processing translates into shipments that often wait on the dock for appropriate paperwork to enable shipping. • Manual reading of labels increases processing time and errors, resulting in the delivery of a shipment to the wrong dock. • Lack of visibility into other shipments on the receiving dock eliminates the ability to coordinate the movement of materials bound for the same dock. • Lag time between time of shipment and update of order system. Business pain points Manual procedures in cross docking negatively affect warehouse operations in many areas: • Inability to provide updated order status information to customers • Low employee productivity that translates into higher labour costs • Poor utilisation of MHE such as forklift

OCTOBER 2010 • SMART LOGISTICS • 67

Warehouse mobility in supply chain, continued

• Mis-ships and other shipment delays affect customer service satisfaction and retention. Solution: mobility Availability of real-time information in the cross-dock function enables single handling of shipments. Instant access to the order database provides on-thespot visibility to cross dock the incoming material for immediate shipping to fulfill customer orders. This eliminates the need for products to be staged for put-away, placed on warehouse shelves, picked, packed and re-staged for shipment. Access to real-time information also ensures delivery of the right shipment to the right dock and loading onto the right truck. Visibility into all the shipments slated for cross docking allows for increased efficiencies in movement between docks. This reduces usage times and wear & tear for forklifts and other MHEs. Thus, the combined efficiencies allow same number of workers to process more shipments each day, driving labour costs down.

SORTING Process pain points Manual sorting of processes results in the following issues: • The need to manually identify materials to determine the proper put-away staging location reduces productivity and throughput. • Errors can result in improper staging, which can cause misplacement of materials on the warehouse shelves. Business pain points The overall impact on warehouse operations includes the following: • Slower dock-to-stock times • Reduced employee productivity • ‘Lost’ inventory that can affect order fulfillment times and ability to meet shipping requirements of customers. Solution: mobility Real-time access to the orders database allows instant identification of materials and automatic delivery of the proper staging location for put-away or shipment in package handling applications. Moreover, the rapid and accurate staging of shipments and packages helps ensure timely shipping of orders, improving order fill rates and customer satisfaction.

RETURNS Process pain points Workers need access to huge amounts

68 • SMART LOGISTICS • OCTOBER 2010

of information for efficient and proper process returns. Here, absence of real-time information results in major processing delays as workers: • Validate the return through the existence of an RMA or other returns document • Identify the returned item, which is challenging if the item is not in its original packaging • Document the condition of the returned material • Determine processing of the return to stock or manufacturer, recondition, scrap or return to the customer • Process required customer credits. Business pain points The process-related issues can affect not only the efficiency of the returns function but also customer service levels: • Productivity is reduced due to timeconsuming processing. • The resulting backlog of returns and associated delays translate into slower processing of customer credits, reducing customer satisfaction and retention. Also, slower return of product to warehouse shelves affect the speed of new order fulfillment. Solution: mobility With enhanced mobility, workers in the returns area can instantly access inventory, accounting and order systems. Advanced data capture capabilities, such as imaging, can provide proof of condition for returns records, eliminating potential customer disputes. Item bar code or RMA label scanning can instantly validate the return and update business systems with the disposition of the return. Customer credit can be issued immediately along with instant customer notification. Return of item to inventory is automatically noted in the inventory systems, instantly available for fulfillment of new orders. This reduces overall processing time and improves worker productivity, enabling prompt returns processing to attain customer satisfaction levels.

CYCLE COUNTS Process pain points Accurate inventories are a must to meet operational and financial requirements, as well as government regulations. For this, they regularly carry out inventory counts, as manual counts are time-consuming and often fraught with errors.

Business pain points Manual cycle counts traditionally translate into: • High labour costs • Lack of real-time data : By the time the cycle count is complete, picks and put-aways are likely to be completed, affecting the inventory valuation and the company’s balance sheet, as well as inventory accuracy to protect against the high cost of out-of-stocks • High cost of shutting down the facility if required, which is an expensive and disruptive action. Solution: mobility Availability of real-time access to the inventory database and advanced mobile data collection capabilities with cycle counters, dramatically improves the efficiency and accuracy of this function. The time taken for counts decreases considerably. The new level of costefficiency in cycle counting activities enables enterprises to routinely carry out cycle counts. The resulting new level of visibility into inventory data helps in better trend analysis for improved buying practices, reduces inventory stocking levels, reduces capital expenditures for holding inventory and reduces space requirements for inventory.

PICKING Process pain points Paper and pen procedures in the picking function are extremely inefficient: • Pickers must walk the warehouse aisles to locate products • Picks cannot be easily aggregated, within an order or across orders • Product cannot be automatically verified as accurate when picked • Inventory systems are not updated to reflect the pick until the picking form has been fed into a computer at a later time. Business pain points The business impact of manual picking includes the following: • Labour costs are higher. • Shipment error rates can exceed acceptable levels or company defined metrics. • Lack of real-time inventory visibility results in costly out-of-stocks and losses in orders, customers and profitability. Solution: mobility With mobility, farther upstream in the warehouse supply chain in the put-away function, one is aware of the products

on warehouse shelves and their specific location. Real-time access to the order and inventory business systems can automatically deliver electronic picking orders to a mobile device that includes a pick list along with the fastest route to the items. A quick scan of a shelf tag, bar code or RFID tag provides instant verification that the right item has been picked, and the item is instantly deducted from inventory. This increases productivity, as the same number of workers can process more orders per day, reducing the cost of business. Significantly reduced errors occur through the automated capture of data and instant double-check for picking accuracy. Out-of-stocks are eliminated through the ability to instantly deduct items from the inventory as they are picked. The ability to deliver granular picking information enables LIFO/FIFO picking for better inventory management. The ability to instantly store serialised product information with customer orders enables enterprises to expeditiously locate any product or parts that have been recalled, reducing liability and the high costs associated with tracking products that have left the facility and have been delivered to the distribution channel or end customer. With mobile access to product databases, companies can leverage detailed information about the specific items in the warehouse. This application helps reduce the high cost associated with the delivery of damaged equipment – from the cost of the return and re-shipment to the cost of an unsatisfied customer.

PACKING, STAGING AND SHIPPING Process pain points Shipping and staging are equivalent to the ‘last mile’ in the warehouse, where the orders effectively ‘meet the road’ en route to the customer. Inefficiencies in these areas include: • Time-consuming manual cross checking to ensure that the right items are in the shipment • Delays in processing while paperwork is fed to a computer to enable the creation of manifests and staging instructions • Processing delays in shipping that ripple into carrier detention charges. • Inability to dynamically modify shipping orders to accommodate emergency

orders from customers • Excess use of filler materials in packing operations. Business pain points Lack of real-time information in these crucial last stops in the order fulfillment process translate into: • Delays in shipping and increased shipping costs • Reduced customer service satisfaction • Increased shipping costs • Poor truck utilisation. Solution: mobility Mobility can streamline these final stages of order fulfillment, ensuring that the right order contains the right products, and is shipped to the right customer at the right time via the right method of shipment. In the packaging function, mobility serves as a crucial cross-check to ensure the accuracy of an order prior to packing. Also, in case of arrival of any backordered items, in the warehouse, the packer can receive notification, enabling completion of the shipment prior to leaving the facility. Packing material costs can also be controlled. In shipping, final cross checking can be done to ensure that the order is correct, properly addressed and scheduled for the proper shipment method, complete with on-the-spot printing of all necessary paperwork. Mobility in packing, shipping and staging operations helps in the following: • Improved productivity, delivery times and shipping times: The same staff can now ship more orders per day. • Improved customer service and satisfaction: Customers are more likely to receive orders when promised, promoting higher customer retention levels. • Improved vehicle utilisation: Trucks are fully loaded with the right shipments. • Increased driver productivity: Staging in the correct order enables drivers to spend less time at each stop.

ASSET TRACKING Process pain points The warehouse often contains many reusable assets, such as totes, pallets and carts. Without the ability to automatically track and locate these valuable assets, companies have to incur the high cost of labour involved in allocating employees to walk the warehouse and adjacent areas, such as the yard, to locate these assets.

As a result, companies either do not track these valuable assets – that are so crucial to various warehouse functions – or rely on manual logs that are usually well out of date. Moreover, without accurate tracking, assets disappear on a regular basis. Business pain points The routine loss of warehouse assets results in the following: • Lack of asset availability can impact the ability to ship on time. • Additional capital expenses due to the need to regularly purchase additional assets to avoid delays in order processing. • Inaccurate asset inventories can affect asset valuations and the company’s balance sheet. • Lack of granular asset inventory information such as asset age can impact budgets due to difficulties in accurately predicting the end of the asset lifespan and the need to purchase replacements. Solution: mobility Mobility can completely automate the asset tracking process and provide up-to-theminute information on the whereabouts of totes, pallets through advanced data capture. Placement of RFID tags on all assets helps in automatic tracking, as they move through the warehouse and onto the truck, and can easily be associated with a specific customer order. In addition, the use of permanent hardened RFID tags eliminates any recurring tag costs for either the tags themselves or the labour in placing the tags on the assets. The result is fully automated, accurate and cost-effective tracking of assets with virtually no manpower required. Further, the assets remain in the inventory for a prolonged period, reducing total cost of ownership (TCO) and improving return on investment (ROI).

UNLOCKING REAL VALUE OF WAREHOUSE MOBILITY The value of mobility in the warehouse function is easily recognised: • Processes across the warehouse are streamlined, thus reducing cycle times. • Worker productivity is increased, reducing the cost of labour in the warehouse. • Orders are fulfilled more accurately, improving customer service and satisfaction levels.

OCTOBER 2010 • SMART LOGISTICS • 69

Warehouse mobility in supply chain, continued

• The cost of sales attributed to movement through the warehouse is reduced. While these are significant business benefits, when the data collected through mobility in the warehouse is tightly integrated into the business systems and functions, the value increases dramatically.

THE YARD With warehouse mobility, the exact location of shipments and materials in the yard are noted in the warehouse management system (WMS) upon delivery. This expands the inventory visibility beyond the warehouse to include trailers, containers and other materials in the yard. Even if containers or materials are moved from their original storage spot, they are easily tracked. Thus, shipments in the yard can be prioritised and scheduled for prompt conveyance based on items in the warehouse that are less in number or out of stock. Mobility enables tighter integration between the yard and warehouse workers — yielding greater efficiencies in both functions. Based on the information already in the system, a dynamic, single information-packed schedule can be created and delivered to the workers’ mobile devices. Workers in the yard can be directed to the exact location of the next trailer or container scheduled for conveyance, ensuring on-time delivery to the dock. Warehouse workers are aware of which shipment is supposed to arrive at which dock, and are ready for unloading. After containers and trailers have been unloaded and returned to the yard, the location of these critical assets remains visible in the system. Moreover, the tighter collaboration between the warehouse and yard functions enables rapid schedule changes so as to prevent an out-of-stock situation in the warehouse. In a short time, a dynamic change in schedule can be implemented to ensure immediate delivery of shipment to the dock, effectively reducing the impact on either the production line or order fulfillment process. Properly integrated real-time information in the delivery function of the warehouse packing function can help realise major benefits in the shipping and delivery operations.

DISPATCH When the dispatch function can see

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shipments in progress in the warehouse in real-time, load plans can be prepared that take into account all shipments that are ready for loading rather than shipments completed at a specific point in time. Load aggregation is easily optimised, and trucks are suitably loaded with shipments that have been aggregated to enable the most efficient delivery route possible. Tight integration with the shipping function in the warehouse makes this possible. Based on the real-time load plans, staging information is sent to the shipping function, ensuring that shipments are loaded on the right truck and in the right order. Route accounting and proof-of-delivery The collaboration of data between shipping and dispatch increases the efficiency of the delivery function. At this point, one can effectively track materials from the time they were received; for manufacturers, through the manufacturing process; to the warehouse shelves; through the order fulfillment process to shipping. Shipments are aggregated into loads to enable delivery with minimum distance travelled, thus reducing fuel costs. Moreover, the ability to load shipments in the order of delivery further improves driver productivity. When the pool of business data extends in real-time to the drivers, significant additional benefits are realised, regardless of whether the drivers need proof-ofdelivery for parcel post operations, or sophisticated route accounting and direct store delivery functions. With mobility extended to drivers in the field, electronic signatures can be easily captured – serving as instant proof-of-delivery – in the business systems to enable accelerated billing and payment. Further, in route accounting and direct store delivery functions, the drivers can use the real-time mobile computing and the information to verify shipments against the original customer order. They can also use it to remove damaged items and reflect customer additions or changes made at the time of delivery. This can result in an accurate on-the-spot invoice. This eliminates the typical time delay in processing standard paperwork on deliveries at the end of the day. Field service Integrating warehouse and field service functions via real-time mobility solutions improves the efficiency and customer

service levels in field service operations. Based on the day’s schedule and the equipment slated for repair or service, a list of required parts and supplies are identified and sent to the warehouse for fulfillment and loaded onto the truck. Service personnel have everything required to do the task at hand, so repairs can often be completed in a single visit, improving customer service. Finally, real-time repair information from all field service personnel can be automatically analysed on a regular basis. The timeliness of this information enables taking a proactive action to control and reduce the business ramifications of the situation — from preventing future stock from being manufactured with possibly defective parts to preventing existing stock that was already manufactured with a defective part from being shipped to customers.

LEANER WAREHOUSE: LEADING THE WAY FOR COLLABORATIVE & PROFITABLE SUPPLY CHAIN The warehouse is at the very heart of any business operation. A poorly managed warehouse can actually become cost prohibitive, significantly affecting the cost of business, and general profitability. Through mobility, real-time warehouse information can be leveraged to enable a new level of information collaboration throughout the enterprise. The right set of data is available in the right place at the right time to enable the most efficient next action — and the most effective business decisions. Not only does efficiency in the yard, manufacturing, dispatch, delivery, sales and service functions improve, but the collaboration between functions provides a real-time enterprise wide view of business information that helps achieve key strategic business objectives. Reduced stocking levels can also free valuable space for re-allocation to other areas that will better serve business profitability. Leveraging warehouse mobility in the warehouse and beyond can yield highly beneficial results, including reduced costs, improved quality, better customer service, higher margins and greater profitability — delivering real business advantage. Thie article is an excerpt from the white paper, ‘The synchronised distribution supply chain: Best practices in warehouse management’ Courtesy: Motorola Inc

PRICE TRENDS Road Freight Index Chart for September 2010 The RFI stood at 174 points for the month of September 2010 registering an increase of 3 points over September 2009. For Metros Ex – Delhi rates registered on an average a highest increase by 2% where as Ex – Mumbai on an average registered highest decrease by 4%.

TRENDS FOR SEPTEMBER Y-o-Y 172 174 166

171

166

INDEX OF 6 YEARS: AUTOMOBILES:

137

The overall production data for April-August 2010 shows production growth of 32% over same period last year. Passenger vehicles segment in April-August 2010 grew at 34% over same period last year. Passenger cars grew by 34%, utility vehicles grew by 23% and multi purpose vehicles grew by 51% in April-August 2010 over April-August 2009. For the period of April - August 2010, three wheeler sales recorded a growth rate of 20%, while passenger carriers grew by 24% and goods carriers grew at 5%.

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

TRENDS FOR OCTOBER Y-o-Y

COMMERCIAL VEHICLES: The overall sales of commercial vehicles segment registered growth at 45% in April-August 2010 as compared to the same period last year. While medium & heavy commercial vehicles grew at 66% and light commercial vehicles grew at 30%.

168 166

172

140

FORECAST FOR OCTOBER 2010: The RFI in October 2009 over October 2008 2005-06 2006-07 2007-08 2008-09 had registered stability and 1% increase over 2009-10 September 2009. The RFI stood at 172 for the month of October 2009 over 171 for the month of September 2009 registering an increase by 1%. The RFI for the month of September 2010 can be expected to increase marginally.

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

72 • SMART LOGISTICS • OCTOBER 2010

TECH TRACK IT TRENDS IN LOGISTICS

Wood Based Radio Tags For Timber Transporters IN the future, wood-based radio tags – RFID – will optimise logistics processes in the forestry. These RFID transponders consist of paper and lignin, they do not disrupt the processing of logs and still enable data capture of entire truckloads of timber. There are usually colourful markings on tree trunks waiting along trails to be hauled away, though only insiders are able to interpret the markings. In principle, each forest owner has his or her own marking system, informed Mike Wäsche from the Fraunhofer Institute for Factory Operation and Automation IFF in Magdeburg. Together with colleagues from the Fraunhofer Institute for Reliability and Microintegration IZM, the Thuringian State Forestry, Hunting and Fishing Agency and other forestry partners including business information specialists intend to replace these markings with standardised transponders, ie, radio tags. They also intend to establish a logistics standard based on RFIOD for data exchange between forest owners, logging and hauling operations and commercial end users. While the ELectronic Data (ELDAT) standard for exchange of sales information has been employed in forestry, it only rudimentarily incorporates logistics processes. There are also gaps in the IT infrastructure – so far only the major

players have implemented information technologies. However, people involved could also profit from integrated electronic data exchange in conjunction with RFID – including small- and medium-

sized operations involved in logging and transport. Data such as the origin, quality, quantity and destination of logs need to be recorded only once. Moreover, timber can be allocated rapidly and reliably, which expedites invoicing and facilitates transportation control. High-grade logs for furniture or parquetry are frequently marked with numbered or radio tags. However, the partners in the project, Intelligent Wood - RFID in Timber Logistics, desire a more practical solution suitable for marking all types of wood. Industrial wood is delivered and processed into pulp, paper or composite wood panels. Because of

narrow profit margins in this sector, the RFID transponders used may not cost much nor disrupt further processing of the wood, as Wäsche points out. Hence, the team at IZM has developed a new wood-based transponder – with the exception of its antenna, the tag consists of paper and lignin. Large quantities of the resin-like polymer are yielded when cellulose is extracted from wood. Christine Kallmayer, Group Manager, IZM, explains that the transponder‘s fraction of metal is far below the typical levels of impurities in and around wood. For keeping the costs down, only a numeric code is stored on the radio tag. All other information is stored in the individual actors’ management and accounting systems. Tags are read as a vehicle drives by, ie, while making a delivery to a mill, the truck with its cargo passes through a reader gate. All delivered logs are captured in bulk while still on the vehicle. Theoretically, one or two RFID transponders per truckload are sufficient to uniquely identify all data. If a load of timber originates from multiple suppliers, at least every 20th or 30th log must be marked for reliable allocation. Although the project will run until early 2011, the IFF is considering inquiries from the chemical industry. The same principle could be applied to capture and track metal drums carrying hazardous liquids.

Adding Analytics To Fleet Management Tools FLEET management system provider Asset Intelligence is basing its new enterprise analytics service on a data warehouse appliance platform from Teradata Corp, to help over-the-road carriers eliminate blind spots in their operations and step up productivity and performance. “With the addition of a data warehouse application to our system, we can deliver a faster, more intelligent analysis of data,

74 • SMART LOGISTICS • OCTOBER 2010

enabling our customers to react more quickly to real-time developments in the status and condition of their assets,” explained Raju Kakarlapudi, CIO - ID Systems, Asset Intelligence. Adding further, Ted Senemar, VP, Teradata, noted, “Adding advanced analytics to the equation dramatically increases the value of transportation solutions. Richer, actionable information helps (fleets) realise a competitive

advantage.” Asset Intelligence delivers telemetricbased solutions for tracking and managing fleets of trailers and containers through its VeriWise system. With the use of satellite & cellular communications and web technologies, VeriWise provides information to help fleets optimise utilisation, maintenance, ensure freight condition and security and reduce fuel consumption.

Sophisticated Sensor System Tracks Ocean Freight Boxes THE US Department of Homeland Security has implemented a programme to install sophisticated sensors inside shipping containers to track their progress from storage to delivery points in the naval supply chain. According to Sydney-based AZoM.com, the Advanced Container Security Device (ACSD) is a small instrument that can be fixed on the inside of a container to detect any interference or human shipments. On detecting an abnormality, the device will broadcast warning information to the US Customs and Border

Protection by means of a Marine Asset Tag Tracking System. The plug-and-play system in the device facilitates installation of other security sensors such as those for detecting chemical, radioactive or biological materials, using a quality interface. So far, about 40 model systems have been tested, evaluated and delivered, and in the coming financial year, advanced technologies to ‘overcome the defects identified during the model system testing trials’, would be implemented, states the report.

OCTOBER 2010 • SMART LOGISTICS • 77

NEWS ANALYSIS

NEW MARITIME POLICY

PROMISING

GROWT AVENS The Indian sea transportation segment has remained stagnant since decades, even though it has immense business potential. Also, despite being the most convenient and cost-effective mode of transport, it has not got its deserving share of attention from policy makers. However, with the impending expiry of existing National Maritime Development Programme in 2012, the government has decided to take steps to boost the country’s maritime sector. Thus, the Shipping Ministry has proposed a new policy, which is expected to improve port infrastructure and also increase the efficiency of maritime logistics. KTP RADHIKA JINOY CONSIDERING the crucial role of the shipping industry in the economic development of India, the government has realised the importance of worldclass port infrastructure. Keeping this as the background, the Central Government has recently proposed a new policy that targets the development of the maritime sector in India. The New Maritime Policy, which is expected to be formulated soon, is slated to significantly improve the country’s sea transportation. The policy replaces the existing National Maritime Development Programme (NMDP), and will remain valid for a period of 10 years. It will include year-wise projects through which it will cover projects for the 12th plan

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and also the initial part of the 13th plan. Apart from infrastructure improvement of ports, the plan will focus on auxiliaries like coastal shipping, which has immense business potential.

NMDP VS NEW MARITIME POLICY The existing NMDP is valid up to the year 2012 and covers only projects that have been implemented as on April 1, 2005, or those that will begin by March 31, 2012. The new policy, will come into action in 2010, and will be valid up to 2020. It will focus on the expansion of ports and also specify the number of new ports to be built under the public-private partnership (PPP). According to GK Vasan, Minister

of Shipping, Government of India, “The proposed maritime policy envisages integrated development of the maritime sector, while encompassing hinterland connectivity to ensure least distance access to the ports.” The policy will also define the use of land by major state-owned ports to improve efficiency. Captain Ajay Puri, MD, Skyline Shipping, says, “The new policy is expected to have a strong focus on the infrastructure development of our ports. India needs to meet global standards in logistics infrastructure to attain economic development. To accomplish this, there is a need to modify and improve the efficiency of our ports, as most of them are currently in poor condition.” Adding to this, Vineet Agarwal,

A target of 40 MT increase in container transportation was set under the NMDP. But our ability to execute projects implemented by the government is low. This had led to less than 6 per cent freight movement through the coast in India, which is fundamentally approximately 30 per cent of the total movement through this route. Thus, government intervention is required at all levels. MANISH SAIGAL, EXECUTIVE DIRECTOR AND HEAD – TRANSPORTATION & LOGISTICS, KPMG

development of roads, railways, inland waterways, dredging mechanisation and modernisation plan of major ports and non-major ports.” The Ministry of Shipping has also formed a core working group and a sub-group for preparing the policy. Industry experts hope that the policy will help the shipping freight business prosper. Agarwal adds, “The Indian shipping freight sector will get a boost if the new policy is implemented properly. Also, the focus on auxiliaries like coastal shipping will create immense business opportunities.”

COASTAL SHIPPING

Executive Director, Transport Corporation of India, asserts, “The new maritime policy is a welcome sign for the reforms being initiated in shipping. As the new policy contains year-wise projects for the next decade, there would be an extensive thrust on setting up ports adopting the PPP model, enabling the industry to get the best of both worlds.”

PROMISING PROSPECTS According to K Mohandas, Shipping Secretary, Ministry of Shipping, the new plan will include a policy framework for hastening capacity expansion. Highlighting this, Agarwal avers, “The new policy will boost the growth of the maritime sector and contain supplementary projects for ports development from other infrastructure ministries, eg, the National Highway Authority of India, for

Apart from ports, coastal shipping is another area that the new policy will focus on. Despite the obvious advantages of coastal shipping over land-based modes of goods movement in India, it has not grown to become an integral part of the country’s transport infrastructure. Agarwal points out, “Today, coastal shipping in India is anchored almost where it was decades ago. Although over 30 per cent of the total traffic handled by the Indian ports is routed through the coastal mode, the sector continues to be neglected by the government and the planners alike. Moreover, though coastal shipping is a major link in the integrated transport infrastructure system, it is yet to attain the infrastructure status.” The new policy will contain plans to improve the structure of coastal shipping. According to Mohandas, “With the proposed policy, we can expect more investments in coastal shipping from other countries.” On similar lines, Puri avers, “Coastal shipping is the best mode of transport for over-dimensional cargo, which is difficult to carry by road and rail network. But, this is one of the most neglected areas in India. Safe navigation of vessels becomes

difficult due to silting and settling of other foreign materials in the riverbed. Also, there is acute shortage of inland vessels in the country.” He further adds, “We need to improve coastal shipping with adequate dredging, appropriate lighting and other facilities. Thus, a clear-cut policy is needed for the development of an integrated transport system and attract investments in this area, which the new maritime policy is expected to bring in.”

PROPOSED INVESTMENTS Under the NMDP, a total of 50 projects in the ports sector were completed till the previous financial year, at a cost of `5,717.28 crore. With the new policy, most of the investments are expected to come from the private sector. Elaborating on the new policy, Vasan says, “Currently, no hurdles are seen in the execution of projects under the proposed maritime policy, which after implementation will lead to expansion of the maritime sector.” Highlighting on investments in this sector, Mohandas says, “The new policy will attract investment from private players in the maritime sector. It would also specify the number of new ports to be built under the PPP mode and other maritime infrastructure development plans as well.” Besides, the government has also finalised a model request for qualification, request for proposal and model concession agreement to ensure uniformity and transparency in the bidding process. This will help encourage more private sector investment in the port sector. Further, experts believe that the new policy will increase the efficiency of ports and fill in the current infrastructural gaps. Also, with the proposed policy, a better and improved logistics scenario can be expected in the maritime sector in the near future.

OCTOBER 2010 • SMART LOGISTICS • 79

REPORT

INDIA CONTAINER LOGISTICS SUMMIT 2010

ENABLING TRANSFORMATION THROUGH SHARED VISION With signs of a firm revival on the horizon, the Indian container logistics industry, its stakeholders and its custodians have a clear opportunity to create a solid platform for growth in the coming years. For enabling this transformation, the Supply Chain Leadership Council, with Smart Logistics as its media partner, recently organised ‘India Container Logistics Summit’ in Mumbai. A report… SUMEDHA MAHOREY INDIAN traders and the shipping & logistics community had become so used to the double-digit growth in volume since the early 1990s that the unexpected slowdown of the last 18 months was difficult for them to handle. Tackling with receding volumes and low confidence, the industry weathered the challenges, to leap back into the success zone, cashing in on enormous growth prospects. Bringing in fresh perspectives to the evolving container logistics landscape in this scenario, over 100+ stalwarts from across the industry gathered at the first edition of the ‘India Container Logistics Summit’ organised by the Supply Chain Leadership Council on August 27, 2010, in Mumbai. Manish Saigal, Executive Director & National Industry Head – Transportation & Logistics, KPMG, predicted that the container traffic in India will double to 16 million twenty-foot equivalent units (TEUs) by 2016 and quadruple to at least 30 million TEU in the next decade. He informed that the government needs to increase its pace of execution to create a robust maritime infrastructure. Recommending the government to fasten the pace of development, KPMG released a research paper at the summit which was submitted to Ministries of Shipping & Railways and the Planning Commission.

PORT INFRASTRUCTURE Port

infrastructure

was

80 • SMART LOGISTICS • OCTOBER 2010

another

From left: Gagan Seksaria, Associate Director - Transportation & Logistics, KPMG; Subhasis Ghosh, Director, South Asia Cluster, AP Moller - Maersk Group; Capt Bhandarkar, Director, Bhandarkar Shipping; Suneel Bakshi, GM (Sales & Marketing) EXIM, Innovative B2B Logistics Solutions; Capt Tony Keswani, CEO, Biforst Logistics; Sanjeev Modi, Head (Port Development), Gammon Infrastructure; Ramnath Rangaswamy, Group Head (Logistics), Vedanta Resources

important topic put forward by the industry experts during the summit. On this issue, S Hajara, CMD, Shipping Corporation of India, explained that for India to be included in the top liner shipping routes, it needs to drastically upgrade its port infrastructure. SK Saha, Director - Ports & Railways, Planning Commission, acknowledged that India needs to spend 1 trillion dollars in the 12th Five-Year Plan (2012-2017). He said that the share of private investment in ports in the 12th Five-Year Plan is expected to be 80 per cent as compared to 16 per cent in roads, 4 per cent in railways and 64 per cent in airports.

INVESTMENT ISSUES Highlighting one of the major issues faced by the industry, Vinod Giri, Director, IDFC Private Equity, informed that the private sector has overbid on most ports, agreeing to share 30-49 per cent of the revenue with the government. He warned against a situation where these privately operated terminals generate negative operating cash due to these unsustainable revenue share agreements. Gagan Seksaria, Associate Director – Transportation & Logistics, KPMG, advised private equity players joining consortiums that participate in port bids across India, to understand that strategic players often bid high on the basis of global port network strategy or potential benefits to their group companies involved in liner shipping, logistics or port services,

which causes their financial expectation and holding periods to be different from those of financial investors. Captain Sandeep Mehta, CEO, Mundra Port & SEZ, explained that new port developments must focus on multi-purpose cargo handling capabilities than a container or an LNG, to be able to survive frequent trade slowdowns.

INNOVATION IN LOGISTICS Vishal Sharma, MD & CEO, Tuscan Ventures, discussed innovations in container logistics, using Dharamtar port, as an example of applying innovation to the Indian context. Representatives of the private container rail industry, including Suneel Bakshi, GM, Inlogistics B2B, and IVS Murlidhar, Senior Vice President, Boxtrans Logistics, shared several successful examples of innovation in the private container rail space. He informed that the shift from road to rail on the domestic cargo side is gaining momentum rapidly. Further, Ramnath Rangaswamy, Group Head (Logistics), Vedanta Resources, representing cargo interests, stated he expects predictability on time and cost from their service providers, indicating a preference for service providers with multimodal capabilities. In totality, the congregation of industry experts at the summit brought together fresh perspectives on the evolving container logistics landscape with the help of shared examples of innovation and experimentation that are being witnessed in the country at present.

HITECH MATERIAL HANDLING SHOW EVENT PREVIEW

INSPIRING INNOVATIONS Mumbai | 17-19 Feb, 2011

To keep pace with the increasing demands and manufacturing advances, the Indian material handling industry needs to innovate and deliver futuristic solutions. HiTech Material Handling is a first-of-its-kind show exhibiting futuristic products & services across the material handling spectrum. A one-stop shop for GenX material handling solutions, the event is all set to provide a success ladder to one & all...

SHIBANI GHARAT MATERIAL

handling plays a fundamental role in today’s manufacturing setup. Right from raw material handling to the final dispatch of the product to the end-customers, material handling plays an indispensable role. In a nutshell, an efficient material handling equipment (MHE) increases throughput, controls costs and maximises productivity. While the applications are many, every industry vertical demands a unique set of equipment to store inventories as well as to dispatch the final product. Justifying the same, Tushar Mehendale, MD, ElectroMech, avers, “Any manufacturing unit, in any sector, requires equipment to handle materials in the factory. Different verticals require different solutions to cater to their MHE needs. Chemical industry, pharmaceutical, construction, electronics, energy, food & beverage, metalworking, metal casting, plastics, aerospace manufacturing, automotive industries – all are dependent on the MHE industry. This reflects the critical significance of material handling in every industry vertical.” Elaborating on how efficient material handling brings profits to the industry, Sudhanva Jategaonkar, Associate Vice President - B2B Publishing, Infomedia18 (A Network18 Company), opines, “Efficient material handling and smart storage solutions are the means for enhancing profitability for small and medium enterprises (SMEs).” In order to cater to the growing needs of the customers and to create an awareness about the GenX material handling solutions for the industry, Network18 Group is organising a mega industry event in February

2011. The event is aimed at providing a conducive platform for showcasing best in class solutions that aid in attaining manufacturing efficiency. HiTech Material Handling is a first-ofits-kind event showcasing latest material handling innovations under one roof. From MHEs like forklift trucks and automated logistics systems to innovative and costeffective ideas in racking, shelving, storage solutions, transport and distribution, packaging; handling system design & warehousing, the event will display the best of new-age material handling solutions. HiTech Material Handling Show will be concurrent with HiTech Automation, under the umbrella show HiTech Manufacturing.

AN ERA OF EVOLUTION In the past few years, material handling has become a new, complex and rapidly evolving science. For moving material in & out of warehouse, a variety of equipment and system are in use, depending on the type of products and volume to be handled. According to Vijay Devta, Senior Sales Executive, Safex ElectroMech, some of the new-edge technologies in India for MHE are hydraulic conveyors, hydraulic working platforms and material lift, passenger cum material lift in construction industries and in-process industries roller conveyor. Manufacturers have a wide variety of choice in the types of MHE available in the market. To add to this, globalisation and international trade & commerce are propelling competitiveness and driving the development of novel and efficient

material handling technologies in the market. According to Mehendale, the size of the Indian MHE industry is estimated at approximately `5,000 crore and is likely to grow at 20 per cent year-on-year over the next five years, in terms of the overall economic growth. Domestic production and foreign trade are the two growth drivers for this segment.

ONE-STOP SHOP FOR MATERIAL HANDLING HiTech Material Handing will help the entire material handling industry converge into a single lucrative platform that will serve as a foundation for the future growth of this industry. The event will display cutting-edge technology, breakthrough innovations and interactive demonstrations from the leaders in the material handling industry. “HiTech Material Handling showcases the best and the latest in the industry. This show is a must attend for all SMEs. For those who will be a part of this extravaganza, the exhibit will provide tremendous networking opportunities and scope for business generation,” avers Jategaonkar. With this show, the material handling industry will be witnessing a slew of exciting new developments, which, in turn, will help the businesses maximise their return on investment (ROI). HiTech Material Handling show is poised to equip India to shape its futuristic aspirations of building a robust innovative material handling equipment industry, with an objective of achieving a worldclass position.

OCTOBER 2010 • SMART LOGISTICS • 81

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

ADEA - automotive dealership excellence awards ...............................73

ODC transportation..................................................................................................35

Barcode & RFID technologies .............................................................................77

Polycarbonate sheets .................................................................................................. 9

Cold chain & logistics expo-2011 .....................................................................71

Pooling of pallets & crates...................................................Back inside cover

Cold form C & Z purlins ......................................................................................... 9

Pre engineered steel buildings .............................................................................. 9

Containerised transportation ...............................................................................13

Prefab shelters................................................................................................................. 9

Custom clearance .......................................................................................................35

Project transportation...............................................................................................35

DHL import express worldwide ................................... Front inside cover

Residential steel houses ............................................................................................ 9

Engineering Expo ..........................................................................................4, 16, 54

Roof vents ......................................................................................................................... 9

Exhibition - HiTech Manufacturing Show ...........................................42, 43

Roofing & cladding sheets ....................................................................................... 9

Flooring solutions .......................................................................................................... 7

Self-adhesive tapes .....................................................................................................11

Freight forwarding .......................................................................................................35

Structural floor decking sheets ............................................................................. 9

Heavy industrial steel buildings ............................................................................. 9

USS univents .................................................................................................................... 9

Industrial state directory .........................................................................................51

Ventilators ........................................................................................................................11

Material handling systems suppliers ................................................................... 3

Ware housing ................................................................................................................35

Multi level car parks .................................................................................................... 9

Warehouses ...................................................................................................................13

Pg No

Advertiser

Tel. No.

E-Mail

ADEA-Automotive Dealership Excellence Awards +91-22-30034650

prachi.mutha@infomedia18.in

BIC

Chep India Pvt Ltd

savio.pimento@chep.com

DB Schenker Logistics

FIC

DHL Express (India) Pvt Ltd

+91-22-67839400

Website

www.chep.com www.dbschenker.com

4,16,54 Engineering Expo

+91-22-66789186

girish.meghnani@dhl.com

www.dhl.com

+91-9920401226

engexpo@infomedia18.in

www.engg-expo.com www.geipl.com

Great Eastern Impex Pvt Ltd

+91-124-2347431

info@geipl.com

42,43

HiTech Manufacturing Show

+91-9820373804

hitech@infomedia18.in

Media Today Pvt Ltd

+91-11-26682045

hortiexpo@gmail.com

MFC Transport Pvt Ltd.

+91-22-40341406

sudip.mukherjee@mfctransport.com www.mfctransport.com

Nina Concrete Systems Pvt Ltd

+91-22-67166000

info-support@ninaindia.com

www.ninaindia.com

Schaefer Systems International Pvt

+91-22-67410770

schaefer@ssi-schaefer.in

www.ssi-schaefer-asia.com

Sreelakshmi Traders

+91-44-24343343

sreelakshmitraders@gmail.com

www.sreelakshmitraders.com

United Steel & Structurals Pvt. Ltd

+91-44-42321801

admin@unitedstructurals.com

www.unitedstructurals.com

Vijay Logistics Pvt Ltd

+91-2135-675000

info@vijaylogistics.com

www.vijaylogistics.com

VRL Logistics Ltd

+91-836-2237511

headoffice@vrllogistics.com

http://vrllogistics.com

Web 18 Software Services Ltd.

Yellow Pages

www.ibnlive.in.com/ siemensecovatives +91-22-30245000

yellowpages@infomedia18.in

www.infomedia18.in Our consistent advertisers

FIC = Front Inside Cover, BIC = Back Inside Cover, BC = Back Cover

82 • SMART LOGISTICS • OCTOBER 2010

Use this form for free additional Information on advertisements published in this issue. We will send your inquiries to the advertisers and ask them to send you the details or contact you directly.

HOW TO USE THIS FORM: • Please tick against the box of advertiser(s) you are interested in: • Mention specific product/ service you need, against the advertiser’s name • Complete all the details on this form. • Tear the form & mail it to us. (It is a prepaid mail) Tel.: +91-22-3003 4640 • Fax: +91-22-3003 4499

E-mail: b2b@infomedia18.in PRODUCT INQUIRY FORM

ADEA - automotive dealership excellence awards Barcode & RFID technologies Cold chain & logistics expo-2011 Cold form C & Z purlins Containerised transportation Custom clearance DHL import express worldwide Engineering Expo

ODC transportation Polycarbonate sheets Pooling of pallets & crates

First Fold Pre engineered steel buildings

Here

Prefab shelters Project transportation Residential steel houses Roof vents

Exhibition - HiTech Manufacturing Show

Roofing & cladding sheets

Flooring solutions

Self-adhesive tapes

Freight forwarding

Structural floor decking sheets

Heavy industrial steel buildings

USS univents

Industrial state directory

Ventilators

Material handling systems suppliers

Ware housing

Multi level car parks

Warehouses ADVERTISERS’ INQUIRY FORM

Second Fold Here ADEA-Automotive Dealership Excellence

Nina Concrete Systems Pvt Ltd

Awards Chep India Pvt Ltd

Schaefer Systems International Pvt

DB Schenker Logistics

Sreelakshmi Traders

DHL Express (India) Pvt Ltd

United Steel & Structurals Pvt. Ltd

Engineering Expo

Vijay Logistics Pvt Ltd

Great Eastern Impex Pvt Ltd

VRL Logistics Ltd

HiTech Manufacturing Show

Web 18 Software Services Ltd.

Media Today Pvt Ltd

Yellow Pages

Third Fold Here

GLUE

MFC Transport Pvt Ltd.

Please complete the following & get a quick effective response from suppliers: 1. Your company’s business function is ( one only) Wholesalers Manufacturer Distributor Agent Other, please specify ______________ 2. Your role in your company’s buying process can best be described as: I buy I identify potential suppliers I approve purchases I negotiate contracts I select suppliers. 3. Your line of business 4. Specific product requirement Name: Designation: Company Name:

City:

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Fax:

Email:

10 / 2010

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