Jan issue 2014 by jagtar

January 2014 | `100/-

INDUSTRY INSIGHTS

Become a market leader by leveraging business and manufacturing intelligence

SCM SPECIAL

IN DEPTH

How to transform your supply chain through a 4PL approach

Procurement and accounts payable: Symbiosis or just neighbours ?

TEAM THOUGHTS

All areas of business to absorb e-Commerce

ATURE SPECIAL FE e Cost to serv TRY S U IND EWS N

Optimizing distribution for omni-channel retailing

ASIA MANUFACTURING SUPPLY CHAIN SUMMIT Third Edition

18th & 19th February 2014 | The Lalit, Mumbai www.asiamscsummit.com

LEADERSHIP SERIES The timeless procurement challenge of supplier price versus cost

Group Company

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Dear Friends, Greetings of the New Year. Hope it brings all of us lots of luck in our respective endeavours. Having finished five years for this publication with the November issue i would be happy if some of you share your thoughts on our publication which would help us improve going ahead. The 3rd edition of our Asia Manufacturing Supply Chain Forum (AMSCS) is scheduled on 18th-19th February at The Lalit, Mumbai. The timing could not be better than this as the confidence seems to be back in the manufacturing sector as recent forecasts on global economic growth and industrial production, as well as predictions by the British business analysts at the Oxford Economics that the level of investment in key user sectors is likely to grow at 6.5% worldwide in 2013. They also predict that the level of investment could be almost twice that figure in 2014 i.e 12.7%. With India not really being isolated from the global manufacturing industry, it seems like we are headed for better times. I am sure the required mindset is there in India along with the right products & technology. What is needed is little more innovation and aggressive brand building. The ‘Made-In-India’ brand has to be promoted strongly and in a better way in the international marketplace and especially in Trade fairs. Moreover the government too has to take key strategic measures to ensure that business conditions are right for the growth of the industry. Nothing can then stop India from making its presence felt in the international marketplace. This edition of AMSCS would also host co-located tracks on 'Reverse logistics' & 'Project logistics'. We would have case studies from successful brands in Auto, Hi-Tech & Pharma sectors along with workshops on WMS /TMS. I hope to see you there soon.

Celebrating YEARS of

Best,

SUCCESSFUL

JOURNEY

January 2014 : Issue 31

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Contents

January 2014

Industry Insights

Special Feature

Become a market leader by leveraging business and manufacturing intelligence by John Fishell

Cover Story

Compete: Do your metrics measure up ? by Mike Ledyard & Joseph Tillman

How to regain lost trust and negotiate a highly collaborative relationship by Andrew Downard

Evolving the cold chain: Best practices & innovations White Paper by NFI

Creating more intelligent supply chains with BI technology John Woods

Intra-Asia trade offers rays of sunshine amongst stormy waters by Mark Millar

Creating a greener warehouse

10 Tips to achieve a lean supply chain

Excerpts from our chat with Dr. Ed Marien has his own consulting firm, Marien & Associates. SCM Special

How to transform your supply chain through a 4PL approach In Depth

Team Thoughts All areas of business to absorb e-Commerce

Optimizing distribution for omni-channel retailing by Keith Phillips

Leadership Series

Outlook : Snippets from Blue Dartâ&#x20AC;&#x2122;s Research Journal

Cost to serve by Rob O'Byrne

Procurement and accounts payable: Symbiosis or just neighbours ?

Industry News

Kale Logistics to help countries meet WTO trade facilitation requirements using a single window platform

Emirates SkyCargo expands Indian subcontinent

Vizag logistics park to be ready on time

Team Thoughts

All areas of business to absorb e-Commerce While contemporary omni-channel retail is critical, expect channel distinctions to blur as e-commerce continues its rise in popularity

here are so many different ways to reach your customer nowadays whether it be by brick-and-mortar stores, websites, mobile apps, social media, catalogs the list is evergrowing. All sources seem to say that e-commerce is experiencing double-digit growth without any indication of slowing. What also is changing is the face of the retailer, the consumer and distribution. No longer is e-commerce relegated to business-to-consumer (B2C) sales; business-to-business (B2B) retail is gaining popularity as well, including both manufacturers and warehouse distributors. According to Ranga Bodla, director of industry marketing for manufacturing and wholesale distribution at NetSuite, “As high as 85 percent of distributors are looking at revamping their website for e-commerce. I think the most important thing for preparing for e-commerce growth is you can’t put your head in the sand. You have to make sure that you’re focused and paying attention, because whether or not you change your business to adapt to e-commerce, the industry is changing.”

January 2014

Your Customer Base Is Evolving Even if you’re not 100 percent prepared to take on the challenge of e-commerce now, it is important to have a plan, so you can eventually meet the demand of expectant online consumers. While there are plenty of customers willing to pick up a phone and loyally rely on their already established supplier relationships, there is a small yet increasing amount of customers who are more comfortable online. If you’re not there, you could miss myriad opportunities. “It’s not to say that you have to suddenly stop everything you’re doing and suddenly put all your efforts into e-commerce, but what you do have to do is have a road map for how you’re going to attack e-commerce, and best make it a part of your overall strategy and competitive advantage because it’s not going to fall in your lap. It’s going to bypass you,” Bodla comments. “We did a Webinar with an organization called Unleash and it was specifically geared toward competing with the big

dogs how to prepare for Amazon and Google to come into the distribution market.” On the Webinar was one of NetSuite’s customers, Monterey Lighting, which recently entered the e-commerce market. Bodla says the company doesn’t know when e-commerce is going to burst onto the distributor scene, but it wanted to be ready because when it happens, it’s going to happen rapidly. As Bodla aptly put it, “It’s almost like when a stock market rally happens 80 percent of the gains happen in the first part. You want to be ahead of it, not behind it.” Moreover, Bodla believes that there are two schools of thought in regard to Amazon and Google entering the distributor e-commerce marketplace: “They’re going to be a freight train that is going to transform this industry, and we need to be prepared for how we’re going to effectively remain ahead and use our knowledge as a competitive differentiator.” Then there are those who say Amazon and Google can never provide the kind of information manufacturers

Logistics & Supply Chain World

Team Thoughts and distributors can, so they’re not a threat. With all that being said, if customers want to buy a product when a supplier is unavailable, whether because it doesn’t have a solid online presence or it’s closed for the weekend, they’re not going to wait for you to present yourself unless you offer something more than those suppliers who are available everywhere and at any time. That means you must provide the utmost in customer service, product availability, market knowledge, aftermarket service, etc. that actually makes the wait worth their while. Rick Chavie, vice president of omni-commerce, hybris software, warns,

“Consumerization of B2B is a hot topic in 2013 as companies struggle to move from traditional sales representative/ catalog interactions to convergence with digital commerce” The first thing to grasp about e-commerce retail is that customers do not think in terms of channels. They care about overall customer experience, and that product is available in various ways that are easy to navigate and access. Retailers must improve the

Logistics & Supply Chain World

commerce experience, according to Chavie, no matter the channel and make it consistent: “Companies need to embrace the seamless mindset across digital and physical commerce in their communications (brand consistency across email, website, direct mail, TV, catalogs, etc.); the ability for customers to buy and return anywhere using their own device; offering a single view of customer, product orders and inventory; and interactive engagement with customers.” He also suggests retailers should: “Recognize that mobile is both a commerce extension, as well as its own channel, and support both roles. As a commerce extension, mobile needs to support all phases of the customer journey. A complex website that is simply degraded to support mobile is less effective than designing your commerce experience around a user-friendly mobile asset that is leveraged broadly.” In conclusion, Chavie says, “In five years, industry leaders will embrace a ‘commerce’ view and ‘e-commerce’ will be absorbed into all areas of the business. Customers will routinely start in your digital channel, switch to your physical channel and return to a digital channel. Channel breakouts will be less important as channels blur. Customers will continue to have a wealth of online comparison options, so you must be competitively priced, but also offer services and a great experience to retain your customers.

18th February 2014 The Lalit, Mumbai Maximising Value : Return-Refurbish-Resell

For more details contact Aditee: 9870022364 Kinjal: 9820214946 / 7738036854 aditee@kamikaze.co.in kinjal@kamikaze.co.in

www.asiamscsummit.com

“Mobile crosses back and forth from personal to business use, and customers are using the same mobile device at home, the office and selling locations. Your tablet or smartphone apps must compete with the best user interface experiences that will set the standard among tens of thousands of apps that will rise to the top.”

January 2014

Industry Insights

Become a market leader by leveraging business and manufacturing intelligence To gain the full advantage for a business, companies are integrating manufacturing intelligence together with business intelligence

About the Author

anufacturers cannot expect to achieve and sustain success with traditional decision-making when facing today’s unprecedented shifts in markets, demands, technologies and opportunities. To maintain market leadership and profit margins, companies must respond intelligently to more frequent, drastic and faster changes. Some change is external, and some comes from core business strategies and processes to innovate, partner, and expand into new markets and set market trends.

Increasing Productivity in Today’s New Workplace

John Fishell, Vice President of product management at Apriso, a manufacturing operations management company that was recently acquired by Dassault Systèmes.

January 2014

Manufacturers are very innovative and new business models are thriving. But, with new products, customers, markets and situations, strategies that have worked in the past can soon become obsolete. Further, customers have now grown to expect greater responsiveness. This means conventional process structures and business strategies have become increasingly risky. Additionally, essential continuous process improvement initiatives have become significantly more challenging in digging out root cause issues due to the dynamic, constantly changing and sometimes unstable underlying technology platform. According to the November 2012 McKinsey study, Manufacturing the Future, this strategy transformation requires companies to “match granular insights with granular operations strategy.” In other words, people need real-time situational insights they can act on right away to drive improvement. Employees face many volatile situations that require quick decisions based on deep, complete data. For example, does it make sense to switch to making a different product when a material is not available or is it better to use a substitute material? That depends on the current demand for all the products in question within the plant, on current inventory levels, on customer and quality specifications, on scheduled supplier

Logistics & Supply Chain World

Industry Insights Gathering information for information's sake is costly not only in storage and information technology (IT) costs, but also in the cost for end users to navigate and make sense of the information. Manufacturing has significant big data issues and tight timelines, since in addition to usual market and business data, there is a production process that changes moment to moment. Typically, production information systems serve just one site and are somewhat standalone. However, connecting more plants into the intelligence flow can have exponential benefits for a global manufacturer. That multi-plant intelligence must flow into the enterprise information view and vice versa. Each provides critical context for the intelligence of the other to become insights. Being able to monitor and analyze manufacturing activities across plants not only gives the people responsible for change the confidence to make these changes, but also the validation that the changes are working or not.

deliveries and other factors. Since most large companies are outsourcing more than ever, these complex decisions involve a whole information network across the enterprise, into the supply chain and out into the marketplace. To gain effective insights, intelligence must be derived from data gathered across that network of disciplines, locations and partners.

Insights to Support Better Decision-Making The business question around big data is: â&#x20AC;&#x153;How do you generate more value than just adhering to a strategy to gather as much data and information as you can? How do you leverage this information and turn it into structured manufacturing intelligence for different roles in the company?â&#x20AC;? This insight needs to be based on the full business context so each individual can respond quickly with the right action. By some estimates, only 7 percent of big data captured is meaningful to businesses today.

Logistics & Supply Chain World

With more products, variants and end-user markets, manufacturers have more data than ever to sift through. Additionally, each department or discipline has its own data sets. These massive volumes of structured and unstructured data are challenging to use for decision-making when processes and systems are designed for much simpler and more stable environments. With global operations and distribution, new data is coming in 24/7. Most companies are simply not capable or equipped to make good, data-supported decisions at this pace. In order for this to happen, companies must transform data to information, analyze it to build intelligence and convert that to insights that enable profitable action.

Manufacturing Intelligence: The Missing Link Managing and converting big data into intelligence is typically the domain of business intelligence (BI) systems. However, in the case of global manufacturing enterprises, traditional BI is often not sufficient. With the critical position of manufacturing operations and the real-time nature of decisions that plant personnel, as well as manufacturing executives, must perform, a category of application called manufacturing intelligence (MI) has been growing rapidly in use and importance. BI and MI have quite a bit in common. Both pull data from various sources to transform it into information suitable for analysis to then gain intelligence to support business decisions. However, BI systems are not intended to handle real-time production data, nor support managers and factory-based employees in making minute-to-minute decisions. Traditional BI solutions also do not provide the low granular detail that manufactures need in todayâ&#x20AC;&#x2122;s markets. Companies using MI are twice as likely as all others to deliver real-time metrics to operators, line workers, supervisors and executives managing operations for their scope of control, based on the findings in the Manufacturing Enterprise Solutions Association International (MESA) Pursuit of Performance Excellence study. Clearly, companies are meticulously gathering and analyzing data, but not necessarily leveraging it to be available anytime, anywhere. Part of this shortfall is an inability to have ready access to the intelligence on mobile devices. Another factor is the challenge to obtain insights from MI that delivers multi-site or global intelligence to all situations that could benefit from this information, such as a comparison of performance across plants or continuous process improvement at a division or enterprise scope.

January 2014

Manufacturing Intelligence + Business Intelligence = Success So, how can the full range of employees and partners gain actionable insights on a regular basis? The short answer: By ensuring that business and manufacturing information support and provide context for each other. To gain the full advantage for a business, companies are integrating MI together with BI. This correlates real-time production data to shifting business realities, and informs business decisions about operations and actions, thus yielding far greater insights for more informed decisions. The challenge is often how to deliver it and keep it simple for each person’s scope of control, but make it consistently available so as to support intelligent business process improvement. What many companies now lack is sufficient automation of all their processes and infrastructure to support people where and when they need to collaborate, make decisions and take action. With today’s cloud technologies, new systems can often be implemented in a matter of weeks or days and later updated without delay or major disruption.

How to Sustain Your Leadership Position Sustaining a leadership position is an age-old problem. In this new era, the key is to ensure situational data quickly turns into information, then intelligence and then actionable insights. MI can foster timely processes to collect, analyze and display data to operations staff, supervisors and plant managers. Companies using MI are not only more likely to use best practices for line-level metrics, but also far more likely to improve operational and financial performance. Sustained agility requires that people make sound decisions quickly and accurately, at every level across an organization, and often in completely new situations. Examples in which BI and MI can be combined for more robust decision-making capabilities include : • Plant personnel deciding how to best cope with a materials shortage. • Enterprise executives making operational decisions about which product lines to emphasize based on total profitability. • Product design and innovation decisions based on issues in production and in suppliers’ facilities, such as suitability to run on current equipment. • Traceability of materials and containment of problems that could cause a customer problem, or recall across the global enterprise and supply chain. • Sales or customer service promises order due dates and/or quantities based on actual capacity and progress of inprocess work and orders. • Crafting a new production plan when disaster, such as a hurricane or tsunami, strikes a supplier’s facility. • Reacting to unexpected demand patterns, such as new products gaining traction in different markets or geographic regions than initially expected. • Marketing to spot seasonal trends. • Supplier performance and scorecarding. All of these cases can also benefit from running in the cloud to ensure worldwide access and consistency, mobility to reach people wherever they are, and social to allow collaboration and knowledge sharing. All of this can further improve productivity for big data analysis and timely decision-making that is the core of intelligence and insights.

January 2014

Logistics & Supply Chain World

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In Depth

Procurement and accounts payable: Symbiosis or just neighbours ? Electronic business networks that cover the full source-to-pay business process are a viable means to enable a global supply chain About the Author

here are things in life that we take for granted to be intertwined. Flowers and honeybees. Barnacles and baleen whales. Procurement and accounts payable (AP).

That last pair has a symbiotic opportunity on many levels. Both functions manage the same supply base. Both work with the same set of employees for requests and approvals. Why is it that most enterprises today still run spend compliance and AP automation as silos? According to Ardent Partners’ research 1, just 61 percent of enterprises have AP and procurement working toward some shared goals. Even in progressive global organizations that have shared service organizations, that shared service is usually accounts payable only.

Rinus Strydom Senior Vice President, Solutions and Alliances at Hubwoo.

AP organizations focus on taking paper invoices (which includes PDFs in today’s world) and then converting them into electronic metadata. Procurement, meanwhile, sends electronic purchase orders to many of the same suppliers who convert those to paper or PDF. AP and procurement leaders need to ask themselves what type of business they want to run: one that is innovative and strategic by collaborating, or the perceived “easy way out,” which is operating an isolated administrative function that is believed to be good enough. Let’s analyze the key drivers for each department along with two collateral groups who are affected treasury and the supply base.

Procurement Procurement is driven by cost savings and spend under management. Leaders have their plates full by analyzing spend, finding unaddressed categories to source, negotiating contracts and operationalizing oncontract purchases. It’s no wonder that accurate and electronic invoices are an afterthought.

Accounts Payable Accounts payable organizations are engulfed in a sea of error-prone manual processes, paper invoices and paper checks. Invoice processing times are lengthy, some times more than 30 days, and are also costly, which is why this is often the administrative target on which the AP departments focus. AP departments struggle to get accurate, approved invoices fast enough to even consider being able to take early payment discounts.

January 2014

Logistics & Supply Chain World

In Depth Treasury Today’s large enterprises are the most cash-rich they have been in decades and are looking for ways to maximize the use of that cash. They read about best-inclass techniques, such as dynamic discounting, payables auctions and supply chain financing. The reality is that most treasury departments don’t receive enough approved ready-to-pay invoices within the payment terms period to even initiate these techniques. That is a significant opportunity cost.

Suppliers Why do suppliers still present manual invoices? Because there is no incentive for them to do otherwise. Many electronic invoicing models in the industry force suppliers to pay fees, are unique on a customer-by-customer basis, offer no value-add to the supplier and are not linked to the means that suppliers receive purchase orders. With these choices, it is no wonder that suppliers opt for the cost of a postage stamp or send PDFs by email. Buyers as a whole still employ the big-stick approach to electronic supplier enablement programs. So just how can procurement and accounts payable align? Joint key performance indicators (KPIs) and unified processes are paramount. Even if spend compliance and AP automation projects are run separately and span separate timelines, it is well worth the time to agree on metrics up front and how to measure them. When the results are eclipsed, everyone can then share in the success without question. Following are some symbiotic procurement and accounts payable KPIs to consider: • First-time invoice match rate • Discounts captured • Productivity per full-time employee (FTE) • Percent of spend under purchase order • Touchless invoices • Number of suppliers per 100 invoices • Cost per procure-to-pay (P2P) transaction • Percent of purchase orders via catalog It is also well worth the time to plan electronic supplier enablement together as procurement and AP organizations. Even though both organizations onboard suppliers within their own respective projects, why not plan ahead to do it on the same technology platform ? Every onboarded supplier should help both AP and procurement. Approaches like scanning paper, optical character recognition (OCR) or PDF invoices, and invoice presentment networks have their place as complementary solutions, but are bandages that do not address the core problem, nor allow for the maximum benefits.

Logistics & Supply Chain World

They should not be used in large scale since they incorporate an artificial wall into the potential of a fully automated procure-to-pay process in the future. Electronic business networks that cover the full source-to-pay business process have become a viable means today to enable a global supply chain.

Functions include: • Electronic purchase orders, invoices, remittance advice and all the related transactions in between. • A hub for suppliers to conduct the full P2P process for many customers, including flipping purchase orders (POs) into accurate electronic invoices, and managing catalogs and contracted pricing. • A single hub for buyers to find qualified sources of supply, aggregate approved catalogs, send purchase orders, receive electronic invoices, capture discounts and pay. • A value-add vehicle for suppliers to gain incremental business, participate willingly without fees, and avoid being forced into a buyermandated burden. Let’s take a look at a success story from a business that managed to align those functions. Consol Energy, a 2013 Supply & Demand Chain Executive 100 Award winner, successfully crossed the chasm of aligning procurement, AP, treasury and its supply base. Around seven years ago, the company was paying invoices late and interacting manually with most suppliers. Today, it collaborates with suppliers electronically on a business network by Hubwoo; has aligned its procurement, AP and treasury KPIs; and has received a return on investment (ROI) of more than $65 million, including an additional $12 million of early pay discounts. The company has maximized its catalog-based POs and PO-based invoices and has gotten firsttime invoice match rates of more than 96 percent. Consol aligned KPIs up front before starting either a spend compliance or AP automation project. Finance executives bought in on both the KPIs and how they would be measured. Whether your organization starts with a spend compliance or AP automation project, remember these four things: 1. Working together maximizes benefits, just like that bed of flowers with its honeybees. 2. Align up front on the KPIs and how to measure them. 3. Electronic supplier enablement is key to both initiatives. 4. Business networks can be that conduit between procurement, AP, treasury and the supply base

January 2014

Leadership Series

The timeless procurement challenge of supplier price versus cost Need to Understand Cost Drivers at Suppliers, and Manage for Total Supply Chain Costs. Most supply managers understand that a supplier's unit price does not necessarily equal that vendor/item's total cost to the buying organization. But understanding does not necessarily mean adopting the principles. Most procurement organizations still measure supply management effectiveness based on unit cost changes, not improvements in total supply chain costs. And few really understand what drives a supplier's own supply chain costs. The retail sector is a prime example of this, where the idea of measuring "total through costs" for a given vendor/product has been around for a long time, meaning including total supply chain and handling costs in measuring item profitability, but the common sense idea has never really caught on.

LSCW did a classic interview with Dr. Ed Marien on this topic of "Supplier

Price-Cost Management." Marien was for many years at the University of Wisconsin, and after that has his own consulting firm, Marien & Associates. What is the concept of Supplier Price-Cost Management all about ? Marien: Well, there are three things in that title. First "suppliers" - companies responsible for keeping buyers in the supply of products when needed at the right cost. Second "Price-Cost" - the two terms go together. There are several aspects of price, of course, but the key concept has to do with looking holistically at the buyer's side of costs, not just the supplier's price. It's obviously not only purchase and delivery price that matters, but your internal costs for acquiring, managing and using that product or service. Finally, there's "management": that means really understanding these price-cost trade-offs, and dedicating the resources to do so effectively. It's not just sending your buyers out to get the best price, it's also giving them the training and support they need to go out and get a better understanding of cost How well is this concept understood among procurement and purchasing practitioners ? Marien: The high majority of buyers look at the job they do as being one of going out and getting the best price. They equate price paid with the cost to the firm, and they are not identifying the elements of cost that are in the supplier's price, and then also not analyzing the internal costs the buyer experiences in purchasing and using the item. Give us an example. Marien: Sure, just take something as simple as buying a product "FOB Delivered," meaning you are buying the good with a delivered price. Right there, as you begin to look at the delivered price, there are often opportunities to analyze and negotiate to ultimately end up with a lower total cost. A lot of buyers will say, "I don't want to mess with all these cost components, I just want to buy it delivered. Give me your best price at my door." What that often allows a supplier to do is to pad the cost elements to come up with that

January 2014

Logistics & Supply Chain World

delivered price without breaking out all the price elements. If I go further, you can look at the cost of carrying inventory. Say the supplier sells in quantities of 100, but you only need 10, so you buy the 100, use 10, and keep the other 90 in inventory for awhile. Obviously, the buyer is increasing its total costs by carrying that inventory. What prevents companies and buyers from thinking in these terms? Is it a skill set issue, a role definition issue, a mind set ? Marien: Part of it is clearly related to skills. Buyers have often just not been trained to analyze total cost of ownership. I'll give you another example of that. As buyers begin supplier price-cost management analysis, they start to look at cost structures, or what the real cost drivers are that effect the price the supplier charges. There is labor, materials, energy, R&D expense, other overhead, etc., all the elements that go into their costs. Many buyers don't have the skill sets to break down the cost of the product, breaking down the total value added costs of making and delivering the product. A second thing is that as buyers go through the requisition and supplier selection process, many have little say in the specifications for the things that they are buying. They are passing along a requisition - in some cases, the ultimate user of the product may even have identified the supplier. So, the buyer may have little opportunity to impact the supplier selection process. They don't have the opportunity to evaluate the requirements and look for alternative sources, break down the cost elements, and determine what is the lowest total cost. A related area is whether the buyers and the users or requisitioners have taken the time to really understand what the total product-service needs are. They may just be dealing with the technical specs of what is being requisitioned, and dictate those specs to suppliers, who don't have the opportunity to use their creative juices in meeting performance requirements. So, why don't companies take a more structured approach to price-cost analysis? It's a combination of frankly skill sets and expediency. They need to get things for users, and don't have the time and right training to do the proper analysis. It's partly a role definition or "turf' issue too though, isn't it ? Marien: I agree, and it's even more true as you look further into supplier's cost structure but also the buyer's own cost drivers. For example, think about implementing vendor or supplier managed inventory VMI programs or what I like to call SAMI Supplier Assistance in Managing Inventories. In SAMI, what you begin to do is take an activity-based costing (ABC) or ABM (activity-based management) approach. In reviewing the "as is" process of sourcing products and services, the parties to the overall process review what tasks are being done by the supplier, within the buyer's company and by third-party intermediaries. Often tasks are redundant and non value-add. The task is to determine what is the lowest total cost solution and assign tasks to those parties that can most effectively and efficiently provide users with the products and services needed to get the job done. You have to look at economic trade-offs between the supplier, buyer and intermediaries to meet performance specs. Who are these third-party intermediaries ? Marien: Third-parties include procurement, logistics and information technology providers plus traditional distributors involved in channels of distribution and today's supply chains. Please sum up the interview so far for our readers. Marien: As you get into more complex strategic sourcing relationships, it takes a higher skill level and also a higher level of teamwork to make the right decisions. Purchasing and Supply Management specialists need to understand the role of total costs and not just prices in making sourcing decisions. Various alternative cost models depend upon how firms are strategically sourcing products and services. The payoff can be huge if buyers gain understanding of alternative price/cost models.

Logistics & Supply Chain World

January 2014

SCM Special

How to transform your supply chain through a 4PL approach

hen companies have a huge hill to climb in strategic business process change, radical growth they don't know how to handle, market volatility, acquisitions, or significant supply chain performance issues, a fourth-party logistics (4PL) provider strategy can help align and direct projects with an eye toward future goals. The 4PL engagement begins with formulating a supply chain strategy. Companies may have goals and objectives, but those don't necessarily paint a picture of what they want to be and where they want to go. A 4PL approach helps define the supply chain capabilities and characteristics an organization wants to develop, and establish the methodologies necessary to drive results month-to-month and yearover-year to achieve that vision. The second part of a 4PL strategy is establishing a governance process ensuring key stakeholders

January 2014

are involved with reviewing projects, opportunities, and standard methodologies. This includes project, financial, and implementation management. With these two bases in place, the 4PL partnership can go in multiple directions. Often a 4PL provider will work with a customer to create a funnel they can use to channel projects through the methodology and governance processes. Companies can progressively work toward bigger goals by fasttracking quick wins transportation rates and optimization, as well as DC network rationalization, for example. As an organization streamlines its supply chain, it frees up cash that can be injected elsewhere. A successful 4PL engagement blends strategy and execution, with each feeding the other. A methodology must be in place to set goals, measure performance, and progress toward bigger gains

by meeting more easily recognized goals. The last part of the 4PL implementation involves aligning capabilities to demand. Functional needs change as the company and provider accumulate quick wins and move toward achieving their vision.

"Scope will change with different ebbs and flows, and resources will flex according to different skillset requirements" By contrast, in a traditional 3PL partnership the service provider will hold on to scope, such as managing a DC.

Logistics & Supply Chain World

SCM Special Ultimately, it all reverts to the initial strategy. What are the company's long-term objectives ? What does it want its supply chain to look like ? A company's future state vision is often radically different than the current. Progress toward an enterprise's goals is never a straight line. It changes because the business will inevitably change.

3 Situations a 4PL Can Improve Could your company benefit from working with a 4PL partner ? If any of these descriptions fit, it's possible. 1. Any significant change in a company's position in the market or in the market itself can be a 4PL trigger. If there is a lot of consolidation, new entries and competition, or a series of acquisitions and accumulated resources, companies may consider driving transformational change in order to meet market or competitive requirements. 2. A commonality of resources and skillsets or a lack of diversity in talent and expertise may require an infusion of fresh thinking and new scenarios to take the organization to the next level. 3. Supply chain disorder is a sure sign that a 4PL could be of use. Is the supply chain highly decentralized and difficult to manage ? Does a company run all its warehouses the same way, or does each have its own processes ? How lean is the supply chain? If there are big gaps between goals and reality, a 4PL approach can help accelerate migration toward better standards and greater efficiencies.

Industry News Kale Logistics to help countries meet WTO trade facilitation requirements using a single window platform Kale’s EDI based Cargo Community technology platform can play a significant role in implementation of trade facilitation measures as per WTOs (World Trade Organisation) directive, by helping lower transaction costs and speed up movement of goods through airports and ports. Kale Logistics Solutions, a leading technology provider to the global logistics industry is poised to play a key role in helping several countries in implementation of the trade facilitation pact which was ratified in the recently concluded WTO discussions at Indonesia. Kale is a pioneer in creating India’s first electronic multi-modal cargo community system which is also being adopted in several countries now. The WTO deal is aimed at bringing in a trade facilitation agreement which would help lower trade barriers and speed up movement of goods. The agreement could add billions of dollars to the $65 trillion global economy and help ease controls over flow of goods and services through ports and airports. The trade facilitation includes many provisions to improve, simplify and speed customs procedures that should benefit air/ocean cargo shipments. Significantly, it requires customs authorities to have procedures for the expedited release of cargo, and for the quickest possible release of perishables. The agreement also requires customs authorities to provide for pre-arrival processing of goods; allow electronic payment; utilize risk management; establish trusted trader programs; promote the use of a “single window;” and publish all laws and requirements. Commenting on the landmark agreement, Mr. Vipul Jain, Director, Kale Logistics Solutions said, “Our focus has always been to bring in technology transformation in the way business is conducted, specifically in Logistics and Transportation segments. Being an Industry focused IT provider, we understand the pulse of the global trade. WTO’s pact on trade facilitation is a significant move and since our solutions remain compliant with all industry and regulatory changes, we are in a position to ensure smooth movement of information that accompanies the goods. Our Cargo Community Platform-UPLIFT is a Single Window platfform that is already helping cargo stakeholders across several countries to overcome trade barriers and speed up the shipment supply cycle.”

Logistics & Supply Chain World

January 2014

Team Thoughts

Creating a greener warehouse Reducing warehouse energy and water consumption ultimately helps companies improve their bottom line and bring value to customers.

1. Reduce energy waste. Implement strict rules for truck idling time in parking lots and at loading docks. Create clear procedures for opening and closing loading dock doors. Ensure office and warehouse spaces are properly insulated. 2. Employ efficient lighting. Replace

older, inefficient fixtures that require frequent bulb changes with bright, efficient LED lighting, focused appropriately in work areas. Install motion detectors in warehouse and office areas, and consider skylights in warehouse areas, along with sensors that adjust lighting based on the amount of sunlight shining in.

3. Utilize solar energy. Hundreds of square feet of roof space without solar arrays represent a wasted opportunity. Implement state-of-the-art solar power systems to generate energy. Tax and energy incentives improve the return on this investment.

4. Monitor usage with smart meters. In

many areas of the country, smart meters are becoming available for commercial use. Not only can businesses better monitor energy usage, but as utilities develop "time of day" energy rates, companies can adjust usage accordingly. For example, electric forklifts can be charged on a schedule that benefits the power company, avoiding peak surcharges.

5. Investigate energy monitoring software. These tools make it easy to identify and

remedy inefficiencies in electricity, gas, and water use. Look for software that monitors energy and resource usage across multiple facilities, and compares it to both industry benchmarks and similar facilities in your network. Having all this data in one screen helps track and identify improvement opportunities.

January 2014

6. Create energy zones. Distribution centers

have distinct usage patterns, all of which can be optimized in different ways. Installing separate meters in facilities, offices, warehouses, and refrigerated sections allows businesses to isolate and optimize each area accordingly.

7. Install water-saving fixtures. Waterless urinals, dual-flush toilets, and motion-detecting faucets can all reduce water usage. Motion detectors on restroom lights, and high-efficiency hand dryers, also contribute toward savings. 8. Optimize facility layouts. To reduce costs

and improve efficiency for customers, management should continuously analyze product movement, as well as demand seasonality. Well-designed facilities increase picking efficiency, which, in turn, minimizes energy use, time, and effort.

9. Involve employees and suppliers.

Employees are key contributors to sustainability improvements. Educate them in sustainable behaviors, and suggest additional ways to improve. Seek ways to eliminate packaging, and choose warehouse locations that are most accessible to the manufacturers and end users you serve.

10. Focus on reverse logistics. Efficient asset recovery reduces carbon footprint and landfill impact by returning these goods to a saleable condition for re-use. This translates into energy savings and waste reduction, providing economic value and savings for all parties in the supply chain. Even where you cannot return product to saleable condition, you can recover value and reduce landfill impact through donations, secondary market sales, and recycling.

Logistics & Supply Chain World

Cover Story

Optimizing distribution for omni-channel retailing

Online and mobile commerce have brought more direct-to-consumer orders into the warehouse, so order fulfillment processes must be optimal About the Author

Keith Phillips President and Chief Executive Officer, Voxware.

January 2014

he success of all retailers, regardless of what they sell, relies on getting the right product to the right customer in a timely manner. This efficiency and accuracy is more critical than ever before but it is also more challenging. As online and mobile shopping rise at a torrid pace, retailers must now address a growing number of direct-to-consumer orders, placing new demands on how they manage their distribution centers. Consumers have closer access to the products theyâ&#x20AC;&#x2122;re looking for and their expectations on delivery are higher than ever. In fact, in a Voxware survey of consumers, nearly 30 percent of respondents would abandon shopping with a retailer altogether if they receive an incorrect order just one time, while 62 percent are much less or less likely to shop with a retailer for

future purchases if an item they purchase online is not delivered within two days of the date promised. With so many customers having high standards and competition only growing more intense in online retail, shipping correct orders on time is essential delays and inaccuracies can have a disastrous impact on customer satisfaction, brand image and bottom lines.

Itâ&#x20AC;&#x2122;s Time to Update the Warehouse As online and mobile shopping have increased, retailers have responded by implementing more advanced websites and mobile apps, and by deploying new technology to optimize the online storefront. However, many

Logistics & Supply Chain World

Cover Story retailers have not given enough attention to optimizing their supply chain for multi-channel distribution, and as a result, order fulfillment is often suboptimal. Retailers still have their existing distribution center infrastructure in place, which simply addresses order fulfillment for their traditional brick-andmortar stores. They are trying to cope with existing resources, but these processes are insufficient for the shift that’s taking place. Orders now have to be processed differently and there is no room for error.

"Online and mobile commerce have brought significantly more direct-to-consumer orders into the warehouse, so order fulfillment processes must be optimal" At the core of order fulfillment is order selection. The vast majority of inefficiencies and errors occur in the distribution center at the moment of order selection or when an item is picked from within the warehouse to be shipped to the consumer. Order selection has the largest impact on ensuring swift, accurate customer and store order fulfillment, and that is why voice technology can bring tremendous benefits to a retail organization.

Logistics & Supply Chain World

Voice Technology Can Address New Distribution Demands Most organizations are still using paper to pick orders in the warehouse. This requires warehouse workers to hold a document at all times, and move their heads up, down and around as they read and look for items to pick. Not only is this tedious, but it’s also inefficient and can

even be dangerous. Unlike other solutions, voice technology allows retail warehouse workers to remain hands-free. In addition to creating a safer working environment, a hands-free voice solution allows workers to move more quickly and process more orders. Like a guide on their shoulder, voice lets workers listen to orders coming in and send questions back up. This efficiency is especially critical during peak shopping seasons when direct-toconsumer orders escalate. It’s great to be efficient, but it means nothing without accuracy. This creates a situation in which all voice solutions are not created equal. A voice solution’s voice recognition accuracy must be 99.9 percent, even in the noisiest of warehouse environments. Further, due to an increasingly diverse workforce, it’s essential that the software support multiple languages, as well as the ability to accurately issue multiple commands at once, thereby eliminating the need for back-and-

forth one-word commands that increase time and frustration. The accuracy of voice solutions has allowed several retailers employing the solutions to reduce or eliminate the need for order audits. Or, rather than check every order to ensure that it is correct, they simply audit a sample of all orders. Not only does this save substantial time, but it also removes the need for order checkers. By eliminating or minimizing order audits, and increasing the volume of orders that can be handled by a single operative, voice can help reduce delivery costs. Considering that many retailers are now offering free shipping, keeping these costs at a minimum has a big impact on bottom lines. Beyond cutting costs, however, voice has an even larger impact on customer retention. The more customers get the right orders on time, the more likely they are to shop with a brand across all of its channels.

Closing Thoughts Omni-channel retailing has forever changed warehouse distribution. Retailers cannot keep the same processes that have been in place for 20 years. It’s time to trash the paper and begin leveraging modern voice technology. Voice software enables a hands-free working environment, allowing workers to more easily receive and communicate critical information. Further, high-quality voice solutions ensure better accuracy in a world in which there is no room for mistakes or delays. Organizations would have a more productive, cost-effective warehouse, happier customers and a healthier bottom line.

January 2014

3rd

18th & 19th February 2014, The Lalit, Mumbai

Transformers : Supply Chain 3.0

• 50 + Speakers • Manufacturing Supply Chain Awards • TMS / WMS Workshops • 3 Tracks • 300 Attendees Discussion Themes : • • • • • • • • •

Demand Driven Manufacturing Integrated with End-to-End Supply Network Transformers - Supply Chain 3.0 : The Rise of the Fully Automated Supply Chain Using Levelling Techniques to Reduce the Supply Chain Bull Whip The Challenge of Complexity in Global Manufacturing : Critical Trends in Supply Chain Management New Approaches to Manufacturing and Distribution : Impact on Current Dominant Global Logistics Model Using Globalised Strategic Sourcing to Transform the Procurement Department Return - Refurnish - Resell : Maximizing Value from Reverse Logistics Chain Reverse Logistics in a Circular Economy Forging a Low-Risk, Cost Effective, and Flexible Global Supply Chain in an Era of Rapid Change

Asia Manufacturing Supply Chain Awards 18th February 2014 To know more about Award Categories, Nomination Procedure call Aditee 9870022364 / 7738036854 aditee@kamikaze.co.in Kinjal 9969428590 kinjal@kamikaze.co.in

Silver Partners

Confirmed Speakers : • Mr. Paul de Guingand, Managing Director, PDG Supply Chain Solutions • Mr. Sunil Banthiya, Executive Director - Operations, 3M India Ltd. • Mr. Shailendra Bobhate, Director - Supply Chain, Abbott Healthcare Pvt. Ltd. • Mr. Rohit Batra, Vice President - Supply Chain, Ferrero India Pvt. Ltd. • Mr. Indra Kumar, General Manager - Manufacturing, Timken India ltd. • Mr. Pritish Kumar, Vice President - Operations, Modi Care Ltd. • Mr. Devdip Purkayastha, President, CHEP India Pvt. Ltd. • Mr. R. Harikumar, Sr. Advisor - International Business & Logistics, Maruti Suzuki India Ltd. • Mr. Shreyas Malkan, AVP - Supply Chain Management, Reliance Communications Ltd. • Mr. Pirojshaw Sarkari, Chief Executive Officer, Mahindra Logistics Ltd. • Mr. Pankaj Chandak, AVP - Parts & Services, FIAT Group Automobiles India • Mr. Jasjit Sethi, Chief Executive Officer, TCI Supply Chain Solutions • Mr. Suunil Dabral, Country Head - India, Schaefer Systems International Pvt. Ltd. • Mr. Arun Sharma, General Manager - Logistics & Supply Chain, Orient Electricals & Engineers India Pvt. Ltd. • Mr. Sanjeev Aggarwal, Director - Inbound Supply, Ericsson India Pvt. Ltd. • Mr. Niranjan Umarane, Director - Product Management, ICERTIS • Mr. Srinivas Sattiraju, Chief Executive Officer, DelEx Cargo India Pvt. Ltd. • Mr. Subhasis Ghosh, Managing Director, APM Terminals India Pvt. Ltd., AP Moller Maersk Group. • Mr. Srinivas Iyer, General Manager - Supply Chain, Thermo Fisher Scientific India Pvt. Ltd. • Mr. S K Krishnan, Vice President - Demand Chain Management (Automotive Division), Mahindra & Mahindra • Mr. Amit Pandey, Vice President - Procurement, SCM, HR & Admin, Tikona Digital Networks Pvt. Ltd. • Mr. Ganesh Tandon, Head - Spare Parts, Piaggio Vehicles Pvt. Ltd. • Mr. Sandeep Kumar, Associate Director - Supply Chain, Johnson & Johnson Ltd. • Mr. Sumit Sinha, Associate Director - Supply Chain Management (Consumer Division), Johnson & Johnson Ltd. • Mr. G. Kannan, Head - Logistics, Larsen & Toubro Ltd. • Mr. Navin Joshi, National Manager - Service Logistics, Lenovo India. • Mr. Pramod Sant, Vice President – Supply Chain Management, Siemens Ltd. • Mr. Prasad Shidhaye, General Manager – Contract Manufacturing & Sourcing , Glaxosmithkline Pharma ceuticals Ltd. • Mr. Amit Taparia, General Manager – Supply Chain, Nagarjuna Agrichem Limited • Mr. P. S. Haridas, Vice President - Supply Chain Management, Navin Fluorine International Ltd. • Mr. Atulesh Kumar Rastogi, Head - Global Supply Chain, Lenovo India Pvt. Ltd. • Mr. Swapnil Dubey, Vice President - Procurement, Tata Communications Ltd.

www.asiamscsummit.com Registration Cost : 3 or More Delegates - INR 13,000 + S.Tax | 1-2 Delegates - INR 15,000 + S.Tax For Speaker Opportunities / Sponsorship / Registrations - Call Aditee 9870022364 / 7738036854 Kinjal 9820214946 or email: aditee@kamikaze.co.in / Kinjal@kamikaze.co.in

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Industry Insights

Compete: Do your metrics measure up ?

Metrics alone do not guarantee improved business results. Here's what else to include for good measure. About the Authors Mike Ledyard Partner, SC Visions (www.scvisions.com) Joseph Tillman Senior Researcher SC Visions. SC Visions is a consulting organization specializing in business process improvement.

All too often people fail to understand this fundamental point: a metrics program is not the same as a performance management program. Metrics are a necessary and irreplaceable element in performance management, but as a stand-alone initiative they are inadequate. The challenge facing business managers is in taking metrics to the next level, and creating a viable performance management process grounded in fact. No two successful performance management programs are the same, but all successful performance management programs share common principles. To help shed light on what separates a good company from a great company, let's consider a framework. Think of a "foundation" supporting the "building blocks" of a successful performance management program. The foundation and pillars (labeled as "required"; see diagram on next page) are essential to the successful implementation and use

January 2014

of a performance measurement program. Getting the right measures in place, establishing the culture to depend on these measures and extending the measures to your suppliers should be done first. This follows the general rule that process should be completed before the investment in technology is made. The "Optional" and "Nice to Have" components can be added later to enhance the value to the company once the culture is established and results are being achieved.

The Foundation: Aligning Metrics with Strategy It is no coincidence that the foundation of a successful performance management program is grounded in having metrics aligned with a company's strategy. In business, it is essential to know where you want to go, or else you can end up channeling an entire corporation in the wrong direction. To exacerbate

Logistics & Supply Chain World

Industry Insights the problem, companies create hundreds of measures but fail to link those measures to actionable plans that drive progress towards the company's goals – suffering from an ailment we like to call measurement minutiae. The concept that more measurement is better can lead companies astray. Forget quantity and focus instead on linking measures to strategic capabilities, customer expectations and financial indicators.

Pillar 1: Process, Not Functional Metrics A survey of University of Michigan Business School executive development program attendees indicated that managers stood by as subordinates engaged in activities that clearly hurt the firm but helped a key measure look strong. These metrics are often created and managed at the functional "silo" level and individuals strive to achieve their results targets for their functions. Unfortunately, when left unchecked, people often "game" the system to meet their individual or functional goals.

result. Functional metrics can drive sub-optimization, waste time and money, and sap an organization of its vital energy. This gets to the heart of the first building block – that companies need to focus on process, not functional results metrics. An integrated measurement system is a mechanism for balancing the tendency toward functional suboptimization at the expense of the enterprise's overall results. These cross-functional or process metrics, if selected correctly, identify and track the measures that are critical to overall success.

Pillar 2: Use Balanced Metrics In the early 1990s, Kaplan and Norton wrote their first article on the concept of the Balanced Scorecard. The most apparent change introduced by the Balanced Scorecard methodology was the integration of other performance dimensions beyond a purely financial view, hence the "balanced" view on organizational achievement. Kaplan and Norton's Balanced Scorecard Framework supports equal emphasis on internal and external perspectives. Studies have found that companies that use a balanced set of strategic measures – both financial and nonfinancial – outperform their less disciplined rivals in performance

For example, a company rewarded their procurement people on purchase price variance, and their manufacturing people on machine efficiency. A purchase of a less expensive raw material Building Blocks of Successful Performance Management slowed down the production equipment, Metrics Technology / Tools and increased Incentive / Compensation Plan the overall cost of goods. Culture of However, the Process, Balanced Measure Not procurement Metrics and Function manager Improve Focused was paid his bonus, and the Metrics Aligned to Strategy manufacturing manager was "dinged" as a

Logistics & Supply Chain World

and management. One key reason for this is that companies that look only at financial metrics are analogous to driving a car by looking in the rear view mirror – because financial measures tend to be lagging indicators.

Pillar 3: Embed Metrics in Your Culture Strategy is not just about what you want to do, but it's also about how you are going to do it. In order to get people to buy in and commit to what's going to happen, they must understand their role in achieving the company's goals. Many times management fails because the top team treks up the mountain to set strategy without regard to how the organization, with its culture and individuals, will be able to understand and implement their vision. To build continuous improvement into an organization you need to integrate measurement into the organization's culture. In many organizations measurement is used as a club. It is a tool for continuous punishment rather than continuous improvement; as such, it is a tool to be avoided, subverted, or undermined rather than used as a source of valuable information for managing people and predicting business performance.

Legend Required Optional Nice to Have

Successful companies embed the measurement process and metrics as part of their culture. Measures – used properly – can become the means of communication between the boardroom and the shop floor. The key is to show workers how their performance affects the overall business and work with them to facilitate the selection and implementation of the

January 2014

Industry Insights measures. This has been done by a number of companies following a few simple rules. 1. Clearly articulate the objective(s) to be met. Do your people understand your strategy and their role in achieving that strategy ? Have operational and functional tactics been linked back to the strategic objectives ? 2. Link specific measures to the objectives – set targets. For example, if the overall objective is to "increase customer service," one key measure might be to improve customer service levels in the call center by reducing wait time. The goal could be to "answer 80% of all customer calls in 20 seconds." Clearly linking a tactical measure to a broader objective will help employees understand on what to focus. 3. Measure the Progress. Once clear expectations have been set, measure progress against the goal. The main focus should be that employees can easily understand and track their performance against the company's objective. 4. Find the Underlying Reasons. Establish a process for root cause analysis and development of corrective action plans. What do you do if you are not meeting your goal ? The obvious problem may not be the root cause. In order to keep the problem from recurring, the team must drill down to find the underlying reasons for the problem. 5. Fix the Problem – Take action. This is where results begin. Employees who understand the problem or barrier to meeting the objective can develop action plans to fix the problem.

Pillar 4 : Link Metrics to an Incentive / Compensation Plan When performance measures are linked to incentives, there is a carrot at the end of the stick.

January 2014

This concept is not revolutionary, and is meeting with increasing acceptance every year.

Financial Financial "Whatlevel level of "What of performanceor or return return isis performace required?" required?"

Customers

Operational Operational Excellence Excellence "To satisfy our

"To achieve our vision, customers customers and and compete compete Some years ago, the V.P Vision and how should we appeal in in our our markets, markets, at at which which Strategy to our customers?" of supply chain pulled business businessprocesses processesmust must we we excel?" excel?" together his department heads to inform them that People from that time forward, "To achieve our vision, how will we sustain our a small percentage ability to change and improve?" of their variable Source: The Balanced Scorecard, Kaplan & Norton. compensation would be based on the total performance management" tools time, cost and quality across the are targeted at financial managers entire supply chain – not just within such as the CFO and the controller. their individual departments as Consistent with this trend, had been done previously. After initiatives for business performance listening to several protests from management from ERP providers individual managers about how have come out of their financial they could not control what went application groups as extensions to on in each other's departments, he the core financial applications. informed them, "Look, among you, you control the whole thing. Work Many companies still do not it out!" This forced the managers use integrated software to run to work together to determine their business. So getting all how decisions made in one area the data to feed a dashboard affected the next. They soon or metrics scorecard can be a learned that a great commodity challenge. The success and deal that required the purchase growth in every business activity – of three month's worth of material from manufacturing to customer suddenly didn't look as good, and service – is dependent upon how that running smaller production an organization utilizes its critical lots was sometimes cheaper. data. Effective data warehousing The percentage of their variable can help a company extract key compensation based on the total data for easier performance measures has increased each year management. since, because the value to the company is apparent in the bottom Summary line results. No two successful performance A formal incentive and/or reward management programs are structure is not required to have the same, but all successful success. Simply letting employees performance management know management will be using programs share common metrics as an indicator of their principles. It is important that performance can have a positive managers understand if their impact. metrics program contains the "required" building blocks to Pillar 5: Use Tools and have a successful performance Technology to make management program: metrics Metrics Tracking Easier aligned to strategy, process, not functional focused metrics, The marketplace for software balanced metrics, and lastly a solutions to automate metrics measurement process and culture collection and reporting is rapidly that promotes the active use of growing. Products packaged, measures to drive positive change. marketed and sold as "business

Logistics & Supply Chain World

Special Feature

Cost to serve Small orders can kill your bottom line. So do YOU have a problem ? Here’s how to check. About the Author

Some of you will know that I have a ‘thing’ about cost to serve and seem to talk about it at every opportunity! “Maybe that’s all he knows about” you might be thinking ? Well, the simple reason that I sound like a broken record sometimes, is because so many businesses just don’t seem to ‘get it’ when it comes to understanding their supply chain costs and those businesses are just throwing money down the drain.

Let me tell you a story…..

Rob O'Byrne CEO, Logistics Bureau Group. You can access more of his articles and videos on Logistics and Supply Chain on his Blog : www.LogisticsBureau.Com/ Blog

Company X is a large multi billion $ business. By all accounts very successful, on the surface at least. It’s a market leader, a business that others aspire to be like. But the reality is; that they're in trouble below the surface…. Big trouble. Margins are falling and supply chain costs seem to be escalating out of control. They’re focussed on the big stuff; the new systems implementations and staff restructuring, but they’re oblivious to the undercurrents of poor Supply Chain performance that are eating away at their profits like a plague of white ants. They suspect there’s a problem in their order processing costs, but they just can’t nail it. They don’t have the visibility of costs and performance to see where the problem lies. Now the good news is; that gaining that performance visibility didn’t need to involve a huge expense in systems and analytical staff. They solved the issue quite simply and inexpensively. In fact, it’s something you can do yourself, on a spreadsheet! Would you like to know how ? Well here’s the answer. Well part of the answer at least. So as to keep this article short and easy to read, I’ll start the ball rolling and add some more tips in the next bulletin on this very topic. So; the problem lay in the amount of small orders they were processing. They didn’t realise that 30% of their orders were leaving the warehouse with negative margin! Any gross margin having already been eroded by order processing and handling costs … Absolutely true! And I’ve seen the same thing in many businesses, large and small. They weren’t alone in this problem. So, if you don’t have visibility of this type of problem in your business, here are some simple tips to find out if you have a problem or not. Because Company X didn’t even know the problem existed!

January 2014

Logistics & Supply Chain World

Special Feature margin orders you have! Sure the overall value of a customer has to be taken into account, but these low margin orders will be leaking margin unnecessarily. Now low margin orders in one company, might not be considered low margin orders in another. It all depends on the product value of course. So to get an idea of how bad this situation might be, you need to establish the costs involved in processing and handling an order. You’ll need to work out the order processing costs for the month and the warehousing and despatch costs for that same month.

Review Customer Order Value and Gross Margin This is easy and can be done on a spreadsheet. Just do an extract of customer orders, showing the total value of the order and the gross profit margin per order. Then graph these from high to low. If you have a lot of transactions, maybe just do one month to begin with. You’ll be amazed at how many low

If you like, you can also add in the delivery transport costs, but that can be done as a next step. It’s the order processing and warehousing costs that are the key, because transport costs tend to have more of a variable relationship with the size of the order anyway. You won’t need to add in transport costs yet, just to find out if you have a problem or not. Now we need to get a view of

Number of Orders Per Gross Margin Range 100,000

Number of Orders

90,000 80,000

how much it costs to process and handle an order. You have the total order processing costs and the total warehousing costs for the month. Make sure you have the total costs, fixed and variable. So not just the labour costs, but facility rental, materials handling equipment, consumables, labour and so on. All the costs. To do this accurately, we'd normally look at how long various products are stored and how much storage volume (or cube) they take up in the warehouse to accurately attribute storage costs. And in the same way, look at receipt, putaway and picking productivities to allocate a fair variable cost by product. But for your 'back of the envelope' calculation, try this. Allocating costs on an order basis won’t work because order sizes vary a lot. And allocating costs on a unit basis at the high level we are doing this, will just skew the results, as some items are far easier to pick than others. So try allocating costs on an order line basis. This is a good compromise that at least takes account of the differences in handling large and small orders. Remember, this approach is just a back of the envelope, to see if you have a problem or not. You can take a more detailed approach later if you need to.

70,000

So here is a simple worked example.

60,000 50,000

This is telling us that quite simply, our cost for processing and handling an order through the warehouse is $34.76.

40,000 30,000 20,000 10,000 0 <$10

<$25

<$50

<$100

<$150

Gross Margin Range

Logistics & Supply Chain World

<$200

<$250

>$250

Now have a look at the chart on the left.

January 2014

Special Feature For a sample Year (all figs for 1 year) Order processing labour + on costs Orders processed Order Lines processed

1,462,500 $1.23

A Order processing cost per line Total Warehouse fixed costs Total Warehouse variable costs Total Warehouse costs

$4,000,000 $5,500,000 $9,500,000

B Warehouse cost per line Total cost per order line (A+B)

$6.50 $7.72

Average orders per line Average cost per Order (A+B)

$34.76

Almost 72,000 orders have a gross margin of less than $25. That means we are losing money on 72,000 orders before they have even left the warehouse! So YES. We have a problem in this case. OK, this is an extreme example just to show you the process. But Iâ&#x20AC;&#x2122;ve seen many companies in just this position. Obviously if you think you have a problem, you then need to do this analysis at a much greater level of detail, to take account of how long various products are stored (storage costs), the variance between large orders and smaller orders (to better allocate variable costs) and of course the differing margins of the product range. But hopefully you get the idea. Just this simple back of the envelope analysis might highlight if you have an issue or not. And if you have a problem with loss making small orders, the answer is normally quite simple. Look at every way that you possibly can, to get your customers to place larger, less frequent orders. That is the easiest way to resolve the issue, even if it means offering bulk discounts. The trade off is generally well worth it!

WARNING: Small deliveries can kill your bottom line.

$1,795,500 325,000

January 2014

4.5

So do YOU have a problem ? Hereâ&#x20AC;&#x2122;s how to check. Till Now, we discussed the impact of small orders and cost to serve within the distribution centre and

warehouses. Moving ahead. we'll look at customer delivery. OK, why do I get so uptight about cost to serve ? Well, the simple reason is that so many businesses are just wasting money, because they don't understand the concept or cannot be bothered to apply this type of simple analysis. So don't let that happen to you. Here's an easy way to become a 'Hero' in your business. We discussed how small orders being processed through your warehouses were drivers of very high costs and also some of the benefits of incentivising customers to order less frequently and in larger quantities. Well sadly the bad news does not only reside in the warehouse. Because those small and often 'too frequent' orders also wreck havoc with your customer delivery. Imagine this. You're a company that delivers a staple or commodity product to a vast range of retail outlets. Maybe soft drinks, bread or rice. Perhaps you deliver to small corner stores, milk bars, cafes, and petrol stations. If you're lucky, you also deliver in bulk to the larger retailers, perhaps even delivering to their central warehouses, rather than their stores directly. But it's

those small deliveries to the smaller customers that are killing your bottom line. I really pity companies that ONLY have those kinds of smaller customers. Because their distribution costs hurt ? Why ? Let's walk through some examples. I'll try to keep this non technical OK. Bulk Delivery. A great example of highly utilised transport assets and hence low 'per unit' cost delivery is bulk tankers. Picture a bulk tanker delivering flour from a flour mill to a bakery, then going back to the flour mill, collecting another load, and heading back to the bakery. This might go on 24 hours a day. Round and round, with a full load. The only way we could better utilise the tanker, would be to have a 'back load' rather than have it return to the flour mill empty. The key elements of this 'low unit cost' delivery are that: The truck travels full. It makes one delivery each time. So this truck is on the move, only making one stop per run. And stopping time costs money. So this is a near perfect situation. Now contrast this next example. Small 'Multi Drop' Deliveries. OK, this time we are out in a small truck making small deliveries. Maybe delivering to small shops, petrol stations or even homes. Now we have lots of stopping time as each delivery is made. Each time the driver has to find the delivery location, get out, check the paperwork, find someone to take the delivery, get them to sign for the delivery, unload the delivery, then get ready to make the next delivery. All of this takes time and money.

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Special Feature

One of the issues I see frequently in this type of delivery operation is the 'we are going past there anyway' attitude. By this I mean that each new delivery is not really regarded as an extra cost, because we are going that way anyway... WRONG. There is a big cost with every delivery. Each time the driver stops, he/she has to .....OK, we don't need to repeat all that, I'm sure you get the idea. So the easy answer here, just like reducing warehouse costs, is to encourage customers to place larger orders, less frequently. Because the cost to deliver two boxes, is almost the same as delivering one box! So the second box travels free. (almost). The fastest way to cut delivery costs is to look at all the ways you can increase order sizes and make fewer stops. If you want a bit more of a technical explanation, have a look at this diagram. (I've put this here for the accountants. They like this kind of stuff)

The Theory of Allocation of Delivery Costs So what does all this mean ? If you are really serious about quantifying the cost of the delivery you might use this approach. We often do this on complex delivery operations to work out true customer profitability for example. It works like this. You break up the cost of the delivery into fixed and variable costs. These costs include all the costs of the truck (lease or depreciation and maintenance), the fuel and the driver. You might also include some overhead costs. A delivery route or 'run' can be thought of as taking place in two parts. The stem distance, which is the driving to and from the delivery

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S= The 'Stem' Distance

FC & VC C ID

FC & VC

ID = The Inter Drop Distance

C ID

C FC & VC FC = Fixed Costs per Drop VC = Variable Costs per Drop

FC & VC

C FC & VC

C WH

= Customer = Warehouse

area, and then the actually stop / start of the delivery operations. So you would allocate a part of the fixed cost and variable cost to each drop in the delivery sequence. Maybe dividing the fixed costs by the number of deliveries for example and then spreading the variable costs across all the deliveries based on the size of each order. This way you get a true cost allocation that takes into account smaller and larger orders. Part of the costs would then also be allocated based on the distance travelled. This is where the stem distance comes in, because that cost might be allocated across all the deliveries, and then the cost of the ID or inter drop distance, might be allocated to each delivery.

run, including all vehicle and driver costs. Let's say this is $500.

This is a bit more complicated than most businesses might need to establish a rough idea of delivery costs but I just show it for interest. This approach was used for example with a company making deliveries of explosives to remote mine sites. Where the Inter Drop distance might have been 500 kilometres, and the delivery size varied enormously! They really did need an accurate view of delivery costs.....

A very simple worked example, but I am sure you get the idea. If you think by doing this rough calculation you have a problem, then do the analysis in a more detailed way.

Simple Approach

Do yourself a favour, and check. You might become the hero who saved your company a lot of money.

But to find out in a simple way if you have a problem with delivery costs, try this approach. Work out the total cost of a delivery

Then work out how many deliveries are being made on that run. If it is 10 deliveries, then each one is costing you (simplistically) $50. Or work it out based on volume. If the truck is carrying 200 cases. It is costing you $2.50 per case for the delivery. Then work out how much margin you are making on a typical delivery or case. For example if you make $45 per delivery profit margin on average, and on average a delivery costs $50.........We have a problem!

Summary

Having gone through this exercise hundreds of times, with companies who thought that 'all was well' with their deliveries, Iâ&#x20AC;&#x2122;ve often found that up to 36% of deliveries were losing money!!

January 2014

Team Thoughts

Tips to achieve a lean supply chain LSCW counts down the most successful and contemporary methods of producing a lean supply chain Achieving a lean supply chain is about eliminating co-ordination waste, not just stock, from every possible area within your supply chain operation. While lean is commonly known in the manufacturing sector, a lean supply chain approach brings benefits to any companyâ&#x20AC;&#x2122;s supply chain operation, increasing efficiency and reducing cost, which ultimately results in an all-important competitive edge. By taking just some of the steps below, you will cut wasteful, non-value-added activities from your extended supply chain and reap the benefits of a more efficient, streamlined operation.

10) Reduce inventory The larger the inventory, the more time and effort it takes to maintain. Bloated inventories result in disorganised and chaotic working environments. Often excess stock is compensation for an inflexible supply chain or an indication of insufficient supply chain visibility. Removing unnecessary stock will cut down on storage space, handling time and reduce overall costs.

9) Modernise stock control Surprisingly large organisations are still relying on oldfashioned pen-and-paper approaches to monitoring and ordering stock, a highly inefficient process prone to human error. Replacing the clipboards with handheld devices or tablets will cut down on mistakes and greatly speed up the process.

8) Consolidate and automate Even when up-to-date technology is used, key data on stock levels and product information often ends up scattered across numerous spread sheets. This

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lack of co-ordinated supply chain information wastes time and increases the risk of errors. Data is manually re-entered and there is no single view of critical information. Consolidating stock data into a single location means that information can be updated once and in real time, ensuring greater efficiency and accuracy.

7) Advanced shipping notices (ASNs) An ASN is sent to the receiver ahead of a delivery and typically contains the same information as the original purchase order, as well as logistics information such as carton IDs, content descriptions, and transportation specifics. So, firstly automate your PO to ASN information. Adopting ASNâ&#x20AC;&#x2122;s gives distributors and warehouses the data they need for advanced planning and helps improve delivery visibility.

6) Cross-docking Loading and unloading stock and materials is a time intensive operation that can often be very wasteful. Cross-docking enables the transfer of goods/materials from an incoming truck or railcar directly into an outbound vehicle. As the products spend no time being

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Team Thoughts stored, shipping costs are reduced and inventory costs are minimised.

5) Drop-shipping Another technique to cut down on storage and handling; with drop-shipping the supplier ships finished products directly to the retailerâ&#x20AC;&#x2122;s customer, cutting out middleman distribution centres. This can produce better lead times for orders, helping retailers cut down on delivery time and costs, while the use of ASNs can keep customers accurately informed about their order progress.

4) Direct store delivery (DSD) This third advanced transport technique is enabled by ASNs, and in this case the manufacturer or supplier ships directly to the point of consumption or sale, again bypassing distribution centres. This is especially useful for perishable goods like fresh produce where every day diminishes value, and by delivering in bulk, it saves unloading, checking and storing every time.

3) Supply chain visibility

1) Achieve B2B integration with a single platform Even the most advanced techniques are useless if they arenâ&#x20AC;&#x2122;t properly integrated into the rest of the business. A truly integrated system that incorporates everything from product and stock data, outbound and inbound shipments is the key to achieving a genuinely lean supply chain. Without integrating into a single platform, businesses are still likely to waste resources by duplicating efforts across operations. A lack of integration means transferring information across systems, which is both time-heavy and vulnerable to error. A flexible and services-oriented B2B cloud platform like GXS Trading GridÂŽ will help automate global trading communities, shielding complexity from rapidly changing standards. It will also help eliminate duplicative efforts, drive efficiency, and enable a new level of process integration and business intelligence. By integrating into a single platform, businesses can ensure they achieve real results with all of their lean efforts.

By gaining visibility of its entire supply chain, a company can identify elements that are slowing down its operations or wasting resources. With the increase in globalisation, this means taking all suppliers around the world into consideration, including not just tier one, but also tier two and three suppliers.

2) E-invoicing Adopting electronic invoicing enables a company to automate their payment process and integrate it with other business systems. In addition to saving upwards of 50 percent over a paper system, e-invoicing also enables the entire supply chain to be much more efficient, and has the added advantage of being environmentally friendly.

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January 2014

Industry Insights

How to regain lost trust and negotiate a highly collaborative relationship About the Author

Andrew Downard is a consultant and educator specialising in supply chain relationships and supply chain risk management. He is undertaking a PhD by research at the Institute of Supply Chain and Logistics at Victoria University and has contributed to publications and books on the subject of collaboration and change. Andrew has established a Centre of Excellence for Vested in Australia to help promote and educate practioners on the benefits of a Vested approach to contracting.

In an ideal world we would only have to do business with people we were able to trust and collaborate with. We would have set up and worked on the relationship itself, using approaches like those proposed in the book ‘Getting to We’ by Jeanette Nyden, Kate Vitasek and David Frydlinger. The ‘We’ mindset has 5 steps, four of them aimed at getting to ‘We’ and the fifth focused on maintaining the ‘We’ relationship. The steps are: 1. Getting Ready for ‘We’ – this step aims to introduce the three foundational elements of a successful collaborative relationship – trust, transparency and compatibility. 2. Jointly Agreeing on a Shared Vision for the relationship - the parties discuss and agree on a mutually acceptable shared vision for their emerging partnership. 3. Collaboratively negotiate the guiding principles for the partnership - the ‘Getting to We’ process requires the creation of a set of principles that will guide the relationship before sitting down to negotiate a deal. This is the critical step that distinguishes highly collaborative relationships from the crowd. 4. Negotiate as ‘We’ - with the principles established in the earlier step, the negotiation takes on a different flavour. Rather than tactics and positions, the partners

January 2014

seek out joint value and innovation. 5. Living as ‘We’ - at this point the partners have reached the final stage of their journey. The task is then to nurture and maintain the relationship that has delivered the gains for both parties. ‘Getting to We’ is a really robust approach to setting up a relationship that delivers results. But what if you are faced with a situation where the partners you can choose from don’t fit this model ? Perhaps there is a lack of trust, or even history between the parties that acts as a barrier between where you are and Step 1 of ‘Getting to We.’ What do you do in this very real world situation ? Loss of trust can come about for a number of reasons. If one of the parties has acted opportunistically then this is an intentional act and will result in an immediate and substantial reduction in trust. Or the level of trust may have been unintentionally eroded over time by one of the parties continually missing deadlines or an inability to meet honestly made promises. Both can land you or your partner in a position where there is a lack of trust on which to build an enduring collaborative arrangement. In essence the parties are trapped in Step 1 of the Getting to We model. To regain trust the parties must act in an exemplary fashion, the party

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Industry Insights

that has caused the loss of trust must work to regain it. Equally important is that the injured party must be willing to forgive, a lesson that we were recently reminded of with the passing of Nelson Mandela. This act is as crucial to the development of a robust relationship as the efforts to regain trust on the other side. The effort to regain trust is not an act in isolation; it should be backed by a change in the way the parties relate on an ongoing basis. Stephen M.R. Covey in his book ‘The Speed of Trust’ suggests following and living by 13 key behaviours: 1. Talk Straight 2. Get Better 3. Demonstrate Respect 4. Confront Reliability 5. Create Transparency 6. Clarify Expectations 7. Right Wrongs 8. Practice Accountability 9. Show Loyalty 10. Listen First 11. Deliver Results 12. Keep Commitments 13. Extend Trust These behaviours will enable the parties to move through Step 1 of Getting to We and develop a high performance collaborative relationship. If the behaviour that damaged the trust makes forgiveness hard then the partner that caused the affront can always adopt an approach where they make a promise or guarantee that is so extreme that only an honest person would make it. You are basically making yourself into a hostage for your own behaviour. This can go a long way to convincing a dubious partner to give you a second chance. It’s of course extremely important that if you are recovering from an episode of opportunism by making an extreme promise that

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you don’t undermine your efforts by suffering from an unintended performance failure! But what if you have been really bad ? Perhaps you are faced with needing to work with a partner where there is a great deal of unwillingness to get involved with doing business with you again. Or possibly there are clearly conflicting objectives between your business and theirs. It would be foolish to believe that presenting them with the Getting to We model and asking them to start working on Step 1 with you is going to happen. If it is important that over time you get to a ‘We’ relationship with this partner then you can take a leaf out of the experience of the US Army in various troubled regions around the world. This approach was documented in a Harvard Business Review article around negotiating “In Extremis” .. The article is based on the challenges facing military officers

in locations like Afghanistan where there is little trust, doubt about intentions and pressure to resolve issues very quickly, all this happening in an environment of extreme risk and danger. While nothing in business can compare with the stress of combat, the current business environment can present considerable pressure on participants in negotiations. The basic proposition in the article is that it is possible to successfully achieve good outcomes in the absence of trust and with conflicting objectives. The steps are simple (but not necessarily easy under pressure). Step 1 - “Get the big picture” – start by soliciting the other person or group’s point of view. This will help shape the objectives for the negotiation and how they might be achieved.

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Industry Insights Step 2 - “Uncover and Collaborate” – learn the other party’s motivations and concerns. This enables you to propose multiple solutions and ask your counterparts to improve on them. Step 3 - “Elicit Genuine BuyIn” – use facts and the principle of fairness rather than brute force or stubbornness. Part of this stage is to use the knowledge gained earlier to help the other party address the critics or stakeholders that they may have to deal with on their own side. Step 4 - “Build Trust first” – this involves addressing the relationship before trying to reach an agreement on the subject in question. This step recognises that although the temptation is to negotiate a quick resolution when under pressure, there is a need to ensure the negotiated settlement

sticks. This is such an important step because trust and the existence of a workable relationship are so fundamental to successful outcomes. Step 5 – “Focus on Process” – when under pressure seek to drain the emotion from the situation and seek to manage the negotiation process as well as the outcome. Again, this is about not giving in to the pressure of the situation and making immediate concessions, but rather slowing down to ensure undue haste does not leave the negotiator having given too much away. While the strategies above were developed to train military officers, they can be applied to commercial negotiations just as easily. Interestingly the steps in this model are very closely aligned to those in the Getting to We model,

with a focus on the relationship first before trying to negotiate the substance of the agreement. So the picture is clear, sometimes you must do business in an environment where there is an absence of trust. At the same time we know that a highly collaborative relationship is going to deliver exceptional results. It is therefore worth the effort to get your potential partner to start down the path towards a ‘We” relationship. It is difficult but not impossible to overcome the barriers to working together on the 5 Steps of the ‘Getting To We’ by taking a leaf out of the book used by those who really face the potential for a lose/lose result as described in the Harvard article above. All it takes is for you to take the first step! Are you ready for a ‘We” relationship ?

Industry News Emirates SkyCargo expands Indian subcontinent Emirates SkyCargo is expanding its operations in the Indian subcontinent following the recent launch of Emirates services to Sialkot, the airline’s fifth route in Pakistan. Supporting the thriving trade between the Indian subcontinent and the rest of the world, Emirates SkyCargo now offers a weekly capacity into and out of the region of 10,900 tonnes. “With the new service to Sialkot, which is a major manufacturing hub in Pakistan, we are creating a new lane that will give local businesses access to trade opportunities across Emirates SkyCargo global network of more than 130 destinations, particularly in Europe, United States, Australia and the Middle East,” said Nabil Sultan, Emirates Divisional Senior Vice President, Cargo. With the addition of Sialkot, Emirates will operate 63 flights a week between Dubai and Pakistan offering 1,400 tonnes of cargo to Pakistan, giving a 5% boost to cargo capacity. “When combined with the efficiency of one of the youngest fleets in the skies, unrivalled ground-handling facilities, and the very latest information technology, Emirates SkyCargo is the ideal partner for Sialkot based businesses as they look to boost trade.” added Mr Sultan. The Dubai-Sialkot service is operated four times a week by an Airbus A330-200, providing a total weekly cargo capacity of up to 68 tonnes per direction, giving a boost to trade opportunities. Key Sialkot exports include sports goods and clothing, gloves, surgical instruments, cutlery, ceramics and leather garments, and will be transported to the UAE and throughout Europe, US, Australia and Middle East. In the other direction, raw materials for manufacturing these products will be the leading commodities imported from Europe and the Middle East.

January 2014

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Industry Insights

Evolving the cold chain: Best practices & innovations Introduction The global economy is reinforced by the strength of supply chains. Moving goods reliably and quickly from the point of production to the point of purchase is what makes large scale retailing, manufacturing, and even some types of farming possible. The supply chain becomes all the more critical when the freight is perishable or delicate, or requires other forms of special handling especially controlled temperature. Consider that ten percent of all fruit and vegetable waste that occurs in North America (some $4 billion worth) happens during the distribution process. Following is an explanation of how the refrigerated supply chain (cold chain) has improved in recent years, and made possible by new innovations and best practices in warehousing, transportation, and freight management.

Cold Chain Elements

Import / Export

In order to be effective a cold chain must be comprehensive, taking goods from the manufacturer or processor through to the final point of purchase. Temperature of the freight must be controlled at all times and should be kept within the range established by the shipper. Remote monitoring and adjustment capabilities are instrumental to maintaining continuous control of temperature. It is advantageous to utilize a provider that can offer all of the above cold chain elements or, at a minimum, one that will coordinate all of the logistics and vendors and take responsibility for the freight throughout the entire transit process. This practice will shorten time in transit and create efficiencies, and is key to creating the precise mix that will move a given product reliably and within the necessary time frame for maximum shelf life.

In addition to transportation, this includes management of any regulatory processes necessary to move goods across international borders. Handling, importing and exporting expertly can greatly reduce the time that goods are in transit, potentially saving some spoilage and reducing labor and fuel costs.

Depending upon the product's shelf life and the needs of individual shippers and retailers, the cold chain may include:

Warehousing

January 2014

Ocean and / or Air Transportation Ocean and/or Air Transport modes are integral to the cold chain's ability to move goods from offshore. It is critical to ensure temperature control while goods are moved between continents by setting standards for loading at the point of origination, cutting local travel times, and maintaining visibility to each container throughout the trip.

Some refrigerated goods may be stored or cross-docked in warehouses or distribution centers

along the cold chain. Shippers should seek out warehouses that have adequate refrigeration, pallet spaces, and especially cooler docks so that the cold chain is never compromised, even during loading and unloading. Ground and Intermodal transportation Trucking and rail transportation are essential to the cold chain. For decades, only dry goods could be shipped using intermodal hauling which combines drayage â&#x20AC;&#x201C; trucking over short distances - and final mile trucking with railroads to cut the cost and carbon footprint of longhaul shipping. Technology was then introduced to bring refrigerated containers into the intermodal system. This development created significant new opportunities in several industries.

Evolution of the Cold Chain Until 2008 the cold chain was limited in reliability and capabilities. Very large industries, such as produce and frozen foods,

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Industry Insights Increased Shipping Capacity Improved Management Practices

Infrastructure Investment

Technological Advances

L CO

I HA

D RA G UP

Reduced Fuel Consumption

Reduced Labor Costs

Cost-Per-Mile Savings

were not able to take advantage of the many economic and environmental benefits available to dry goods businesses. However, technological advances, investment in infrastructure, and improved management practices have since combined to greatly upgrade the cold chain. Today the process of importing, exporting, warehousing, distributing, and transporting frozen and refrigerated goods is much more cost-effective and efficient, and this new efficiency can provide bottom-line savings, as well as be instrumental in opening new geographic opportunities for doing business. The benefits of this shift have been felt throughout the economy and the environment. Produce and frozen food companies are able to realize substantial cost-per-mile savings from reduced labor costs, reduced fuel consumption, and increased shipping capacity, even as they are able to bring their goods to market sooner and keep them on shelves longer.

Cold Chain capabilities have opened up a new universe of potential

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markets for freight companies, retailers, warehousing, agribusiness, and frozen food processors and manufacturers. One of the major technological developments that made a broader cold chain possible is refrigerated Container on Flat Car (COFC) intermodal, wherein containers are double-stacked onto flat rail cars, providing for greatly increased capacity. Before this innovation, many types of long-haul refrigerated trips simply were too expensive and/or uncertain to undertake. In the U.S., refrigerated intermodal service is still evolving toward increased use of containers rather than Trailers on Flat Cars (TOFC). In Canada, all cold chain intermodal shipping is done using COFC, which is more efficient, environmentally friendly, and profitable. With smart engineering, planning, and execution, refrigerated intermodal using COFC equipment provides cost efficiencies compared to longhaul refrigerated OTR trucking. The threshold for realizing gains in

efficiency and cost savings is 700 mile routes and longer. These advances in transportation have been matched by similarly impactful developments in refrigerated warehousing. Refrigerated warehouses have improved the cold chain through engineering a mix of levels of refrigeration, and by introducing cooler cross-docks, which allow goods to be unloaded from an inbound trailer or container, and immediately packed for final mile delivery in an environment that is completely temperature controlled. This keeps the cold chain intact. Offshore goods have seen transit times reduced through more efficient and effective methods for navigating the regulatory requirements involved in crossing international borders. Smart management can significantly reduce such delays at borders, ensuring that goods are cleared as quickly as possible, and that the next mode of transportation is in place. The benefits of the expanded cold chain extend beyond cost savings. Todayâ&#x20AC;&#x2122;s business climate is one in which consumers, suppliers, employees, and investors place a value on social responsibility. This reality adds another dimension to supply chain planning and execution, because bringing goods quickly and safely to market - though still the main objective - is no longer satisfactory to some stakeholders. Fortunately, portions of the cold chain, such as COFC intermodal hauling and fuel efficient shipping containers, also benefit the environment by significantly increasing capacity and reducing carbon emissions. This added value may be promoted by companies seeking green credibility.

Innovation & Best Practices Some supply chain companies have invested heavily in order

January 2014

Industry Insights to maximize the advantages of an upgraded cold chain. Freight and railroad companies have introduced new kinds of equipment to make the transition from trailer to rail car quicker and safer, and have taken steps to further increase capacity. Some have also developed new processes, policies, and technologies to ensure the safety and freshness of goods. Performance and efficiency within the supply chain are of paramount importance. Businesses that utilize cold chains should ensure their providers offer these innovations:

Telematics Telematics is the ability to remotely monitor, operate, or adjust each individual container while it is on a truck, rail car, or even a ship. There are containers in use that send real-time information about location and conditions via satellite as frequently as every fifteen minutes while in transit. This level of real-time information ensures that proper temperatures are maintained at all times. Some systems are so advanced that adjustments to individual container's temperature or fuel usage can be made from any computer or mobile device. For example, a shipper may have the ability to cycle the refrigeration unit on and off to maintain a desired temperature while expending less fuel. This is also useful in tracking the course of a trip and preparing for a shipment to arrive at a specific time.

Light tractors Reducing tractor weight is essential to maximizing lading weight. Although industry standard for intermodal drayage tractors is to weigh 16,000-19,000 pounds, there are options as low as 14,500 pounds for shippers looking to

January 2014

achieve maximum efficiency.

An unbroken cold chain A successful provider endeavours to control temperature throughout the entire transit process, and works to make the trip as short as possible.

Larger fuel tanks Standard refrigerated trailers have a 75-gallon fuel tank, but there are COFC options available up to 120 gallons. The extra fuel capacity ensures that the temperature remains controlled throughout the entire time in transit—even if there are delays. Larger tanks also obviate the need for refuelling en route, which eliminates the cost associated with refuelling the unit while they are on trains.

Container-on-flat-car (COFC ) This method of intermodal hauling involves securely double stacking refrigerated containers onto flat rail cars, nearly doubling the hauling capacity of a train. This is a recent (2010) improvement upon the existing TOFC system, which cannot be double-stacked. A train equipped for TOFC can hold up to 140 trailers full of freight, while a COFC train can accommodate up to 250 containers. This technology makes it possible to provide a costeffective, environmentally-friendly alternative for longer ground routes, while still delivering doorto-door service for refrigerated loads within the same transit time as trucking.

Cross border and Customs Logistics providers should be able to manage all aspects of the offshore portion of the trip, including loading and local

transportation. Seek a provider that will negotiate vendor terms, and that has a track record for moving goods across borders without being needlessly delayed by Customs.

Refrigerated warehouse technology Multi-temperature warehouses are preferable because they can store both frozen and refrigerated products in the same facility. Food grade refrigerated storage space is sanitary, free from chemicals, and should be constantly monitored. Refrigerated product can be stored from 0°-45° Fahrenheit, and frozen product should be kept between -20° and 45° Fahrenheit.

Cooler cross-dock This is a temperature-controlled area of a warehouse where inbound trucks and containers can be unloaded and the goods reloaded for final mile deliveries, which keeps the cold chain intact even when containers are opened and goods are moving from one mode of transportation to another.

Control ambient temperature Conditions outside a container influence conditions inside it. A flexible cold chain can adjust for externalities to generate fuel savings, which benefits the environment and the bottom line. Choose railroad routes to avoid hot climates without sacrificing transit time or service, so the refrigeration units consume less fuel while maintaining desired temperature.

Fuel efficiencies Industry standard fuel burn is one gallon per hour, but optimally efficient containers burn slightly

Logistics & Supply Chain World

Industry Insights more than half that amount. Fuel burn can be influenced by the weight of a shipment, ambient temperature, and other external factors.

Insulation Seek containers that are well insulated. Go beyond the industry standard. This will allow for climate control with slower fuel burn while in transit

Drop & hook Containers should be pre-loaded and ready to go when the driver arrives at the warehouse. This eliminates hours of down time each trip, and is a good example of the synergy to be found when multiple divisions of a single company work collaboratively toward the client's goal. It's another way of keeping the cold chain intact throughout.

Live unload The option of having a refrigerated container unloaded in real time as it arrives, and sending it to multiple locations. This is a flexible alternative to drop & hook and reduces labor and fuel costs by sending the same refrigerated container to multiple locations.

Accuracy Choose a vendor that can reliably state when long lead shipments will arrive. Accuracy is critical with perishables, and more so when the product is arriving from offshore.

Fully integrated shipping The cold chain originates as close to the manufacturer (or grower or processor) as possible, which reduces local transportation time and cost.

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Future plans

NFI INTERMODAL REVENUE GROWTH

End-to-end management of a global cold chain is still a GROWN AT A RATE OF new solution that is currently being offered by only EACH YEAR a small number of key players. But, demand for elements like refrigerated intermodal, is at an all-time high, and the supply is far below what the market can support. Food production is 2010 2011 2012 outpacing GDP by almost 2 to 1, according to TTX Economic Monitor. The frozen NFI, one of the leading logistics food sector is at a plateau despite providers in North America, having grown rapidly during was the first company to offer the previous several years. The refrigerated COFC, and remains cold chain has much room for the leader in this category. Since continued growth. entering the refrigerated intermodal space in 2010, this division of NFI Opportunity is apparent in further has grown at a rate of 100% each developing infrastructure, such as year, and the future seems to hold expanding available refrigerated the potential for boundless growth. warehouse space and the number The company also plans to expand of refrigerated containers, in order its Canadian cold chain in coming years to provide the same benefits to service far greater numbers to global clients. of produce and frozen food manufacturers. These items include paints, cosmetics, pharmaceuticals, NFI Refrigerated Facts & Figures and any other product that requires In addition to the innovations and best practices listed, NFI controlled temperature at all offers a number of advantages to times and/or protection from the manufacturers, wholesalers, and elements. retailers throughout the refrigerated supply chain. A major component Many non-food consumer of NFI Canada's cold chain is its goods require climaterole in providing produce to the controlled shipping, and country's largest grocery chain. NFI would benefit from the cost was tasked with streamlining the existing patchwork process in order savings, efficiencies, and to reduce spoilage and extend environmental benefits shelf life. Changes were made at now available via the cold several points, including offshore vendor terms, adding efficiency chain. and expertise to the U.S. Customs

100%

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Industry Insights process, and introducing seasonal flexibility. Working with NFI has shortened the time in transit by several days, and at a lower cost. The retailer now utilizes NFI for importing produce from South America, Florida and California depending on the time of year. NFI’s refrigerated containers utilize the lowest fuel burn per hour in the industry without compromising temperature. Very few companies provide refrigerated COFC intermodal service, and NFI was first to bring this most efficient and most advanced variation to market in the U.S. and Canada. • There are 120 dedicated NFI refrigerated COFC containers, and an additional 50 will be available in summer 2013. • Each refrigerated container can accommodate nearly 44,000 pounds of freight on a single trip. • NFI ships about 500 refrigerated loads every month via intermodal in the U.S. NFI’s refrigerated containers utilize the lowest fuel burn per hour in the industry without compromising Temperature.A major component of NFI Canada's cold chain is its role in providing produce to the country's largest grocery chain. NFI was tasked with streamlining the existing patchwork process in order to reduce spoilage and extend shelf life. NFI is cognizant of its role as a pioneer in maximizing the cold chain, and takes that responsibility seriously. Measurement and careful evaluation of all processes is a high priority, as the company is aware it is creating new industry standards and best practices. All procedures are tested and proven, but always subject to improvement. NFI is constantly monitoring, measuring, and upgrading the equipment in order to further reduce costs, lower the carbon footprint, and provide the smartest, most efficient service possible. The global economy is creating more and better choices and opportunities for businesses and consumers, and strengthening existing supply chains or developing new ones makes all of this possible. There are many advantages and savings to be had through efficient utilization and management of the different elements of the cold chain.

Industry News

Vizag logistics park to be ready on time THE Container Corporation of India’s (CONCOR) multimodal logistics park to be developed in Visakhapatnam at an estimated cost of Rs 350 crore is expected to be completed within two-and-a-half years with work being well on track. One of the six such projects, it is part of the first phase of CONCOR’s Rs 6,000-crore programme that envisages setting up a network of 15 logistics parks across the country. "We could start work on the first six of these parks as we got the required lands. We are in the process of land acquisition for the remaining nine parks, which would give a significant boost to exim trade," said Mr V. Kalyana Rama, Executive Director, CONCOR. CONCOR currently operates a 250-acre logistics park at Dadri, which is capable of handling 3 lakh TEUs. The state-owned container rail operator plans to set up a chain of 15 parks within the current Five-Year Plan. The project will be jointly developed with private companies, including shipping lines and container train operators. According to Mr Kalyana Rama, the parks have a land requirement of over 100 acres each and would be equipped with container-related supply chain requirements, including inland container depots, warehouses, handling facilities and a private freight terminal.

January 2014

Logistics & Supply Chain World

IndustryInsights Insights Industry

Creating more intelligent supply chains with BI technology About the Author

John Woods, Executive Vice President of Sales and Marketing, ProTrans

January 2014

For suppliers in today's business world, having a firm grasp on supply chain and logistics issues is a top concern. As internal operations and external supply-chain activities become more complex, these companies depend on current information to optimize productivity, improve customer service, and minimize expenses. Business intelligence (BI) technology improves supply chain operations by helping companies acquire, analyze, and visualize that information, yielding targeted insight to execute operations more efficiently and to coordinate activities with their supply chain partners. Additionally, an enterprise BI environment delivers timely information for a variety of essential analytic functions, increasing productivity, eliminating delays, improving business alliances, and optimizing customer service.

Creating A Unified Environment The need for advanced BI tools and a more streamlined reporting environment is a natural by product of company growth. As companies grow and expand into more diverse markets, manual reporting processes simply aren't able to handle the increasing volume of data, nor deliver all of the required reports. Long reporting cycles make it difficult to share information with customers and delay the delivery of critical metric data to staff. For international logistics and supply chain companies, updating reporting technology and practices is a critical component to meeting service level agreements (SLAs) and ensuring that customer needs are met as efficiently as possible.

Manual reporting processes also require staff to spend many hours collecting data from a proprietary transportation management system (TMS), as well as from third-party claims and payroll applications. For example, account managers can spend hours every week compiling and distributing weekly cost information to their clients using Microsoft Access and Microsoft Excel. Those users who aren't Access-savvy are forced to rely on the IT staff to access the data, prepare it for analysis, and create reports. Using BI tools to standardize the way a company synthesizes, analyzes, and distributes data both internally and externally is the first step to streamlining that flow of information. It is an investment for the customers and a critical tool for the account management team to provide ongoing customer support.

Logistics & Supply Chain World

Industry Insights

Additional benefits of BI investment include: • Performance monitoring for vendors, distributors, service providers, and other partners • Improved inventory control to support just-in-time and Lean manufacturing strategies • Ability to forecast demand fluctuations and optimize resource allocation • Ability to assess critical metrics, such as on-time delivery, reductions in working capital, and cost of goods produced or sold • Automated order processing, production, fulfillment, and other critical business processes

Information On Demand When you're dealing with global supply chains that span geographies, technologies, and languages, it is important to have one united BI environment to ensure fast reporting, with results delivered through easy-to-use reports and dashboards. The unified IT environment synchronizes divergent information about international freight forwarding, domestic shipping, customs clearance, freight consolidation, warehouse management, order fulfillment, and transportation management, and presents it on demand to authorized customers and employees. A developed BI dashboard combines visual charts, graphs, and reports that highlight critical performance metrics in core areas of the business. For example, account managers, plants, and buyers can access the customer dashboard to keep tabs on the clients they oversee. Sales managers also use the dashboard to monitor high-level sales metrics, such as volume trends and top accounts, or

Logistics & Supply Chain World

to compare old and new accounts based on tonnage and other criteria. Accounting personnel can also use the finance dashboard to track expenses, revenues, margins, and billings. With a couple of clicks they can filter the information by carrier, customer, service type, region of origin or destination, and other criteria. Other users depend on the operations dashboard to gain visibility into damages and facility metrics, such as total pieces shipped and cost per piece. One report might display positive and negative trends in on-time deliveries, with graphic formatting to highlight consignees or processing centers that are exceeding or failing to meet targets. Another could provide details about line haul utilization and the percent of each trailer's capacity being used. This information is critical, since wasted trailer space can negatively impact profitability. Moving from static reports to parameter-driven ones provides extensive new insight that allows companies to manipulate informatio n in countless ways, helping them find exactly what they are looking for. And if a problem is noted for example, that margins have dipped they can drill all the way down to see exactly where the problem lies. BI tools can also be utilized for exception reporting. When a key event occurs, or a metric falls below a designated threshold, a report is dynamically generated and sent to the appropriate stakeholder. For example, managers can be alerted when delivery dates change or when shipments are past due so that they can investigate further. Finally, by creating an external-facing BI environment, a company can allow its customers to investigate trends and issues down

to the lowest level of detail: individual shipments. Even when there are multiple service providers involved, BI technology can provide one cohesive view of the entire freight management process. This makes it very easy to track and trace goods in transit and to provide real-time status updates as freight moves through a global transportation network. BI technology eases supply chain logistics management and ensures timely and accurate delivery of goods to all customers, no matter how diverse and complicated their supply chains may be. This advanced technology allows sales, finance, and operations departments, as well as corporate management teams, to rapidly access and analyze vital information, whenever they need it. With BI technology, reports that previously took hours to create take only minutes, allowing business users to be more independent, and easily address their own information needs. This in turn relieves IT of a substantial burden, freeing resources to focus on more strategic projects. A well-managed supply chain is crucial in today's competitive environment. If you lack supply chain management and insight, you lack the ability to keep your company running efficiently, which results in disgruntled clients and lost business. Thus, ensuring top-level supply chain and logistics management is imperative. By incorporating BI technology into a supply chain management strategy, companies can obtain fast access to timely, comprehensive information that allows them to operate more efficiently and improve service and support to clients.

January 2014

Industry Insights

Intra-Asia trade offers rays of sunshine amongst stormy waters About the Author

he container shipping industry is proving to be stormy waters for ship owners, operators and investors – with demand remaining soft whilst new capacity continues to come on stream.

Industry executives are increasingly concerned about a range of challenges facing the ocean freight sector, including weak cargo growth, new capacity coming into the market and increasing environmental issues.

Mark Millar, MBA, FCILT, FCIM, GAICDprovides value for clients with independent, external and informed perspectives on their supply chain strategies for China and ASEAN. He has been engaged by clients as Speaker, MC, Moderator or Conference Chairman at more than 300 events in 20 countries and is recognised by the Global Institute of Logistics as “One of the most Progressive People in World Logistics”. mark@markmillar.com

The major challenge is that the industry still has too much capacity chasing not enough cargo, resulting in on-going financial challenges for the sector. According to SeaIntel, during the last four years the top 20 container carriers have accumulated combined losses of USD 6.9 billion.During 2012, shipping lines collectively just about broke-even and the 2013 industry-level forecast from Drewry is a modest profit of USD 280 million - hardly an adequate return on global volumes now reaching 170 million TEU of containers per annum. Estimates vary on the capacity imbalance Barclays Bank estimates cargo demand will grow by 6.3% in 2013, whilst Clarksons forecast global container trade to grow 6.1%, others consider 5% growth to be optimistic. With continuing economic challenges in the major developed markets of USA and Europe impacting demand growth on the traditional high volume trade lanes, the south-south trade (Asia – Indian sub continent - South America) is expected to show strong growth, which will be most welcome – especially whilst capacity continues to increase at double digit rates. At the beginning of last year, there was 4.3 million of new capacity on order, more than 25% of the total worldwide fleet capacity of 16.3 million TEU. During 2013 even more capacity will come on-stream. This year there is 3.4 million TEU of containership capacity on the global order books, equivalent to 21% of the existing fleet. Many of these new ships are the 10,000+ TEU vessels that primarily operate on the AsiaEurope trades, resulting in some existing large and mid-size vessels being cascaded down into other trade lanes. However, this will not alleviate the rate pressure in the major trade lanes where shipping lines have been furiously fighting for volumes by reducing freight rates. The fundamental lesson from prior cycles - that reducing the price per box

January 2014

Logistics & Supply Chain World

Industry Insights does not increase the total amount of boxes to be moved seems to have been lost along the way, with Drewry reporting freight rate declines of as much as 30% yearon-year on some major trades.

idled tonnage needs to reach at least two million TEU of capacity.

The consequences of this brutal competition that drives the decline in freight rates considered by some to reflect an absence of courage and discipline are that many shipping lines that managed to increase their container volumes have still experienced declines in revenues one example being a 14% increase in volume with a corresponding 21% decline in revenue.

For containerised ocean freight, intra-regional trade accounts for 41% of global trade, of which the Intra-Asia regional flows represent 79% - trade which is valued at 2.9 trillion dollars. Intra-Asia container traffic has already overtaken TransPacific volumes and the combined container volumes on Intra-Asia and Asia-Middle East are together forecast to grow to six times current levels by 2030.

Amongst all the storm clouds, the Intra Asia trade offers some rays of sunshine.

For the industry to have any chance of establishing some equilibrium in the supply and demand model within a largely commoditised sector, capacity needs to be removed from the market, at least for the short to medium term. In the absence of any carriers going out of business (yet), then the short term prescription needs to accelerate the idling of container ships to reduce capacity on the supply side.

"During 2012, 178 ships with combined capacity of 332,000 TEU were sold for scrap" Container ships currently parkedup and temporarily out of service have reduced total capacity by 800,000 TEU â&#x20AC;&#x201C; almost 5% of the total global fleet. But for any sensible equilibrium to return to the current supply-demand imbalance,

Logistics & Supply Chain World

With healthy growth in recent years, Intra-Asia container volumes grew to 26 million TEUâ&#x20AC;&#x2122;s in 2012 and are projected to keep growing by a healthy average 7% per annum to reach 33 million TEU containers in 2015. All this in an environment with distinctly different geographic characteristics than North America or Western Europe, where contiguous land mass lends itself to long-haul road and rail cargo transport linkages. A significant

proportion of the intra-Asia trade has no option but to travel on the water for example the Philippines, Indonesia and Japan are island nations, inaccessible by land routes from other countries. Even when countries do have land connections available, the combination of infrastructure limitations and cross border inefficiencies often make water-borne transportation a much more efficient and cost effective option. The average cargo journey length within Asia is much smaller than other major trades â&#x20AC;&#x201C; for example Intra Asia container distances are typically 500-1,000 nautical miles, one tenth of the typical distance on the Asia-Europe trades. Hence, the intraAsia trade is served predominantly by midsize container vessels typically ranging from 1,200 - 3,500 TEU capacity - and is very fragmented with many small and mediumsized ports with length and depth restrictions, numerous shipping lines, hundreds of local players providing barging services and thousands of freight forwarders. The healthy growth in trade and commerce is fuelled by robust and rising consumer and industrial demand throughout Asia - most notably in China, India and the ASEAN nations in South East Asia. IndiaChina trade is projected to grow to $100 billion by 2015 - a 50% increase over current trade levels, whilst predications are for ASEAN to become a ten trillion dollar economy by 2030.We truly are in the Asia Era!

January 2014

OUTLOOK Snippets from Blue Dart’s Research Journal PERFORMANCE OF THE INDIAN ECONOMY: India’s GDP for the Jul-Sep quarter grew marginally to 4.8% compared to 4.4% in Apr- Jun quarter which was fourth lowest in the last eight years and it was the fourth successive quarter of economic growth below 5 %. GDP for H1FY14 is at 4.6% CAD narrowed to $5.2 billion, or 1.2 % of GDP in Jul-Sep 13 quarter, as against $21 billion or 5 % of the GDP, in same period of last fiscal.

Cargo Traffic: Freight traffic at Indian airports rose by 2.8% y-o-y in September 2013. Cargo traffic increased from 180.8 thousand tonnes in September 2012 to 185.8 thousand tonnes in September 2013. Total cargo traffic at the Indian airports during the first-half of 2013-14 declined by a 0.3 % to 1.1 million tonnes compared to the year-ago period. CMIE expects cargo traffic to grow by 4.2% to 2.3 million tonnes in 2013-14.

GDP Forecast by various agencies:

Agency

FY14

Agency

FY14

Barclays

4.70%

ICRA

4.7-4.9%

Care

4.80%

Moody

4.50%

Crisil

4.70%

Morgen Stanely 4.70%

D&B

4.7-5%

OECD

3.40%

Deutsche Bank

5.50%

RBI

4.80%

IMF

4.25%

World Bank

4.70%

Forecasts keep changing depending on change in economic situation

Index of Industrial Production (IIP): Index of industrial production (IIP) fell by 1.8 % in October 2013 compared to the 8.4 % rise a year ago. This was on account of fall in manufacturing and mining output and a lower growth in electricity generation. During the April-October 2013 period, industrial activity recorded no growth compared to the 1.2 % rise registered a year ago. India’s Trade: Exports in November’13 were valued at US $ 24.61 bn, 5.86% higher than the level of US $ 23.25 bn in November’12; while Imports during November’13 were valued at US $ 33.83 bn representing a negative growth of 16.37% over US $ 40. 45 bn recorded in November’12. Inflation: WPI rose to a 14-month high of 7.52% (provisional) for the month of November, 2013 (over November, 2012) as compared to 7.00% (provisional) for the previous month and 7.24% during the corresponding month of the previous year. During April-November, inflation rate in the financial year so far was 6.70% compared to a build up rate of 4.84% in the corresponding period of the previous year. ` V/s $: Rupee hit four month high 60.84 on 9th December and gained back the level of Rs. 61 against USD in December13 The Indian rupee is expected to average at Rs.60 per US dollar during 2013-14. This translates into a depreciation of 9.3 % as compared to the preceding year. This will be the third consecutive year of a decline in the average value of the rupee. The average value of the rupee had depreciated by 5 % and 12 % in 2011-12 and 2012-13, respectively.

January 2014

PERFORMANCE OF FEW KEY INDUSTRY VERTICALS Mining & construction A net sale of the mining & construction industry has been falling since the September 2012 quarter. It declined in the range of 4-10 % during September 2012 quarter to June 2013 quarter. The fall in sales intensified during the September 2013 quarter, when net sales dipped by 19.5 %. This was the steepest fall recorded since the June 2004 quarter. The large-sized segment registered a 11.8 % growth in sales in the reporting quarter while the mid-sized segment and the small-sized segment remained poor. Storage battery Storage battery production during April-August 2013 stood at 31.4 million units. This was 8.1% lower than the corresponding year-ago period. The main reason for the fall in production was the drop in demand from the original equipment manufacturers (OEM) segment. The high base of the previous year was also responsible for the fall to an extent. In spite of poor growth in the first-half, CMIE expects the output of storage batteries to grow by 4.7 % during 2013-14. Transformers, Switchgears, Generators and Motors Domestic production of power transmission & distribution (T&D) equipments like transformers, switchgears, generators and motors declined during April-August 2013. While domestic production of transformers, switchgears and motors slipped in the range of 4-10 %, that of generators plunged by 18.3 % during the period. CMIE expects demand for generators, transformers, switchgears and motors to pick-up in the coming months on the back of capacity additions lined up in the power T&D space. Steel pipes & tubes The steel pipes & tubes industry continued to post losses at the net level for the second quarter in a row in the September 2013 quarter. It is mainly on account of weakness in the Indian rupee and higher interest burden. During the September 2013 quarter, aggregate sales of the steel pipes & tubes companies fell by a sharp 15.6 % y-o-y. The fall in sales is likely to have been on account of lower realizations as volumes are expected to have grown at a healthy pace. Steel pipes & tubes companies are likely to have reduced prices in the backdrop of lower steel prices.

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