IndIa’s LeadIng LOgIstIcs MagazIne www.logisticsweek.com
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May 2011 Vol. 4 — No.9 October 2010 | Vol. 4 – No.2
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Method In Motion
amit mukherjee, Vicepresident (iT and supply chain) and group cio at rpg, has deployed exemplary supplychain strategies at spencer‘s retail >> page 34
Served Smart
How Abhijit Upadhye, Senior Director, National Supply Chain, McDonald’s India, runs the logistics of a huge, fastgrowing chain keeping things lean.
TElEcom logisTics 20
FAST FORWARD 46 Movement of telecom network Trials andequipment triumphs ofopens the aexpress window of opportunity courier industry.
lowPage 18 NEglEcTEd adopTioN 24 waTErways 44 ON TOP: to stayinland ahead of the game...10 Why WMS still Things does that top retail SCM performers India isdo ignoring notLOSE have enough waterways at its own CONTROL: How Japan’s tragedy has affected global logistics...16 takers in India peril HIGH WATERS: An in-depth report on the maritime cargo trade in India...32
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Answers for industry.
s
eDITORIAL
Let Go
O
utsourcing Shmorcing. That’s how I’ve felt about the celebrated phenomenon of outsourcing, for long. Perhaps my dislike of outsourcing has its roots in the initial years when the wave swept the Indian consciousness — it caught the fancy of an entire generation of youth, boys and girls who could earn hitherto unthinkable sums just by faking accents, assuming Anglicized names, and messing up their body clocks. A whole generation of urban Indians stood the risk of living the prime of their youth in a daze, abusing their bodies, leading an unproductive life with no real challenges, pretending to be someone they were not – a lifestyle that in many eerie ways resembled that of a drug junkie. Then there was IT outsourcing, that drew thousands of dreamyeyed youngsters to companies that would make them do stuff that would be as mind-numbing as call-center work, but in the long run would have an upside – at least these people were learning how to write programs. A few of them would go on to become entrepreneurs and make and sell IT products. However, that was still insufficient to make me a believer. I failed to see how outsourcing would help people in developing economies. I reckoned that the real creation of wealth happens when people use their faculties to invent and innovate, and not use them to slog for those who invent or innovate – after all it’s companies like Apple, Honda, Samsung, IBM and Wal-Mart that create real wealth for economies and intellectual capital that could be used by later generations in these countries. Companies like Infosys and Wipro would make fast bucks for a decade or two, use up the limited skill pool of a developed country like India, and then the outsourcing juggernaut would move to other upcoming economies where people are willing to go lower on wages and higher on slogging. With such a huge baggage in my mind against outsourcing, it was tough for me to understand many dynamics of the logistics industry. This is an industry built on outsourcing – to third and fourth party logistics service providers. I remember attending conferences themed on outsourcing – and one specifically, a panel discussion held at a CII event where we had to discuss outsourcing. This was less than a year ago. The panel had representatives from both the enterprise as well as the 3PL side. I prepared my questions with the assumption that we would be talking an advanced level of outsourcing – things like best practices and benchmarking, for instance. To my puzzlement, the discussion revolved around understanding the basic concept of logistics outsourcing: Should Indian enterprises outsource their logistics needs? If yes, to what extent? Why do a majority of companies outsource only a small part of their supply chain? Do Indian companies suffer a mental block when it comes to outsourcing? That discussion was instrumental in making me realize that perhaps I was looking at the subject at the wrong end of the spectrum. For a brief moment, I should take my gaze away from the service providers and fix it on large companies that are known for outsourcing.
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>
Why do they outsource? What are the benefits they see in outsourcing even some of their core activities? Therein lay the real deal. I realized that, for companies with global aspirations, outsourcing is a key to expansion. Focus on what one knows best, and nurture those who know their stuff best. Consider McDonalds. This month I had the pleasure of accompanying Pamela Cheema, our Editor – Special Projects (Pamela has done this issue’s cover story on McDonalds) to the company’s Aanand Pandey Taloja’s facilities and talk Editor to Abhijit Upadhye, Senior Director – National Supply Chain, McDonalds India. McDonalds serves more than 6 lakh customers daily at over 217 restaurants across 40 Indian cities. After many years of watching its step in India, the chain has stepped on the pedal – it’s growing at a scorching pace of 30 percent. Over the years, the company has managed to come up with many innovations for the Indian market, some of which are being emulated in other markets. And can you guess the strength of the McDonalds’ India supply-chain team? Don’t even hazard a guess. (Hint: McDonalds India’s logistics is 100 percent outsourced). To know the real number, you need to refer to the story. The story is somewhat similar with other multinationals who are on an expansion spree in India, not only in food retail (KFC is another example), but also in consumer durables and telecom, for example. These companies have outsourced a major chunk of their logistics to 3PLs. And it’s working out exceedingly well for them. The Indian companies, on the other hand, are still squeamish about outsourcing – a lot of them don’t want to let go of main logistics activities. Perhaps it’s time they look at the way MNCs manage logistics in India and try to understand the merits of outsourcing. Much like I, in my small way, intend to.
Aanand Pandey aanand@logisticsweek.com
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Contents 14 upshot
Dealing With Costs Supply-chain divisions of companies have a tough time keeping costs in check. India Supply Chain Cost Summit shows how it can be managed.
18 Cover story
simplicity Fused With Complexity McDonald's has a supply chain network which is classic in its simplicity, entirely devoid of frills, but at the same time, immensely complex and intelligent in design.
18
14
32 Industry report 16 Column
Time To Rebalance Natural disasters can disrupt global supplies for companies. Decentralizing manufacturing and the global supply chain could help alleviate the situation in such cases.
Ports of Call The maritime cargo trade in India is set to grow exponentially. Avalon Consulting analyses the factors that will contribute to this growth.
46 Feature the need For speed The express courier industry has been growing tremendously. The success has come after years of work by companies through diligent deployment and setting up of various infrastructure.
16 6
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46 May 2011 | www.logisticsweek.com
may 2011 50 BaCK to BasICs
ADVeRtIseRs InDeX
We explore four terminologies - Crossdocking, Roll-on/Roll-off, Overall Equipment Effectiveness, and Continuous Replenishment.
BLR ......................................................................... 37 EXIDE Industrial .......................................................ifc Gandhi Automation ...................................................11 Orange City Logistics Park .......................................13 Araham Logi park ...................................................Ibc CII Events ................................................................ 51 Safexpress .............................................................. 23 Shree Rajlaxmi ........................................................ 31 Shree Rajlaxmi ........................................................BC Vijay Logistics ........................................................... 4 Vodafone ............................................................. 8 & 9 IILF Award ................................................................15 Siemens ................................................................... 3 Crystal Roadways.................................................... 27 iPad ........................................................................ 41 Subscription ........................................................... 45
50
Warehouse Handbook ............................................. 59 6 Southern Asia ...................................................... 60 Great Eastern Impex. ................................................12
52 panorama
aprIl 2011
Books, Journals, Blogs, Technology, C-Profile, and Solutions - a look at what's new in and for the supply chain industry.
IndIa’s LeadIn
56 InterFaCe CHEP India has been on a roll in India for three
MagazIne gisticsweek.com
`100 ` 100
Method In Motion
amit mukh erjee, Vicepresident (iT and supp ly chain) and group cio deployed exem at rpg, has plary supp chain strate lygies at spen cer‘s retail >>
years. And its concept of pallet-pooling is highly popular. Meet the man behind its strategy - Pranil Vadgama, President of CHEP India.
LIFE SUPPLY page 34
How Atul Agarw al, Associate (Supply-Ch General Mana ain), Dabur ger India Ltd., supply-cha runs a lean in for its over TElEcom 300 products. logis Tics 20
TOWER
Movement ING ofABOVE telecom 38 network Unravelling equipm India’sent opens telecom alogistics window of to , end opportu end. nity
reGulars
10
analysis
Global supplier Complexity: top Retail supply Chain Collaboration Pressure Rising business complexity of managing an increasingly global business network
NEglEcTEd waTE
events
62
MAY 2011
46% 43%
Emergence of new sales channels
14%
31%
23% 26%
Rising logistics costs
15% 24%
Rising raw material/manufacturing costs
15% 21%
Competitive pressure to introduce new products 0% Source: Aberdeen Group, March 2011
low Page adopTioN 24 24 GOOD TO GO:
Why WMS still does GST Bill rways 44 notSTOPW looks well on have enough its India way. is The takers in IndiaATCH: Warehouses ignoring industry inland weighs in...10 need to set labor RIGHT MOVE waterwa ys atds. standar S: What goes its Here’s own into choosin peril why...20 g the right location for a wareho use...46
43%
Lack of business integration leading to poor communications with suppliers
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DIA IND IA
April 2011 Vol. 4 — No.8 October 2010 | Vol. 4 – No.2
Best-in-Class All Others
40% 60% 20% Percent of Respondents
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May 2011 | www.logisticsweek.com 7
< AnAlysis
Train of ThoughT
Iron ore is a very important commodity and the lifting of the export ban is good for Indian shipping companies and will definitely help dry bulk carriers. Our vessels have been transporting iron ore on a regular basis to China and Far-East. — s. Hajra, CMD, shipping Corporation of india in an interview with Business Standard.
Legacy issues in large global logistics organizations such as a top-heavy cost base and IT systems are limiting maximization of the high market potential in the Indian context, creating opportunities for entrepreneurs to correct these issues.
More than 90 percent of the segment is unorganized. While the industry grew at 10 pc in the past few years, organized players like us have seen a growth of 12-13 pc. This clearly shows a shift of 2 pc to 3 pc taking place from the unorganized to the organized sector
Typically, we look at those products that have a limited retail footprint. It makes sense to take them online because of their limited availability. Being high-value, the cost of shipping does not pinch too much.
— Gautami seksaria, Founder and Partner, sClC
— Ajay Chopra, CEO, DiEsl
on why FMCG firms are moving to e-commerce, speaking to Business Standard .
on the rising trend of entrepreneurship in the Indian logistics industry, in an interview with livemint.
in an interview with DNA.
— sunil Duggal, CEO, Dabur india
What Top Retail Supply-Chains Do successful retailers ramp up their supply-chains by frequently communicating with their suppliers, besides sharing early product lifecycle information. These and some more are the key findings unveiled by the Aberdeen Group in their recent report. Frewin Francis picks out some takeaways on retail supply-chain best practices and what the rest of the competition need to follow.
I
ncreasing visibility of data and information sharing, cross channel growth, collaboration and business process integration are some of the top strategic actions for retailers to achieve seamless product flow to shelves. These and some others were the key findings of a survey conducted by the Aberdeen Group in its annual report over three consecutive years. Add to that the high level of customer demand and the extremely dynamic nature of the retail market, and it is no surprise that retailers and their suppliers require to constantly rework methods to meet their profit margins and ensure growth. In its last year’s survey, the Aberdeen Group found out that 46 percent of retailers said that collaboration on data sharing and business process integration with suppliers would continue to remain the top game changing strategies. Collaboration, visibility and integration
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continue to remain in the spotlight this year ments, and lead time delivery impreciseness too for retailers as business processes get has not allowed retailers and manufacturers to meet visibility, collaboration and integracomplex from design to deliver. Some primary reasons why collaboration tion with their suppliers (See graph). Achieving cross-channel growth is anhas gained so much traction among global suppliers are rising Global Supplier Complexity: Top Retail Supply business complexities Chain Collaboration Pressure of managing business at a global level. RisRising business complexity of managing an increasingly global business network 43% ing logistics costs and Lack of business integration leading to poor 46% emergence of new sales communications with suppliers 43% channels have increased 31% Emergence of new sales channels pressure on retailers to 14% collaborate with their 23% Rising logistics costs 26% suppliers. According 15% to the 2011 report, the Rising raw material/manufacturing costs 24% lack of nimbleness in Best-in-Class 15% global sourcing of prod- Competitive pressure to introduce new products 21% All Others ucts, order management 40% 0% 60% 20% Percent of Respondents complexities, mis-ship- Source: Aberdeen Group, March 2011
May 2011 | www.logisticsweek.com
< AnAlysis Top Performers Earn Best-in-Class Status
the leader in
Bar Code & RFID
supply chain technology Great Eastern Im pex (G EI) is a le adin g sy ste ms inte gra to r and so luti on pro vider in Barcode & RFID technologies Our custom- built & standards-driven A ut o I D s ol ut i ons he l ps bus i ne s s e s t o id entify & track goods across the supply chain N e e ds a na l y s i s , m odul a r a ppr oa c h t o s ol ut i on d es i g n & s eam l es s i n t egr at i on wi t h e n t e r p r i s e a p p l i c a t i o n s e n a b l e busi ness es ach ieve fast er ROI & su cce ss
Maximum Reliability. Future- Ready Manufacturing > - Network of RFID readers capture real-time information on the assembly line - RFID data is filtered & updated to enterprise applications - Timely & accurate reports available on Work order status, WIP levels, Bottlenecks, Productivity & Yield. - Finished products are RFID tagged (uniquely) for traceability & recall
Distribution >
- Pre-tagged shipments arrive at facility (or is smart labeled at site) - RFID enabled entry/ exit doors allow real-time data capture & reporting - Vehicle-mount readers allow orderpicking, & shipment authentication - Improved load factor and significant increase in turnaround times
Retailing. - Item-level identification & tracking (RFID) at retail store level - Portable RFID readers enable inventory counts in a matter of hours - Reader-enabled 'smart shelves' or 'store room’ allow dynamic re-ordering - Tagged products can be secured & integrated with anti-theft/ POS systems
Increase efficiency & Boost productivity with the help of Barcodes & RFID. For ‘ total solutions’
( ISO 9001:2008 certified company)
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May 2011 | www.logisticsweek.com
Definition of Average class performance maturity Class Best in class. Top 20% of aggregate performance scorers
n n n n
Had established electronic communication with 79.8% of suppliers Possessed a perfect order rate of 94.1% delivered to customer Decreased their out-of-stock rate by 21.4% year-on-year Decreased their inbound logistics costs by 6.9% year-on-year
Industry average. Middle 50% of aggregate performance scorers
n n n n
Had established electronic communication with 61.4% of suppliers Possessed a perfect order rate of 90.1% delivered to customer Decreased their out-of-stock rate by 1.5% year-on-year Decreased their inbound logistics costs by 3.50% year-on-year
Laggard. Bottom 30% of aggregate performance scorers
n n n n
Had established electronic communication with 31.8% of suppliers Possessed a perfect order rate of 78.0% delivered to customer Decreased their out-of-stock rate by 8.33% year-on-year Decreased their inbound logistics costs by 12.51% year-on-year Source: Aberdeen Group, March 2011
other reason 31 percent of the Best-in-Class respondents cited for adopting collaboration. Cross-channel operations enable direct-to-store drop shipments and direct-to-customer deliveries. It is for this reason that the retail supply-chain is seeing structural changes in distribution, fulfillment and transportation. In its case study on World Duty Free (WDF), a specialized retail organization with 90 retail locations, it was discovered that the organization faced supplychain disruptions from natural disasters. A situation arose where the supply was coming in and no sales were happening. WDF began increasing supplier communication and collaboration and synchronized demand and supply by reducing lead times, increasing order frequency, reducing size of safety stock and drastically decreasing the number of out-of-stock cases. There are some rules that Best-in-Class companies follow that distinguishes them from the others. They are likely to develop decisions based on the suppliers’ access to their supplier partner data. They are also more likely to share early product lifecycle information with suppliers. This is ideal collaboration for both – retailer and supplier (See Table).
Adopting best-in-class practices must be done with careful planning by those falling back in the competition. The level of competitive edge of their existing framework must be carefully studied to see adaptability of new practices that need to be followed. A careful scrutiny of daily execution processes would help before adopting new strategies or replacing existing ones. Adoption of the right technology for improving processes and operations is another factor that needs to be taken care of while re-engineering the supply chain with a view to collaboration. The introduction of electronic communication between critical upstream suppliers is one of the key changes suggested by Aberdeen for those who need a serious overhaul of operations. Some tools suggested are the use of extensible markup language (XML) or electronic data interchange (EDI). And last but not the least, enabling visibility to suppliers of SKU’s in the inventory and making decisions based on data available about their suppliers (financial forecasts, production schedules, etc) are some of the steps that could be adopted by those who need to improve their existing processes and operations.
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< upshot
Dealing With Costs It's a constant attempt by supply-chain divisions of user companies to check spiralling costs. The event, India Supply Chain Cost, seems to have addressed this effectively by bringing together the men who manage the daily hassles of their respective supply-chains. The solutions are all here. Remya Philip reports.
T
he second edition of the Supply Chain Leadership Council’s ‘India Supply Chain Cost Optimization Summit’ was held on 21st April 2011 at the Orchid Ecotel, Mumbai. The summit attracted supply-chain professionals from various sectors of the industry - manufacturers, retailers, traders and logistics service providers (LSPs). Mr. Malay Shankar, National Business Head, DIESL, spoke of the progressive role of organized LSPs in helping manufacturers and retailers manage their supply-chain operations and costs optimally, thus allowing them to focus on their core business. Dr. Rakesh Sinha, COO of Godrej Consumer Products, highlighted the need to educate the company’s board on the significant impact of both, efficient or inefficient SCM. Using a case study, he demonstrated how replenishment-based SCM has helped Godrej achieve significant market share gains across products and saved crores of rupees in avoiding premature capacity expansion. Credited with setting up the global supply-chain for Mahindra-Renault Logan project, Shashank Raodeo, GM (Automotive Logistics), Mahindra & Mahindra, emphasized the importance of strategic sourcing. He explained that a five percent reduction in material cost may result in a one percent increase in operating profit which is equivalent to 10 percent increase in sales, a function with limited headway due to several external and competitive factors. Major Shashi Tiwari, VP – BD and SCM, The Loot, stressed on the develop-
Date: April 21, 2011 Event: India Supply Chain Cost Optimization Summit Organizer: Supply Chain Leadership Council Venue: Orchid Ecotel 14
INDIA | May
300 restaurants to over 1,000 by 2015, Vineet Jain, Head – Distribution, Yum! offered insights into the collaborative development of a logistics decision criteria matrix that allows them to determine the most cost optimal mechaL-R: Vivek Karwanyun, GM-SC, DALDA (Bunge); Shammi Dua, nism with a common Head (Logistics & Customer Operations), Akzo Nobel; R. Ravireference point for the chandran, Head, Logistics (Electrical products), L&T; Satish entire team. Moorjani, VP & GM, Bristlecone; Sanjay Sinha, MD, Leeway Logistics; Maj. Shashi Tiwari, VP (BD & SCM), The Loot; DharElaborating on mendra Gangrade, GM & Head (Logistics), Pidilite. Nokia’s arrangement ment of an efficient business model which with the Tamil Nadu government owing in his opinion is the main driving force to to its factory location in a Chennai SEZ, Sushil Agarawal, Head – Supply Chain, proper SCM. Four experts in procurement and supply Nokia India, mentioned how the waiver of chain management across different product sales taxes has created a GST environment categories viz. Saurabh Tiwari, Lead – Stra- for them even before its implementation, tegic sourcing (Asia Pacific), Kraft Foods; enabling direct factory to state level wareAshu Khanna, Head – Supply Chain, Mar- house delivery model causing a 20 percent ico; Susshruth Apshankar, Head – Com- reduction in on-hand inventory cost, 10 mercial Strategy, Idea Cellular; and Ashok percent reduction in transportation and Kumar, Director – Supply Chain, Pepsico 35 percent reduction in warehouse cost. Other speakers included Dheeraj Gupta, India, shared their common experience of extracting up to 2.5 percent more procure- Founder, Jumbo King; Shammi Dua, Head, ment value per rupee spent. They substanti- Logistics and Customer Operations, Akzo ated this fact based on simple principles of Nobel; Dharmendra Gangrade, GM and centrally managed supplier partnerships by Head of Logistics, Pidilite Industries; R. deploying effective technology, encourag- Ravichandran, Head, Logistics (Electrical ing innovation at supplier level, coaching products), L&T; Vivek Karwanyun, GM, the process of sourcing and SCM at supplier SCM, Dalda (Bunge); and Sanjay Sinha, procurement level, reducing supplier base MD, Leeway Logistics. Part of the event was a brainstorming and, in general, focusing on non-price reexercise organized by Data Systems Induction based approach. Vikram Kole, Head – Sales, DSI Online, ternational (DSI), associate partner of the focused on the importance of IT in effec- event, on technology, innovation and best tive SCM and specifically emphasized on practices in supply chain cost management extending the technology platform to more which gathered the professionals present stakeholders in the supply chain process. into groups, and generated lively discusCommenting on plans of expansion from sions and valuable insights.
2011| www.logisticsweek.com
< < OpiniOn OpiniOn
Time To Rebalance Rakesh singh Director and Professor of Economics and SCM at Durgadevi Saraf Institute of Management, and Chairman, ISCM
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The earthquake followed by the tsunami in Japan not only reduced infrastructure to rubble but also affected global supplies of auto components, chemicals and other raw materials from the country. Growth took a knock from nature. Companies which decentralize sourcing locations can ensure that production remains unaffected in the case of catastrophes. A case of just-in-time to just-in-case.
A
A recent mediA report stated that Japan is using its diplomatic skills to help its automakers in india avoid production cuts due to a halt in supply of components from factories destroyed by the earthquake. the Japanese government has requested new delhi to allow its carmakers to source spares from alternative destinations, and exempt them from mandatory tests to prevent any disruption in their supply chain and production. the global supply chain cannot get more interesting than this. A country that has all along been the urban center of auto component production and supply to the rest of the world, will now be sourcing supplies from its competitive destinations to help its players emerge from the economic shocks due to the earthquake. this raises some interesting questions. Will it affect the concept of just-in-time? Will Japan continue to maintain its hold as an important destination of auto component supplies, or will it give rise to the emergence of new destinations like taiwan
May 2011 | www.logisticsweek.com
and indonesia? Will companies move from justin-time strategy and adopt just-in-case strategy? Before seeking answers to these questions, it is important to understand its emergence and the importance of global supply chain in todayâ&#x20AC;&#x2122;s dynamic environment. the inundation and catastrophe in Japan from the tsunami and the earthquake has had a cascading effect on global supply chain across various industries. But it is discernible in two main industries â&#x20AC;&#x201D; Auto and electronics. Possibly, the disasters may have dented the economic importance of the country to some extent, but it continues to remain an important part of the world industrial economy. consider the companies based here and its global reach: toyota, Suzuki, Volkswagen, General motors, Honda, among others. these and many others have their supply base in Japan and their global reach in developed and emerging markets. Such disasters can disrupt the supply-chain and affect produc-
tion globally as in Japan. this is a warning to other global players to rethink their global supply-chain strategy.
The Cost Of Calamity the world has become flat due to the tectonic shift in the world economy. the disintegration of structural and market reforms in developing economies, the formation of the WtO, and the invention of the worldwide web, have contributed to the realignment and decentralization of global production. the difference in relative prices of both labor and raw material has given shape to new supply design based on the theory of comparative advantage, propounded by david ricardo way back in the 19th century. Apple uses the concept of decentralized global supply-chain network and optimizes its cost of production in the manufacturing of the iPod. most of the components of iPod are sourced from 18 different destinations, thus reducing the cost of the final product. But the 8.9 magnitude earthquake and the ensuing tsunami not only caused destruction to infrastructure, but disrupted the production of components from chips to ship and knocked out factories supplying everything, from high-tech components to steel, gas, and chemicals. toyota and Sony ericsson have suspended their production. Firms like mitsubishi Gas chemical and Hitachi chemical which supply a specialty resin that is used to bond a part of the microchips that go into smart phones, and which control 90 percent of the market, have been damaged. Kureha, a maker of a â&#x20AC;&#x2DC;crucialâ&#x20AC;&#x2122; polymer known as polyvinylidene fluoride (PVdF) used in lithium ion batteries that power devices like Appleâ&#x20AC;&#x2122;s iPod, and which controls around 70 percent of the market, has had to shut down.
Redrawing The Map A global supply-chain has always been challenging for multinational organizations. due to a lengthy lead time, it is important for organizations to plan its demand forecasting, optimize network cost by factoring in taxation and exchange rate fluctuations and its impact on supply-chain cost. earlier, in the case of unavoidable accidents, firms would source the stable as well as fast moving components from the same destination leading to a concentration of centers of supply. However, even then the supply base would be affected and shortages would become the norm. in this case, energy supply and infrastructure destruction will increase the lead time of normalcy, thus affecting production globally. in order to avoid production cuts in india due to the short supply of components, Japan has requested the indian government to allow its carmakers to source spares from alternative destinations and exempt them from tests. the spares will have to be sourced from other markets such as thailand, malaysia, indonesia and europe. the uncertainty facing indian auto players can easily be
solved. But testing would become essential for the quality of the production to remain acceptable. What should be done is decentralization of the production of auto components. Just in case a similar disaster strikes any other place in the world, factories across the globe can still produce and meet demand to a great extent. Optimal geographical diversification and continuous sourcing from these destinations, will help mitigate such risks. if we make room for this request, components sourced from a new vendor will lead to changes in vehicle specifications thus creating long-term problems for the component players. it is important that each component be validated by a pressure test before it is sent into commercial production. Letting the homologation process of testing exist as it is
Natural disasters are no doubt unusual, but companies need to factor them into their plans and create a substantial long term supply chain. will help the world component sourcing market to diversify into other east Asian locations and european countries. the component market will become more competitive and Just-intime efficiencies will not be affected by any disaster as alternatives in the form of other locations will be available. Firms dealing with global supply will have to adopt exceptional best processes which alert demand planners about unusual changes in demand and supply and provides policies for dealing with them. in simple words, companies should be ready with solutions to meet demand expected to be greater than supply in the case of force majeure events. So also, the reverse when supply is expected to decrease sharply because of the same. natural disasters are no doubt unusual, but companies need to factor them into their plans and create a substantial long term supply chain. Just-in-case locations like malaysia, indonesia, thailand and other east european destinations can create competitive pressures on existing sourcing locations like Japan, but it will benefit players and enhance their ability to source components from different regions, mitigating the sourcing risks. For instance, Sony ericsson has cut back production as it has no alternative supply source and would have benefited if it had two sourcing bases: one in the U.S. and the other in Japan. this disaster has definitely opened up the need to diversify supply bases and minimize the risks for global supply chain.
The author can be reached at rakeshparas@gmail.com
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< Cover Story
Abhijit UpAdhye, Mcdonald's india Senior director, National Supply Chain, Menu Management & New business Channels 18 INDIA | April 2011 | www.logisticsweek.com
The Big Idea McDonald's, the worldâ&#x20AC;&#x2122;s single largest food service retailer, has a distinctive supply chain system. Pamela Cheema unravels it.
Photos: Vikram Barwal INDIA |
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< Cover Story
T
he McDonald's restaurant at Andheri (west), Mumbai, overf lows with people. Droves of customers surge into the restaurant and quickly fall into a fast moving queue before the food counter, where they are served by neatly attired restaurant staff. The popular fast food, including tempting offers from the newly launched Mcspicy range, is swiftly placed on clean trays along with Cokes of varying sizes. Customers’ bills curl up from credit card swiping machines, with the entire operation marked by quickness of service and efficiency. This Quick Service Restaurant chain (QSR) promises its customers a one-minute guarantee of service, which is amply evident by the speed of operations at the outlet. “McDonald's is a limited menu restaurant,” remarks Abhijit Upadhye, Senior Director-National Supply Chain, Menu Management and New Business Channels, “and our work is characterised by speed of operations.” This ubiquitous restau-
rant chain, which is a byword for fast food, is present in 120 plus countries globally. In India, the first outlets of the chain threw open their doors to the public in Delhi and Mumbai in 1996 within one month of each other. McDonald's is present in 40 Indian cities with 217 restaurants and serves 650,000 customers daily.
Largest Food retailer Internationally, McDonald's is considered the largest food service retailer in the world. The fi rst restaurant was established in 1955 in Des Plaines, Illinois, USA. The chain serves a humungous figure of 50 million customers every day and has founded 30,000 restaurants across the globe. The informal dining-out industry in India is estimated at $74 billion a year according to Mr. Upadhye, of which $12-$14 billion is the revenue earned from Western and Indian fast food. However, Indian fast food with hundreds of menus, generates a larger proportion of this revenue. Including its restaurant staff, McDonald's India employs a siz-
Critical Components of Our Supply Chain Return logistics (for plastic crates)
Tier 2 Supplier
Grower / Processor
- Lettuce growers - Potato growers - Poultry - Coating systems
Tier 1 Supplier
Processing
Store
Inbound Transportation
- Veg & Chicken patties: Vista - Potato products: McCain - Dairy: Amrit Foods & Dynamix - Bakery: Mrs Bectors - Liquid Products: Mrs. Bectors - Fish: Innovative - Beverages: Cola Cola India
Dedicated fleet of refrigerated trucks
Source: McDonalds
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- Noida
- Mumbai - Calcutta - Bangalore
Dedicated fleet of multi-temp and single temp trucks
No Frills Logistics Mr. Upadhye is uber cool, lucidly articulate and passionate about his subject as he unravels with great expertise and skill the supplychain of his company. The supplychain network of McDonald's is indeed sui generis: 100 percent outsourced, lean with no back-up staff and no frills. “This is not just how McDonald's operates in India,” explains Mr. Upadhye, “this is how McDonald's works everywhere. So although we are growing at 30 percent-40 percent every year in India, I don’t think we will increase our supply-chain staff for the next two or three years. If we continue to grow by 30 percent-40 percent every year, by 2014 I may add two more people in our supplychain, because some of our categories in which we are involved such as ‘buying’, may become large enough for a person to start doing a deep dive in these categories.”
Mcdonald's Supply Chain Fundamentals
Outbound Transportation
Radhakrishna Foodland is sole service provider for logistics and distributrion
CONFIDENTIAL - For McDonald’s Use Only
20
Distribution Center
able complement of staff numbering 9,000 people. But its unique and intricate supply chain network is managed by the austere figure of just five people across the country! “That figure of five people includes me,” says Mr. Upadhye in a calm and unfazed manner. “And if you include the Quality Assurance people, then there are just eight people handling McDonalds’ supply chain all over India!”
40 + cities around 212 stores
The three legged stool (three legs are company, owner/ operators and suppliers) n Culture of partnership and collaboration n Goes beyond ‘what we do’; its also ‘how we do it’ n
Result – long term wealth and competitive advantage for McDonald's and Suppliers
Sourcing from all over India Ludhiana (Punjab) • Mrs. Bector’s –Sauces and Toppings • Kerry – Batter / breading Chandigarh (Punjab) • Pagro – Frozen Veggies
Simla / Nainital • Binay Farms – Lettuce • Meena Agritech – Lettuce
S
S
S
S
Mehsana (Gujarat) • McCain – Wedges, Fries and Hasbrown patty
Ghaziabad (UP) • Amrit Foods – Dairy Mix supplier Noida (UP) • Mrs Bectors Bakery– Bun Supplier
S Maharashtra • Vista Foods – Veg and Chicken Patty • Mrs Bectors– Bun supplier • Cargill – Oil • Dynamix – Cheese • Packaging suppliers – Cups, Wraps, Straws, Napkins • Godrej Tyson – chicken meat supplier • Venky’s – chicken meat supplier
Distribution Centre
S Coimbatore – Chicken Meat Hyderabad – Chicken Meat
S
S
S
S
S
Supplier Locations
Ooty • Green Earth – Lettuce
Cochin • Innovative Foods – Fish Patty
CONFIDENTIAL Source: McDonalds - For McDonald’s Use Only
Before McDonald's launched its first outlets in India in 1996, much groundwork was done to ensure the smooth efficiency of its restaurants. From 1990 onwards, special teams arrived from the United States to check the effectiveness of India’s logistics industry, the reliability of its transport sector, etc. Much work was done to put together a supple and efficient supplychain which, despite India’s crumbling infrastructure, would work at an optimal level. “It took close to six years for the company to set up its entire supply chain,” reminisces Mr. Upadhye. “We had to develop special menus for India. Worldwide, McDonald's is known for its beef burgers. But in India, which is known for its
The Distribution Center run by Radhakrishna Foodland Pvt. Ltd. at Taloja, Maharashtra. INDIA |
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< Cover Story naught Plaza Restaurants Private Limited of which Vikram Bakshi is the Managing Director. These two companies monitor, scrutinize and judicially promote the brand of McDonald's in the country.
Lettuce Cold Chain
Lettuce Farm
Chiller
Processing center
Quality Inspection Program
Distribution Center
Source: McDonalds CONFIDENTIAL - For McDonald’s Use Only
religious sensitivities, a special effort was made to create new menus without beef and pork. About 60 percent of India’s population is vegetarian, so we had to devise new vegetarian recipes for this segment. It took about six years not only for our supply-chain to be set up, but also to put all our products in place for serv-
ing in our restaurants.” McDonald's restaurants in the south and west of India function under Hardcastle Restaurants Private Limited which is a Development Licensee. Amit Jatia is the Vice-Chairman of the company. For the north and east of India, McDonald's has formed a joint venture with Con-
Farm to Plate While the supply chain of McDonald's at first glance appears simple, its diverse components are both critical and multi-layered. Food ingredients are supplied by two categories, Tier-I and Tier-2 suppliers. Tier-2 suppliers comprise growers and processors who include importantly, lettuce and potato growers, poultry farms and companies which manufacture coating systems that coat the vegetable and chicken patties. The ingredients are supplied to Tier-I suppliers who process them, for instance, into vegetable and chicken patties — this is done by Vista Processed Foods Pvt. Ltd. — or potato products like French fries, potato wedges and hashbrowns which are expertly churned out by McCain Foods India Pvt. Ltd. The products are then transported in a dedicated fleet of refrigerated trucks to the company’s Distribution Centers. Multi-temperature and single temperature trucks then transport the fast food swiftly to the 217 McDonald's restaurants across the country. The supply-chain of McDonald's has also been expertly devised to include the significant aspect of return logistics. Says Mr. Upadhye: “I have a large component of return logistics. The buns are packed in
Mcdonalds' Supply Chain Goals 100% Assured Supply Competitive and Predictable pricing n Food safety and continuous quality improvement n Simplification of restaurant operations n Effective promotions management n n
Vegetable pattis on the conveyor belt at Vista Processed Foods Pvt. Ltd.
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91 11 26783281
91 11 26781481 82
110 037
< Cover Story Mcdonald’s Supply Network – Some Key Statistics n n n n n n
Number of restaurants: 217 Number of Distribution Centers: 4 Number of Core suppliers: 14 Total number of suppliers: 40 McDonald's India supply chain employees: 5 Inventory Turn Ratio: 36
plastic crates to ensure their quality. These crates have to go back to our logistics facilities, that’s where return logistics comes in. From there they are sent to the bakeries.” The fast food chain has four Distribution Centers across the country to serve its 217 restaurants. The DCs have segued seamlessly with the vision of the company which has embarked on a period of roller coaster growth, with one McDonald's outlet being launched every ten days in the country! The company owns DCs in Noida and Mumbai which
are primary Distribution Centers. The other two Distribution Centers are in Bengaluru and Kolkata and are housed in leased properties. The supply-chain of the fast food chain is in effect a hub-and-spoke model because the DCs act as hubs. The transportation of McDonald's has been completely outsourced and since 80 percent is refrigerated truck movement, the company has a dedicated fleet which transports their goods.
outsourcing All the Way The success of the supply-chain model of McDonald's can be directly attributed to its unique concept of outsourcing work. Unlike other corporate heavies, the company has a 100 percent outsourced supply chain. “McDonald's believes that we should outsource everything to a company who are experts in their subject matter,” says Mr. Upadhye earnestly, “and then monitor their
performance in a proper fashion so that Key Performance Indicators (KPIs) are not affected at all. This is how McDonald's operates not just in India, but everywhere.” Underlying the suppleness of its supply-chain are three principles to which the company adheres unwaveringly, the principles of trust and collaboration between the brand, the owners or operators, and the suppliers. “It’s like a three-legged stool,” explains Mr. Upadhye patiently. “Each leg (principle) has to be equally strong so that there’s no collapsing foundation.” McDonald's also believes in a culture of partnership and transparency with its suppliers. He says: “We have 100 percent transparency in everything that we do which is very critical for us when we work with our suppliers. You will find our most confidential plans with our suppliers and we expect similar transparency from them.”
impeccable Facilities We speed across to Taloja, approximately 30 kms from Mumbai, in the early morning sun. Taloja is an industrial area of Maharashtra, with industries mushrooming on every road. Vegetation is sparse, with tiny streams snaking through mangroves. But it is in this area that McDonalds’ distribution partner, Radhakirshna Foodland Pvt. Ltd and one of its Tier-1 suppliers, Vista Processed Foods Pvt. Ltd, have their facilities. Vista has a squeaky clean facility; the CEO, Bhupinder Singh, a burly Sikh from
Chandigarh, explains how their association with McDonald's has influenced his firm to adopt impeccable standards of hygiene. To take a quick look at the production of their vegetable patties, we don white suits, hair nets, masks, gloves and boots and descend into the cavernous depths of the production facility below. We watch with awe as the ingredients of the patties are ground and mixed in giant containers, moulded into patties, doused with a milky substance, frozen at subzero temperatures in massive refriger-
Trucks parked at Radhakrishna Foodland Pvt. Ltd.
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ated facilities and then tumble out to be packed in cardboard cartons. Radhakrishna Foodland Pvt. Ltd is a brief car ride away. Its low, white buildings house a 365-man workforce. The Distribution Center is well-spaced out with batches of food products packed in cartons—the cartons bear labels with the dispatch dates of the products. Many of the cartons are stored in a refrigerated room at sub-zero temperatures. In the transport division, vehicles are parked in neat rows, with newly-acquired trailer trucks standing in the shadows of the setting sun. Both facilities appear to be paradigms of the logistics facilities that McDonald's expects and conform to the exacting standards of the world’s largest food service retailer.
McDonald's has 14 core suppliers who supply directly to the fast food chain and they are known as Tier-I suppliers. Examples of Tier-I suppliers are Vista Processed Foods Pvt. Ltd., the Dynamix Group, Mrs Bectors, etc. The other suppliers forward ingredients to the Tier-I suppliers first and they are termed Tier-2 suppliers. The fast food chain has a total of 40 suppliers from whom it sources its ingredients. Most of the suppliers are local, but some are internationally famous foreign brands like McCain Foods India which set up shop in India when McDonald's ventured into the fast food business in the country. For a McDonald's supplier the terms of work are rigorous. A company’s stellar credentials are not enough; the supplier’s job does not end when the product leaves his premises, rather it ends only when the customer consumes it. McDonald's expects its suppliers to personally ensure the quality of their products to skirt the risk factor. “Most of my employees are 12th standard pass, they know nothing about food,” elaborates Mr. Upadhye, “so I expect my suppliers to be absolutely accountable to ensure that the quality that I’m selling to my customer is perfect as that is very critical.” Suppliers like Coca Cola which is McDonald’s beverage partner also, for instance, take water management classes in its res-
taurants to ensure potable quality of drinking water.
Keeping the Faith Even more startlingly different from most company-supplier relationships is the fact that McDonald's has no legally signed agreements with its suppliers. The company has only a simple ‘handshake relationship’ with them! When this idea was first proffered to them, McDonald's faced a barrage of criticism from its suppliers. “But we told them that firstly, we have only a one product-one supplier relationship with them,” says Mr. Upadhye calmly, “and secondly, since we are into long-term relationships, no matter what the ups and downs in terms of economy, recession or inflation, McDonald's will never renege on its terms.” The fast food chain sells 30 or 35 independent SKUs at its outlets. But with various combinations (a meal can be small, medium or large, while a Coke can also be sold as regular, medium or large), there are 100-150 SKUs which are sold to customers. Having limited SKUs, unlike Udipi
restaurants which have hundreds of items on their menus, has skillfully converted McDonalds’ supplychain into a streamlined system of operations in various ways—there is speed of service with a one-minute guarantee of service as the number of items on the menu are limited and sourcing ingredients becomes infinitely easier since there are fewer products and suppliers to deal with. “I have 40-50 vendors across the country, but 80 percent of the buy comes from just 14 core vendors,” reveals Mr. Upadhye. “That’s how
Mcdonald's Supply Chain: how things Move
Inventory Planning Procurement
Value Added Services
Four distinct phases Of Supply Chain development in india 1990 – 1996: Setting up the foundation n 1996 – 2003: Meeting McDonald’s supply and quality expectations n 2003 – 2010: Supporting aggressive growth of McDonald’s India n 2011 – 2017: Gearing up for the future
A supplier's job does not end when the product leaves his premises, rather it ends only when the customer consumes the product.
Distribution Centre
n
Quality Inspection
Information Management
Warehousing
Transportation Source: Radhakrishna Foodland Pvt. Ltd.
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< Cover Story I maintain efficiency in my supplychain.” Even when a new product is launched, the existing vendor is given the first opportunity to produce it; it is only when the vendor is unable to fulfill the demand that a hard slog begins for a new supplier.
Sole Distribution Partner
We use the IT technology SAP at our plant." — Bhupinder Singh, CEO, Vista Processed Foods Pvt. Ltd
A popular McDonald's outlet at Navi Mumbai, Maharashtra.
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McDonalds’ products are distributed by Radhakrishna Foodland Pvt. Ltd which is the only distribution partner of the fast food chain. RK Foodland manages the four DCs and since it has a transport division, handles the truck movement in the supply-chain right through the country. McDonald's expects its distribution partner to meet its standards of ‘cold, clean and on-time delivery ’. RK Foodland expertly manages the mundane day-to-day activities of the fast food chain like raising purchase orders to suppliers, invoicing, keeping an astute eye on work-
ing capital management, timely delivery, payments, etc. “They are like a one-stop shop for my restaurants,” says Mr. Upadhye candidly. “Anything that is required, from a bulb that needs to be changed in a restaurant to training material, is sourced directly from RK.” There are only two products, buns and Cokes, which are sent directly to the restaurants. Buns have a limited shelf life, hence they are sent directly to the outlets, while Coca Cola has a welloiled distribution system which ensures quick dispatch of its products. As with its suppliers, McDonald's has no legally documented Service Level Agreements (SLAs) with RK Foodland. The fast food chain carefully calibrates the performance of its distribution partner, measuring it against its own KPIs to ensure its performance does not dip below its own exacting standards. The DCs are assessed on several factors like
< Cover Story administration efficiency—the total number of cases managed per man hour, warehouse efficiency, overtime as a percentage of the total number of hours worked and in the case of transportation, the number of cases handled per trip, truck utilization, etc. McDonald's constantly scrutinizes the performance of RK Foodland against these KPIs; if its distribution partner is unable to meet certain benchmarks, together they devise solutions which would enable them to achieve set goals.
through Cold Chain A marked feature of McDonalds’ supply-chain is that the entire network consists of movement of goods through a cold chain. In effect, the suppliers are also a part of this cold chain and in certain cases, for instance, the lettuce growers, the cold chain begins with the Tier-2 suppliers. “We have the largest refrigerated movement of products in India,” says Mr. Upadhye proudly. An interesting and innovative feature of this cold chain is that the same truck can carry products at different temperatures, ranging from frozen products at -18C to -25C, chilled products from 1C-4C and dry products at ambient temperatures. Apparently, McDonald's is the only company whose supply-chain network is characterized by this successful experimentation. Vishal Sharma, Vice-President, Operations, RK Foodland, elaborates on this experiment: “As the store numbers and distances increased, we decided to come out
Unique Features Of Mcdonald’s Supply Chain Cold Chain requirement– temperature controlled movement and storage n Perishability – product shelf life ranging from 5 days to 270 days n Proprietary recipes and exclusive supplier relationships n Complex planning cycle as most raw material is agriculture based n
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with a design of a multi-temperature vehicles which could carry all three temperature products. Truck containers were made with two side doors in addition to the rear door. The side doors are used to unload products without disturbing the products in the other temperature zones.” This finesse and attention to detail has helped McDonald's achieve its own USP of ‘quality, standards of service, cleanliness and value.’ It will also help the fast food chain fulfill its own professed target of launching 40 outlets across the country every year! McDonalds’ efficiency and effectiveness are also due to the fact that it has a ‘pull-supply’ chain. The restaurant issues orders to the Distribution Center which, in turn, routes the order to the supplier and only then does the
supplier produce it. The supplier thus maintains barely any extra stocks; only if there is a contingency, like the overhaul or servicing of machinery, will the supplier produce surplus stocks. According to RK Foodland, the fill rate to store is 99.8 percent.
Forecasting Demand Equally impressive is the accuracy of the demand forecasts. The restaurants give a three-day to one-week forecast to the Distribution Center. The DC, in turn, has a three-month rolling forecast with the suppliers which enables them to plan their production schedules meticulously. For extensive long-term planning, McDonald's has devised the 31Q system—3 stands for the three years that the fast food chain will keep checking its plans, 1 represents the detailed
forecast of the next year and Q symbolizes the quarterly monitoring of these forecasts. While preparing his annual budget, Mr. Upadhye includes his suppliers in the budgeting process, briefing them on the new products and restaurants to be launched. Using this information, the suppliers roll out their production schedules. The schedule for the next year is carefully fixed and then stringently monitored. Once the forecasts are closed and the budgets fixed, the plan schedules and performances are monitored every quarter, also to ensure that there is no dip in performance. With 217 restaurants scattered across the country, lead times for delivery assume critical importance. But McDonalds’ supply-chain network is everything its cracked up to
be—each cog in the wheel is set precisely in place to ensure spot on distribution. Every restaurant manager knows the exact time of arrival of each product which enables the supply chain team to work backwards to ensure timely distribution. “I have fixed locations of suppliers and restaurants and my own fleet of dedicated trucks and cleaners,” says Mr. Upadhye energetically, warming up to his subject. “I can predict the amount of time it takes for a product to reach from an X location to a Y location.” If a truck takes four or five days to travel between a supplier’s premises in Taloja, Maharashtra, to Noida in the National Capital Region, dedicated McDonalds’ trucks will accomplish it in two days due to non-stop running of the fleet. “This ensures that my lead
But McDonalds’ supply chain network is everything its cracked up to be—each cog in the wheel is set precisely in place to ensure spot on distribution.
times for my trucks and deliveries is pretty much predictable,” points out Mr. Upadhye. With a maximum inventory of ten days in its system, McDonald's maintains an efficient inventory turn ratio of 36.
Food Safety While the mechanics of supply chain is critical, equally important is food safety. McDonald's adheres to the Hazard Analysis Critical Control Point (HACCP) system which ensures food quality. This is an industry level certification which officially approves all the suppliers of the fast food chain. But apart from HACCP, McDonald's has also devised its own food safety systems, the Supplier Quality Management Systems (SQMS) and the Distributor Quality Maintenance Program (DQMP). The SQMS is a worldwide mandate for all McDonalds’ suppliers and includes essentials of the HACCP control system, while also contriving several principles of its own. These systems are applicable to processing and
McDonald's adheres to the Hazard Analysis Critical Control Point (HACCP) system which ensures food quality.
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< Cover Story manufacturing plants. The DQMS audits and checks the warehouses of the chain. McDonald's trains auditors worldwide on its SQMS and DQMP programs. Independent auditors then audit plants and warehouses and allot scores to McDonalds’ facilities globally, thus ensuring that the food leaving its processing plants and warehouses if of the highest safety standards.
tastes Like Mac As critical as safety is the taste of the food products “because a cus-
Independent auditors audit plants and warehouses and allot scores to McDonalds’ facilities globally.
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tomer who is walking into McDonald's is not coming to eat certificates!” says Mr. Upadhye bluntly. “He is coming there because he likes the taste of the product.” To keep an assiduous check on the taste of its products, McDonald's runs a Sensory Program. It has a centralized laboratory in Hong Kong which trains sensory experts. Special personnel are nominated both from the suppliers’ and Quality Assurance teams of McDonald's to attend the training program. Every batch of a food product that gets manufactured at a sup-
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plier's plant is checked by an approved sensory panel at the plant. Scores are allotted to the product and only if it scores above a certain percentage, is it shipped out of the factory. Another level of control is that every month members of the suppliers’ and McDonald's Quality Assurance teams select an outlet at random and carefully inspect the quality of the food products. Also, every quarter or half year, members of the management do a ‘product cutting’ with key suppliers—fry a product, check its taste
and allot scores—to check if the product scores are moving in the right direction northwards. And lastly, samples of the products that are manufactured in the country are shipped to the central laboratory at Hong Kong which evaluates the products.
tech Prowess The supply-chain network of McDonald's, which appears to work effortlessly, is powered by various IT systems which enhance its effectiveness. “We use SAP,” says Bhupinder Singh, CEO, Vista
Processed Foods Pvt. Ltd, Tier-1 supplier of the chain. Mr Sharma of RK Foodland mentions that “our Distribution Centers are on RAMCO Marshall ERP with Cobra software. These systems are used to directly upload store orders.” At the restaurant level, the fast food chain has in-house developed technologies which track day-today sales, enables restaurants to schedule staff and send forecast orders to DCs. “These are our proprietary technologies,” remarks Mr. Upadhye. “The next phase that we are looking at is connecting our DCs to our suppliers through these systems.” Despite ballooning levels of growth, McDonald's added Mcdelivery, an innovative option which delivers meals to the customer’s doorstep. This service has grown at stratospheric levels by more than 400 percent. Mcdelivery was first launched in Mumbai and Delhi in 2004. The service is now offered in seven cities in the country. Does it burden the existing supply chain network? Mr. Upadhye shrugs nonchalantly. “Why should it? It does not add much to our planning cycles. The more I sell, the more economies of scale I get and it helps to keep my supplychain more efficient.” Mr. Upadhye is passionate about the supply-chain of the company, but he now tries to gaze into the proverbial crystal ball, seeking the future of McDonald's. With its escalating growth, Mr. Upadhye realizes that “we need to add more capacity to our supply chain, but will I be able to do it without creating white elephants? Also, with our supply-chain set to grow, we may need a fifth DC. If so, where? Incidentally, we are working with a software company to optimize our network.” However, despite the maze of uncertainties, the only future of McDonald's is up.
< INDUSTRY REPORT
PORTS of CALL 32
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India's maritime cargo trade is set to grow stupendously. Apart from container traffic, commodities that will spur this growth are oil and gas, fertilizer, coal, and iron ore. In a report shared exclusively with LOG.India, Avalon Consulting's K.A. Ramakrishnan, Director, and Parag Risbud- Associate Vice-President analyze the growth coming India's way by tracing the maritime cargo trade.
I
ndia is the economy to grow with. The recession a couple of years didn’t really send it under the weather. It bounced back and showed why it had clocked over 9 percent growth rates for three years in a row before the crunch. Armed with a billion-plus population, backed by a solid GDP, and bustling with a market whose canvas is ever expanding, the growth rate for 2011-12 has been projected at 8.8 percent. This authentic pointer comes from the Centre for Monitoring of Indian Economy (CMIE). India has a very large domestic market, where the rising demand is a major driver of growth (See Fig. 1).
The abundance of natural resources and a progressive manufacturing sector have led to an impetus for external trade. The trade and external sector of the country witnessed heightened momentum due to the growth in exports, increase in capital inf lows and addition in the foreign exchange reserves. In the past decade (2001-2010) India’s merchandise trade in value terms has risen from $95 billion to $467 billion at 19.3 percent CAGR. India’s maritime cargo trade has taken a significant upswing, supported by a buoyant economy. The various maritime trade volumes against the GDP in
India's External Trade in USD Bn (FY 01-10)
CAGR % 21.4%
Imports 16.7%
Exports
Figure 1
Source: Department of Commerce
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May 2011 | www.logisticsweek.com 33
AVALON
Consulting
< INDUSTRY REPORT
In Mn T
GDP In Trillion Rs
Correlation of GDP with cargo categories (FY1997-2010)
Coefficient of correlation between GDP and each cargo trade value is high at about 0.9 ** GDP shown here is at constant prices at factor cost ( base year as 1999-2000) Figures for the cargo categories include external trade as well as coastal movement figures Figure Figure 2
2 Source: RBI, IPA , Avalon Consulting Research & Analysis
Source: RBI, IPA , Avalon Consulting Research & Analysis
AVALON
2
value terms over the past decade indicates a high corelation (See Fig. 2). Indeed, Indiaâ&#x20AC;&#x2122;s economic growth has closely traced the maritime trade growth. India is a major maritime nation by virtue of its 7517-km long coastline dotted with 13 major ports and 176 non-major ports (See Fig. 3). It has one of the
Map showing Major and Minor ports in India
Consulting largest merchant shipping f leet and is ranked 16th among the maritime countries. In the last five years, cargo traffic at Indian ports has shown a growth of around 11 percent CAGR, with total volumes clocking above 800 million tons (mt) in 2010 (See Fig. 3).
Cargo Handled* at Major & Minor Ports in India (FY 06 â&#x20AC;&#x201C; 10) Mn T)
Note: Includes coastal / EXIM cargo Figure 3 Source: IPA, Avalon Consulting analysis
AVALON
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3
Consulting
Port Traffic Projections by Cargo (Mn T)
CAGR 5% 8% 14-16% 13-16% 7-9%
10-11% Shipping min. estimates 2500 to 3000 Mn T traffic at ports in India by 2020
Note: Includes coastal / EXIM cargo
Figure 4 Source: IPA, various secondary sources, Avalon Consulting Research and Analysis, Ministry of Shipping
AVALON
Avalon Consulting estimates that cargo traffic at ports in India will touch 1,000 mt in FY2012 and by FY2015 it will cross 1400 mt (See Fig. 4). Petroleum, Oil and Lubri-
4
Consulting cants (POL), iron ore, coal and containers will account for a significant share of the future trade growth. The ensuing pages evaluate these key commodities.
OIL REFINERY CAPACITIES Over the years, the government and private companies have created capacity to refi ne crude, and infrastructure to improve market access thus securitizing its supply of crude. Today the country has an installed crude oil refi ning capacity of 184 million tons per annum (mtpa) spread mainly across the coastline and now extending into the interior (See Fig. 5). India has the fi fth largest oil refi ning capacity in the world. Of the total refining capacity in the country, public sector refineries account for 61 percent. Among the private sector, Reliance, after expansion of its facility at Jamnagar, has a capacity of 62 mt making it the largest refining complex in the world.
Crude oil refinery locations in India
Panipat 12 Mn T Mathura 8.0 Mn T
Jamnagar (2) 62.0 Mn T
Koyali 13.7 Mn T
Vadinar 10.5 Mn T
7 Mn T
Barauni 6.0 Mn T Haldia 7.5 Mn T
Mumbai (2) 17.5 Mn T Vizag 8.3 Mn T
Mangalore 11.82 Mn T
CRUDE OIL SUPPLY Indiaâ&#x20AC;&#x2122;s imports of crude oil have grown at a CAGR of 10 percent over the last five years (See Fig. 6). Crude oil imports currently account for 78 percent of requirement. Domestic crude oil production is near stagnant considering the limited exploration potential. This has resulted in increased crude oil volumes for the maritime traffic over the years.
Guwahati Digboi Numaligarh Bongaigaon
Chennai 9.50 Mn T
Kochi 9.5 Mn T
Figure 5
Narimanam 1.0 Mn T - Refinery locations
Source: PPAC, MoPNG, Oil and Gas Journal, Avalon Consulting Research & Analysis 5
INDIA |
May 2011 | www.logisticsweek.com 35
< INDUSTRY REPORT Crude Oil Supply in India, FY 06-10, In Mn T
145.5
131.6
161.7
155.8
193
CAGR 10%
12.5%
1.1%
Domestic crude oil production is almost stagnant
Figure 6 Source: MoPNG, Avalon Consulting Research and Analysis
AVALON
Production of POL , Mn T (FY 06-10)
135.2 119.7
144.9
150.5
6
Consulting EXIM Scenario for POL Products, Mn T (FY 06-10)
149.6 6.9%
5.4%
5.6%
Figure 7a
Figure 7b
Source: Company Reports, MoPNG, Avalon Consulting Research and Analysis
Figure 7 On the other hand, production of POL has increased from Source: Company Reports, MoPNG, Avalon Consulting Research and Analysis
approximately 119 mt in FY06 to about 150 mt in FY10 7 (See Fig. 7a). Refining capacities in India has mainly been dominated by the middle distillates demand. A domestic surplus in other products has led India to export POL products. Since FY2006, POL exports have increased from 10 mt to about 36 mt in FY2010 at a CAGR of 37 percent. A continued economic growth is expected to drive do-
36
INDIA |
May 2011 | www.logisticsweek.com
mestic consumption of POL products. Avalon Consulting AVALON estimates POL demand to reach approximately 250 mt by Consulting the turn of this decade. In spite of a rise in demand, the next decade will see an addition of only about 70 mt of refinery capacity, while export and import of POL is likely to remain curtailed to about 30-50 mtpa. However, import of crude oil will continue rising to reach 237 mt by 2020.
< INDUSTRY REPORT
GAS SUPPLY: LARGELY UNTAPPED Natural gas is used as fuel and as feedstock depending on the end-user industry. A scarce resource, its allocation is worked out by the government of India. The potential for growth of the natural gas market in India is tremendous; however, this is a highly price sensitive market as the ability of customers to pay differs from sector to sector. Power generation and fertilizer compa-
nies are its main consumers. As fertilizer production is subsidized by the government, they have little ability to absorb higher prices. Recent reforms have brought more private investors in the upstream and downstream sectors, but a more transparent regulatory framework will be critical to incentivize future private investments. According to Inter-
Domestic Gas Supply Scenario by company, In MMSCMD
Gas Supply â&#x20AC;&#x201C; Demand Scenario, in MMSCMD
200 154 133 91
Figure 8a
Figure 8b
E=Estimated
Source: Ministry of Petroleum & Natural Gas, XI Five Year Plan, Avalon Consulting Research and Analysis
national Energy Agency (IEA), the Indian gas market is Gas Supply â&#x20AC;&#x201C; Demand Scenario, in MMSCMD expected to be one of the fastest growing in the world Figure 10 over the next two decades. Source: Ministry of Petroleum & Natural Gas, XI Five Year Plan, Avalon Consulting Research and Analysis it is estimated that India will require By 2015-16, AVALON Imports Domestic Demand Consulting about 500 MMSCMD of natural gas, for which the indig10 enous supply sources will be insufficient (See Fig. 8a). In the 1990s, in order to address the ensuing supply shortfall, the Indian government passed some reforms to encourage domestic production and the construction of liquefied natural gas (LNG) terminals. ONGC and GAIL are also present in the LNG sector through their participation in Petronet LNG Limited, a joint venture of GAIL, ONGC, IOCL, Bharat Petroleum (BPCL), GDF Suez, and the Asian Development Bank (ADB). In order to bridge the demand-supply gap, LNG is imported into India. This is expected to increase in future. Linkage with the exporting countries is very critical for success of LNG imports. Geographically, India is strate2009-10 E 2015-16(P) gically located relatively close to four of the world's top five countries in terms of proven gas reserves, viz. Iran, Figure 9 P= projected Source: Bloomberg, Petronet, MoPNG, Avalon Consulting Research and Analysis Qatar, Saudi Arabia and Abu Dhabi.
38
INDIA |
May 2011 | www.logisticsweek.com
Figure 11
Source: Bloomberg, Petronet, MoPNG, Avalon Consulting Research and Analysis 11
FERTILIZERS: IN SHORT SUPPLY India has emerged as the third largest producer Fertilizer trends in India (FY01 – FY10) Mn T of nitrogenous fertilizers. The sector is regulated by government policies administering the price CAGR % and production. The tremendous demand for fertilizers has seen the country invest largely in the 4% public, cooperative and in private sectors. At present, India has more than 57 large sized plants of fertilizers, manufacturing wide assort1% ment of fertilizers. India will continue to be a major importer of raw materials, intermediates as well as finished products. Urea and di-ammonium phosphate (DAP) 21% will continue to dominate production. Fertilizer industry demand drivers will result in not only a boost to the domestic fertilizer supply but also lead to increasing imports (See Fig. 10). Imports are estimated to rise to about 24 mt by FY2020. India's foodgrain requirement to feed an esFigure 10 12 Figure timated population of 1,400 million by 2025 will Source: Department of Fertilisers, Avalon Consulting Analysis Source: Department of fertilisers, Avalon Consulting analysis be 300 million tonnes (of mainly rice). Of course, there will be a corresponding increase in requirement of an increase in yields as there is limited scope for increasother crops such as cotton, sugarcane, fruits and vegeta- ing cultivated area. There is potential to increase them 12 bles. The increase in production will have to come from through the use of fertilizers (See Fig. 11a).
High natural gas prices Production of fertilizers, particularly Urea more than 66% depend on natural gas as against 30% on naptha and 4% on fuel oil for feedstock Natural gas prices have risen to INR 7500 per Mn BTU from the earlier Rs 3200 Mn BTU leading to rise in fertilizer prices Shortage in natural gas supply of about 14 mmscmd currently adds to the woes
Rising food grain production
Unavailability of FRM Consumption of Fertilizers, Mn T (FY 11-20) Shortage of Phosphate rock and Sulphuric acid supply makes domestic production of phosphatic fertilizers difficult, necessitating imports of phosphoric acid or phosphatic fertilizers Potassic fertilizer raw materials need to be imported only
Consumption of Fertilizers, Mn T (FY 11-20)
Rising foodgrain consumption and production has fuelled demand for fertilizers. Domestic foodgrain production target is set at 320 mn T by FY12
Low consumption of fertilizers
Import of Fertilizers, Mn T (FY 11-20)
Comparison of Nutrient Consumption / hectare
Low consumption provides players opportunities to utilize the demand
Food Grain Production
Figure 13
Figure 11a
Figure 11b
Source:Import Department of Fertilizers, Avalon Research and Analysis of Fertilizers, Mn T Consulting (FY 11-20)
14
INDIA |
May 2011 | www.logisticsweek.com 39
< INDUSTRY REPORT
IRON ORE: HUGE EXPORT OPPORTUNITIES India has managed to Country Wise Split Of World Iron Ore Exports, Percentage, Mn T ( 2002-09) sustain its share in world iron ore exports at about 10 percent till 2009. 946 844 561 540 640 739 765 829 In 2010, iron ore exports were about 91 mt and this fiscal it is expected to touch 100 mt. The stagnated growth has been due to recent bans on iron ore exports from Karnataka and imports into China (See Fig. 12). These are considered to be temporary blips causing a dip in FY11/FY12. There is no immediFigure1216 Figure ate concern about iron Source: TradeMap, Analysis Source: TradeMap,Avalon AvalonConsulting Consulting Analysis ore resources turning out to be a constraint for growth of domestic steel industry. Steel production capacity is estimated to increase by 10-12 percent CAGR till 2020. The Indian Council for Research on International Economic Relations (ICRIER) estimates that even with about 100 mt of continued annual iron ore exports, the existing reserves would sustain domestic steel production requirement for decades. Hence, it is estimated that in the medium to long term, iron ore exports from India will pick up pace and reach about 200 mt by the turn of the decade (See Fig. 13). Iron ore consumption in the country falls far short of production. Orissa, Chhattisgarh, Karnataka, Jharkhand and Goa are the major iron ore producing states in India. In the absence of adequate domestic demand, iron ore fines are being largely exported. Blast furnaces in India use sinter and lumps as feedstock. The proportion of sinter (and also pellets) used in blast furnaces in India has been increasing due to favourable economics. Apart from the fact that there is not adequate sintering or pelletising capacities in India to take care of the Figure 13 surplus of fi nes, utilization of capacity in the sintering Source: Avalon Consulting Analysis and pelletising plants has been lower compared to the iron making facilities. and pelletisation) capacities. This is prominent in the There is a regional imbalance also in respect of pro- East and the South Western part of the country. This duction of fi nes and the total agglomeration (sintering leaves no other option but to export these fi nes. 17 40
INDIA |
May 2011 | www.logisticsweek.com
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Consulting
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< INDUSTRY REPORT
COAL: MORE DEMAND THAN SUPPLY Break-up of coal demands by user sector The coal sector faces a unique impasse. While the country has 13 percent of global coal reserves, its production share languishes at 8 percent. The existing problem of supply constraints is now well recognized in government corridors but a sense of urgency to address the bottlenecks is still missing. As demand for coal accelerates, supply needs to keep pace to achieve fuel security for key user industries – power, steel and cement, and thereby meet the GDP growth targets (See Fig. 14). With recoverable reserves of 106 billion tons, coal is one commodity that India has in abundance. However the rising demand is not being met by domestic supply resulting in increasing reliance on imported coal. The sector is likely to see significant economic reforms considering that the demandsupply deficit will hamper GDP growth. India’s coal supply has risen at 8 percent CAGR in the last decade. Imports have accounted for 17 percent of the supply in 2010. The demand for coal will largely be driven by the power and steel sector (See Fig. 15). Supercritical turbines and ultra mega power plants (UMPP’s) will characterize power generation capacity additions in the coming decade. High quality coal (high calorific value) will be much sought after. Many of these plants will be based near ports to take advantage of the imported coal. Indian firms are establishing themselves in coal producing countries like Indonesia and South Africa to secure coal supplies. As per Avalon estimates, coal demand from thermal power plants will rise to 1,000 mt by 2017. Demand for coal from the steel industry is also likely to rise in line with capacity additions. Blast Furnace is the preferred route for most ex-
FY 2007
India me
FY 2012E
FY 2017E
Figure15 19 Figure
Coal Supply in India (FY06 – FY 10E) (Mn T) 648 113
CAGR %
13.5%
475 68 535
407
FY 06
Production
Imports
Figure1418 Figure Source:IDFC-SSKI, IDFC-SSKI, Avalon Consulting Analysis Source: Avalon Consulting Analysis
42
INDIA |
May 2011 | www.logisticsweek.com
FY 10E
7%
India has 13% of world’s recoverable coal reserves but contributes only 8% to global production
Coal demand estimates in India (Mn T)
Coal Scenario in India (Mn T) Demand
1376
Production 1376
Deficit
737 147
737
?
Deficit
Production
700800
590
FY 12
Deficit
Production
FY 17
Figure Figure16a 22 Source: Consulting && Analysis Source:IDFC-SSKI, IDFC-SSKI,Avalon Avalon ConsultingResearch Research Analysis
Figure 16b
pansions and one that uses coking coal. Coking coal domestic production is limited and hence import reliance will rise. By 2017, demand for coal will rise to about 1.4 billion tons. Imports in future can only be constrained by inad-
equate port capacity. In the backdrop of a looming domestic supply crisis, a lot of Indian companies have attempted to secure long-term coal supply through buying coal companies / stakes abroad.
CONTAINER TRAFFIC: SOME GOOD DEALS Over the last 10 years, container traffic has increased at a CAGR of around 13 percent touching close to 8 million TEUs in 2010. A vibrant Indian economy will see container traffic likely to touch 23 mn TEUs by 2020 (See Fig. 18). Development of ports will be a key driver for cargo growth. Typical volume Split of Container Trade in India by Broad Categories in Recent Years (Indicative)
1-2%
At the same time, FDI in India touched $37 billion in 2010. The country is viewed as a sourcing hub by international MNCs which augurs well for exports. Several Indian businesses expanding overseas will also look to India for sourcing. Today India is establishing and consolidating its presence in the global manufacturing arena (See Fig. 19). India has been ranked second in terms of manufacturing competence in a global survey in 2010.
0-1%
9-11%
Estimated All India Container Traffic Trend Mn. TEUs (FY011-FY20) Growth in container traffic will taper down in the 2nd half of the decade
CAGR = 10%
CAGR = 13%
10-11%
20-22%
Figure Figure 26 17 Source: Department of Commerce, MOSPI, Avalon Consulting Research and Analysis Source: Department of Commerce, MOSPI, Avalon Consulting Research and Analysis
Figure 18
Figure 30 Source: IPA, JNPT Avalon Consulting Research and Analysis Source: IPA,Business JNPTPlan, Business Plan, Avalon Consulting
Research and Analysis
34
INDIA |
May 2011 | www.logisticsweek.com 43
AVALON
Consulting
< INDUSTRY REPORT India’s growing and aspiring middle class is set to drive domestic demand for high-end goods by transforming its consumer market. Logistics cost reduction through port infrastructure development will impact trade volumes. Some of the factors will be: Capacity to handle large vessels for coal and iron ore, thus improving competitiveness for EXIM trade. Efficiency of cargo handling at ports.
Direct sailing for container vessels. Higher drafts enabling larger vessels. Warehousing infrastructure at and around ports. High economic growth and external trade momentum in India will be sustained due to the government’s focus on infrastructure development (See Fig. 20). With the PPP model in focus, the increasing private participation will lead to greater opportunities for private players. In the coming decade, maritime opportunities could be
Current Manufacturing Competitiveness rating, 10=High, 1= Low
Competitiveness drivers Labor & Material cost Talent driven innovation Energy cost and policies Economic, trade, tax systems Quality of physical infrastructure Investments Regulatory system Local business dynamics
19 Figure 28 Source: 2010 Global Manufacturing Competitiveness Report, US Competitiveness Council
AVALON
Consulting
31
geographically more dispersed with development of various industries: New production centers are being built with refi neries, power plants, etc. coming up in various states. Industrial cluster and SEZ development program. Development of mega-cities and townships. Road and rail connectivity infrastructure will bridge the gap between rural and urban centers. The good news in all this is that a multitude of maritime infrastructure and logistics opportunities await investors in the coming decade.
Infrastructure investments inthXI XIPlan th Plan Plan Infrastructure investments th Infrastructure investments in XIin (2007-2012) (2007-2012) (2007-2012)
Avalon Consulting is a leading Strategy & Management Consulting firm in India. The firm has over two decades experience in the Ports, Maritime and Logistics domain in India and outside.
XII th Plan Plan from (2012 to th (2012 XII thXII Plan fromfrom (2012 to to 2017) will double the 2017) will double the 2017) will double the Infrastructure spend to Infrastructure spend Infrastructure spend to to USD 1025 bn USD 1025 bn USD 1025 bn
XIth Plan USD 514 bn –– USD XIthXIth PlanPlan – USD 514 514 bn bn
Figure 20
Figure 31 31 Figure Figure 44 31 INDIA | May 2011 | www.logisticsweek.com 35
35 35
AVALON AVALON AVALON
Consulting Consulting Consulting
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The Nee For Spee
The express courier market has come a long way from merely delivering letters. Building extensive infrastructure, offering value-added services, and now jumping on to e-commerce are some of the hallmarks that differentiates this sector, says Jayashree Mendes.
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T
he express courier services segment is burdened. Not under the weight of the parcels or cargo they carry, but various regulations, not to forget the competition from relatively unknown or smaller players. Possibly it is these hurdles that has driven this industry to grow annually at 20-25 percent per annum. It is also estimated that the organized courier industry is worth `10,000 crore. Since the 1980s when the early courier companies established themselves in India, the sector has made such huge strides it has superseded the local post office. It is fashionable to send letters by courier, and have the courier boy pick up your parcel/letter, thus avoiding that trip to the post office. The popularity has not come easy. Explaining how courier companies have gained ground, O.P. Rajgarhia, Chairman & Managing Director, Overnite Express Ltd., says, “Organized courier companies have had to create their own networks in remote cities, deploy extensive technology, build value-added services, create new verticals, invest in fleet, and importantly, offer timedefinite delivery.” The success of a few large companies have triggered entrepreneurship among many others, though on a smaller scale. Today there are about 2,200-2,400 courier companies in India, employing 1.2-1.4 million people directly and indirectly. Of these, only about 25-30 companies fall in the organized sector and account for 70 percent of the total revenue. Considering that this sector has high entry barriers, not to forget how lucrative it is, the organized courier companies constantly look to up the ante through services, price, distribution networks and promotions.
How They Move Express courier and delivery companies manage their services using air, road, and rail transport. Explor-
ing new markets and venturing into remote locations like tier-2 and tier3 cities is a constant endeavor with most companies. R.S. Subramanian, Country Head, DHL Express India, points out, “There are huge untapped opportunities in the smaller cities as they contain small-and-medium enterprises (SME) and manufacturing locations of medium and large companies.” Since warehouse facilities and transport depots of companies are also based in the smaller towns, it makes sense for courier companies to expand into these locations. Reaching out in these locations depends on the category of the courier company. Arpita Mukherjee, Professor, Indian Council for Research on International Economic Relations (ICRIER), an autonomous, policy oriented, not-for-profit research institute, says there are four categories of players in the market. The four large global integrators like DHL, TNT, FedEx, and UPS carry high-value consignments and documents internally and internationally, have vast logistics networks and infrastructure in terms of own aircraft, dedicated gateways for custom clearance, global networked IT and scanning systems, etc. The large Indian companies are mainly focused on the Indian market through a wide network and service select international locations. They may not have dedicated gateways and aircraft, but they make up by covering a wide spectrum of the domestic market and are the main competitors for the global integrators. Regional players are riveted in regions where they are based and compete directly with the large Indian companies where they have a common presence; and the smaller companies are the local courier service providers delivering mainly letters with lesser risks to take as their investments are small.
Delays at ports cause cargo delivery bottlenecks, airports are hampered by inadequate parking bays and sluggish customs clearance leading to undue delays." — Kenneth Koval, VP(India Operations), FedEx Express
Offering More For Less Courier companies distinguish themselves by the services they offer. An exclusive and faster service offers an edge over competitors, both large and small. Shantanu Dutta, Country Manager, OMX (Express Division of Om Logistics Ltd.), says, “The clientele for organized and the unorganized players are different. This does not mean that a corporate client won’t make use of both. He might use the large
Highlights The Indian courier industry is valued at `10,000 crore. Of the 2,200-2,400 courier companies in India, only 25-30 companies form the organized sector and account for 70 percent of revenue. n The industry employs 1.2-1.4 million people directly and indirectly. n I ncreasing use of technology platforms is triggering online transactions and quicker deliveries. n P oor infrastructure continues to be a sore point for all express courier and delivery companies. n E -commerce is what most companies are looking at for the near future. n
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< FeaTure
We manage escalation services for automated teller machines (ATMs), undertake returns for the telecom industry, and conduct specific clinical trial movements.” — abhik Mitra, Managing Director, TNT India
company for precious documents and cargo and the small courier company for mass mailers.” Companies offer various value-added services that could be unique to them or the beginning of a trend. For instance, Mr. Subramanian speaks of DHL Express’s Express 9:00 and 12:00, a service launched in Kochi and Kolkata and one that promises to deliver the shipment the next business day. A new offering is Jetline, catering to mission-critical international shipments, mainly pharma and FMCG, which need immediate pick-up and door-to-door delivery within a 48-hours time frame. Offered across over 220 countries, Jetline comes at a premium. Value-added services differ from company to company. FedEx’s valueadded offerings for domestic services range from Collect on Delivery where a recipient can make payment to the shipper in 6-7 days on receiving the
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shipment. Other services include Delivery on Invoice Acceptance, Freight on Value (Transit Insurance), Freight to Collect, and Hold at Location. Innovative services are tailor-made to suit the client’s requirements. Mr. Rajgarhia says, “At Overnite, we volunteer reverse logistics, Mobile Express, Passport Express, specially designed strong box for carrying shipments safely, multi-location pickup with centralized billing, and specially designed pouches for tea samples, among others.” Some services get more unique by nature. Abhik Mitra, Managing Director of TNT India manages escalation services for automated teller machines (ATMs), undertakes returns for the telecom industry, and conducts specific clinical trial movements. The well-connected organizations also offer online tracking, various web-based solutions to suit clients’ requirements, and cost-effective line haul.
Harsh DoP Proposals Courier companies face challenges inherent to them. A core issue is the decision of the Department of Posts (DoP) to amend the outdated Indian Post Office Act, 1898, and draft a new one. The announcement made in 2006 caused a huge outcry. The bill proposed the following changes: n A price and a weight multiple will be used to define a letter. The bill stated that if private players want to operate in the ‘letter’ segment below 150 grams, they will have to charge five times the minimum postal tariff for normal delivery of documents and 2.5 times the speed post/express delivery rate for express delivery. n A universal service obligation (USO) fund will be set up to which private service providers with a minimum turnover of `25 lakh per annum would contribute 10 percent of their revenue. n An FDI cap up to 49 percent will be imposed. n A regulatory authority will be set
up, although its role was not clearly defined. Ms Mukherjee says, “Courier companies realize that the regulations brought out by the DoP would not favor them. The regulations, if passed, would have affected everyone. While large companies garner a major part of their revenue from corporate or government business, it is the smaller companies that rely on SMEs and individuals.” A daily challenge for companies are the delays caused by poor infrastructure. It is common knowledge that trade and logistics growth in India has not kept pace with infrastructure development, thus resulting in high cost of logistics. Kenneth Koval, Vice-President (India Operations), FedEx Express, says, “While delay at ports cause cargo delivery bottlenecks, airports too are hampered by factors like inadequate parking bays and sluggish cargo handling/customs clearance capabilities which lead to congestions and undue delay in clearance of goods. Poor cargo warehousing facilities and the lack of multimodal links for local distribution are also factors that constrain air cargo operations in the country.” A significant challenge for courier companies is delivering/receiving shipments right to/from a client’s doorstep. While transport by air takes care of long distances and timelines and ports have high turnaround times, rail and road transport brings its woes. As a convenient and cost-effective mode, the railways although popular for bulk freight transportation, have lost out to road transportation due to connectivity and limited access to towns. Shipments going by road can be delayed at check-nakas due to various taxes and permits.
What’s New Globalization and the growing role of technology have played an important role in expanding scale of operations of courier companies. A report
brought out by ICRIER-Indian Institute of Management Calcutta (IIMC) in Q3 2010 states that for some years now the express courier and delivery companies “have seen a large number of mergers, acquisitions and strategic alliances. In certain markets, especially the larger countries in terms of geography, global express companies have local partners, subsidiaries or affiliates to help them to build their networks and expand their scale of operations. Collaborations, strategic alliances and tie-ups have not only led to a major consolidation of the sector but have also made the ownership pattern of the industry quite blurred.” A recent consolidation in the market was the FedEx takeover of AFL. Mr. Koval says, “As India emerges a key growth economy on a global platform there is a need for global standard logistics services in order to effectively integrate Indian enterprises with the global economy. This is fuelling globalization and consolidation within the industry with the entry of global players as well as mergers and acquisitions in the Indian market.” An emerging trend is the broadbasing of service and product portfolios of express companies. Comprehensive portfolios cover an array of services ranging from express services, ground services, value-added services, warehousing, 3PL, etc. Globalization and the rapidly evolving demands of industry is driving the use of technology in operations, in order to improve efficiencies and offer enhanced value added services. As online transactions become popular and convenient, the demand for e-commerce is also increasing. Mr. Rajgarhia says, “Prompt, faster and safe mode of transactions and customer delight are being offered by private players which is fast catching up the demand.” Additional infrastructure also means investing in logistics parks.
Vineet Kanaujia, General Manager (Marketing), Safexpress, says, “We already have 15 automated logistics parks in place, and are setting up 17 more. Our infrastructure enables us to promise clients quick deliveries.” A majority of large corporates in FMCG, apparels, auto-components, consumer electronics, pharmaceuticals, etc. have moved from ordinary road freight to time definite door-to-door delivery (TDDD). According to Mr. Subramanian, “In the long run, except for the bulk time-insensitive items, the rest would move to TDDD. Another discernible trend is that gradually TDDD companies are evolving into supply chain and logistics management service providers.” With significant growth in life sciences and healthcare products in Asia, Temperature Controlled Logistics (TCL) is an important product offering for this vertical. Blue Dart has chalked out plans to offer TCL in 53 Origin Destination (OD) pairs soon. In the last few years, the demand for world-class logistics and warehousing facilities has grown tremendously. This is opening up a whole new world of opportunities in distribution from mobile phones, credit cards to pharmaceuticals and auto components.
How They rate It’s not enough for express delivery and courier companies to provide adequate coverage or be technology-savvy. Companies need to rate themselves on various parameters to gauge the level of services they offer. Some common parameters used by large players are reliability, efficiency, tariffs, tracking facility, flexi-timings, pick-up on call, delivery time, and delivery coverage. Mr. Rajgarhia says, “Indian companies also need to ensure prompt deliveries within the turnaround time, data updation and promise a safer and faster mode of transportation.”
A discernible trend is that gradually time definite door-to-door companies are evolving into supply chain and logistics management service providers.” — r.S. Subramanian, Country Head, DHL Express India
The Future Express courier is not confined to letters and cargo alone. Companies are offering customized solutions for aviation and aerospace, the technology industry, automotive, fashion, and healthcare sectors as well. The main drivers that will fuel the growth in the logistics market include the upcoming freight corridor project, building of logistics hubs and warehouses, port development, technology upgradation, investment by private players and also the impending industry status for the logistics sector. The Indian logistics industry is poised for a significant leap forward in the years to come. Factors like the proposed introduction of common Goods Sales Taxes (GST) will create a favorable environment for the express courier and delivery industry, and the entire logistics industry. INDIA |
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< primer
Back to Basics In this section, we revisit some basic concepts – everyday logistics and supply-chain terms that need a brush up (or update) every now and then.
Cross-docking
Roll-On/Roll-Off
C
R
ross-docking is a process whereby goods that are received for shipment are immediately reshipped. This enables minimum handling and also eradicates the need for storage. Cross-docking thus helps decrease costs and facilitates the smooth, fast flow of goods from the origin to destination. Wal-Mart effectively uses crossdocking to leverage their logistical volume. They operate an extensive satellite network of distribution centers serviced by company owned trucks which send point of sale (POS)
data directly to 4,000 vendors. To ensure continuous communication between all the parties involved, each register is directly connected to a satellite system sending sales information to Wal-Mart’s headquarters and distribution centers.
Overall Equipment Effectiveness (OEE)
O
verall equipment effectiveness (OEE) is a hierarchy of metrics which evaluates whether a manufacturing operation is utilized to its best. Results obtained from an OEE analysis are stated in a generic form allowing comparison between manufacturing units across differing industries. The six metrics that comprise the OEE system measure various aspects like total effective equipment performance (TEEP), taking into account machine availability and performance as well as output quality. As an example, a manufacturer was having difficulty in processing orders because there were several bottlenecks on the shop floor that caused downstream shortages and material backlogs. And he could not afford to
purchase more high value assets. Installing the OEE software helped identify hidden capacity and improve productivity of the existing machines. Through OEE data collection, real OEE efficiencies were calculated and information gained was used to make fundamental adjustments to processes. The result was a marked 10-50 percent improvement in productivity at the machine level, and an overall 25 percent improvement in productivity at the plant level. OEE helps companies from making inappropriate purchases by making them focus on improving the performance of existing machinery and plant equipment before purchasing new ones. This ultimately contributes to increasing a company’s return on assets.
oll-on/roll-of f (RORO or ro-ro) is shipping vessels designed to carry wheeled cargo such as automobiles, trucks, semitrailer trucks, trailers or railroad cars using builtin ramps which conveniently allow the cargo to be rolled on and rolled off the vessel, on their own wheels. The ramp is opened when berthed at port and folds up and forms a part of the regular bulkhead of the vessel when sailing. The ramps are made towards either the stern of the ship (backside), on the bow side (front), or on the sides. The direct driving-on and driving-off of cargo enables shippers to load cargo on the chassis, trailer and low-boy at the plant or warehouse site, transport the vehicles to embarkation points and have them loaded directly onto the vessel, reducing the number of times cargo is handled drastically.
Continuous Replenishment
C
ontinuous replenishment is the practice of replenishing products based on actual and forecasted product demand. It is based on the principle of ‘pulled’ logistics, where stocks at a warehouse are replenished on the basis of information about sales and other factors necessary for efficient replenishment in the supply chain. In simple terms, once the sales register displays a need for products an appropriate order is placed at the warehouse and then delivered. With continuous replenishment, the number of replenishments of a store decreased from 50 to 35 per week. The number of orders increased from 1,350 to 4,000 per week. The costs were compensated by reduction on transport costs and decrease of out-of-stock sales.
Can you help us with more such terms – used everyday but seldom revisited? Please mail your suggestions to aanand@logisticsweek.com. If chosen, we will be happy to publish your suggestion with due credit.
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< pAnoRAMA OFF THE SHELF
Best Practices In Manufacturing
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n their book, the authors, Jacobs, Berry, Whybark, and Vollman, provide a comprehensive real world based view of the tools, concepts, and processes used to control and manage manufacturing systems. The book aims at explaining methods to improve supply chain effectiveness, productivity, customer satisfaction, and profitability based on the vast knowledge the authors have accumulated over years of experience on the field. The book offers comprehensive preparation for the Certified in Production and Inventory Management (CPIM) exam with plenty of practice exam questions and detailed case studies. In-depth coverage of manufacturing plan-
ning and control (MPC) best practices and the latest research gives a competitive advantage in today's global manufacturing environment. Each chapter in the book follows a pattern of detailed technical presentation, followed by examples of company implementations and concluding principles. Manufacturing planning And control For supply chain Management By F. Robert Jacobs, William Berry, D. Clay Whybark and Thomas Vollmann Publisher: McGraw Hill Professional Price: `3,600
A Ready Reckoner
“G
uide to Supply Chain Management” is an attempt to bring supply-chain theory to life. Written for people with a business interest in supply-chain management, the book covers topics like planning, sourcing, delivering and returning. It also discusses strategy, people, fi nance, customer service and outsourcing. Each chapter starts with a brief summary and learning objectives that guide the reader through the text. The book features a variety of figures, tables and recommended further readings. The chapters conclude with real-
life case studies for best practice. This book serves as a guide to understand the specific dynamics of the supply chain and the fundamentals underpinning it. It also provides the framework for delivering a supply chain strategy based upon recognized best practices. guide to supply chain Management By Colin Scott, Henriette Lundgren, Paul Thompson Publisher: Springer Price: `2,300
Freshly Served
T
his book is Dudbridge’s attempt to provide information and ideas for those working in food manufacturing. Dudbridge offers a fresh and modern outlook at best practices, which points in the way to fewer breakdowns, reduced quality faults, improved teamwork and increased profits. With a dedicated focus on operations management and new process development, the book is complemented by numerous practical examples drawn from the industry. Dudbridge has adopted a conversational style and questioning approach which serves as a good interface for food manufacturers
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who are seeking solutions to fundamental issues. The book is also intended for people employed in the wider food industry, particularly, factory operations managers and training teams who are looking for resources to help with lean manufacturing implementations. Handbook of Lean Manufacturing In the Food Industry By Michael Dudbridge Publisher: Wiley Price: `3,400
May 2011 | www.logisticsweek.com
BLogospHeRe Heating up supply chain Analysis Blogger: Bill DuBois In his blog, DuBois questions the continued use of tools for supply-chain analysis that are “frozen.” Even after being “frost bitten” by the lack of flexibility when it comes to analyzing and responding to both planned and unplanned events, the heat does not seemed to get turned up on the existing tools. He refers to the SCOR Upside Supply Chain Flexibility measure described as the amount of time it takes a supplypractice to respond to an unplanned 20 percent increase in demand without service or cost penalty. This begins with knowing about the change, understanding the risk involved, and determining the best way to respond to the change. Your ERP system may give you most of the data, but some customer and supplier data may still exist outside ERP. Of course, the other popular option is Excel. It may be easier to get data into Excel but it is unlikely you would have all of it. The analytic piece of the equation is the most difficult to replicate in Excel. The one advantage of Excel over ERP is that it tends to be easier to use. search tags: flexibility, bill DuBois, heating supply-chain
six Lessons Learned From six Failed software Implementations Blogger: Duncan Klett While most employ technology to streamline and optimize operations, it need not always go as planned. Klett with his long standing experience in software solutions, shares some
ResouRce centeR Ultrasonic Contact Rail Testing By CATER The Center for Advanced Transport Engineering and Research with their paper aims at providing an understanding of the realistic testing limitations associated with the contact Ultrasonic Testing (UT) method used for in situ rail testing. The document is semi-technical in nature for the engineering and maintenance staff having rail maintenance experience and knowledge and implement UT inspection at their rail networks. Every testing method has restrictions on what can be tested. Rail contact UT by wheel probes (WP) is no exception. For bulk, insitu rail testing equipment the major part of the rail testing is without restrictions in testing. The frequency and occurrence in rail testing problems from these conditions is mostly rare. In modern networks the restrictions may only apply to 0.1 percent, 1
of the lessons learnt which is applicable to both vendors and their customers to avoid pitfalls in implementation of a software solution. Some lessons are: -Long implementations means more room for disaster -Don’t underestimate a user’s need to understand how a solution works. -Real systems need high quality data. search tags: Duncan Klett, excel, software
2011 – the Year For supply chain transformation? Blogger: carol McIntosh McIntosh writes of an expected trend looming in the market indicating a high level of interest in supply-chain transformation this year. Economies have started showing signs of improvement. This has resulted in a strong realization that renewed focus must be placed for business, technology and process improvement. McIntosh goes a step further to show that a best-in-class supply-chain will ensure that the right products are available at the right time to deliver to the customer. In her opinion, there are three classes of companies: Leaders who effectively manage risk and embrace change. LeaderWannaBe’s who recognize the opportunity and the need for improvement but not yet a leader; and the Laggards who are stuck in status quo, highly unlikely to take risks. search tags: supply transformation, carol mcintosh
Journals, Case Studies, Research Reports km in total length in 1,000 km of track. The most common restrictions come from the surface conditions of the rail. There are two broad groups of these, top surface and subsurface. When the ultrasonic signal can't pass through the surface of the rail successfully then it cannot penetrate the rail to check for flaws. Also, the rail shape may limit the ability to correctly couple in the ultrasound, or transfer and transmit it successfully. Search Tags: Ultrasonic Rail Testing, CATER
Airport Perimeter Security By Future Fibre Technologies A familiar scene at any airport today is people removing shoes, keys, laptops, liquids and aerosols in order to pass through security check points. While most would agree that these security precautions are necessary, it should also be noted that this should never be consid-
ered the total security picture. Outside the terminal, perimeter security is both a fundamental and critical aspect of any airport security strategy. An entire airport perimeter is too large a distance for regular foot or vehicle patrol to cover effectively. The flight line, apron, tank farm, maintenance and sub-staging areas present a security risk that cannot be countered by simply placing security staff on the ground. To provide effective round-the-clock coverage, advanced intrusion detection systems have become the only answer. This paper addresses some of the common points of intrusion and how they can be dealt with. Future Fibre Technologies also evaluates the use of a diverse range of intrusion detection technologies available for airport perimeter security, varying greatly in the effectiveness, affordability and accuracy. Search Tags: Airport, Perimeter, Security, Alec Owen, Future Fibre, Technologies
— Compiled by Frewin Francis INDIA |
May 2011 | www.logisticsweek.com 53
< pAnoRAMA LAuncHpAD Product
sIMAtIc RF200
T
he SIMATIC RF200 is a compact RFID system from the SIMATIC RF product family. The range consists of high frequency (HF) readers, specifically designed for intra-logistics and small assembly lines. The SIMATIC RF200 RFID readers exclusively support the RFID standard ISO 15693 for operation with Siemens’ MOBY D range of transponders. The system finds applications in handling techniques and assembly lines in the production sector. In production, it can used to control material flow control, and identification of all kinds of containers. An advantage of the SIMATIC RF200 is that is scalable for RFID and automation solutions based on customer requirements. Control via PROFIBUS and PROFINET allows for easy commissioning and diagnostics at all times. It is also rugged with industrial-suited IP67 protection rating thus ensuring protection from dust and moderate immersion in liquids. To reduce ownership costs, the SIMATIC RF200 employs maintenance-free transponders with memory up to 2000 bytes (FRAM).
Key Features: Read-write distance of 130mm Operating frequency range of 13,56 MHz Complies to ISO 15693 standards Manufacturer: Siemens Selling Point: Reduces ownership costs
Product
Block cameras
W
ith its FCB series of block cameras, Sony offers features such as optical zoom range and advanced capabilities including Progressive Scan imaging. The wide-ranging scope of the new block cameras provides OEM and systems integrators an expanding number of applications including security, intelligent traffic, unmanned vehicles, low vision, inspection and videoconferencing. Using features such as increased low light sensitivity, resolution and progressive scan imaging, users can use it to enhance traditional security applications. The FCB E-Series has on offer 10 cameras with zoom ranges from 18x to 36x. Moreover, progressive scan images magni-
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fied with 36x optical zoom (up to 432x combined optical and digital zoom) produce clear pictures of far away moving objects in applications such as automatic license plate recognition applications (ALPR). The new WideD modes create exceptional dynamic range to improve high-contrast images under a broad range of lighting conditions. The FCB E Series features a Sodium Vapor Lamp Mode that compensates for the sodium vapor lamp degree of Kelvin to restore objects to their original color. In addition, all E-Series cameras utilize a digital interface (Y/Cb/Cr 4:2:2) that deliver virtually non-deteriorated images by removing the need for an external analog/digital converter. Key Features: Optical zoom ranges of 36x and 432x when combined with digital and analog zooming. (Model specific) Low light sensitivity High dynamic range Manufacturer: Sony Selling Point: Enhances traditional security applications.
New Products, Technologies, Solutions Solution
FleetMatics 8.0
F
leetMatics is a developer of GPS fleet tracking for commercial fleet vehicles. The FleetMatics 8.0 GPS Vehicle Tracking System is their latest release of GPS software solution for tracking and performance management of mobile assets. Some of the new features of this release are FleetMatics Mobile, Trending, Ride Along and My FleetMatics. FleetMatics 8.0 also offers users never before available levels of current and historical data to help meet the real challenges of effective f leet management. The mobile delivery platform offers a portable and full-featured version of the GPS Vehicle Tracking System; Mobile App. provides real-time access to vehicle locations, alerts, reports and dashboards anytime and anywhere, using a native Android application. This feature allows users to run their f leet from their smart phones. The Google Street View and Google Maps API Premier put dispatchers and management in control by enabling both high-level and street-level area map views and capabilities. Satellite views and in-depth reporting capabilities can be tapped to provide current traffic informa-
tion for faster routing and avoidance of traffic jams and other delays. FleetMatics has further advanced its Garmin integration so that drivers can get audible turn-by-turn routing directions to any customer location. This streamlines efficiency and productivity by eliminating time-consuming use of cell phones or radios that disrupt the flow of business. Key Features: User customizability Google Street View and Google Maps API Garmin Integration Manufacturer: FleetMatics Selling Point: Real-time access to vehicle locations
Solution
soliQ
S
oliQ is a concept by Billerud Fresh Services AB. SoliQ has been developed to substantially reduce losses linked to under-performing packaging during transport, to allow greater efficiency and lower environmental impact. A SoliQ-marked box consists of paper from 100 percent primary fiber, resulting in a much stronger and more durable solution than recycled fibre does, particularly in high humidity. When paper is exposed to
high levels of moisture, recycled fibers are more likely to disintegrate than primary fiber. For growers and exporters, profitability increases sharply if the whole harvest reaches its destination in perfect shape. SoliQ is a wise choice when cutting unforeseen costs at these stages of the value chain. Billerud Fresh Services worked with partners specialized in controlled and modified atmosphere to increase the produce shelf life. Sensors are also used to follow the produce all the way from an exporter to the retailer in Europe, in order to secure the quality and making sure that possible problems are detected immediately. Key Features: Designed for toughest transportation conditions Use of sensors allows monitoring of goods while in transit Manufacturer: Billerud Fresh Services Selling Point: Reduces loss during transport
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Interface
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Interviews, Company and Executive Profiles
Palletable Pooling Only three years in India and Pranil Vadgama, President of cHeP India, has already made a mark. three years ago, cHeP introduced the model of pooling pallets and crates in India, a little-known concept turned into full reality with 200 plus customers across India. Frewin Francis follows the trail.
H
ow can anyone build a multi-million global company only by pooling pallets & crates? The answer lies in the value provided to CHEP’s customers, and the model is already working successfully with 200 customers in India, says Pranil Vadgama, President of CHEP India, proudly. After having worked for about 10 years in Holland, Spain, Italy and the US for General Electric, Vadgama, four years after joining CHEP, fixed his gaze on India. Managing Six Sigma at GE and then at CHEP, it was a fascinating opportunity when he was asked to evangelize equipment pooling in India. He made his move. The CHEP model provided a breakthrough in terms of costs with pallet / crate pooling, especially for Indian companies that are perennially looking to slash them. “It wasn’t like selling a new product,” he says. There was nothing to compare. The risk was as big as the scope, mainly because there was no pallet or crate pooling in the country before CHEP set up office here. The Indian milieu too was as good as new to him because he was born and raised in London and spent more than a decade in Europe and the US. But all that is of academic interest now. In 2008, he started from scratch in India as the man in charge of managing the CHEP assets. CHEP had its presence in several countries, but India was beckoning.
Pranil Vadgama President, CHEP India
new in the market The concept soon caught on in India. Close on the heels after CHEP India began operations, Vadgama saw some competition, but not of an organized kind like CHEP. The competition was on a local scale, so obviously regioncentric. The pooling that took place in south India, mainly between Chennai and Bengaluru has not kept pace with Vadgama’s schemes. “But that does not mean we are naïve to think we will not have any real competition,” says Vadgama. “Competitors exist in all markets, yet CHEP is the global leader due to the value and service it provides to its customers. This is a model followed by CHEP globally, that if and when competition enters the market, we continue to use our vast resources and experience in the field to demonstrate those benefits.” Pallet pooling business is extremely capitalintensive due to the large numbers of pallets and crates needed, and there are additional challenges related to setting up such a business model in India – tax, process, infrastructure & resources. Palletization offers several benefits. It is hygienic as products from manufacturing are now placed on pallets for storage versus tarpaulin or other. It brings in speed of material handling, especially truck turnaround times are important. In terms of storage in racking systems, organizations are looking to go vertical where a pallet would be required. It helps bring down cost of manual labour. Organizations using pallets shrink-wrap the products that strengthens load, INDIA |
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Interface eliminates damage in movement and reduces shrinkage.
fruitful collaborations About the methods of collaborating and pooling pallets/ crates, Vadgama says: “There are many industry players in India today, and it is gratifying to know that many people in the industry are forward thinking. Companies might be competitors when it comes to products but most agree that collaboration is the way to take things forward. The way we have done it here is the same way we have done it in other parts of the world, we go and talk to the visionaries.” As proof, Vadgama mentions visionaries who share his belief of the huge benefits of pooling. What is heartening for CHEP India is the business it accrues from the
“We look forward to the day when a product on being rolled out of the factory actually moves on the pallet. In India, everything is stuffed into a truck and taken out hand by hand.”
Technology plays a critical role in helping the company move the pallets from one company to another quickly.
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gain of one customer. He says, “You acquire one customer and you in turn gain the opportunity for entire supply-chain business of the company’s other functions, such as raw materials, post-production, etc.” The man has constantly been working with associations and industry bodies in various sectors, from SIAM to GS1/ ECR (Global Standards 1, an independent body) to familiarize them with palletization and supply chain automation. CHEP India has also executed several pilot projects on palletized movements of goods with companies such as Unilever and Metro. “We look forward to the day when a product being rolled out of the factory actually moves on the pallet,” he says. “In India, everything is stuffed into a truck and taken out hand by hand. People often say that they aren’t ready and cite poor truck standards, lack of material handling equipment etc. so we decided to try it with Metro and Unilever and it worked. Of course it is not ready yet to go to full scale, but this is where the forward thinkers are important. It is important to work with different industry bodies, but the key people are the visionaries. “I’ve never had anyone say to me out of hundreds of customer meetings I’ve had that what we are introducing in India is a bad idea and wont work.” However, while CHEP offers RFID services for their pallets/crates globally, it is not yet the case in India. In the West it is used extensively and tagging prices have come down. But, as Vadgama says, “The key thing is
Interface that there is a lot of value in it. And once you understand the value part then the cost part is justified.”
Dynamics of cost About the decision to use wood in India, Vadgama says: “Plastic pallets are more expensive and would not be as popular as wood. We import soft wood from Europe because felling of such trees is illegal in India without a permit and the permits are government-controlled. Hard wood is easily available in India but weighs roughly 2 or 3 times more than the soft wood pallet. A lot of the customers we talked to in the beginning like Unilever, Pepsi, Coke, and P&G all used wooden pallets. Nestle uses wooden pallets globally. So why would they use plastic? But since we service the wooden pallet, we can extend the life…moreover a plastic pallet, once damaged, is difficult to repair.” The pallets are designed for racking, not for floor storage. When racking, pallets need to be strong. When you have G+4 or even higher, the pallets need to be designed to take the weight to ensure safety. On retrieving the pallets, Vadgama says: “We have 30 plus warehouses all over India, so when a customer wishes to de-hire a pallet, he can either drop them back or we pick them up. But it does not end here, we have pallet collection at a global level and this is what keeps us ahead of the competition.. Let’s say a manufacturer sends products to Germany on a non-pooled pallet costing around a Rs 1,000. Once it reaches Germany, the pallets go to waste, which we refer to as one-way packaging. In our case, that does not happen. We help companies be asset light and environmentally friendly.” If a customer is not using a CHEP pallet, he
Helping The Environment
C
HEP’s plants use composite blocks from recycled wood for all pallet block repairs. This process will have saved the environment over a period of 10 years the deforestation of some 1.5 million trees or the equivalent of 3,750 hectares of forest. The savings would have produced some 891K tonnes of oxygen and allowed a carbon sink of 1,350K tonnes. CHEP pallets are produced from the renewable resource of high quality pine and spruce timber stemming from sustainable well managed European forests. The CO² production through the manufacturing of a wooden CHEP pallet is negative (40 kg of CO² emission saving per pallet).
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incurs the full cost of the pallet and its disposal. Vadgama says impressively that CHEP’s returnable system has been found to deliver environmental performance and financial value for the supply-chain by an independent study from RMIT University Melbourne, Australia. The study found the CHEP system generated significant benefits for customers compared with a single-use corrugated cardboard packaging system in Australia. CHEP India works with logistics service providers (LSP) too. CHEP provides them pallets for their warehousing. What lacks is that most trucks are not customized for pallets and hence pallets are used only for static storage. But CHEP is working towards taking things to the next level, which is moving goods on pallets. A big reason why trucks are not customized for palletization is because even if they are…when it reaches the warehouse, if you do not forklifts, then what do you do? Vadgama has also thought about end- to-end palletization/racking solutions. “But not at a deeper level,” he says. “There is opportunity for a systems integrator in India. We don’t specifically, but we always offer our expertise. Our focus on pooling is why we have had this amount of success. India is like a big candy store, but focus is very important. For the automotive market we have 8 standard crate sizes and a large container (FLC) and for FMCG wooden pallets, 1200x1000 mm size. We are investigating other opportunities as well, like liquid and dry-goods movement but we are at very early stages of pilots and evaluations. The Intermediate Bulk Container (IBC) helps avoid unnecessary costs of one-way drum movements. “The key is to get customers to use pooled assets now and continue to use them as the supply chain matures.”
Since the pallets are made for vertical use, they are designed to take the weight of up to one ton of goods.
Confederation of Indian Industry
2nd Edition
Logistics Excellence Conference 's National Conference 27 May 2011 Hotel Express Residency Vadodara We are pleased to inform you that Confederation of Indian Industry (CII) is organizing 2 Edition of Logistics & Supply Chain Excellence Conference 2011 on 27 May 2011 at Hotel Express Residency, Alkapuri, Vadodara, under the chairmanship of Mr Hari Bhatt, Vice President (SCM), Reliance Industries Ltd. nd
This Conference is expected to attract over 100 professionals from manufacturing and serive industries dealing with logistics and Supply Chain functions. It will also be an ideal platform for logistics and supply chain service providers to interact with industry professionals from user industry. It will also feature leading speakers from the industry who will analyse the key growth impediments for the sector and engage with the participants for working out organization specific logistics and supply chain solutions.
Session Highlights: Theme Session: Moving Supply Chain & Logistics from support function to line function. Interactive Round table Session: Discussion by subject matter experts on Integration of inbound and outbound logistics for generating enhanced synergies.
Registration Details Per Delegate Participation Fees CII Member : Rs. 1500/Non Member : Rs. 2000/Participation Fee Inclusive of Service Tax and Education Cess @ 10.30%
Concurrent Capacity Building Sessions: Hands on Concurrent training programs on Quality Management Tools like 5 S in Warehouse management, Six Sigma and Total Productivity Maintenance
Presentation & Valedictory Session: Presentation, Open Discussion, Quiz Competition and Conclusion by the participants for working out organization specific logistics and supply chain strategies
Who will Benefit Chief Executive Officers / Managing Directors of manufacturing and trading industry Procurement / logistics/ Supply Chain/ Excise/ Purchase/ Commercial Managers Logistics and supply chain professionals & consultants
For further details contact
Confederation of Indian Industry (CII) 201, Abhishek Complex, Nr. Akshar Chowk, Old Padra Road, Vadodara- 390020 Phone: 0265 - 6532016/7, 2341771 Telefax: 0265 - 2327108 Website: www.cii.in Speaker & Sponsorship Opportunities
Delegate Registration
Dibyajyoti Bhuyan (Head - Vadodara Zonal Office) Nida Faruqui (Executive) dibyajyoti.bhuyan@cii.in nidafaruqui@cii.in www.cii.in
design @ t square media 98982 66193
Official Publication Partner
< EVENTS
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M a y 2 0 11 May 5 and 6, 2011 Southern aSia PortS LogiSticS & ShiPPing - chennai itc hotel Park Sheraton & towers Southern Asia Ports Logistics and Shipping is one of the largest yearly container ports, shipping and logistics exhibition and conference of throughout Southern Asia. An optimum B2B platform, held over two days, the event is held along with a conference which depicts transport and logistics developments in Southern Asia. Exhibitors include international air freight services companies, international freight forwarders, ship owner & ship management, ship services and supply, ship consultants, shipyards, maritime communications and software, offshore supply, shipbrokers, ship finance, ship insurance, maritime law, trading house & ship agents, logistics & warehousing companies, maritime organizations, government, classifications & inspection, port authority & port service, insurance companies. organized by: Transport Events Management Ltd. Tel: +60 3 80235352 May 13 - 16, 2011 indiaMart iMeX 2011 auto cluster exhibition centre, Pune IndiaMart IMEX 2011 is dedicated to the machine tools and allied products industry in India. Huge trade opportunities await participants at IndiaMart IMEX 2011. Exhibitors include process control systems, CAD/ CAM production equipment for automated assembly & handling hydraulic & pneumatics, material handling equipment, turning centers, machining centers, grinding centers, electro-discharge machines, special purpose machines, lathes, drilling machines, boring machines, milling machines, sheet working machines, gear cutting and finishing machines, plastic processing machines, measuring and testing systems, and production control and networks. organized by: Conventions & Fairs (India) Pvt. Ltd. Tel: +91 22 28398000 May 21 and 22, 2011 FranchiSe & retaiL oPPortunitieS ShowMuMbai nehru centre, Mumbai Organized by Franchise India Holdings Ltd., the show is a trade fair for retail and franchise sector in India. Profile for exhibitors includes franchisor, retailer service provider, real estate, marketing & selling persons, franchisee & business opportunity companies will be participating in this trade show. organized by: Franchise India Holdings Ltd. Tel: +91 11 32563453 62
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May 25- 27, 2011 PLaSteX caSPian iinternational exhibition centre, Pune Plastex Caspian is an International trade exhibition for raw materials, equipment, plastics & rubber production & processing technologies. Profile for exhibitors include machinery and plant for processing, post-processing machines, machinery and plant for finishing, decorating, printing and marking, welding machines, moulds and dies, measuring, control and test equipment, parts and components, plastics and rubber products, ancillary equipment, logistics storage systems for the plastics and rubber industries, services for the plastics and rubber industries. organized by: ITE Uzbekistan Tel: +998 71 1130180 May 26 - 29, 2011 india Machine tooLS Show 2011 Pragati Maidan, new delhi IMTOS has been organized with the focus on the development and promotion of newer breakthroughs in plant and machinery industry. The fair will emphasize on the importance of newer technologies and products. The liaisons with government bodies and good publicity has made this event highly anticipated in the trading circles. Exhibitor profiles include hand tools, cutting tools and power tools, machine tools, robotics & automation, pneumatics, air compressors, pumps and valves, CNC and SPM, hydraulics, chemical & pharma machinery, metal forming machinery, energy conservation, material handling equipment, electrical and electronics, welding & welding consumables, wires & cables, and CAD/CAM. organized by: K & D Communications Limited Tel: +91 79 26460453/26460624 May 26 - 29, 2011 autoMation worLd Show Pragati Maidan, new delhi Automation World Show is the ideal place to display your spectrum of intelligent products, services and solutions for the entire industrial automation sector. Profile for exhibit includes industrial & manufacturing sector, defense sector, space & archeology, medical sector, marine sciences, automotive sector, entertainment sector, humanoid robots, educational robots, automation machine tools, CNC, SPM, electrical, electronics, instrumentation & controls, software technology, metal farming machine, casting & forging, machine tools, cutting tools, energy conservation, power tools, air compressor, hydraulic & pneumatics, die & mould, building automation, power plant automation. organized by: KMg Business Technology Tel: +91 79 32410602
May 2011 | www.logisticsweek.com
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