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May 2010
Vol. 3 - No.08
Rs 100
Germany
Bulgaria
Middle East
INDIA
LEAD
Consolidation How Allcargo Global Logistics CMD Shashi Kiran Shetty built an LCL dominion across continents from scratch >> Page 34
ADIEU, DR PRAHALAD 26
LOGISTICS BY MIGHT 44
HANDLE WITH FINESSE 64
The great management thinker’s ideas helped corporate think rural
Everything you wanted to know about China’s logistics industry
Why material handling is so mission-critical
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eDITORIAL
>
The Curious Case of Corruption
T
he merciless April Sun is beating down the street leading to Thane’s Central Jail. Knots of people – some in groups, some on their own – are waiting in the shade of lush trees to meet their relatives or friends held inside, some of whom could be burglars, murderers, and a few of them, unlucky innocents. What the towering prison walls hold within is as dark as what they overlook on the other side. Thane’s RTO office located bang opposite the Central Jail is a busy compound swarming with touts, agents and hassled applicants. People have formed beelines at its 30 odd windows where officials look busy doing paperwork, most of which would be rendered unnecessary in any efficient organisation. Last week I was there, scurrying from one window to another – all in the vain attempt to get my car registered in the city – obtaining forms and getting them photocopied in triplicates, doing redundant iterations, for the simple reason that Aanand Pandey I was the only sucker who had the temerity to get the work done unaided by a tout or Editor an agent. The impractical fool that I am – having been taken in by Jaago-Re type of campaigns and grown up reading fiery speeches by the likes of Nehru, Rajiv Gandhi and Jayaprakash Narayan, exhorting people not to give in to corruption -- I always tend to embark on such foolhardy missions and end up getting ridiculed by touts, in many cases by the government officials themselves, and at all times, by my family members. Invariably, I have had to give up in all such cases like I did in the aforesaid one, after weeks of running back and forth – I engaged the services of an agent, something I am not proud of. But all that time doing foot-soldiering at the RTO was well spent (or wasted) since missions like these keep me updated on the extent of corruption prevalent at government offices – a malaise that affects millions of people who cannot afford to pay bribes to government officials, though they invariably end up doing so. Speaking of the RTO, for those in the trucking industry, the RTO remains the second biggest illegitimate usurper of time and money. The first is our police that partakes 45 percent of the average Rs 1,500 of the bribe money truckers pay every day on our roads and highways. The RTO follows close behind with 43 percent share of the booty. According to a Transparency International survey finding released in 2007, the total bribe shelled out by transporters in India every year amounted to Rs 22,200 crore a year – almost equal to the total remuneration given to the drivers of about 36 lakh operational trucks. In other words, the trucking industry was supporting yet another set of employees, (albeit unofficial), every year – staff employed with the police, the RTO, at entry-permit points, check posts, in customs, excise and sales tax departments, weighing and measuring departments, at municipal and mandi check posts and last but not the least, with the forest department. Talking specifically of RTO offices, I don’t even want to go into the handful of projects that keep catching our attention every now and then – e-governance, ISO certification of RTO offices, etc. – that promise to root out corruption at some indeterminable time. For, one visit to any RTO office in any city is enough to explode the myth that things are improving – the omnipresent, omnipotent tout; the unwelcoming environs originally intended to deter and exhaust the common citizen; the unnecessary paperwork, every turn and fold of which promotes corruption at every level – the signs are there for all to see. Needless to say that the biggest casualty (in the trucking industry, in particular) due to government corruption is productivity – loss to transporters, manufacturers, sellers, loss of time and money that could be used to generate employment for millions, that could be used to support millions of real, official employees who take away remuneration for an honest day’s job. With no help, support or real solution visible from any organisation or government body, I, in my very small way, have decided to keep up with similar quixotic missions. Next stop: transporting small cargo using the Indian railway’s freight services. Will keep you posted.
aanand.pandey@dvvmedia.com
INDIA |
May 2010 | www.logisticsweek.com 5
Contents 22 Interview
RS Bedi, CEO, PS Bedi Group Loss-prevention and document-archiving markets offer big opportunities, says the PSB Group CEO.
34 Cover story The Lead Consolidator
Shashi Kiran Shetty’s taken the lead when most would become complacent. Today, he is leapfrogging businesses and looks set to encompass myriad roles.
24 Event Industry events Traversing to four events in a single weekend at different locations can be overwhelming. Log. India visits some, tracks some of the events that took place all in a matter of two days. An eventful week indeed!
24 26 opinion
Fortuneteller of the Untended The late Prof CK Prahalad evangelised rural markets for the benefit of all.
28
I Spy, Performance
44 international Business by Numbers
From a fragmented logistics industry, China has got its act together and built long road networks, a pervasive railway system and improved its urban distribution.
Measuring performance of workers is no mean task. The columnist suggests ways that work at warehouses.
28 6
34
48 INDIA |
May 2010 | www.logisticsweek.com
May 2010 ADVeRtIseR InDeX ACE Cranes ......................................................... 63 Aramex Inbound Express ......................................19 Bar Code India ......................................................11 BLR Logistics ...................................................... 49 Capricorn Logistics ............................................. 37 DHL Express....................................................... IFC Dighe Ports ....................................................32-33 Emirates Skycargo .............................................. BC Everest Industries.................................................. 3 Exide Industrial.....................................................13 Frost & Sullivan Strategy Workshop .................... 51 Godrej Security Solutions .................................... 23 Godrej Storage Solutions ..................................... 67 Green Earth Translogistics ................................ IBC Hannover Milano Fairs ......................................... 61
54
Infolog Solutions ................................................... 9 Institute OF Supply Chain Management ............... 31
54 event report
Jaguar Overseas ................................................ 21
Auto Industry needs Innovative sCM
Piaggio Vehicles ...................................................17
Five industry experts brave the scorching Delhi heat to offer insights on the logistics of the auto market to a select group of delegates.
Round The Clock Logistics .................................. 57
Prakash Parcel Services...................................... 21 Safexpress ......................................................... 43 SAL Logistics ..................................................... 47 Schaeer Systems International .............................15
64 MaterIal HanDlInG
Stakall ................................................................. 69
Finessing Material Handling
April 2010
Vol. 3 - No.07
Rs 100 Germany
www.logisticsw
aprIl 2010
eek.com
Vijay Logistics ....................................................... 4
It is not about transport of goods from one place to another. Material Handling is what happens in between.
Bulgaria
Middle East
INDIA
Top Gear
Ajay Chop ra, the CEO of Drive India Enter prise (DIESL), revea Solutions Ltd ls that has helpe the strategy d grow by leaps his company WANTED, ‘MINIS TRY OF LOGISTICS 24
Hemant Bhattbha tt of Deloitte weighs in on logistics issues
reGUlars news
08
CORRIDOR OF CHANGE 48
What the Railway Minister intends to do with the DFC
Page 36 LAST AMON G EQUALS 52
Private ports have done well despite odds. A special report
events
70
MAY 2010
64
INDIA |
May 2010 | www.logisticsweek.com 7
< news
TRAIN OF THOUGHT
We believe that our collaboration with Deccan 360 will see a transformation in the logistics domain in India. We are sure that this initiative will propel the customer experience to the next level in India in the logistics domain. — Mukesh Ambani CMD, Reliance Industries, at a press conference announcing the move
Anchoring the customer and then building the business around him is one the most effective ways to grow the enterprise. — R Dinesh Managing Director of TVS Logistics Services, in The Hindu
According to us, the rural urban split in consumer spending stands at 9:11, with rural India accounting for private retail consumption of US $145 to $150 billion. — R Venkatesan Senior Advisor, National Council for Applied Economic Research at recently held Supply Chain Leadership Council’s Rural Penetration & Distribution Summit ’10
India 20 notches below China in logistics performance
OPERATIVE INDEX* Blue Dart, Aegis Logistics, Shell Gas, Air India, Saab Group, Aeronautical Society, Jet Airways, Kingfisher Airline, North West Railway ........................... .......10 DHL, Frost & Sullivan, Allcargo Global Logistics, DIESL, BDP Intl, UGL, Elecon, Sical Logistics, DHL Express India, Adrenalin eSystems, BOP Global Logistics ............... 12 NHAI .......................................... 14 Kandla Port, Mumbai Port Trust, Krishnapatnam Port......16 Paradip Port Trust, Kandla Port, Kochi Port Trust ............ .18 South Central Railway, World Bank............................ 20 *Key entities mentioned in the news section
World Bank’s Logistics Performance Index (LPI) 2010 puts India at 47, down 8 spots from ‘07
I
t is not as bad as it looks. Even though India slipped eight rungs from the previous index released in 2007, it has done well in terms of overall score this time round. On a scale of one to five, India’s logistics performance clocked the score of 3.12 against 2007’s 3.07 – an improvement considering an LPI higher by one point (such as 3.5 rather than 2.5) implies two to four less days for moving imports and exports between the port and a company’s warehouse. Or a rate of physical inspection that is 25 percentage points lesser. The fall in India’s ratings is due to the overall better performance of other countries on the index. Germany is the top ranker with
8
INDIA |
the total score of 4.11 (see chart below) and China is 27. The LPI is a comprehensive index created by the World Bank – in association with logistics providers and academic partners round the world – to help
Lpi 2010 Rankings Score Germany
1
4.11
Singapore
2
4.09
Japan
7
3.97
United Kingdom 8
3.95
United States
15 3.86
United Arab Emirates
24 3.63
China
27 3.49
Brazil
41 3.2
India
47 3.12
May 2010 | www.logisticsweek.com
countries identify the challenges and opportunities they face in trade logistics performance. The LPI survey is conducted every two years. LPI 2010 had International Federation of Freight Forwarders Associations (FIATA), the Global Express Association, the Global Facilitation Partnership for Transportation and Trade (GFPTT), ten international logistics companies, and a large group of medium-size logistics companies worldwide as participants. India fared in the same range – ranked 50 or thereabouts – under all key parameters as well. The survey that covered a total of 155 countries showed that the countries that implemented
a well thought-out strategy and reforms in the logistics sector showed improvement. Among the countries that showed statistically significant improvement, Colombia implemented key reforms, such as an inter agency single window, approved a national logistics action plan, and is now reportedly setting up a logistics observatory to assess its performance at a fine level and monitor the impact of reforms, the report said. Brazil, another noteworthy performer, is following a similar track to address “Custo Brasil” -- a term for the extra cost of doing business in Brazil, akin to the term “License Raj”. Continued on page 20
< news Company News
Blue Dart awarded Jamnalal Bajaj Fair Business Practices Award 2010 Mumbai
B
lue Dart Express Limited has bagged the 22nd Council for Fair Business Practices (CFBP) Jamnalal Bajaj Fair Business Practices Award 2010 in the category of service enterprises (medium). The ceremony was held at Walchand Hirachand Hall, Indian Merchants’ Chamber, Mumbai, on March 19th, 2010. The award was presented by Padmabushan Dr. R.A.Mashelkar, F.R.S. JRD Tata, Ramkrishna Bajaj, S.P. Godrej, Arvind Mafatlal and other eminent businessmen instituted The Council for Fair Business Practices Award in 1966. The award notes the
efforts of businessmen, business houses and business associations with an impeccable record of practicing and promoting fair business practices. The jury for selecting the awardees was headed by the Honourable Smt. Sujata Manohar, the former Chief Justice of the Bombay High Court. Blue Dart’s service capabilities, profile, corporate governance and HR policies were some of the factors considered by the jury before giving the company the coveted award. Ketan Kulkarni, Blue Dart vice president and head-marketing, corporate communica-
Aegis Logistics acquires Shell Gas (LPG) India Mumbai
O
il and gas logistics provider, Aegis Logistics, has acquired Shell Gas (LPG) India by which Shell has become a subsidiary of the company. Aegis Logistics, in a filing to the Bombay Stock Exchange (BSE), said that it has completed the acquisition of
The acquisition will help Aegis enter the commercial cylinder segment
10
INDIA |
3.23 crore equity shares of Shell Gas (LPG) India. However, it did not disclose the financial details of the acquisition. On December 31, 2009 Aegis Logistics entered into a share purchase agreement with Shell Gas (LPG) India to acquire it. Aegis Logistics provides supply chain management services to the Indian petroleum and chemical industry by storing, moving and distributing petroleum and chemical products to the end user. Shell Gas (LPG) India Pvt. Ltd has a gas infrastructure facility at Pipavav Port and an LPG filling plant in Gujarat. Shell Gas also imports and markets wholesale LPG.
May 2010 | www.logisticsweek.com
Blue Dart’s pledge to client satisfaction remains its biggest forte
tions and sustainability, said “We are extremely pleased to be recognised with such a great honour. This award belongs to each of our employees, customers and service partners who help us run the show. This rec-
ognition will not only strengthen our commitment to continue satisfying our customer requirements, but also motivate and drive us in attaining greater heights and delivering way beyond their expectations.”
Appointments Gustav Baldauf is Air India COO Air India has appointed Gustav Baldauf, Austrian Airlines’ executive vice-president for flight operations, as the chief operating officer (COO) of Air India. Baldauf will be the first ever COO of the airline and has the task of salvaging Air India’s fortunes in the next three years. He previously worked with Jet Airways as its vicepresident for flight operations. GM Rao elected President, Aeronautical Society GM Rao has been elected as President of the Aeronautical Society of India’s Governing Council at the organisation’s 61st annual meeting. Rao will take over as President of the Society from the UB Group and Kingfisher Airline chief,
Vijay Mallya. Inderjit Sial is country head of Saab India The Saab Group has appointed Inderjit Sial as its country head in India. Sial’s primary tasks will be the handling of the marketing activities of the group. Prior to assuming his new position, Sial was vice-president for industrial co-operation in Saab. During that period he was responsible for the company’s projects in India. Eastern Rly gets new Chief of Operations Ambrish Kumar Gupta, an officer of Indian railway traffic service, has taken over as chief operations manager of Eastern Railway. Prior to this he was the senior deputy general manager for north-west railway in Jaipur.
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< news
DHL India bags Customer award Mumbai
Mumbai
D
HL has been awarded two rigorous research on end-user aging, and with over 50,000 customers in India, these awards at the 2009 Frost companies. DHL India scored high in awards are an affirmation of & Sullivan Voice of Customer Award for Excellence in Logis- key areas like industry exper- the trust that customers place tics. DHL India received the tise, reputation, reliability, in- in DHL. We take it upon ourselves to continually awards for Best Inlive up to expectations ternational Logistics by delivering the best Service Provider and service at competitive Best Logistics Service prices and constantly Provider in the Indian innovating to stay Consumer Durables ahead of the curve. ” Industry. This award While presentrecognises DHL’s serving the award, Anand ices rendered to its Rangachary, managcustomers during FY 2009. The categories DHL continues to live up to customer expectations ing director, Frost & Sullivan, south Asia were evaluated to re- in India and Middle East said, flect the current market landscape and include new ternational network, domestic “DHL operates with the aim of emerging sectors. The award reach and robust IT infrastruc- building partnerships. Best-inis presented every year to those ture. Accepting the award R.S. class practices, employee exwho represent the best-in-class Subramanian, country head – pertise coupled with industryin business in India as they rep- DHL Express India said, “To be leading solutions has kept DHL resent the highest standards named the best international at a real competitive advantage of excellence in the corporate service provider is a great privi- and made it a clear winner in world. The award is given after lege and tremendously encour- its category.”
BDP International enters India Mumbai
B
DP International which is US-based has launched a joint venture in India with Unique Global Logistics (UGL). UGL has strong expertise in the energy sector and the oil and gas industry. The joint venture company, BOP Global Logistics (India), will target the country’s expanding chemicals, life sciences, healthcare, retail, telecom and manufacturing sectors. The chemicals industry accounts for 13-14 percent of India’s exports and 8-9 percent of imports. BDP which is an important
12
DIESL is ‘Employer of the Year’
INDIA |
player in the chemical industry is active in more than 120 countries worldwide. The company recently announced the Indian launch of its new
technology, which is a vendor management tool that provides logistics managers with visibility at each stage of an international purchase.
D
rive India Enterprise Solutions Ltd (DIESL) has been awarded the Employer of the year award in the logistics sector for 2009-2010. The Award was instituted by Indira Group of Institutes to honour companies for their role in employment generation and HR development. The award was based on evaluating the company on the basis of proactiveness in providing employment opportunities to the youth and showcasing diversity in campus hiring.
Allcargo in JV with Adrenalin Mumbai
A
llcargo Global Logistics is in a JV with Adrenalin eSystems to efficiently manage their people processes. After this MoU, Allcargo will now motivate its employees to improve their performance which is crucial in the logistics industry. Adrenalin eSystems Limited are the makers of Human Capital Alignment Software.
Elecon Engg bags order from Sical Mumbai
Engineering Comiron ore terminal Elecon pany has bagged an order worth Rs 49.90 crore from at Ennore, operational from Sical Logistics for supplying handling equip2009, is the largest iron material ment. The scope of the contract includes design, engiore terminal in Asia with an initial neering and commissioning of equipment for New Mancapacity of 12 mn tons galore Iron Ore Terminal.
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May 2010 | www.logisticsweek.com
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< news Road
NHAI plans mega highway projects Bengaluru
New Delhi
A
total of nine mega highway projects have been planned by the NHAI. While the first project is expected to cost Rs 4,284 crores, the second has an estimated cost of Rs 3,550 crores. The other seven projects are likely to be awarded over the next two years. These projects will be awarded on a revenue-share basis, un-
der which the developers will pay a part of the toll earnings to the government. The National Highways Authority of India plans to give two projects worth Rs 7,800 crores for bidding by June 2010. The two projects are the Kishangarh-Udaipur-Ahmedabad stretch in Rajasthan and Gujarat and Ichapuram-Visha-
Centre approves 4-laning of Patliputra-Bakhtiyarpur section of NH-30 New Delhi
T
The Centre has approved the implementation of the project for the four-laning of the 50.60 km long PatliputraBakhtiyarpur section of NH-30 in Bihar under the NHDP Phase III on the design-build-financeoperate-transfer (BOT/DBFOT) basis. The total project cost is estimated at Rs 605.82 crores. The concession period is for
18 years which includes a construction period of 910 days. The implementation of the project will reduce commuting time for traffic plying between the state capital and Bakhtiyarpur. The project highway is an important link connecting the Bihar capital to east and west Bihar along the southern bank of the Ganga.
khapatnam-Rajahmundry section of national highway (NH) 5 in Andhra Pradesh. Soon after taking charge in 2009, the union Minister of Road Transport and Highways, Kamal Nath, said that mega projects of 400 km each would be awarded to speed up the road building programme in the country. The NHAI had then identified a total of nine such projects requiring an investment of about Rs 4,000 crores each. The length of the identified road stretches varies between 390 km and 700 km. The usual size of a highway contract otherwise ranges between 20-150 kms. The development of national highways in the country will cost approximately US$ 80 billion (about Rs 3,76,000 crore) in the next four years according to government estimates and about 50-60 percent of this funding is expected to come from the private sector.
KhardungLa, situated at an altitude of 18,380, feet is considered the
highest motorable pass in
Two out of the nine planned mega highways are expected to be bid out by June, 2010
the Souce: img401.imageshack.us
14
INDIA |
National truck permit for Rs 15K
May 2010 | www.logisticsweek.com
world
T
he Centre is all set to introduce a new national panIndia permit at an annual fee of Rs 15,000 per truck from May 1, 2010. As per the proposal, the union Ministry of Road Transport and Highways will issue national permits to commercial goods vehicles and a one-time annual fee will be collected from truck operators which will allow vehicles to ply throughout the country. State Road Transport undertakings will act as the central collection agents for the fee.
Govt to award 1,000 km expressway projects this year New Delhi
T
he union Ministry of Road Transport and Highways has said it will award four expressway projects of a total length of 1,000 km by the end of this fiscal. “We will award four expressway highway projects of a total length of 1,000 km under the National Highways Development Project (NHDP) by the end of the current fiscal,” said Road Transport and Highways secretary, Brahm Dutt. In November 2006 the ministry had proposed four expressways, VadodaraMumbai, Bangalore-Chennai, New Delhi-Meerut and Kolkata-Dhanbad. Dutt said that “Land acquisition for these projects will not be a problem as these are greenfield projects.”
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< news Port
Kandla Port handles record cargo in 2009-10 Ahmedabad
D
espite recession affecting businesses across the globe and throughputs falling in most ports across the country, Kandla Port has handled a cargo volume of 79.50 million tonnes during 2009-10. This is the third year in a row that Kandla port has handled the highest volume of cargo among ports in India. The chairman, P. D. Vaghela, credited this achievement to the
support and cooperation of port users and employees. Vaghela said that the port was able to handle huge volumes only because of the steps taken by its administration to develop infrastructure and improve facilities for cargo handling. Another reason could also be the good relationship between the port’s workers and its officials. While transparency and
customer focus continue to be the one of the chief features of the Kandla port administration, there was huge appreciation and support from the port’s users whose contribution was equally remarkable. The throughput of the fiscal just ended (2009-10) showed a 10 per cent increase over the 72.22 million tonnes the port handled in the period 2008-09.
Mumbai Port posts considerable growth Mumbai
M
umbai port has recorded a cargo throughput of 54.54 million tonnes during the period 2009-10, surpassing its 2008-09 traffic of 51.88 million tonnes and registering significant growth of 5 percent.The major commodities and products handled during the period were imports of iron and steel, POL(petroleum, oil and lubricants) and POL products, coal, pulses, exports of iron, steel and motor vehicles. Shipments of iron, steel, pulses and coal also registered growth.
This growth was possible due to the proactive policies of the port authorities and the measures taken to reduce handling costs. Mr Rahul Asthana, chairman of Mumbai Port Trust, asserted that the growth momentum would be continued, with more attention paid to the requirements of maritime organisations. He also revealed that various projects were being planned in all segments of cargo handling activities, including containers, general cargo, POL,
chemical and cruisers. In its effort to improve services, the port also moved from Quality Management Services ISO-9001:2000 to ISO9001:2008. The improved version of Quality Management Services emphasises quality for outsourced services, training to employees for improving their competitiveness resulting in increased productivity and bringing information technology (IT) within the ambit of the infrastructure of the port.
Krishnapatnam Port has two new records Hyderabad
K
rishnapatnam Port Company Ltd. (KPCL) has set a new record of loading 60,021 MT of iron ore fines in just 24 hours, surpassing its previous record of 54,500 MT. The cargo was loaded in vessel MV Tian Li Hai by using the conventional loading systems installed in ports across the country. The vessel “Cosco” entered the port on April 12th. The entire cargo of 88,000 MT was loaded within 36 hrs, thereby setting the port’s highest-ever loading record. The port will complete two years of operations in the next three months. It is also commendable that the volume of cargo handled at the port has almost doubled to 16.1 MT of cargo for 2009-10 as compared to the previous financial year’s figures of 8.2 MT.
The Port of
Jawaharlal Nehru (Nhava Sheva), India’s
largest
container gateway, reported its highestever annual throughput of 4.06 million TEUs during Mumbai port overtakes its throughput figures of 2008-09 by 5 percent
16
INDIA |
May 2010 | www.logisticsweek.com
2009-10
< news
Paradip Port has impressive traffic Bhubaneswar aradip Port Trust (PPT) has handled record traff ic of 57.01 million tonnes in 2009-10 f iscal, registering a 22.84 percent growth over the previous year.“The 57 million tonnes of traff ic handled during 2009-10 is a record surpassing the previous year’s record of 46 million tonnes,” said PPT chairman, K. Raghuramaiah. The PPT also earned an operating income of Rs 786 crores against the Rs 696 crore it made in 2008-09. Raghuramaiah said the op-
Souce: www.orissadiary.com
P
Paradip port handles record traffic in 2009 – 2010
erating expenditure of the port during the current financial year
was Rs 409.17 crore as against Rs 358.17 crore last year.
The port plans to raise its capacity to 135 million tonnes per annum [MTPA] by 2012. The port has initiated a project for the construction of the western dock system for building six berths at an estimated cost of Rs 2,000 crore. A detailed report for this project is under progress at present. The PPT has also initiated a project for the construction of an island breakwater with berthing facilities on the leeward side of the breakwater at an estimated cost of Rs 800 crore.
Kandla Port plans major Kochi Port posts investments encouraging cargo New Delhi throughput in 2009-10 andla Port is planning to invest an estimated Rs 5,081 crore over the next three years. As part of the National Maritime Development Programme of the government of India these projects will be funded by internal resources, private participation and budgetary allocations said the Kandla Port Trust chairman, P. D. Vaghela, and the deputy chairman, M. A. Bhaskarachar. Registering 10 percent growth over the previous year, the port handled 79.50 million tonnes of cargo, the highest cargo throughput by any domestic port in the fiscal 200910. In 2009-10, Kandla Port Trust (KPT) earned revenues of Rs 629 crore, with an operating surplus of Rs 69 crore. It also handled 2,776 ships during 2009-10.
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Funds will come from internal accruals, private participation and budgetary allocations KPT will invest Rs 755 crore on developing four new dry cargo berths on a build-operatetransfer (BOT) basis with a total handling capacity of 8 million tonnes per annum (MTPA). It will also increase its capacity of catering to vessels with a draught of 13 metres. KPT also plans to develop off-shore berthing facilities with a handling capacity of 14 MTPA of multifarious products at the satellite Port Tuna which will handle Panamax and post-Panamax vessels with a draught of up to 15 metres.
May 2010 | www.logisticsweek.com
New Delhi
K
ochi port has achieved a record cargo throughput of 17.43 million tonnes in 2009-10. A growth of 12.5 per cent was seen in 2009-10 in comparison with the previous year, 2008-09. Though the port’s traditional cargo traffic of coal, fertilisers and industrial salt have dropped by about 10 percent, it was compensated by the higher volumes in liquid bulk, especially petroleum products, and also in general cargo such as cement, iron scrap and timber logs. Container traffic recorded a growth of 11 percent in 2009-10. A total of 2,89,817 TEUs containers were handled during the year, as against 2,60,784 TEUs handled during 2008-09. Vessel traffic registered an increase of 18 percent in 2009-10 while the
average turnaround time of ships improved by three percent. The average ship berth day output also improved by two percent. The increase in cargo throughput has brought in additional revenue of around Rs 6 crore to the port in terms of wharfage alone. The port also earned additional revenue through storage charges and Vessel Related Charges through increased vessel traffic on account of the higher throughput.
Souce: shipping.gov.in
K
Kochi port handles record cargo, brings home additional revenue
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< news Rialways
Railway service tax levy deferred to July 1 New Delhi
T
he Finance Ministry has deferred the implementation of the service tax on goods transported by rail from April 1st, 2010 to July 1, 2010. With wholesale price index-based inflation crossing the 8.5 percent projection by the RBI, the government is keen to ensure that its actions do not fuel inflation, hence the three-month deferment.
The Finance Ministry wants to garner close to Rs 1,000 crore from the service tax levy on railway freight The implementation of service tax exemption on pulses, foodgrains, petroleum prod-
ucts for PDS, organic and chemical manure and motor vehicles has also been deffered. The exemption comes into effect from July 1, 2010 along with 70 per cent abatement. A service tax levy on railway freight would have a cascading impact on coal, cement and steel prices. Between April 2009 and February 2010, the railways transported 357.86 million tonnes of coal, thus increasing its freight earnings to Rs 20,194.33 crore. In the case of cement, the railways transported 83.75 million tonnes and earned Rs 4,722.61 crore during the same period. The railway freight earnings on the transport of pig iron and steel stood at Rs 3,003.78 crore. The projected annual freight earnings of the railways for 2010-11 is Rs 62,489 crore.
Consumers can heave a sigh of relief till July 1, 2010
continued from page 8 Other countries are introducing reforms too. In 2009 Tunisia established a national logistics council—involving government agencies and the private sector—to implement an action plan building on earlier successes, mainly in port facilitation. Some components of the action plan dealing with border procedures, ports, and logistics services were included in the competitiveness program designed with the EU, the World Bank, and the African Development Bank.
The top performers have maintained the lead owing to sustained reformatory measures. Germany, ranked first in the 2010 LPI, issued a Freight Transport and Logistics Masterplan in 2008. Similar documents are being drafted in a number of other countries, such as Sweden and Finland, ranked 3 and 12 in the 2010 LPI. “By showing how countries compare to others in the area of trade logistics and illuminating the costs of poor logistics per-
formance, we hope the LPI will continue to serve as a catalyst, helping policymakers and the private sector build the case for domestic policy reform, for investment in trade-related infrastructure, and for the cooperation that is needed for countries to break out of the vicious circle of “logistics unfriendliness,” Otaviano Canuto, World Bank Vice-President and Head of Poverty Reduction and Economic Management (PREM) Network, stated in the report.
india’s individual ranks and scores on key parameters Customs
Infrastructure International Logistics quality and Tracking and shipments competence tracing
Timeliness
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52
SC Rly sees 16 pc growth in freight Chennai
T
he South Central Railway has registered a 16.4 percent growth in freight loading with 85.87 million tonnes of cargo handled in 2009-10, as against 73.80 million tonnes in the previous fiscal. While the Secunderabad division registered a growth of 58.43 per cent, the Vijayawada and Guntakal divisions recorded 16 percent and 7.5 percent growth respectively. Of the incremental loading of 12 million tonnes, coal contributed about 9.4 million tonnes. While the wagon holding of the zone increased by a mere 2 percent, the loading was increased by 16.4 per cent. The turnaround time for these wagons was reduced by about 8.3 percent from an average of 2.4 days in 2008-09 to 2.2 days in 2009-10, which increased wagon availability.
3rd worldwide
India ranks
by volume of production of pharma products and
14th by
value thereby accounting for
10
around of world’s production by
pc
1.5 value.
volume and by
pc
Turn key construction of industrial plants Turn key construction of industrial warehouses Leasing out of ready to move in warehouses/ service sheds at Kakinada (A.P.) (Specially designed for Oil & Gas companies)
Afghanistan Burkina Faso Guinea
India
Congo
Jaguar Overseas Limited Suite No 109, Tower-I, 70, Najafgarh Road, B-39, New Delhi-110015 (India) Phone: +91-11-3051 2000, 3051 2080, Fax: +91-11-3051 2020 Email: contact@jaguaroverseas.com, Website: www.jaguaroverseas.com
Yemen
Benin C.A.R.
Ethiopia
Mozambique
Myanmar Laos
< INTERVIEW
“There are not many players in the loss-prevention market”
R
ecently the Delhi-based PS Bedi Group, which operates in international freight forwarding, customs brokerage, warehousing and distribution, and project support services signed a JV with the Maman Group, which a leading Israeli logistics services player. The joint venture, called the PSBedi Maman India Pvt Ltd, aims to gain foothold in the fast emerging loss prevention & security and document (records) management business in the supply-chain and allied segments. In an interview with Log India, PSBedi Group CEO RS Bedi spoke about the idea behind the alliance and the exciting new markets the venture is focusing on. Your group formed a joint venture with The Maman Group, a large Israeli logistics service provider in December 2009. Can you give us an idea about the Maman Group? What was the idea behind the alliance? The Maman Group is an Israeli Group of companies and besides handling and managing the cargo terminal at Israel’s primary airport (Ben Gurion International Airport, Tel Aviv), they are into diversified logistics services including ground handling and aviation services, 3PL, archiving and document management, loss prevention etc and are a listed company on the Israeli Stock Exchange. Maman has now formed a joint venture with us on a 50:50 equity basis and the new company is called PSBedi Maman India Pvt Ltd. We are going to be targeting certain specialised fields of logistics dealing with logistic value-add services, 3PL, airport terminal management, archiving of documents (records management), loss prevention and security. In the first phase we are starting up with the document management and lossprevention businesses. What are the opportunities the JV sees in the Indian market? There are huge opportunities since there are not many players in document man-
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company regulations and non-adherence to best practices.
RS Bedi CEO, PS Bedi Group agement and loss prevention in the Indian market. While document management has mostly been done in an unorganised manner, we are seeing an upward trend in this sector as clients realise the importance of securely storing and archiving their documents with professional companies. Loss prevention as an independent organised activity is a completely new service for the Indian market. PSBedi Maman is initially going to concentrate wholly on the Indian market and we will slowly expand our service offerings. The company has already set up a 50,000 sq ft document management facility near Gurgaon, NCR region as a pilot project – and we are focusing on 3PL as well. Loss prevention is an emerging opportunity area in supply chain. What are the JV’s plans in this segment? It is common knowledge that there are huge losses occurring in the supply chain. However, this is (loss prevention) a niche area and there are not many players in this segment in the country. Our research and experience in providing these services in Israel, Europe and the Americas has shown that while most companies build up security systems to shield itself from outsiders (customers, vendors, etc), 70 percent of losses can be attributed to internal problems itself caused by employees, faulty
May 2010 | www.log-india.com
Can you elaborate on the types of losses as they occur in a company’s supply-chain? In supply-chain there could be three kinds of business losses and they could be termed as intentional, unintentional and silent losses. The intentional loss related to losses that could be due to theft, embezzlement, intentional damage to property, etc. Unintentional losses could be because of managerial error, lack of resources, deficiency in organisational communication, etc. Silent or hidden losses do not manifest themselves in missing inventory. In most cases they are difficult to detect if the company does not proactively search for it. These losses are most damaging. Inventory shrinkage is a huge problem in every sector of business. Even in the public sector transit losses are immense. How big is the loss-prevention market? We understand that public sector may be writing off transit losses in excess of Rs 2000+ crore in a year. In the retail sector, pilferages and other types of losses are common in department stores and at warehouses. In a recent market survey into retail shrinkage of 41 countries, India ranked the worst among these countries – estimated to be losing 4-5 percent of its retail industry’s gross turnover as opposed to a global average of 2 percent. What are your plans for the company in the next five years? As a group, the concentration on logistic and project support services would continue. We are focusing on niche, upcoming areas and the group companies would cover a wide spectrum of logistic products. PSBedi Maman has just started off and soon we will be looking into cargo terminal management, aviation services, VIP services at airports, and deeper into 3PL and 4PL (value added) services.
< upshot
Industry E
SCM takeaways from dabbawallahs
O
n April 23, CSCMP RT Mumbai hosted an evening of presentations at Fortune 2000 office complex, BKC Mumbai that was packed to capacity. The highlight of the evening was the delightful presentation from Raghunath Medge, the president of NuRaghunath Megde enthralls the audience with his presentation on tan Mumbai Tiffin the colour coding methods that dabbawallahs use Box Supplier AssoDate : April 23, 2010 ciation or what is popularly known as Event: CSCMP Mumbai RT the Mumbai Dabbawallahs. Not only Organiser: CSCMP Mumbai was his presentation informative but Medge had the audience in splits on Venue: Ground Floor, Fortune 2000, Bandra-Kurla numerous occasions with his ready Complex, Mumbai repartee. He went on to unravel in the presentation the famed colour-cod-
ing method that ensures that more than two lakh people in Mumbai are delivered their Tiffin’s well before the lunch time, every single working day of the year – a feat that has earned his organisation Six Sigma accreditation. Medge recounted how dabbawallahs delivered lunchboxes even during the unfortunate July deluge of 2005 when the city was submerged in water. He said that discipline and simplicity are two main factors that ensure the smooth supply of tiffins through the length and breadth of the maximum city. Medge’s presentation was complimented with yet another insightful presentation made by Sumeet Nadkar of Kale Consulting during the evening. Nadkar discussed how technology could save companies logistics costs and improve efficiency.
A meeting of minds
A
t the Confederation Indian Industry’s (CII) conference on Logistics and Supply Chain Excellence 2010 at Vadodara, experts from the supply chain sector brainstormed over the challenges troubling the industry. While experts agreed that the logistics infrastructure in the country is on an upward swing, a lot more requires to be done in fields like multimodal transportation, warehousing strategy and SCM systems. Kalyan Ghosh, Sr VP (SCM), Essar Steel Business Group landscaped the overall growth trajectory of Indian transportation system which is yet to catch up with the infrastructure of South East Asian countries. Rajeev Mehta, Executive VP-Logistics, Grasim Industries expressed disappointment over the kind of second rated treat-
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ment that supply chain often get within an organisation’s decision-making circle. Speakers also expressed concern over the quality of manpower getting inducted. “CII believes (L-R) Rajeev Mehta, EP, Logistics, Grasim Industries; Tapan Patel, Exthat with a proecutive Director, Gujarat Metal Cast Industries; Hemant Bhattbhatt, Sr Director, Deloitte; Ajoy Halder, Head, SCM, Bombardier Transportation gressive and faIndia; and Dibyajyoti Bhuyan, Vadodara Zonal Head,CII cilitative policy framework, SCM in Gujarat will reDate : : 23 April 2010 ceive a significant boost going by the Event: Logistics and Supply Chain Excellence 2010 prospective offered by Delhi Mumbai Organiser: Confederation of Indian Industry (CII) Industrial Corridor,” said Tapan PaVenue: Hotel Express Residency, tel, Chairman, CII Central Gujarat Alkapuri, Vadodara Zonal Council.
May 2010 | www.logisticsweek.com
y Events Fine shades of green
W
ith tremendous pressure to reduce costs by reducing the environmental impact of business processes, the logistics industry is seeking ways to implement green policies. In this light, the Logistics Council of the CII (Confederation of Indian Industry) organised ‘Green Philosophy in Logistics & Supply Chain’ in Mumbai on 24 April 2010. Ajay Chopra, CEO, DIESL, Going green: Ajay Chopra, CEO, DIESL, delivers the opening speech at the event chaired the event. Speaking on ‘Green’s link to profDate : 24 April 2010 itability’, he explained the need to Event: Green Philosophy in Logistics & Supply Chain avoid classifying green initiatives as corporate social responsibility (CSR) Organiser: Confederation of Indian Industry (CII) activities as it is intrinsically linked to Venue: Hotel Taj Lands End, Mumbai profitability. Spreading awareness of
recycling was also a must. Satish Agnihotri, Joint Director in the Directorate General of Shipping emphasised the role of shipping as a mode of transportation leading to reduction in freight costs (25 to 75 percent) compared to other modes of transportation. Shipping also reduces carbon emission levels creating a win-win situation for traders. Prof Lenny Koh, Director, Logistics and SCM in the University of Sheffield, commended the role played by India in reducing carbon emission levels and said trends suggest that carbon emission levels in China were more when compared to India. B Sridhar, National Logistics Council Member, CII, highlighted the body’s role in developing environment-friendly SCM systems through various initiatives.
Between the two Indias
T
op sales, operations and supply chain stalwarts gathered at the Supply Chain Leadership Council’s Rural Penetration & Distribution Summit ’10 held on April 23, 2010 in Mumbai to discuss distribution strategies for rural India. Delegates present were functional heads of FMCG, pharmaceuticals, retail companies as well as heads of 3PL operators. In his speech R Venkatesan, senior advisor, National Council for Applied Economic Research said, “The rural urban split in consumer spending stands at 9:11, with rural India accounting for private retail consumption of $145-150 billion.” During the meet, it was discussed how an average Indian village is evolving into an emerging, powerful consumer community. Rising crop prices,
sale of land to developers, and better wages for farm labour are creating surpluses in the hands of rural Indians. New growth for sectors mainly consumer durables, and auto will come from rural India. The ASSOCHAM report says rural income will aggregate to Rs 13,00,000 crore in 2011, up from Rs 800,000 crore a decade ago. However, rural distribution challenges remain plenty. Some of these include dispersed population further regionalised on economic parameters, seasonal demand, challenging after-sales service models, poor infrastructure, and lack of 3PL focus.
(L-R): Ashutosh Tripathi, Sr Demand Manager, Johnson & Johnson; Hari Goyal, GM, Reliance Retail; Anuj Pasrija, Country Head, Arogya Parivar, Novartis India; Jasbir Nanda, National Logistics Manager, HUL
Date : 23 April 2010 Event: Rural Penetration & Distribution Summit ’10 Organiser: Supply Chain Leadership Council Venue: Novotel Hotel, Juhu Beach, Mumbai INDIA |
May 2010 | www.logisticsweek.com 25
< opinion Opinion
Corporate India is competing on creativity and cost to bring out the full potential of India’s rural market. That is expected to change business everywhere
Fortuneteller of the Untended
T
Rakesh P Singh Dean, School of Economics, NMIMS Mumbai. Chairman, Institute of Supply Chain Management, Mumbai
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The business management community has lost one of its greatest thinkers with the death of CK Prahalad last month. It was Prof Prahalad along with his colleague Prof Stuart Hart who coined the term “the fortune at the bottom of the pyramid”. He had realised that low-income markets can present enormous opportunities for the world’s wealthiest companies to seek their fortunes, while helping to alleviate poverty. Together, the duo urged multinational companies worldwide to invest and rethink a risk and reward structures for these markets. Prahalad has contributed significantly to the world of management. His book Competing for the Future is referred to by every management strategist. But it is his work on The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits that helped corporate think rural and build a sustainable business model. The impact of his theories can be seen and felt in many areas, and this is most visible in Indian and developing markets. Most corporate, in order to reap the benefits from the rural markets have adopted the base of the pyramid or the BOP theory into their business strategy. The rural retail market, estimated at 40
May 2010 | www.logisticsweek.com
per cent of the Indian retail market, is a difficult market because rural penetration is only about 19 percent on an average. Low penetration is primarily because of low income, lack of infrastructure (electricity or roads) and a combination of the two in various areas. The difficulty further increases when we see the geographical dispersion of the rural villages. Only 13.3 percent of the total villages have a population of 2,000 or more. In such a scenario reaching the hinterland of such villages will mean a higher supply chain cost and one that might not see equal benefits. In retail, the theory law of gravitation says that any organised effort would require a catchment area of around 50,000. Prahalad’s approach for the bottom of pyramid as shown in the diagram on the next page requires corporate to help create buying power, shape aspirations, tailor local solutions and improve access.
Crop circles In India, a number of experiments like Tata Kisan Kendra, Godrej’s Aadhar, DSCL’s Hariyali, Mahindra’s Shubhlabh and ITC’s Choupal Saagar have emerged in the rural market space. These experi-
The commercial Infrastructure at the Bottom of the Pyramid Creating Buying Power l
Income generation
Shaping Aspirations
Improving Access l l
l
Distribution Systems Communication links
Consumer Education l Sustainable development
Tailoring Local Solutions l Targeted Product development
Bottom-up innovation
l
ments have one thread in common i.e. they are attempting to integrate the supply chain by removing the inefficiencies in the rural as well as the agricultural supply chain. A true application of BOP philosophy. The business model is simple. Aggregate rural demand can help attain economies of scale in terms of rural distribution through rural retail. Here it is imperative that agri produce of the farmer is strategically sourced and then sold to agri producers thus reducing the uncertainty for farmers to find buyers on their own, while creating a win-win model for both famers and the processors. It is necessary that farmers are also offered advisory support so that they can adopt better farming practices and increase their yields to world levels. The key objective of these experiments is to provide a one-stop “total farm solution” to the Indian farmers so that farm income as well as farm prosperity improves. At these retail malls, the rural consumer can get what he wants, as well as sell his produce at the best price. But in their pursuit of reaping harvests in this large bottom of pyramid, all these experiments operate within their sphere of influence. Most of them are too small in scale to make their marketing efforts in rural India profitable. All of them compete with each other in the same market, making dispersed and poor market more difficult to serve. Even the much talked about ITC e-chaupal has not been able to break even after nine years of operation. Their marketing of agri-input has come in conflict with traditional supply chain which is credit driven. The talk of providing advisory services has not even taken off. But it is this rural India, which has been kept outside the
purview of economic reforms, is bailing out the Indian economy from the aftereffect of the global financial crisis. The rural economy has benefitted primarily from the largesse of the Congress government rather than any well thought out strategy or public policy. The much hyped National Rural Employment Guarantee Scheme (NREGA) as well as loan waiver has temporarily increased the buying power of the rural workers and farmers, which cannot be sustained for a long run given the state of the fiscal deficit. At best NREGA can be used to create complementary infrastructure in the rural economy. Considering the low income and lack of appropriate infrastructure bringing about inclusive growth is a daunting task. It is in this context that Prahalad’s Fortune at the Bottom of the Pyramid assumes significance.
It is necessary that farmers are offered advisory support so that they can increase their yields to world levels Despite the drawbacks these experiments have the ability to move to the next level. For this to happen, companies need to collectively set up a rural retail segment broadly classified into three parts. The first part is rural consumer retail segment. The second part is agri-commodity segment which buys agri-produce or provides warehousing facility. The third segment would be agri-input segment including seeds, fertilisers, farm equipment and an agri-clinic for providing advisory services. Partner companies can share the burden of running these clinics. But the transition to this new collaborative experiment will require experimentation, reflection and learning. It is a matter of time before companies with similar interests collaborate to make India’s bottom of the pyramid a profitable and sustainable business zone.
The author can be reached at rp.singh@nmims.edu
INDIA |
May 2010 | www.logisticsweek.com
27
< OPiniOn
I Spy, Performance
Analysing and ensuring worker efficiency in a warehouse is no child’s play
W PADMini PAGADALA General Manager, TPG Consulting, Mumbai
WE ALL REMEMBER the game of hide and seek that we played as kids. The bigger the area, the more inaccessible places one could run to hide. The supervisor of a large facility feels much the same way, only that he feels like the poor seeker in a ceaseless hide-and-seek game! Not only does he have to seek his employees out, he also needs to gauge their performance wherever they may be in the facility. Matters become even more difficult if the person in charge has to scrutinise minutely the movements of every single soul for eight to ten hours a day. These buildings are big – which they are supposed to be. The sheer size of these facilities, which can vary from 200,000 sq ft to 800,000 sq ft and more, means that you can’t physically see everyone at work from any one point. It is very easy for people to “disappear” in these facilities, with little chance of tracking their productivity. A distribution centre’s (DC) large footprint also means it is very difficult to give workers the attention they need to help them develop efficient techniques.
Dual reporting Consequently, two levels of reporting are established to manage administration effective-
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ly in these buildings. One set is used to hold the workers accountable for their time and another, the supervisors accountable for the budgeted costs. Most modern companies begin with setting labour standards and checking worker efficiency, because it is not uncommon in many facilities to see significant variations in area performance which is due to variations in individual performance.
The variation in performance between workers in a real pick module The graph on page 29 shows the variation in performance between workers in a real pick module at a real US DC. If a worker earned a score of 100 percent it meant that he was doing as well as the standard expected him to do and achieved what the standard said he should. A person who had a score of 50 percent was doing only half of what the standard said he should get done in a typical day. You can see that there is a very wide range of employee ability. There were a large number of pickers who were more than twice as efficient as other pickers! You may also note that there were some pickers who performed better than the given standards at times!
But there is another reason to focus on workers’ performance first. From experience, we know there are many root causes underlying poor DC performance. Some of these relate to the workers themselves, but we find frequently that in certain modern distribution centres the real problem is not achieving high levels of worker efficiency; it is achieving high levels of worker utilisation. At these DCs, many small chunks of productivity are lost due to supervisor decisions, labour scheduling problems, supplier problems, equipment or system issues, and/or unforeseen customer requirements which in total have a greater impact on costs than the inefficient methods of the workers themselves (This is especially true in direct-to-consumer and consumer goods companies where there are numerous scheduling points). However, managers don’t realise this and won’t address these until something is done to remove the variance in performance that is simply due to the workers alone.
After each investigation, the standard gets revised until the engineer, the workers, and the supervisors feel that they are a fair measure of worker performance. Once the prove-out period is over the training period begins. This phase starts by having the engineer, or even the better workers you have already identified, watch or film the better performers to develop an understanding of the best practices associated with the job. This is a critical point of the process that many companies overlook. At most sites, the physical motions of the job need to be taught to workers just like the complete arm wring motion is shown to a budding bowler. There are many nuances to great performance that are not obvious.
Modern methods How do modern firms accomplish this? Taking a leaf from many American and European DC management teams, I have seen that the basic tenet they follow is: try to “squeeze” the distribution of individual performance to the right of the performance graph i.e. take the average performance to a higher level. To do this, an engineer establishes a standard for the given work. Inevitably, the first pass for the standard won’t be right, so there will need to be a “prove out” period of a couple of weeks while the engineer looks at the numbers reported every day, gets a feel for who the best performers are and then investigates jobs or days on which the good performers do very badly or vice versa.
Setting standards will help identify top performers
A classroom with video is best for this activity followed by on-thefloor demonstrations. These sessions should also explain the standards and the associates should be told to start practicing these methods immediately.
35% 30%
% Pickers
25% 20% 15%
Up or Out
10% 5% 0% Upto 30%
40%
50%
60%
70%
80%
90% 100% 110% 120%
Efficiency
The Performance Graph: Measurement of workers’ performance
Once training is over, the more demanding phase – that could be called the “up-or-out” period – begins. During this period, the workers are given four to eight weeks to achieve 85 percent of what the engineer calls a fair standard while they are working. It is really important to provide almost daily feedback on individual
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May 2010 | www.logisticsweek.com 29
< Opinion performance during this up-or-out period. Continual encouragement must be forthcoming from managers too – even for the people who appear to be struggling – because experience shows that workers performs better if they are encouraged to follow the best practices. One of my American associates likes to hand out chocolates to workers he thinks follow a large number of best practices. There are innumerable methods of reinforcing best practices. A few firms will station a “performance coach” on each shift for the duration of this period. They will then visit the slower performers throughout the day, coaching them on what the best methods are. With spans of control that demand constant attention, supervisors usually do not have enough time to teach methods properly on their own. Some firms in the Western markets use “certification programmes” to motivate workers to follow best practices. These programmes use simulated environments with real products where the only way to pass the certification test is to execute the best methods flawlessly. Still other companies bring the poor performers into a conference room individually to review video tapes of their work and to discuss how they could improve. It is critical that the organisation focuses exclusively on worker performance during the up-or-out period. Posters suggesting best methods should be erected in the manner that is done in communist societies to remind the workers of what they need to do to make the cut. A “leaders’ board” is prepared that shows who were the best pickers last week and a brief ceremony associated with congratulating these people in front of their peers is conducted. If strange jobs or orders are forced upon the area for some reason or the other, the engineer and supervisor must decide if those jobs or orders should “count” towards evaluating the workers’ performance or not. Usually, at the end of this period, you will find that just under 20 percent or so of the workforce isn’t able to achieve what needs to be accomplished due to lack of motivation, stamina, dexterity, or intelligence. Those people have to be very gradually and patiently moved to other places or simply let go, beginning with the least satisfactory performers. Once all these poor performers are gone and the rest are more or less following a decent portion of the best practices, you can begin to focus on the supervisors’ performance and other avenues for excessive costs in the operations area. While one may wonder whether this would be appropriate today where the people on the floor are not direct employees of the firm, it would still be valid to track individual performance. Even with the attrition rates that we see in Indian fa-
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Tagged: A call for regular productivity of employees
cilities today, it still remains relevant to track the performance of individual personnel. You always have the authority to refuse a particular Reach Truck operator or, for that matter, pay incentives to best performers.
Secrets of success The process mentioned is not new at all, but the good news is that it works if done regularly! Recently, I participated in one of these projects where picker productivity increased 65 percent in just three months, but here are the steps you must follow to divide those programmes which work from those that do not achieve much: n Start investigating and teaching best methods even before you have a standard - maybe months in advance. n Use slow motion video to discover best practices n Build your standard on best performers and not average performers. n Develop an aggressive, very accurate standard initially; avoid the temptation to increase delay to move the average to the right. n This works better when your site has a computer system that tracks operator transactions. n Measure the workers using their efficiency based on the time spent using the warehousing system, instead of their utilisation based on the time indicated by the clock. With these pointers, supervisors and managers can track their personnel even if they do their best to hide themselves in gigantic DCs!
The author can be reached at padminimp@theprogressgroup.com.
< Advertorial
Greenfield Port in Maharashtra Dighi Port is being developed by M/s. Balaji Infra Projects Limited, headed by Mr. Vijay Kalantri, as Chairman & Managing Director. Dighi Port Limited concluded with the Maharashtra Maritime Board (MMB), a Concession Agreement for 50 years on BOOST (Build ,Own, Operate, Share & Transfer) basis for the development, operations, management, financing & marketing of DIGHI PORT. IL&FS is a co-developer to the project and holds 20% equity in the project company. Situated 170 Km by road and 45 nautical miles by sea to the south of Mumbai, Dighi port is being developed as a multipurpose, multi-cargo all-weather port with deep draught direct berthing facilities and state of the art cargo handling equipments with adequate stack yards & warehousing facilities, back up areas & ample land.The Port has a large land bank as well as an extended hinterland. Dighi Port is the 1st Greenfield port in Maharashtra to receive the environment clearance and approval. Dighi Port has received approval by the Board of Approval, Ministry of Commerce, Government of India, for setting up a port based multi-
purpose Special Economic Zone (SEZ) inclusive of Free Trade Warehousing Zone (FTWZ).The project, developed under the integrated infrastructure format has been identified and included as an economic hub under the “ Dedicated Freight Corriddor Project” and the “Delhi-Mumbai Industrial Corridor Project”, jointly being developed by the government of India and the Japanese government. The Railway Board, Ministry of Railways, Government of India, has also accorded approval rail projects. The project has been approved by M/s Konkan Railway Corporation Ltd. The promoters BIPL have signed an MOU with CONCOR to develop, operate and maintain facilities to provide comprehensive logistics services and end to end solutions from the manufacturing base to the port and vice versa to the port users at Dighi Port. CONCOR shall also provide dedicated train services for rail operations and to and fro movement from Dighi Port. The plan
Type of Services Proposed Third Party logistics (3PL): This provides logistics from warehouse/ production location of manufacturer up to the retail shelf and can be provided by the DSEZ (FTWZ). Potential users for such services would include Auto components and engineering products, Apparel, FMCGs, White good manufacturers etc. Just In time (JIT) Logistics: Automotive, electronic and hardware assembly units would use JIT systems. The JIT system would provide warehousing, picking, subassembly and sequencing operations and deliver to the specific assembly lines for automobile or electronics/ hardware manufacturers. Planning out the Business plan: The broad business plan would evolve in line with the demand and the SPV can establish its presence in each sector
of logistics and warehousing services by either outsourcing the infrastructure provisioning and operations or through investments, internal accruals and/ or enhanced investments by the SPV partners 7 d p l. Leveraging Logistics/Warehousing Operations Expertise: The DSEZ (FTWZ) would also be able to leverage the quality of service and expertise available from the international domestic logistics and warehousing companies. The promoters M/s BIPL have signed an MOU with M/s CONCOR. The MOU highlights various plans to develop, operate and maintain facilities with the objective of providing comprehensive logistics services and end to end solutions from the factory doorstep or manufacturing base to the port and vice versa providing an integrated network of value chain services to the port users at Dighi Port.
Rail Connectivity
Distinctive Features of Dighi Port • A s on date Dighi Port is Maharashtra’s key ongoing infrastructure Project in the state. • The project encompasses the entire value chain under one umbrella • Developed on an Integrated Infra Platform • Deepest port in Maharashtra • The Port has the capacity to handle the entire range of panama vessels. Dighi Port have already received in principle approval for Railway Connectivity to the port by the Railway Board. The railway siding shall be developed under an SPV route wherein M/s. Konkan Railway Corporation Limited (KRCL) & the promoter group shall be joint participants.
also involves the development of warehousing and distribution services. Dighi Port is proposed to be developed in phases. Phase I envisages the development of 5 berths for Bulk/break-bulk/container cargo, dedicated coal and/or car berths, and a liquid/gas cargo jetty to handle large capacity vessels. Phase I shall be completely operational by mid 2010. HALCROW has already completed the detailed engineering design for all the berths. The port is already operational having carried out exports of substantial volumes of bauxite cargo. With extensive port limits, a dedicated approach channel and state of the art cargo handling equipments, efficient & effective port operations leading to highest productivity and total road & rail connectivity DIGHI PORT will ensure speedy turnaround of vessels and substantial savings in transaction cost and time for port users and shippers.
Registered Office: 6th floor, New Excelsior Bldg., A .K. Nayak Marg, Fort, Mumbai - 400 001. Maharashtra, India. Email : info@balaji.co.in Website : www.balaji.co.in
< Cover Story
SHASHI KIRAn SHeTTY, Chairman & Managing Director, Allcargo Global Logistics Pvt Ltd 34
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The Lead Consolidator The fascinating story of an entrepreneur who painstakingly built a small cargo handling enterprise, established on Mumbai’s shores, into the world’s second largest LCL (less than container load) consolidator now with direct presence in 59 countries. Jayashree Kini-Mendes traces the journey
S
hashi Kiran Shetty, the chairman and managing director of Allcargo Global Logistics, caught the notice of many in the Indian and global mainstream press on February 16 this year when he was given the Ernst & Young (E&Y) Entrepreneur of the Year award in the services category for 2009. The award caught media eyeballs not only because this was the rare occasion when a purely logistics player was given the honour, but also because of the uniqueness of what Shetty has achieved compared to his peers: This first-gen logistics entrepreneur has taken his company from a small outfit formed in 1993, along with a motley group of peers and Rs 25,000 of his own savings, to make it the second largest LCL consolidator in the world. Incidentally, the Rs 532-crore company also is being
dubbed as India's first true multinational logistics corporate – also a sign of the growing ambition of India’s logistics players.
Seizing opportunities Seated behind a large wooden desk in his plush corporate office located a few yards away from Mumbai University, Shetty, 52, looks well in control. To an observer, Shetty’s suave demeanour completely belies his formative years shaped at India’s chaotic and mind-testing port terminals. Right after his education, Shetty came to Mumbai to begin his career and worked for four years with shipping agencies — Intermodal Transport Services and Gokak Patel Volkart Ltd (erstwhile Forbes Gokak Ltd) were the two he worked for — and garnered a good amount of experience work-
ing in the challenging and diverse f ields of port operations, cargo handling, also, at times attending to the requirements of ships coming to the port. “My experience gave me an exposure to multiple ports and ships that called in various ports in the country. That was the time when the ports would be very congested, there would be berthing delays. It was quite a struggle. I worked at entry-level jobs – that’s how my career started,” Shetty reminisces. To his entrepreneurial eye, the everyday battle waged by shippers
Financial Highlights (in Rs crore ) 2009
2008
Total Income
532
530
Profit before tax
106
103
Profit after tax
98
93
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May 2010 | www.logisticsweek.com 35
< Cover Story and operators in handling cargo was an opportunity waiting to be tapped. “In those days (early ‘80s) there was a dire need for an organised player in the transportation and handling business,” he says. In 1983, Shetty, barely 25, started his company called Trans-India Freight Services, a cargo-handling enterprise operating at the JNPT (Jawaharlal Nehru Port Trust) port terminals in Mumbai.
To his entrepreneurial eye, the everyday battle waged by shippers in handling cargo was an opportunity waiting to be tapped To begin with, since Shetty did not have the money necessary to buy cargo-handling equipment, he got the latter on lease – trailers, forklifts, cranes. The other thing he did was
What is LCL
L
ess than Container Load (LCL) refers to smaller amounts of ocean freight cargo that are insufficient to fill a Full Container Load (FCL) on its own. The service is widely used by customers across many industries as it offers greater flexibility in the management of supply chains by being able to ship smaller quantities on a moretimely basis. LCL helps logistics service providers (LSP’s) and clients with warehouses in keeping inventory on the move, as it means no time is wasted in waiting for a shipment with a full container load. International shipping companies see an advantage in using LCL ocean freight service, i.e using shipping services from international transportation companies (freight forwarders,
NVOCCs, VOCCs) Vs. using FCL (Full Container Load ocean) or shipping services offered by international moving companies. It means less cost to transport goods on smaller ocean freight shipments. Companies seeking to share a 40-foot container with one or more exporters need pay only for the space used in the container and not for the whole sea freight container. Generally, transit time is the same for an LCL and an FCL. Reduced transit time of LCL hub movements have provided an opportunity to shippers to move their LCL consignments faster, at extremely cost effective LCL sea tariffs. While most LCL cargo is moved by road, some companies make arrangements for moving the same by rail for reconsolidation.
ask people he had known from port operations to join him in his venture.
It helped that Shetty was equally at home with shipping workers and contractors on the one hand and international clients on the other. He recounts, “What I did was, bring in the right people, set up the equipment and I was there to make sure that things worked.” He admits, though, that the struggles were many and growth was slow and painful. “The struggle was (present) everywhere and in everything. To get the business was not easy. To have the cash flow in the system was very difficult. But we were able to stay on course since we did a good job on a sustainable basis.” The next ten years were eventful in that Shetty grew his business into a medium-size enterprise. Then, along came liberalisation.
The Big Break The economic liberalisation of 1991 threw open doors to global Allcargo's container freight station near JNPT
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< Cover Story
Cooler weighing 110 m tonnes transported from Mahape to Jamnagar. Cooler loaded on 10 nos hydraulic axles
trade and investment. Foreign companies were scouting the Indian horizon for partners to garner a toehold in the local market. In 1993, Belgium-based AMI International came calling to India. The company was looking for an agent for its LCL (less than container load) consolidation business. With
TransIndia already established, Shetty saw an opportunity to enter a new business domain. He tied up with AMI International and set up Allcargo Movers India Pvt. Ltd (that shared its acronym with the former for obvious reasons), as an agent to the Belgian company. At the time, most MNC ship-
ping companies were not in favour of offering LCL, as the dynamics of rich European countries demanded large exports and so did not favour LCL – although LCL did offer higher rentals. “LCL was a very niche market and large foreign companies were unable to pay attention to the business. Globally, too, the LCL business was moving to intermediary players like us. That’s how I got into the business,” says Shetty. According to Rohit Chaturvedi, CEO of i-maritime Consulting, a maritime, port and shipbuilding consultant, “Indian exporters had realised the cost-effectiveness of the sea route even in those years. Around 1995, port handling had improved and reduced the turnaround time of ships. With reduced transit time at LCL hubs, consignments could move faster and proved economical to the exporter too.”
Allcargo: How It all Began
I
n 1978, after completing his higher studies in B.Com from SVS College in Bantwal, Karnataka, 21-year-old Shashi Kiran Shetty came to Mumbai. He had one goal: to make a career. It was then common among young graduates coming from mofussil areas for a better life in Mumbai to seek out jobs as white-collar workers or at hotels or ports. Especially in Bombay, docks and ports employed large numbers of young men to attend to ships calling at the port. Shetty got his first job at a shipping agency, Intermodal Transport Services, to attend to the requirements of the ships coming into port and assist in port operations. The line of work revealed to him aspects of shipping and offered insights into the workings of the shipping industry, though on a small scale. A couple of years later, he sought employment with Gokak Patel Volkart Ltd, now a Tata Group company. Working at the port helped him realise the numerous operational problems ports faced, beginning with
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lack of space for storing offloaded cargo. “Those were the days when infrastructure at ports was highly congested and led to berthing delays,” says Shetty. Discerning the problems faced by port operators and shipping companies, Shetty knew he had to do something. The opportunity was present in the highly disorganised system. The agents stationed at the ports to handle cargo and attend to ships were inefficient, possibly due to lack of understanding. Dipping into his savings of Rs 25,000 and employing skeleton staff of two people known to him, he set up Transindia Freight Services. Shetty was in business. Progress was slow, but steady. With no equipment, lack of transportation systems and cash flow, the business started on a small scale. However, in his four years of working in the shipping industry, he had built goodwill among co-workers and agents operating within the port. The lack of venture capital to buy
May 2010 | www.logisticsweek.com
expensive and heavy equipment and transportation systems compelled him to think of frugal innovation. Deals were struck with transportation companies and equipment lessors for trucks, trailers, forklifts, cranes, etc. Meanwhile, he roped in two persons who had worked with him in his earlier job stints, and worked at developing the business. The four years he had worked at Intermodal and Gokak Patel had helped him build up a rapport with the shipping industry. The companies also put some business in his way. In hindsight, Shetty says that it was his aptitude to speak well the industry language, understand the nuances of the shipping industry, ability to deal with foreign principals, proficiency in English, especially in a disorganised industry where people spoke little or no English that helped build their confidence in him. The years from 1983-1993 were spent in establishing Transindia Freight Services.
solidation of cargo at one location was not possible at, say a large port like Jawaharlal Nehru Port Trust (JNPT), which has several CFS’s and cargo was scattered across various freight stations. Though there were several hurdles, Shetty was making progress. Cargo-laden ships require stop overs at multiple ports and to manage the business better, Shetty set up few offices across the country. However, the partnership with an MNC did not make anything smoother. It was hard to convince the sceptical Indian mind-set to entrust his company with cargo worth millions, and especially to an NVOCC. “So we began offering customers something they were unused to. Quick service, quicker response, competitive rates, a better credit period – all this helped established our business in two years time,” says Shetty.
to attract the right talent, we have to identify the right people with the right attitude – an attitude to learn, to have ownership over what you do and a good sense of value system.
Strength to strength Allcargo’s tie up with ECU-Line offered Shetty time and vigour to seek out more deals. A company needed to be a complete end-to-end player, it had to offer cargo movement to its customers. Another important lesson he was to learn was the emphasis on customer satisfaction that led him to constantly employ methods to gain new customers, while retaining existing ones. Shortly after turning multimodal transporter, Allcargo began offering multi-city consolidation from its offices across the country. (The vehicles and equipment came from Transindia.) It appears, the company’s policy over the years has been to look for both organic and inorganic growth in the same measure. Other than gunning for business with existing teams, the company has sought to enhance its position through a series of tie-ups, investments or acquisitions. In 2001, it made strategic investments across various ECU-Line
When you want work done strategically, it is the question of winning a war and not battles. So we lost a few battles, but won the war.
ours is a service industry. When you buy a company, you are buying people. If you have the right people at the right place, you can put your agenda to work
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Photos: Ramlath Kavil
Around the same time, Belgianbased AMI International sought to set up its own office in India. Business volumes had touched a high and India was a new and unexplored market for the multinational companies. Sensing that it was time to move on, Allcargo Movers India Pvt Ltd changed its name to Allcargo. Shetty, by now, had acquired a taste for global markets. Allcargo kept an eye out for another foreign partner. The Antwerp-based global multinational and a world leader in LCL consolidation and NVOCC (nonvessel operating common carrier) operations, ECU-Line NV, was looking to tie up with an Indian player. Allcargo began as ECU-Line’s agent in Mumbai and New Delhi in 1995. The NVOCC business was a lowinvestment, high-returns business, but there was no big Indian player in the field. Shetty sniffed an opportunity, which was ripe for the taking, thanks to the Ministry of Shipping’s foresight. In 1993 itself, the Indian government had introduced the Multimodal Transport of Goods (MMTG) Act to allow shipping agents to issue their own bills of lading, provided they acquired an MTO (Multimodal Transport Operator) license from the Directorate General (DG) Shipping, thus making them carriers without owning a ship or vessel, or an NVOCC. Shetty lapped up the opportunity and acquired the license in 1998. Now Allcargo could provide a whole host of services – right from liaising with shipping lines, port agents, local carriers etc, for movement of customers’ shipments to issuing bills of lading. Multimodal operations came with its challenges. Kamal Gupta, chief of operations of Delhi-based Om Logistics, says, “Port authorities inspected all goods at the ports which led to delays and longer turnaround period for exporters.” Procedural hassles were plenty and con-
to maintain the lead in LCL, it is important to leverage brand. obviously we need to put in a very strong development team round the globe.
< Cover Story offices, strengthening its position in the LCL consolidation space and made small investments in ECULine Mauritius, and ECU-Line Middle East. The next year it acquired a 50 percent stake in Durban-based ACM Lines (Pty) Ltd. Likewise, in 2003 Allcargo entered into a joint venture with USbased Transworld Logistics & Shipping Services Inc. Sector observers speculate that the idea to foray into Project logistics, air freight and warehousing could have struck Shetty through his association with Transworld, considering that the latter already was a well known player in this field. The same year, it also commissioned its first container freight station at Koproli near JNPT.
Top LCL Consolidators (Global) Allcargo Global Logistics APL n Blue Ocean Transport n Damco n DB Schenker n DHL n Kuehne+Nagel n Mitsui n PAX Global n Tropical Shipping n n
Stay ahead or fall behind Staying ahead and wide of the competition has been Allcargo’s chief strategy. It has moved fast into related areas with surprising regularity. This haste also comes from the
An Allcargo warehouse
T i m e li n e 1993 Incorporated as a private limited company
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fact that freight consolidation is a low-threshold enterprise and one has to relentlessly stay ahead of the competition to avoid getting nipped at the heels. In 2004, with various infrastructure projects ready to take off in India, Allcargo saw an opportunity to help transport large equipment for the power sector, refineries, railways, etc. to the project location, and forayed into the Project Logistics business. Today the company claims to have the largest Project Logistics handling business in India. A prudent policy that Allcargo has always been following was to maintain low debt and healthy cash reserves to fund its expansion and acquisitions. In 2005, it made its largest purchase by buying a 33 percent stake in ECU-Line; this was increased to 49 percent in January 2006 – the year Allcargo went public (and added air-freight capability to the group by acquiring Hindustan Cargo, the freight forwarding arm of Thomas Cook). The money accrued through the listing helped the 100 percent acquisition of ECULine for Rs 130 crore. The acquisition gives Allcargo dominance in the European and Latin American markets, and a strong presence in Africa. The takeover brought with it all ECU-Line’s assets and also its 120 offices in 56 countries and a network of agents in 120 countries, and a chance to offer service to over 4,000 destinations.
1994
1995
2001
Appointed as agents of ASIA Lines Ltd., a Mauritian Shipping Line, and to work for them under the daily supervision of general agents i.e. Sea trade Shipping Services LLC, Dubai, UAE
Formed association with ECU Line NV, Belgium to serve as their agents in Mumbai and New Delhi
Made strategic investments in ECU Line, Mauritius and ECU Line, Middle East (Dubai)
1998
2002
Obtained MTO licence from the Ministry of Shipping
Rewarded with “Best Consolidator” Award by Concor
May 2010 | www.logisticsweek.com
Acquired 50 percent stake in ACM Lines (Pty) Ltd
2003 Entered into a JV with Transworld Logistics & Shipping Services Inc Commissioned CFS at Koproli near JNPT
ty)
This decision to continue as an LCL player has stood Allcargo in good stead. LCL’s usefulness was proven particularly during the global recession that shook the world in 2008-09 and compelled shippers to tighten costs. “There are customers who prefer LCL because their requirements are small. During the recession last year, companies drastically cut down on inventory and so LCL became a pattern. Even some full containers found conversion into less-than containers. This worked well for us. The volumes of our LCL business dropped by 10 percent last year, while FCL volumes fell by was almost 32 percent,” says Shetty.
Freight station foray
The company has warehouses in Bhiwandi and Goa and has plans to open more
Handling container load and cargo at ports require warehouse and container space along with large pieces of equipment such as forklifts, hydraulic axles, cranes, etc. Freight stations were the exclusive property of the government. When the government allowed the private sector to set up CFS’s, Allcargo set up its first CFS at Koproli near JNPT in 2003. Consecutively, the company commissioned expansions in two phases, thus taking it to a current capacity of 140,000 TEUs per annum. The cargo consolidator saw an advantage in setting up freight stations and steadily began purchasing land banks. Today it has freight stations at Chennai and Mundra
constructed at an estimated cost of Rs 35 crore each. There are plans to set up ICD/CFS at Delhi, Kannur, and Kolkata where it owns land banks. Its first ICD is up and running at Indore and it caters to the hinterland of the northern region through ICD Kheda, Pithampur in Madhya Pradesh for which it tied up with Hind Terminals. Construction on another ICD has started, where Allcargo has tied up with Container Corporation of India (Concor). Revenues for the CFS business are derived from rentals for containers stored on its premises, pending customs clearance, and a higher dwell time will mean increased benefits.
2004
2006
Commissioned second phase of CFS at Koproli
Increased stake to 49.99 percent in ECU Hold NV
Started Project Cargo Handling business
Converted into a public limited company
Commissioned CFS at Chennai and Mundra
2005
Increased the stake to 100 pc in ECU Hold NV
Awarded “Logistics Company of the Year” by Lloyds List
Acquired 33.8 percent stake in ECU Hold NV
Commissioned third phase of CFS at Koproli
Acquired Hindustan Cargo
2007
With numerous sectors in India growing exponentially, the market for warehousing is expected to grow. Pharma, automobiles, electronics, and cement plants are the sectors the company plans to target. It has two warehouses in Goa and Mumbai and is expected to set up three more within the next couple of years. The company has 250 acres of land acquired through years of purchase. It also intends to spend Rs 200-250 crore this year on expansions in warehousing, CFS’ and acquisitions. A zero debt company holding cash reserves of Rs 150 crore, the expansions could be sooner than later.
2008 Acquired the equipment rental business from TransIndia Brought in Blackstone Group as a private equity investor Entered into joint venture with Concor to set up ICD facility in Dadri
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Awarded “Logistics Company of the Year” by Indian Maritime Gateway
2009 Started first inland container depot at Pithampur Entered into a Strategic Alliance with Hind Terminals to set-up and operate ICD’s across India
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< Cover Story A productive mix The diversifications of the businesses demanded that the company form various subsidiaries so as to make handling easy. The company set up AGL Ports, AGL Projects, AGL Terminals, AGL Warehousing, and Allcargo Logistic Park. In 2008, it amalgamated Transindia Freight Services to leverage its equipment expertise and multinational presence to offer equipment lease to projects companies. A fragmented business with plenty of competition, the company expects growth to come from offering project logistics to power companies, refineries, and mining companies and has worked with Larsen & Toubro, Siemens, Bombardier, Vedanta, among others. As the largest in Project Logistics handling business in India, it transported 424 coaches for the Delhi Metro project. Owning close to 400 trailers, 1200 cranes, and 400 forklifts gives it an edge in providing services to project companies.
Managing talent So how does the company manage its staff across its various offices in the world? “After buying over ECU-Line, there was a lot of work we had to do in terms of culture integration, systems and processes, control, etc. To maintain the lead in LCL, it was important that we leverage brand. Obviously we needed to put in a strong development team round the globe. You also have to maintain the quality of service to the customer,” says Shetty. For his overseas operations, Shetty and his chief managers ensure that they retain the local talent. “It is a question of man management. Ours is a service industry. When you buy a company, you are buying people. If you have the right people at the right place, you can put your agenda to work. We didn’t try to change too many things. You need the local expertise, the local
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During the recession last year, companies drastically cut down on inventory. This worked well for us
relationship, the local language, so sending someone from here to the various offices around the world wouldn’t have made sense. I did send some people in the area of finance and human resources to integrate ECU-Line cargo better,” he says. Shetty knew that to set expectations right for acquired units, he would have to maintain the internal dynamics of the latter. It was important to understand from people what must be done and have patience. “We did a lot of things (across divisions), but did them
carefully, gradually. But when you want work done strategically, it is a question of winning a war and not battles. So we lost a few battles, but won the war. We were able to integrate the company. Today it is known to be a far better managed company,” he adds. Despite this, the company knows that managing talent is one of the two biggest issues for a company in this sector – the other being soaring land prices. In order to introduce a process-oriented system that encourages productivity, the company recently signed up with Adrenalin, a Human Capital Alignment tool that enables alignment across all business-critical systems of the organisation, thereby creating infrastructure to enhance performance and productivity. The other thing that Allcargo has done to acquire all the bells and whistles of an international company is to introduce technological ‘sophistication’ to critical functions. It has begun providing IT training to employees to manage customised ERP applications, CRM, and runs tailor-made software to track all operational activities. Recently, the company raised Rs 100 crore through qualified institutional placement. The money raised will be used for both capex and acquisitions. With cash in hand reserves of Rs 150 crore, the company says chances of it raising funds for the next one year is slim. So 3PLs will be the next logical step for the company. On being quizzed, Shetty smiles, “We have started to build some warehouses because we have land banks across the country. We are leveraging the land bank and expect to provide services to local customers who need a 3PL service. Some of the sectors we are looking at are automobiles, electronics, and pharmaceuticals. However, there are some hurdles we see there. Let’s wait and watch.”
Driving the Warehousing Revolution NAGPUR LOGISTICS PARK Over 11,90,000 sq. ft. of warehousing space. Strategically located on NH 6.
AHMEDABAD LOGISTICS PARK Over 2,74,000 sq. ft. of warehousing space. Strategically located on NH 8A.
GURGAON LOGISTICS PARK Over 1,95,000 sq. ft. of warehousing space. Strategically located on Sohna road.
KOLKATA LOGISTICS PARK Over 1,84,000 sq. ft. of warehousing space. Strategically located on NH 2.
Safexpress Pvt Ltd, NH 8, Mahipalpur Extension, New Delhi - 110037, India. Tel: 91 11 26783281. Fax: 91 11 26781481/82.
< international
Business By Numbers
China's burgeoning logistics industry is a source of both awe and intrigue for many in India. Mark Millar, Managing Director, M Power Associates, lays threadbare facts, ďŹ gures and trends of the mighty Dragon's logistics and supply chain industry that hold numerous learnings
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< international
T
he Chinese logistics industry is huge, fragmented, grossly complex and highly inefficient. The size of the industry is about $550 billion and it has been growing at more than 10 percent per year for the last 10 years. There are allegedly 730,000 registered logistics companies, with 16,000 of these being in Shanghai — which means in Shanghai there is one logistics company for every 1,000 people. To be a logistics company you basically need a vehicle or a shed. In fact, of all the 730,000 logistics companies, most of them are small family businesses. The top
China’s railway system is probably one of the world's leading networks. It's an extremely efficient railway system and runs remarkably on time. However, its number one priority is to move the people. Next priority includes bulk cargo. So general cargo, is always going to be lower priority. — Mark Millar MD, M Power Associates
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20 logistics companies in the total market make up less than seven percent of the total industry. In terms of third party logistics share, where the manufacturer doesn’t own the trucks and warehouses but instead outsources them to a third party, outsourcing is only around 20 percent. This is in contrast with the US, Western Europe and Japan where it would be around 45, 50 and 80 percent respectively. Within the mix of the outsourcing to third party logistics providers, the majority of multinational companies in China outsource their logistics, because
that’s what they are used to doing in their own territories. However, only 15 percent of the Chinese companies outsource their logistics. Consolidation is happening within the industry — both on a global and local level. On the global level we have some major consolidation between some of the giants, one example being Bax Global and Schenker which became Schenker Bax and finally Schenker. Another example with which I was personally involved was the DHL acquisition of Exel, they initially used the joint brand DHL Exel and now have reduced it to DHL. These global mergers have their ramifications in the local China market — as they would have done here. Another example of consolidation is of the Australian company Toll, which has embarked on an acquisition trail which will establish Toll Logistics as a major player in the Asia region. Notably in China, where it is in the process of buying out its joint venture to become a 100 percent wholly owned logistics company, but also here in India, where Toll has strong local presence through a combination of their local subsidiary and a JV part-
OFFICES IN: CHINA DUBAI SINGAPORE TURKEY USA
WORLD WIDE
LOGISTICS SERVICE PROVIDER ( WE SPECIALISE IN PROJECT CARGO) Domestic Cargo Services (Rail/Land/Coastal vessels) International Freight Forwarding Services (Sea/Air) Special Cargo Services (Hazardous cargo/Perishable
cargo/Over dimensional cargo) Value Added Services Customs Clearance
Relocation Services Charter Services (Aircraft/Ships)
Contact Person : Mr. Anup Gupta 316/12, Third Floor, K-Block, Lado Sarai New Delhi - Delhi (India), Phone : +(91)-(11)-41676633 / 34/ 35 / 36 / 37 Fax No. 011-66161729 Mobile : +(91)-9911112711, Email : info@sallogistics.com
www.sallogistics.com
< international ner. This has resulted in combined infrastructure of almost 2 million sq. ft of warehousing capacity and a f leet of over 600 vehicles. In addition to multi-national logistics providers who undertake mergers and acquisitions which impact the market structure in China, there is also industry consolidation happening at a local level. As a result, Chinese logistics companies are getting together and buying out each other, or
China’s domestic air market is projected to grow annually at 8 percent plus for the next 20 years. The projection for additional new aircraft is 3,800. That is four new aircraft per week for the next 20 years merging to form larger companies that can offer more and extended services in this large and complex geography. China's many inherent challenges, relating to cross-provincial border transportation and logistics, is not dissimilar to some of the challenges here in the local Indian market.
Building networks There are three main economic areas in China. One of them is called the Bohai Bay which is in the north and is centred around Beijing. The second is centred around Shanghai and is in the Yangtze River delta, and the third area in the south is Pearl River Delta. About 90 percent of the toys sold in the USA today are made in the Pearl River Delta region. Hong Kong, where I am now based, is a Special Administrative Region located adjacent to the Pearl River Delta (PRD), just across the border from Shenzhen. Much of PRD’s economic prosperity has been driven by Hong Kong companies relocating their manufacturing from Hong Kong across the border into Shenzhen. This relocation happened when Shenzhen was opened up by China — in the late 1970s — as one of their fi rst Special Economic Zones providing attractive opportunities and benefits for inbound investments. So these are the three major economic areas in China, with the PRD being heavily export dependent. The impact on the PRD of the economic meltdown that started in Q4 2008 was significant. Between October 2008 and March 2009, 60,000 Pearl River Delta factories closed down — these were the makers of
China's logistics industry: Highlights
USD 550 Bn + 11% YoY
Fragmented top 20<7%
3Pl Share -20% Majority of MnC 15% of Cn
Consolidation local & Global
Source: Frost & Sullivan, KPMG, CFLP
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toys, shoes and furniture products destined for export markets, especially the USA. About 20 million people were left jobless when these factories closed down. The people who work in these factories are migrant workers who have migrated from other parts of China, from the rural countryside to come to work where large factories have been established that provide employment and also dormitories in which the migrant workers basically live. So it caused a big challenge with 20 million people returning to the countryside with no money, no income, and no jobs and more mouths to feed when they got back to the countryside. To their immense credit, the Chinese government was very quick to respond to the global economic crisis with their huge stimulus package. They came out with an RMB 4 trillion ($586 billion) stimulus package in 2008, a large proportion of which focused on building of new infrastructure, massive investments into developing railway networks, which had a positive effect on some of the unemployment. So the migrant workers who were making furniture, shoes and toys, instead of going back to the countryside were able to go elsewhere in China and work on construction projects. That’s how China was able to balance out some of the impact of the crisis. Just to set some scale, most of China’s export-oriented manufacturing is finished products going by ocean freight to Europe and the USA. During 2009, the effect on ocean freight of the decline in exports was a reduction of one million containers per month, with the PRD being most badly affected and the Bohai Bay region – more dependent on local trade – being the least affected during the crisis.
Wto commitments From the logistics service providers' perspective, China’s WTO commit-
< international geography they need to take more advantage of rail freight.
Key logistics locations Proximity to sea and river ports underpinned developments independent regions 1) Beijing-tianjin and the Bohai Bay region 2) Shanghai and the Yangtze river Delta 3) Pearl river Delta (PrD), inc. Hong Kong
Source: Transport intellignece
infrastructure Developments in China $46.4 billion over next 3-5 Years 42%
air
3%
inland Water
17%
rail
21%
road
17%
Sea
Domestic air Cargo growing > 10% through 2021 12% of domestic cargo transportation 15% of domestic cargo transportation
71% of domestic cargo transportation Container volumes forecast recover 2010 Source: McKinsey, CNA
ments resulted in the market becoming open to foreign investment since December 2004, after which foreign entities could set up 100 percent wholly foreign-owned logistics companies. Prior to that, they could only operate as joint ventures. So the market structure now is that — in addition to the wholly-owned foreign enterprises — you have the stateowned enterprises which are government owned such as Sino Trans, China Shipping, Cosco. There are the joint ventures between international and local partners in varying degrees of percentage ownership and then the the local Chinese logistics companies which are private owned companies.
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More than 70 percent of the cargo that moves around throughout China moves by road. China has spent great effort and billions of dollars in building the world’s second largest road network, including extensive motorways and expressways. They have invested significant money in developing air infrastructure, billions in developing ocean port infrastructure, including developing inland waterways, which carry about 15 percent of the total domestic cargo. Rail infrastructure investment — in relation to freight — has lagged somewhat, but this is changing rapidly as China recognises that to increase efficiency in cargo distribution over its huge
Pervasive railway system China’s railway system is probably one of the world’s leading networks —- it’s all pervasive across the geography of the country, including across the Qinghai plateau into Tibet, where the passenger carriages are provided with oxygen due to the high altitude. So it’s an extremely efficient railway system and runs remarkably on time. However, from the freight and cargo perspective, we have to recognise that the number one priority for the railway in China is to move the people—including the military. Next priorities include bulk cargo such as coal and steel. So general cargo will always be lower priority. But this is all set to change as they are investing huge amounts of money on high speed passenger rail networks. One of them which came into commission last year is from Guangzhou in the south through to Wuhan which is in the centre, and this trains travels at speeds of around 300 km per hour. So these high speed passenger rail developments are helping to free up some capacity in the existing passenger networks and this free space will be used to transport cargo. The direct investment in the railway passenger network will result in significant improvements in the railway cargo network. The Chinese government spends about a billion dollars per week on transportation infrastructure, of which 42 percent goes into air infrastructure. There are about 157 commercial airports in China and from now until 2012, calculated as an average — they will be building one new airport every five weeks. It is interesting to note — after attending the Air Cargo India conference — that China’s domestic air market is projected to grow annually at 8 percent plus for the next 20 years.
Overview Frost & Sullivan finds that the total logistics market in India earned revenues of $75.19 billion in 2009, representing about 6.2 percent of the country’s GDP. The market is expected to reach $120.42 billion in 2014, witnessing a CAGR of 9.9 percent between 2009 and 2014. However, Indian Logistics Service Providers (LSPs) lag significantly below enduser expectations on key performance criteria such as attitude of staff, process improvement capabilities and material safety. Keeping in perspective the challenges faced by the LSPs and End Users, Frost & Sullivan’s Transportation and Logistics Practice is organizing an exclusive strategy workshop ‘Future Supply Chain Strategies’ from 14-16th July 2010, at The Golden Palms Hotel & Spa, Bengaluru, India. The workshop intends to ensemble a network of today’s best thinkers, visionaries and thought leaders, from across key industry sectors such as Automotive, IT Hardware & Telecom Equipment, Retail and Pharmaceuticals in India, for a specific and definite purpose of developing future supply chain strategies.
Advantages of Participating in the Workshop • This workshop provides deep know-how in deploying, managing, and optimizing logistics challenges, improving performance, increasing availability, reducing implementation time and meeting expectations of end-users which is a critical business challenge • This platform will provide insights and specific tools for actionable strategies for future supply chain issues faced by stakeholders in supply chains (logistics service providers and users) within the key industry sectors • Interact with representatives from end-user industries presenting their views on the current status and path ahead for supply chains of their respective industries
• Mutual evaluation and collective effort to arrive at the most appropriate supply chain strategies to meet future needs
Key Areas of Discussion • Frost & Sullivan's Perspective – Future Supply Chain Strategies for India Inc. • Industry Outlook - Logistics End-user's / Providers / Supply Chain Trends: Automotive and Retail Industry • Future Need Assessment for Indian Industries - Logistics Capability, Maturity - Logistics Service Providers and End users • Workshop I: Setting up a Robust and Dynamic Supply Chain - Relevant for Today, Scalable for Future • Workshop II: Future Transportation Practices / Strategies, Future Warehousing Practices / Strategies, Future Integrated Logistics Strategies • Cross Pollination Opportunities across Industries in Supply Chain Practices
Whom to Expect Leading Companies from the Key Industry Sectors like • Automotive • IT Hardware & Telecom Equipment • Pharmaceuticals • Retail Leading Providers of Logistics Infrastructure in India like • Operators of Airports and Seaports, • Owners of Logistics Parks and Free Trade Warehousing Zones • Operators of Inland Container Depots and Container Freight Stations • Material Handling Equipment Providers • Supply Chain Technology Solutions Providers Investors
Frost & Sullivan welcomes you to be an integral part of this Interactive – Solution Path Finding – Only One-Of-its kind Strategy Workshop!
Event Registration Fee For 1 Person: Rs. 100,000/- + Service Tax @ 10.30% For 2-3 Persons: Rs. 90,000/- (per person) + Service Tax @ 10.30% Includes event compendium, stay at The Golden Palms Hotel & Spa during the event, breakfast, lunch, cocktails & dinner at the venue, pick up and drop facility from the Bengaluru Airport
National Magazine Partner:
Media Partners:
To Register and know more about the event contact: Amrita Nandi, Corporate Communications, P: +91-33-4009 9337, M: +91 99034 33364; E: amritan@frost.com Srinath Manda, Industry Analyst, Transportation & Logistics Practice, P: +91-44-4204 4500 Ext. 491; M: +91 98848 72788; E: srinathm@frost.com Subir Shah, Senior Consultant, Transportation & Logistics Practice, P: +91 22 4001 3431; M: +91 99875 41051; F: +91 22 2832 4713; E: subir.shah@frost.com www.fro st.com/futuresupplychainstrategies
< international Meeting of minds
nine Key Projects China Logistics Industry's Rejuvenation Plan
1
Multinational and Trans-shipment Facilities
3 Bulk Commodities in Rural Provinces
6 Public information Platforms
3
2 Logistics Park
City Distribution Projects
4
5
7
8
Encourage Manufacturers to Outsource Logistics
Technological Innovation, R&D
The projection for additional aircraft in the airline sector for the next 20 years is projected to be 3,800 new aircraft according to Boeing. That is four new aircraft per week for the next 20 years.
regulatory issues From another aspect of the China logistics market, regulatory issues, including customs, are consistently one of the top three issues or challenges of doing business in China, not least because the regulations are frequently changing. Let me outline three recent developments in relation to the regulatory environment. VAT is one of the levers the Chinese government uses to adjust their revenue streams—they can put the brakes on
Promotion of Logistics Standards & Technology
Emergency Response Logistics
or relax the brakes off a bit. The legislation is always changing. Export Vat Rebates—- which is the mechanism by which VAT is rebated back to the Chinese manufacturers—have been flexible in relation to economic developments and have recently been increased on many commodities, ranging from 9 to 13 percent. During 2009 we also saw an increase in the level of active diligence and stringent enforcement in order to maintain income streams whilst the overall volume of exports declined in response to the global economic crisis. This makes the Chinese logistics and supply chain sector very dynamic and it can be particularly challenging for foreign companies.
CSCMP Mumbai RoundTable: Furthering knowledge
F
ounded in 1963, The Council of Supply Chain Management Professionals (CSCMP) is the pre-eminent worldwide professional association of supply chain management professionals. It provides opportunities for supply chain professionals to communicate in order to develop and improve their management skills and create awareness of the significance of supply chain to business and to the economy. Much like Mark Millar's presentation on China's logistics industry, CSCMP, through its RoundTables, continues to spread education and awareness about the logistics and the supply-chain industry among its members present across the globe. For more details on all RoundTable programs in India, please contact piyushashah@gmail.com.
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Recent positive developments on the cross-straits relations between the mainland and Taiwan have relaxed some of the restrictions in relation to direct trade. Goods, people and mail may now be more freely moved across the Taiwan straits such that since July 2009 the number of direct flights between these two regions has increased to 192 and for direct cross-straits shipping they have five additional ports and 68 mainland harbours for cargo. Xiamen is on the mainland coast opposite Taiwan and is developing into a big logistics hub to capitalise on direct cargo shipment by air or ocean as it is the closest port to Taiwan.
Free trade agreements On a broader basis, from the globalisation perspective, China has developed several bilateral and multilateral free trade agreements. The latest one—that came into effect in January 2010—is the free trade agreement between China and the ASEAN nations. Gradual implementation will eventually result in 90 percent of the products traded within the region to be duty free. This huge trading block combines China’s 1.3 billion people together with the 500 million populations of the 10 ASEAN countries to form the world’s third largest trading block – after the EU and NAFTA. In March 2009 the Beijing State Council (central government), announced the logistics industry rejuvenation plan. This is a significant step for industry, recognising that in China, logistics is complex and inefficient and that it has room to improve to reach best-in-class international standards. This is the first time the state has recognised the significance of logistics and its role in its overall trade and economic prosperity and development. The plan calls for increased outsourcing to third-party logistics service providers (LSPs) to increase the overall efficiency of the industry and
gradually reduce logistics costs as a percentage of GDP. The plan also includes geographic segmentation into the assignment of 9 zones, 10 corridors, 21 national cities and 17 regional cities. Nine key projects have been identified, which are the key initiatives to be undertaken for rejuvenating and developing industry, all of which are expected to be completed by 2012.
Urban distribution Improvement in urban distribution is one such project. Currently there are access restrictions for commercial vehicles in the downtown city areas during the daytime. This has somewhat alleviated traffic congestion issues. The new concept is seeking to leverage asset utilisation, manage traffic congestion and reduce fuel consumption — through the use of shared resources for downtown distribution of products, particularly in retail.
Furthermore, steps are being taken to encourage companies to use more and more third-party logistics. International best practices are to be increasingly adopted, together with more focus on advanced technology platforms, more R&D, and the development of superior capabilities in emergency response logistics. This has been done to be better able to respond to natural disasters such as the severe snowstorms in early 2009 and the 2008 Sichuan earthquake. These policies will benefit the industry through increased outsourcing and overall improvement of the 3PL sector, resulting in further consolidation and therefore, efficiencies in industry. Upgrading technology and infrastructure will result in better visibility of information. We currently have a severe shortage of skilled logistics specialists, whereby even increasing supply does not keep up with increasing demand. So the plan’s additional training and devel-
More than 70 percent of the cargo that moves around throughout China is by road. opment programs — particularly the increased adoption of courses based on international best practices — will help to address the talent shortage. I sincerely hope that more and more of our young talent take an active interest in this fascinating sector. Every product in every industry sector has a supply chain, and every supply chain involves extensive logistics activities. Every product has to be moved, stored and transported! That’s what logistics and supply chain management is all about.
We are family
60 YEARS
The text of the article and the infographics are sourced from Mark Millar's presentation at CSCMP Mumbai RT's February 1, 2010 meet
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www.log-india.com 5/20/2009 11:02:19 AM
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May 2010 | www.logisticsweek.com 53
< EVENT REPORT
Date : April 9, 2010 Event: Auto SCM: A Brave New World Organiser: DVV Media India and Log.India Venue: India Habitat Centre, Lodhi Road, New Delhi
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Auto Industry Needs Innovative S
May 2010 | www.logisticsweek.com
Amber Dubey, Director, (infrastructure advisory) KPMG, India
e SCM
Log.India magazine and DVV Media organised an incisive seminar on the challenges facing supplychain in the automotive sector reports Pamela Cheema
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< EVENT REPORT
D
VV Media and Log.India magazine presented a meticulous and smoothly organised seminar on the subject ‘The Automotive Supply Chain Industry: A Brave New World’. The seminar focussed on the supply chain management of the automotive and auto-ancillary industry of India. The event was held on April 9th, at the India Habitat Centre, New Delhi. The automotive sector is one of the principal drivers of the growth story in India. Increasingly, foreign auto makers have entered this sector with the country surpassing even China as Asia’s largest automobile exporter in the year 2009. The Indian automobile industry witnessed a spurt of 18 percent growth in 2009 over the year 2008. While the logistics industry played a significant role in this success, supply chain management needs to be more innovative and strengthened for it to continue to play a meaningful role in the industry.
Challenges ahead Original equipment manufacturers, Tier I and Tier II suppliers and auto manufacturers will face many S K Krishnan, Senior General Manager, Mahindra and Mahindra
Ganapathy Maheswaran, Market Segment Leader, Automotive and Spare parts, Miebach Consulting
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challenges in the years ahead as the industry expands to fulfil market demands. This seminar illuminated many grey areas and suggested numerous innovations and changes in logistics which could serve as the foundation of a booming auto industry. The sponsors of the event were Drive India Enterprise Solutions Limited, Jeena & Company and Media Partner, Autocar Professional. The seminar focused on four creative and thought-provoking subjects, The changing OEMs world map: Imperatives for Indian auto SCM players, What do automakers want from 3PL...A top down view, The importance of aftermarkets in the auto industry and Innovate or
perish: Cases in point. The speakers were Amber Dubey, director (infrastructure advisory) KPMG India, S K Krishnan, senior general manager, demand chain management, Mahindra and Mahindra, Ganapathy Maheswaran, market segment leader, automotive and spare parts, Miebach Consulting, Sanjay Goel, chairman, GTC Group and Nitesh Prasad, zonal business head – north, Drive India Enterprise Solutions Limited (DIESL), respectively. The last two speakers spoke on the topic, Innovate or perish: Cases in point. The seminar was attended by a large number of representatives of wellknown companies of the logistics industry who participated in a sig-
< EVENT REPORT
Ms Honey Jacob, Executive Director, DVV Media, gives a memento to Nitesh Prasad, Zonal Business Head, North, Drive India Enterprise Solutions Ltd
nificant and meaningful manner, especially in the panel discussion at the end of the seminar. The seminar was declared open with a welcome speech by Aanand Pandey, editor, Log.India, who while
Sanjay Goel, Chairman, DTC Group
Participants in the panel discussion. From (l to r) Ganapathy Maheswaran, Nitesh Prasad, Sanjay Goel, S K Krishnan, Aanand Pandey
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thanking the guests for “braving the high April sun” to attend the seminar, pointed out that supply chain managers and logistics service providers played a crucial role “in giving shape to the customer’s dream, taking it to them and keeping it alive.” While agreeing that there is a tectonic shift in the automotive sector from the developed to the developing markets, Pandey noted that for “supply-chain players in the auto segment, the action has just begun. It is very clear that supply-chain players are raring to go. Which is the reason we titled the theme of our event ‘The Brave New World’.” The editor thanked the speakers, the delegates and members of the media for being present on the occasion and emphasised that “our esteemed speakers through insightful presentations are going to share with us how the auto supply-chain sector is evolving in India and how the 3PLs can meet rising expectations, making the best of the surge in demand.”
Robust vehicle demand The first speaker of the day was Amber Dubey, director (infrastructure
advisory), KPMG India, who spoke on the topic The changing OEM world map: Imperatives for Indian auto SCM players. In his presentation Dubey stated that since India is one of the fastest growing countries globally, economic growth is leading to the creation of a large middle class with substantial disposable incomes. The middle class will increasingly invest in luxurious options like transportation, communication and personal services. Said Dubey: “Indian passenger vehicle penetration is amongst the lowest in the world. Passenger vehicle demand is expected to remain robust for the period from 2010-2020 as India remains an underpenetrated market.” He disclosed that global OEMs have made significant investments in India to exploit the market and that the automotive sector is the sixth industry which attracts the highest FDIs in the country. With India’s increasing success as a small car export hub, OEMs like GM and Toyota are encouraged to invest in the country. Dubey concluded that the OEM landscape in India has changed and “there has been a
significant transfer of automotive technology to the emerging world. The transfer provides a huge opportunity to Tier I and Tier II players in the automotive sector and also gives the Indian automotive supply chains an opportunity to become more efficient and responsive.”
Improvements in SCM S K Krishnan, senior general manager with the country’s foremost automobile manufacturers, Mahindra & Mahindra, then presented a paper on What do automakers want from 3PL....A top down view. As is well-known in the industry, Mahindra & Mahindra is one of the top ten industrial houses in the country, with revenues of Rs 10,500 crores in the automotive division in FY ‘10 and domestic volume growth of 30 percent for March-April ’10 as compared to 2009. Krishnan stressed that the main purpose of outsourcing for automakers should never be just cost reduction. Rather, it should be to improve service levels, bring in process improvements and meet the requirements of both internal and external customers. “3PL service providers
should not be considered as mere executioners,” he emphasised. “They should be treated as partners.” The relationship with 3PLs should be built on trust, flexibility and responsiveness, attributes which would ensure a sound 3PL-customer relationship. The challenge for 3PL providers is to “balance between high adaptation to individual customers,” said Krishnan, “and organise the systems and business for co-ordination of several customers.” He was convinced that 3PL businesses would grow only if “ they consistently perform against service level commitments, improve their IT capabilities, offer cost and process efficiencies to customers, along with effective management of all the KPIs.”
Importance of aftermarket Ganapathy Maheswaran, market segment leader, automotive and spare parts, Miebach Consulting, offered valuable insights on The importance of aftermarket in the auto industry. He underscored the importance of the aftermarket in the automobile industry when he mentioned the frustration experienced by a customer due to unavailability of spare parts in the market as opposed to the plethora of products, such as garments and food products, available in the retail market. The spares market is estimated at Rs 50,000 crores and is divided between supplier-OEM-customer, suppliercustomer and the ubiquitous spurious market. Maheswaran mentioned that there were three important aspects of the aftermarket business, network and inventory, product lifecycle management and DC operations. “The core function of the aftermarket parts business is supply-chain management,” he said, “while sales and marketing are supporting functions.” Maheswaran was convinced that a decentralised aftermarkets business would ensure greater speed INDIA |
May 2010 | www.logisticsweek.com 59
< EVENT REPORT
Sanjay Goel, chairman, GTC Group, spoke on the topic Innovate or perish: Cases in point. He defined innovation as “changes for the better by bringing in new technology and systems or radically changing existing
not survive for long. For survival each has to run faster than the other. The same goes for our supply chain industry, we have to run faster than our competitors.”Among the innovations Goel proposed was extensive outsourcing at reduced prices without sacrificing quality or control, with no workers present at the workshop or assembly. “The result will be the client will never change his supply- chain service provider,” he maintained, “and again, this will mean the manufacturer has to just
processes.” Innovation, he believed, could be brought about in process, technology, systems, the environment, language, etc. He criticised the communication system “followed by various parties to supply chain as it is not uniform and results in chaos and lower productivity with higher costs.” He offered a solution: “A common communication language, verbal or technological, easy to understand and comprehend.” Goel lauded innovation in industry and strongly upheld the concept that “if you do not innovate, you will
sell vehicles, with zero headache for all and 100 percent smiles!” The last paper at the seminar was presented by Nitesh Prasad, zonal business head, north, Drive India Enterprise Solutions Limited, who also spoke on the subject Innovate or perish:Cases in point. Prasad reinforced the concept of innovation with several outstanding examples like Mahindra Renault, which has manufactured the Logan and positioned it as a small car instead of a sedan or a mid-segment car. This has reduced the size of the car and
of delivery and higher penetration levels, albeit at a higher logistics cost. He mentioned that in Europe the aftermarket parts business was considered a cash cow and very little was outsourced.
Innovate and survive
Delegates at the auto SCM seminar
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also brought the additional benefit of low excise duty which has fallen steeply from 22 percent to 10 percent. Another spectacular example of innovation is Tata Motors which has metamorphosed from a truck manufacturer to an integrated four wheeler automotive manufacturer. Its innovations span the gamut from the Nano to the Iris and World-truck. The Nano, in particular, is a classic example of innovation in every aspect from market positioning, conception, design and advertising. However, a glaring example of lack of innovation is the Maruti 800, the forerunner of the small, economical car in India which is now at the point of moribundity in the automotive sector. This car which was launched in 1984 is now unable to meet Euro IV standards and hence has declined. It will no longer be sold in the major ten cities of the country. After this presentation the delegates dispersed for a brief and sumptuous lunch. This was followed by a panel discussion on the issues and challenges facing supply chain in the automotive industry. The discussion was moderated by the editor, Log.India, Aanand Pandey and the members of the panel discussion were S K Krishnan, G Maheswaran, Sanjay Goel and Nitesh Prasad. The discussion swept through the gamut of the logistics industry from road logistics, air logistics and congestion at ports. But as Sanjay Goel, chairman, GTC, commented there was a silver lining to congestion – “it means the country is growing!” he laughed. The event ended with mementos being presented to the speakers by Mrs Honey Jacob, executive director, DVV Media. The seminar gave supplychain professionals and the logistics industry an opportunity to share valuable insights and explore methods of improving systems and processes which could make significant changes in the automotive sector.
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< material handling
Finessing Material Handling Material handling which was earlier neglected in the country is now being given a relook. This can only work to the beneďŹ t of industry, writes Pamela Cheema
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M
aterial handling is the core of any business and sound material handling strategies can enable a business to scale great heights. The fact that material handling is one of the most important aspects of a trade is amply evident in the close scrutiny paid to this aspect of a business and the effort made by well-known corporates to finesse this area of their businesses and thus maximise productivity and profits. Material handling is often described as the activities and procedures which govern the movement, handling and storage of materials in a business. According to industry sources, in any factory material handling engages 24 percent of all employees, occupies 55 percent of its space and 87 percent of the time slotted for production. The cost of a product can also vary from 15 percent to 70 percent depending on the efficiency of a material handling system. Thus the efficiency of this system will ensure the healthy bottom line of a business.
to the end cost of a product for the consumer. Industry sources estimate that 30 to 60 percent of a product’s cost can be attributed to high material handling costs. Thus rationalisation of material handling systems could be very prof-
Hence the objective of good material handling is to get goods in and out as fast as possible, store as little as possible for as short a period of time as possible and using as few resources in terms of people and equipment as possible.
Principles of material handling
Inefficient handling could have a powerful and adverse impact on costs of staff, building plots, racking systems and operational areas of the business
itable for a company as well as the consumer. With the right systems and equipment, costs could be considerably lowered for the customer.
Famously, material handling is based on certain time tested principles which have stood the industry in good stead and often propped up declining bottom lines. Industry experts stress the following principles: Reduce waste: This can be done by deliberately eliminating the number of times materials are handled and sorted out, encouraging the use of mechanical aids instead of hand labour, increasing the speed of handling, using gravity to move goods wherever possible and employing containers and unit loads. Planning the factory and warehouse: Ensure that materials move easily and combine handling and
Why material handling is important As one delves into the criticality of material handling, one realises that inefficient handling could have a powerful and adverse impact on costs of staff, building plots, racking systems and operational areas of the business. If the total cost of a material handling system is broken up the following pattern emerges: Space/rent: 65–75 percent Staff: 20–25 percent Equipment: 5–10 percent While automation within the production process has lowered costs, similar mechanisation has not yet taken place within the material handling system. This has only added
Using the right material handling equipment can reduce damage to inventory INDIA |
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< material handling
“Material handling equipment results in higher productivity” Material handling is a crucial feature of the industry and Amit Ghasghase, deputy manager (marketing) Godrej & Boyce Manufacturing Co. Ltd. analyses how it can be done effectively to increase throughput. Pamela Cheema reports
H
ow critical is material handling to the operations of a warehouse? India as a country has traditionally relied on manual labour to lift and shift material from point A to point B. This stems from the fact that labour is very cheap in India. But the use of manual labour to move material faces some real constraints in the form of unoptimised storage space in a warehouse/godown, lots of damage, and lack of safety for operators. Companies in India have started realising that to minimise damage to material, material handling equipment needs to be used. To maximise space, the material needs to be stacked as close and as high as possible in a warehouse. Manual labour faces constraints in the weight and height of stacking they can handle which is an easy job for material handling equipment. Heavy loads also bring safety issues in the picture since safety is not given the importance it is due, something that can be attributed to lack of safety regulations and cheap labour. Material handling equipment can do away with all the above. They can be used to move and lift heavy loads and stack it, the movement of load can be done safely, etc. The use of material handling equipment also results in higher productivity through increased throughput resulting in higher return on investment.
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Hence material handling is very critical to the operations of a warehouse. How will the CEO of a company analyse material handling problems and how will he solve them? The CEO of a company has the following problems to solve: To maximise storage space in the warehouse To minimise damage to material while moving it To ensure safety of operators To ensure proper movement
to discuss his requirements with a material handling equipment manufacturer which will help him decide and procure material handling equipment suitable for his requirements. How is material handling application and the market in India different from that of China and from developed economies like those of Europe, the US and UK? The material handling application and market in India differ from China and the de-
Special attention must be paid to the floor of the warehouse so that trucks and other equipment move freely
and stacking of load, the CEO needs to know the weight of the load and how he wants to stack it. The CEO also needs to know what kind of floor is required to ensure that warehouse trucks can be operated smoothly. He needs to ensure the safety of the operators and must look for suitable features. For any special applications the CEO may be interested in, he needs to consider attachments which will do the job for him like paper roll, clamp, clamp attachment, etc. He needs
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veloped countries in the following ways: The volume of equipment sold in China and the developed countries is substantially large as compared to India; the market in China and the developed countries has already evolved whereas in India it is still evolving. Internationally, electric material handling equipment is mostly used since it is green and clean technology, whereas in India we’re slowly moving towards the use of electric equipment.
In India forklifts are mostly used for warehouse operations and specialised warehouse equipment is hardly used. But in China and developed countries the use of forklifts and warehouse equipment is almost equal. In developed countries, especially Europe, companies are not averse to stacking material very high, but in Asia there is a limit to which stacking is done. In India the concept of stacking very high has just started to pick up. The concept of optimising warehouse space is very well entrenched in developed countries but has just started to pick up in India.
Do some of the best practices applicable to warehouse material handling in India differ from those of the developed countries? Can you cite some examples? The best practices applicable to warehouse material handling in India that differ from those of developed countries are firstly, the pallet sizes are standardised in those countries, while In India pallets of varying sizes can be found which increases material handling cost and increases inefficiency. Also, safety is given tremendous importance in developed countries. Lastly, operating conditions are given due importance in developed countries where specialised firms deal only in flooring while in India this is ignored.
< material handling processing, emphasise minimum handling of the product, increase the quantity and size of product handled, utilise building space efficiently and develop good receiving, storage and shipping facilities. Care in the selection and use of equipment: Equipment needs must be analysed before purchase and complicated systems and mechanisms must be avoided. Equipment must be flexible and a comparative costing of equipment must be undertaken before purchase. Maintenance of equipment is of paramount importance for continued efficiency.
A careful observance of material handling will lead to greater efficiency and productivity. It will also lower overall material costs, which in turn will decrease unit material cost Ergonomic equipment: Equipment must be chosen so that it can be used easily with little physical distress. Ecology: Equipment chosen must have little or no adverse effect on the environment. Obsolescence: Obsolete mechanisms must be replaced to ensure continuing efficiency. A careful observance of the above principles will lead to greater efficiency and productivity. It will also lower overall material costs, which in turn will decrease unit material cost. Further, the manufacturing cycle time will reduce and there will also be a smooth flow of goods. Most importantly, there will be greater safety and less likelihood of industrial accidents. Other benefits will include decreased storage requirement for goods as there will be bet-
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ter utilisation of space, high productivity with low manufacturing costs as well as few product rejects, as better handling will ensure a better quality product.
Material handling strategies Apart from the above principles there are a few strategies which, if observed carefully, could lead to low productivity losses, decrease expenditure on capital and extend product life cycles. These strategies embrace the principles of reduce and reuse which significantly lower capital cost. An elaboration of these concepts is given below: Reduce system inefficiencies: To lower capital costs organisations need to focus intensely on preventive maintenance. Equipment must be regularly checked to ensure proper functioning, with periodic assessments of systems operators to ascertain whether they are performing their duties well or need further training. By doing in-depth surveys of systems and equipment, companies will be able to check their inefficiencies and optimise profit. During times when the market is faltering, companies are tempted to skip regular maintenance of equipment. These are erroneous and myopic strategies which could cost the company heavily in terms of productivity and long-term costs. Reuse systems: Many operations have old systems which could be retrofitted and upgraded so that a high financial outlay on expensive equipment is not required. With retrofitting, equipment can be modernised to suit new conditions. By adding new technology and upgrading parts, the old equipment will be able to perform beyond its original capacity limitations. Retrofitting also provides the opportunity for standardisation of parts and the availability of replacement parts. According to industry sources,
retrofitting can be done at 60 percent of the cost of a new machine. Retrofitting also leads to modernisation at minimum expense, increased productivity cycles, reduced maintenance costs and greater reliability. But there will be times when equipment is unable to cope with increased demand or speed. The company will then have to invest in increased financial outlay for new equipment.
Specialised equipment There are different kinds of material handling equipment used in the trade. The equipment falls into the categories of transport equipment, positioning equipment, unit load formation equipment and equipment commonly used in the trade. Knowledge of the different kinds of equipment available in the market would make choice of equipment for oneâ&#x20AC;&#x2122;s own operations simpler. Transport equipment: This equipment transports material from one place to another within a facility or between two workplaces. Examples of such equipment include conveyors, industrial trucks, cranes, chutes, flat belts, magnetic belts, etc. Popular choices of industrial trucks are hand, platform and counterbalanced lift trucks and pallet jacks. Positioning equipment: This is equipment which is used to place material in one location for proper machining, transport and handling later. Such equipment includes lift tables, hoists and balancers. Unit load formation equipment: This equipment limits the number of units which can be carried in a single load. Pallets, bins, cartons, crates and palletizers are examples of such equipment. Other material handling equipment: Commonly used material handling equipment for storage include selective pallet racks, flow-through racks, pushback racks, sliding racks and stacking frames.
Business insight While knowledge of the mechanics of running a warehouse and ensuring a smooth flow of operations is crucial, a deep understanding of the importance of material handling and the ability to solve its problems is intrinsic to success in this business. Effective material handling is central to a successful warehouse business and it is this understanding which underscores the huge importance being given to the warehousing business in India in recent years. With cheap labour available in abundance in the country, India has traditionally relied on manual labour for warehouse operations. This method has severe limitations; it is difficult to manually use all available storage space in a warehouse. The use of manual labour can also result in damaged goods and injuries to warehouse personnel. As companies have realised these disadvantages, material handling equipment is now being freely used to overcome such problems. With such equipment, storage space can be optimised and goods can be stacked as close and as high as possible. Injuries to warehouse personnel can also be eliminated and with suitable equipment, heavy goods can be stored easily and without any damage in a warehouse. The use of such equipment also increases throughput which leads to a greater return on investment. With the complexity of operations in a warehouse, the CEO of a company can face several material handling problems such as minimising damage to goods while moving, increasing storage space in a warehouse and ensuring the safety of warehouse operators. To overcome these problems, the CEO must be aware of the weight of the load and how he wishes to stack it; he must pay special attention to the floor of the warehouse so that trucks can move smoothly and he
must ensure the safety of the warehouse operators with the selection of suitable equipment.
Best practices Despite an increasing realisation of the criticality of the material handling business, its best practices in India differ from those followed in China and Western countries. Some of the differences are that in developed countries pallet sizes are standardised, while in India they are of varying sizes which leads to greater cost and inefficiency. Operating conditions, for instance, the floor of a warehouse, are given great thought in those countries, while in India such conditions are ignored. But even more important is the strict observance of safety regulations for workers which is observed more in the breach in India. There are other striking differ-
ences too. The volume of material handling equipment sold in China and the developed countries is larger than in India. Also, the use of green technology like electric material handling equipment and the maximum optimisation of warehouse space sets these countries distinctly apart from India. Undoubtedly, the warehouse and material handling systems in India have yet to reach the acme of development that they have achieved abroad. However, though India is still a nascent market, the country is undoubtedly transitioning out of an archaic mindset to embrace new ideas and technology. The only way is up. With inputs from: H N Khumbatta, Vice President and Business Head, Godrej Material Handling Emanuel Matthaei, Regional Manager, Asia, ME, Oceania, Atlet AB International
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May 2010 06-09 May 2010 Indiamart International Machine Tools Expo (IndiaMART IMEX) Bombay Exhibition Centre, Mumbai IndiaMART IMEX is an exclusive showcase of machine tools and allied products. Apart from major domestic players, international brands will be seen actively promoting their products/ solutions at IndiaMART IMEX’10. The show offers a unique gateway for international and domestic manufacturers, suppliers of machine tools & automation products/ services to benefit from the rapidly growing Indian market. The Indian machine-tool output in the last two years has seen a tremendous growth rate. Industry sources attribute the surge to increased demand from three growing industrial sectors: automotive, auto ancillaries, and consumer durables. The fair is designed to facilitate effective interaction among several fraternities of the machine tool, automation, and cutting tool and user industries. Organised by: Conventions & Fairs (India) Private Limited, Tel: 022 28398000 06-09 May 2010 Pumps Valves & Compressor Expo Bombay Exhibition Centre, Mumbai Pumps Valves & Compressor Expo (PVC) is an exclusive showcase of pumps, valves, compressors and allied products. PVC 10 will be held in conjunction with Gears Motors & Controls Expo 2010 (GMC 10). The profile for exhibitor’s include: Pumps, valves and actuators, mechanical seals, couplings, systems based on pumping, drives and controllers, founders and moulders, coatings, linings & plating, process systems, tracking systems, communications, air compressor, control instruments, engines, filtration products, gas compressors, hydraulic / pneumatic equipment, motion control, fittings, castings, maintenance mechanisers. Organised by: Conventions & Fairs (India) Private Limited, Tel: 022 28398000 12-13 May 2010 GFair Mumbai Mumbai Hotel InterContinental The Grand, Mumbai G Fair Mumbai, a combination of a trade show and one-to-one meeting arena, is set to provide vast opportunities for Indian companies to deal and interact face to face with quality Korean suppliers. More than 80 Korean suppliers and products ranging from electronics & electrical, medical equipment, consumer products, industrial equipments and more are expected to be showcased. Some of the exhibitor’s include suppliers of IT & electronics, industrial equipments & home applianc-
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