Final october lt 2010

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PERSPECTIVE Mark Khambatta

IN FOCUS F&S Report: Ports

INTERVIEW P N Shukla

VESTED OUTSOURCING Playing to win

LogisticsTimes October 2010

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Special Report

Lars Sorensen

Pradeep Tewari

SAFEXPRESS

Kate Vitasek Service Level Agreement (SLA)

LOGISTICS TIMES October 2010

Pawan Jain Chairman & MD

Better First, Bigger Next

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LOGISTICS TIMES October 2010

Logistics Times

CONTENTS

All about Transportation, Distribution & Infrastructure Volume 1: Issue No.6 * October 2010 Editor in Chief Raj Misra rajmisra@logisticstimes.net Editor Ritwik Sinha ritwik@logisticstimes.net Consulting Editor Ramesh Kumar ramesh@logisticstimes.net Mumbai Bureau Rahul Kumar rahul@logisticstimes.net Sub Editor Neha Richariya Photographer Anil Baral Design Consultant S. Athar Hussain Designer Kausar Syed Circulation & Distribution Kamruddin SaiďŹ Legal Advisor Rakesh Garg Editorial Advisory Board Paul Lim Founder & President, Supply Chain Asia Vinod Singhal Brady Family Professor of Operations Management, Georgia Institute of Technology, College of Management Kate Vitasek Faculty, Centre for Executive Education The University of Tennessee Prof. K S Pawar Nottingham University Business School Prof. Samir Srivastava Associate Professor, IIM-Lucknow Prof. Akhil Chandra Institute of Logistics & Aviation Mgt Sanjay Upendram Founder & Chairman, Amarthi Management Consulting Swaran Singh Soni Consultant (Oil Industry)

Marketing & Sales Outthink Strategies Ph: 65177214, 26412476, 9818097385 Email: sales@logisticstimes.net Printer & Publisher Deepa Misra for

E-77, West Vinod Nagar, Delhi -110092 Tel: +91 11 22478538-39, Fax: +91 11 22471764, Mumbai: +91 9322811550 Printed at Personal Graphics & Advertiser Pvt. Ltd. Y -22, Okhla Industrial Area-II, New Delhi-110020

www.logisticstimes.net

SAFEXPRESS

Better First, 18 Bigger Next

12

SPECIAL REPORT

Service Level Agreement Edit Note News Brief Events

6 8 47

17 PERSPECTIVE

Mark Khambatta

32

44

INTERVIEW

PROFILE

P N Shukla

Pradeep Tewari

EDIT NOTE

6

Understanding Logistics Guru’s Mind Its not for nothing that Pawan Jain, Chairman and Managing Director of Safexpress, is referred to as ‘logistics guru’ by the industry. This is the fact we realized fast as we (me and consulting editor Ramesh Kumar) emerged out of over an hour meeting with him recently at company’s headquarters in Delhi.

Contrary to the general perception that he is media shy, Safexpress supremo was more eloquent than what we had expected and talking to him was no less than a learning experience in terms of understanding what it takes to create vibrant entities from the scratch in the Indian logistics space.

Safexpress’ success story today is certainly a paragon in many ways. Among all the well established LSPs in the country, it is probably the youngest one but within a very short span of its existence it has successfully marched into the coveted front ranking league. Jain’s experience as a serial entrepreneur in the logistics industry since mid-70’s and his passion for this line of business seems to have found its full blown expression in making Safexpress a pan-Indian services company in just slightly over one decade.

Talking to him at length, one could get a sense of what has worked as that ultimate touchstone for him. And that is – the emphasis on quality. He makes no bones in asserting that quality in all spheres of operations (not just in delivering to the clients but also in managing his own manpower resources) is more important to him than the quantity. And then there have been many masterstrokes which Safexpress has delivered under his stewardship like the phenomenal growth of its fleet via asset-light formula and creation of new logistics parks ( the process is on) in anticipation of more liberal regime in movement of goods within the country.

Leaf through the cover story to get a glimpse of an unplugged Pawan Jain (in probably a never before style) and the way he intends to drive Safexpress to a higher stratosphere in the future.

Among other highlights in this edition, we have three noted industry representatives and experts telling us the nuances of sound service level agreements (SLAs), something which assumes so much of strategic importance now. In the interview section, we feature a senior official of Dedicated Freight Corridor Corporation(DFCC) which is spearheading one of the most ambitious infrastructure project in the country which has the potential to change the distribution dynamics in the future.

Meanwhile, you will notice addition of a new section from this edition – Facility Scan. While on one hand, the basic idea is to provide some photo relief in a serious magazine like this, it also gives us the chance to take a closer look at the facilities which are defining the infrastructural development related with logistics sector.

Waiting for your feedback.

Ritwik Sinha ritwik@logisticstimes.net LOGISTICS TIMES May 2010

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LOGISTICS TIMES May 2010

NEWS BRIEFS

8

NATIONAL

India -China MOU India and China have agreed to work towards signing of a Memorandum of Understanding (MoU) in the areas of Road Transport and Highways. Under the MoU, both sides would seek to enhance cooperation in highway construction, exchange of technology and investments in the sector. This was agreed during the recent meeting between Kamal Nath, Minister for Road Transport & Highways and Li Shenglin, Minister of Transport.

SCI’s $4 bn plan According to a news report, state-owned Shipping Corporation of India (SCI) will invest up to $4 billion (nearly Rs18,800 crore) in the next four years to double its total cargo carrying capacity to 10 million dead weight tonnage.

Quoting a top company official, the report says that through the investment, SCI is targeting to double its tonnage capacity to 10 million DWT from the current 5 million.

Meanwhile, the company, which owns and operates about 35 percent of Indian tonnage, is also believed to be serious about backward integration and has recently called expression of interests from private shipyards for purchasing a stake.

$ 300 mn loan for roads

The Asian Development Bank (ADB) would be extending a loan of $300 million to Bihar for road improvements. ADB’s Board of Directors recently approved the loan for the Bihar State Highways II Project, which involves fresh building or upgradation of about 356 kilometers of state highways. It is the second ADB project in support of Bihar’s State Highway Development Program that is targeting improvements to over 2,800 kilometers of state highways between 2007 and 2012. The project will upgrade targeted highways into two-lane roads, build new drainage and bridges, and strengthen culverts and existing bridges.

LOGISTICS TIMES October 2010

SAIL- RITES JV

Steel Authority of India and RITES recently joined hands for setting up a wagon manufacturing unit at Kulti in West Bengal. The plant will have a capacity of 1,500 wagons a year and will come up in the premises of SAIL Growth Works Division in Kulti.

The initial project cost for the facility is estimated to be at Rs 85 crore.

The plant will be equipped for manufacture of 1,200 wagons and rehabilitation of 300 wagons a year in the initial stage. Besides manufacture of BOXN type wagons, the plant will also be able to produce specialised high-end wagons and modern stainless steel wagons with marginal investment in the plant and machinery. The unit is expected to come in 14 months. While steel from SAIL will be supplied to the joint-venture plant at prevalent market rates, the unit will procure other items at market determined prices through tenders.

“The joint venture between the two PSUs is mutually beneficial. It will lead to many more such collaborations between them,” Steel Minister, Virbhadra Singh commented on the new JV.

L&T’s Kattupalli container terminal Domestic engineering and construction major, Larsen and Toubro (L&T), is slated to open a container terminal

by January 2012 at Kattupalli near Ennore in Tamil Nadu, where it is also building a shipyard. L&T will construct the berth and install all necessary equipment at the container terminal; the O&M contractor will run the facility for a fee.

The container terminal will be able to handle one million standard containers initially, and its capacity can be scaled up to 1.5 million containers as demand grows.

By setting up the facility at Kattupalli, L&T is eyeing potential traffic of 2.5-3 million standard containers a year in the vicinity of Chennai as well as from the proposed Ennore special economic zone adjacent to its site.

Container cargo loaded at the 12 Union government-owned ports in Asia’s third-biggest economy grew at an average of 16% between 2004 and 2009.

Volumes at the dozen ports are estimated to reach 21 million standard containers a year by 2014, from the current base of eight million.

GLOBAL

Global Sponsorship The ATP and FedEx Corp. have signed a three year agreement that brings FedEx on board as a new global Platinum Sponsor and Official Carrier of the ATP World Tour. The sponsorship will launch at the 2010 Barclays ATP World Tour Finals at London’s 02 Arena in November and extends through 2013.

In addition to global marketing rights, FedEx will become a sponsor of 17 ATP World Tour tournaments in 12 different countries. FedEx has a history of tennis sponsorship and currently sponsors Roland-Garros in France. Reliability of performance will be a prevalent theme across all activation and reinforced visually with FedEx brand exposure on court at tournaments spanning four continents and on ATPWorldTour.com, the world’s most popular website dedicated to tennis.

FedEx will develop an enhanced analysis of player match records providing fans with added information on player success and consistency on different surfaces, in pressure situations, and against specific opponents. This information, along with player videos, polls and more will be featured in a new section on ATPWorldTour.com named the FedEx Reliability Zone.

Flying to Shanghai Cargoitalia – Italy’s all-cargo flag-carrier – has commenced direct scheduled services twice weekly to Shanghai Pudong Airport from its Milan (Malpensa) hub, using its recently-delivered third MD11 freighter. The airline is now operating to Shanghai every Wednesday and Sunday.The inaugural rotation achieved an average 76 percent load factor, with almost double the cargo booked on the return flight from China compared to the outbound service. The addition of Shanghai to the Cargoitalia network also opens up the potential for transhipment traffic to and from the USA via Milan, using the airline’s New York and Chicago services.

Cargoitalia will increase frequency to Shanghai to three-times-weekly from October, bringing the weekly total of its outbound flights to 13. The airline’s network now includes New York, Chicago, Dubai, Sharjah, Hong Kong and Shanghai. Cargoitalia currently operates three MD11 freighters with up to 90,000 kilos capacity each, and is undertaking a review of its future aircraft requirements. Options include further leased MD11Fs, and/ or brand new freighter aircraft, which could be either leased or purchased.

Toll gains ISO 9001 Toll Global Forwarding has achieved certification under ISO 9001:2008 for the whole of its EME region spanning Switzerland, Germany, France, Netherlands, UK, Sweden and the UAE. ISO 9001:2008 provides standardised requirements for quality management systems, and takes a systematic approach to managing an organisation’s processes so that they produce consistent services that satisfy customer expectations. Before it can award a certificate of conformity, an independent quality system certification body must conduct an exhaustive audit of the company’s processes, so providing the added credibility of an independent assessment.

Nairobi handling facility

Emirates SkyCargo and Nairobi-based Astral Aviation will be the first airlines to be handled through the new Transglobal Cargo Centre on-airport facility at Nairobi’s Jomo Kenyatta International Airport.

Transglobal Cargo Centre is the largest cargo handling facility at the airport, and will be the first fresh produce and cargo handling facility in Africa to incorporate a multi-storey ETV (elevating transfer vehicle)-based perishables handling system. This cool-chain ETV system will have capacity for storing 160 pallets – the equivalent of more than four 747 freighter loads.

Both Emirates SkyCargo and Astral are currently handled at the company’s existing off-airport terminal; perishables constitute a significant proportion of both carriers’ export traffic from the airport.

LOGISTICS TIMES October 2010

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IN FOCUS

10

Modest growth in port traffic Noted global consultancy firm Frost & Sullivan has come out with a new report titled ‘Strategic Analysis and Performance Benchmarking Assessment of the Ports Sector in India’ which projects a rosy picture for the growth in the port sector by 2015. The most striking pointer of the study is the projection that the traffic at major ports is expected to grow at an annual rate of 11 percent between 2010 to 2015.

That practically means that the traffic handled at Indian ports would touch a level of 1373.1 MT as against the estimated traffic volume of 814.1 MT in the current year. The agency has further projected the traffic growth at minor ports at a faster pace than the major ones.

“Minor ports are likely to grow at a significantly higher CAGR when compared to that of major ports because of the traffic diversion, attractive tariffs offered by minor ports and capacity constraints of major ports,” the study underlines. Of the 11 percent overall annual growth rate projected for next five years, the average growth in traffic volume at major ports is estimated to be in the range of 7.6 percent. In 2010, the estimated cargo handling capacity of major ports is pegged at 599.4 MT as against minor ports’ offering of 405 MT

capacity.

According to the study, the Indian ports sector is poised for significant growth driven by new manufacturing and power projects and higher cargo traffic at ports.

“The commissioning of multiple innovative power projects based on imported coal and the setting up of steel projects and offshore exploration and production projects are likely to drive the Indian ports sector,” said Frost & Sullivan Research Associate Reena Fatima Murray.

“Additionally, the government has been promoting public-private participation in the ports sector on a build-operatetransfer (BOT) basis, thereby steppingup capacities and traffic handling at ports, besides enhancing their efficiency.”

Increase in containerized trade coupled with the government’s active initiatives to develop the Indian ports sector, is expected to further boost the growth.

Although the ports in India have shown considerable improvement over years, benchmarking them against the ports in Hong Kong, Los Angeles, and Rotterdam reveals that there needs to be marked improvement in many parameters to get Indian ports at par with international standards.

Capacity constraints, however, have been pegged as a major cause of concern.

“Traffic and capacity of Indian ports have grown considerably well from 2001 to 2010.

There has been an overall upward trend.

In 2009, due to the low economic growth, the traffic volume was 530 MT whereas the capacity reached at 574.5 MT with a less than 10 percent gap.

Similarly in 2010, with slight recovery in economy, the traffic rose to 560 MT whereas capacity reached 599.4 MT again with a gap of less than 10 percent. In comparison, the traffic almost matched capacity in 2008, an year of economic boom. This implies that the capacity growth at major ports is not sufficient to accommodate any rapid increase in traffic. Hence, a significant level of capacity expansion is needed,” the study points out.

The report also points out lack of sufficient draft for large vessels and weak hinterland connectivity as major bottlenecks which need to be cleared in the coming years. “Several projects are underway for the deepening of drafts at major ports as a part of the national maritime development program. The government should work more proactively towards the execution of these plans for developing port infrastructure,” Murray concluded.

Benchmarking Analysis of Ports Sector: Traffic Forecasts for Total Indian Ports (India), 2--6-2015

LOGISTICS TIMES October 2010

25

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LOGISTICS TIMES July 2010

SERVICE LEVEL AGREEMENT

12

Good insurance for efficient delivery

Mars Sorensen, CEO, Damco observes that Service Level Agreements (SLAs) have emerged as a fundamental pillar that dictates the customer-service provider relationship in the logistics industry. In a highly competitive and complex environment, they provide a clear and transparent view of the various milestones, performance dashboards and Key Performance Indicators regarding the daily operations.

LOGISTICS TIMES October 2010

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A service level agreement (SLA) outlines the pre determined level of service expected from a service provider for the consideration paid by the customer.

This have now become very common in the logistics industry. There are several reasons why SLA’s have gained importance in the logistics industry. The recent past has witnessed rapid globalization of supply chains where raw materials are sourced globally, manufacturing facilities are spread out in various cost competitive locations and finished goods being transported across geographies to multiple consumer markets. The number of intermediaries in a globalised supply chain has increased, comprising of transport agents, shipping lines, airlines, customs, and warehouses and so on. This has significantly increased the complexity of the supply chains today.

In a globalised world, to be competitive, these supply chains have to be optimally designed to ensure consistency, reliability and agility to be ahead of the competition.

Concepts like Just In Time (JIT) and Total Quality management (TQM) have become popular which requires a very agile supply chain with minimal wastage and maximum efficiency. Any failure in this complex and well defined chain will affect the reputation and cash flow of the manufacturer.

The SLA’s in one way provides a good insurance and a foundation to ensure success in such a competitive environment. An SLA lays out very clearly what is expected out of the service provider and what is the impact of the non performance of the service mentioned.

This brings both the customer and the service provider on a common ground with clear expectations and understanding of each others requirements.

A good SLA will always have an equally efficient and fair monitoring mechanism which provides full visibility to both the customer and the logistics service provider on the performance of the service provider. This periodic monitoring constantly provides an opportunity to increase transparency of the operations.

SLA’s are customer specific and would usually be built around the specific requirements of the customer. But in logistics the SLA’s commonly feature Key Performance Indicators (KPI’s) that are related to on time delivery,

Transit time compliance, Documentation timeline compliance, Inventory management, Information management, Space management and overall cost management. A logistics service provider has to ensure that the daily operations adhere to these SLA requirements.

The SLA also mentions the charges for these services, the penalties in case of non performance and details of the monitoring mechanism.

Though SLA’s are meant to ensure that the service provider delivers as per the expectations, these service expectations have to be seen in light of today’s logistics industry environment. Today the successful management of a global supply chain involves multiple stakeholders, very often situated in different countries, working in different time zones speaking different languages. Over and above these complexities, international supply chain is highly influenced by uncontrollable external events like capacity limitations in ports, natural calamities, strikes and other disruptive events across various markets. These factors make it extremely challenging for a logistics service provider to manage the various inter linkages and ensures performance as per the SLA’s.

There are various factors that are required to make SLA’s work. Both the customer as well as the service provider needs to have well defined process which can support the requirements of the SLA. In many cases in the logistics industry, the SLA requirements are not met due to lack of processes not just at the service provider’s side but also at the customer’s

side. In many occasions, the planning processes at the customers end do not provide adequate time for the logistics service provider to successfully manage the requirements of the SLA. It is important for the logistics service providers to have IT platforms and operational processes that can support the SLA requirements on a global level.

The operational processes must be consistent globally.

There are several other factors which are usually not given adequate importance to ensure the success of customer-3PL partnership. The most important of these are clear and honest communication between the customer and the logistics service provider and trust and collaborative team based approach to logistics management.

It is very important that the SLA’s are agreed upon after clear understanding of the customers understanding and once the service provider has evaluated their capability to perform these requirements.

Open and clear communication is very important in this stage to ensure that the customer-service provider relationship is based on factual and clearly understood requirements.

It is also important to move away from the blame game and adopt a constructive; team based collaborative approach towards SLA’s. In some cases if the SLA parameters are not being met, the customer and service provider must adopt a careful analysis of the various factors to identify the root causes and devise strategies to overcome the same.

No asset talks, but SLA commitment Today, we pride itself in being an independent, singularly accountable, non-asset based integrator of its clients’ supply and demand chains, says Pradeep Tewari, CEO, Credence Logistics LOGISTICS TIMES October 2010

SERVICE LEVEL AGREEMENT

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To put it briefly, we don’t talk assets, we commit on Service Level Agreements (SLAs). Long-term relationships between buyers and suppliers of logistics & supply chain services are becoming quite the norm today. These associations are characterized by teamwork and mutual confidence, with the service provider being virtually considered an extension of the client’s organization.

The partnership is based on several commitments. The buyer provides longterm contracts and uses fewer suppliers (3PLs and 4PLs). The supplier helps the buyer reduce costs and improve product and process designs.

So, what are SLAs? The text book definition of the term ‘Service Level Agreement’ is, ‘contracts between service providers and customers that characterize the services provided, the metrics associated with these services, acceptable and unacceptable service levels, liabilities on the part of the service provider and the customer, and actions to be taken in specific circumstances’.

As most logistics and supply chain service providers are moving in this direction, they are getting into client relationships, which involve sharing of proprietary information, participation in joint investments, and develop linked and common processes to increase the performance of both companies. They form strategic alliances to increase the performance of their common supply chain. Performance of the service provider is of course measured on basis of mutually pre-agreed SLAs. The main objective of the service provider’s evaluation is to mitigate risks and maximize the overall value of the service user.

Service level agreements have many benefits. The organizations that use SLAs were overwhelmingly positive about the experience. As a result of this these organisations tend to established strictly measurable goals for their service providers and put it into a negotiated agreement.

A well structured and comprehensive SLA document would typically cover the following areas: LOGISTICS TIMES October 2010

•

•

•

•

•

•

Needs assessment – this is very helpful, especially to arrive at the current capability and where we want to be Statement of work – an outline of the general areas of responsibility.

It includes a timeline showing the normal flow and expected times that will be involved at each stage.

This sets expectations right at the beginning itself.

Cost estimates – an outline cost per goal set. These estimates lay out projected costs and show where increases might occur and why Responsibility charts - simple table with responsibilities and roles clearly defined and assigned Service Quality measurements and metrics - Metrics and quality standards are discussed and co-determined between the service provider and the concerned managers along with a schedule, which will become the progress report and flowchart for both parties.

A chart of the supply chain and logistics organization - overview the

organizational structure and roles of the currently assigned team.

• Precise definition of job roles of all involved parties The single biggest advantage of this approach is that the process is made transparent to everyone. The element of surprise is done away with – hence no one should be confused by a change in events or a problem; they can all be discussed against the standards that were negotiated.

The SLA focussed approach has become essential to the success of not just the supply chain but most support functions in organisations that are outsourcing not just mundane but also semi-critical processes at times.

In summary, SLAs are becoming required documents because they capture and summarize a communications and negotiation process that leads to openness and understanding. Given that today in India we find ourselves in a very dynamic environment – we have steadily made a move from very strong recessionary trends to a very fast growth path, this is what we need more than ever.

Beyond SLAs Kate Vitasek (Top), Faculty, University of Tennessee’s Center for Executive Education and Joseph Tillman, Consultant and Sr. Researcher Supply Chain Visions, Ltd point out that Service level agreements are necessary. The customer has a minimum expectation of service, while the service provider must deliver to that expectation.

15

There is an old parable about an elephant and six blind men. As the story unfolds, each of the blind men have felt a different part of the elephant and said it was something different. One of them described the elephant as a wall, another as a tree; the others said it was a spear, a fan, a rope or a snake. They could not agree on what the elephant was as a whole because individually they could not see the entire elephant, only the parts of the elephant they touched. In many ways, concentrating on achieving service level agreements is like being one of the six blind men. If you don’t see the entire picture, your decisions about it cannot be good decisions.

In order to be successful, we must think beyond simple short-term results and move towards a better model for managing performance. To do so, we have to focus on the three pillars of performance management – 1) Process, not functional or task focused measures, 2) create a balanced set of measures, and 3) have a measurement process and culture.

Process, not functional or task focused Service level agreements (SLAs), which are task or results oriented metrics, are the main focus of most outsourcing agreements. This portion of the contract is where customers typically spell out the expectations they have of their service providers. The problem is that service level agreements are not typically aligned to the customer’s desired outcomes. One reason is what researchers at the University of Tennessee call the Outsourcing Paradox.

When companies attempt to develop the “perfect” set of tasks, frequencies and measures (even though they outsourced the activity to the experts), they drive innovation out of the process. The focus becomes “That is what the company that is outsourcing requires per our statement of work” – which leaves little authority for the service provider to exercise their own initiative in carrying out the work.

So what can we do to see the entire elephant? Let’s consider the pyramid in Figure 1. At the bottom of the pyramid are SLAs because they are operational in nature and only measure one aspect of a process. Since SLAs are so narrowly focused it takes several SLAs to measure just one process. If these measures are left unchecked, they will drive suboptimization.

However, a few SLAs will roll up to become process measures. This is the second level of the pyramid. Process measures are typically cross functional in nature and are usually companywide or customer focused. They measure the total effect of a process and drive overall optimization of costs and customer satisfaction.

At the tip of the pyramid we have key performance indicators or KPIs. KPIs are those critical few measures that track progress towards strategic objectives or desired outcomes.

To drive this home, let’s consider the Perfect Order. The Perfect Order is a good example of how metrics must align in order to see the big picture. Many organizations use the Perfect Order

as a KPI. The individual processes of the perfect order – On time, Complete, Correct Documentation, and Damage Free – are the process measures. Each of the individual process measures have their own set of metrics that track to a service level agreement. On Time Order Management, On Time Order Fill, and On Time Transportation are individual components of the On Time process for the Perfect Order.

Create a Measures

Balance

Set

of

Metrics should provide a holistic perspective. In other words, they should be balanced. When you think of a pilot in the cockpit of a plane, he has a good balance of metrics that helps him monitor the plane’s performance – such as altitude, speed and direction. If your pilot was only flying the plane using speed, then you would be in trouble. To get you to your destination safely, the pilot must be attentive of all three areas.

Likewise, for any performance management initiative to be successful, at a minimum, focus should be on three areas: quality, service and productivity. Metrics that measure quantifiable activities, such as picking accuracy, shipment accuracy, and proper labeling, may be monitored to drive quality operations. Service can be monitored using metrics that measure lead time, lost sales or fill rates.

The third area to focus on is productivity.

A better name for this area might be profitability because this area focuses on measures that align to corporate financial

LOGISTICS TIMES September 2010

SERVICE LEVEL AGREEMENT

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Five Step Process Step 1: Clearly define the company’s objectives.

Companies need to determine their desired outcomes and strategy. Then articulate the desired outcome and strategy such as “I want to achieve a ten percent improvement in shipping accurate orders”. Make sure to link operational and functional tactics back to the overall strategy. Follow up with your people to make sure they understand the strategy and what their role is in helping to achieve that strategy.

Step 2: Develop the validating the value add statement.

Create value add statements that are under your team’s or department’s control. Essentially, how does the team or department add value in achieving the company’s desired outcomes. Be sure to have a measureable performance goal. For example, “Our team adds value by maintaining 99.42% or better accuracy on order picking.”

Step 3: Measure the progress against VVA. Once clear expectations have been set, measure the team’s or departments progress against their goal. Make it easy to see that goals are indeed being met by summarize data so that the results are obvious. Also, be sure to include historical data to track trends. Step 3’s focus is for employees to easily understand and track their performance against the company’s desired outcome.

Step 4: Build a Pareto of reasons for not meeting the goal.

Create a process for root cause analysis and development of corrective action plans. For example, create a Pareto chart (80/20) to show where to focus your efforts. The obvious problem is usually not the root cause, and in order to keep the problem from recurring, the team must drill-down to find the underlying reasons for the problem. A good technique is to ask “Why?” five times.

Step 5: Take action – Fix the problem.

This is where results begin. By outlining the steps you are taking to correct problems that have been identified in Step 4 you mitigate emotions and finger pointing. Plus taking action will help drive change to improve your performance.

However, if you are not willing to do something about it all of the work to this point means nothing.

5

goals. Metrics such as throughput, asset turns, or metrics that measure inventory productivity (inventory turns, days on hand) are good examples for this area.

Measurement Culture

Process

and

The third pillar is embedding a measurement process and culture in your organization. Having a measurement process in place ensures frequent, constructive reviews of the metrics. This enables individuals, teams, and units to make timely course corrections. When used properly measures can become the communication between the customer and service provider.

It is easier said than done, but it can be done by following a few simple rules.

The key is to show workers how their performance affects the overall business, then work with them to facilitate the

selection and implementation of the measures.

We call this five step process Validating the Value Add or VVA for short. VVA is establishing metrics that support the overall corporate objectives and goals. This is accomplished by linking accountability to achieve goals to where the work gets done. When used properly, VVA can create an environment where people use the metrics to drive positive change in the business. (See Box)

Where to go from here?

Companies that are planning to outsource should reconsider their process. They should ask themselves “Why are we outsourcing?” It may be no surprise to hear “lower costs and to achieve better levels of service.” But really this answer revolves around the fact that the company outsourcing doesn’t have

the expertise to efficiently manage the activity in house. Unfortunately, many companies cannot simply let go and end up creating too tightly written statements of work hindering the entire reason for outsourcing.

A new model, Vested Outsourcing, is sweeping the outsourcing world by storm.

The premise behind Vested Outsourcing is that the company outsourcing tasks the service provider to achieve the company’s desired outcomes and then tying in key incentives to the achievement of those outcomes.

This gives the service provider the authority to perform the work in the most efficient way possible and to drive innovation for the company. When the company outsourcing and the service provider work together to achieve the company’s desired outcomes both will win.

Visit us for regular updates

www.logisticstimes.net All about Transportation, Distribution and Infrastructure LOGISTICS TIMES October 2010

Commitment & Contingency In today’s global economy businesses have started operating a leaner, more efficient supply chains that are designed to meet commitments to customers. For companies to survive today, it is vital that their business strategy is tied to their supply chain. Still, many companies are finding it difficult to keep up with the pace of globalization, as supply chains are becoming more dynamic and agile.

The supply chain concept is still nascent in India despite it being one of the largest and fastest growing markets in the supply chain business. Many companies have now realized the importance of developing and implementing a comprehensive supply chain strategy.

They need to focus on integrating and improving their end-to-end process which include concentrating on planning, sourcing, manufacturing, and distribution processes. Once a strategy is in place it will help them deliver better results.

The need of the hour today is that companies need to assess their supply chain and develop contingencies. Companies need to map out their existing supply chains and access points of vulnerabilities.

These could be a key supplier critical to business, a bottleneck caused by using a single port of entry for all products into a continent or dependence on a single mode of transportation that can make a company’s supply chain susceptible to natural disasters.

By identifying these issues companies can develop contingency plans and thus mitigate risks.

There are many small businesses which also lack the knowhow and do not have the adequate capabilities to channel their products through a well defined supply chain.

Moreover, they fail to realize the importance of supply chain management and also lack the ability to diversify their supply chain for varied products.

It is, therefore, important to develop key partnerships with logistics providers to gain supply chain flexibility. Companies need to understand the importance of developing trusted partnerships with their logistics providers to increase resilience of their supply chain.

Integrated logistics partners have the ability to provide supplier management services, enable excellent visibility to products within the supply chain and implement a multimodal strategy.

They also enable smooth trans-border movement of goods and can quickly implement an alternate operating plan to get around bottlenecks.

Most companies think of supply chain improvements only in terms of cost reduction, and undertake crisis management only after a problem occurs.

Supply chain companies also need to concentrate on the increasing demand for logistics from the growing food industry, which is slated to rise rapidly in the country in the next five years according to a survey titled “Rising Skill Demand: A Major Challenge for Indian Food Industry” undertaken by FICCI recently.

Another drawback supply chain companies face is the sheer lack of skilled manpower.

For this, they need to adopt adequate training measures.

Given the mixed economic signals we are seeing these days, businesses should invest in their supply chain to gain efficiencies and enhance their resilience in an increasingly risk-filled environment. This will help balance their operational objectives and minimize risks.

Mark Khambatta Country Manager UPS, India

Who’s “The Real Cool Guy” Turn to Page 45

?

LOGISTICS TIMES October 2010

PERSPECTIVE

17

COVER STORY

18

LOGISTICS TIMES October 2010

19

SAFEXPRESS

Better First, Bigger Next

By Ramesh Kumar

Pawan Jain Chairman & Managing Director LOGISTICS TIMES October 2010

COVER STORY

20

How do we begin this story? Hmmm…

Different, it ought to be.

Okay.

How about this…

Let’s spell out “Safexpress”.

Mind you, it’s “Safexpress”, not “Safeexpress” – only single “e”, not double “e”s.

A dummy run, please: S-A-F-E-X-P-R-E-S-S. Are you with me? … Okay.

Take a stopwatch to time how long it takes to spell out “Safexpress” and shout “Safexpress” at the end.

It’s an easy game, you’ll agree.

Ready?

Okay. Here we go.

“S-A-F-E-X-P-R-E-S-S” – “Safexpress” It took me 9 seconds.

How about you?

More or less the same, no?

Good.

By the time we completed this spell-and-shout out exercise, the 3,600-plus strong Safexpress fleet would have covered 63 kilometres. That’s approximately 7 km/second.

Yes, that’s right: 7 km/second. Ummm.

Down Memory Lane

I

t is not a coincidence or accident that I came to business. Soon after my post graduation in English literature from Meerut in 1975, I began to ponder: should I join some company as a staff or do something on my own? Travelling, I thought, from southern part to the remotest north east would assist clear my mind.

While traversing through Kerala I realized that this state feeds the entire India with spices. Transporting would be an ideal business to be involved in a country of India’s size. Produced at one place and consumed right across . By the time, I returned to Delhi I was confident that this is the business I would be comfortable with.

LOGISTICS TIMES October 2010

I opened shop on July 11, 1975 under the banner of Om Carrying Corporation with an initial investment of Rs. 5,000. My first branch opened in Patna. I chose Patna in Bihar because it needed everything from needle to machinery due to lack of industrial development. Yes, it was “parcel” business.

Once in, I realised that transportation business does not have any positive connotation. It is not a business owned by elite class.

If you have failed in other businesses or starting new, this line of business is okay. Otherwise, no.

Many used to ask me: “You’re educated. What are you doing in transport business?” Luckily these

barbs did not worry me much. I was determined and thought that my educational background will help offer better service over others. Yes, a positive twist.

Conquering the northeast became a priority.

Seven sisters were sitting idle to be tapped. Four states in this region did not have any rail link.

Less competition meant better prospects. We were pioneers to reach the north east. Yes, it was a one-way traffic: to the north east from the rest of the country.

The next level of change occurred in 1987. The cargo business was still in nascent stage. Blue Dart had already opened.

My trucks were reaching many places faster than

mail. That’s when I floated Overnite Express – my second business entity, again fully owned by me to handle courier business and spread it across through 300 branches.

Adopting the franchise route, document delivery by next day became the next winning formula.

While Om Carrying and Overnite were performing well, the liberalisation happened and a lot of MNCs came into India.

During interactions they were scouting for logistics support and I sensed a new business opportunity.

On April 1, 1997 Safexpress was born – amalgamating two business avenues of cargo business and time-definite delivery model. Until then

21

T

he significant part is that Safexpress does not – repeat DOES NOT – own even a single vehicle. Yet, the 100 per cent fully owned entity of Pawan Kumar Jain cover 600,000 kilometres every day (or 2.1 billion kilometres a year), carting 60 million packages a year, on 1,000 routes! Mindboggling, isn’t it?

For the bespectacled, sand-and-pepper haired Marwari businessman with a Masters degree in English who began building his dream empire with hardly Rs. 5,000 in his pocket (Yes, you’ve guessed it right: borrowed from his dad!) from Asaf Ali Road near the Turkman Gate in old Delhi in the Emergency era (circa 1975) and inching towards the Rs. 1,000 crore milestone before April 2012, it is “Passion Realised”. Of course, Safexpress is not what the original business entity that he

door pick up/delivery of cargo was unheard of. Parcels have to be deposited or collected at cargo carriers. They never

floated. It was: Om Carrying Corporation (See Box: Down The Memory Lane).

In a span of three and a half decades, the Virgoan has floated three brand new entities and built an empire and earned the sobriquet of “logistics guru” – rightly so.

A perfect team of professionals in place (see Box: My Philosophy, My Team), Jain Senior’s focus is in bettering services than on becoming bigger. “Bigger first or better first? That’s the moot question,” explains the soft spoken Safexpress head honcho. It does not mean he does not want to grow bigger. Right from Om Carrying Corporation days, his growth has been phenomenal: 100 per cent yearon-year. At Safexpress, he has achieved an average but consistent 30 per cent plus growth year after year. Scorching pace, no doubt.

came to the customer’s base.

There was no magic or big idea behind choosing “Safexpress” as the

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Reads a lot on current affairs.

Daily dose of 30 minute TV news watch

Vertical Focus ● ● ● ● ● ● ● ● ● ●

Retail & Apparel Healthcare & Pharma IT Telecom Publishing Automotive Engineering Electronics Electrical FMCG

Source: Safexpress Sales Collaterals

Growth Story His focus is on topline and bottomline growth. The former without an “exciting” latter does not make him happier. Except the recession-hit 2009, he maintained the 30 per cent plus growth trajectory.

Safexpress’ business model is unique.

The company does not own even a

name of our business.

Customers, invariably, look for two things: safety of their material and swift delivery. We simply combined these two elements: Safety and Express and thus came Safexpress.

The only concession we made was to drop the extra “e”! One Crore rupees was needed to float Overnite Express and the cost of floating Safexpress was almost ten fold – Ten crore rupees.

No borrowings from anyone this time!

We, belonging to marwari business community, migrated from Rajasthan to Uttar Pradesh and from there to Kolkata. Meerut was where I was born and educated.

My father, one of the most educated lot in his peer group, was in tea business in Kolkata. I was more comfortable in Delhi than in Kolkata.

In 1975, I occupied a 150 sq. feet shop when starting Om Carrying Corporation. But for Safexpress, I began with a 3,000 sq. feet warehouse in Asaf Ali Road, off Kamla Market in Delhi.

My first consignment was for a Faridabad-based pharma company.

For a fee of Rs. 1,000 we moved their parcel (less than a truckload) to Bhopal.

By the time, we were one month old, we billed close to Rupees six lakhs.

I knew the potential was immense.

LOGISTICS TIMES September 2010

COVER STORY

22

“We want to manage our fleet, not own them.”

Pawan Jain Chairman & Managing Director

single vehicle out of a fleet of 3500. But technically, they are its for the asking because the company helps vendors get concessional finance, fuel and accessories including tyres, and straddle the national highways and bylanes of India. They are at the beck and call of Safexpress.

Captive consumption, if you wish to call it that. “We have no qualms over this arrangement,” chips in Vineet Kanaujia, General Manager (Marketing). Adds Jain Senior: “We want to manage our fleet, not own them.” Period.

Growing economy is a big plus for logistics companies. Indian companies are maturing fast. Kanaujia is confident that 3PL is bound to flourish in a big way sooner than later. “Supply chain & logistics scenario is changing radically.

Companies are looking for value added services and we are building up a team that would be able to reap the benefits of knowledge economy,” elaborates the Faculty of Management Sciences, Delhi alumni. Though organised supply chain & logistics companies constitute barely one per cent of the US$100 billion industry, they are bound to grow at an incredible pace in the days to come. With LOGISTICS TIMES October 2010

the Goods & Services Tax regime likely to be rolled out soon, the distribution model of many companies will undergo a metamorphosis. Manufacturers would not need state-wise storage facilities.

A new warehousing model has to be worked out. Interestingly, companies are realising the importance of outsourcing warehousing and other non-core activities to concentrate on their core competence.

Safexpress has sensed this “terrific scenario” well ahead of others. Net result: 11 massive logistics parks at an estimated cost of Rs. 200 crores (See Box: Warehouses: Plenty, More to Come). Another dose of Rs. 400 crore investment to roll out 21 more such state-of the-art facilities. Jain Senior’s pan-India philosophy is at work again.

With the induction of US-educated heir-apparent, approaching thirty Rubal Jain, occupying the hot seat of Director – Corporate Strategy in Delhi-based corporate headquarters, the focus is on high margin and high volume niche areas.

Not all and sundry. ‘Let’s not waste energy in competing for low-hanging fruits’ is the objective. Net result: ten chosen high growth areas (See Box: The Verticals).

Retail & Apparel account for one-fifth of Safexpress’ topline. So also Healthcare & Pharma for another 15 per cent revenue.

These two segments account for more than one-third of company’s business.

IT and Telecom fetch another 15 per cent, Automotive 7 per cent. Or put it differently, two-thirds of revenue comes from the bottom eight of the top 10 verticals. You name the apparel brand the Indian youth is sporting, Safexpress has a hand in ensuring you get it; 250 brands at the last count. So is the case with many pharma products one buys over the counter at many pharma outlets across the country. When India bought Harry Potter’s latest blockbuster, the distribution was orchestrated by none other than by you-know-whom by now!

Relationship Forever Once a Safexpress customer, they are wedded for life – like Fevicol! NIIT, announces proud Jain Senior, is one of its oldest Indian client whose course materials are totally managed by his company. Swiss construction tool giant Hilte is one of Safexpress’ MNC clients right from its inception. Service is the key

23

LOGISTICS TIMES October 2010

COVER STORY

24

My philosophy, my team “It’s not ethically correct that everything I collect from this business belongs to me. I have to compensate others via a right distribution model of gains,” avers the 1954 born Virgo male. Sounds nice. What’s the yardstick to measure to test whether Pawan Jain practices what he preaches? Empty words?

One look at the attrition rate at Safexpress subtly provides the clue. Of the 3,000 people force that the sharp businessman has roped in to build his empire since inception, the organization has witnessed hardly 30 bolting out. Just one per cent in an industry that’s growing at a faster clip than one can imagine and crying for trained personnel at all levels. Phew!

How does the Safexpress leader achieve this incredible feat? “Trust,” pat comes the reply. And “train”.

“Give them an idea and engage them in a partnership mode,” explains the soft spoken logistics guru. He’s pragmatic. Why he does what he does? “We have to survive,” says he nonchalantly.

To buttress his point, he recalls that Pradeep Misha who had joined him as General Manager (Administration) when Safexpress was floated is still with him – of course, in a different role now: General Manager (Coordination). In a way, it is a labourintensive industry. One needs people to book orders, collect materials, pack them if necessary, pick up from the sourcing point, transport the stuff to the point of destination and unload: safely and speedily.

Right from day one, Jain was focused on being a national player. Being a regional player does not appeal to him. “When I started Safexpress, there were many regional players, but not a single entity who can boast of “anywhere delivery in India”.

That slot was empty,” adds he.

Given the fact that Safexpress is an owner-driven business entity (100% ownership with he and his spouse as business partners), is he a control freak? Very few would respond to this question with total honesty. They would be thrifty with truth.

But not the Safexpress badshah.

“Until three years ago, I was a hands-on man. I never allowed anybody to do anything on their own. I used to check even drafts of letters before they were sent out! I was so much integral to everything at Safexpress. I was so concerned about even over commas and full stops! Everything has to be perfect. Nothing should be off the mark,” says Jain unhesitatingly. A candid confession, no doubt.

By the way, what had brought this transformation?

The full credit goes to Rubal Jain, his son. “A change in my management style came about Pawan Jain, Chairman & Managing Director when my son returned from the United States with S R Sharda, Executive Director a post graduate management degree (Stanford The seniormost executive next to Chairman & Managing Director. He has Business School ) three years ago and told me been with Jain Sr. right from Om Carrying Corporation days- since 1975. that he would like to join Safexpress. After his Literally, No.2 man. “He is involved in everything that I am involved in,” is formal induction, he pointed out that to grow how Jain Sr. puts it. we need to change our style of management Rajesh Jain, Chief Financial Officer – from centralised decision-making structure to This gold medallist Chartered Accountant is with Safexpress from inception and has handled 13 balance sheets so far. The debt-free status and the diversified one with responsibility.” It was, no non-stop growth process is monitored by this financial guru. No money, no doubt, a tough call for Jain Senior. “Giving up growth. was not all that easy,” avers he.

Shalabh Raizada, Chief Technology Officer Three years down the lane, Jain admits that An ex-TCS honcho, he ensures real time connectivity to the entire Safexpress he is happy over what he has done. More free operations. The organization’s IT infrastructure is built on IBM hardware and time to think and strategize. Above all, a more Oracle platform with Mahindra Satyam as implementation partner. relaxed lifestyle. Less tension, so to say.

Uday Sharma, VP (Sales) Jain has handpicked a core team (see below) Charles D’Costa, VP (Operations) with right credentials to manage his business.

Rubal Jain, Director – Corporate Strategy He meets them at regular intervals, not daily!

Son of promoter-cum-Chairman and Managing Director. Stanford-educated “We have created group heads and delegated management professional. He will ultimately inherit the Safexpress empire. powers to them. All of us are in perfect alignment Vineet Kanaujia, General Manager (Marketing) with our business objectives. Yes, the process is A dynamic, MNC-groomed marketing professional spearheading the key still not complete. We are in a migratory mode,” area of brand building with an innovative approach since 2007. The real external face of Safexpress, next only to the Big Boss. says a cheerful Jain.

Core Team

LOGISTICS TIMES October 2010

25

element. “The question of anyone walking out of the relationship does not arise,” declares a cheerful Safexpress promoter.

“They know that there is someone at Safexpress to listen to them any time and sort things out. They know that they are in safe hands,” adds he. “We speak the customer’s language. No knowledge gap between us and them, because we realize the criticality of domain knowledge in the sectors we have chosen to focus upon,” elaborates Kanaujia.

Meticulous Exercise Do you want to know the number of toll gates or physical roadblocks a truck from Delhi to Chennai has to cross? Don’t Google. Ask Safexpress. How many petrol pumps are situated on the right side of National Highway linking Delhi and Bangalore? Don’t Google. Ask Safexpress.

Which is the favourite dhaba for supply chain vehicle drivers on the road to Kolkata? Don’t Google. Ask Safexpress.”

How come? A 8-member research team that is constantly on its legs – sorry, on wheels monitoring and updating on a daily basis. This meticulous exercise helps them tweak timelines to ensure time-definite deliveries through route alignment and streamlining. Customers love it and pay up, ungrudgingly. “They won’t transport, unless it is important,”

Warehouses: plenty, more to come No.

Location

Vehicle Holding Capacity (Nos)

1

Nagpur

400

2

Mumbai

110

3

Bengaluru

4

Area (Sq.Ft.)

Truck Docking Area Width (Ft.)

Capacity (MT/ Sq.metre)

11,90,000

80

6

7,00,000

80

6

150

6,05,000

70

6

Chennai

134

3,86,000

130

4

5

Pune

100

3,10,000

80

6

6

Ahmedabad

50

2,74,000

80

6

7

Salem

40

2,70,000

80

4

8

Kolkata

75

1,84,000

80

4

9

Gurgaon

25

1,80,000

60

4

10

Jaipur

50

1,20,000

80

4

11

Puducherry

40

1,04,000

60

4

LOGISTICS TIMES October 2010

COVER STORY

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“No knowledge gap between us and them, because we realize the criticality of domain knowledge in the sectors we have chosen to focus upon.”

Vineet Kanaujia General Manager (Marketing)

says Jain Senior cryptically.

Safexpress is beefing up its network.

Strengthening operations. Building up competence. Training manpower. Global giants such as FedEx and UPS did knock on Safexpress doors for outright stake buy or partnership three years ago.

Jain Senior’s response was a polite ‘No’.

Reason was not difficult to fathom.

Rubal, his son, has categorically said he want to inherit the empire. That was excellent and logical reason No.1 for dadcum-chief of everything at Safexpress to obliterate all thoughts – if it ever existed in his mindscreen – of sell out in one go.

Reason No.2, the Safexpress top honcho admits that Rs. 1000 crore company by

2012 is no big deal to exit. Perhaps at Rs.2,000 crore level maybe. That too, not a total sell out and retire. But some stake to private equity which eventually will lead to an open offer at some future date. Definitely not now. “Our internal accruals are excellent. No need for any external assistance. We can manage on our own,” explains Jain Senior matter of factly. But who knows about future? he asks rhetorically. Yes, who knows?

Nonetheless, he is clear about one thing. Rubal will be the next Big Boss @ Safexpress. “Definitely before 2015,” says the proud father. Young Rubal is not sitting idle and riding on his father’s laurels. He is busy blue-pencilling Vision

Red Alert Lawrence Dean Shemesh, President and CEO of OPSdesign Consulting, an independent supply chain consulting organization specializing in warehousing, distribution, and fulfillment operations design debuts on these pages next month.

Only In

LogisticsTimes

LOGISTICS TIMES October 2010

2020 to be shared with the 3,000-plus workforce in the next few weeks. Divya, Rubal’s Cambridge-educated better half, meanwhile is lending a helping hand to her spouse by focusing on nurturing Safeducate – a knowledge-building academy – for the Safexpress staff with a full-fledged edifice coming up in Indore soon. The future road map is ready to be rolled out. Succession issue is clear. The transition is going smoothly. A booming economy and the company’s India focus.

What more can a man who had sown the seeds of today’s Safexpress with just a Rs. 5,000 three and a half decades ago in his pocket ask for? Nothing. Hunky-dory all around.

It is much easier to say win-win than to execute win-win. People play to win.

From an early age, we are conditioned to believe that there is a winner and a loser.

To have two winners on different teams must require some new math or letting someone win. For the truly competitive, giving in or sharing does not come easy.

After all, there is only so much pie to go around.

Yet, deep down, if we really think about it, we realize that the amount of pie is not a fixed amount. More pie is made by sharing and creating conditions where everyone can win. However, a strong trusting relationship is required to achieve mutual success.

Economics can and does validate that the benefits of developing a win-win relationship. Behavioral economics – or the study of incentives and strategic interactions – is more popularly referred to as game theory because it attempts to model human behaviors, especially when there is an incentive at stake. Specifically,

game theory attempts to model how an individual’s success in making a strategic decision depends on the choices of others.

Deeply rooted in mathematics, game theory began to raise eyebrows when John Nash, a Princeton University mathematician and game theorist, published his theory of equilibrium in 1950, commonly called the Nash equilibrium. For this contribution, Nash received the 1994 Nobel Prize in economics, shared with John C. Harsanyi and Reinhard Selten. One of the core principles of game theory that Nash made famous—and the one that is of particular interest to Vested Outsourcing—is the concept of equilibrium. Nash’s early work in game theory led to what is commonly known as the Nash equilibrium. In a game involving two or more players, the Nash equilibrium occurs when each player has chosen a strategy and no player can benefit by changing his or her strategy while the other players keep their strategy unchanged.

Can you improve your payoff ? Later economists have studied game theory further and shown that it is possible to improve results beyond that of a Nash equilibrium. The key lies in players working together toward a mutually beneficial strategy that optimizes for the cumulative payoff. In other words, the power of partnerships and collaboration is not to optimize for the status quo (e.g., Nash equilibrium) but to look for ways to change the game to create an overall larger payoff. In short, the size of the pie is not fixed, and companies can and should work together to find ways to make more pie.

But there are barriers…

Our research has identified ten of the most common flaws we have seen afflicting outsourcing relationships. We can think of these as ailments— illnesses or, bad habits— that weaken an outsourcing relationship. A few are obvious. Most are not. One characteristic these ailments share is they drive perverse behaviors,

Build stronger relationships and gain greater value from your outsourcing relationships by getting vested, say Kate Vitasek(Left) and Mike Ledyard*

Playing

to win

LOGISTICS TIMES October 2010

VESTED OUTSOURCING

27

VESTED OUTSOURCING

28

leading to uncomfortable relationships and wasted opportunities for gains in efficiency.

In some cases, the ailments simply causes mild symptoms, so the companies or outsource providers never bother treating the condition. They suffer the symptoms, thinking they can learn to live with them, but the symptoms soon become so debilitating that they must be treated. Or they may have no visible symptoms, like a person with high cholesterol; but if they avoid regular healthcare and never get diagnosed, their ailment will weaken or harm them. In the worst case, the ailment becomes an outright disease that is so severe that it eventually causes the death of the relationship, causing the company to either bring the outsourced services back in house or switch vendors.

Let’s start with the easiest ailment to identify: when a company outsources based purely on costs. We’ve all heard the warning to not be penny wise and pound foolish. Unfortunately, many procurement professionals are still in the dark ages. Too many companies profess to have an outsource “partnership” but behind the scenes they focus solely on beating up their service providers on price.

When outsourcing, you need to think beyond the short-term bottom line. The danger in focusing on the cheapest offer is like anything else -- you make tradeoffs in quality and/or service. Unfortunately, many executives view outsourcing as a “quick fix” solution to resolving balance sheet problems. Often companies suffering from a case of Penny Wise and Pound Foolish fall into a loop of frequent bidding of their work to the lowest price provider and transitioning to that supplier. This can lead to a vicious cycle of bid and transition, bid and transition, bid and transition. When a company gets caught in this cycle they often end up with one or more of the following unintended consequences. ● Outsource providers that work with the company over time will refuse to work with the company again. They get tired of getting beat up on price only to have their efforts rewarded by LOGISTICS TIMES October 2010

losing the work the next time around and ultimately choose to pursue revenue from more productive outsourcing relationships. In one extreme example we witnessed a company re-bid their transportation services every three months. In this extreme case the company had churned through nearly all of the top 20 suppliers over 5 years and was forced to work with suppliers of lesser quality. ● Outsource providers bid such low prices in order to work with a company that they go out of business and put the company in a jam to find a new outsource provider. One company, as an example, was referred to by their suppliers as the “800 Pound Gorilla.” This company dabbled with outsourcing their manufacturing and had some successes. They decided to outsource all of their manufacturing to allow them to focus on their core competencies (which is usually a smart move).

The book of business was worth roughly $100 million in revenue for the winner. In this case there were three contract manufacturers that had the experience and scale to manage the work volume. The 800 Pound Gorilla went through several rounds of extreme negotiations to save the last possible dime on the multimillion dollar outsourcing deal.

They awarded the work to a $1 billion outsource provider – an estimated 10% increase in revenue for the outsource provider. The problem?

The outsource provider “bought” the business, and eventually could not sustain the losses of profit.

They gave the 800 Pound Gorilla a 30-day notice they would no longer manufacture their products and went into bankruptcy – eventually tanking what was once a successful and profitable $1 billion firm.

Organizations with this ailment give outsourcing a bad name– and should not be outsourcing in the first place. Their myopic focus might pay off in the short term, but this approach has proved time

and time again that it does not pay to be Penny Wise and Pound Foolish.

WIIFWe versus WIIFMe While many organizations tout they have “partnerships,” our experience and research found that most organizations have an internal desire to optimize their own self interests. This is often known as a “What’s in it for Me” approach (WIIFMe). How could they not when we are ingrained with “winning” from early childhood and most business schools and law schools focus on “winning.”

Procurement and sales professionals are trained in the art of negations to help them “win.”

A “What’s In It For We (WIIFWe) philosophy strives to increase the size of the entire pie (unlock a greater opportunity than is currently realized by either party) versus maximizing the size for any one player (e.g., lower costs at the expense of the outsource provider’s profits). WIIFWe challenges the conventional win/lose mentality and tosses it out the window.

Because both organizations are working together to achieve their goals, Vested Outsourcing works as a true win-win relationship, which is what partnership is all about.

In our experience, only those organizations that truly challenge the WIIFMe mentality are able to achieve true Vested Outsourcing partnerships that deliver outstanding results. In our opinion, adopting anything less than a WIIFWe philosophy will result in lessthan-optimal results.

The Five Rules of Vested Outsourcing Deeply wedded to the WIIFWe philosophy are the following five rules. ● Outcome-based versus transactionbased business model ● Focuses on the “what” not the “how” ● Clearly defined and measurable desired outcomes ● Pricing model incentives optimized for cost/service tradeoffs ● Insight, versus oversight governance structure How Vested Outsourcing Rules Work Together In Vested Outsourcing, the organizations

29

The Five Rules of Vested Outsourcing

work together upon a foundation of trust, with mutual accountability for achieving the outcomes. Through the careful alignment of performance objectives, accountability and control, the service provider, while absorbing additional risk, is empowered to pursue improvements that will deliver improved performance, higher profits and lower total cost of ownership. Vested Outsourcing uses the power of free market innovation to improve the outsourcing relationship.

This can be challenging to achieve, but the Vested Outsourcing journey should always strive to arrive at this idealized end state to achieve the performance pyramid where both the company outsourcing and the outsource provider are consistently applying a WIIFWe foundation and applying all five of the Vested Outsourcing rules.

For the service providers, Vested Outsourcing is an opportunity to exercise greater flexibility in deciding how support is provided, to ensure cash flow stability

through long-term contracts, and to increase revenue by rewarding the service provider’s investment in improving processes. For the company that is outsourcing, it is a chance to obtain improved performance while decreasing costs and assets by partnering with a highly competent and properly motivated firm.

To say that Vested Outsourcing represents a departure from conventional outsourcing practice would be to seriously understate the case. Vested Outsourcing changes the fundamental business constructs of the typical outsourcing approach.

Companies wanting to embark on a Vested Outsourcing partnership will need to deeply understand both the central core of the WIIFWe approach and the five rules.

They will need to treat them as rules to live by. In our opinion, a Vested Outsourcing partnership that does not strictly adhere to the entire WIIFWe core and all of the five rules can easily fall victim to one or

more of the outsourcing ailments that we have identified in our research.

We like to think of a Vested Outsourcing partnership that does not adhere to the rules as a pig with lipstick. You can’t simply pretty up something that is essentially ugly!

The ailments afflicting many outsourcing arrangements occur as frequently as the common cold, they share a common cure: Vested Outsourcing can and does create an outsourced business model where both the company outsourcing and the service provider make every effort to achieve the elusive win-win. And the risk of catching one of these ailments through outsourcing is more than made up for by the achievement, through a productive Vested Outsourcing partnership, of lower costs by the outsourcing company and higher profits by the service provider, neither of which can be attained by each organization working alone.

B. Cole, “Bill Gates Could Gain a Lot from a Little Game Theory,” EE Times, June 19, 2000.

* Mike Ledyard is a veteran of international sourcing, manufacture and importation of product and tooling, especially from China and Eastern Asia. He is an author and frequent speaker on process measurement and improvement, and was selected as one of the Top 20 Logistics & Supply Chain Executives of 2001-2002. Mike is also a co-founder of Supply Chain Visions.

LOGISTICS TIMES October 2010

NEW PRODUCT

30

Small solution to big problems

F

or Nano Cranes, the fully owned subsidiary of Faridabad-based auto-component firm Urastun group, September marked a defining moment in its journey. The company unveiled two mobile compact carriers (its first line of offerings) – Vector and Odo. The major highlight of the new products is that they are just one tonne carriers which company claims is first of its kind not only in India but also in the world.

In a way, the essence of the term nano is clearly reflected in the size of these compact carriers.

Company’s senior officials claim that Vector and Odo are truly indigenous piece of work and it took three years for the research and development (R & D) team to develop them. The company officials are exuding confidence that the product would be of tremendous help for both end-user industry as well as logistics services providers (LSPs) when it comes to meet handling challenges.

On the occasion of the launch of the compact carriers, J P Marwaha,Chairman, URASTUN group, commented, “We are into a business of offering solutions.

Vector and Odo are our solutions to the day to day handling problems faced at a micro level by all types and size of organizations.

These carriers will not only speed up material handling but will also industrialise our society from the bottom.” According to Rahul Marwaha, Managing Director of URASTUN group, the product has the potential to bring revolutionary changes in the sphere of material handling. “Vector and Odo shall be breaking paradigms in the market because they are easy to buy, easy to run and easy to store. The material handling and transportation sector will soon be witnessing a change similar to what happened in the automotive sector with the entry of Maruti in 1984,” he added.

In terms of product specification, the small pick and carry crane Vector promises to provide affordable solutions

LOGISTICS TIMES October 2010

for material handling and have the capacity to handle loads upto 1000 kg.

Odo, on the other hand, is a small fork lift which will have the similar capacity as Vector. These vehicles are slated to facilitate faster material movement at a considerably lesser price and more safety. “Their maintenance would also be a hassle free affair,” Rahul Marwaha emphasised.

The company is estimated to have spent Rs 10 crore in the development of these

products. But according to the managing director of the group, Nano Cranes may well spend close to Rs 100 crore over a period of next three years to develop more products of this nature. Furthermore, the company claimed to have got the orders for 50 machines (mix of Vector and Odo) from different streams of enduser industry and LSPs. “We have made a confident start with our new products,” Rahul Marwaha explained.

LT Bureau

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LOGISTICS TIMES October 2010

INTERVIEW

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To begin with, briefly take me through to the journey of DFCC – the very reason for its genesis and the milestones it might have achieved in the journey so far?

Dedicated Freight Corridor is one of the biggest infrastructure initiatives of the GoI and the Ministry of Railways in particular. The project was first announced by the prime minister in 2005 in the 15th August speech and since then it has come a long way on the road of reality. The corporation was constituted in 2006 (30th October) and board level appointments were made in September and October, 2007. Since that period, the project has started taking shape after the first management took the position.

The initial steps for the project have been conceptualization of the project and then starting land acquisition processes and looking for its financial closure.

This is how the project has moved since then. Land acquisition, the first step of finalization of the alignment has been completed by 2008-09. After alignment finalization, the land acquisition process

has started and in the current year 201011, we expect that about 70 to 75 percent of the total land would be acquired on eastern and western corridor routes.

The genesis of the freight corridor concept has risen out of the traffic density on the golden quadrilateral portions of India.

On those portions, Indian Railways has 16 percent of its network but it carries 58 percent of the freight traffic. Out of that, eastern and western corridors are the busiest lines of the Indian Railways and they are occupied by 140 to 150 percent of the line capacity. In road parlance, you can imagine that its bumper to bumper traffic which moves on the roads. So you can imagine congestion on these routes.

For that reason, in the first phase eastern and western corridors have been taken up and initial cost estimates of the freight corridor at 2009 prices has been pegged at ` 50,500 crore.

I believe the initial estimate was ` 28,000 crore. So what has really escalated the cost of the project by nearly 100 percent?

You are right. The initial cost estimate was `28,000 crore. But it had many elements of planning which got revised.

For instance, western corridor was not electrified. Another important change which took place was the decision that the axel load to be run on the freight corridor would be 32.5 tonnes for which specifications were issued only in 2008.

And many specifications were changed, for example the bank of the corridor was widened, and the earth which is going to be used for cushioning of 32.5 tonnes axel load would be of a specific quality.

So these decisions led to the revision of the cost.

Tell me, am I correct in my assessment that through this ambitious project, the railways would be trying to reclaim its lost share of freight transportation to the roadways which has consistently happened in past decades?

There are two reasons for the urgency of the project. The first reason is that

‘DFCC would ensure win-win proposition for everyone’ Dedicated Freight Corridor is the most ambitious project undertaken

by Ministry of Railways billed to completely change the scenario of freight transportation on track. In an exclusive chat with Ritwik Sinha, Director (Operations & Business Development) of Dedicated Freight Corridor Corporation of India (DFCC) P N Shukla gives a sense of how the project is evolving. Excerpts: LOGISTICS TIMES October 2010

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the industrial growth is getting affected in most vital areas. And, therefore, the government had to come up with capacity requirements to meet the enhanced industrial activity. Secondly, railways have been running traffic in a mixed manner, i.e., both passenger and freight traffic on the same track. You have seen wherever the line got congested, the tracks were doubled.

On further congestion, probably the response would be to bring in the third line. But the fact remains that the mixed running of trains is not yielding desired results due to enhancement in industrial activity. Therefore, it became necessary to develop freight only system where specifications could be different to get

the best desired results.

Is there any particular global model you are trying to emulate while implementing this project?

We all know Japan International Corporation Agency (JICA) is involved in the project as a very serious partner.

Let me tell you the global scenario. There are six heavy haul railways in the world.

Those heavy haul railways have features of heavy axel loads. On specified areas, they have freight only systems also. But there is no system anywhere in the world which is pan-country and runs freight only.

This is going to be one of the most

unique railways projects anywhere in the world which will meet the pan-country requirements.

2016 has been projected as an important dateline for this project. How much of area would be covered by then?

Ans: The entire dedicated freight corridor would ultimately run into 10,500 kms, out of which 3,300 kms are slated to be built by 2016-17.

Once the project is ready and fully implemented, what are the benefits it would deliver to all entities in the value chain – segments like end user industry, LOGISTICS TIMES October 2010

INTERVIEW

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logistics services providers (LSPs), etc?

This is a very important question. The recent changes which we have noticed in the railways or road transportation in the country are particularly directed for value addition. That is we are gradually from basic transportation to logistics. And when this change happens, there is a long list of value added services which gets added up in the system. Internationally, the share of logistics cost to the GDP is 7-8 percent whereas in India, it is as high as 12-13 percent. It is 4-5 percent higher than global benchmarks. What does it mean? It means that we are not competitive to that extent because of inefficient system and that is why now we are focusing on logistics as a whole.

And when we talk of logistics, we include a whole lot of value added services which include facilitating faster transportation.

DFCC is going to be one of the most unique railways projects anywhere in the world which will meet the pan-country requirements.

I believe that the entire project envisages creation of huge logistics parks on the route and they would be integral components. Please, share the details.

In the first report of RITES where the feasibility was checked of eastern and western corridors, seven logistics parks were suggested as integral elements of these corridors. Five would be created in the western corridor and two would be in the eastern corridor. The locations in the eastern corridor are: Kanpur and Ludhiana.

In the western corridor, the locations are: Navi Mumbai, Vapi, Ahmedabad, NCR and Gandhidham. As the situation has been changing, we are now also encouraging creation of logistics parks in association with private players on the route.

We are talking to different companies which have expertise in this area and it would be win,win situation for us and them also. They would be set up under public-private-partnership (PPP) model.

Getting noted companies for this element of the project would mean service quality would not be compromised. At present, we are working on three logistics parks LOGISTICS TIMES October 2010

on the western corridor - Rewari (NCR), Ahmedabad and Navi Mumbai.

You are creating these units totally on your own?

Logistics parks are being intended to be set up with the co-operation of the state governments. We are seeking state governments’ participation as the stakeholder in the logistics parks because ultimately we don’t intend to run them. We would like them to be run by the professionals. Our view is that the companies which have outstanding expertise should be allowed to run them.

Secondly, we need to have the help of the state government in this area because we need infrastructural support.

Can I get a sense of the size of these parks because the traffic volume flowing through the route would be huge?

Yes, the volume would be huge. And, therefore, what we have broadly envisaged are mega logistics parks occupying area of at least 1000 acres and medium logistics parks would be 500 acres depending upon the availability, quantum of traffic and location. At present, we are thinking of two mega logistics parks – one in NCR and another one in Mumbai region.

Logistics parks is a term which often used very loosely. It could even mean simply warehousing facilities but as per international

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standards, it means a whole lot of services. What is that big picture you have in your mind when you say a network of logistics parks on corridor routes?

The big picture is to have a lot of services under one umbrella. These units would have warehousing, business areas for goods, aggregation centers, labeling and packaging, etc. Secondly, they will not be limited to specific commodities.

They will also be entities catering to different streams of traffic – domestic, international, major industrial products like steel and cement and even high value goods traffic.

We do come across every now and then concerns from different quarters that the project is not picking up at the desired pace and that land acquisition issue is turning out to be major bottleneck for you?

These concerns are not totally unfounded.

But please understand, a project of the size of 3,300 kms, requiring 12,000 hectares of land, passing through nine states and 56 districts can’t be done in a very short time. You are aware that land acquisition is a very sensitive issue but I must emphasize, our exercise is now moving on steadily.

Let’s hear from you the benefits you envisage for the end-user industry.

But you obviously need a lot of support of the state governments…

The benefits for end-user industry would be tremendous. Firstly, there would be reduction in the overall cost. The quality of the service with the freight system getting organized would improve in a manner which has never seen before in the country. For instance, let’s look at transit time parameter. The corridor would facilitate transportation from Delhi to Mumbai in just 20 hours because tThe average speed from 25 kms /hour would get improved to 70 kms/hour. Reduction in the operation cost would also eventually happen and it would definitely be passed on to the customers. It would be win,win situation for everybody.

Of course. But support is not a problem.

We are getting the maximum possible support from GoI. We are in touch with all state governments and I must say, they are all very receptive to our requirements and they are very keen to participate as stakeholders in this huge project.

You start believing in something when you start noticing the emergence of some signposts.

You obviously started functioning in 2007-08 and have been engaged in putting up the basics.

When can we expect to start noticing those signposts?

I just mentioned to you that our land acquisition started in 2008-09. And it’s a long process. By the end of fiscal 201011, 70-75 percent of required land would be acquired and the balance would come next year. At number of places, alignment have to be readjusted because of several reasons. In terms of things happening on the ground, I can tell you first two contracts were given by DFCC in early 2008.

One was 105 km construction of banks and bridges from Sohannagar to Mugalsarai. Second was construction of 54 bridges from Vaitarana to Surat.

Both the contracts are going on. In addition, we had an agreement with Japanese International Cooperation Agency in March, 2010 for taking up the construction of western corridor in two phases – phase one, from Rewari to Badodra and phase two, from Badodra to JNPT and in the north side from Rewari to Dadri.

So this project is being built with Japanese assistance. The execution of phase one has already started.

All the detailing which is required for awarding of the contract like quantum of work, preparation of bid documents, etc are being worked upon. We expect this process would be finalized by October 2011 and contracts would be awarded on a large scale. I think, 2011 onwards you would notice a lot of action on the ground.

Situation Wanted

LT

A Science Graduate with 17 years experience in Supply-chain Logistics functions of industries like FMCG, Retail, Pharmaceuticals, CPG, Tyres, Mobile Telephony, LSP. Demonstrated skills in managing sales distribution and operations from geographically separated distribution centers (DC’s or warehouses). Successfully implemented ERP WMS’s of SAP, RedPrairie DLx & Oracle.

Managed both Vendor Managed Inventory (VMI/SOI) and Principal Owned Inventory as a logistics service provider (LSP). In retail, pharma, CPG, F&B, Mobile Telephony sectors, starting from Procurement planning, Procurement Execution, Warehousing, Secondary distribution, Store-wise SKU management for per SqFt revenue enhancement, Store-wise receipts management, payment administration and vendor services were handled for 10+years.

As senior management person, well versed of Key Accounts management coupled with P&L, Change Management, Goods & Services Launch support mechanisms, Green & Brown field Project Management for warehouse/DC launches, training/retraining of all levels of staff, Cost Optimization drives through Warehouse based processes re-engineering, development of Logistics performance matrices for both internal as well as for customer.

Eager for challenging National / Regional level Supply-chain/Logistics/Distribution profiles in both start up & organized firms of both service utilizing and service providing orientation.

C L A S S I F I E D S

Prospective employers may write to info@logisticstimes.net

LOGISTICS TIMES October 2010

FREIGHT LOGISTICS

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On-the-job learning, no good Shivam Arren, CEO, Kailash Rolfo India turns the spotlight on a growing concern: there are millions of drivers in India who are both uneducated and have no training of driving a truck. They learn on the job which is not a good thing as it endangers the lives of themselves and others on the road.

Also as India gets ready to accept higher horsepower vehicles which can run at higher speeds, it becomes even more crucial for these truck drivers to receive formal training.

LOGISTICS TIMES October 2010

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T

he Indian logistics industry is the primemover of the Indian industry. At more than Rs 400 billion, the logistics industry is growing at around 25-30% per annum which is a very good growth for any industry.

The problem though, lies in the inefficiencies which are in-built and at times difficult to remove without major investments in the industry. But if we aspire to grow at 10% as an economy, the logistics industry has to be one of the prime drivers and we must deal with our inefficiencies in the right way.

Given the fact that our business is concerned with providing transport

complex hydraulic systems to load and unload cars on these trailers. To use these car carrier trailers the driver must receive proper training.

It may also be worthwhile for the OEMs to train their staff for supervision of loading and to train dealer staff for supervision of unloading.

In addition, the drivers and helpers must also know how to maintain more complex hydraulic systems in the trailers. There has to be a formal training for the drivers established by the help of government and companies in the sector.

Technology viewpoint

Watch out!

Prof. Samir K Srivastava IIM-Lucknow

From technology point of view, at times

Dr John Stark Management Consultant & Author

solutions in terms of trailers, I will be mostly concentrating on the skill gaps for the drivers and in particular this segment of logistics industry.

As we strive to use better technology for transporting freight, in particular vehicles, it is apparent that driver skills will play a key role in this segment. There are millions of drivers in India who are both uneducated and have no training of driving a truck. They learn on the job which is not a good thing as it endangers the lives of themselves and others on the road.

Also as India gets ready to accept higher horsepower vehicles which can run at higher speeds, it becomes even more crucial for these truck drivers to receive formal training.

In particular for the car carrier application, as the regulation for 18.75 mt trailer is legalized and high technology products are introduced to increase the efficiency of the trailers (to carry 10 cars), the same drivers will be required to operate

it is not necessary that a better system is a more complex system. For instance we have been using air suspension systems in buses for sometime now. But we as industry are scared to use air suspensions for freight segment.

There are many arguments related to pros and cons of the same which may need a whole article dedicated to it. But this is just one example.

Air suspensions are much better to use and easier to maintain. The cost as well will come down with large scale usage driven by OEMs. There are many small changes like these which can increase overall efficiency of the logistics industry. There are many more complex systems as well. But let’s first start with the small simpler ones and once we achieve the positive results, we get to others.

There has to be a road map created.

Today India has none. Industry and the government will have to come together to create this roadmap.

Prof. Akhil Chandra IL & AM

Domain experts dissect what Product Lifecycle Management (PLM) is all about in the November issue of

Logistics Times All about Transportation, Distribution & Infrastructure

LOGISTICS TIMES October 2010

LEARNING CURVE

38

ice erv

ts

alle sP S e u P E ot ss CH tre I Dep n Ce MCG F o t

Empty pallets are collected by the CHEP Service Centre closest to the Wholesaler Warehouse location

Transfer Hire Model

Illustration: S Kausar Hussain

Products on the pallets are unloaded from the truck using a forklift and placed directly on the pallets racks

LOGISTICS TIMES October 2010

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FMC G Who Depot p lesal laces e CHE P Pal r order o lets n

Pallets are loaded directly on the Truck and dispatched to Wholesaler Warehouse

In this dispatch, Chep India President Pranil Vadgama explains what Transfer Hire Model is all about.

HEP picks C ts Forklift uc d ith Pro Pallet w ds directly a and Lo the Truck on

LOGISTICS TIMES October 2010

T

ransfer Hire is the movement of standard equipment such as pallets and crates between multiple companies across the supply chain.

This type of movement is also terms as Exchange Programs. This arrangement works best for companies that work together regularly and share similar shipping needs.

The service provider like CHEP uses advanced software application systems to track this equipment as it moves through the supply chain.

This level of involvement among businesses is not uncommon in the new global economy. Manufacturers, retailers and Warehouses can work together to share packing materials that meet their common goals.

This consortium can order customized

shipping equipment with certain dimensions to create standard sizes within the exchange. CHEP facilitates equipment exchange by working with the many stakeholders across the supply chain

•

•

Benefits •

• •

•

Saving in precious Capex as the equipment is owned by CHEP and the Operating Cost is shared by all the participants across the supply chain Faster loading time as compared to manual operations Reduced manual handling, leading to lower product damages and improved customer satisfaction Eliminated contract manual labor cost at receiver location due to automation of unloading products

•

•

Improved packaging configuration on CHEP equipment compared to non-standard equipment thereby optimizing space usage Faster truck turnaround time leading to improved dock utilization Improved asset utilization as truck can do multiple trips in a day thereby reducing cost per trip Unitized load (stretch wrapped) leads to reduced product shrinkage and damage during transit Members can add green credentials to their portfolios

Indian Scenario CHEP is the pioneer in India in advocating the Transfer Hire model to various industries, trade bodies, government agencies and almost all stake holders across the supply chain. The challenges

Savings: 17% `/ton 411 22 `/ton 350 5

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131 Illustration: S Kausar Hussain

LEARNING CURVE

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51

Product Damage & Shrinkage Transport Cost

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Unloading Cost

25 Without CHEP

LOGISTICS TIMES October 2010

With CHEP

Loading Cost

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Potential saving to FMCG-Retail Supply Chain An estimated 201mn tons of goods were produced by the Indian FMCG manufacturers in 2008, generating a revenue of US $15bn

Retail Market in India is currently estimated at US $400bn

At 8%-9% of GDP estimation, the logistics spend between FMCG and retail put together is US $33bn

Illustration: S Kausar Hussain

Potential savings based on trial=17% of US$33bn= US$6bn

are many and not limited to the ones mentioned below: • Rampant use of non standard equipment • Under developed Infra structure • Non-standard truck bodies • A typical mindset to ‘OWN’ equipment • No defined standards by any government body on equipment dimensions.

Value proposition • • • •

•

CHEP service offer should deliver following benefits: improved warehouse and transport utilization acceleration of supply chain flows defining “unit loads” for the industry, facilitating future supply chain integration through standardization improved demand planning for equipment

• •

reduction in product damage reduction in risk of equipment loss through establishment of sound processes and systems In the next issue, I will be discussing pilot that was conducted as part of case study of an actual palletized movement transfer between a leading FMCG company to a wholesaler in the South of India which resulted in demonstrating the 17% savings associated with a transfer hire model.

LOGISTICS TIMES October 2010

FACILITY SCAN

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Om Logistics’ facility @ Binola Om Logistics’ warehouse at Binola, on DelhiJaipur highway near Manesar in Haryana is a state-of-the-art facility. In strategic terms, the unit plays a crucial role in delivering to the nearby clients mostly positioned in the hot commercial hub Gurgaon as well as distribution on a panIndian basis.

The company has nearly 20 warehouses in Delhi/ NCR and the Binola facility is the biggest of them all. There are two warehouses at Binola just near to each other. The first one was unveiled in 2007 offering 90,000 square feet covered area and is equipped with all modern amenities. It is mostly used to cater to the demands of clients in Gurgaon. While the second unit which has a covered area of one lakh square feet and is used for distribution on a pan-Indian basis. This multi-user facility caters mostly to the clients of pharmaceuticals, automotive and retail sectors.

LOGISTICS TIMES October 2010

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LOGISTICS TIMES October 2010

PROFILE

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T

hings happen in life scripted by an Invisible Hand. You and I think we plan and schedule. No. Definitely not.

You look for something or someone and land up with or reach out to someone never intended in the first place. Does it mean, planning has no role in life or business? Nope. Even the “planning” stage is scripted by that Invisible Hand, I strongly believe.

While conversing with Maharashtra Maritime Board officials a few months ago on the proliferation of private ports on the western coast and logistical operations & infrastructure at those facilities, I was asked: “Have you heard of Credence Logistics - they run the

operates from, I land up in Rudrapur in Uttaranchal where they were celebrating their 20th year of operation. Credence Logistics, 20 years old? What’s it association with metal industry? And why celebrating in Rudrapur? Questions whiz past while I wait in the hotel lobby.

I watch a professorial-looking gentleman sail past and wonder whether it is Him. Soon Arvind Ambo of Credence Logistics escorts me to his Boss. Yes, I was right. Six feet tall, certainly because I (5’ 11”) I have to look ‘up’ to him. He is surrounded by his colleagues briefing him perhaps on the day’s proceedings.

Soon after the handshake, others quietly dissolve enabling me to escort him to a quiet corner for a focused dialogue.

reputation with clients. “It’s tough, but that’s the reality,” adds he. Very dignified.

You need to be all-focused on him to hear him out.

I was eager to know more about Credence’s proximity to the metal industry. Yes, Pradeep concedes, the company earlier known as Garuda Carriers, catered to the needs of the steel giant, Ispat Industries and hence built an unmatchable and unbeatable competence in managing end to end logistics and supply chain needs of the metal industry. Pradeep was brought in to develop it into a separate business entity with a lot more professionalism.

He built up a strong, multi-faceted and dynamic team which was skilled and

The real cool guy operations of a Port at Dharamtar (west coast)”? Nope. Not at all. You must check them out, I was advised.

Subsequent phone calls to a bunch of contacts in the industry revealed that the ideal person to talk to is Pradeep Tewari, Chief Executive Officer of Credence Logistics. As advised, I quickly dashed off an email to him.

Though we kept exchanging emails for a few days, I had to wait several weeks before the opportunity to meet him in flesh and blood happened.

Remember the Invisible Hand? Yes, it is at work. Instead of Mumbai where he LOGISTICS TIMES October 2010

Complete Package “I’m a complete logistics man,” thus begins Pradeep Tewari. An ex-TCI and ex-Gati hand. “I’ve seen clients expressing displeasure over dealing with multiple entities to get their job done and they, I felt, would love to deal with a single entity,” explains he. The hall where the celebrations would begin maybe in the next hour or so is empty except us and a few helping hands setting up the stage, lighting and catering.

A veteran logistician like Pradeep ungrudgingly admits that very few logistics companies have a good

empowered to take the next big leap forward. Naturally, once the company began to service clients outside the Ispat fold under Pradeep’s stewardship, the business grew at a fast pace, thanks to the Indian economy setting up a scorching pace, mostly untouched by the global financial tsunami. Next step was to rebrand the company as Credence Logistics. A lot of time and effort was spent in building a product and service portfolio that was relevant and appealing to companies across different industries.

Simultaneously he developed a pan-India branch network that would take out the

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business proposition to clients in focus industries.

Right now the focus is on bulk movement and there is no shortage on that front: steel, cement, coal both within and from outside. Clients importing coal need port assistance.

Pradeep and company are ready with experts manning pivotal verticals. “For me, logistics means going beyond transportation and includes production planning. Nothing less,” says he as I listen to him like an attentive student bewitched. Has he cast a spell on me?

Perhaps. Words are measured. Infoladen.

following the top-of-line TPM practices for its fleet management. In the next 3 years they are progressing steadily towards Six Sigma certification. This will probably be a first for Indian logistics industry.

Today Credence under Pradeep, boasts of a robust management profile with senior experienced executives who have worked in top-notch companies and high pedigree from ISB, IIMs, IITs. This team has been working to establish ABC Cost Management philosophy. The aim is to be able to serve its customers needs of time and cost most profitably.

Rudrapur? Why? Six Sigma & TPM in logistics!

Pradeep is spearheading efforts to build a logistics service provider – with a difference. Credence prides itself in

Next obvious question: why celebrations in Rudrapur? “Our focus is non-metros.

Rudrapur is an emerging hub with huge business potential and importantly, this location lacks logistical services,” pat comes the reply. He has already bagged a couple of clients who are punch pleased with Credence Logistics services which I understand much later as I sit through the celebrations late into the night. Pradeep means what he says. After Rudrapur (situated 250 kilometres away from New Delhi), he plans to pitch tent at Jamshedpur and some undisclosed destination in the south. Not Chennai where he already has a presence due to port movement activities.

Dreaming is one thing and making it a reality is another gigantic task. The job is onerous due to lack of hardcore logistics professionals in India.

He is adopting a twopronged strategy: roping available hardcore logistics professionals and induct professionals from other industries for marketing and customer interaction side. The integration is proceeding smoothly, claims a proud Pradeep.

Put it simply, he

wants to position Credence Logistics both as a planner and executioner.

Unless the planner has a role to perform as well, the desired results may not fructify, he maintains. The company is growing at a fast clip. Financials are not a worry at all.

Of course, he is open to inviting Private Equity Firms into his fold. IPO, definitely, will follow at a later stage. Not immediately.

Right now, Credence Logistics is building up competence and the major thrust is on process-orientation. Steel companies are his major clients and plans to set up offices in China and Indonesia are taking shape in the next few weeks.

Multimodal will be the thrust area. The company owns more than a dozen barges and several chartered associates for vessels to carry bulk items from wherever.

In a span of six years after joining and looking after Bombay and Nagpur, today Pradeep – who began his career as a lecturer in DAV College, Kanpur teaching Physics and lured into logistics arena through a management trainee position advert for TCI – has a big presence.

Companies, he points out, are keen to deal with real owners and not brokers on logistics issues. That’s Credence Logistics, given its bulk logistics experience, is going to score over others. Each customer needs 500 to 1000 vehicles for movement, but very few have that size fleet. But managing a clutch of dedicated associates would be the ideal route, but this needs planning which Pradeep and team is confident of providing.

Way back in 2004, the company notched Rs.80 crore. Today it close to Rs.300 crore and the 1964-born honcho hopes to close the current financial year close to Rs.500 crore. Business is there.

Expertise is there.

This business is dynamic and stressful as well. Does he spend sleepless nights?

Earlier, sure. Not anymore. How come?

“One has learnt the tricks,” responds Pradeep. He’s a real cool guy.

–Ramesh Kumar LOGISTICS TIMES October 2010

EVENTS TS

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TCI-CII Round Table on Supply Chain Optimization Transport Corporation of India (TCI) in association with CII Institute of Logistics organised a Round Table Conference on ‘Supply Chain Optimisation and Excellence’ in the Telecom Sector last month in Delhi to discuss the challenges in supply chain in light of current and future trends.

Present on the occasion were Vineet Agarwal, Executive Director, TCI; Ravi Shankar, Professor, IIT Delhi; VGS Mani, Country Logistics Manager, Nokia; K. Raghuraman, Sr. Manager Logistics, Samsung; Rajkiran Kanagala, Head Business Development, TCI Supply Chain Solutions and Shailen Shukla, CEO Bright Point India Pvt Ltd.

DHL bags “Custom House Agent of the Year” award DHL received the “Custom House Agent of the Year” award at the Maritime & Logistics Awards 2010 early this month. The award was received by Snehal Parekh, Chairman, DHL Lemuir Logistics Pvt. Ltd. at the Taj President, Mumbai. The Maritime and Logistics Awards (MALA) 2010 acknowledge excellence in all-India maritime and logistics sectors. The winners were chosen by an experienced and professional jury chaired by DT Joseph, former shipping secretary.

LOGISTICS TIMES October 2010

EVENTS

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CILT-DTDC ses seminar discusses manpower issues sues

To address the serious mismatch between re requirement and availability of professionals in logistics b business, (India) and Chartered Institute of Logistics and Transport (India DTDC Institute of Supply Chain Management, jointly join organized a seminar dealing with “Careers in Logistics” in the National Rail Museum premises on 25 Sep 2010, to which prospective managers from the leading management ent institutes in and around Delhi were invited.

The seminar minar was addressed by some of the leading luminaries naries in the field of logistics and included captains of industry, heads of some of the largest public sector undertakings in the field of logistics in India, well known academicians, career counselors, practicing logistics managers and prospective employers of logistics managers of the future.

Customers’ meet in Rudrapur

Credence Logistics recently celebrated its 20th anniversary in Rudrapur, Uttranchal. As part of this one day long programme, CEO Pradeep Tewari along with the entire senior management (See Picture) interacted with local, prestigious clients.

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A ACCD Meet

Air Cargo Club of Delhi (ACCD) organized d lunch Hotel for its members on 15th September at Hote otel Radisattended son in Delhi. The event was well attende ded and the speech major highlight of the session was spee eech delivered

by Sanjiv Edward – Cargo Head, Delhi Del International Airport. In his speech, Edward ard shared the details about the cargo vision for or DIAL with ACCD members. Sanjay Verma, CEO, CE Celebi – Delhi Cargo Management Indiaa (P) Ltd. also addressed explained the gathering and explai lained the precise upgradation and modernization on plans for the existing cargo terminal.

New Convention centre in Hyderabad The Leonia International Centre for Exhibitions and Conventions (LICEC), housed at LMIPHL’s signature property Leonia Holistic Destination, Shameerpet, Hyderabad was unveiled recently. LICEC is India’s first of its kind world-class innovative multi-purpose convention centre, which can host meetings, conventions, exhibitions and events. The main hall area along with the galleries is approximately 5,838 sq. mtrs and can accommodate up to 7500 plus delegates in a theatre style seating.

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Classic dilemma W

e all heard of Work-Life Balance. But what could be “Work-Work” Balance?

Simple, day in day out life of a person working for a Logistics (or any) service providing organization at a customer site to improve, streamline or manage change in existing operations! Many corporates are investing a lot to have the work life balance in place, but SCM companies need to start invest in holistically bringing up the Work-Work Balance.

For anybody who has worked in a 3PL or a contract organization would have faced this. You need to keep two boss groups happy, content and in good humour always - bosses of your organization and bosses of your customer organization.

Without Work-Work Balance, you cannot have a work life balance out here. Which “bosses” should be happy as an outcome of your priority management would decide whether you would have both.

Normally the change management plan is devised on the basis of various inputs given by the customer’s strategic planning team to the business excellence and solution development team of service providing organization.

Many a time, it would happen in such a way that, (even though not intended) many or some inputs would be different from the basic ground realities happening at an operational level, whether its a manufacturing point, stocking point or a distribution point.

Mainly this happens when each manufacturing unit is having independent P&L stream, and strategic planning or corporate team is having only a brand management, market share improvement, technology improvisation controls over the overall scheme of things, unlike services organizations, where once a critical mass of operations is attained, a lot of focus is auto-generated for standardization of procedures, processes and people management. While in geographically different manufacturing units producing various or same products, LOGISTICS TIMES October 2010

this standardization could be a far cry.

Moreover, each unit with local ethos, geo-political conditions, labour laws & practices, could drive different processes, ultimately delivering the promise within their costs & required quality.

In this backdrop, any work-around on the change management plan which would have been mutually agreed between the providing and utilizing organizations is bound to be viewed as a let down or noncompliance by both groups of bosses.

There would be various and diverse dynamics, undercurrents, relations between strategic planning team and the team who is handling the operations on the ground of the customer organization.

The improvisations would be required in an intangible way due to these various dynamics, undercurrents etc. (plainspeak - ego clash, group play, brooding politics between operations and management teams or just far-from-reality plans devised by/from just data warehousing fields). The jurisprudence of finalising what information to be shared and what not to be is going to be the main differentiator of the whole game, which many people cannot handle because of immaturity, one-upmanship, eagerness or sheer hypocrisy.

There would be your external customer representatives waiting eagerly to collect your feedbacks, reviews, results, analyses of your previous day, or week or fortnight or month as the case may be depending on the working relationship you have developed with the customer. Your own senior management representatives also would be equally eager to get a feel on how the planned change management is emerging and maturing as the time passes by.

There is a raison d’etre for this closer scrutiny from your own organisation.

Your success is going to be trumpeted in a mature manner for acquiring more customers of the same industry and of other industries after customizing appropriately. When both realise that

the plan made remained on the plansheet, real change happened through some times ingenious improvisations from the operating teams from both sides, a scramble to accrue credit would be unleashed. This affects mainly the onsite ground level personnel of the service providing group, when all or many ponder that how the details reached the top level and how the reasons were ascertained in such precision.

So how to come out in flying colours with “Work-Work” balance? A lot of data from both legacy and on-going operations should be available for all three stakeholders - service providing organization management, corporate/ strategic planning management of service utilization organization and onsite management of service utilization organization. If there is an “e-board” where free flow of all concerned data, details, analyses, counter measures meant for all stakeholders without any access level, the “issue” can be easily or probably auto-resolved.

In case if this not available, top-to-top level precursory communication should be the first step. For this clear statement of issue, effect, root cause analysis, counter measure, responsibility, due date and remarks to be shared. Next course of action can be decided by both top managements, with a gentle but firm diktat that all other stakeholders should follow the agreed procedural guidelines.

Sure there are going to be “chilly-sauces” exchanges at grass root level. But, if the primary goal and the ultimate aim of all involved is the same - to have a service rendered at the right time, at the cost, then ‘Work-Work’ balance can sure be attained, there by Work-Life balance too. Only thing is to ensure the play making ability of the above mentioned “differentiator”.

—Deeyem (The author is a 17-year veteran in the logistics and

supply chain industry. He will appear on these regular pages occasionally to share his observations and insights.)

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