Lt decemeber 2011

BIG ISSUE FDI

REPORT AGRI-BUSINESS

CARSTEN'S CALL THE HK EXAMPLE

LogisticsTimes www.logisticstimes.net

December 2011

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Khurja FTWZ Das Logi-Infra As country’s biggest Free Trade Warehousing Zone (FTWZ) gets ready to be commissioned, Logistics Times takes a stock of its enormity and dimensions. A report from ground zero…

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Logistics Times

CONTENTS

All about Transportation, Distribution & Infrastructure

Volume 2: Issue No.8 * December 2011 Editor in Chief

Raj Misra rajmisra@logisticstimes.net

Editor

Ritwik Sinha ritwik@logisticstimes.net

Sub Editor Photographer Design Consultant Designer Circulation & Distribution Legal Advisor

Neha Richariya Anil Baral S. Athar Hussain

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COVER STORY KHURJA FTWZ Das Logi-Infra

Kausar Syed Kamruddin SaiďŹ Rakesh Garg

Our Bureau Mumbai Rahul Kumar rahul@logisticstimes.net Bangalore B Shekhar shekhar@logisticstimes.net Chennai N Raju raju@logisticstimes.net Hyderabad Sudhir Kumar sudhir@logisticstimes.net 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 Sanjay Upendram Founder & Chairman, Amarthi Management Consulting Swaran Singh Soni Consultant (Oil Industry) Arif Siddiqui Chairman, Coign Consulting

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

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Edit Note

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News Briefs

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Carsten’s Call

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Events

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INTERVIEW

BIG ISSUE

Samir Gandhi

FDI in multi-brand retail

42 REPORT

Innovation in Agri-business

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PROFILE

Vineet Kanaujia

EDIT NOTE

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Arshiya FTWZ & Sholay I guess, seeds of the cover story presented in this edition were implanted in my mind quite sometime back. Around the end of the last year, Arshiya had unveiled its first FTWZ at Panvel, near Mumbai and there was significant buzz about this facility that it has created a new benchmark in the sphere of logistics infrastructure in the country. So seven-eight months ago, when I was engaged in a casual conversation with an industry friend who had visited Panvel, I simply asked him: “ Is this unit really as grand as the buzz suggests?” He didn’t take a moment to reply, “ You have to be there to believe it. Its like Sholay.” Well, in north India, we do have this habit of borrowing cinematic terms/names to define things and in popular perception Sholay simply means something of an epic proportion.

About three months back the desire to watch Arshiya’s FTWZ initiative from close quarters got a fresh impetus when I attended a conference in Delhi where Capt. Pawanexh Kohli of Arshiya made an assertive presentation explaining the highlights of the world class facility which the company is creating at Khurja, western Uttar Pradesh. “ I would like to see your Khurja unit,” I told him in no uncertain terms after the conference was over. “If you want to make a sense of Khurja unit, you must visit Panvel first,” pat came the reply. Fortunately, a Mumbai trip was on the cards which facilitated me the chance to visit Panvel and I found it no differently than what my friend had conveyed using that cinematic analogy. However, the accompanying official stumped me further by informing that Khurja unit would be double in size of Panvel. Needless to say, on returning to Delhi, visiting Khurja was the top priority for me which ultimately happened last month.

Having seen it with my own eyes ( Logistics Times, I am told, is the first publication which has visited this site), I think the most apt expression I can use is manifestation of a big ticket vision. The sprawling 315 acres complex disticntly divided into three sections – FTWZ, Domestic Distriparks and Railways Terminal – has been created in anticipation of the perceived benefits emerging out of being a confluence point of the eastern and western ends of the ambitious Dedicated Freight Corridor project. In a country, where logistics infrastructure does not have much to boast about, Arshiya has definitely shown the courage to up the ante in the domain. This is going to be biggest FTWZ in the country and Arshiya’s grit is well reflected in the fact that it has been created in a pocket which is hardly considered to be blessed with any progressive economic agenda. But like that evergreen blockbuster Sholay, they probably believe that they are creating something which would have perennial appeal. Leaf through the cover story to get a feel of the enormity and dimensions of Khurja FTWZ unit … “ To be or not to be,” the union government was recently besiged by this Shakespearean dilemma on the issue of allowing FDI in multi-brand retail. First, it gave the green signal, displaying strong resolve to take it through. But then opposition with heavy political overtones mounted and the government had to ultimately opt for ‘not to be’ side of the proposition till a consensus emerges. However, like other wings of India Inc., representatives of the logistics industry too were enthused with this move underlining that it would expedite the refinement of supply chain processes. Even as the move has been put on hold for the time being, they too eagerly expect the intiative to see the light of the day – sooner rather than latter. Flip through the Big Issue section to gauge the mood of the logistics industry on this much needed yet elusive initiative.

Waiting for your feedback.

Ritwik Sinha ritwik@logisticstimes.net

LOGISTICS TIMES August 2011

NEWS BRIEFS

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Central India’s largest warehousing facility unveiled Domestic logistics major Safexpress, launched the largest warehousing facility of central India at Indore last month in a grand ceremony. This ultra-modern Logistics Park is expected to play a major role in improving the storage and distribution infrastructure in the region.

Speaking during the launch ceremony, Pawan Jain, CMD, Safexpress said, “We feel great pride in having launched this Logistics Park at Indore, which will help raise the standards of supply chain & logistics in this region to a very different level. We have invested Rs. 85 crore in developing this facility at Indore.

We expect the economy of Indore region to continue growing at a very healthy rate in the years to come, and keeping that in mind we have made a significant investment here. We plan to not only leverage from the healthy growth of this region, but also to contribute in bringing about this growth in the first place by setting up world-class supply chain & logistics infrastructure.”

According to a company release, the Logistics Park at Indore offers a staggering 11,50,000 square feet of area which makes it central India’s largest warehousing facility. It is located strategically at Agra-Bombay Road on National Highway 3 and the setup is slated to fulfill the warehousing needs of companies located in and around Indore.

MICT handles largest ship to call an Indian Port Last month, the state- of- the- art Mundra International Container Terminal (MICT) operated by DP World, witnessed the berthing of the largest ever container vessel to call any port in India. The APL Italy with a length of 334 meters and with a carrying capacity of 8402 TEU was the largest APL Vessel berthed at any port in the country.

Speaking on the occasion, Anil Singh, Sr VP & Managing Director of DP World Subcontinent said “APL’s decision to bring the APL Italy to MICT reflects the growing faith of global shipping lines in the potential of the infrastructure we have built at Mundra port” Ramji Krishnan, Chief Executive Officer, LOGISTICS TIMES December 2011

MICT added, “This is an important milestone for us in MICT, and endorses our capability to handle the largest mainline container vessels with the highest productivity standards.”

As one of the most sophisticated and technically advanced port facilities in the Indian Subcontinent, strategically located at Mundra port in Gujarat, MICT is the closest gateway to the largest cargo generating regions of North and Northwest India. From handling 20,000 TEUs in its first year of operations, today MICT has developed the port into a million TEU hub.

Air Freight Decline Continues The International Air Transport Association (IATA) recently announced global traffic results for October which underlined a serious dip in cargo traffic. Cargo demand was 4.7% below the same month in 2010 while passenger traffic showed a 3.6% rise over previous year levels.

“Cargo is the story of the month. Since mid-year the market has shrunk by almost 5% and this is far greater than the 1% fall in world trade. Air freight is among the first sectors to suffer when businesses confidence declines,” said Tony Tyler, IATA’s Director General and CEO. While business confidence has declined considerably in recent months, industrial output has not. But in anticipation of weaker economic activity, there is a shift to cheaper and slower modes of transport.

According to an IATA release, the confidence of purchasing managers in the manufacturing sector has fallen to its lowest level since 2009. This loss of confidence appears to have caused shippers to switch some transport needs to slower and cheaper sea options to the detriment of air freight which showed a 4.7% decline in October compared to the previous year. Furthermore, airlines have responded to weaker demand by cutting their freighter fleet. But this has not stopped a steady and substantial five percentage point fall in freight load factors compared to their early 2010 peak owing to capacity entering the market via wide-bodied passenger aircraft.

Kale expands IT portfolio

Kale Logistics Solutions has now expanded its IT portfolio to meet the requirements of Warehousing, 3PL/ Manufacturers, Transport & Fleet Operators. At the recently concluded CTL Expo 2011, Kale Logistics introduced PYXIS – a Web based Warehousing and Distribution Management system and

Warehouse acquisition Future Supply Chains, supply chain and logistics unit of Future Group, has acquired a warehousing unit of Transmart India by taking over a state of the art Distribution Centre Facility along with the existing business.

Future Supply Chains has been expanding its infrastructure rapidly over the past twoyears and according to a compant release, the latest addition is part of its expansion strategy. “With this acquisition, Future Supply Chains not only gets the best Distribution Centre facility in the Western Region of India but also inherits Transmart’s customers giving Future Supply Chains a jumpstart in acquisition of customers for its Contract Logistics division outside of Future Group,” the release maintained.

Future Supply Chains is also in talks with Transmart to take over their Delhi and Bangalore warehousing operations and hence completing the acquisition of the entire warehousing (also called 3PL in industry parlance) business of Transmart.

HELIOS- an end-to-end web based Transportation & Fleet Management System. D T Joseph – IAS & Former SecretaryMinistry of Shipping and L. Radhakrishnan, ChairmanJawaharlal Nehru Port Trust were present at the launch function.

According to a company release, PYXIS Warehouse Management solution optimizes every stage of the warehouse process starting from the point an inbound shipment enters the warehouse until after an outbound shipment leaves. Another product, HELIOS is a web-based transportation & fleet management system comprising of two modules- HELIOS TRANS & HELIOS FLEET. HELIOS TRANS helps transportation service providers to manage entire business lifecycle including vehicle request, placement, delivery and billing.

Speaking at the launch function, Vineet Malhotra – Global Head Sales and Marketing -Kale Logistics Solutions said, “We are delighted to bring two new solutions to the Global Logistics market. We are now in a unique position to offer an end-to-end and integrated solution for Logistics businesses offering door to door multi-modal cargo movement.”

LOGISTICS TIMES December 2011

NEWS BRIEFS

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CARSTENÊS CALL

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The HK example Carsten Hernig, Regional Director (South Asia & Middle East), Lufthansa Cargo

LOGISTICS TIMES December 2011

India is the country of growth stories. It is not any different when it comes to logistics and as we know, India is one of the fast growing air cargo markets. At the same time – due to the nature of the industries present – the Indian cargo market produces consignments with an unusual high amount of pieces per shipment.

At Indian airports, we are facing a significant problem of counting, sorting and storing of loose packages which occupies more space and requires multiple handling. From truck dock to build-up on export and same way from arrival to delivery each package is handled in average five times which means if we handle total 70,000 packages in a day, it will mean 350,000 physical interactions with the consignments. In addition the growth of the Indian air freight exports and imports – leave aside the transit – will further increase the number of shipments. To make

things more complicated at many international Indian airports infrastructural restrictions are creating a difficult environment for such a labor- and space intensive process. The result of this combination of factors is low speed combined with quality levels which do require improvement. Airport cargo terminals are no storage spaces but transit points - however, a dwell time of imports up to 120 hours slows down the flow of goods and creates a major storage concern in the prime space of airport land. A deeper look into this situation shows that infrastructure alone will not improve the situation in the long run. Along with improved infrastructure the acceptance, clearing and handling processes will have to be designed in a more efficient manner. Otherwise the number of pieces will soon again paralyze any extended infrastructure and the slow speed of

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the handling process will lead to offloads, which will even further deteriorate the situation since these offloads require additional storage space.

So how do other major cargo airports do? Hong Kong is yet the biggest cargo airport of the world in terms of tonnage handled. Being only a small piece of land, functioning with an artificially reclaimed piece of land as airport, the territory of Hong Kong is rather space restricted and the space situation was way worse at the old airport in Kai Tak. Given these factors the community in Hong Kong was forced to move physical handling activities away from the airport land which resulted in a setup in which cargo agents are building up the pallets and do deliver the full units, so called BUP, on roller bed trucks to the airport. The advantages in terms of process efficiency are obvious: transit times are short, multiple handling is avoided, customs inspection is based

on random checks and way less space is needed for storage and physical handling.

At the same time mishandling ,theft and pilferage are almost zero and even during peak hours the cargo flow is smooth and within planned time limits. Four million tons of cargo are moving through the warehouses per year with a share of full pallets in the 90 percent range – an amount of cargo which would be impossible to handle in a lose piece scenario.

Another good example is Frankfurt airport where service providers such as Lufthansa Cargo in it’s service centre in Cargo City South offer the fully secured handling and build up/break down service to agents.

Back to India. The cargo delivery process at the airport is entirely based on lose piece delivery. This is the case for exports and imports. Along with the lose piece concept goes a total x-ray concept, which grants maximum security, a feature

which neither authorities nor airlines can afford to miss out. In consequence an uncontrolled delivery of units to the airports is no solution in particular since pallet scanners do still have limitations.

This means on the export side the scenario is more difficult, since the utmost priority of every air movement has to be safety and security. Establishing a process in which full units are being delivered to the airport requires a seamless security process under the control of the airline and the authorities. This is frequently criticized in existing full unit markets and it is expected that regulations might be tightened in the future. However we – as the Indian Air Cargo Industry – should not look at this as an obstacle.

In the contrary, there is no large scale BUP concept in place in India. So we do jointly have the unique opportunity to design a scenario which fulfils all security requirements by screening on individual piece level and at the same time eases the process and the congestion at the airports.

A possible solution could be off-airport terminals, which would operate under full control of the security authorities and where pallets are being built before they are delivered securely to the airport While exports do give reason for additional homework, the situation on the import side is relatively easy. It would be a significant acceleration of the import process if full units could be delivered to agent of consignee warehouses – no breakdown at the airport, which means no congestion and finally a decentralized custom clearance process which in the frame of the newly modern IT systems should be possible to realize.

It is time to actively think about these solutions. The process re design is an equally important part for the future of the Indian air cargo market as the provision of infrastructure.

Otherwise those newly extended airport infrastructures will soon be insufficient again. Major cargo airports in India do already by have storage facilities (ETV) for pallets. In other words part of the infrastructure required is already in existence. It is mainly the process which needs to be designed!

LOGISTICS TIMES December 2011

INTERVIEW

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Our manufacturing unit would bring down the cost

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LOGISTICS TIMES December 2011

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Mumbai headquartered Gandhi Automation is the leading player in the country in the automation business.

The company which has been in this business since 1996 has primarily built on its strength to collaborate as distributor and importer with major automation MNCs. But now it has set its eyes in having its own manufacturing plant. In a candid conversation with Ritwik Sinha, the CEO of the firm Samir Gandhi shares the details of the new directions Gandhi Automation is keen to take in the future. Excerpts: I will begin with a very simple question. Please take me through to the evolution of your company.

This company came into existence in 1996 and today I think you are one of the front ranking players in the country in the automation segment. How did you manage to reach to this stage?

We are not just one of the leading automation companies. We are, in fact, the number one company in this segment. We are number one in entrance automation and holds the same rank when it comes to vehicle loading automation. We also have quite a strength in warehouse related items like loading bay equipments.

Our offerings for warehouses also include Sectional Overherd Doors, Dock Levellers, Dock Shelters, etc. I am a chemical engineer by education.

I did my chemical engineering in 1990 from UDCT. Then I worked as design engineer for five years for a chemical company in Mumbai. My father was in the business of fabrication and rolling shutter manufacturing. It was doing well and ultimately I decided to lend him a helping hand. Around the same time, my

brother also graduated in the commerce stream and both of us decided to join our father’s business. We started this company in 1996.

How did this idea of getting into automation take roots?

As I said, we were already manufacturing rolling shutters. During that spell, rolling shutters were mainly manual. We often used to make very big rolling shutters – products of 50 feet wide and 30 feet high dimensions. But it was very cumbersome when you operated it manually. So that set us on thinking if we can come out with motorized shutters. Around that time, the internet boom had started. And it became easier for us to find out advanced technologies being used in other parts of the world. That’s how we came to know of many companies providing these motorized rolling shutters in Europe and US. We visited those companies and tied up with some of them initially and started importing rolling shutter automation systems. That was the first decisive step in bringing in advanced automation. From then onwards, we gradually enlarged our portfolio – automated gates, barriers, etc.

Around 2000, we introduced products which are primarily used in logistics and warehouse operations like Dock Levellers, Sectional Overhead Doors, etc. One thing led to another and this is how we grew. Today when I recall, the first major breakthrough was with Nokia. They were setting up a huge manufacturing plant in Sriperumbudur near Chennai.

It was about seven-eight years ago.

There we supplied all the Doors, Dock Levellers, Dock Shelters, etc. In terms of real business catalyst, that contract was a milestone for us. Nokia had many vendors around their facility and they also subscribed to our products. The next big project which we got was from Tata Motors for their Lucknow plant where they started manufacturing their Marco Polo buses. It was five-six years ago.

There also we supplied everything. And that drew the attention of others and our list of customers grew.

I am quite curious to understand that around 2000, you started to cater to logistics sector also, particularly warehousing. That must have been a phase when very LOGISTICS TIMES December 2011

} We have reached that threshold wherein we can produce locally, provide similar quality as an imported equipment and can probably sell them to our customers at cheaper costs. We are of the opinion that if we start indigenous products, the pricing may come down by as much as 30 percent.

}

INTERVIEW

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few people, in fact, would have been using the term logistics.

That’s true. Actually some friends of mine were in cold storage business.

And I used to find them always cribbing about lack of automated facilities. In fact, suggestion came from their end to start providing automated equipments to the logistics sector which we took seriously.

Give me a sense of your present scale – your entire product range and the number of international automation equipment manufacturers you are representing in the country as distributor?

We are currently representing nearly 25 European and American companies in India. But major chunk of our business, say 70-80 percent of our business, comes from selling the products of four-five companies in India. These companies are Ditec, Campisa, Anteo, Bolzoni and Gaposa. These companies take care of 80 percent of our business. And our product profile includes nearly 30 exclusive equipments, each with several set of variants. If you include all of them, our profile comprises as many as 100 products.

When you get into distribution partnership with any international manufacturer, does it always happen to be an exclusive arrangement?

Yes, because we develop the markets LOGISTICS TIMES December 2011

for them. You rightly said that not many knew about logistics ten years ago. In our case, it has always been creating the market for the product. When we put in so much of effort, time, energy and money, there could be no other way but to ask for exclusive arrangements.

India is a huge country in the geographical sense and catering to all corners is quite an exercise.

Give me a sense of the set-up you have created to serve your clients on the pan-country basis.

We certainly have an extensive network today. Just to cite an example, we have just supplied an equipment to Border Security Force (BSF) in Ladakhnear China border.

When our engineer was installing the machine, the Chinese soldiers were just 50 feet away. Similarly, we have installed some security devices recently at Manipur CM’s residence in Imphal. The point is: today we can cater on a pan-country basis. And it is primarily because right from the beginning we had a clear vision that we would not just aspire to be a local player. So right from 1996-97, we started our own set-up in Ahmedabad, then Pune and gradually we added new locations moving on to Chennai, New Delhi, Kolkata, Bengaluru and Hyderabad. Thus we have gradually built up quite a network in last 15 years- efficient enough to serve anywhere in the country.

What kind of headcount you have

if you include your all regional centers?

On a pan-India basis, there are about 400 people on our rolls. Apart from that, we also have our dealers, distributors or agencies which help in installing networks.

May I ask you in how many cities you have direct presence? And secondly, after sales service is so important in this line of business. How do you manage that especially given the fact that technology belongs to a foreign manufacturer?

We are directly present in 18 cities. West and North regions are certainly our strongholds. In east, the presence is a bit scattered at this moment. But the bottomline as I said before is that we can make ourselves available anywhere in the country. Coming to after sales service, we have a holistic approach on this front. We do not restrict ourselves in just importing the machines, selling it to Indian customers and then forgetting about it. Right from the beginning, we have been following this norm of sending our engineers to the training centers of our manufacturing partners so that we are not found lacking in undertaking after sales service here in India. These engineers when they come back in turn train our personnel at the regional level. We have a solid base of around 160 personnel in our customer care department. We also have a dedicated toll free number operating on a 24x7 basis.

What’s your topline number?

And how would you explain your financial growth in last five years?

Our last year’s cumulative sales figure was Rs 81 crore and at the end of current fiscal, we expect our turnover to cross Rs 100 crore mark. In 2009-10, the figure had stood at Rs 60 crore. So on a broader basis, if you ask me the trend of last five years, then our sales growth has been in the trajectory of 30-40 percent on annualised basis. Even during the crisis period of 2008-09 when economy was under severe slowdown pressure, we had managed to show a growth of around 20 percent.

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From importer to manufaturing machines on your own, that is the big plan for you in your pursuit to take Gandhi Automation to the next level. But there is a world of difference in being an efficient distributor and being a manufacturer.How do you precisely intend to graduate to a new orbit?

As I told you, during the early stage of this company we were a manufacturer though on a small scale. My father was manufacturing rolling shutters, gates, and the automation system was coming from abroad. Now we are planning to manufacture Doors, Dock Levellers and Loading Bay equipments also in India in technical collaboration with European and American firms. Even as we are number one company when it comes to distribution of automated systems and machines, we believe that we can provide more benefits to our customers if we could produce the same systems locally.

And I think, the moment has arrived for this initiative. In our estimation, we have reached that threshold wherein

} The

importing and distribution of automation products is a low barrier business. Anybody can bring any machine and claim I am in the automation business.

But the critical differentiator is: after sales service and reliability.

}

A commonplace assumption about logistics industry is that given its high unorganized quotient, players by and large refrain from adopting advanced processes which obviously also includes automation. Have you noticed any change in this attitude in last couple of years?

Yes, indeed. In the last five-six years, a lot of MNC firms have put up their plants in India. And they require warehousing facilities. But they demand a certain minimum infrastructure from the warehousing companies which was not the case earlier. Manufacturers also consider how efficiently warehousing can be used, how expeditious would be loading, unloading, what kind of security environment is there, etc. So players who are in warehousing business have been compelled to adopt advanced processes and automations. And when somebody starts doing it, then others have to also follow suit in a competitive environment.

So this trend has helped a lot in giving boost to automation business also.

we can produce locally, provide similar quality as an imported equipment and can probably sell them to our customers at cheaper costs. We are of the opinion that if we start indigenous products, the pricing may come down by as hefty a margin as 30 percent. Right now, we pay 27 percent customs duty and 5 percent on freight. So you can straight away make a saving there. It is very simple arithmetic.

Do you have any time bound plan in terms of showing your manufacturing strength in the market?

Yes, of course. We have already signed a deal with Arham Logistics Park. They are building a manufacturing site for us which would spread across on a land parcel of six acres. We will get possession by April, 2012 after which we will be installing the machines. By next year end, our target is to produce 50 percent of our product portfolio from this unit. We have planned to invest Rs 40-45 crore in this unit.

Will you be branding those products afresh? Will they be bearing the name of Gandhi Automation?

Not really. They would continue to have the branding of our technology partners.

What is that big picture you have in mind? Now with this manufacturing strength also coming in, where would you like to see Gandhi

Automation at the end of 2015?

When we started, we had the vision of being a pan-India company. We have achieved that. Now we are introducing this indigenous line of products. And its also driven by the vision to become an export-oriented company. Apart from catering to the growing Indian market, we would like to export our products to Africa, South America and Far-East. I have been to these regions and I believe that quality wise, w we can offer much better products vis-à -vis what they are using right now. Presently, our export chunk is negligible – just two percent of our total turnover. By 2018, 50 percent of our turnover could be coming from exports. By then, our turnover could be quite high.

I believe, the competition is hotting up in your segment. A lot of new players have jumped in the fray.

How is the scene shaping up?

The importing and distribution of automation products is a low barrier business. Anybody can bring any machine and claim I am in the automation business.

But the critical differentiator is: after sales service and reliability.

Most of the players you notice around, do not have their own infrastructure for after sales service and are low in terms of reliability. So the real competitive environment has not emerged as such because there are structural gaps in terms of doing business.

LOGISTICS TIMES December 2011

BIG ISSUE

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FDI in multi-brand retail Following opposition littered with heavy political overtones, the government has decided to put the FDI in multi-brand retail on hold till the emergence of a consensus on the contentious issue. However, representatives of the logistics and allied industry strongly believe that the move will make a world of difference to the prevailing supply chain structure in the country and would want the provision to be implemented - sooner rather than later. Some voices from the industry: LOGISTICS TIMES December 2011

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Foreign Direct Investment has become a vital part in every country more particularly with the developing countries. If foreign direct investment (FDI) is allowed in multi-brand retail, the Indian retail scene is set for a dramatic makeover.

Retailing is one of the world’s largest private industries and retail Vineet Agarwal, in India is of late often being Joint MD, TCI hailed as one of the sunrise sectors in the economy. Liberalizations in FDI have caused a massive restructuring in retail industry. Trade or retailing is the single largest component of the services sector in terms of contribution to GDP. The government’s new policy to increase foreign direct investment in Indian retail sector if implemented could bring a spiraling growth in the industry and will significantly contribute towards the development of the Indian economy.

The most significant will be the creation of back end infrastructure from a very low base across farm level packhouses for horticulture and agriculture products, establishment of cold chains at all levels from mandis to retailers, large scale warehousing and refrigerated transportation.

The boom in the retail sector has been and will continue to give an impetus to the logistics sector. Big retail chains are already following the global model of outsourcing their logistics activities to service providers in order to manage complex supply chains and focus on their core business. The success in the competitive and dynamic retail sector depends on achieving an efficient logistics and supply chain, which could be provided by professional logistics service providers, as they provide best practices and expertise to manage a ready flow of goods and services.

The policy could further allow multi-brand foreign retailers to set up shop in cities with a population of over 10 lakh which according to the 2011 census is prevailing in 55 cities. The big retail chains can now move beyond the metros to smaller cities thus enhancing the networks. This would lead to creation of better distribution networks, ideally through a hub & spoke system.

The sector is also likely to see higher levels of mechanization to meet demands of large retailers for higher quality of service.

FDI will also provide necessary capital for setting up organized retail chain stores. There would be more investments in improved specially designed vehicle fleet.

Anil Arora, MD, M J Logistics

In a holistic sense, Multi Brand Retail “MBR” itself is a logistic services provider because it primarily links the producers to the consumers the major difference being it owns the stock and runs a Business to Consumer model instead of a Business to Business

model of a typical logistics service provider. Hence for a successful Multi Brand Retail, the backend is as important as the front end. But they both have to match in scale, technology and practices to ultimately provide a fruitful result.

MBR flourishes or survives only on volumes as they have to keep the prices competitive with other retail formats which don’t have overheads like them. For this, they work on sourcing economies-primarily finding the best priced vendors and handling economies- where it becomes imperative to invest in logistics and supply chain.

For our industry the most appreciable note in the policy is that 50% of the investment will have to be in the backend and procurement mechanism, the government has been very prudent in giving this caveat. This means that MBR cannot just gloss over the front end, capture the customers and press down the vendors. On the contrary all backend investments will ensure complete involvement with the vendors and the MBR player having a skin in the long term sustenance of its endeavors in India.

Today the focus of most of the logistic services procurers is the unit cost, whether it’s warehouse space or a transportation asset or a Data entry operator. The focus of throughput of an operation and its cost per unit is missing. But with MBR it will have to change. The investment in infrastructure and systems will definitely go up but it will bring in efficiency in the operations to bring the unit costs down. Opening of FDI in MBR will over a period of next 5-10 years bring in best in class supply chain, infrastructure & services.

However, the only word of caution is that any lopsided investment in backend infrastructure will prove to be a costly and potentially a devastating mistake. We have in the past seen that over supply of backend infrastructure which was based on gigantic plans of non-existent retail businesses. This had a negative impact on the industry by creating oversupply and inflating operating costs.

My take is, with this policy world leaders in retail will be able to share their experiences and learn from the Indian terrain at their own cost and the moment they are able to gather critical mass on the front end, they will start transforming the supply chain, transport & logistics sector beyond recognition.

The horticulture produce goes through several intermediaries who add very little value but additional cost to the produce. On top of it, the quality of the produce gradually deteriorates in the long supply chain due to multiple and often improper handling, re-packing, re-grading etc under unhygienic conditions A Srinivasa Ramanujam, and also the absence of cold chain.

Business Head, The traditional supply chain is so Adani Agrifresh ineffective that it benefits neither the producers nor consumers.

There have been several well meaning initiatives in the past to LOGISTICS TIMES December 2011

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remove the bottlenecks in the horticulture produce supply chain.

There are subsidy schemes from the National Horticulture Board and Ministry of Food Processing Industries to promote investment in new production technologies, pack houses, cold stores, refrigerated trucks, terminal markets, mega Food Parks, etc. One of the questions often asked is when there is wastage of 25-30% of horticulture produce in the traditional supply chain and also support of government’s subsidy schemes, why has the private sector not invested in the sector. Unfortunately, the experience of the few companies which entered this space has also not been very encouraging for them to expand their operations.

The situation has not improved even after the government has permitted 100% FDI in back-end infrastructure.

The investment and effort needed to modernise the supply chain is so humungous that it needs coordinated action on a large scale like the way the National Dairy Development Board did in milk with massive investment over three decades. It pursued the modernisation of the dairy industry with missionary zeal, be it improvement in productivity, production, handling, processing, packaging, marketing etc that today we have a vibrant industry which has benefited both the producers and consumers.

Unfortunately, we don’t have any institutional setup capable enough to do the same thing in horticulture.

In the circumstances, the best bet for us is the modern retail chains which have the wherewithal to either make the investment themselves or get their partners in the supply chain to do so in the back-end infrastructure. It can also get the farmers to adopt the best practices to improve the quality of their produce and also introduce international specifications for various produce, packaging, logistics etc to make life easier for everyone in the supply chain. Unfortunately the Indian retail chains have not been able to do the same owing to their small size and resource constraint. With the provision of 51% FDI in multi-brand retail, we can expect the multinational retail chains coming to India in a big way to set up shop. The government has also done a wise thing by stipulating that 50% of FDI has to be in the back-end infrastructure such as pack houses, refrigerated trucks, cold storages etc. The government’s decision, if implemented, will be a game changer for the fresh produce industry truly benefiting the producers and consumers and also promoting massive investment in the rural area.

(The opinion is that of the author in his personal capacity) The problem in allowing FDI into retail is the danger of the behemoths wiping out the indigenous growth of retail by resorting to the simple strategy of subsidizing, say their F & V section by even 2% (a paltry amount compared even to their advertisement budgets). For instance, if initially they were to Sanjay Aggarwal buy apples at Rs. 40 a kg and sell CMD, Dev Bhumi at Rs. 39, no one else would be Cold Chain Ltd able to buy at less than 40 or sell LOGISTICS TIMES December 2011

higher than 39. In effect, it would mean wiping out the field; and we all know what a monopoly means ! We also know how the organized retail squeezes their vendors (and customers) in the developed nations. Even powerful vendors like Coca-Cola or Pepsi are all too susceptible to the muscle-power of organized retail. So, fore-warned should be fore-armed! Of course, we should welcome more efficient processes, which would mean cutting costs and enriching peoples’ lives.

But the above two should be kept mutually exclusive of each other. India is the single largest emerging market in the world !

We don’t have to follow anyone ! We are going to script our own growth story; and we should have the guts to do it our way.

I suggest allowing FDI in retail with the caveat that they have to work all their segments at a minimum guaranteed profit percentage (atleast 10% on every transaction). I don’t think they could easily find fault with that ! We just need to devise ways to make sure of that. This provision could be tweaked to provide enough protection to the mom & pop stores as necessary.

Now that we are almost certain about the starting of the next wave of retail revolution and ushering in of a wave of new players, it is time we step back and see if we are really ready for it from the logistics and backend infrastructure perspective. In my view, we are nowhere near where we could be Amrit Pandurangi or should be. Like in many other Senior Director, Deloitte areas, we continue to believe that Touche Tohmatsu India we need not be ready in advance.

We love to take Life as it comes rather than be a little prepared.

We believe that costs associated with such lack of readiness are to be ignored.Just like we have ignored the enormous wastage of our precious food in transit and storage or the lack of access to markets for the producers, who definitely deserve a higher value for their labour, skill and risk taking.

We have major and critical issues in transport (particularly last mile access and delays while crossing state boundaries), storage (poor and insufficient warehouses with extremely poor processes and practices), information (completely opaque markets; inadequate use of available technologies), apart from policies and regulations. Resolving all these needs to be on a mission mode and fast track. Action is what we want-not further debate. No more Committees and Working Groups please. Let us just start implementing what has already been discussed and agreed- and there is plenty of it to do. Many of these need to be done by the private sector with the support of Government or in collaboration with the Government. From the private side, let us draw up specific and concrete action points of support and collaboration required and start the investments.

Debashish Banerjee, Manager (Logistics), Mother Dairy

FDI in multibrand retailing is being at present hotly debated

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Farmers and consumers favour FDI in retail: ASSOCHAM survey A random survey by industry body ASSOCHAM early this month earmarked that an overwhelming majority of consumers and farmers in and around ten major cities across the country support the government’s decision to allow 51 per cent foreign direct investments in multibrand retail while 80% traders and middlemen are against it.

Over 90 per cent of consumers said FDI in retail will bring down prices and offer a wider choice of goods.

Responses of over 2,000 people (500 each) covering farmers, consumers, kirana store and traders across ten major cities like Delhi, Mumbai, Kolkata, Chennai, Bangalore, Hyderabad, Ahmedabad, Pune, Chandigarh and Lucknow were gathered earlier this week by The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

With increased competition, stores will offer heavy discounts to increase their sales, according to 85 per cent of consumers. When a large number of micro, small and medium enterprises move to the organised sector, quality standards will improve and lead to good shopping experience, they said.

The entry of large retailers like US-based Wal-Mart, British giant Tesco and France’s Carrefour will bring in branded goods in apparel, footwear, electronics, home appliances and various other sectors, said 86 per cent of consumers. Food retail will get a massive push

evry where. The current situation calls for development of Agrisector with fragmented farm holdings.Lack of infrastructure and technical knowhow and knowledge of improved and innovative agri practices is holding back growth.Absence of commitment from stake holders in supply chain ,lack of market access to sell their produce directly to consumers without routing through mandis and middlemen are the pain areas resulting in sluggish growth, price rise and inflation.

Lack of support to farmers,lack of proper post harvest technology,storage facility (around 5500 stand alone cold storage) results in generating wastage of 30% of fruits and vegetables and around 7% of food grain and the loss is estimated to be around Rs 230 billion.

India is the world’s second largest producer of food next to China.There is huge opportunity for large investments in fruits and vegetables,milk and milk products, meat and poultry, packaged food, alcohol beverages and soft drinks.Value addition to food products is a necessity now due to diversity in socio economic conditions and globalization. Food processing sector is gaining importance due to consumer preference for ready to cook and ready to eat foods. Market size of processed food is

as supermarkets start sourcing products directly from farmers.

Nearly 78 per cent of farmers too said they will get the right price from multi-format stores with the number of intermediaries being cut. Fruits and vegetables currently pass through five layers of greedy middlemen and each adds a margin, leading to substantial difference in farm gate prices, wholesale prices and what the consumers ultimately pay at the retail store.

Electronic weights, quality specifications and improved yields will also benefit the farmers. Foreign retail majors will set up their cold storage facilities, bring in investments in back-end infrastructure, reduce the huge wastages and ultimately benefit end-users.

However, over 82 per cent of the kirana stores said big stores cannot offer the convenience of kirana stores. The mom-and-pop stores sell products in the neighbourhood, offer free home delivery and offer monthly credit to regular customers.

Over 75 per cent of the traders said the companies producing consumer items depend on their marketing infrastructure and network to push sales through multiple channels. So the influx of foreign funds into multi-brand retail will change the rules of Indian industry as large retailers bring the new technologies, processes to bring down the costs. Many companies may have to accept lower margins for greater volumes, traders said.

about 5000 billion which requires an investment of about Rs. one lakh crore from private sector. Govt. has proposed fiscal measures to attract investment. But supply chain issues, lack of farmer processor link, poor infrastructure, fragmented retail distribution and regulatory hurdles have affected inflow of investment in food processing.

Retail sector in India is the largest employer after agriculture.

Committee of Secretaries, Govt of India have recommended $100 million as minimum FDI and 50% of this in building back end infrastructure. It has also been suggested that multibrand stores source 30% procurement for manufactured items from small and medium enterprises. Further,this will tame inflation and create large scale employment. FDI in front end retailing is imperative to fund cold storage for farm produce and reduce the present annual loss of farm produce of around Rs 40,000 crores per annum. Substantial investment in backend logistics such as cold/supply chains, warehousing and infrastructure building will create employment pan India and reduce post harvest losses and bring growth synergy in supply chain from farmers to consumers due to technology investment,best practices and LOGISTICS TIMES December 2011

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know how transfer and provide wide choice to consumers.

Global retailers such as Walmart, Carrefour, Tesco, Metro are ready to venture in multibrand retailing in India,but the concern that they would wipeout small family run stores and there will be joblosses due to predator pricing is not true as safeguards have been taken in the policy document. It is perceived to be a win-win situation for farmers,retailers and consumers as tax revenue will be generated, attract investment in foreign exchange and strengthen India as a sourcing hub of the world.

Retail trade experience in China, Russia,Chile and Indonesia has resulted in overall economic growth by addressing backend inefficiency and integrated small retailers in value chain.There is no harm in giving this a try.

Some people are resisting against this major step taken by the Govt., but if we look on the facts, this is going to bring another big revolution in India. The relation of Supply Chain & Logistics with FDI is indispensable and it is the logistics environment which will attract the multiple market players Abid Hussain, to invest in retail sector. If we go Head - Logistics, back and look into the history of Honeywell FDI inviting MNC’s in India in early 90’s, people had different opinion & thoughts that time.

But when we are looking around now, we could definitely see the change in thoughts. The concept has changed, the domestics industry has also understood the concepts like customer requirements, good quality, JIT, on time delivery etc.

FDI has created many opportunities and changed the mind set by bringing new thoughts and vision among the people. When we talk about transportation in India, we have already major players in Logistics industry, which has created various opportunities for local service providers also.

It has created demand in transportation and various job opportunities in Logistics and Supply Chain industry. Many local small or big transporters have merged or occupied other companies in order to create more competition and opportunities in the market.

I personally feel this move is going to make Supply Chain a backbone for Retail market. India is still far behind in good infrastructure and if more focus is not given to it, there are very high chances that many MNC’s might opt to back out. The modern techniques like GPS, web tracking etc. are still not available in India, which are now basic techniques in other countries. The focus on making Express Highway Roads is missing, which is need of the hour. The unauthorized local union transportation could be also a big threat to logistics, which would not only impact on FDI in retail sector but also create a big question mark on Logistics Industry. FDI in Retail chains could be only successful if Govt. will focus on these issues in parallel to these policies.

LOGISTICS TIMES December 2011

Ongoing debate notwithstanding, cabinet has given a much awaited nod to increase in FDI in retail – 51% in multi brand and 100% in single brand. For common man, this means that there will be more malls and for the informed it means India could soon have the likes of Tesco, Ikea, Wal-Mart, Anil Chopra Best Buy, Starbucks, Carrefour, Managing Director etc setting shops in India. Viva la Agri-Solutions consumerism!

This decision shall surely impact logistics and supply chain services, my consulting domain. But how? Following reflections gathered from the historical evidence across geographies shall help build up a near foreseeable scenario.

The deepest impact of more supermarkets shall be on retail procurement systems. Read on…

When the number of stores in a given supermarket chain grows, there is a tendency to shift from a fragmented single store replenishment system to a distribution center serving several stores in a given catchment, and eventually the whole country.

The catchment of a distribution center or set of them usually starts as the zone (such as Delhi NCR) and then widens to several distribution centers representing a centralized system for procurement over all zones across country.

This de-fragmentizes, integrates and centralizes the procurement system over the country. This comes with fewer procurement officers and increased use of centralized warehouses. Increased levels of centralization may also occur in the procurement decision making process, and in the physical produce distribution.

Centralization increases efficiency of procurement by reducing coordination and other transaction costs, although it may increase transport costs by extra movement of products.

The next, and economically logical, step is internationalization to set up regional distribution centers to allow coordinated procurement over few countries. A logical further extension is insertion into global procurement networks.

More supermarkets shall mean shift from reliance on traditional wholesale to use of non-traditional - specialized/dedicated wholesalers and logistics firms.

This means that a shift from dependence on traditional wholesale markets and brokers towards use of specialized/dedicated wholesalers who are specialized in a product category and are dedicated to the supermarket/s as main supplier.

These specialized wholesalers shall cut transaction, coordination, and search costs, and enforce private standards and contracts with suppliers on behalf of the supermarkets.

Retail chains increasingly outsource logistics and wholesale distribution function sometimes to a sister company within the same holding company or enter into JVs with other firms.

Retail procurement system shall see a shift from wholesale markets to contracts or preferred suppliers in the products / categories where there is greatest need for quality and consistency,

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and where farmers or processors are associated collectively or are individually large to lower the transaction costs.

Finally, the retail procurement system change shall see the rise of standards both in quality and packaging and also enforcement of public standards. To me this can be a biggest game changer which sadly has not yet been fully understood and appreciated by many including large corporations where the writer has worked or consulted.

Opening up of the FDI in Multibrand retail is one of the most significant policy decision taken by this government and one that would certainly have some far reaching impact on the Logistic and Supply Chain sector over the next threefive years if implemented. Let us look at some of the key drivers of Sanjiv Kathuria, this change: Senior Supply Chain & Sophisticated Back-end Logistics Professional systems: The global retail giants have over the years developed very sophisticated procurement, warehousing and store delivery systems. These systems would drive efficiencies across the supply chain and the LSPs will need to adapt and modify their processes and even make additional investments in technology to cope with these demands.

FDI allowed in cities with > 10 lac population: This would mean 53 cities would come into the ambit of this policy and thus the efficiency of Supply chain will need to go beyond the Tier 1 cities and in to Tier –2 and 3 cities too. This would force the LSPs to scale up and invest in their facilities, network and people in the smaller cities.

Unorganised transportation sector will scale up and become more organised: This is indeed crystal ball gazing but the hypothesis is based on two key aspects. First – 30% of the procurement will be from SMEs and second the direct farm sector procurement which will happen. Both these segments today are largely serviced by the ‘Unorganised’ transportation sector. The unorganized sector provides the reach and services these segments in a cost effective manner- though it lacks efficiency. It is this efficiency that the modern retailers will improve by working closely with the smaller players as they would want to build an efficient but very cost effective supply chain.

Professor C S Lalwani University of Hulk Logistics Institute

Given the opportunity to invest, some of the logistics & supply chain practices followed by retail giants such as Wal-Mart, Carrefour, and Tesco in their operations in Asia are likely to be adopted in India. Taking the world’s third largest retailer by revenues ‘Tesco’ who has been aiming to invest in India for some

time as an example, they are likely to consider some of the strategies they have adopted in countries like Thailand where they have been very successful. Their operation in Thailand is named as Tesco Lotus and is very impressive in terms of bringing benefits to indigenous SMEs and consumers. Tesco Lotus claims to serve 20 million customers every month through their 380 stores and that approximately 97% of goods are sourced from within Thailand. In the UK, Tesco is known for their excellence in logistics in retail sector and have introduced some of the pioneering strategies such as factory gate pricing and consolidation to have excellent results for reaching very high levels of product availability in good quality in their retail stores.

In India, though they will face a big challenge to cope with the infrastructural problems and a lack of national integrated logistics policy There is lot of Hue and cry on the recent liberalization on FDI in the retail sector. It is generating lots of conflicting views and opinion on opening up of FDI and probably only time will tell whether it is good or bad for India economy.

I personally feel the disgruntling is more politically motivated and it Ramesh Krishnan, is being opposed by opposition as Head-Supply Chain they feel it is their duty to oppose Sahara Q Shop whatever Government does and by so called socialist who survive on just opposing any development plans of government or anybody else for that matter.

The argument is that FDI into retail sector would bring all the top Multi-national Retailer and investor into the country and it would wipe out the Kirana stores ( Mum and Pop stores) and also eliminate all the middlemen out the country.

I would like to know whether Kirana shop owners and Middlemen generate any great substantial employment opportunity. Do they contribute to Government kitty by way of tax? Do they help in creating the Infrastructure and IT development? Do they exhibit social responsibility? They are just ambitious and very narrow minded business men who mostly avoid government tax and levy when ever and where ever possible. I also feel as shrewd business man they would innovate and find out ways to adjust with situation and thrive. In fact there are two new modern retail format known to me which is trying to tap customer through these corner shops and avoids few channel partners and it would be a win-win situation for both.

However one disturbing trend I anticipate is the emergence of small bakra shop which are even more scrupulous and mean opportunist. I have noticed that these small unlicensed Bakra outlet do not pay license, do not pay any tax, have no infrastructure cost and often disturb aesthetics of the city, manage Municipality officials and often sell 15 to 20% more than the MRP and since customer find them handy and cannot waste time to go to a mall, they pay this additional cost mutely. I LOGISTICS TIMES December 2011

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feel if unchecked such shop would be on rise.

There is so much said and written about the Retail industry in India in the last few weeks for and against the proposed FDI in retail.

From our point of view, bringing in the larger, well established retailers will bring in a technology revolution in the way entire supply chain is managed, resulting in Theru Vengadam reduction in wastages, improving MD & CEO, on the transportations, cutting on IFS Solutions India unwanted costs and delivering a better supply meeting the demand. Both the producers (such as farmers) and the consumers would be the definite beneficiaries by the producers getting a higher proportion of the final selling price, and the consumer getting the products at a higher quality, timing and price.

In the developed economies, organized retail is in the range of 75-80% of total retail, whereas in India it is around 5% with the traditional neighbourhood retail stores dominates the retail business. A myriad of intermediaries such as the agents, mandi’s, wholesalers, distributors, transporters, c&f agents, etc. get involved to carry products from industrial suppliers and agricultural producers to these neighbourhood stores and open markets. Our domestic organized retail industry is at the nascent stage. However, in contrast – with urbanization, rising disposable income, dominance of the theynger population in spending, etc. are driving a great demand for organized retail.

Several large large business houses have already entered the retail industry under multiple modern retail formats.

India has over a billion consumers. Thus organised retail sector is the sunrise industry, representing the unique and diversified needs of the Indian customers.

Large Retailers are expected to address the challenge in India of poor supply chain and logistics management, which currently leads to the logistics cost component as high as 7% - 10% against the global average of 4% - 5% of the total retail price. Therefore, the margins in the retail sector can be improved by 3% to 5% by just With the FDI in retail, Large Retailers can enter India and bring in a major transformation to this industry benefitting improving the supply chain and logistics management.

The supply chain management is logistics aspect of a customer value delivery chain; connecting producers, wholesalers, agents, transporters, etc. and to the retailers. This involves total process of planning, implementing and coordinating the physical movement of goods from producer to retailer to customer in the most timely, effective and cost efficient manner possible. As Large Retailers bring logistics system that works well, the stock outs gets reduced at the retail end and customer satisfaction improves.

Large Retailers have perfected the logistics and supply chain management to move or store products more effectively, efficient LOGISTICS TIMES December 2011

logistics management not only prevents needless movement of goods, vehicles transferring products back and forth; but also frees up storage space for more productive use.

Looking at the impact of these on the Logistics Management, the advancement of information technology is improving end – to-end business processing by integrating the entire value chain, backward and forward, for operational efficiencies. The global leaders in the retail sector, when they come in, will bring their experience and the technologies they use to optimize the supply chain and would deploy appropriate technology to provide information on one’s finger tips.

As the entry of FDI is not restricted to any one player, the modern retail in India is expected to be a highly competitive business, wherein the agility to respond to changing market and seasonal demands is one of the keys to profitability. Larger retailers would invest in complete integrated information systems to manage an efficient supply chain management—including automated replenishment and assortment planning—integrated into a complete warehousing, transport logistics management solution with a back end ERP solution, as a scalable and secure platform to enable a swift and smooth implementation to minimize operational disruption.

Automated article maintenance Another challenges faced by Large Retailers around the world is short product lifecycles combined with vast transaction volumes.

Larger Retailers use applications such as ours that facilitates article maintenance by enabling automatic replenishment.

This can be based on historical data or be used in campaign management. They can create goods flows based on min/max rules to ensure optimal stock levels in individual stores. These applications also enable they to calculate expected sales volumes to make you campaigns even more efficient and increase profits.

The software also takes lead times into consideration.

Push And Pull The Large Retail firms will also use technology to not only Push and Pull but also a mixed mode combination of the two to enhance agility. Stores and outlets can create proposals for fulfillment with delivery based on actual stock levels. Stores would be managed with different concepts or deliveries from different suppliers. This is particularly critical for concept stores that need to ensure that the right product assortment and amount is allocated to the right outlet; also using different allocation strategies

Warehouse Management, Transportation The Large Retailers would create nationwide infrastructure of large warehouses and distribution centres. With the use of technology they will achieve greater productivity gains in inventory, labor, physical space, time and costs. Further they would deploy advanced techniques to optimally use the space, store and fast retrievals, enhancing inventory management by increasing accuracy, improving order fulfillment and reducing order cycle time. Receiving and shipping would be completely streamlined operations as well to facilitate cross-docking and expedite back-ordered products.

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Large Retailers’s extend their control up the supply chain by integrating inbound transportation from key suppliers in cases where they can transport the goods for less cost. There are many good business reasons cited for this, including allowing suppliers to focus on core competencies, increasing economies of scale in transportation, and reducing cost of goods sold to improve margins and product pricing. An additional aspect of benefit for Large Retailers is in the sustainability area such as fleet efficiency goals Taking more control of inbound transportation will allow Large Retailers to further extend their sustainability goals.

By increasing the scale of transportation under their direct control, in addition to the many economic benefits cited in the article, Large Retailers will have greater opportunity to deploy the efficiency technologies that it is developing. Some of those initiatives include diesel-electric hybrid class 8 trucks, LNG fueled vehicles, and biodiesel trucks using recycled grease from Large Retailers food service operations – simultaneously solving a waste disposal problem. In addition, Large Retailers will also drive vehicle modernisation including engine controls, tires, upgraded axles, aerodynamics, etc. Adding more loads to its fleet will mean less empty space on trucks, again leveraging efficiencies in support of sustainability goals. In addition to, and closely tied with, the economics, Large Retailers will be better positioned to extend its social responsibility initiatives in the form of greater carbon dioxide avoidance, fewer trucks on the road, less impact to transportation infrastructure, all of which are improvements in sustainability.

Store Operations Large Retailers will put to use a transparent solution that goes all the way from the warehouse to the point of sale (POS) and back. In a single solution they cover you entire supply chain from inventory planning all the way to sales analysis and back.

Large Retailers also would deploy standard solutions that tracks customers buying patterns so they can run dedicated campaigns directed to you most important customers and retain customer loyalty.

Large Retailers would give their customers, up-to-the-minute information on promotions or availability via digital signage.

Integrated with back office, it automatically changes content according to stock levels, time of day or the type of customer in the store. They also get a fast and simple self-service scanning solution that heightens customer experience of shopping.

Large Retailers would deploy in-store terminals to provide real-time information on availability, the location of items, promotions, special offers and other customer-friendly information— to boost their brand and bottom line.

Large Retailers also use technology to handle the complexity out of employee scheduling so they can optimize staffing while taking staff requests and preferences into account, see the skills and competence of each individual and make sure the optimal number of employees is available at all times.

Purchasing Integrated Contract management applications enhance the purchasing power of the retailers tremendously. These offer a range of choices, including the ability to manage contracts per supplier. They can purchase and allocate by campaign, and the stock is visible throughout the entire chain right into you stores.

They can also value stock against “landed cost”, which gives they a more realistic view of the cost of getting goods into stock.

Integrated applications used by Large Retailers also makes it easier to manage discounts and pricing agreements, keeping them constantly updated and easily available to all personnel who require them. And with support for both multi-site and centralized purchasing, they increase the agility of you buying processes. Requests for quotations (RFQs) can also be handled accurately and with ease.

Large Retailers also use Business Performance applications and can also monitor key performance indicators and get a graphical overview of supplier performance and quality standards.

Corrigendum Due to a designing oversight, vehicle of Reach Cargo was used in the advertisement of another company which was published on page 45 in November edition.

We deeply regret the error.

Publisher

LOGISTICS TIMES December 2011

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Khurja FTWZ: Das Logi-Infra LOGISTICS TIMES December 2011

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As country’s biggest Free Trade Warehousing Zone (FTWZ) gets ready to be commissioned, Logistics Times takes a stock of its enormity and dimensions.

Ritwik Sinha reports from ground zero‌ LOGISTICS TIMES December 2011

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Expectations had begun reaching to a crescendo as we went past the railways crossing just after village Dastura, Western Uttar Pradesh. “It will take another 15-20 minutes from here,” said Dr. Prabhjeet Singh Kular as the Toyota Innova picked up speed on that single lane road surrounded by lush green sugarcane fields on both sides. The journey had started at Jasola in New Delhi early in the morning and destination was the upcoming Free Trade Warehousing Zone (FTWZ) of Arshiya International at Khurja. In my parlance, it meant visiting ground zero.

The total length of the journey was a little over two hours since we had taken the shortest route going alongwith a canal road (immediately after village Kasna) which is under construction bypassing the main Bulandshahar town.

In hindsight, expectations to witness and experience something exceptional were quite natural. I had seen some photographs of this unit which made it

look magnificent, but being a journo who has spent a singinificant amount of time in visual media, I do have this prediliction not to believe the images dished out to you. “The primary job of a lensman/ photographer is to unearth beauty in everything which comes under his lense including ugliness,” a documentary filmmaker had once told me. But here in the case of Arshiya’s Khurja FTWZ which is slated to be biggest unit in the country in its category, I was exactly not starting from point zero. In October, during my trip to Mumbai, I had visited their maiden FTWZ unit at Panvel and was almost forced to leave the note on my linkedin account saying that “this truly is a pioneering effort and this is the kind of logistics infrastructure India needs to have.” Expectations on that partially foggy November morning, however, had scaled up also because of the fact (earlier subtly conveyed to me) that Khurja unit is going to be nearly twice in size of Panvel.

The unit near Mumbai (spread across 165 acres) itself had appeared out to be quite huge where you have to walk down nearly 1.6 km on the striaght road from main entrance to get a sense of different components on the both sides.

From a distance of over a kilometer or so, you could make out that your ground zero is a beehive of activities with giant cranes becoming visible. And once you are inside the complex entering from the main Jewar road, the cacaphony of construction makes it clear that what you are witnessing is gargantuan in nature – a fact that is enforced further as you walk through the different components of this sprawling 315 acres campus. “About 3000 workers are working on the site right now. And much of what you see has been created in last 17 months out of which you can reduce three-four months when vagaries of monsoon slacken the pace of construction,” Ajay Kumar, Head- Khurja Project tells you adding the (Continued on page 32...

Views of Railway Terminal inside Khurja unit

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Khurja is the natural Sangam In a free-wheeling interview with Logistics Times, chairman of Arshiya International, Ajay Mittal explains the stratgeic importance of Khurja unit both for the company as well as economic development of the region. He also emphatically underlines the steps needed to be set afoot to promote more such units as they would considerably improve the logistics and supply chain services in the country.

Edited excerpts: LOGISTICS TIMES December 2011

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You seem to be on a mission to create logistics facilities which are truly world class, not seen in this country before. What really inspired or motivated you when you contemplated the plans for these FTWZs? I dare begin by saying that the need to create quality logistics infrastructure that will reduce transaction cost of EXIM in India should not be considered as just mine or Arshiya’s, but India’s mission. I have personally always believed in the opportunity and potential of our great country and our economic performance in the last decade with all our in-efficiencies is testament to what this country can accomplish if we invest in and improve our logistics infrastructure and reduce the cost of logistics - which is currently at an astronomical 14% of GDP. India’s greatest gift is the macro–economic reality that we have a huge middle class population that is growing and intending to consume - driving foreign companies into our country with their products; an equally huge potential in the manufacturing and export space and a huge domestic consumption appetite that is driving over 60% of our GDP. However, having said that, it is also true that all of the above will translate to jobs, economic development and progress only if this trade can happen efficiently and logistics costs come down from what they are currently. We here at Arshiya truly believe that India’s future depends on this and therein lies the force and conviction to make this difference to logistics that can become the accelerator and catalyst to a better India.

I would like to get a sense of that grand vision you had when Arshiya began its journey and in your evaluation, where has the company reached?

Our vision quite simply put, has always been to provide an end-to-end integrated logistics service offering that will help companies doing business in India to reduce the cost of doing their business in this country. This vision meant that we as a company would need to invest effort and time in building best-in-class supply chain service capability with last/first mile distribution, freight forwarding and project logistics expertise, IT platforms that is in-house and customizable to our client needs and then wrap these services around state-of-the-art logistics infrastructure such as Rail & Rail Infrastructure, FTWZs & Domestic Distriparks, which did not exist in India.

Having defined what we will offer to our customers, we also looked at how we need to position ourselves in India in order to provide ourselves the maximum reach to our customers and major markets and arrived at five major hubs where we would invest in integrated infrastructure of the FTWZ & Domestic Distripark (DDP) connected with Rail – which would become the mega-consolidation centres feeding the whole of India.

This is Arshiya’s 11th year and against our vision, we today are a team of over 1,000 where we have built our services capability in all the areas we intended and have grown that business at 40% CAGR over the last five years; we have created and are successfully operating India’s first FTWZ in Mumbai; our first integrated logistics park (FTWZ + DDP + Rail Terminal) in the North (Khurja, UP) is ready for operations; we have expanded LOGISTICS TIMES December 2011

our Rail business to 15 trains/rakes with strategic spoke terminals and customized containers for specialized products in place; began construction post land acquisition and approvals in Nagpur and are very close to announcing our project in Chennai – which will be on the same lines as that of our Khurja infrastructure.

How would you explain the strategic importance of Khurja Unit in your scheme of things?

As part of Arshiya’s overall strategy, creating an integrated hub in the North has been a crucial project. Considering that the National Capital Region (NCR) is the manufacturing mecca of the country but far away (over 2,000 kms) from the principle port of JNPT in Mumbai, makes consolidation and distribution of cargo between these destinations very time consuming and in-effective. Imported raw materials bound for manufacturing facilities in the North and Indian product made in the North that needs to find it’s way to the West (for export and/or consumption) is affected because of the lack of integrated infrastructure that can consolidate cargo and eventually move some of this cargo by Rail. Arshiya intends to be such a player and our search for the location in the North needed to serve all of these purposes against which we could not identify a better location than Khurja in Uttar Pradesh.

It is not only close to the manufacturing facilities and Delhi, it is a natural ‘sangam’ of the Eastern & Western freight corridors of India with its terminals of Khurja City and Khurja Junction respectively. In-fact, Arshiya has developed its 315-acre integrated logistics park inclusive of a 135-acre FTWZ, 130-acre DDP and -50 acre Rail Terminal connecting these two important rail terminals, therefore, fitting perfectly with Arshiya’s vision of consolidating traffic for Rail movement. Furthermore, the new airport planned in Jewar will completely change the landscape and we believe Khurja will be a very important hub that feeds the entire Northern half of India.

UP is hardly associated with very progressive economic agenda. In that context, why was Khurja chosen when other states in the northern region would have welcomed you with open arms? Was it because the perceived convergence of the east and west ends of freight corridor project?

Arshiya has always had a pan-India focus with our infrastructure (FWTZ, DDP & Rail) and with that have dealt with many State and Central Government bodies. And every time, we have explained our intention as a company to those we meet from the Government and have to say that we have found phenomenal support from all bodies we have dealt with. In today’s scenario, every State wants to do well and make a name for itself and UP is no different. All of us here at Arshiya surely think like that and we have always honoured the support we have received by executing our projects flawlessly and on-time and all while making a contribution to the local community by way of providing training, jobs and economic development.

However, having said that, I must say that all of us Indians will look forward to greater cohesiveness in government policies and

31

impetus to PPP projects that will fulfill the charter of assisting trade and economic progress of this country which will bring in the socio–economic benefits to the populace at large. Such a movement cannot happen with intent shown by either the Government or Private Players individually and will only happen with the speed and efficiency if there is intent and collaboration between both parties. By that stead, we at Arshiya are proud of our work together with the Government and our Khurja project stands as much an accomplishment for India as it is for the State of UP and Arshiya. But there is a long way to go. What we need to really maximize the potential of this infrastructure and region are simple but effective policies like making the warehousing receipt a negotiable instrument and the RBI should classify logistics parks like Domestic Distriparks and Rail Terminals – which is much needed logistics infrastructure in this country under infrastructure project status for priority lending.

Both these moves will increase the use of such facilities thereby greatly bringing down inflation and induce much required efficiency in the system – consistent with the inclusive growth we all seek.

Arshiya is actively working with Government bodies towards this cause and hopes for action on these counts to be taken sooner rather than later.

There are many who believe that your FTWZs are too futuristic in nature and the commercial realisation of their full potential would take quite some time. How would you respond to this?

I am really not sure if people understand the fact that the FTWZ concept has been around for over 100 years in the world and what it is intended to do – especially in a complex and large market like India – is to reduce transaction costs of product that moves through these zones while increasing the velocity and flexibility of such products. And this reduction of cost, increase of product velocity and flexibility to conduct value addition on the product before last mile movement is the future for India. So in a sense, I do agree that the FTWZ is the future for India but surely not futuristic for India. The embrace of the concept by our customers is testament to this.

In terms of commercial realization, I do want to add that the most recent Free Trade Zone before Arshiya’s FTWZ in India

was in Dubai with the Jebel Ali Free Trade Zone (JAFZA) and for perspective, this particular zone contributes to 26% of Dubai’s GDP, provides over 1,60,000 direct jobs, accounts for 25% of all container throughput (imported & exported) through Jebel Ali Port. This can give you a sense of what such a zone can actually do for an economy.

Market is also somewhat surprised at your ability to generate mega bucks for these grand projects. In a single project like Khurja for example, you are pumping in funds which could be equal to the valuation of many well established logistics firms which have been in existence for decades in this country.

For us here at Arshiya, the whole idea is to give logistics its due respect as a key enabler to the economy and very important force to fight inflation. And that means investing in creating state-of-the-art infrastructure that will beat world standards.

We, therefore, do not compare ourselves with anyone other than ourselves and our goals and are extremely committed to our mission. Arshiya is grateful to our bankers and investors who acknowledged that conviction and belief in us. Over the last three years though, Arshiya has left no stone unturned in proving to those who have invested in us that we have indeed gone out and done everything we said we would do, and more.

Can I get a sense of financials of the company - the topline, projected investments, debt component, etc.

In last fiscal (FY’11) our total revenue was INR 824.4 crores with PAT INR 82 crores – which would indicate a CAGR over the last five years of over 40%. As of the current fiscal, the first half (H1FY’12), we have had a top line of INR 470 crore and PAT of INR 55 crore and this year of FY12, we have four new business lines that will hit our financial statements including the FTWZ in Mumbai, the FTWZ in Khurja, the DDP in Khurja and the Captive Rail movement business connecting our infrastructure in the West & North.

As for our projects, we are currently leveraged at a very healthy 2:1 debt to equity ratio and have infused a total of over Rs 2,436 crores so far into all our projects with an outlook of infusing another Rs 1,200 crores more that will complete the Phase 1 LOGISTICS TIMES December 2011

COVER STORY

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(entire FTWZ in Mumbai, First phase of Khurja DDP, FTWZ & Rail Terminal), First phase of Nagpur & 30 Rakes/ Trains and containers and spoke terminal network) of our investments.

How has been your experience as a private container train operator?

I do not notice too many smiling faces in this segment.

We were the 16th (and the last) player to take PCTO (Private Container Train Operator) and I want to clarify that Arshiya has an integrated strategy when it comes to Rail, where offering Rail Connectivity to our customers is part of the end-to-end logistics/supply chain capability. This fundamentally makes us different in our outlook, approach and customer mix in the Rail space, where we have a two prong strategy: The Domestic Market – where we have been operating since Feb, 2009 and are currently running 15 rakes/ trains. Arshiya is perhaps the only player taking this segment seriously and have invested in customized containers, spoke Rail terminals in strategic locations for consolidation of cargo and created a market in this space and operate profitably by providing an integrated service.

The consolidation market connecting our hubs – which we are yet to begin, but will do so as our Khurja infrastructure is ready in the next quarter.

Having said that, I do admit that there are issues in this space that we are taking seriously with the Railway Ministry and also other Central Government Bodies.

But overall, we remain very excited about the prospects of the Rail space in India and do believe that it holds the key to better logistics in this country. Let’s remember that today, Rail has only 30% market share out of the total domestic freight movement in this country. If our country’s GDP grows at even a 6% CAGR, our economy will double over the next decade. How is it that we will cope with this if the Indian Rail space will not be equipped to handle this, for which serious Private players and favourable PPP in this space has to happen. We will ensure that we are ready to capitalize on this when the time comes.

LOGISTICS TIMES December 2011

element of surprise as he guides you to different nook and corner of the mega integrated logistics park.

Two-three hours later, when the enormity of the project sets in, your conclusion can be anything barring being dismissive. It could be utter surprise, complete awe or finding it truly path-breaking. If you are a nosey character difficult to be pleased, then probably your miserly expression would be: “Ya, its good.”

Otherwise, you would probably not hesitate to vouch that here is a project which truly manifests the bigticket vision to up the ante in the real sense of the term. Especially when it comes to logistics infrastcuture in the country mostly defined by dark, dingy godowns passed on as warehouses and overall lack of a coherent structure where distribution is a painstaking rather than seamless process undertaken hapahazardly most of the times. The largest integrated logistics infrastructure project in India clearly also appears out to be the function of meticulous planning and execution tending to take care of all logistical needs of the clients in the region apart from being a vital cog in Arshiya’s pan-Indian footprint plan of putting a truly world class infrastructure network.

Grand Vision and key features “We here at Arshiya truly believe that India’s future depends on world class integrated logistics infrastructure and therein lies the force and conviction behind all of Arshiya to make this difference to logistics that can become the accelerator and catalyst to a better India,” here comes the vision statement from Ajay Mittal, Chairman of Arshiya International - who is considered as one of the visionary entrepreneurs of India pioneering a revolution in India’s logistics sector by leading the way in creating world class logistics infrastructure. Mittal’s message is loud and clear that his conviction is to make India realize its

Sajal Mittra CEO, Rail Division

“We are assuming that when it becomes fully operational, we can handle anything around six-seven trains everyday. We still have surplus land on both sides and tomorrow if we decide to add more line, that is quite possible.”

true potential as a global hub and that when tomorrow becomes today, the efficacy of his grand projects would clearly be bought by one and all (refer to his interview).

Arshiya, in fact, has mooted the plan of five such FTWZs (West – Mumbai, North - Khurja in the state of UP near Delhi, Centre – Nagpur, South – Chennai and one in the East of India) which apart from having modern warehouses would have the dynamo in the form of rail connectivity facilitating fast movement of goods to the port cities thus expediting the exim movement considerably. While this would be a direct offshoot of benefits of FTWZ positioning, these zones would also comprise state-ofthe-art Domestic Distriparks (DDP) to ensure domestic consolidation and

33

LOGISTICS TIMES December 2011

COVER STORY

34

distribution. Arshiya is also planning to have fourteen smaller spoke terminals across India to compliment its robust rail infrastructure network. “We have realised the need to position ourselves in India in order to provide ourselves the maximum reach to our customers and major markets and arrived at five major hubs where we would invest in integrated infrastructure of the FTWZ & Domestic Distripark (DDP) connected with Rail – which would become the mega-consolidation centres feeding the whole of India,” Mittal underlines.

From Arshiya’s standpoint, therefore, Khurja FTWZ is part of the whole.

However, a close look at the evolving zone makes it clear what Mittal’s grand idea of ‘mega-consolidation center’ is all about. As you drive down around one km from the Jewar Road and reach to the roundabout immediately after the main entrance, on the right and left sides are two clearly carved blocks – DDP and FTWZ respectively. The FTWZ is ultimately going to have 14 state-of-the-art mega warehouses with world class standard racked system also called as ‘U Shaped’ and cross docking ‘I Shaped’ units. each having a space of over a lakh square feet coupled with G+6 racking system which gives a huge size dimension to them.

Adjacent to this unit is a huge open space

The entry gate of FTWZ block.

LOGISTICS TIMES December 2011

Pawanexh Kohli Senior Vice President

“We have done something very innovative for the supply chain universe.

We started with what we call pilot agreements with tentative clients. We invited them to come for a limited service period and move the goods through our care.”

for container yard covering over 3.4 lakh sq ft . On a cumulative basis, FTWZ is being created on a land parcel of 135 acres. The zone will boast of a spacious administration building which will also have 24x7 customs office manned by customs department personnel. “I have seen FTWZ in Shanghai, and some other such units elsewhere. And I have no hesitation in claiming that our Khurja unit is going to be comparable with the best in the world. It could be, in fact, even better than Shanghai. I have heard there was an entry issue with Shanghai zone due to lack of space. But we have nearly two km of long road to the entry point.

Plus, handling equipments deployed here would be best in the world and, therefore, there should not be any wastage of time in loading and unloading,” Ajay Sapra, AVP, FTWZ Operations (Khurja) assures you without mincing any words.

DDP too has similar kind of infrastrcuture and it will comprise of twelve warehouses in total “We are going to have more cross docking warehouses in this zone because the goods stored here would be meant for domestic markets and, therefore higher churn ratio, thus needing expeditious clearance,” says Dr. Kular, AVP, DDPKhurja Project. Both these units would have state-of-the-art chilling zones for perishable products and there would be a

35

Ajay Kumar Head - Khurja Project

“Our initial opening would be general in nature. We would like to showcase to the world what this unit is capable of delivering.

In the second phase, our offerings would be more in alignment with customised services especially for heavy manufacturing sectors like steel and cement.”

high-degree of integration between them not only in the sphere of trasnfer of goods in the domestic and international markets and vice-versa but also in terms of storage. Explains Dr. Kular, “Both units would compliment each other in a major way. Let’s say there is an exportoriented manufacturer in the north and he does not have enough space to store the produced goods and move them on the basis of his orders. So what we do: we would pick it up from his place, bring them and keep them in the distripark. And then export goods would be transferred to FTWZ as per his requirement. Similarly, there is an importer in north India lacking storage space at his end. We would keep it at our unit and release the quantum ordered by him.”

External view of an upcoming warehouse in DDP. Within this complex, straight across the main entrance roundabout, you have a dedicated railway siding with facility to simultaneously load/unload three rakes with capacity to handle ten rakes per day resembling much like an actual railway station. And this, in fact, would be the key attraction of Khurja unit as well as other FTWZs as Arshiya tends to provide a holistic and vastly upgraded services profile to its customers. “Railways is clearly going to be game changer as far as our operations are concerned. In addition trucking will take care of first and last mile requirements moving goods to the ports when it comes to exim trade facilitation,” observes Capt. Pawanexh Kohli, Senior VP who spearheads the integrated marketing drive across all Arshiya Group companies.

In this single facility alone, the company has pumped in Rs 1200 crore in the completion of the first phase (this includes acquisition of land) and over 1500 crore has been provisioned for the next phase. Ajay Kumar sums up the basic nature of the unit in these words, “As a logistics hub, the need is to provide for palletized/bulk storage in warehouses as well as handling of containers within Container Yard. And Arshiya’s Logistic Park at Khurja has both. Apart from these facilities, within our logistics park we also have ODC Yard with capabilities

to handle and store Over Dimensional Cargo (ODC) which due to their nonnormal dimensions can only be stored in open and require heavy duty Cranes and Hydras for handling. Now other parameter involved in creating this kind of world class infrastructure is connectivity through road and rail. Again, we have both.” Kohli adds, “ The strength of this unit is that it is not merely a hub but a gateway too and to create this unique value proposition, no stone has been left unturned. We have joined hands with the best in the world to put together different constituents – companies like IBM, CISCO, L & T and Tata Blue Scope are taking care of different aspects of the project.”

Why this location?

Why Khurja for such an ambitious project? One is bound to ask if adhering to conventional wisdom which strongly underlines that there are more progressive states in the northern belt than Uttar Pradesh. Topman Mittal replies, “Khurja is not only close to the manufacturing facilities and Delhi, it is a natural ‘sangam’ of the Eastern & Western Dedicated freight corridors of India with its terminals of Khurja City and Khurja Junction respectively. Our 50 acre Rail Terminal would be connecting these two important points therefore fitting LOGISTICS TIMES December 2011

COVER STORY

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perfectly with our vision of consolidating traffic for rail movement. Plus, the new airport planned in Jewar will completely change the landscape and we believe Khurja will be a very important hub that feeds the entire northern half of India.”

Mittal’s reply clearly earmark that more than anything else, its the perceived confluence of the eastern and western end of the ambitious Dedicated Freight Corridor Project (slated to be ready by 2017-18) which tilted the balance in favour of Khurja when Arshiya had started scouting for a pocket in north after giving finishing touches to its ambitious panIndian plan in 2007. This plan, as Sajal Mittra, CEO, Rail Division of Arshiya testifies had the intrinsic element of rail connectivity in all mega units and the company has gone all hog to esnure that it makes most of the emerging opportunity in the region based on its rail strength.

“Our chairman was very clear right from the beginning that if we don’t have rail connectivity, then the kind of evacuation we are looking at will not be possible. Its our railways capabilities which is going to be our major stronghold,” he says.

According to Mittra, creating railways link

at Khurja FTWZ has been quite an exercise which has involved precision not only in terms of planning but more importantly on the implementation front. “We made an assessment of kind of traffic we would have at this place wayback in 2008 and then went ahead with the procurement of land. We were supported by the Khurja Development Authority and we procured a significant chunk along railway line because we needed connectivity with Khurja junction which is on GhaziabadKanpur line. And from Khurja junction, a line takes off which goes via Bulandsahar to Hapur and finally to Ludhiana. So when it curves there, our line also goes parallel for three and a half kilometers where we have our sidings. After Khurja junction siding becomes operational, we would also be connecting the siding to Khurja city. So there would be a bi-directional rail movement.” The three and a half kilometers of railway line connecting with Khurja Junction has been constructed

by Arshiya. To ensure quick turnaround of rakes, it has laid ballastless tracks for loading/unloading lines, furthermore it has also purchased shunting engine.

“We will have our own engine, we will

remove the rake, place it on dispatch or receiving line and start work again.

We have six lines right now and there is a scope of adding one more. Then we are developing our own container wagon examination depot for all our rakes. We have also built our own locoshed where engines would be housed and has facility for maintenance. When it becomes fully operational, we can handle ten rakes everyday. We still have surplus land on both sides and tomorrow if we decide to add more line, that is quite possible.

There is enough scope of upscaling and I don’t think any other ICD in the country has this feature,” Mittra explains the other highlights of Khurja FTWZ’s railways linkage which is being created on a land parcel of 50 acres Arshiya’s Khurja Rail Terminal is part of the overall investment of around Rs 630 crore in Phase I by Rail division, which also includes 30 rakes pan India, which will be scaled upto 150 in

Dr. Prabhjeet Singh Kullar AVP - DDP, Khurja

Inside view of a G+6 racking warehouse.

LOGISTICS TIMES December 2011

“We are going to have more cross docking warehouses in this zone because the goods stored here would be meant for domestic markets and, therefore higher churn ratio, thus needing expeditious clearance.”

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LOGISTICS TIMES December 2011

COVER STORY

40

subsequent phases.

Basic platform and sales pitch Going by the version of Arshiya officials involved in the project, the first phase of the unit construction is nearing the finishing line and within this quarter, commercial activities would be rolled out – with three warehouses in FTWZ and two in DDP. And soon the railway line would see arrival and departure of one rake every day. The defining statement about phase one as Kumar puts it is ‘a generic platform’ which would cater to all sectors. “Our initial opening would be general in nature. We would like to showcase to the world what this unit is capable of delivering. In the second phase, our offerings would be more in alignment with customised services especially for heavy manufacturing sectors like steel and cement,” he points out.

And now the moot point. What has been the reaction of the prospective customers of this unit which Kohli and his team are chasing right now? Listen to him as he clicks the customer chart on the screen of his laptop. “Response is phenomenal because we are going to fulfill our customers’ aspirations for growth and scale. In Indian logistics industry, one of the most frequent complaints we LOGISTICS TIMES December 2011

hear is that our operations are dispersed, fragmented and unorganised. And that’s where they are excited. They can place the goods at one location under one company’s custody and then we would take care of the rest. Plus, we are all aware of GST coming in. And this would obviously mean a lot of changes. But who is going to fulfill those changes? Nobody has really made warehouses or domestic distriparks of this scale and size with the rail connectivity and people are quickly imbibing this fact,” he says, “plus our FTWZ located close to JNPT (Mumbai) is already a roaring success!”

Marketplace is, however, abuzz with the theory that the service charges of Arshiya FTWZ is on the higher side vis-à-vis existing benchmarks and this is being cited as a potential impediment. But Capt. Kohli rules it out emphatically.

“Anything which is new, grand and professionally run comes at a certain cost. Commerce is all about brow beating each other and negotiations. So you will hear that language in the marketplace.

Yes, there are areas where on a cost basis we might look expensive but the value we bring to our customers put them in an extremely advatageous position.” To pacify the expensive tag and to allow customers a sense of the value options,

Ajay Sapra AVP - FTWZ, Khurja

“I have seen FTWZ in Shanghai, and some other such units elsewhere. And I have no hesitation in claiming that our Khurja unit is going to be comparable with the best in the world.”

41

the company has resorted to bulk trial methodolgoy which Kohli says has paid heady results. “We have done something very innovative for the supply chain universe. We started with what we call pilot agreements with tentative clients.

We invited them to come for a limited service period and move the goods through our care. We have quite a few pilot shipments happening. Almost all of our pilot arrangements have forged into long term service agreements. Solution making is all about demonstrating value from day one and this is what precisely we have resorted to here, and successfully may I proudly add”, he explains.

There was also some concern on the perception about the distance from Delhi. Anything between 90-120 kms if we look at different exisitng routes. But Dr. Kular says it’s a matter of time for this notion to vanish. “We have three clear routes from Delhi: Palwal- Jewar-Khurja; Ghaziabad- Sikandrabad- BulandsaharKhurja and the evolving Greater Noida Expressway- Khurja. Of these, the latter would become the preferred route which as we all know is going to be a world class stretch. Besides we also get to serve closely other fast growing markets in the region, with NCR well within hubbing radius”.

Kohli also points out the manpower requirements which the company may have to grapple with going ahead, as the unit would require something close to 15,000 personnel in its full-fledged operational mode. “We will have to hire more working hands for the unit and we will have to take living space over there. Khurja today has almost become as expensive as Bulandshaher or parts of Greater Noida when it comes to rentals. Locals tell us we have already positively impacted the economy there.

The company is also taking proactive initiatives with local universities with pre-employment training to supply chain inclined students. Also important would be improvement of road connectivity by the government linking with other industrial belts in the region. Whilst we can control our operations but we look forward to surrounding infrastructure

Changing landscape Khurja FTWZ site in 2009

And now...

which is not in our hands,” he specifies.

However, a company that takes pride in ‘there’s a way’ tagline, such concerns hardly seem to have trappings to snowball into major impediments for them.

3.30 PM on that eventful November day

and time to bid adieu to Ajay Kumar and his team. “I will come back again when the operations begin,” is my parting promise. I have seen the huge 315 acres platform. Now the desire is to witness epic scale action it promises to stage.

LOGISTICS TIMES December 2011

REPORT

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Innovations in agri-business Excerpts from a recently released report by noted consultancy firm KPMG which highlights the need to adopt innovative ways and means in the agri-business to combat inflation. The suggested prescription also includes improving logistics processes.

A

gribusiness is a generic term that refers to the various businesses involved in large scale production, including farming and contract farming, seed supply, agrichemcials, wholesale and distribution, processing, marketing and retail sales of food and non-farm commodities and products. In economic sense the â&#x20AC;&#x2DC;part of the economy devoted to the production, processing, and distribution of food, including the ďŹ nancial institutions that fund these activities is known as Agribusiness.

Agri-business is a USD 450 billion

LOGISTICS TIMES December 2011

opportunity in India. With agriculture at the core of Indian economy and more than two-thirds of the population dependent on farming,â&#x20AC;&#x2122; a developed agribusisness sector can be a strong link between the farm sector and the consumers.

The value chain for food comprises of agri-inputs, agri-logistics, food processing, food retail and food services: Agri-inputs refer to direct farm inputs such as seeds, fertilizers, pesticides and water/irrigation facilities and indirect inputs such as implements, equipment and fuel, Agri-logistics refers to the collection, aggregation, storage and transport of

agricultural produce from the farm to the consumer and all intermediate levels such as the processing facility (factory), market (mandi) and retailers, Food processing is the set of methods and techniques used to transform raw ingredients into food or to transform food into other forms for consumption by humans or animals either at home or by the food processing industry. Food processing typically takes clean, harvested crops or slaughtered and butuchered animal products and uses these to produce attractive, marketable and often long-

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Source: KPMG in India’s Analysis

life food products, Food retail refers to the shops/outlets that sell fresh produce and packaged food products to end consumers. It includes fair price shops (ration stores), fragmented mom & pop stores (kiranas) and large corporate retail chains, Food services refer to outlets that serve freshly prepared food and beverages with either localized ( in store) or centralized kitchens. The category also includes door to door service providers and institutional caterers.

While the size of the agricultural sectors are comparable in India and the USthe corresponding differential in food and retail is to scale of three and five times respectively. On the one hand this signifies an immediate potential for the food sector to grow in India, but it is also an indicator of the capacity building that is required to meet the demand for fresh produce and food products going forward as the economy expands and development indices continue to strengthen resulting in higher levels of per capita food consumption.

Domestic Demand Food consumption in India is expected to grow to US$ 239.7 billion by 2013 from 168.6 billion in 2008. India, with a population of more than 1.1 billion, is one of the largest consumer markets in the world.

Food Processing Industry on a rapid growth path The processed food input in dollar terms should reach 95.6 billion by 2013 from a base of 55.6 billion in 2005. During the same time, per-capita packaged food spending is expected to rise from 9.6 USD to 18.3 USD, indicating the tremendous potential of the market going forward.

Growing interest of multinational in Indian market and huge expansion plans of Indian corporate in organized retail are catalyzing the growth of the Food Processing sector.

Food Logistics will need to expand its network The agri-logistics industry is estimated to be USD 25-30 billion in size, while accounting for 20-22 percent of the overall logistics industry. However, the

existing capacity is insufficient to handle the food logistics need of the overall food industry.

Market size of the logistics industry Food wastage has been a perennial problem for India with estimates ranging from 58000 crores in 2004 to 30000 crores in 2010, with over 30 percent of produce being wasted. The perishable nature of products makes it necessary to have adequate storage facilities, optimal handling of produce and efficient transportation and distribution networks.

Percentage of produce stored in temperature ambient conditions Only two percent of produce that needs to be stored in temperature controlled environment are currently being handled this way. This compares poorly against eight percent for the Asia-Pacific region and 85 percent for Europe and North America. To illustrate, the above-normal procurement of wheat in the last three years has presented a big challenge to the government. The Food Corporation of India with its 1820 warehouses and a storage capacity of 30.5 million tones was LOGISTICS TIMES December 2011

REPORT

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Size of segments in the food Business value chain - 2011

Source: Euromonitor, KPMG in India’s Analysis and Industry discussions

Food consumption in India

Source: BMI, CSO

able to store just half of the overall stock of 60.4 million tones.

Also, as Indian families spend more on fruits And vegetables, meat, eggs and fish, the necessity for cold storage facilities also increases. While India produces over 180 million MT of fruits and vegetables, it has a total cold storage capacity of only 23.6 million tones.

As per industry estimates, 25-30 percent LOGISTICS TIMES December 2011

of fruits and vegetables and five-seven percent of grains are wasted, stressing the requirement of adequate storage and handling infrastructure.

Food retail will see greater levels of organization Food retail in India is expected to be shaped by the following factors: Low penetration of organized retail

and the potential market thereof, Rapid growth of organized retail growth, Evolving shopper preferences regulations that may potentially permit multi-brand retail.

In 2010, the sales of the 20 largest private retail chains had a 50 percent contribution from food items with sales of USD 2.5 billion. This amounts to five-six percent

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Share of top segments in organised retail

Source: NSDC

of the urban food retail market. While the market size is small, it has been growing rapidly. The share was one percent of the market just six years ago. By 2020, the share of the supermarkets in food retail in cities is expected to touch 20-30 percent.

Share of top segments in organized retail In 2008, the organized food retail segment was an INR 10,000 crore segment with an overall penetration of one percent.

Considering the low penetration and the high growth of the organized retail segment (35-40 percent growth), the food retail segment has a significant market potential.

Domestic Supply Agri-business contributes 24.2 percent to GDP, 15.2 percent of total exports and provides employment to 58.4 percent of country’s work force. Key statistics of India’s agri-diversity: 52 percent cultivable land compared to 11 percent world average All 15 major climates in the world exist in India and there are 20 agriclimatic regions 46 out of 60 soil types exist in India Sunshine hours and day length are ideally suited for round the year cultivation.

In terms of production, India is among

the world’s major food producers – India accounts for 17 percent animal, 12 percent plants and 10 percent fish genetic resources of the globe; and 16 percent of cattle, 57 percent of buffalo, 17 percent of goats and five percent of sheep population of the world. In terms of size, India is: Largest in the production of livestock Largest producer of milk Largest in terms of cereals Second-largest fruit and vegetable produce Among the top five producers worldwide of rice, wheat, groundnuts, tea, coffee, tobacco, spices, sugar and oilseeds.

Demand is expected to exceed supply by 2020 While India rates favourably in terms of absolute food production numbers in certain staples, there is expected to be a deficit in meeting the food demand over the next decade in certain categories. This gap is expected to arise due to supply side constraints along with changing consumption patterns with grain consumption giving way to increased consumption of anumal products and non-grains in the daily diet. In 2009-10, Indians have spent 9 percent more on

fruits and vegetables and 31 percent more on meat, eggs and fish.

The poor supply side infrastructure combined with high demand has manifested in the form of high food inflation over the last few years and is expected to worsen unless the systemic deficiencies are addressed.

Supply constraints have led to rising food inflation Over the last few years, the high levels of food inflation have been eroding the purchasing power of consumers. Food inflation has been driven by two factors, the weight of the item in the overall food basket and the price change of these items. A recent research paper by IFRI and IMF has identified animal source food, fruits and vegetables, processed food and cereals as key contributors to food inflation in India. While demand factors like rising incomes affect income elastic food items like milk and sugar, the supply side constraints have been a key contributor to the rising prices.

While the Reserve Bank of India has been taking steps to curb demand side factors through interest rate hikes, the governor of the RBI has highlighted that tackling food inflation effectively needs a supply side response.

Courtesy: KPMG LOGISTICS TIMES December 2011

PROFILE

46

The passionate brand builder

H

e is young , confident and suave. He is also clearly the part of the new brigade of the Indian logistics sphere, brimming not only with innovative ideas but also endowed with the unmistaken capability to implement them. Meet Vineet Kanaujia, GM (Marketing) of domestic logistics major Safexpress and understanding his mettle would be quite an interesting experience, since it would reinforce the feeling that the new mindset is increasingly making its presence felt in the sunrise domain that logistics is believed to be.

“Marketing is easy.” Well, if you have not dealt with him before, the chances are you will be taken off guard coming as it is from a 35 year old professional. But he says it matter of factly, almost. And then comes the reasoning as to what makes it easy. “As long as you have your focus clear and you have the right strategy. If you don’t have them, it could be the most LOGISTICS TIMES December 2011

difficult exercise you can imagine.”

This alumnus of Faculty of Management Studies (FMS), Delhi seems to be absolutely at ease with what he is doing. But there is hardly anything surprising in it, given the fact that it was his choice to be a part of the corporate world. Born in a family from Dehradun, he found engineering as the occupational DNA of his family. His father was an engineer with Indian Railways and his elder brother too was pursuing an engineering degree. “The natural feeling in my family circle during my school days was: I am another engineer in the pipeline,” he recalls. And he did obtain an enginnering degree but as he says, going for an MBA immediately after that was like answering to a call from within. “By the time, I was doing my high school, I was very clear in my mind that I would ultimately get into the corporate world. At that point in time, I had a technical bent of mind because of family atmosphere and I eventually got into engineering. But the realisation was always there that I

47

have good inter-personal skills and I am capable of managing different situations.

That eventually took me to FMS from where I passed out in 1999.”

If FMS was his conceptual alma mater, then electronics major Samsung turned out to be his first major experiential turf to pick up strong skill sets as well as to find his feet in the corporate world. And he remembers his Samsung days very fondly today. “When I had joined the Korean electronics major, it was still in its formative phase on the Indian terrain.

The brand was trying to find its feet in the very competitive Indian market. And I played a vital role in augmenting the brand equity of the firm. My experience with them was very fruitful and I have very pleasant memories,” he reminisces.

He moved on to Safexpress in 2007 and in practical terms, the new stint brought in a new set of challenges since it meant moving on from B2C to B2B platform. But the situation also offered to him a new opportunity – to create a new marketing structure altogether for Safexpress, which could bolster the growth momentum of the company.

“The mandate given to me was to create a marketing structure. As you would understand, marketing in our industry when I joined five years back was very nascent. Marketing was not being seen as a strategic function in the industry at all. To that extent, the basic mandate was to develop marketing as a strategic function within the firm and build the brand equity,” says he.

And herein he got the chance to offer a new paradigm. “I created an IMC (integrated marketing communications) strategy for Safexpress. I think that was the first time in the industry that such a paradigm was being adopted by any firm. In fact, even today, I don’t think there are too many companies across India Inc which adopt an IMC strategy.

I laid the keystone of my IMC strategy on eight pillars –ATL, BTL, Direct Marketing, Corporate Branding, PR & Corporate Communications, Cause Marketing, Social Media marketing, and Sports Marketing. I focussed on each

& Ups n

n Dow

Sig

Star us of these silos distinctly pany com ari Sagit dmired and strongly. They are er ta lead Mos ness i s all independent yet part u b Nike dmired ta of the overall marketing Mos elch er W e lin focus,” he shares the details h gets Jack e on ough, toug t i r u of his strategy adding that Favo oing gets t g W hen it got full support from the g ), n i o g ching company Chairman. With this bies d wat Hob laying an dedicated strategy in place, no r (p Socce , reading ng surprises that Safexress brand k trec i ite Book ur o v a has its own appeal and value in F ist lchem ine A The Cuis the market, befitting its leadership urite o v a F aal position in the logistics business. ie &D Rice Mov t i r on But that was Safexpress. How u e r o v inati a F fathe day dest d o G much has the industry caught on The holi urite Italy to the new marketing and branding Favo aland & e Z New ideas with the passage of time and growth in business?, I ask Vineet. “Not much,”, he says. “The old mindset is still an unsurpassable prevalent, which underlines: marketing passion over a sustained is synonymous with advertising. But period.” the reality of business is: brands are After having got a glimpse of his not built purely out of advertising. marketing ideas which have successfully Brands are built by creating credibility

Vineet Kanaujia with Rahul Dravid during a brand promotion campaign of Samsung in 2006

using PR, Direct Marketing, Cause Marketing, Social Media Marketing and various other marketing functions. And advertising helps in reinforcing that,” he emphatically underlines. According to Kanaujia, much of the problem stems from the fact that the usual brand building exercise lacks the desired emotional quotient.

“Branding is increasingly being undertaken as a mundane, numerical exercise. What it actually requires is

found manifestation at the place where he is today, my parting question, of course, is: what next? What would you like future to have in store for you professionally? “I am thoroughly enjoying my present stint. And would love to continue in the corporate world for another decade or so. Maybe a brand building consulting firm of my own after that.” Clearly the passion for brand building is something he is committed to carry forever.

LOGISTICS TIMES December 2011

EVENTS

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Automotive Logistics Conference in Delhi The 5th edition of Automotive Logistics Conference was held in Delhi between 7th-9th December which saw participation of about 300 delegates. The top logistics executive of leading automotive ďŹ rms like Maruti, Tata Motors, Hyundai, Mahindra & Mahindra, Ford, Fiat, etc. participated in the conference discussing the pertinent issues like the challenges in doubling the car output in next three years. The event was also addressed by senior representatives of the Planning Commission and Ministry of Railways.

Logistics Times was media partner of this event

LOGISTICS LOGIST STICS TIMES December 2011

India Warehousing & Logistics Show in Ahmedabad The 2nd International Indian Exhibition & Conference on Warehousing, Cold-Storage, Materials Handling, Logistics and Supply Chain industry â&#x20AC;&#x201C; India Warehousing & Logistics Show 2011 and India Warehousing Conference 2011, organized by Manch Communications was held at Gujarat University Exhibition Hall last month. The three days exhibition witnessed a substantial ďŹ&#x201A;ow of 5163 visitors and professionals from across varied user industry segments. The conference was well attended with the presence of 132 delegates from across different industry sectors from India as well as abroad.

LOGISTICS TIMES December 2011

EVENTS

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EVENTS

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BIMTECH’s workshop on next-gen logistics Birla Institute of Management Technology (BIMTECH) recently organized a workshop in Delhi focusing on the need to evolve next-gen logistics and supply chain processes to respond to the economic demands in the future. Supply chain officials of leading FMCG firms and from other sectors participated in this workshop which was organized in association with Hull University Business School, UK. BIMTECH has planned to organize more such workshops at different centers in the future.

LOGISTICS TIMES December 2011

Pallia turns 50 Pa 0 Pallia Transport, a front ranking automotive player in the country now more popularly known as Mercurio Pallia, a, celebrated its function in Gurgaon last month. The event saw large attendance from the industry were Vipul Nanda, Golden Jubilee in a glittering g the interesting journey of the company. A major highlight of the evening was CMD, Mercurio Pallia narrated n as release of Ramesh journalist and former Consulting Editor of this publication) maiden book titled ‘10,000 Km Kumar’s (a senior journalis m On Indian Highways’ which deals with operational and procedural hurdles in movement of goods.

LOGISTICS TIMES December 2011

EVENTS

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EVENTS

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TCI’s ‘Truckers Utsav’ In an effort to acknowledge the contribution of Truckers in our everyday lives, TCI Foundation (TCIF), the social arm of Transport Corporation of India, organised a nationwide event “Trucker’s Utsav” at 73 trans shipment locations across the country. The activity was organised as part of the events held to observe the world AIDS day under the National HIV / AIDS prevention program among long distance truck drivers and helpers which is an endeavour to arrest the spread of AIDS amongst the trucking community, supported by National AIDS Control Organization.

FedEx Panda Express FedEx Express recently transported two giant pandas, Tian Tian, an eight year-old female panda, and Yang Guang, an eight yearold male panda from Chengdu’s Bifengxia Panda Base to Edinburgh Airport in Scotland. Working in conjunction with the Royal Zoological Society of Scotland (RZSS) and the China Wildlife Conservation Association (CWCA) in China, the specially chartered Boeing 777F flight known as the “FedEx Panda Express” landed in Scotland on December 4. The arrival of the pandas marks the first time in more than 17 years that giant pandas will reside in the UK.

LOGISTICS TIMES December 2011

RNI No. DELENG/2011/39329