Lt may 2011

CURRENT SCENARIO 16

IDENTITY CRISIS 19

FINANCING OPTIONS 20

LogisticsTimes www.logisticstimes.net www .logis .lo g stic gis t csst tic sti ttiim mes ess.n ..ne n t

May 2011

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SPECIAL ISSUE

WAREHOUSE

The new El Dorado?

I

NDIA'S MOST VALUED LOGISTICS MAGAZINE

The warehousing segment has almost witnessed an explosive growth in recent years. But as the need to scale it up further becomes more pressing, the issue is how to devise a better structural growth regime for these units? This obviously also includes adoption of advanced operatioanl models.

Logistics Times

CONTENTS

All about Transportation, Distribution & Infrastructure Volume 2: Issue No.1 * May 2011 Editor in Chief Raj Misra rajmisra@logisticstimes.net Editor Ritwik Sinha ritwik@logisticstimes.net Consulting Editor Ramesh Kumar ramesh@logisticstimes.net Mumbai Bureau Rahul Kumar rahul@logisticstimes.net Sub Editor Neha Richariya Photographer Anil Baral Design Consultant S. Athar Hussain Designer Kausar Syed Circulation & Distribution Kamruddin SaiďŹ Legal Advisor Rakesh Garg Editorial Advisory Board Paul Lim Founder & President, Supply Chain Asia Vinod Singhal Brady Family Professor of Operations Management, Georgia Institute of Technology, College of Management Kate Vitasek Faculty, Centre for Executive Education The University of Tennessee Prof. K S Pawar Nottingham University Business School Prof. Samir Srivastava Associate Professor, IIM-Lucknow Prof. Akhil Chandra Institute of Logistics & Aviation Mgt Sanjay Upendram Founder & Chairman, Amarthi Management Consulting Swaran Singh Soni Consultant (Oil Industry) 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

www.logisticstimes.net

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WAREHOUSE The new El Dorado of Indian Logistics Business Edit Note

6

Education

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Events

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P&Q

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44

12

QUICK CHAT

INTERVIEW

Joe Pajer

Dinesh Rai

16-43 1 6-43

GUEST G UEST C COLUMNS OLUMNS Rapid Advancements

Puzzle type

Prof. Samir Srivastava

Kevin Gue

Ignore us at your own peril!

10 Commandments

Anil Arora

Curt F. Barry

Emerging Opportunities

Warehouse EfďŹ ciency

Aman Agarwal & Saurabh Agarwal

Vishal Patell

Godowns to DCs

The Business Case

Sundar R J

Saurabh Goyal

Next Big Leap Keki Patel

The need for speed Tielman Nieuwoudt

The Indian Context Nipun Kohli

Beating boredom & monotony Prof. Akhil Chandra

Challenging task Amit Dhingra

EDIT NOTE

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Experience then and now It gives me immense pleasure to present this edition to you. Not because it’s a segment specific special but it marks our entry in the second year of operations. Must say, it has been quite an experience to run this show in last one year. The intrinsic belief (which in fact was the bedrock of our decision to start this magazine last year in May) that the logistics sector is all set to quietly slip into a dynamic mode has not only been sustained but rather strengthened thanks to the rapid fire developments happening around. Nothing surprising, those initial lurking suspicions (of course, on the future and acceptability of a product like this) have now been replaced by a rocksolid sense of confidence and we are definitely committed to a more meaningful engagement with the various constituents of this diverse industry.

Having said that, my tryst with logistics industry is not merely restricted to last one year while producing this magazine month after month. Earlier between 2007-2009, I was heading the editorial unit of a popular cargo monthly which was the market leader in B2B space then in the country. So Logistics Times, by and large, has been a comeback kind of story for me personally. And today when I tend to evaluate and compare the changes I have noticed in the eco-system of the logistics business then and now, the results or trends are indeed very encouraging. Let me share some of my own observations.

Four years back, the players in the industry had this feeling that this business do have the big-ticket growth potential. Now nobody is talking about the growth potential. What is being discussed is: how to attain that perceived peak in a structured manner? And this clearly is a decisive move forward in terms of attitude. The second and a much bigger change which I notice is the increasing professional quotient in the business. And many of the professionals who are occupying helm positions in different companies are well exposed to developed and other emerging markets. Needless to say, the knowledge base of the industry has also deepened tremendously. The financing climate has also improved considerably with PEs showing interest in logistics businesses and there is a larger feeling that adoption of advanced IT applications is inevitable. And for all top notch MNCs, India has become the turf to be consolidated upon and the results have begun pouring in at a much rapid pace now.

Of course, at the ground level, there still are many procedural hurdles but if one has to prepare a confidence index of serious players then and now, then there could be a considerable difference. From ‘we can’ to ‘we will’ – that in my opinion is the most defining shift which has happened in last four-five years and that bodes well for this sector.

Coming back to this issue, this is the fourth of our special editions in last one year and this time we have turned the spotlight on warehousing industry. Renowned industry representatives (from both India and abroad) have contributed to this edition and on a cumulative basis have drawn a holistic picture of the warehousing business.

The columns featured in this edition not only underlines the trends in the Indian warehousing business but also takes a look at some of the interesting and efficient global operational models.

Waiting for your feedback Ritwik Sinha ritwik@logisticstimes.net LOGISTICS TIMES May 2010

NEWS BRIEFS

8 Secondary markets ambition

Emirates SkyCargo has begun cargo operations from Lucknow and plans to expand services to more secondary markets, like Jaipur, Coimbatore and Amritsar soon. Exporters from Uttar Pradesh to the United Arab Emirates can now directly ship their cargo to the vast global footprint of Emirates comprising 111 cities and 66 countries in six continents.

“We are glad to have expanded our operations and launched our office in Lucknow, a city that has a growing importance for us from a business perspective,” Emirates SkyCargo Manager (India & Nepal), Keki Patel said on the development.

“Now, we are looking to expand to secondary markets. These may include Jaipur, Coimbatore, Amritsar, Chandigarh, Indore and Vishakhapatnam,” he said.

New unit C E V A L o g i s t i c s, one of the wo r l d ’s leading supply chain companies, recently announced the creation of a new organization, Supply Chain Solutions, and launched its latest SMART Solution, SMART End to End. CEVA’s Supply Chain Solutions organization has been created in response to the changing and evolving needs of large, global customers. As they have shifted to sourcing, manufacturing and distributing products on a global basis the complexity of managing their supply chains have increased, while high performance and total optimal cost remain key criteria. The Supply Chain Solutions team, of around 185 employees, will use the experience and expertise that already exists within CEVA to consolidate difference structures, organizations and resources to further strengthen its global team and upgrade its End to End Solutions – a key part of the CEVA story - to drive strategic advantage for its customers throughout their supply chains.

LOGISTICS TIMES May 2011

Noel Tata takes over as chairman of DIESL Noel Tata has taken over as chairman of DIESL (Drive India Enterprise Solutions Limited), signifying the growing importance that the Tata group has placed on logistics. Noel Tata has also revamped the board of directors by roping in experienced hands to drive the next phase of growth at DIESL. New members of the board include KRS Jamwal, Executive Director, at Tata Industries and RS Thakur, MD and CEO at Tata AutoComp Systems. The logistics major is in the process of increasing the warehousing capacity under management from 4.4 million sq feet to 6 million sq feet in the present financial year. The company is setting up warehousing hubs across the country. In the next two years, it hopes to have nine hubs on a pan India basis including four mega hubs with warehousing space of between 2.5-5 lakh sq feet each, operational across four large cities in India including Mumbai and Chennai. Noel Tata has set the company an aggressive target to be not just the best in India but also amongst the top ten in Asia Pacific in its segment.

FedEx Trade Networks opens office in Delhi FedEx Trade Networks, a subsidiary of FedEx Corp.

(NYSE: FDX) and growing international ocean and air freight forwarder, has now opened an office in Delhi.

The new office in Delhi is located outside of the city in Gurgaon, Haryana and is unit’s third office in India.

“Delhi International Airport is India’s second largest airport in terms of cargo traffic,” said Rajat Khosla, FedEx Trade Networks Country Manager of India. “It also serves as the gateway to the industrial areas of Northern India, which is home to a variety of industries, including automotive, high-tech, pharmaceuticals, leather goods, and apparel and textiles, among many others. This presents a great opportunity for FedEx Trade Networks as a global freight forwarder.”

Opening an office in Delhi is an important move for the freightforwarding arm of Memphis, Tennessee-based FedEx. Delhi’s Indira Gandhi International Airport is scheduled to open an integrated cargo terminal by March 2013 and air cargo volume is expected to increase to approximately one million tonnes annually.

“Our education programme is directed to improve competitiveness” According to B Sridhar, Vice-Chairman, CII Institute of Logistics, the education programme run by the institute is effectively contributing its bit in improving the competitiveness of Indian businesses as well as creating a vibrant workforce for the future. Excerpts from a recent conversation with Logistics Times: Logistics and supply chain sectors are believed to be suffering in a major way from both - lack of quantitative and qualitative workforce. What kind of role your institute is playing here to deal with these critical issues?

CII Institute of Logistics was set up way back in 2004, when the relevance of logistics and supply chain was relatively new as a concept in India. CII Institute has undertaken a pioneer role in bringing the important relevance of logistics to government, industry and stake holders at large. This the institute is delivering through education, research and events in logistics and supply chain. CII Institute of Logistics has and will continue to accompany the growth of logistics in the country.

Please also take me through to the journey of this institute - the way it has evolved since its inception?

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike, through advisory and consultative processes.

To address the need of sharpening India Inc’s competitive edge through better Logistics and Supply Chain practices, CII Institute of Logistics (CII-IL) was established in 2004 by the Confederation of Indian Industry as a Center of Excellence in Logistics and Supply Chain.

The Vision of CII Institute of Logistics is to become an International Centre of Excellence in Logistics and SCM and to facilitate Indian industry to be referred in global business for its Best Practices in SCM and Logistics.

The Mission of CII Institute of Logistics is to be a platform to create and share intellectual capital for reducing transaction cost and improving competitiveness and in the process nurture the skills of Logisticians and ensure adoption of Best Practices in Logistics and SCM through online and offline activities.

Our services include Education, Training, Advisory, Events, Research and Information Services.

What kind of certification programmes you are running currently?

With a view to facilitate Indian industry to be referred in Global Business for its best practices in Logistics and SCM and as an attempt to bridge the skill gap in the logistics industry by providing competent and knowledgeable human resource, CII Institute of Logistics is offering the following programs through Distance Mode: • Post Graduate Diploma in Supply Chain Management (Three Years) (Approved by DEC) • Advanced Diploma in Supply Chain Management (Two Years) • Diploma in Supply Chain Management (One Year) (Approved by DEC) • Certificate Programs (Six Months each) o Certificate in General Management (Approved by DEC) o Certificate in Logistics Management (Approved by DEC)

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Certificate in Supply Chain Management (Approved by DEC) • Advanced Certificate Programs (Six Months each) o Certificate in Advanced Supply Chain Management (Approved by DEC) • Specialized Certificate Programs (To be introduced) Do companies also send their employees for these programmes?

Large number of organizations of repute regularly sponsor their employees for different programs as per their requirements. We also customize our programs to suit their changing needs. The sponsorship includes both mass enrolment as well as individual enrolments. We do organize short term programs in their premises.

The objective of our program is to develop professionals who intend to assume leadership positions in supply chain management and contribute to the competitiveness of firms operating in the global, dynamic, 21st century marketplace.

Our program is suitable for junior middle and senior level managers, executives, who aspire to excel in their current and future managerial corporate assignments.

How many students really get rolled with you every year? Have you noticed any significant surge since the beginning of this programme?

We admit new batches twice in a year and our admissions per semester range from 200 to 250. We had noticed surge during July 2008 when the admission rose to 280.

What are the new elements you have brought in your curriculum in recent times?

All our programs (barring the newly introduced ones) are recognized by Distance Education Council, as recommended by the Joint Expert Committee from UGC-AICTE-DEC. Contact sessions are held through web enabled virtual classes. Choice based credit system is implemented for enabling the students to avail academic credits on par with national & international institutions. Subject list also extended by including latest expectations and trends in the industry, offering more options for the students to choose from.

Any specific plans to add more punch to the existing programmes?

There is an urgent need to plan India’s logistics infrastructure in a more holistic manner. Planners of India’s rail, road and air infrastructure will have to come together in planning India’s transport infrastructure. Whilst we have advocated this from the beginning, our efforts will continue in this direction.

Partnering National Skills Development Corporation in setting up vocational skills training programmes for the logistics sector will be an extra thrust and focus in our initiatives in the coming years.

Existing programmes is constantly being upgraded to bring in more customisation and new IT related technologies brought in.

LOGISTICS TIMES May 2011

EDUCATION

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INTR INTRODUCTION RODUCCTIO ON

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WAREHOUSE SPECIAL

The new El Dorado of Indian Logistics Business?

In all probability, nobody today can have any qualms about it.

The warehousing sector in India in last four-five years has almost witnessed an unprecednted boomin terms of volume growth. In fact, as a senior analyst in his column points out in this edition (refer to ‘Current Scenario’ article), the growth in the warehousing sector has been the most shinning subplots of Indian logistics story in the recent years.

As industry representatives point out the demand push from manufacturers has acted as that big ticket catalyst for the growth in warehousing. And the good news is that this growth story may have just begun and it would find expression in myriads of ways in the time to come. Particularly in structural terms and in adoption of advanced processes. We already have players talking big on logistics parks – a vibrant expansive distribution units usually equipped with multi-modal transportation facilities. These parks are the vital cog of supply chain processes in the developed economies and sensing huge business opportunity, some enterprenuers/firms are showing commitment to make them an integral part of the Indian logiscape as well. A PE backed firm is even talking of pumping in a staggering $240 million in logistics parks in next two years. And today, no LSP with warehousing as a business vertical is talking less than some million square feet addition when it comes to the projection.

But in all fairness, this could still be the early days of the warehousing revolution which many of us would like to believe has begun to unfold. The demand and supply gap is still quite acute and the private sector contribution or share in warehousing is still far too low. As the chairman of Warehousing Development Regulatory Authority (WDRA) strongly underlined (refer to Dinesh Rai's exclusive interview), the country needs big-scale units which could be pursued through the public-private-partnership (PPP) route. But PPP is yet to take off in a major way. The accredition process for warehouses have begun but it will take quite a while before it really has a sweeping influence all through the country. From the operators’ side, the big question of the day as a senior official of a leading warehousing firm pointed out is: whose children are we? That is, which is that specific ministry or government agency to address the needs of this sector? And then there are other structural or even mindset issues like warehouses still being considered to be storage units rather than that vibrant distribution points which respond to the needs (including cost) of all stakeholders in the value chain in terms of robust contribution to the fast and seamless delivery model. Acquisition of land is another kink which could be a major hurdle in the time to come as this segment tends to skip to a higher scale in response to the mounting demand. In a nutshell, the El Dorado might have been spotted from a distance but reaching there would not precisely be a cakewalk even as GST promises are slated to act as a boon for this line of business.

The good news, however, is : the certain deepening of knowledge base within this segment. As a columinst in this edition points out the journrney from dingy godowns to well-equipped and scientifically managed distribution centers (DCs) has begun in the country. Though on a low scale now but the trend is all set to become contagious in the medium to long term. Leaf through our special section on warehousing to get a glimpse of advanced solution options available in the world of warehousing…

–Ritwik Sinha

LOGISTICS LOG OGIST OG IST ISTIC STIC ICS C TIMES TIMES M May 20 ME 201 2011 011

“We will expand our ambit to include

INTERVIEW

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non-agriculture commodities

“

In a no-holds-barred conversation with Ritwik Sinha, chairman of Warehouse Development Regulatory Authority (WDRA) Dinesh Rai explains the specific agenda of the regulator to take warehouse development and growth to the next level in the country. He also emphatically points out that the regulator would be expanding its wings soon to include non-agriculture commodities. Excerpts: Observing from a distance, one gets the feeling that the growth in the warehousing sector in the recent years in the country has been quite explosive. The prominent LSPs now talk in terms of million sq feet addition when it comes to planning. What is your take on the situation?

The level of interest in any economic activity in any sector of economy depends on several socio-economic factors. Warehousing, accordingly, is a LOGISTICS TIMES May 2011

pre-requisite for growth of trade and commerce in any country. Even for regulated markets, terminal markets, retail chain, food & agro-based industry, storage of inputs and outputs, warehousing is an essential requirement.

Looking at the gap between the demand and supply for storage capacity, the working group of 11th Five Year Plan on Agricultural Marketing had estimated storage gap of 35 million MTs in the country. Therefore, the concern of LSPs to talk in terms of creation of million

square feet is, well placed.

The country has 106.95 million MTs of storage capacity in the corporate, cooperative and private sectors. Out of this, the private sector is having only 18 million MTs. Public private partnership (PPP) is yet to take off in a big way.

How would you explain the specific agenda of WDRA? The basic objective of WDRA is to implement the system of negotiable warehouse receipt in the country and

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to encourage farmers to store their agriculture produce in registered warehouse so that they may seek loan against the NWR. For this, the process of registration of warehouses has been streamlined and 51 warehouses have been given registration certificates and Negotiable Warehouse Receipt books.

The registration of remaining warehouses is in progress.

The road map of the Authority is, that after the first stage stabilises, to initiate extension of negotiable warehouse receipt system for the processed agricultural commodities which are required to be stored in warehouses maintained under controlled conditions of temperature and humidity and also to introduce electronic warehouse receipt in the country. The third stage would be to implement NWR system for non-agricultural commodities storable in the warehouses. The Authority is keen that crop loan facilities allowed to the farmers at 4 percent interest rate should also be applicable in post-harvest storage also on negotiable warehouse receipts.

A common grudge of many international observers and industry representatives is that India does not have modern warehousing infrastructure. How would you respond to it and how would you contribute to change in this perception in years to come?

Most of the warehousing capacity available in the country is in the Government sector. The FCI, CWC and SWCs are having most of the warehousing capacities available in the country which is mainly used for storage of foodgrains procured

by Government agencies for distribution under Targeted Public Distribution System (TPDS). With a view to introduce modernisation in the storage, handling and transportation of foodgrains in the country, the Government had introduced the National Policy on handling, storage and transportation of foodgrains.

Private sector has been encouraged to build storage capacity on build – own – operate (BOO) basis. Under the policy, integrated morden storage, handling and transportation facilities to the tune of

5.5 lakh MTs have created in the country at different locations. It is expected that world class warehousing capacities in private sector would be created soon in the country.

Warehouse financing is another area where players involved are demanding concessions. What do you have to say on this?

Warehousing is a capital intensive sector and without availing finance from banks and financial institutions, warehousing facilities cannot be created by the entrepreneur. Besides, land requirements for constructing the warehouse are difficult to meet due to high rising cost of land in urban, semi urban and rural areas.

Tax incentives and other financial benefits

Under the scheme, subsidy @ 25 percent of project cost is provided for construction/renovation of rural godowns to all categories of farmers, agriculture graduate, cooperative, CWC/SWCs. For North-Eastern states/hilly areas and SC/ ST entrepreneurs, their cooperatives and women farmers, subsidy is provided @ 33.33 percent of project cost. A total of 23,478 godowns with a capacity of 27.57 million MTs has been sanctioned so far with a subsidy of Rs. 672 crores.

Government should plan for setting up of Agricultural Economic Zones (AEZs) on the line of Special Economic Zones (SEZs). In these special agricultural zones, land may be acquired by the Government and may be given on lease for setting up warehouses, agro processing units,

The country has 106.95 million MTs of storage capacity in the corporate, cooperative and private sectors. Out of this, the private sector is having only 18 million MTs. Public private partnership (PPP) is yet to take off in a big way. are not encouraging. The investmentlinked tax incentive scheme proposed in the budget to firms for setting up cold storage and warehouses for farm produce is likely to attract private funds in the warehousing sector. The scheme proposes that all capital expenditure— other than expenditure on land, goodwill and financial instruments—to build and operate such facilities can be fully treated as deductions for tax.

Scheme of construction/renovation of rural godowns, under Ministry of Agriculture & Cooperation, with the objectives of creation of scientific storage capacity with allied facilities in the rural areas to meet the requirements of farmers for storing farms produce, processed farms produce and agricultural inputs, promotion of grading, standardisation and quality control of agricultural produce to improve their marketability and prevention of distress sale immediately after harvest.

framer’s training centres and agricultural produce marketing facilities. Setting up of warehouses in AEZ should be treated a priority sector and easy loans at lower interest rates should be provided to entrepreneurs for setting up of warehouses. This would be helpful in development of modern and scientific warehousing facilities for agricultural and other commodities.

Tax benefits viz Income Tax exemption as per section 80 IA of the Income Tax Act and exemption from Service Tax should also be provided to warehousing sector.

Everybody is broadly speaking about developing an efficient and structured regime for warehouse development which should have right kind of accreditation agency, personnel with right kind of skill sets, etc. As a regulator, how are you tackling these issues?

LOGISTICS TIMES May 2011

INTERVIEW

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As a regulator in the warehousing sector, WDRA is keen that basic facilities and infrastructure as well as right kind of skill in form of trained manpower are available in the registered warehouses.

The WDRA has appointed eight eminent Government and private organisations as agencies for accreditation of warehouses prior to their registration with Authority.

The four private agencies have been recommended by Quality Council of India. These agencies have started accreditation of warehouses in different states and more than 80 warehouses have been accredited in the country.

The accreditation agencies are: Indian

warehousemen in the country.

It seems the hub and spoke model would become prominent after GST comes into the play. What is your take on it?

Be a terminal market, warehousing or silosystem, hub and spoke model is the order of the day. Induction of GST will break so many financial and physical barriers, warehousing sector will automatically grow in an integrated manner. The development of highways, introduction of value-added tax and a projected shift to a National Goods and Services Tax (GST) regime are also likely to provide an

The WDRA has appointed eight eminent government and private organisations as agencies for accreditation of warehouses prior to their registration with Authority.

Grain Storage Management and Research Institute (IGMRI), Hapur; National Institute of Agricultural Management (NIAM), Jaipur; National Cooperative Development Corporation (NCDC), New Delhi; National Productivity Council (NPC), New Delhi; TQ Services (A Division of Tata Projects Limited), Hyderabad; Bureau Veritas Certification India, Mumbai; Vexil Business Process Services, New Delhi and American Quality Assessors (India), Hyderabad.

One of your specific agenda is to promote professional organizations connected with the warehousing business. How are you really undertaking it?

The WDRA is keen that professional organisations which are connected with the warehousing business are promoted. In the same reference, WDRA is considering to further strengthen one of the premier institutions of the country in the field of post-harvest management and warehousing known as Indian Grain Storage Management and Research Institution (IGMRI), Hapur as an apex level training institution for LOGISTICS TIMES May 2011

impetus to the warehousing sector.

Warehouses in the country again are still looked more as storage units than vibrant distribution points. Do you think this perception would change in the coming years?

The introduction of Negotiable Warehouse System is an initiative to link registered warehouses with spot exchanges and APMCs. These would become the vibrant distribution points for agricultural produce with packaging, grading and marketing facilities.

Many industry players are also maintaining that qualitative warehouse revolution is not possible till land reforms are implemented.

What do you have to say on it?

Availability and price of land in the ideal location for warehousing from production and consumption angles is indeed, an impediment. Even the land laws not permitting the use of agricultural land for warehousing in some states are a major bottle-neck. Conversion of land use from agriculture land to warehousing requires permission of the State Govt. under

land revenue laws, it is desirable to stress upon State Governments for amendment in the State Revenue Laws which makes conversion of land use, simpler for faster growth of warehousing.

Some observers also look at real estate play element setting in with players demanding concessions for warehouses. What’s your take on it?

In fact, real estate players can play major and positive role in accelerating the pace of warehousing infrastructure in the country. They have the capabilities of creating world class warehousing infrastructure in the country which is the need of hour.

Finally, how do you envisage the unfolding scenario in the warehousing sector in next five years and what would be the three key challenges before WDRA? Unholding scenario in the next five years in Warehousing Development & Regulatory Authority into an integration of retail chain, cold chain, regulated markets, terminal markets, processing industry and requirements of storage for inputs and outputs of all commodities including agriculture commodities largely being fulfilled in an integrated growth of warehousing sector. 100% foreign direct investment is allowed in the warehousing sector. But some how it has not taken off.

FDI investment alongwith the needed fiscal reforms for warehousing, keeping long gestation in mind, will provide the required impetus for the expected growth of warehousing infrastructure in the country.

The emerging scenario of warehousing sector under WDRA is very promising and encouraging. In the next three years, as per the road map of WDRA as I explained earlier, will bring in sea change wherein the number of registered warehouses including financing against commodities and the marketability of those commodities through APMC and spot exchanges is likely to revolutionise the entire warehousing sector. We have a target to register around 3000 warehouses in the next couple of years.

WAREHOUSE SPECIAL

16

Rapid Advancements

Prof. Samir Srivastava

IIM-Lucknow

LOGISTICS TIMES May 2011

In India, no other area has got as much attention in logistics and supply chain as warehousing in the last two three years. The sector is on unprecedented growth path and is advancing rapidly. The warehouses are transforming fast from dilapidated, simple and non-descript buildings in the viscinity of octroi posts to state-of-the-art plush facilities. This is a much awaited welcome change for Indian logistics and supply chains.

Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. Receiving, storage, order picking, and shipping are their basic functions. Traditional warehousing has declined since the last few decades with the gradual Current introduction of Just-In-Time (JIT) techniques. Warehouses today carry out a host of other additional activities such as selective racking and block storage, cross docking, temperature control, kitting/light assembly, repacking, labelling, palletising and other value added services such as specialised transport, duty and tax determination, complete documentation preparation, expedited customs clearance, tax exception and license application.

Due to growing economy and increasing business volumes, many firms like the Arshiya International, DHL Global Forwarding, Future Group, Gati, Hitech Frozen Facilities Pvt Ltd., NBHC, NCMSL, Samridhi Bio-Energy Pvt Ltd., Shreyas Shipping and Suri Agrofresh Pvt Ltd. are largely into warehousing capacity expansion. Logistics service providers (LSP) like TNT, Transport Corporation of India (TCI), Blue Dart, Gati and Safexpress, are looking at creating more than 25 million sq ft of warehousing space. Arshiya International will invest Rs 7,468 crore over three years on developing warehouses and railway infrastructure across India. This includes five distriParks and a 75-train pan-India rail charter.

It has scaled up its rail infrastructure operations to 12 rakes in just about a year of operations, making it the first truly integrated logistics company of India.

Shreyas Shipping and Logistics Ltd. is diversifying from its existing core shipping business to become an end-to-end containerised cargo logistics operator.

It plans to invest Rs 100 crore to expand its shipping, warehousing and inland transportation capacities.

Shreyas will set up warehousing facilities at 8-10 locations across India including Mundra, Cochin, Kandla, Tuticorin and Delhi and will also increase its trailer strength which currently stands at 8 to 100 in

phases to enhance its inland transportation capacity.

Future Supply Chain Solutions Ltd. has decided to invest up to Rs 400 crore as a part of its expansion plans for the next four years. The company intends to set up a cluster of large distribution network in which the hubs will get products from vendors and feed the other smaller warehouses. It also plans to set up logistics parks across India with an investment of Rs 30 crore in 2011-2012 to serve as backend systems for its e-commerce business. The parks will be developed as clusters with container depots for a large distribution network. In cold storage arena, Gati has decided to set up 10 facilities over the next two-three years. The first two facilities, with a capacity Scenario of 25,000 square feet each, will come up at Delhi and Bengaluru. National Collateral Management Services Ltd (NCMSL) is investing Rs 420 crore to establish warehouses having capacity of 1.4 million tonnes in Madhya Pradesh, Rajasthan, Chhattisgarh, Uttar Pradesh, Bihar and Tamil Nadu. It intends to set up 55 warehouses, six cold storage units and three multipurpose logistics centres. National Bulk Handling Corporation (NBHC) plans to increase its existing two million tonnes commodity management capacity by about 400 percent in the next five to six years.

The company at present manages 473 warehouses and offers storage, testing-grading, fumigation & pest management, warehouse audit and commodity valuation services.

Others to join in the fray are DB Scheneker, Om Logistics, AFL Logistics, Robinsons Global Logistics Ltd., Allcargo Global Logistics, CCL Logistics, etc.

Jayem Logistics has set up three state-of-the-art warehouses in Bangalore, Chennai and Delhi. They offer congestion-free facilities with three-docking stations that allow storage of odd-sized cargo. They are equipped with uninterrupted power supply, flooring with high load bearing capacity, security, closed-circuit television cameras, fire safety alarms and smoke detectors. Similarly, MJ Logistics Services Ltd (MJLSL) has opened its first hub warehouse at Palwal on the Delhi-Agra highway in October 2009.

The facility comprises two lakh sq ft with computercontrolled racked shelving and 20,000 pallet positions of ambient storage and temperature-controlled chambers all under one roof. MJLSL has signed a three-year contract with HCL Technologies Ltd for providing integrated services to this new facility.

The Palwal facility as the main hub, is linked to two

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similar but smaller "spoke" warehouses at Zirakpur (Punjab) and Haridwar (Uttarakhand) thus covering the industrial regions in the north. The new facilities offer online tracking and back-office services such as packing, labelling and kitting. The centres adopt pay-per-use policy model for the customers. MJLSL has until now operated leased warehouses serving a number of corporate clients such as Philips, Godrej, Colgate-Palmolive, Hindustan Unilever, Coca- Cola and ITC, among others. The new warehouses of AFL Logistics at Panvel near Mumbai, Gurgaon near Delhi, Kolkata, Bangalore and Chennai cater to all industries and are equipped with eco-friendly equipment and security devices. The company has a network of 50 warehouses across 37 cities in the country and handles 1,50,000 stock keeping units (SKUs) per annum.

Om Logistics has opened a warehouse at Jamalpur on 60,000 square feet of space. The high-tech warehouse is aimed at meeting the demand of logistics requirements, especially from industry verticals such as consumer durables, retail, fast moving consumer goods and pharmaceuticals.

The concept of Free Trade and Warehousing Zone (FTWZ) is also getting lot of attention. It involves setting up of infrastructure for warehousing of various products, transportation and handling facilities and a one-stop clearance of import and export formalities. It provides facilities like warehousing, cold storage, in-house customs clearance, labelling, re-invoicing and value-added services. It benefits customer companies by offering flexibility for end distribution through duty deferment, hassle-free re-export and lower product costs. Arshiya has

already launched an FTWZ in Panvel, Mumbai at an investment of Rs 1,500 crore and proposes to set up four more such FTWZs. DHL Global Forwarding (DGF) proposes to invest Rs 90 crore by 2013 for establishing FTWZs in India. It has already opened a freight forwarding facility at FTWZ at Sriperumbudur near Chennai. It was built at a cost of Rs 45 crores and has built up area of 2.61 lakh square feet. The facility offers warehousing to companies that import goods, customise and then export them.

It has also an in-house custom clearance counter for inbound and outbound goods.

DGF is planning to set up another FTWZ at an estimated cost of Rs 45 crore on Haryana-Punjab border. The company also intends to set up FTWZs at Mumbai and Delhi by the end of 2012.

Logistics parks are also coming up at a fast pace. Sri City Pvt Ltd., Safesexpress and Shree Shubham Logistics Ltd (SSLL) began the process. Shore to Shore Logistics India Ltd. plans to set up a warehouse-cum-logistics park and an inland container depot at Amritsar in Punjab. Industry specific LSPs are also emerging. Aparna BPO Services Ltd. has set up a warehouse in Chimbli village near Pune city with a capacity for 9,000 tonnes of goods. The warehouse will mainly store auto components and spare parts required

by SMEs in and around Pune city. Aparna plans to expand its warehousing division over the next five years. The company provides logistics support to companies such as Tata Bearings, SKF Bearings and NRB Bearings. Orange City Logistics Park (OCLP), located on 90 acres of land near Multi-Modal International Cargo Hub and Airport Nagpur (MIHAN), caters to pharmaceutical and fast moving consumer

goods (FMCG) industry requirements.

GMR Hyderabad International Airport Ltd (GHIAL) has tied up with Menzies Aviation of the UK to set up a dedicated pharma zone at the airport to cater to export of pharmaceutical products. The zone has the capacity to handle 30,000 tonnes of throughput per annum. The airport is set to emerge as a logistics hub with a free trade warehousing zone and a maintenance, repair and overhaul facility in the pipeline besides the pharma zone. PBEL Property Development India Limited too is setting up a new cargo warehouse near Hyderabad international airport.

In the government sector, Central Railside Warehouse Company Ltd (CRWCL) has set up three rail-side warehouses at Hatia near Ranchi, Dankuni in Kolkata and Dehri-on-Sone in Bihar. Transport Corporation of India Ltd (TCIL) is planning to set up warehouses in Chakan and Gurgaon. The Chakan warehouse will have a height of 15 metres making it the tallest warehouse in the country. It will have a capacity of 30,000 pallets and will be a multi-user facility. Central Board of Excise and Customs plans to set up new export warehouses in Thiruvallur district of Tamil Nadu. These would benefit manufacturing companies in Sriperumbudur region, which already has around four warehouses.

The Government of India has decided to allocate funds of Rs 650 crore to revive the National Cooperative Consumers' Federation of India (NCCF). The funds will be utilised to establish processing, packaging, distribution and warehousing facilities in 12 states. Initially, five processing units will be established at Nagpur for dal, in Chhattisgarh, Rajasthan and West Bengal for paddy and in Andhra Pradesh LOGISTICS TIMES May 2011

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for rice. NCCF will use the facilities of the Central Warehousing Corporation.

Food Corporation of India (FCI) is setting up new godowns on (PPP) public-private partnership model in West Bengal, Bihar, Jharkhand, Chhattisgarh and Madhya Pradesh. Under this project, godowns and warehouses will be constructed by the private partner and then leased out to FCI. The private partner can also run these warehouses on a build, own and operate (BOO) basis. Similarly, the Indian Railways plan to develop centres for perishable cargo and cold chain transportation by train under public-private partnership (PPP).

The proposed scheme will be open to logistics and transportation firms, cold chain operators, agricultural retail chain operators, freight forwarders, corporate houses engaged in contract farming, food processing industries, agricultural cooperative societies, state marketing federations and warehousing companies.

Further, LSPs and firms are also adopting new technologies to track expansion of product portfolio, manufacturing locations, aggregating godowns and shipment warehouses. Om Logistics is setting up state-of-the-art warehouses at Faridabad, Chennai, Ahmedabad, Halol, Pune, Noida, Goa and Patna. These warehouses will have turbo ventilators with proper skylight; epoxy coating at flooring; heavy duty racks; conveyor belts from picking to packing to staging area; dock levellers and material handling equipment like fork lifts, pallets and stackers; airconditioned office with special ventilation for warehouse; separate lockers, changing room and dining room for workers; and rainwater harvesting, landscaped gardens, pathways and interlocked stone. For cold storage purpose, the company is also planning to build a reefer point for 5,000 square feet of temperature-controlled warehouse. These developments have also led to increased requirement of material handling equipment and software solutions. Recently, Voltas has started a joint venture with Germany's KION Group GmbH named Voltas Materials Handling (VMH) to develop and make forklift trucks and warehousing equipment LOGISTICS TIMES May 2011

in India. Its product range will include diesel, LPG and electric trucks with load capacities of 1.5 tonnes to 16 tonnes and will focus on Indian market with 25 branches and nationwide dealerships.

From supply chain management perspective, in addition to improving internal efficiency, a real-time view of inventory and warehouse activity can improve customer satisfaction by facilitating timelier and more accurate shipping.

It also allows companies to simplify tracking of hazardous and date-sensitive materials for improved regulatory and recall compliance. So, firms are rightly focussing on categories, volumes, accuracy, visibility and integration. They are making smarter use of existing space to avoid costly expansions. They are also taking actions to optimize movement within the warehouse to cut the time wasted in warehouse operations. As there is a great degree of interaction between warehouse space requirements and materials management, suitable material management policies and practices have made it possible to postpone or eliminate the need for expansion in many cases. Similarly, storage and order, the two warehouse functions that have the largest impact on the overall warehouse operational performance including storage capacity, space utilization and order picking efficiency are being improved. Still, sufficient scope exists for improvements applying basic management principles like lean operations/six sigma, low cost automation and use of Operations Research (OR) tools and heuristics in decision-making. Similarly, managerial initiatives like employee involvement, incentive alignment and skill upgradation of employees may be quite effective.

A number of improvements are possible in terms of warehouse design and operations. In design, these may relate to relative location of departments, sizing and dimensioning, size of the warehouse, department layout, pallet block-stacking pattern (for pallet storage), aisle orientation, number, length, and width of aisles, entry and exit locations, material handling equipment selection, level of

automation, storage equipment selection, storage strategy selection (random vs. dedicated) and order picking method selection. Similarly, many improvements are possible in terms of warehouse operations such as dispatch scheduling, space allocation, assignment of SKUs and pickers to zones, storage location assignment, batch sizing and order-batch assignment, routing and sequencing of order picking tours.

The activities of warehouses can be automated to advantage by laser guided vehicles, increasing both warehouse efficiency and safety while reducing costs.

LGV systems are usually implemented in existing warehouse environments, with little site modification required except for small passive reflectors located within the area to be automated. The system can achieve a high level of flexibility by block stacking, drive-in racks, gravity racks, push back racks and narrow aisle racking, giving the warehouse. ICT tools like RFID may also be deployed. RFID case-based resource management system has been used successfully for warehouse operations in the GENCO Distribution Systems.

However, mere implementation of an integrated warehouse management information system does not actually guarantees the optimization of warehouse logistics. In order to improve the overall systems efficiency, it is required that ERP implementation be combined with the redesign and the reorganization of warehouse logistics and processes.

At operational level, decisions need to be made quite frequently. Such decisions typically need to be made quickly without extensive computational resources. This tends to encourage the use of heuristic procedures that can find a good solution reliably in a reasonable amount of time.

In addition, from the management point of view, an ideal solution method should be simple, intuitive, and reliable in order to minimize the training costs. Finally, firms should also focus on establishing actual performance improvements and benchmarks in warehousing practices leading to cost-savings and customer satisfaction.

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Ignore us at your own peril!

I have been a part and parcel of the Warehousing raw materials to manufacturing and finished goods / contract Logistics / 3PL industry for nearly to consumption within the stipulated time lines. Yet two decades, in which I have spent the last decade we do not have a window where we can voice our running in and out of conferences, meetings, PPP grievances, leave alone hope for redressal. discussions etc organized by industry bodies, media In the absence of any focused initiative from the houses, consulting majors and State or Central government, the industry has to work with the tenets Government Departments. From the first day the of “Somehow” management. The biggest casualty question which keeps on ringing in my mind and still is our productivity as a service provider, and this has remains unanswered is– Where do we stand in the two cascading effects on the economy- the first that our cost per transaction or movement increases and eyes of the Government?

The Shipping Ministry looks after Ports and related adds on to the cost of the product. Second and more issues of all cargo that moves by sea , The Ministry importantly, it chokes on the flow of goods. We are a growing economy, the growth is primarily fuelled of Road Transport does the same for the movement of Cargo by road, The Ministry of Railways for the by the rise in purchasing power of our middle class rail cargo, private rail operators etc, The Ministry which increases consumption of goods and services. of Finance does its bit for shoring up and securing The telecom and internet revolution has been a big enabler for growth in services, the Central Government’s but for the consumption of revenue by levying Service Tax, Identity Crisis goods to grow in tandem with controlling Customs and Excise the demand logistics is the related parameters for movement and storage of goods, The state and other local biggest enabler. authorities also do dip in to collect the sales tax and It might sound too farfetched right now if I say that local levies like Octroi (yes it still exists!). However I am still to come across a Ministry or a Department which regulates, controls, plans for or helps the Warehousing / contract Logistics / 3PL Industry, (The Warehousing bill only focuses and regulates the agricultural produce and commodities).

We as service providers have to unload every truck that comes overloaded, handle cargo that gets crumpled on the way, check and correct documentation, fill up the ever changing state and central sales tax forms to perfection, deliver rail cargo within time despite railways always having a passenger preference, get penalized for transit time delays for international cargo because of inadequate port infrastructure and related connectivity.

The heart of any 3PL operation is the warehouse and today the biggest challenge is to have a good warehouse at a suitable location. The boom in real estate has affected land availability and prices in every accessible piece of land, PPP initiatives in warehousing take years on the table and fizzle out due to change of direction from the government side or when the private player loses interest due to the inordinate delays. If you manage to get a piece if we do not pay adequate attention to remove these and try and develop it yourselves then every state choke points in the flow of manufactured goods has typical land and building laws, most of them both on the regulation and infrastructure side, we are oblivious to any guidelines or recognition or might end up slowing the growth of our economy. existence of a structure called warehouse. In spite But if this comes true and our growth numbers start of all these limitations, the industry strives to deliver slipping, it might be too late to recover.

Anil Arora MD, M J Logistics

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Emerging Opportunities Co-Authors

Aman Agarwal(Top) Prof. of Finance & Vice-Chairman, Indian Institute of Finance Sourabh Agarwal Vice-Chairman, Indian Institute of Finance, Delhi

LOGISTICS TIMES May 2011

Before a manufacturer or agriculture producer can market his product, he has to manufacture/produce and store the product. For storage, warehousing infrastructure is an important facility which enables the producer or the seller to sell his product as an when there is demand from the consumer.

Warehouses can be public or private in nature. Public warehousing has been known for his advantages in terms of simplified legal entanglements, simplified accounting, honesty and lowest financial burden.

However, in a country of a population of 1.2 billion people, total dependence on public warehouses, which in general resort to minimum requirement of law cannot be laid. India needs more than 11 billion dollars to increase warehousing Financing capacity and adoption of newer technology to avoid wastages and proper, efficient and safe storage of food grains, vegetables and fruits and perishable and evaporating materials, oil, water, cement, equipments, other raw materials, chemicals and mega power servers to store data in fast changing world economy so that India does not face food crises of 1945 and 1966, oil crises of 1979, 1991 and raw material crisis of 1991. Hence, there is a need to develop warehousing infrastructure which can serve as institutions of highest possible integrity in private sector. Government being aware of the increasing need, has offered various liberalised schemes through Food Corporation of India, for hiring of warehouses which provides guaranteed hiring of godowns and income tax benefit u/s 35AD. However, still for income tax purposes, warehouses are not a part of the elite list getting exemption under the heading infrastructure. Warehousing Development and Regulatory Authority (WDRA) may work in the direction of getting warehouses in the coveted list of infrastructure.

Before finalizing the national policy for providing incentives for setting up of warehouses, there arises an important issue of understanding the market dynamics and demand & supply pattern at various locations in the country, so that the private warehouses can be profitable. There is a need to look at locations with highest possible demand, at-least up to the break-even point of the entrepreneur. For this mathematical technique like dynamic programming may also be utilized for finding the right location for setting up of the warehouses. One may refer to the work of Ballou (1968) for more details. Warehouses should also be ready to relocate themselves in

due course depending upon the transportation links, inventory location, agriculture, factories and corresponding markets.

Warehousing Development and Regulatory Authority (WDRA) which was notified in October 2010 for implementing Warehousing (Development and Regulation) Act, 2007 may look at providing impetus to Field warehousing. Field warehousing involves a manufacture making available a portion of his property to the warehouse which may be separated from the rest of the plant with the help of partitions.

Field warehousing is of multiple advantages, in terms of the benefits to the manufacturer, warehousing companies and the banks. The manufacturer benefits, as he Options can deposit the raw material with the warehouse and in return get warehouse receipts which can be further be used as a security for securing a bank loan. The warehouses companies benefits by generation of additional business without having to invest in land and building. Banks will also have to think creatively of entering into this new area of working capital financing. Field warehousing can only be developed in the presence of accredited warehousing receipts accepted by banks. The transaction involves both bailment and pledge “A bailment of goods with the warehouse and than a pledge of warehouse receipt by the bailer with the lender.�

Main aim of field warehouse is financing. Another area of policy emphasis is warehousing receipt financing (WRF). WRF by accredited Warehouses will help farmers postpone their sales beyond the harvest season and also secure finances from financial institutions easily as it will serve as secure collateral for financial institutions. The farmers will be strengthened as they will act as price negotiators rather than price takers. Hence, the authority should focus on promoting creditable warehousing receipts and its negotiability across financial institutions.

However, the regulators will have to provide awareness among farmers of the possible downside risks associated with this speculative activity.

For financing warehousing infrastructure, incentives need to be provided for equity financing, debt financing and financing by financial development institutions. For tapping international financial markets large warehouses may apply to multilateral institutions, export credit agencies (ECA), external commercial borrowing (ECBs), syndicated loans, private placement, global depository receipts,

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weather derivatives and other hybrid instruments. Also, internal resources, public private partnership and forward need financing are alternate sources of finances for financing of warehouses which have been discussed below

A. Domestic Financial Markets: i. Equity finance: In equity financing, Small and Medium Enterprises (SME) Exchange may become a suitable place for raising money by Warehouses. A higher debt-equity ratio may be permissible considering that inflows may generate immediately but creating profits may take time. Specialised warehousing mutual funds may also have to come up to bridge the equity gap in mega warehousing projects, for example port warehousing. ii. Debt Finance: In raising debt for financing warehousing projects, the cost of funds should be the lowest so that the ultimate cost of providing warehousing facility will be cheaper.

The decision of the project promoter to go for equity or debt finance depends upon various factors such as government guidelines, incentives available and return on equity as also the cost of debt vis-a-vis equity. iii. Domestic Capital Market: Debentures (convertible/ non-convertible)/bonds may be issued by companies to augment the resources for raising money in the capital market. Presently, internal rates are deregulated and credit rating is mandatory if the maturity of instrument exceeds 18 months. NCDs with option of buyback, debentures with equity warrants, floating rate bonds and deep discount bonds are some of the innovative instruments offered in the market. iv. Financial Developmental Institutions: In addition to a large number of state level institutions and development finance institution, to finance projects of smaller size, commercial banks also participate in giving term loans to a limited extent.

B. International Financial Markets: i. Multilateral Institutions: These include institutions like World Bank, International Finance Corporation (IFC), Asian Development Bank (ADB) and Commonwealth Development Corporation (CDC) who may give loans with sovereign guarantee for long periods and low cost. ii. External Commercial Borrowing (ECB): These include Yankee Bonds, Samurai Bonds, Dragon Bonds, Euro Currency syndicated loan, UD 144A Private placement, Global Registered Notes (GRNs), Global Bonds and Medium Term note programme (MTNs). iii. Syndicated Loans: The special features of syndicated loans are that they are available for medium to longer period; specific to the requirements of the borrowers to suit their projects, and availability of floating rate of interest. Most of the investors are Asian/ European banks, Financial Institutions (FIs), Insurance Companies and pension funds. iv. Private placement: Finances may be raised through LOGISTICS TIMES May 2011

private placement to financial institutions known as Qualified Institutional Buyers (QIB), without the kind of stringent disclosure requirements needed for equity issues. Long tenure of bonds and less restrictive covenants make this proposition conducive for financing warehousing projects. v. Global Depository Receipts (GDRs): GDRs present an attractive avenue of funds for the Indian Companies. Indian Companies can collect a large volume of funds in foreign currency through Euro issues. GDRs are usually listed in Luxembourg and traded in London in over the counter market or among a restricted group such as qualified institutional buyers (QIBs) in the USA. The GDRs do not have voting rights, so there is no fear of loss of management control. vi. Weather Derivatives & Hybrid Instruments: These may be used innovately used for hedging the risks that may arise out Tsunami, Earthquakes and other forms of natural calamities.

For more details one may read work of Agarwal (2002) on a new approach & model for weather derivative instrument.

C. Internal Resources: One of the most important source of finance is Internal Resource generated through the warehouses own operations. There are two aspects of this issue. One the funds already invested but not yielding results, need to be put to use. Second, the warehouses should be made to be cost effective so that they are able to generate enough resources from within the project.

D. Public Private Partnership: In this land may be provided free of cost by the government and infrastructure and maintenance may be done by the private entrepreneur.

E. Forward Need Financing: I would recommend the regulators to introduce Forward Need Financing whereby the states to forecast their requirement and pay 10 % of the same at a given future price to a central pool (which may be maintained by Food Corporation of India/ Central Warehousing Corporation (FCI/CWC). The states would gain in term of cheaper food grains and pool will help FCI/Central Warehousing Corporation in reducing the cost of capital and in supply of cheaper food grains. The expenditure on renting warehouses by FCI can be substantially reduced by using forward need financing. This will prevent cost of capital being added to cost of food-grains.

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Godowns to DCs

Sundar R G Vice President Product Strategy & Alliances, eBizNET Solutions

Someone told me a few days back that since the country However, the supply chain execution spotlight was is resonating with euphoria after having had chai from invariably on the transportation piece, post dispatch the world cup, it might be a good time for the UPA from the factories/godowns. to announce elections, given the feel-good factor There used to be hardly any 3PLs those days. I also prevailing all over India now! Cricket, TRPs, onions, presume there were not enough reasons to see the CWG, 2G and regional politics aside, we are definitely a efficiency and performance of the ‘godown’ from more vibrant land these days, after having conclusively where goods got shipped out. Logistics excellence was restricted to executing an order from a godown drifted away from economic nationalization of yesteryears, what with globalization and industry-wide using the help of a few clever-clogs, only who knew FDI. With due respects to American jingoism on jobs the operations inside-out. lost to Bengaluru, the clichéd ‘economic super power’ The ‘system’ provided the inventory information while of tomorrow does not appear as distant a reality as the brains trust figured out the locations. Labor then falling crude prices do! While local electoral politics was cheap, and so was space. So demand and sale fluctuations would be met with could continue to be dictated by finding more space within a subfree TV sets and railway coach factory announcements, market Changing Attitude optimally managed godown or by just hiring temporary godown based economics are here to stay.

Even as India Inc renews its pledge to globalize and space or better still, by having more contract labor and compete, my heart says our businesses of tomorrow managing short-term spikes through active policing! need to become increasingly current and comparable I must hasten to add that many of those operations with their peers in the west. Ergo, should All iz Well be were still very successful because employees were for the toast of the nation? Not completely, I am afraid; a lifetime, knowledge was key (and privy to a few), and I am quite certain that most Indian companies operations were simpler, complexity limited and the are still some way away from being truly world class – systems lasted as long as the business went on! you realize that once you start scratching away at the Times have since changed and to keep pace with surface. I am not referring to why 20 km of roads are the change (complexity/size/costs/competition), not perceptibly showing up on a daily basis (I guess innovation has become a key driver to operating elephantine statues do though!); I might be interested, excellence. Most organizations presumably still have however, in less mundane stuff like how businesses those godowns but would by now have implemented manage their demand and supply or meet their ERP solutions even as their supply chains became customer requirements (or alternately, do otherwise!). more global and customers got more demanding.

Having dirtied my hands with managing supply chains Some companies have also invested in state-of-the in India and more lately while consulting with others art warehouses in the country today and have started outside for over 20 years, I do believe that we are still to increasingly rely on technology to manage their only as good as our weakest link – our management complex logistics flows. of supply chains. The good part though is that Without sounding prescriptive, I believe there are some most organizations today are seriously introspecting compelling reasons why warehousing and distribution about this aspect of their businesses and starting to will become a focal point for most Indian organizations take decisions that affect their future supply chain of the future directions– make or buy, own/ rent, outsource/ in- Logistics and supply chain excellence will be the key to driving the growth of the manufacturing source, real technology vs. spreadsheets, et al. base in the Indian economy.

I recall a time 20 years back when the sleekest cars would be the Maruti 800s, Hamara Bajaj was the Hello To be competitive, Indian shippers will need to substantially reduce the logistics costs and cut Tune of the nation and soap would be Doordarshan. supply chain wastes, which are a bane today.

I do recall that even then quite few organizations (especially MNCs) had pretty evolved logistics systems, Our customers of today are increasingly those based outside of India – chaltha hai is therefore as a rub-off from their global beings. not an option with them.

These select organizations did MRP runs, had trained planners doing their MPS, replenished inventory in Costs of not servicing customers have a direct and tangible cause and effect relationship with business circulation and dispatched goods all over the country continuity, especially given the global spread of from central and regional distribution facilities.

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operations.

Complexity and supply chain volatility are here to stay – traditional work practices have their limitations; future operations need to be robust enough to manage these Supply chain advantage comes with process rigor, more so in a warehousing environment GST will hopefully keep its promise during the next year. Consolidation provides scale gains but is also capital intensive - and we will start seeing bigger DCs, more MHEs and consequentially more optimization and intelligence to manage these.

Cold Chains will be hopefully out of cold storage soon – this leads to an entirely different perspective of managing food movement (and food security!)

Outsourcing is a reality, and it drives economies of scale and scope; for Indian LSPs, the next global competitor is just as close to the next outsourcer – match up or lie low at your own peril Everyone has an ERP these days; not many of them use these effectively though. Managing a warehouse effectively calls for a holistic supply chain IT capability, something that ERPs still seldom possess. ERPs are still generic enough to manage business commerce and not supply chain execution like warehousing, distribution and transportation.

The times call for specialized technology to manage the unique needs within a warehouse. One-sizefits all is a mistaken supply chain agenda.

Increasingly, organizations are realizing that IT investments into supply chains should be viewed against a context of opportunity costs rather than pure cash outflows and ROIs. Many Indian companies have begun to see value in the way they ought to be running their distribution operations through automated and technology enabled warehouses and reduced dependency on human intervention.

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A case for WMS solutions for your DC You have automated your warehouse with state-of-the art storage and material handling equipment. You have shed some flab with all the labor around you. To be still able to fulfill customer expectations, you will need to go in for a WMS solution.

Some considerations in choosing your WMS – The solution needs to suit the Indian context and the complexity of the operation. It would be superfluous to invest in software that promises Tier 1 capability if you would have to pay for it, but rarely put it to use as your users just can’t figure out what to do with it Your WMS should ideally provide functionality that is relevant for you today, and will suit your business needs tomorrow. It should be capable of integrating seamlessly with host ERPs and other systems. A handful of WMS vendors in India support a breadth of warehousing needs and still manage to meet your commercial expectations Look at the hidden costs in a WMS. The WMS software is not just a license. Try to figure out what are the costs of implementation, support and upgrades? Will the licensing remain the same if you were to add additional sites or users? What is the additional cost you would need towards third party licenses, application and database servers, primary and secondary back-up, etc?

The TCO is a critical decision pointer in the ROI game.

Evaluate if your vendor can provide you solutions that can be hosted on a SaaS model. SaaS based solutions are hosted by the provider and you are charged for your usage (very similar to a post paid mobile plan). SaaS WMS options are more OpEx than CapEx. These help your cash flows.

Increasingly, Software-As-a-Service is emerging as a real alternative to deliver complex supply chain solutions in a service mode. A SaaS based WM solution performs the most intricate warehousing tasks even as it integrates seamlessly with most on-premise and SaaS ERPs, automated MHE and carrier manifest systems; and it does these just as well as on-premise solutions do.

Learn from your peers. Evaluate if the WMS solutions are operational elsewhere in the country and for how long.

This is because of your solution provider may promise the moon, but may have been built the WMS keeping the west in mind. The proof of the pudding is in the eating; and there would be specific reasons why certain solutions are more suited to India than the others.

So, the next time when you feel you have outgrown your godown and want to manage a warehouse, make a judicious combination of decisions on infrastructure, automation and information technology! These go handin-hand to keep your customer with you, and smiling!

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Next Big Leap

Keki Patel

Cargo Manager (India and Nepal) Emirates SkyCargo

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cargo due to non-availability of fork-lift or FFs Before looking at warehousing facilities for not having load on skids or a crane requirement. international air cargo segment, its important to understand the growth pattern. The international air Limitation of the examination area available for frieght growth from India has been quite impressive general cargo. The customs appraisal warehouse in last couple of years. are totally inadequate to enable the industry In fiscal 2008-09, the growth recorded was marginal requirement of atleast 1,000 tonnes processing at 1.5 percent with volume touching 1.141 million per working day at each of the gateway APTs. tonnes. But since then, it has been the story of Constraints and limitation in customs warehouse double-digit growth. In financial year 2009-10, the facilities for special cargo types. To deal with this growth shot up by 10.6 percent. In FY 2010-11, issue, we need dedicated terminals for secured India’s international air freight volumes witnessed and specialized handling for products such as a more robust growth- 16.9 percent with volumes - cool chain, perishables, valuables, dangerous getting close to 1.5 million tonnes. Presently with goods, courier, etc.

55.5 percent export and 44.5

Customs processing percent import contribution, time per shipment and systems Air Cargo there is a balanced air cargo flow inefficiencies. into and from India.

Multiple handlers both The current warehousing/terminal scenario in out-sourced and in-house of various agencies India in the air cargo segment at gateway and other LSPs/FFs, airport custodians, carriers. international airports in India can be best understood Inadequate/lack of terminal capacity to facilitate if we consider the landside and airside of warehouse trans-shipment movement between APTs. or terminal operations. Due to different processes Airline aircraft ULDs cannot be taken-off the involved both export and import have separate airport for making/stuffing of shipper built terminals: units, agent built units, envirotainer units by the shipper /manufacturer’s/LSPs facility with direct For Exports, there is a Customs appraisal transfer to the APT. warehouse managed by the airport custodian, wherein the LSP or Freight Forwarder ( FF ) Ready-for-Carriage by LSPs/FFs is accomplished deposits the goods taking care of the shipping at the APT terminal whereas carrier’s liability bill requirements and arranges for custom begins with air-way bill execution at the FFs examination for LEO. office.

The way-forward ( or call it the next leap ) for Thereafter, the cargo moves on the airside to the custodian common user terminal for unitization warehousing’s supportive role will be to bring of the loads by the Airline GHA, post LEO efficiencies and reduce the ground handling time subject to X-ray screening, weighment/dims/ in the air transportation segment. This can only be achieved through embracing the new industry document check and carrier acceptance.

The airport terminals form a vital supportive initiatives. function for shipment processing and the current scenario has many challenges for the E – Freight Logistics Service Providors (LSPs). The common E-Freight enables electronic exchange amongst problems are: LSP’s supply chain partners and enables removal of 12 core physical air cargo documents (covering Airport customs do not operate on a 24 x 7 trade documents (2) – invoice, packing list ; transport basis. documents (4) – FWB, FFM,H-WB, FHL ; Customs Airline carting order released to Freight Forwarder does not guarantee load gets entry declarations (6) – export goods declaration, customs into export customs appraisal warehouse due release export, export cargo declaration, import to warehouse congestion resulting in carting cargo declaration, import goods declaration and customs release import) and 8 Optional documents stoppage by custodian. such as certificate of origin, letter of instruction, Inadequacy of truck docks for off-loading at major APTs (BOM, DEL, MAA) which DGD, CITES certificate, security declaration, freight booked list, transfer manifest and transit contribute 74 percent of India’s air exports. declaration.

Off-loading challenges for heavy or odd-sized

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Cargo Community System The logistics supply chain entities work round the clock to move cargo safely on time.

However, along with the movement of cargo, there is a lot of complex documentation and data that gets exchanged between the entities. A study indicates that the shipment data gets reentered in the supply chain system at least six times by various stakeholders, bringing in inefficiency, delays, penalties and lack of shipment visibility, thereby resulting in higher cost of logistics.

This higher cost, pegged at round 13 percent of India’s GDP, creates serious non-tariff barriers and reduces overall trade competitiveness. A CCS creates platform to communicate with all supply chain stakeholders. Fortunately UPLIFT is first such CCS in India available for participation.

The key benefits for stake-holders :

Shipment visibility on real-time basis from interface with stakeholders.

Reduces communication costs from multiple manual follow-ups.

Customized to meet ever-changing industry compliance standards.

Reduces strain on Customs ICEGATE due duplicate and incorrect entries.

Eliminates paper-work through e-submission of AWBs. Proactive milestone alerts to prevent service failures.

Air Freight Station (AFS) and Inland Container Depot (ICD) Although the concept of “off-airport clearance and delivery” connected with airport through custom bonded RFS has not gained momentum, this will evolve as airports get more congested. Given infrastructural shortcomings, this will become imperative to support cargo growth.

The Indian Context providers/retailers are adequately updated on latest The Indian Logistics market generated revenues of about $82.1 billion in 2010, is expected to reach $90 technologies? Do they understand when & what billion in 2011 and is likely to notch up $200 billion in technology they need?

2020. Indian Logistics market has displayed growth The foray of large foreign players, heavy VC of 9.2 percent over previous year and is expected to funding grouped with the introduction of advanced grow at same rate for next few years. The industry technologies will ensure that the industry moves is faced with a highly complex environment with a rapidly with the wave. Small players in India however wave of change happening where ‘Transporters’ are plagued with an array of problems. They operate have transformed into ‘Logistics Service Providers on a small scale and cater primarily to local markets.

(LSP)’; ‘Go-Downs’ have become ‘Warehouses’ Others are the players who operate on relatively larger scale and has commendable or ‘Distribution Center’ and network. On the other hand ‘Kirana’ stores have become Technology large players might have some ‘Retailers’. technological enablement which Another wave that will come up is the quantum of technology solutions being used may not be adequate to support the growth. Most by service providers to support their operations. The processes are manual without any IT support to keep Indian logistics technology market is set to grow a tab of inventory, manage operations or connect at about 20 per cent in the next five years to cross with other customers and vendors. In an environment $600 million by 2015, driven primarily by the retail which is on growth trajectory and has financial and manufacturing sectors. According to Frost & support, integrated IT solutions are needed.

Sullivan, “Present solutions are mostly basic inventory Warehouse Management Systems (WMS) is one of management packages and barcode systems. Usage the most prominent technologies used for logistics of exclusive logistics technologies such as warehouse which also enables in efficient management of flow management system and RFID is significantly low of materials, proper tracking of the movement of goods, and on-time delivery of goods to the across industry.”

The question is – Do the Logistics service customers.

Nipun Kohli

Senior Business Manager Supply Chain & Logistics HCL Technology

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WMS is a system to manage segment of an enterprise’s logistics function responsible for the storage and handling of inventories beginning with supplier receipt and ending at the point of consumption. It is a software application that supports the day-to-day operations in a warehouse, by enabling centralized management of tasks such as tracking inventory levels and stock locations. Its primary mission is to manage a warehouse’s resources, including space, labor, equipment, tasks, and flow of material.

There are multiple forms of WMS solutions available in market used by LSPs. The need for WMS is completely dependent on the complexity (in terms of size & volume) of warehousing operations and throughput efficiency (in terms of operational productivity).

A – Services Providers having small go-downs in cities or towns storing small amount of inventory catering to local market like local distributors and suppliers. Operations are pretty simple and limited volumes.

Traditional ways of managing operations and tracking inventory is still the best bet.

B – Service Providers operate warehousing at regional level, have significantly large operations with considerable volumes like regional distributors, small logistics firms managing inventory for their customers, or replenishment locations for retailers.

Such service providers can go for mini WMS solutions available in Indian market which are good in managing inbound & outbound operations and can also manage & track inventory levels. Organizations using SAP or Oracle as their ERP can also extend their ERP systems and use WMS module which would help resolving integration challenges. Such solutions provide Indianized functionality and are also easy on pocket.

C – Service Providers running large warehouses, 3PL companies having multiple customers on their operations, organizations having multiple facilities spread across the nation, manufacturing firms LOGISTICS TIMES May 2011

Available Form of WMS Traditional Methods (Excel Spreadsheets, Bin Cards etc.)

Plus Points • User Friendly • Easily available • Cheapest solution

Gaps • • • •

No Functionality No Intelligence No Automation High Manual Involvement

• Not proven in market • Only minimal functionality • Solutions from small IT companies

Mini WMS

• Affordable Price • Local Support Available

ERP solutions extended with WMS functionality (like SAP & Oracle)

• Inbound & Outbound operations • Easy integration • Moderate pricing

• Can only manage inventory • Complex Systems

Best of Breed Solutions

• Proven in global market • Highly rich functionalities

• Lack of Support in India • High Cost

stocking good deal of inventory in manufacturing facilities, importers/ exporters. Such organizations have multitude of transactions and run heavy load inventory movements within and outside their network.

Such operations require best-of-breed functionality rich WMS systems that can manage inbound, outbound, value added service, work order management, quality checks, picking, packing, shipping, RFID integration, global inventory view, intelligent analytics, ERP integration etc.

The ultimate need from WMS is to help LSPs in optimal cost of timely order fulfillment by managing the resources economically. Looking at the Indian set of minds, and irrespective of any parameters discussed above, all LSPs need functionalities & features that are user friendly and cater to typical Indian requirements including legal and statuary requirements taxations, road permits etc.

LSPs need systems offering rich functionalities as provided by Best-ofBreed (BoB) solutions which are proven in thousands of sites across the globe having ability to cater to growing volumes in Indian market.

A system with ability to manage and operate each and every movement in a warehouse is required and should come with shorter implementation cycles.

System needs to have the ability to track; trace and centrally manage inventory stocked in all the facilities, channels, regions & networks.

System is also required to have an intelligent analytics and dashboard to manage KPIs. Easy integration with ERPs like SAP & Oracle is highly desired. Cost would be the most important decision

parameter for any Indian LSPs because BoB solutions can put a heavy pressure on your pocket. Solution providers need to come up with innovative offerings like Software-as-a-Service (SaaS) and transaction based pricing.

Another critical parameter to gauge a solution on is localization. Complex Indian statuary and taxation requirements call for systems to handle overboard situations.

Introduction of new technologies in India like automation equipments (MHEs, Conveyers, and Picking Systems) and mobility devices (RFID, Mobile operations, GPS, SMS gateway linking) would be contributing significantly in the growth and thus would need a compatible WMS system.

Though there are different forms of WMS available and every form has its positives and also has gaps from what is needed.

The industry is highly unorganized, comprising predominantly small and medium sized players. However, the trend is changing with the increase in number of LSPs and improvement in the services offered by them through 3PLs and 4PLs. The trend is also observed where LSPs are moving from segment B to segment A. This is likely to drive the WMS market with a focus on improving logistics operations.

The survival of an enterprise in the era of knowledge-based economy is dependent upon the measures adopted to improve its technological capability. Hence, firms should develop adequate methods for implementing new technologies in the WMS arena and integrating logistics into the corporate strategy.

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Challenging task

Amit Dhingra Country Manager Menloworldwide, India

Globalization has altered the way everyone looks with automated material handling equipment, at business. With organizations expanding their advance shipment notification, cycle counting, cross businesses across the world, supply chains are docking, pick to carton, slotting and labor capacity becoming more dynamic and complex. The only thing management. which looks static in today`s business environment is It is important to understand the WMS technical change. Further the weak recovery from the 2009- support available in India. If you have not understood 2010 global recession compelled the companies the flexibilities available in system and costs related to focus on maintaining the bottom-line and cash to the same, it becomes challenging to get maximum flow. Every organization is looking for operational advantage from a WMS in a longer term. We have efficiencies to increase the margins and drive down seen organizations struggle with configuration the cost. All this put together is putting considerable and customization during WMS installation. The pressure on the all facets of a business to deliver challenge can lie with the inability of the WMS to accurate intelligence and business trend information handle new business requirements driven by changes in the business or government policies. In a country necessary for effective decision support. like India with a complex tax Warehouse Management Systems structures and regular policy (WMS) are a key application Selecting WMS changes, it is important that a in this process. Such systems WMS should have capability to not only manage the flow and pace of inventory to ensure efficiency and cost upgrade these changes within a limited period. effectiveness, they feed valuable logistics data into Another big challenge that lies in customization business intelligence tools. Increasingly, companies of any WMS is cost and the time involved. have come to understand the cost of inventory – and Customization costs becomes a roadblock for many the advantages that can be gained when inventory and organizations, and they decide to live with what warehouse operations are managed for competitive they have, augmented with manual work done with excel spreadsheets. Another important constraint advantage.

Technology plays a big role in this process, as is insufficient awareness of system’s development technologies become obsolete, companies are faced issues. This is especially true in organizations that with upgrading legacy, standalone WMS software lack IT expertise in the logistics realm. and hardware platforms, or purchasing new ones. This lack of knowledge seems particularly apparent Early WMSs were limited to handling the basic because of the frequent problems in terms of functionality of storage. Today, more advanced developing an accurate requirements specification technologies are available which not only manage for the WMS, which ultimately leads to further conflict between the software supplier and the user basics tasks of input, storage and movement of material within the warehouse but also are coupled organization. In many cases it appears that either the with complex technologies such as RFID, voicing organizations have relatively few IT staff, or the IT staffs do not have sufficient expertise in WMS. recognition and pick-to-light.

From the third party logistics (3PL) perspective, choosing a right WMS becomes more challenging WMS applications These can include standalone versions or as a part because it needs to be configurable to handle a wide of ERP system with WMS functionality. Selecting a variety of customers and industries. A significant WMS for an organization involves a series of complex amount of software development goes into 3PL decisions, balancing cost and functionality against billing, which includes owner preferences, owner depth, configurability and breadth of capability . billing options, multiple contracts, multiple rates, These carry both immediate and long-term strategic billing variations, and a multitude of bills of lading.

With the increased issues faced by organizations and operational implications.

While making the WMS selection, it is important to to decide or invest on right WMS, they instead understand the functionalities available in a WMS and outsource their warehouse operations to a 3PL who relate them to your own needs. A few functionalities utilizes a robust WMS. which are worth considering while selecting a WMS Building interfaces between a shipper’s order system are wave picking/batch picking/zone picking, task and a 3PLs’s WMS can be challenging. The methods interleaving, automated data collection, integration available start with a simple flat file exchange to a LOGISTICS TIMES May 2011

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fully-automated interface. Integration requires understanding and collaboration between the two companies’ IT teams to define the data fields and interface method. Secure data channels ensure that no one other than the shipper and the 3PL are able to access the information.

All of these are success factors which must be studied and evaluated as part of

the process of defining requirements and selecting the system best suited for your needs. For many companies, designing, managing and marketing products are core competencies. Running logistics operations often does not receive financial or intellectual support necessary for success. It is into this breech that third party logistics companies have stepped,

with solutions that are both proven and flexible for the needs of different companies in different industries – it is their core competency. Wise business managers and strategists should investigate 3PL offerings and solutions fully to make an informed decision about the right logistics management and execution approach for their business.

Getting it right Ideal warehouse design is combination of science (analytics), art (aesthetics), and commercial viability considerations (future changes). A few nuggets of useful information.

Most warehouses fail to maximize their potential Return on Investment (ROI) Incorrect warehouse design brings on missed opportunities and permanently undermined ROI handicapping Warehouse operational productivity, limiting flexibility and reducing storage capacity by

anything up to 20%.

What has gone wrong?

Most often, it is that the sponsor of the warehouse has not understood what it takes to design and build a warehouse that will maximize their ROI. After Designing all, “it is only a big box – how hard can it be to design?”

And they are partly correct. It isn’t necessarily that hard to design a quality warehouse as long as you know what you are doing!

Science Good warehouse design is about data – which is a science. You need to know how the components of a warehouse fit together, what it can store, what it can process and how well it will cope with changes in storage and throughput profiles.

And Art But there is more to it than that. If you are building a quality warehouse, you will also have to juggle with most of the following: Aesthetics Build cost Build timing Capacity maximization Corporate culture Corporate image Culture & religion Customer appeal Damage prevention Driver movement control Durability Fire protection Floor flatness Floor strength Future use flexibility Goods vehicle access LOGISTICS TIMES May 2011

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warehouse has been commissioned.

• An eye for synergy: The design process is usually iterative, involving multiple parties.

The designer will be dovetailing with the architect, but maybe also the sponsor, the current operators, the structural engineers and the equipment suppliers to weave together each of their inputs in seeking the optimal solution.

The designer and value

Goods vehicle parking Government regulations Health & Safety Hygiene Integration of handling equipment Maintenance & upkeep Natural lighting Peak handling Piling Plot coverage Pillar positions Plot shape & size Power locations Power usage Prevailing weather Process flows Product flows Product protection Productivity management Security Signage Staff movement control Staff vehicle access Staff parking Staff welfare Temperature regulation Ventilation Visitor movement control Vaastu

LOGISTICS TIMES May 2011

Workplace ambience and lots more This is where the ‘Art’ applies. There are just too many considerations for a formulaic or purely scientific approach to work. A good designer will have a ‘feel’ for how to bring all of the above together in a way that works.

Commissioning a Warehouse Design ‘Artist’ A really good designer is still hard to find in Asia, but it is worth the search as he will contribute: • An eye for the trade-off: In every facility, trade-offs must inevitably be made, and a good designer will have the instinct for where these can be achieved with minimum impact on the overall integrity of the design. This is the art of delivering “Maximum Bang for your Bucks”.

• An eye for the future: The best designers will simultaneously ensure that the design has the flexibility to cater for changes in product, storage and throughput profiles. Such changes will inevitably come, frequently even before the

A good designer should add absolutely minimal cost to the build process, while delivering substantial value – both in minimizing build cost and maximizing utilization of the site.

Design is not time consuming – and thus not expensive. A good designer, brought in at the start of the process, will rapidly be able to provide a directional blueprint for the detailed workings of architects and structural engineers, permitting them to work more productively.

In conclusion •

• •

•

•

Good warehouse design is not rocket science, but it does require a certain mastery in the art of juggling scores of ‘considerations’ The right design will significantly improve your warehouse’s ROI Good designers are still scarce – and almost always come with operational experience The best designers will very quickly deliver the basic design blueprint – ensuring that your architects and structural engineers can work more effectively towards the right solution Get the designer in early – and definitely don’t build without one!

Courtesy: Logistics Consulting Asia

33

Puzzle type

Kevin Gue

Auburn University

When an item is requested in a traditional storage system, a vehicle (a forklift driver, or perhaps a shuttle within an automated storage and retrieval system) moves to the location, extracts the item, and transports it to an input–output (I/O) point.

Such systems necessarily contain aisles in which the vehicle moves, and these aisles occupy space that could otherwise be used to store items.

Thus, aisles reduce the overall storage density—the number of items stored per square or cubic foot— of the space. Density is an important consideration in storage systems design because low density means more space is required to store the same number of products, and this leads to a larger space. A larger storage system increases both fixed and variable costs: fixed, because it is more expensive to build, and variable, because workers or vehicles must travel farther to retrieve items.

There are several ways to increase density in a storage system. The first is to reduce the widths of aisles, thus devoting more space to storage and less to aisles; but narrow aisles may not be desirable for two reasons: (1) they usually require specialized (and more expensive) vehicles, and (2) they often oblige one-way Storage travel within aisles, which tends to increase congestion and travel distances.

The second is to increase the lane depth, or the maximum number of items stored (one behind another) per pick location in an aisle. For rack-based storage in a warehouse, this is commonly achieved with double-deep storage rack, in which two pallets (one behind the other) are accessible from each pick location. A storage device called push-back rack allows triple-deep or deeper storage—a spring loaded tray stores the deepest pallets, and helps to extract them when required. Lanes deeper than five typically require gravity flow rack or a fully automated system.

Gue showed that if items are stored such that k is the maximum lane depth, the density of the storage space can be no greater than 2k/(2k + 1), leading to theoretical density limits of 2/3 and 4/5 for singleand double-deep storage systems, respectively.

At the upper limit of storage density are automated systems based on the 15-slide puzzle (see Fig. 1).

Here, items are stored in a grid in which only one location is open, and so density is (n−1)/n, where n is the number of cells in the grid. The system repeatedly moves items into the open location

to achieve a desired configuration, typically to maneouver one item to the I/O point. Two such systems are under development for the U.S. Navy: the first (called NAVSTORS) will store missiles under a launcher; the second (NAVPAK) will store smaller items in a storeroom. We are also aware of a tote storage system that uses motorized rollers to achieve puzzle-based movement.

Our purpose is to investigate storage systems based on a slide-puzzle architecture, answering questions such as: • How should one move a chosen item to the I/O point? Is there an optimal way?

• If more than one cell is open, does performance improve? By how much?

• What is the expected retrieval time from a puzzle-based system, and how does it compare with aisle-based systems?

Our intention is not so much to describe the performance of the industrial systems we mention above, although our models could be used to do that, but rather to investigate the performance of theoretical storage systems at the upper limits of storage density. In particular, we are interested in the System fundamental trade off between storage density and expected retrieval item.

For systems with “very high density,” which Gue defines as those requiring movement of interfering items during some retrievals, higher density means moving more interfering items and increased retrieval times; but it also means the storage space is smaller and items are closer to the I/O point, which tends to reduce retrieval times. For example, consider the six storage configurations in Figure 2, each of which stores 600 items. Which of the six has the lowest expected retrieval time?

Our contribution is two fold. First, we develop results for puzzle-based storage systems, including an optimal algorithm for systems having a single open cell.

We also consider puzzle-based systems with more than one empty cell, and show that expected retrieval time decreases with the number of empty cells.

Second, we describe the relationship between storage density and expected retrieval time for both puzzle and aisle-based systems.

We establish something of a continuum of storage configurations, from single-deep, aisle-based storage, which has minimum density, to puzzleLOGISTICS TIMES May 2011

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based systems with one open cell, which have maximum density. Our results suggest that aisle-based systems are preferred when density is not constrained, and that puzzlebased systems are best if required density exceeds about 90 percent.

CONCLUSION The slide-puzzle architecture presents an opportunity to design storage spaces with the highest possible storage Figure 1. On the left, a representation of the 15-puzzle; on the right, a computer representation density. Until now, nothing of NAVSTORS, a (6×6) puzzle-based storage system under development for the U.S. Navy. has been known about the operational performance of these systems. We have developed an optimal method of retrieving an item from puzzle-based systems with a single escort.

For systems with multiple escorts, we developed a heuristic that produces optimal solutions for a large set of test problems. Our results confirm the intuition that having more escorts in a puzzle system generally reduces expected retrieval time.

This may not be the case for Figure 2. Several ways to store 600 items. Input–output points are indicated by the black smaller systems, where many dots. Which design has the lowest expected retrieval time? escorts lined up at the I/O point necessitates a long, competitive. The cost of constantly percent, and expected retrieval time 12.1 thin configuration with long moving interfering items overwhelms (34, 94.4 percent, 12.1). travel distances.

We also find that systems with the highest the advantage of having a more compact Other alternatives are a three-escort density have the longest expected retrieval system. In general, puzzle-based systems system (33, 91.7 percent, 9.6) or fourtimes, and systems with lower density should only be considered when densities escort system (32, 88.9 percent, 7.9). If have shorter expected retrieval times, in excess of 90 percent are required, and more space could be found, the required for a given capacity. A notable exception then the system should be designed with 35 items could be stored in a 6 × 7 grid with seven escorts; this design has occurs for moderately large aisle-based as many escorts as possible. systems, where double-deep storage To illustrate the potential use of our lower density (83.3 percent), but also can be preferred to single-deep storage. models, consider the NAVSTORS system a lower expected retrieval time (6.9).

We strongly suspect that for extremely illustrated in Figure 1, which is a 6 × 6 This suggests that finding enough space large systems, a triple-deep configuration single-escort puzzle system. This system for the equivalent of seven more items would be preferred to double-deep, and has capacity 35, density 35/36 = 97.2 could reduce expected retrieval time by percent, and expected retrieval time 15.4 more than one half. Which system is best so on.

If the design goal is to store a certain moves (35, 97.2 percent, 15.4). Adding depends on the objectives and constraints faced by the designer. number of items with the lowest an additional escort by removing one of possible expected retrieval time, we the storage items results in a two-escort (This article is being brought on a special find that puzzle-based systems are not system having capacity 34, density 94.4 permission from Kevin Gue.) LOGISTICS TIMES May 2011

35

10 Commandments

Curt F. Barry*

* The author is president of F. Curtis Barry & Company, a United States based consultancy specialized in multichannel operations & fulfillment, warehouse layout and process improvement, benchmarking, warehouse management systems and cost reduction. Mr. Barry has written the book, Best Practices in Multichannel Operations & Fulfillment available on Amazon.com.

Absolute productivity has declined in many companies.

Indeed, in conducting our benchmarking surveys (which we’ve done since 1996), we’ve discovered that many metrics, such as orders processed per fulltime warehouse worker, remained flat, while dollars of sales processed per warehouse square foot have declined. In turn, labor rates have increased from an average of $5.50 to $10.50 per direct labor hour. To help you boost productivity at your catalog, I’ll focus on the warehouse audit process and the application of a few key warehouse success factors.

Operations Audit

and utilities) ranges from 25 percent to 35 percent of the cost per order. One of the single biggest culprits in optimization of your warehouse asset is not adequately using available cubic space. Your first look as you walk through the facility should be up.

Inefficient use of the available cube can translate into increased costs for additional warehouse space that you may not actually need. Typically, receiving, picking, packing and shipping generally use 40 percent to 50 percent of your space; product storage the remainder. Use racking, mezzanines, multilevel order-picking concepts and powered conveyor placement to increase your facility’s utilization.

In addition, look at the cube use in your picking slots and reserve locations to determine if a space reconfiguration can boost the amount of products stored.

When trying to reduce costs and boost customer satisfaction and profits, first measure and analyze what’s currently being done. To determine if your warehouse operation in particular is as efficient as it can be, start with a warehouse operations audit. 2. Ensure that sufficient Such an audit takes a quantitative and qualitative product is available look at your fulfillment operation’s productivity and Use a combination of scheduled replenishment accuracy, and does so in a systematic way. of the primary pick slot utilizing the min-max and A good operations audit enables you to measure demand-replenishment concepts. Most warehouse warehouse productivity and other important metrics management systems and some catalog order to identify patterns and trends. It also allows you to management systems support these concepts. complete both internal and However, a shortcoming of external comparisons. Once many catalog management Operational Audit you gather the data and make systems is that the pickingcomparisons, you’ll be able ticket process assumes the to draft an action plan for improvement. pick face has been restocked and product is available.

Unfortunately, there isn’t a fail-safe, textbook This frequently can hinder picker’s productivity. approach to the operations audit. Many companies employ an independent resource to conduct the 3. Develop appropriate pick locations audit for an unbiased and independent perspective.

As much as 70 percent of a picker’s work hours The audit should consist of a method for evaluating may be spent walking. Consider product velocity your own operation against a set of internal (sales movement) and size (cube) when selecting the expectations, as well as external, industry-accepted, picking slots sizes and location. Many operations best practices and averages (outlined below). replenish forward picking too often. Set up a system Remember, you can’t improve something if you in which you can store at least one week’s average don’t measure it. unit movement in the pick slot and a hot pick area Using a template that is, a list of predetermined key for extremely fast movers. Provide various slot sizes. evaluation points for each area of the warehouse can aid in the audit’s organization. Focus on labor, facilities, 4. Take advantage of systems and workflow procedures. By analyzing your bar code technology operation against your existing expectations, you can From the receiving through the shipping functions. develop a basis of measurement for future actions.

Among the many reasons to employ bar codes: You can track products and orders, verify accuracy, speed processes, gain early visibility, and eliminate 10 Critical Success Factors The following is a list of key factors common to paperwork. Develop an ROI study to show where savings can be gained. successful warehouse operations.

1. Use the cube

5. Keep it clean and organized

Our studies show that occupancy (cost of space

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warehouse operation in place just by looking at the facility’s overall organization and appearance.

6. Plan for flexibility and scalability Any warehouse facility or system should be designed to maximize flexibility and be as scalable as possible. With increasing uncertainty about future business plans, it’s mandatory that you remain flexible and able to respond to changing requirements, such as when merchants add SKUs or change the type of items and product profiles (sizes) they offer.

One of our clients recently gave us planned future operating metrics, which we used in our efforts to size a new warehouse for them. After studying the metrics, and the new facility’s design, we realized they would be out of room in just six months. What happened? They had underestimated their future inventory levels by more than 100 percent.

In our planning, additional space was allocated for future expansions. This scalability permitted the warehouse to meet actual inventory needs without major difficulty. If the idea of scalability had not been considered in the design, the lack of space would’ve been a critical issue.

7. Get an efficient stock-locator system This sounds like an elementary question, but do you know where all of your inventory is located? One shortcoming of some catalog management systems is that their warehouse inventory systems can show product inventory in only one location. Manual systems have to be used to record other locations for the same SKU. For efficient operations, your warehouse inventory system must be able to identify what product is stored in each location, as well as the quantity of each product in every location.

8. Devise a vendor-compliance program Everything starts at your warehouse’s receiving door. Moreover, every function, from put-away to shipping, is impacted in LOGISTICS TIMES May 2011

some way by your vendors. That’s why it’s a good idea to devise and enforce a vendorcompliance program that defines the detailed expectations and specifications required of every vendor. The program also should include corrective processes to be used and ramifications for noncompliance.

Take vendor packaging. If a vendor fails to comply with acceptable and agreed upon packaging specifications, the following situations may occur: • Products designated as shipalones (i.e., items reshipped in the original packaging) may have to be repacked, creating increased labor costs for you.

• Bar code labels on the vendor packaging may not be reusable (readable) in the warehouse, thereby decreasing accuracy and increasing handling costs.

• You could incur actual damage to your warehouse from products arriving improperly packaged.

9.

Measure and report performance metrics to your workers The old axiom, You can’t improve what you don’t measure, still is true in warehouse operations. The simple act of measuring operating metrics and reporting the results to your employees will result in an improvement even if you do nothing else with the data. Why? Most employees just want to know how they’re doing. By setting expectations and then telling everyone how they’re measuring up, you can improve overall productivity.

Takeaway tip: Set up productivity measurements in units and cost for all major departments (e.g., receiving, stocking, replenishment).

10. Maximize what you have before investing in a new solution If you attribute savings or improvements to a new investment when those same improvements could’ve been obtained with a review/modification of your existing process, the payback or justification for the investment is

inflated.

Some Operational Averages Once you’ve completed your existing operational analysis, compare yourself to some industry averages. Here are a few key metrics from a cross section of some of the better-run companies in the directto-customer industry. Keep in mind these averages come from different-sized merchants selling apparel and/or hardgoods product lines.

Warehouse cost per order

Good productivity is around $4 per order (which includes direct and indirect labor, occupancy costs and packaging).

Highly efficient businesses may be as low as $2.25. However, we’ve seen highly automated facilities that don’t yield low cost per order when the systems investment wasn’t well planned or when product type varied widely.

Order times

processing

turnaround

The time to pick, pack and ship an order is 24 hours or less. Since the dot-com revolution, however, many businesses are processing 50 percent or more of orders the same day.

Returns and receiving processing turnaround times

within 24 hours.

Functional area productivity

Picking averages 115 units per man-hour, and packing is 36 boxes per man-hour for conventional warehouses. But smallproduct picking rates may range from 275 to 800 units per hour. Highly automated facilities may achieve picking of 150 to 175 units per hour, and packing of 75 to 90 boxes per hour. Of course, compare your business and those that are similar to yours.

Orders per square foot

6.5 is the average.

Net sales per square foot of warehouse space

$750 is the average, and varies by product size and value. This is down from $1,000 net sales per square foot 10 years ago, even though most companies’ average order sizes have increased.

Orders per full-time equivalent employee

15 to 17.

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Warehouse Efficiency

Vishal Patell Director-Supply Chain Chep India

A brief review of the history of pallets suggests that to point of consumption. pallets have been in use for close to a century now In India, infrastructural developments such as that and that their initial evolution was mostly driven by of standardized and robust trucks with even floors, changes in lift trucks. Palletization as a practise was efficient highway systems and state of the art only widely adopted around WW II by the US armed warehousing are still in their infancy. The pallet is forces as it helped speed up distribution, improve therefore, reduced to an article of storage in most space utilization and free up manpower. Since then, cases. However, it still offers enough savings in a pallets have been widely used the world over by closed-loop or static storage environment to warrant businesses to reap these (and other) benefits that the attention of logistics decision makers. The first and foremost area is that of space utilization. Historically, have a direct positive impact on their bottom line.

Today’s logistics professionals are faced with the size, location and quantity of warehouses that a unprecedented pressure to drive costs out of the company operates have been driven more by our supply chain. In a supply chain that has the requisite archaic tax laws than truly logical business strategy. infrastructural support, a pallet forms the backbone Hopefully sooner rather than later, we are about to of an efficient operation. A pallet can find shared witness a positive tax change that will drive the future of warehousing to a large use within an organization’s extent. GST (Goods and supply chain all the way from Palletization Services Tax) will eliminate raw material procurement to the need for multiple smaller finished goods distribution, including the interim points of manufacture, storage and cheaper distribution points and fortunately, for and transportation. With the right pallet provider, once, a tax law will enable organizations to apply the same pallets can be shared by different partners strategic thought towards the alignment or redesign across the supply chain as well as the industry of their supply chain network. This upcoming at large. The use of pallets in such an end-to-end change, combined with increasing real-estate costs is scenario provides numerous efficiencies; notably in forcing logistics professionals to consider height as a the areas of dock utilization, truck turnaround times, key factor in warehouse space utilization. reverse logistics transport costs, handling costs, Whether an organization chooses to introduce reduction in product damage and pilferage, etc. racking, or use vertical space by floor stacking, good quality pallets will be critical in driving this change.

This also helps significantly reduce the number of “touches” a product gets from point of manufacture Often we have observed safety concerns in racking

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where low quality pallets are used to store heavy products thus becoming a safety hazard. Companies that are currently storing goods on the floor (or on tarpaulin) or even those that are using pallets but are wary of double and triple stacking due to sub-standard quality, will need to re-think their approach quickly. Often times, companies make the mistake of selecting their racking and then selecting a pallet to fit that racking.

Since racking projects across multiple locations are mostly done over a period of time, it often happens that companies end up with different types and sizes of racking (and hence pallets) in different warehouses; rather than following a standard. All this leads to increased costs and operating inefficiencies in the long run.

LOGISTICS TIMES May 2011

As companies re-think their supply chain strategy with GST around the corner, an attempt must be made to standardize pallets and racking throughout the network.

In India, the 12x10 pallet (1200 mm x 1000 mm) is the most prevalent standard.

Keeping the end-game of palletized transportation in mind, companies can then design their network around a standard pallet and rack size, which will offer savings now as well as in the future.

In a typical warehousing environment, pallets also offer benefits in manpower utilization, put away times, staging as well as truck loading and unloading. Most organizations using standard pallets can achieve much lower handling and storage costs, with faster material movements than organizations that do not. There are

several research papers and case-studies that help to effectively quantify these benefits.

Lastly, an organization must also pay attention to its pallet procurement strategy. Pallets can be purchased from a local vendor or leased from pallet hire companies. Purchasing pallets in India is not easy given a highly fragmented supply base and issues with timely availability, quality and cost.

Rental models offer companies the flexibility to use high quality, standardized pallets as needed, thereby incurring significant savings in areas such as cost of capital, product damage, storage and reverse logistics. A rental model with pooling (shared use of standard size pallets) can be the answer to your pallet woes!

39

The Business Case

Saurabh Goyal MD, ThinkLink

The Warehousing and Distribution paradigm in India is changing rapidly and with these changes, new technologies and operating constructs are being evaluated and validated, or being parked on the side for a future revisit.

Automation of Material Handling and Storage in warehousing and plant sites is one of these constructs and different industries are looking to understand the solutions, the pros and cons, and see if a Business Case exists for these solutions.

Solution Options Different types of solutions exist, every industry and project Solution needs a careful examination of what will work in that environment. Some of the more common solutions are listed here – • Pallet and Mini Load ASRS • Conveying and Sortation Systems • Vertical and Horizontal Carousels • Automated Guided and Laser Guided Vehicles • Satellite Systems • Automated Loading and Unloading Equipment

Pros and Cons of Automation All these solutions and automation in general helps achieve the following goals • Higher Storage Capacity – Storage can be as high as 50 meters and can be much denser than conventional systems.

• Quicker Turnaround Time – ASRS cranes can easily handle 60 pallets/hour compared to conventional systems where Reach Trucks would do a maximum of 20 pallets an hour.

• Higher Accuracy and Reliability – These machines are designed for High Reliability and have availability of up to 99 percent. In terms of accuracy given the right coding for identification, machines will not make mistakes, 100 percent accuracy is guaranteed.

• Higher Productivity and hence Reduction of Manpower – Since bulk of the activities are transferred to machines and equipment, manpower productivity for the same operations rises manifold, we have looked at systems where manpower can be reduced to 25percent of pre-automation levels.

• Better Management of Business Skews – If 50 percent of your dispatches happen in the last week, getting more labour who understand your operation for one week every month is

a challenge. Carrying extra labour through the month is also a significant cost. In such circumstances, automation can help bridge the gap through additional handling capacity.

What does not work so well for automation solutions or needs careful vetting are the following issues – • High Capex - Upfront investment is high, operational costs are low, this could be three or five or seven years long. So this is like a manufacturing investment • Clear System Design Requirements - Automation solutions can work in a variety of different Options industries and can serve different storage and handling requirements, yet once designed and installed are difficult to change, and therefore come with a level of rigidity, and hence a clear design valid for an agreed period is important • Longer Implementation Period - These require detailed planning and the implementation period for such a solution is longer (could be 12-18 months) • Revisit Packaging - Automation can also mean that packaging and load unit design needs to be revisited to standardize packs and sizes as much as possible. This makes the cost go down and system efficiency increases.

Building a Business Case For all new projects or for redevelopment of existing sites, the key variables that can help decide whether automation could be an option include – 1. Cost of Land – Higher cost means you need to handle more and store more in the same site to create a viable operation. Typically such conditions exist near large metropolitan areas.

This means that proximity to customer from a service level perspective is important.

2. High Volumes – A high volume operation can justify the investment into automation in a lot of industries.

3. Service Level (Dock to Stock and Order to Dispatch Time) – A high service level in Operations with high volumes to process and/or high complexity in terms of number of SKUs or Pick/Pack Operations or other Value Added Services can be challenging. This is true in case of overnight cross-dock operations as in case of Retail, or in the case of Automotive Aftermarket Operations where SKUs, Volumes and VAS are all on the LOGISTICS TIMES May 2011

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higher side.

4. Land Usage Trade-Off – Especially in case of manufacturing sites, the same land can either be used for capacity expansion or for RM/PM/FG storage, leading to need for driving higher utilization of the same land.

5. High Accuracy and Reliability – This is true if the product being handled is sensitive and high value (which implies a high service level, accuracy, and reliability) or it is connecting to a high value operation, say feeding into or out of a manufacturing line 6. Higher Productivity – Availability of Skilled Manpower in India at an operational level is a challenge and wage rates are rising. This means that automation can start making sense.

This is true for all industries now.

7. Business Skews – If you have high seasonality in certain parts of the LOGISTICS TIMES May 2011

month or year, automation can help.

Additional capacity to serve the variation in Demand can be created in the System Design. In comparison flexing up Manpower and Equipment around these periods can be a challenge.

8. Special Requirements – Certain product environments can mean that automation has a strong business case - a (-)30 degrees cold store is an example. Humans don’t work productively in that environment and automation can lead to much denser storage which reduces refrigeration costs as well. This is also true in case of clean environment requirements for Hi Tech and Pharma.

9. Plan Period – Over what period is the investment likely to pay for itself and is there sufficient visibility with a degree of confidence on the business,

volumes, and requirements from this site over that period? With the right data analysis this decision can be taken.

There are certain industries which are ripe for automation and others need to have very clear reasons for why they are evaluating these solutions.

My understanding is that Automotive (Inbound and Aftermarket operations), Tires, Paints, Retail, Cold Chain, Food & Beverages, and Pharma will be the early adopters of automation in material handling and storage in India.

Automation projects planned with the right data, the right know-how, the right business understanding, and the right planning can deliver a winning proposition.

My view is that India will adopt these technologies on a much larger basis over the next five years.

41

The need for speed

Tielman Nieuwoudt Principal The Supply Chain Lab

In today’s high velocity supply chain world, companies to note that technology is not the key to success. are increasingly focusing on distribution methods However, the right system can smooth out problems that will drive efficiency and increase customer and increase visibility in the chain. Companies now satisfaction. Gone are the days where customer have the ability to send products on a Friday night, service was merely a buzz word. With the focus on receive them on Saturday, and sell the products later customer service, companies have moved away for in the day. a supply driven business towards a demand driven business. Companies are also constantly searching How is it used? for ways to reduce inventory and holding cost. The Cross-docking is used in a variety of strategies that increase in speed has forced companies to search for include consolidating loads of less-than-truck load ways to reduce product cycle time and move product (LTL) carriers, consolidate loads from multiple quickly and cost effectively. suppliers and/or plants, deconsolidating orders, and Over the years, companies have seen a dramatic preparing for shipping. Cross-docking can be divided increase in the number of stock keeping units (SKU). into different complexity levels including oneThe increase in the number of SKUs has added touch, two-touch and multiple-touch. One-touch complexity to the business is considered the highest and also has increased productivity as products are Cross Docking the cost and time needed not loaded on the dock, but is to manage the business. loaded directly on the truck.

Department heads face additional pressure as they During two-touch the focus is on load optimization are required to stock shelves with the right products and driving efficiencies. Inventory is received and and ensure that customer demand is met all times. staged on the dock, without making use of a storage In today’s high speed world, shipping windows are facility. During multiple-touch, products are received changing rapidly, as retail clients demand increased and staged for reconfiguration and customization. speed to meet store requirements. To achieve these An increasing number of companies are starting goals, cross-docking has been pushed to the frontline to use cross-docking in their operations. In a 2008 of the distribution strategy. cross-docking trends report in the US, 52 percent of respondents stated that they use cross-docking with a further 13 percent planning to start cross-docking What is cross-docking?

Cross-docking is a system that relies on speed in the next 24 months. A number of companies are and agility and is normally used in hub-and-spoke outsourcing cross-docking. By doing so, they avoid operations. Cross-docking, in short, is the shipment the challenges of setting up and running a crossand receiving of goods by bypassing the storage docking operation. Many companies start small facility. In the process of cutting out the need for a and pilot projects are common as they explore the storage facility, inventory can move quickly from one configuration that best fits their needs. For crossend of the supply chain to the other. Cross-docking docking to succeed it needs to be a coordinated effort is a fairly simplistic way of handling inventory that that relies on close partnership and collaboration. involves loading and unloading inventory from an incoming truck onto an outboard truck. During What are the advantages? cross-docking, storage time varies. However, most One of the key advantages of cross-docking is that experts would agree that anything less than two days companies are reducing their need for warehousing can be considered as cross-docking. In some cases space, which reduces inventory holding cost. Crossstaging also takes place. docking facilities are much cheaper to set up and For all of its simplicity, cross-docking requires detailed run than warehouses and companies can save on planning and collaboration with partners. Companies the capital investment in warehouses. In some cases, require advance knowledge of product shipment and companies can reduce warehouse floor space and sell final destination of goods. Setting up the required off or lease out underutilized facilities. Companies infrastructure and systems can take time and capital. like Toyota have designed and built their own crossLogistic managers are increasingly making use of docking facilities. Normally these facilities are technology such as Warehouse Management Systems strategically located to reduce distance and maximize (WMS) and automated processes. It is important support.

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Some of the biggest advantages for companies are transport related.

Companies can achieve significant cost savings, by consolidating loads of LTL carriers. Pallets that are heading for the same destination are consolidated and staged by order sequence. By doing this, companies can reduce the distribution cost of the total supply chain and pass the savings on to the consumer. By making use of cross-docking, companies can furthermore reduce the impact of rising energy cost. Companies like Toyota have used this strategy to great effect. With the increased reliance on Just-in-Time (JIT), parts are being shipped at higher frequency and lower quantity. By making use of cross-docking, Toyota has reduced distribution cost by consolidating smaller part supplies into consolidated loads.

Cross-docking has allowed companies to increase JIT and remove waster or muda in the organization.

The increased speed in the supply chain helps companies to reduce product cycle time and move product quickly and efficiently down or up the chain. In Toyota’s case, this has allowed them to increase delivery frequency and in some cases even double delivery cycles. Cross-

docking also has some major benefits where inventory is limited. As inventory is not kept in storage, companies require less stock. The reduction in inventory will reduce holding cost and at the same time satisfy demand. One of the major benefits of cross-docking is also the reduction of labour cost.

With the downturn in the economy, companies will increasingly look at crossdocking as a possibility. Cross-docking can reduce staff numbers and their associated labour cost and also gives the

organization greater flexibility during an economic downturn.

Many companies, however, do not start cross-docking primarily for cost reasons.

They start to improve customer service.

Today’s customers require greater speed and are also more demanding. Companies should establish clear goals and be willing to test different options. For companies that want to streamline operations and increase the supply chain velocity, crossdocking may be the right solution.

Courtesy: www.thesupplychainlab.com

Beating boredom & monotony Those who have worked in warehouses would agree warehouse to find the storage unit containing the that order picking is a monotonous and tiring job requested items, lifts the unit up by sliding under it, day in day out picking merchandize from the storage and bring it to a human worker at a work station. shelves either manually or through forklifts. . Basically Amazing but true, these dedicated, well designed, it involves taking different products in different and efficient workers in form of robots provide quantities from different parts of the warehouse unparallel improvements in almost every major and combining them for an order involving endless industry paving a revolution in form of robotized warehouses. walking or travelling on Simply put, the racks are forklifts and lot of human Robotized Warehousing brought to the human efforts. workers and not the other Imagine if storage shelves would have been mobile and operators were way around. This system eliminates the need for stationery to save endless walking and movements endless walking. Instead of having many workers by humans. In such a scenario, storage racks would work on the same order, the such system allows for reach the operator themselves with the ordered items a single touch approach. With fewer hands used on each order, productivity increases, errors decrease readily available to be picked.

This wishful thinking is now a reality and is no longer and the work process is streamlined which also saves a figment of imagination or from a fiction book. rising manpower costs.

KIVA Systems is a company in U.S. which Automation in many warehouses in U.S. and Europe has reached such a stage where robots navigate the manufactures and have supplied thousand of such LOGISTICS TIMES May 2011

Prof. Akhil Chandra Institute of Logistics & Aviation Management

43

robots to third party distribution centers and warehouses. These warehouse workhorses provide a new way of sorting, storing, and shipping products.

The whole process operates basically with the help of following constituents: Robots powered by rechargeable leadacid batteries, are typically 2 feet by 2.5 feet and stand a foot high, with blue running lights on their orange facades.

They weigh 250 pounds apiece and can carry four times their weight. The Robots lift loads, called "pods," which look like stacks of shelves, by raising and lowering a platform like a corkscrew, which they accomplish by spinning in place. On the bottoms of the robots are scanners that read stickers affixed to a concrete warehouse floor.

The robots navigate around the warehouse using an onboard camera to read barcode stickers on the warehouse floor. The maximum velocity of a robot is 1.3 meters per second.

The control unit of a robot consists of Programmable Logic Controllers which are capable of issuing instructions to DC Motors mounted on the robotic platform to provide the mobility to the robot while the receiving unit receives digitally coded instructions issued by the central computer cluster.

Central Computer Cluster This is the main command center and issues directions to Robots to navigate

on the floor. Robots continuously communicate their positions to the central computer and are guided by the central computer system.

Wi-Fi communication system This is used by robots to communicate wirelessly with the computer servers that run order-processing software and deliver directions. Conventional Wi-Fi routers, mounted in the warehouse rafters, broker these communications. Robots are guided by a very simple grid of stickers attached to the floor. . The stickers form a grid that covers the entire robot operating area

Process Functioning When an order for an item arrives, it is transmitted wirelessly to above stated Robot, which navigates the warehouse to find the storage unit called Pods containing the requested items, lifts the unit up by sliding under it, and brings it to a human worker at a work station.

The worker picks the items needed to fill orders, while the robot returns the storage unit to the warehouse.

Robots hum around the factory floor at the speed of a walking person--3mph-delivering to human packers precisely those items needed to fulfill an order When a Robot sidles up to a human picker, an overhead laser paints a dot on the item on the pod that the human should pick up. An adjacent computer screen flashes the quantity the packer needs to put in a

box to fulfill an order.

Automated symphony

order

picking

The robots navigate the warehouse by pointing cameras at the floor that read two-dimensional bar-coded stickers laid out by hand one meter from each other in a grid. The robots relay the encoded information wirelessly to the central computer cluster that functions both as a dispatcher and traffic controller. To fulfil an order, a human operator stands at a pick and pack station on the perimeter of the warehouse. Robots crisscross the floor. When the robot positions itself in front of a worker, a laser pointer on a metal pole shines a red dot on the product.

Once the worker has retrieved the item, the robot departs and another takes its place. Workers watch for the laser dot, pick a product, scan its bar code, throw it in a box and start over again.

Robotics warehousing has unleashed a revolution in order fulfilment and automation technology is enabling it. In response to competitive market pressures for shorter cycle times and greater accuracy, warehouses are increasingly using process control and automation technology. Due to clear advantages in terms of cost reduction and improving productivity and safety, Robots shall create a permanent place for themselves in future automated warehouses servicing human beings.

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QUICK CHAT

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“Technology investment in warehouses would go up” Pittsburgh headquartered Vocollect has a global reputation for providing cutting edge voice- centric solutions in warehouse management. After having gained a firm toehold in the western developed markets, the company is now eager to spread its wings fast in the two dynamic markets of Asia – China and India. In India, the company had opened a small research & development centre near Delhi about a year back. But now it is gathering an efficient sales force to enhance its presence in India. In a quick chat with Ritwik Sinha during his recent trip to India, Joe Pajer, president of Vocollect, now a business unit of Intermec, Inc., divulged his company’s outlook for the Indian market and the strategy it is chalking out to make a mark on the new turf. Excerpts from the conversation: LOGISTICS TIMES May 2011

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On Vocollect’s global profile: Vocollect has been around for 25 years. In first fifteen years, the company was trying to bring in solutions related with processes in manufacturing to collect quality data. It worked very well but there wasn’t any big payback for the customers.

We experimented and introduced the technology in warehousing related activities like order selection, receiving, put away, replenishment and the same technology delivered an amazing payback and return on investment (ROI) for warehouse operators. We have grown in last ten years to become $120 million annual topline company (pre-acquisition). In this period, we have generated over $800 million of revenue.

Presently, a large chunk of the revenue comes from North America and European markets. But we entered Asia about a year and half ago and prospects look very promising. We have dozens of customers in China, Japan and South Korea and we are in the process of winning new customers in Singapore and Malaysia. We already have a large business base in Australia.

We are the world leaders in what is said the voice directed work for logistics. We do have competitors in the segment but most of them are regional. We are present in 60 countries with 35 different languages. We have over 1500 customers in more than 4000 warehouses. Of the top 100 retailers in the world, as many as 35 percent of them are using Vocollect products in their warehouses. Our products are also largely used in beverage distribution, drug stores and by 3PL companies.

USP of Vocollect solution: When you are using our device in warehouse management, then you will not need to use any paper. The devices have a text speech engine which automatically converts all messages into voice command transferred directly to the workers through headsets and radio. Using the same device, the worker can then confirm that they have actually done the required work. The entire modus operandi is very conversational and gives speed to the operations. With our device, your hands and eyes are always free which is not possible when the element of paperwork is involved. Our solution is unarguably safer and better. Studies confirm that the use of our voice-centric devices result in 30-50 percent improvement in productivity.

Accuracy improvement is as high as 99.995 percent. Safety improvement, sicnce your hands and eyes are free, the accident chances are remote.

Training is another major plus with our solution – it just takes half a day to train, no matter how skilled is the workforce. There are easy voice templates to help him understand it.

The payback for most companies is six to nine months. So its within a year that most companies earn their money and start earning more profits as a result of opting for our solution.

This is the major reason why it has become so popular in happening economies.

Basic assumptions on Indian market: We believe that India is going to drive investment into manufacturing and logistics because they need to continue growing at a fast pace. So that’s assumption number one. Number two, we believe that growth pattern in India will drive technology investment in warehouses. And here WMS companies would act as beacon for us. If WMS companies are beginning to have success in India, we know we can follow them and make a mark with customers. The third basis assumption for us is: we know there are labour issues in India and in the context of this problem, we are convinced that our devices can make warehouse operations smooth and efficient. Our solutions ensure consistent productive performance no matter who the workers are. These are the fundamental assumptions.

There are also some minor ones. Like we know that Indian market is now filled with MNCs and many of them are our customers elsewhere. So that would help us. We already have some MNC customers asking us when we are coming in a big way in India. So our product is already certified. It’s a big plus for us.

India Strategy: We know that a strong perception prevailing in the Indian market is that players in the Indian logistics sector, by and large, are non-chalant towards adopting modern solution/processes. But we have a strategy ready for it. When we move in a new market, we first identify and focus on early adopters. We are not in a hurry to grow our business into billion dollar range in three years. We are not putting 200 people in India to sell our products. We are going to work with a couple of sales people from Vocollect co-ordinating with system integrators and resellers throughout India. We are happy to address the early adopters. In most of the markets, we have noticed that early adopters have paved the way for more companies queuing up for adoption of our solutions. In five-six years time, we can imagine a large size customers’ kitty for us. We are ready for the long-haul. In terms of segment specific focus: we will be targeting wholesalers and retailers first.

LOGISTICS TIMES May 2011

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25

Conference on Logistics Parks

EVENTS NTS

47

CII Institute of Logistics organized one day conference on logistics parks in Chennai on 26th April. The conference saw participation of eminent personalities from related domains like mainline industry, 3PL/4PL, private developers and multi-modal freight operators. The event saw some serious deliberations on how to pave the way for structured growth of logistics parks since the demand pressure from the industry would make it imperative to go beyond plain, vanilla warehousing. Some of the key issues discussed were: future of logistics infrastructure; changing role of traditional logistics infrastructure to gain competitive advantage; and role of PPP and policy implications on logistics parks.

LOGISTICS TIMES was media partner of this event

LOGISTICS TIMES May 2011

EVENTS

48 4

India Warehousing Show The first International Indian Exhibition & Conference on Warehousing, Cold-Storage, Material Handling, Cargo Logistics and Supply Chain industry – India Warehousing Show 2011 and India Express Cargo Logistics 2011, organized by Manch Communications (P) Ltd. opened at India Expo Centre, Greater Noida on 21St April 2011. The three day long event event was open for trade visitors from 21-23 April 2011 Exhibition was inaugurated by J. Alexander, Chairman, National Association of Warehousing Corporations of India; , Dinesh Rai, Chairperson, Warehousing Development and Regulatory Authority (WDRA) and R.K Saboo, Chairman, Express Industry Council of India along with Kiran Mittal, the organizer of India Warehousing Show.

The exhibition also had a vibrant conference with leading speakers from logistics industry particularly related with warehousing and express industry discussing the pertinent issues of the day. The conference was well attended by 176 delegates from different industry sectors from the country.

LOGISTICS LOGISTI TICS TIMES May 2011

LOGISTICS TIMES was media partner of this event

49

Award for top performers Lufthansa Cargo organized a colourful award night on 6th May at Crowne Plaza Hotel, Gurgaon to felicitate cargo agents who were the top performers for the company’s business in India in 2010. Speaking on the occasion, Carsten Hernig, Regional Director, thanked the cargo agents fraternity for boosting the business of the unit and promised exciting and challenging times ahead for Lufthansa Cargo and its agents associates in the country.

LOGISTICS TIMES May 2011

MY P&Q

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African Safari Heard of Shirish Chavan(inset)? No? Does not matter. Even I never knew him till a few days ago. Chavan is the CEO of Autocreates yard at Panvel that manages Tata Motors’ export to all parts of the world. By the way, he was an ex-Tata Motors hand who has served in Sri Lanka, Latin America and Africa among

him during this journey. En route, their convoy was halted by some army patrolling the highway and made to present themselves. No one had a clue whether the searching party belonged to the same junta that was escorting Chavan or rebels. Luckily, it was no ambush and he has survived to share this tale. Any lighter moment? Sure, he pepped

My P & Q other places. On my recent visit to his Panvel facility owned by Tony Arora – one of the prominent names in the automotive logistics segment – I began to pester Chavan of his exploits abroad. What was the most chilling moment? During his African stint, he was escorting a set of vehicles from point A to point B. Like a head of state, a convoy of automatic gun wielding military Ramesh Kumar personnel was all around LOGISTICS TIMES May 2011

up. During another trip, he was with an Afrikaneer and Chavan was curious to know how people survive in this jungle with no agricultural activity anywhere around.

“Who says there is no food?,” the Afrikaneer responded and hastened to add that “the jungle is full of food!”

It took a while for Chavan to realize that his companion was referring to the numerous animals that inhabit the landscape!

Prim & Propah

Howard-James Scott is an energetic Brit, serving the interests of Indian logistic and supply chain industry.

Until recently, he was the Chief Supply Chain Officer at Gati. Now, he is on his own: consulting. My maiden meeting with this witty exBritish military logistics officer was almost a year ago.

Straight from the beautiful and new Hyderabad airport, I drove down to Marriott, bang opposite Hussain Sagar Lake where he was waiting: suited, booted and a neckpiece too perfectly in place. Others, including Harry Lagad of Gati and a few more friends are waiting in the semi-lit dining hall. But they were in their causalwear.

The chick restaurant was packed with capacity crowd, every group enjoying their food and drinks. Of course, all in their casuals. Why Howard perfectly dressed? A mystery to me as well until he cleared the cobwebs. He was unlikely to be available for interactions with me during the next three days

of stay at Hyderabad due to his prior commitment away from Gati headquarters.

Hence, he ensured that he was well dressed for the photo shoot as well. While others were partying, Howard was put through the grind for an hour by our lensman flown from Delhi making him pose at various locations inside the hotel. Howard was very “accommodative”. By the time we returned to the dining table, others more or less were through with their drinks and food. But hats off to Howard’s military style perfectness. Nothing was left to chance. You can expect the same dedication if you were to deal with him in his new avatar. Good luck, Howard!

RNI No. DELENG-17848/2010-TC