Lt september 2012 for net

LogisticsTimes www.logisticstimes.net

September 2012

` 50

Logistics Times

QUICK CHAT Raaja Kanwar Apollo LogiSolutions

PERSPECTIVE PE INVESTMENT TRENDS

EVENT INDIA INFRASTRUCTURE SUMMIT

Available on Tablets & Smart Phones

BIG DEBATE Service Cost & Customer Satisfaction

How to strike right balance?

I

NDIA'S MOST VALUED LOGISTICS MAGAZINE

Logistics Times

CONTENTS

All about Transportation, Distribution & Infrastructure

Volume 3: Issue No.5 * September 2012 Editor in Chief

Editor

Raj Misra rajmisra@logisticstimes.net

24

Ritwik Sinha

BIG DEBATE

ritwik@logisticstimes.net

Sub Editor Photographer Designer Circulation & Distribution Legal Advisor

Neha Richariya

Service Cost & Customer Satisfaction

How to strike right balance?

Mohit Mallick Kausar Syed Kamruddin SaiďŹ Rakesh Garg

Our Bureau Mumbai

Rahul Kumar rahul@logisticstimes.net B Shekhar

Bangalore shekhar@logisticstimes.net N Raju Chennai

raju@logisticstimes.net Sudhir Kumar

Hyderabad

sudhir@logisticstimes.net

Editorial Advisory Board Paul Lim Founder & President, Supply Chain Asia Prof. Samir Srivastava Associate Professor, IIM-Lucknow Prof. Akhil Chandra Institute of Logistics & Aviation Management Ramesh Kumar Member, National Committee on Supply Chain & Logistics, Govt. of India

Marketing & Sales Kalika Singh Ph: 011-22478538-39, 9891007542 Email: advt@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

Edit Note News Briefs

08 10

Supply Chain Product Events

44 51 52

46

16

QUICK CHAT

INTERVIEW

Raaja Kanwar Director, Apollo LogiSolutions

VP , Frost & Sullivan

22 PERSPECTIVE

PE investment & logistics sector

V G Ramakrishnan

35 INFRA WATCH Coalgate & Cold storage

52 EVENTS

EDIT NOTE

8

The Twilight Zone In the evolution of any sector or business, there certainly comes a period which is broadly defined as ‘twilight zone.’ And here the term means the middle ground between less progressive and more progressive environment rather the dividing line between good and evil. When the term is used to define business trends, it means the period when you have the imagination of a better future but existing inhibitions may be holding you back to go all out because of some serious risk concerns. On the apparent level, the immediate risk factor could be related to cost and on the broader level one has to respond to this critical point: does this make sense to tamper with the existing applecart and cruise to next level which may require structural changes... at times, even of extreme nature.

As you flip through our inaugural Big Debate presentation (there would be many more going ahead),you would probably agree with me that the supply chain regime in the country is presently passing through this twilight zone. There is a clarion call for improved services in transportation and distribution but attaining this could be anything but a free lunch. And herein, as participants in the Big Debate pointed out, lies the rub: customers are not willing to shell out more. “Its clearly the case of visibility problem,” one participant summed up succinctly. “ In majority of negotiations, the only point of interest for the customer seems to be in bringing down the costs,” pointed out another. However, one major takeaway of the debate was expression of an unanimous opinion that players in the upper crust are shifting to new age reality. That is they are gradually realizing the need of putting in place advanced supply chain models and this would result in emulation down the rung in the coming years. Striking the right balance between service cost and customer satisfaction would probably not remain a Herculean task as it is presently supposed to be in the majority of the cases.

On the occasion of its annual workshop which was held last month, Frost & Sullivan released a study paper on collaborative logistics. The paper subtly hints a big lost opportunity for both manufacturers as well as LSPs who are by and large ignoring the benefits of the collaborative logistics. In the interview section, V G Ramakrishnan of Frost & Sullivan speaks on trends in collaborative logistics as well as the increasing gap between manufacturers and LSPs which does not bode well for the economy.

It goes without saying that an emerging sector needs the support of leading industry chambers for mainstreaming of its issues and needs. In that context, it is heartening to note that FICCI has formed a dedicated logistics forum which was inaugurated recently. In this edition, we bring to you an exclusive chat with Raaja Kanwar (who is spearheading this forum) explaining the broader objectives.

Waiting for your feedback.

Ritwik Sinha ritwik@logisticstimes.net

LOGISTICS TIMES August 2011

NEWS BRIEFS

10

NCCD Agenda

The Government has set up a National Centre for Cold Chain Development (NCCD) as an autonomous body which has been registered as a Society under the Societies Registration Act 1860. In a writted reply to the Rajya Sabha recently, Harish Rawat, Minister of State for Agriculture and Food Processing Industries specified the agenda of NCCD which among other things include recommending standards and protocols for cold chain infrastructure/building including post harvest management so as to harmonize with international standards and best practices and suggest mechanism for bench marking and certification of infrastructure/building, process and ser-

vices provided by cold chain industry. The NCCD would also undertake and coordinate Research and Development (R&D) work required in the development of cold chain industry in consultation with stakeholders.

According to a study done by National Spot Exchange (NSE) in 2010, on the basis of peak season production and highest arrival/harvesting of storable fruits and vegetables in a month, cold storage capacity of 23.51 million MT was available against the requirement of 61.13 million MT to store perishables. The cold storage capacity as on 31.03.2012 has been estimated at 29.71 million MT.

Modernisation Fund Minister of Shipping, G.K. Vasan recently informed the Rajya Sabha in a written reply to a question that the prevailing global credit crunch has been affecting the vessel acquisition programme of shipping companies as raising finance for ship acquisition has become increasingly difficult. The extreme volatility in charter rates has adversely affected the margins of the shipping companies. On one hand, the declining asset prices has made banks reluctant to accept these assets in the form of collaterals, while on the other hand, the declining prices provide an opportunity for owners to acquire these assets, prices of which had reached exorbitant levels.

The Minister further stated that the Indian National Shipowners’ Association which represents Indian Shipping Companies holding 90% of the Indian tonnage represented for creation of a Rs.10,000 crore corpus for providing credit facilities to for acquisition of ships. The Finance Ministry had requested Indian Banks Association (IBA) to constitute a working group examine the proposed funding for ship acquisition by Indian Shipping Companies from abroad.

The working group met and formed a small group of executives from various banks to examine the issue. The IBA then responded that the borrowers need to have negotiations with individual banks for their funding requirements and that the IBA had no role to play in the matter.

LOGISTICS TIMES September 2012

NEWS BRIEFS

11

Business confidence takes a knock

India Inc. is in a sombre mood and business confidence has dipped as revealed by corporate India’s responses to FICCI’s survey for the first quarter (April-June 2012-13).

The latest round of FICCI’s Business Confidence Survey reveals that the overall Business Confidence Index for the first quarter of 2012-13 stood at 51.8, down from 60.3 in the last survey round (Q4 FY12).

The net responses with regard to prospect of employment opportunities has turned negative, the first time since the 200809 crisis. Thus, the current economic slowdown coupled with a negative growth in the employment prospects, may force the economy into a ‘jobless degrowth’.

The respondents did not seem upbeat with regard to current performance and lacked optimism about future performance at all the three levels- economy, industry and firm level.

Weak demand continues to be a concern for members of corporate India. Nearly 73% companies reported weak demand to be a constraining factor. The corresponding figure in the last survey was 57% and a year back 56%. Also a significant proportion of participants in the current round indicated cost of credit to be a constraint.

In the current survey, the participating companies were asked to indicate the expected GDP growth for the year 2012-13 on the back of uncertain conditions in the Euro Zone and the slowdown in the domestic economy. 50% of the respondents believed that the GDP growth could be less than 5.5%.

Further, a whopping majority of the respondents also indicated that the deficient rainfall have had a clear impact on the performance of their industry/sector. About 85% of the respondents reported that the current drought situation would have an impact on their industry.

The current survey round was conducted for the first quarter of FY 13 and drew responses from companies with a wide sectoral and geographical spread. The participating companies belonged to varied array of sectors such as textiles, cement, financial services, chemicals, metal and metal products, automobiles, FMCG, electrical equipment and machinery. The survey was conducted between the month of July and August 2012 and brings out expectations of the corporate members for the period July-December, 2012.

LOGISTICS TIMES September 2012

NEWS BRIEFS

12

Retail is still vibrant

Trading sector in India, both retail and the wholesale, remains vibrant and will drive the growth of country’s gross domestic product (GDP) in the current fiscal even in the midst of overall economic slowdown, an ASSOCHAM analysis has shown. It is no surprise that the global investors are so keen on enter the Indian retail market of 120 crore people.

The study conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM), based on the credit deployment data of the Reserve Bank of India (RBI),

clearly noticed vibrancy in the retail and the wholesale trade. The credit growth in the trading sector was 26 per cent in June, 2012 as compared to the same month in the previous fiscal.While the wholesale trading absorbed credit expansion of 30 per cent, the retailers’ borrowing increased by 21 per cent.

On the other hand, there are industry subsegments like consumer durables where the credit showed degrowth of over 26 per cent.

While it is true that consumer durables do form a critical part of the retailing, the latter is expanding at a rapid pace all the same.

“I think the trading is growing and will continue to grow because our main strength is our 120 crore people. They provide a huge market, if not in consumer durables or commercial space or real estate, in the food articles and several essentials,” said ASSOCHAM president Rajkumar Dhoot.

He said, it was no surprise that there is so much pressure on the government from the global investors to open the Indian retailing sector. “This sector seems to be largely immune to the slowdown, because unlike in the west where the retailers depend so much on the high end consumer durables, in India this market is driven by essentials. In a way, this feeds itself into a positive territory,” Dhoot said.

Service Centre in Pune Late last month, DHL inaugurated a new, modernized Service Centre facility in Pune.

The new facility spread over 12,000 sqft with a capacity to handle a volume of over 20,000 shipments per month. The centre was inaugurated by Anant Maheshwari, Managing Director, Honeywell Automation India and Malcolm Monteiro, CEO, South Asia, DHL Express.

On the occasion Monteiro commented, “DHL has been servicing customers in Pune for several years and this is the largest of our three service centre facilities in Pune. We are committed to deliver our promise of offering best performance transit time for all Pune shipments as we do any metro city.” The three service centres in Pune are strategically located in Bopodi, Chinchwad and Somatane Phata to service the requirements of customers in the Pune Municipal Corporation, Pimpri Chinchwad Corporation and outside octroi zone.

DHL Express services a wide variety of customers in the auto and manufacturing sectors in and around Pune. “Pune is the second largest city and a very important auto and IT hub of LOGISTICS TIMES September 2012

Maharashtra. We have witnessed a steady and strong growth in business and have a very strong foothold in Pune and the other surrounding key cities including Mumbai, Aurangabad, Ahmednagar and Nashik as the company continues to invest in infrastructure, ” Monteiro added. DHL also has nine walkin retail outlets across Pune, where customers can book shipments and avail of DHL services.

Providing critical connectivity to Cargotec Tata Communications recently announced that it has been chosen by Cargotec, the world’s leading provider of cargo handling solutions for ships, ports, terminals and local distribution, to deliver Wide Area Network (WAN) connectivity to over 150 Cargotec sites globally through Tata Communications’ round-the-world fibre optic cable network – the world’s only wholly-owned subsea cable ring.

Cargotec’s operations in over 50 countries across Europe, Asia, Middle East, Americas and Africa will benefit from increased capacity, speed, resilience and enhanced communications capabilities thanks to a fully managed, end-to-end Multiprotocol Label Switching (MPLS) network. This will enable the company to improve productivity and operational efficiency worldwide by streamlining its supply chain.

Cargotec chose Tata Communications for its comprehensive round-the-world network, which allows Cargotec to go from having multiple suppliers for its global WAN connectivity to just one. Not only does this reduce the chances of network failure, but it also delivers an always-on, cost-effective solution to cater for both Cargotec’s main offices and smaller sites, regardless of their location. Cargotec will now be able to offer a uniform service to its offices across more than 50 emerging and established markets, further enhancing global operational efficiency. It will also allow Cargotec to extend its network wherever the business grows.

Soili Mäkinen, Chief Information Officer, Cargotec, says,

“Cargotec improves the efficiency of cargo flows by offering handling systems and related services for the loading and unloading of goods on land, in port and at sea. As a truly global organisation, we need our network supplier to have the infrastructure and the resources we need in all markets and geographies, which is why we chose Tata Communications.”

Tata Communications recently completed the world’s first whollyowned round-the-world fibre optic cable network, bringing increased capacity, resilience and enhanced communications links to both developed and emerging markets. Tata Communications owns and operates the world’s largest subsea cable network, which, in combination with its other investments and commercial arrangements, has the ability to provide services to countries representing 99.7 per cent of the world’s GDP.

DHL to dilute stake in Blue Dart

Deutsche Post DHL, the world’s leading postal and logistics group, recently announced its intention to reduce its stake held through its subsidiary, DHL Express Singapore Pte

Ltd., in Blue Dart Express in order to enable Blue Dart Express to comply with the minimum public shareholding requirements set out in Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957, as amended (the “SCRR”). In terms of the SCRR, listed companies are required to increase their public shareholding to at least 25 per cent latest by 03 June 2013. Deutsche Post DHL presently holds close to 81 percent in Blue Dart. According to a company release, DHL will follow through with its intention subject to market conditions and/or the applicable regulatory framework.

The future collaboration between Blue Dart Express Ltd. and Deutsche Post DHL will not be affected by this transaction at all and Deutsche Post DHL remains fully committed to the Indian market.

LOGISTICS TIMES September 2012

NEWS BRIEFS

13

NEWS BRIEFS

14

Doubling of freighter fleet

In Airbus’ most recent Global Market Forecast, the European aircraft manufacturer projected that the global aviation sector will generate a demand for 3,000 freighters

by 2031. This figure, which represents a near doubling of the global freighter fleet, will be propelled by increased urbanization and economic growth in emerging regions, according to Airbus.

Overall, Airbus estimated that the industry will necessitate 28,200 passenger and freighter aircraft, valued at $4 trillion, by 2031. The Asia-Pacific will lead the world in aircraft demand, accounting for 35 percent of aircraft deliveries, followed by Europe and North America; the latter regions will each account for 21 percent of the projected deliveries, according to the report.

China will be the biggest player in the global aviation market, Airbus forecasted, followed by the U.S., the United Arab Emirates and India.

Positive H1

DP World has announced financial results from its global portfolio of marine terminals for the first six months of 2012, reporting profit before tax at $310 million. The figure marks an increased of 12 percent vis-à-vis corresponding period last year.

DP World Chairman Sultan Ahmed Bin Sulayem commented, “The past six months has been a challenging period for the global economy. Taking this into account, it is very encouraging LOGISTICS TIMES September 2012

that DP World has been able to show good profit growth across its global portfolio, led by its key markets of Africa, the Middle East and South America.”

As per the highlights of H1 report card, DP World’s revenue increased to $1,529 million with underlying growth of 10%.

According to a company release, DP World handled 7.5% more containers than during the same period last year and outperformed industry volume growth leading to an increase in the market share.The terminals are reported to have attracted higher revenue from handling more containers and a 14% increase in non-container revenue. Revealing its H1 performance, the company maintained that its terminals in Australia and Americas region have delivered a strong revenue performance.

NEWS BRIEFS

15

LOGISTICS TIMES September 2012

QUICK CHAT

16

“Ports & Roads would be our prime focus” Leading industry chamber FICCI has now also decided to pitch for promoting the issues of logistics sector. This was well reflected in the unveiling of a dedicated Logistics Forum recently.

Raaja Kanwar, Director, Apollo LogiSolutions is spearheading this forum and in an exclusive chat with Ritwik Sinha, he explained the broader objectives of this new entity...

If I talk of logistics business in this country, there are two distinctive mindsets. Those who are involved in it would assert that this is an operation which can make or mar the fortunes of a business. And then there is another group which, in fact, is in majority but does not seem to be attaching much importance to it. Given this kind of situation, how would you explain the primary agenda of this Logistics Forum which FICCI has set up?

The basic idea behind this forum is to bring together like minded peple from different corporate groups who are looking at this business seriously including major shipping lines and companies which are setting up ports. As you rightly pointed out the perception prevailing among logistics professionals is that logistics is the backbone of the operations. And you can clearly count me one of those who believe in this assumption that logistics is the backbone of the commerce that transacts LOGISTICS TIMES September 2012

all over the world. Only reason we have not been able to do it successfully is because majority of the people doubt this assumption and there are very few real players in the market. Its in nascent stage in the market as far as India is concerned. You look at big corporate houses today – most of them have their own supply chain management departments and they do not want to give out their products. They would rather have people doing it internally than outsource it. There is a big need in this country to get into this area in a very professional manner and we believe through FICCI forum we would be able to bring together like minded people and address the serious issues whether relating to the government or setting up best practices, scaling it up, bringing good people on board from outside to come and talk to us and see what all we can do.

What is the kind of basic structure this forum is going to have?

17

We are looking at ways and means to make it a very vibrant body.

I have spoken to a lot of people in Mumbai and other parts of India to understand what would it take to make them active participants. And there are other associations and organisations which may associate with us. Overall, majority of them are keen that a body like FICCI has set up a dedicated forum. When an apex chamber like FICCI does something of this nature, you definitely get more muscles and different kind of exposure which is of higher level. Proximity to the government sitting here in Delhi is certainly a big advantage.

Is there any particular mode where you would be focusing more?

I am really very keen on two segments: ports and the roads.

You look at Nava Sheva which is India’s busiest port and it is in shambles. Things need to be sorted out in infrastructure around

our ports.

Logistics at one level is believed to be more about mid-tier infrastructure facilities like warehouses, cold storages, ICDs, etc. Will you have any action plan for these units?

We will definitely address the issues related with what you call mid-tier infrastructure as we intensify our activities.

Skill development is a key issue before this sector. Will it be a major area of emphasis for you? For instance, would you be thinking in terms of conducting some skill sets certification programme?

Skill set is certainly a key issue and we will look at all possible options which can help this forum in contributing to the improvement in the logistics business in the country.

LOGISTICS TIMES September 2012

Logistics Times Ensure your copy every month by subscribing T know more, please visit us at: To www.logisticstimes.net w

Bmm!bcpvu!Usbotqpsubujpo-!Ejtusjcvujpo!'!Jogsbtusvduvsf/// Subscription Term

Issues

Cover Price

Savings

You Pay

1 Year

12

Rs.600

15%

Rs.510

2 Year

24

Rs.1200

20%

Rs.960

3 Year

36

Rs.1800

25%

Rs.1350

Subscription Form: Name: Address: City

State

Pin

Please tick your subscription term: 1 Year

Phone 2 Year

Email 3 Year

Payment Details: Cheque /DD to be made in favour of Aksharganga Media Pvt. Ltd. (Payable at New Delhi) Cheque/DD No.

Dated

Bank

Branch

Mail this coupon to:

E-77, West Vinod Nagar, Delhi -110092 Tel: +91 11 22478538-39 Fax: +91 11 22471764, Email: subscription@logisticstimes.net

PERSPECTIVE

22

PE investment & logistics sector

- Pavan V Senior Analyst, GT Nexus

Analyzing logistics industry from a financial perspective throws out a strategic perspective as to why the industry is not matured enough for hot M&A transactions. One of my research projects “Analyzing private equity investment opportunities in the logistics sector in India� has given some insights into this critical aspect.

As the research involved private equity investment angle, the public companies were not a part of the study. The approach was to divide the logistics sector into specific selected industries and analyzing them on various parameters. Below were the sub-segments that were analyzed.

Surface Transport / Cargo and warehouse providers As known to everybody, this forms the bigger pie in the entire sector. Typically about 90% of the players in India belong to this family. Selection of healthy companies is a challenging task.

Findings: This sector is slightly healthy in terms of percentage Net profits Vs Sales (Turn over) compared to the other sectors though there are some exceptions. The net profits average out to about 4%-5%.

The questions that pop up are: a. Are the margins shrinking due to large number of players in this segment? b. Lack of innovation such as bundling/ consolidation or even fuel efficient trucks etc? c. Infrastructure and amenities etc d. Why is this segment not open minded for private equity? e. How long would banks support this segment if the margins keep on decreasing?

LOGISTICS TIMES September 2012

f. Management education to the promoters necessary?

Another challenge in this segment is that the companies which are in RED are not open for private equity due to ownership issues. Most of the companies are not even ready to disclose the fact that they are not doing well and would like to get funded to turn around the business; the reason being they do not like a share holder controlling his business. The unfortunate part is that the transporter doesn’t look from the angle of improving and expanding his business.

From the outside it looks like investments, M&A can be a easy go here, but would be an exigent task because the external factors such as the economies/efficiencies etc play an important role in this rather than the intra company issues.

Couriers and parcel service A smaller number of companies comprise this segment compared to the cargo transport. However, there are only few well known private limited companies that are either doing too well or the other way round.

Findings: This sector is a complete monopoly market dominated by few big companies that enjoy major market share. This results in the biggies gaining the economies of scale through achieving the learning curve. Due to this the smaller companies are bleeding and not very healthy in terms of percentage Net profits Vs Sales (Turn over). The net profits considering only the top 4-5 larger companies average out to about 4%-5%. The questions that pop up are similar to that of Transport /

23

cargo segment.

Already being a oligopoly market, investments & M&A activities would be on the slower side in this segment.

Packers and movers – Personnel baggage Though packers and movers are typically not considered as a part of logistics fraternity, this was chosen as they make an interesting sub-segment that includes multi modal moves such as road, train and air including special packaging and handling. Again, there are umpteen number of players in this area but completely unorganized and region-wise based. Not many companies have made a name that can be called as a one-stop solution for all personnel moves.

Findings: This is a highly customized business and hence the profit margins have a huge standard deviation. Most of the companies which work in this space are those that have regional strengths. Further, insurance plays a very important role as this is a huge cost to the packers and movers. In

The companies which are in RED are not open for private equity due to ownership issues. Most of the companies are not even ready to disclose the fact that they are not doing well and would like to get funded to turn around the business. case of damage/theft/pilferage, it is the packer’s insurance premium that is going to burn his pocket.

But the basic question here is: has this segment gained importance in India? Do people understand the value this segment gives? This segment runs mostly on sentimental values. Similar to the Surface transport / cargo business, investments & M&A would be a challenge in this sector as not many companies have tested waters in this area!

Other points: 1. The total sample size considered was about 70 companies that form all the above segments.

2. Database such as Capitaline was used.

3. Financials were analyzed using reports from Crisil, Fitch and Care.

(The author is presently preparing a comprehensive report on investment trends in Indian Logistics Business) LOGISTICS TIMES September 2012

BIG DEBATE

24

Service Cost & Customer Satisfaction

How to strike right balance?

LOGISTICS TIMES September 2012

25

“Everything comes at a price,” there goes an old saying. But in a market which is yet to evolve and show signs of maturity, isn’t it a difficult proposition for LSPs to tell and convince their clients

that better and advanced services can be provided at a higher cost?

Pune headquartered Service Chain Forum* in association with Logistics Times organised a round table conference recently in Mumbai to discuss the critical issue of striking right balance between the service cost and customer satisfaction – an impertaive which probably can’t be ignored anymore in the country given the changing tides in the business sphere.

The panelists in this discussion were: Sushil Rathi, VP (SCM), Mahindra Logistics and President of Service Chain Forum; Rakesh Batra, Partner, Ernst & Young; Vasu Ramanujam, Secretary General, Service Chain Forum; Ganesh Iyer, National Sales Manager, Entercoms; Ashutosh Mayank, Senior Associate, Lumis Partners and the discussion was moderated by editor of this publication Ritwik Sinha. Edited excerpts of the big debate: LOGISTICS TIMES September 2012

BIG DEBATE

26

Ritwik Sinha (RS): Let me start this debate with a simple open question to all of you. We all read and speak about the efficacy of advanced supply chain models in matured economies. And there is always a sense of disappointment when we ponder over the possibility of emulating those models here in India. But my basic question here is: have we attained that state of maturity wherein we can think of putting in place advanced supply chain practices given the high unorganised quotient in Indian logistics business?

Sushil Rathi (SR): I think, it’s a myth to believe that everything which is happening outside can not be adopted here because they could be too expensive. But one should not always look at it in terms of adoption of advanced technology. Rather one should look at it in terms of putting in better processes because they can bring in so much of discipline in the operations and they could be extremely beneficial even in a cost effective market like India. I firmly believe when we say best practices, it does not necessarily mean that it would add to your cost.

Rakesh Batra (RB): Quite obviously, the larger objective for all of us is to create transformation in the service chain. And for that we first need to create awareness. So first and foremost is to make peope understand the issues on a broader platform.

Even in west where we have evolved supply chain environment, it didn’t happen overnight. We have to start somewhere and we need to have a progressive approach. At the end of the day, transformation we are talking about does not only include technology and processess but also people issues. For instance, the issue of enhancing the skill sets of people involved in supply chain in smaller towns. The idea is to work on all these fronts before we really start moving towards a stage wherein the best practices can be adopted. Any transformation initiative in its initial phase moves slowly before picking up the momentum.

For initiating an environment for best practices- we need to LOGISTICS TIMES September 2012

create right kind of equilibrium between people, process and technology. That is the direction we wish to take. There is a lot of value which needs to be unlocked in the service chain which ultimately would benefit customers.

RS: My question was specifically for the Indian logistics market…

Ganesh Iyer (GI): It is quite possible. OEMs and service chain providers are aware of this and they are coming together. We are noticing it on a day to day basis. The fact is: everyone has the same kind of product. So what is the differential? Here services would be that critical differential. That’s where it would add value. Plus services would also provide boost to revenue stream which is the prime consideration for majority of the manufacturers.

RB: Logistics is just one part when we talk about customer satisfaction. There is planning, supply chain issues, demand planning, demand forecasting - all of it contribute to service chain. There are issues in logistics and similarly there are issues in service value chain.

Ashutosh Mayank (AM): I would like to illustrate my point by giving an example. I will cite the example of Flipkart which has become the topmost company in e-commerce space. And how did it reach to that position? In India, logistics management has always been a major issue. But Flipkart is known for its customer service and the last mile connectivity which they have developed in last two-three years and that is tremendous in nature. Today they are valued on the basis of the last mile connectivity which they have. So we have an example where basic issues invlolving last mile connectivity has been taken care of in an exemplary manner by a company in e-commerce space. So the issue is why can’t it be replicated in other sectors - automotives, consumer electronics, etc.

Vasu Ramanujam (VR): The basic question I think should

27

LOGISTICS TIMES September 2012

28

BIG DEBATE

❞

It’s a myth to believe that everything which is happening outside can not be adopted here because they could be too expensive. But one should not always look at it in terms of adoption of advanced technology.

— Sushil Rathi, VP (SCM), Mahindra Logistics

be tweaked a bit. Instead of asking whether we are matured to adopt new practises, we should be asking today whether we can afford not to adopt them? I think we have certainly reached to the stage where we should be arguing the consequences of not adopting better processes and creating a work force with better skill sets to serve this industry.

RS: But the basic point here is that 90 to 95 percent of players comprise the unorganised segment of the business. Will they go that extra mile to adopt new processes? Its no secret to anybody that ‘Chalta Hai’ attitude best defines them.

RK: Why only logistics sector? That attidue pervades all businesses in this country.

RS: Of course. But probably a bit more here.

SR: If you are talking about service providers then I would disagree to it completely. Service providers can promote new ideas and new practices if their end customers are willing to bear the cost. The critical point is how to ensure customer satisfaction.

Let me give you an example. We at Mahindra Logistics were working with a major firm in spare parts distribution. And when we looked at their existing model and challenges, one of the major issues we noticed was: whenever they did not have full truck load (FTL) to despatch, they were struggling to send consignments to 2000 odd outlets. And it was taking 20 to 25 days for their consignment to reach those outlets. We know that there is a big market of spurious and sub-standard parts that exist in this country. And one of the prime reasons for this is the non-availability of spare parts at the dealership level. If it takes 20 odd days for the genuine spare parts consignment to reach to the dealers, the end customer is not going to wait that long. He would rather like to have his vehicle on road as soon as possible and for that both dealer and the customer may opt LOGISTICS TIMES September 2012

for replacement even if they are sub-standard in nature. This becomes a cycle resulting in heavy loss of sales for the OEMs. When we were working with this customer and looked at their model, we suggested a major change. We said either you have full truck load or express model delivery so that your consignment can reach anywhere in the country within three-four days barring north-east and Jammu & Kashmir. But their response was: today we are paying less than Rs 2 per kg in less than full truck load and you are asking for Rs 6 per kg for express parcel. It shoots up our cost significantly. And we had to literally prove it to them by showing them the numbers that whatever you are losing out by supplying in 20-25 days, would be compensated by increase in business if the consignment is reaching in three –four days. And when we did a trial with them for three months, they realised that their sales have gone up by as much as 10 percent. And that offseted the increase in distribution cost. That’s what is called striking the right balance between two dynamics – service cost and customer satisfaction. It has not only resulted in an increase in sales but also enhanced the satisfaction of their end customers which could be a dealer or a common vehicle owner. So conceptually its very difficult to say whether service industry is willing to contribute to required transformation or not. But having said that, we also need to holistically look at the proposition whether customers are willing to pay for the improved service or not. Secondly, we need to judge whether the end customer judges the value of the services. Do they run after short term low cost offerings or look for more viable long term solutions? In the short term, improved servicers would add to the cost but in the long-term it would well offset the cost escalation by way of increase in sales and will accrue various other benefits – most important of them being customer satisfaction.

29

â?ž

There is always somekind of trade off happening between cost and services. You can go for a cost effective model or seek 100 percent service quality at a higher cost. The service provider has to ensure value proposition at an attractive pricing point considering the expenditure capability of the customer. —Rakesh Batra, Partner, Ernst & Young

GI: Adding to it, its more like investing in services quality than adding to the cost. You are investing in a long-term solution which in short-term may cost you something. But in ultimate analysis, it would always turn out to be cheaper in the long term.

AM: Let me give you a contrasting example from the western world - from the handset wireless market. The competition is intense since so many major players are in the fray and add to that, the written policy for wireless market is extremely lenient.

No questions are asked if handsets are returned within 90 days. What we found in one of our surveys is that customers are returning handsets worth a staggering $20 billion annually to these handset manufacturers. And since the wireless service providers are subsidising these handsets, they are basically incurring the large part of this cost. And how did it happen? In late 1990s, this policy of no questions asked policy for 30 days was put in place. And everybody followed it. Now if you look at the cross verticals in terms of customer satisfaction, it is highest in the wireless space. But at what cost? Probably 5-10 percent of the topline of service providers.

RB: At the end of the day, the cost is ultimately passed back to the customer. Customer end up paying more for these practices.

But I think and I would endore what Sushil said, you should not only be focusing on reducing the logistics cost or inventory cost.

You should be looking at reducing the cost of the system, the total cost of delivering that service. I think, so far only model that has been followed in India is to provide services at the lowest cost.

RS: Only last evening, I was talking to supply chain head of a major LSP and he told me point blank that its very difficult for him to tell his customer that he will provide a better service at a

higher cost. The client may start looking for alternatives. Sushil, is it really that difficult?

SR: As Rakesh rightly pointed out, you have to look at the cost issue from two angles. If you want to load your customer with every bit of cost, it would not be prudent. Can you show the benefit arising out of increase in the cost? For example, if you are suggesting an addition of technology piece, you need to first ask yourself what are the benefits it would deliver. Will it add to customer’s productivity, efficiency and add more value to the end customer? In case if it is adding value to customer, you can charge a premium and say that whatever you were not able to do earlier, with this solution you would accomplish that.

But if it is going to improve the efficiency, you can desist from the temptation of charging your customer because by way of improvement in their efficiency, you have the ample scope to recover from that. So its all about mindset. Its all about how you project your solutions. As I presented an example earlier, seemingly where the customer thought that I am adding the cost initially but at the end of three months, the point was proved to him that cost addition has been beneficial from the long term perspective. It eventually could turn out to be a happy ending case for both the customer and the service provider.

RB: There is always somekind of trade off happening between cost and services. You can go for a cost effective model or seek 100 percent service quality at a higher cost. The service provider has to ensure value proposition at an attractive pricing point considering the expenditure capability of the customer.

SR: You also have to always keep in mind the interests of end customer. I may have an OEM as my customer but they also have their own end customers. It is equally important to judge how everything is aligned so that value is being delivered to LOGISTICS TIMES September 2012

BIG DEBATE

30

that end customer. When this IT and BPO outsourcing started happening from west to India, some of these companies took outsourcing just as a vehicle of cost reduction. They thought that by outsourcing the services to India, they would reduce the cost. But at the end of the day, they did not think about their own customer. How they would view it? So let’s see an example wherein a travel company in the US has outsourced its call center activities to India. Now the issue is: have you trained the people adequately who can understand the travel needs of customers in the US? Have you done enough in training the local manpower in terms of understanding the language and culture of the customers in the US? So if you are just looking at outsourcing as a cost cutting vehicle, then it would be eventually more expensive for you because you may lose customers because of poor services. Once again, it proves the point you need to look at the broader spectrum to strike the right balance between the cost and customer satisfaction.

VR: I would like to narrate one example which runs contrary to some of the things which have been said here. The cost and services trade off may not be a necessary inherent trend all the time. There are examples which demonstrate that you can bring the cost down and yet achieve higher customer satisfaction.

Take the case of spare parts inventory. Spare parts inventory actually sits in evey place where the product reaches as opposed to factory inventory. But if you have wrong inventory at a place where customer wants it most, you have incurred the cost. And the right inventory is probably sitting in some other place which is also a cost. On the top of it, your customers are not happy.

The point is: if you can keep the right amount, at the right place and at the right time, you can actually reduce your cost and ensure that your customers are happy. These are the ideas which

❞

we wish to propagate.

RS: That’s a very interesting point you have introduced in this discussion. In fact, I remember reading an article recntly which says that in post 2008 scenario in the matured economies of the west, the key aspiration which end user industry has from their LSPs is that they are looking for improvement in service but with costs being slashed. Going by conventional wisdom, it looks a difficult task.

VR: But that is quite possible. And if it can happen in matured economies why not in India?

GI: I will elaborate that with an example. A customer goes to buy spare parts for his washing machine and it is not available.

He then goes next day as well and this second time visit means cost for him which can be eliminated if there is proper planning where you increase your network velocity which would result in reducing the repeat cost.

RB: We are talking about LSPs under pressure. And this in my opinion is an example of power balancing in the supply chain.

If they are under pressure, they would naturally pass it down to the supply chain. That’s the normal trend which happens everywhere.

SR: It routinely happens. I was trying to present a perspective wherein this dilemma always comes in your mind because your customer would always like to be served with the lowest possible cost. And the perspective I was trying to bring in is that lowest possible cost is not always beneficial. Herein lies the need of educating our customers and making them understand the long term benefits of alternative or advanced models. Another point which I would like to raise is : very routinely we indulge in line feed service at different plants – it could be automotive or any other service. When you discuss

The cost and services trade off may not be a necessary inherent trend all the time. There are examples which demonstrate that you can bring the cost down and yet achieve higher customer satisfaction.

Vasu Ramanujam Secretary General, Service Chain Forum LOGISTICS TIMES September 2012

31

LOGISTICS TIMES September 2012

BIG DEBATE

32

with the client on the price of the people working there as per cost plus mechanism rules, the debate always starts with why do you want to pay more than the minimum wages?

They mostly tell us stick to minimum wages and charge your management fee. What they fail to realise is that the skill sets you want to bring in to do that job may not be available at minimum wages. And for that reason you want to pay a premium to a skilled guy. But the customer may not readily agree because they believe it’s a cost in the beginning. And in the first place, why they are outsourcing? Because they believe their overheads are much higher and by outsouring the job to LSP, it can be reduced. But they do not realise that by hiring an inexperienced hand at minimum wages, that person can create problems in the service chain and ultimately you may have to bring in people to fix those problems. And it would again jack up your cost. The point is customers do not understand that by paying a little premium, they are ensuring better operations down the value chain. That’s where the dilemma comes in the mind of LSPs as how to convince them. Some people sitting on the other side of the table during negotiations only look for bringing down the costs.

RS: I would like to draw your attention to another related issue.

In recent years, we have seen some kind of buzz pertaining to green logistics in the country. However, there is a strong section of industry insiders who believe given its propensity to shoot up the cost, it may not take off for another five years at least. How do you respond to this assumption?

SR: I would not deny that green logistics may add to the cost.

But how do you view the cost? As a company do you feel that risking the environment in the long term is better than incurring some cost now? A simple example could be: are you using a

diesel forklift in your plant or an electric forklift? Yes, initially the cost of electric forklift would be higher. But the way it can impact the immediate environment in your warehouse or plant and ensure that your workers get a safe and clean environment which may enhance their productivity. It totally depends on what is the position the company is taking in terms of giving back to the society.

VR: I think the perception you have cited reflects the basic grains of our eco system wherein we mostly think short term.

This is unfortunate. But the moment you talk about green logistics measures with your clients, they would say it means additional cost. Its clearly a visibility problem wherein we can’t look beyond the present.

RB: It relates to the issue of sustainability which is being talked about all over the world including India. What we say sustainable logistics or green logistics is something which is going to be also driven by the customers. In developed world, they came up with stringent laws against child labour saying you can’t sell anything produced for which child labour has been used. For instance, if any manufacturer in China is today caught with child labour, he would be in deep troubles. Similarly for green logistics we would probably need some supporting mechanism. There would be some companies which would be willing to pay for it because that’s how their business model would eveolve. And there are others who would rather prefer to continue with the traditional methods. Its not that traditional logistics would be completely replaced by green logistics. But eventually most educated people would look at it in the interest of the nation and the world.

RS: But do you think it will take that long a time – five years which many are saying- to make a mark in India?

RB: It will certainly happen to some extent as there are

❞

Opting for improved services is more like investing in quality than adding to the cost. You are investing in a long-term solution which in shortterm may cost you something. But in ultimate analysis, it would always turn out to be cheaper.

Ganesh Iyer National Sales Manager, Entercoms

LOGISTICS TIMES September 2012

33

❞

We have an example where basic issues invlolving last mile connectivity has been taken care of in an exemplary manner by a company in e-commerce space. So the issue is why can’t it be replicated in other sectors - automotives, consumer electronics, etc.

Ashutosh Mayank Senior Associate, Lumis Partners

customers who are willing to pay. Even today, there are companies overseas who indulge in complete auditing of your manufacturing practices to ensure that you are following green processes. They would not buy from you if you fail to comply with their parameters. Its already happening. So if its happening in manufacturing it will happen in logistics as well.

SR: Things are certainly changing. Companies whether OEMs or LSPs, are aware of their social responsibility and they know what they need to do. There are serious thoughts given on this aspect now. Let me give an example as what Mahindra Logistics is doing on this front. Currenly we are running around 20,000 vehicles and this obviously means carbon emission. So we thought what are the factors under our control which can be applied to reduce the carbon emission? And one of the measures we thought was to only allow trucks with Euro II and Euro-III compliant certificates to become part of our fleet. Secondly, we impart drivers education at different places telling them how they should be maintaining their vehicle so that carbon emission could be brought down. We monitor carbon emission on a monthly basis and look for solutions to minimise them. For instance, we are also promoting the cause of use of electric vehicles within plant campuses. Of course, this requires participation from the other side also. But things which are well within our control, we are trying to do.

RS: Sushil I will come back to the basic point of providing advanced solutions to the end user industry. And your view is it is quite doable and in fact it has started happening. But I would like to draw your attention to a survey conducted by a noted consultancy firm which says that about 80 percent of end user industry and LSP contracts are only for a year in India.

Now given this kind of equation, how can a LSP genuinely offer innovative solutions which may have some additional cost bearing proposition for the client?

SR: You are right and this again goes back to the philosophy of short term gains. We have seen clients who have frequently changed their service providers even for meagre cost gains.

You have rightly asked that in such a situation, how can you expect LSPs to offer innovative solutions? But ultimately it’s a game which needs to be understood from the buyers’ side – whether the buyers’ interest is cost savings or ensure customer satisfaction in long term. Its again a mindset issue which service chain forum would like to highlight with OEMs by citing vibrant examples. It’s a major challenge no doubt.

But an interesting shift is happening though quite selectively at this stage. Some customers are now moving away from cost plus pricing to variable pricing. Variable pricing could be in terms of per unit output, it could be in terms of share percentage of the bidding and these modeals give flexibility on either side. For the customer, the advantage is that he won’t be charged beyond the agreed level. And for service provider, he could optimise within that and he can create more margins for himself.

VR: We have a mix of global customers as well as Indian customers. And we have seen that when it comes to cost determination, Indian customers are adopting longer term contracts or resorting to profit sharing mechanism. The pace of adotpion of these models is slow vis-à-vis developed markets but customers are looking at them. So in next two-three years, you will see long-term contracts finding greater prominence at least with the progressive, larger groups in the country and others will follow suit.

LOGISTICS TIMES September 2012

Coalgate pushes reform in cold storage

Himanshu Shekhar

History repeated itself last month. The moment CAG’s Report on Allocation of Coal Blocks (Report No.7 of 201213) was tabled in the Parliament on 17th August amidst ruckus over the failure of Assam government to control riots in the state, the political discourse in the country changed. In what turned out to be a repeat of the tabling of CAG’s report on 2 G spectrum in November, 2010, the principal opposition party BJP rose up to demand the resignation of Prime Minister who was in-charge of the Coal Ministry in the period when CAG says coal blocks were allocated in a manner which gave huge benefits to private companies.

The CAG argued:“Delay in introduction of the process of competitive bidding has rendered the existing process beneficial to the private companies.

Audit has estimated financial gains to the tune of Rs 1.86 lakh crore likely to accrue to private coal block allottees. A part of this financial gain could have accrued to the national exchequer by operationalising the decision taken years earlier to introduce competitive bidding for allocation of coal blocks”. (Page V) The CAG’s Report led to a political stalemate in the monsoon session of parliament stalling in the process the possibility of any new effort to push through important bills. The end result was that the Parliament lost the opportunity to discuss the economic slowdown and failed to kick-start a new process of consensus-building on taking the economic reform agenda forward.

Unfortunately, it happened at a time when industry and the international business community expected a forward movement on long-pending reform legislations and a new roadmap by the government to give a fillip to the economy which is showing signs of

distress. The Prime Minister despite all his efforts has not been successful so far in addressing the distinct slowdown in the functioning of his government.

Take a look at the latest official data available with the Ministry of Statistics on the status of central sector projects worth Rs.150 crores and above. It says that out of 564 projects, a staggering 251 projects are delayed, i.e. 45% of all projects are running behind schedule.

It is important to note that 68 projects have been delayed by 1 to 12 months, 44 projects have been delayed by 13 to 24 months, 105 projects are 25 to 60 months behind scheduled completion and 34 central sector projects had been delayed by more than 61 months and above. Worryingly, a quarter of all central sector projects have been delayed by more than years. These worrying figures have come especially at a time when Prime Minister Manmohan Singh has initiated new measures in recent months to fast-track decision-making in the government. They suggest that efforts to streamline the economy and the functioning of the government have not had much impact on the ground.

Rather the quantum of central sector projects delayed has increased between February and May this year. Official data shows how the slowdown is gradually gripping the government despite efforts to address the malaise: In February this year, 247 out of 566 central sector projects worth more than 150 crores were running behind schedule. That is, 43.6% projects were listed as delayed.

In March, 244 out of 554 projects were delayed. That is 44% projects were delayed In April there was a slight improvement over March as 41% central sector projects were listed in

LOGISTICS TIMES September 2012

INFRA WATCH

35

36

LOGISTICS TIMES September 2012

39

the delayed category as 235 projects were delayed of the total of 571 projects.

In May the situation again worsened as official data showed 44.5% of central sector projects as delayed out of the total of 564 projects.

The number of delayed projects is increasing and so are the reasons behind this delay.

Reasons for Delay

Court Cases/ Litigation Delay in Land Acquisitions Delay in Forest and Environment Clearances Fund Constraints Frequent Strikes Revision in Scope of Work Termination of Contracts Delay in Supply of Equipment The failure to address these institutional problems is bound to create new hurdles

Out of 564 projects, a staggering 251 projects are delayed, i.e. 45% of all projects are running behind schedule. in the future. This delay can significantly affect the exchequer’s ability to fund these projects as the overall cost overrun is rising too. According to Government of India’s official estimate in May this year, the initial estimate of the total cost of implementing all 564 central sector projects was Rs. 7,32,115.53 crores. But the delay has forced the government to revise the estimated completion cost to Rs. 8,75,158.50 crores. This means an overall cost overrun of Rs.1,43,042 crores (19.5% of the original cost).

Cost Overrun in Projects

Railways : 119.3 % (i.e. Rs. 77,370 crores) Steel : 42.2% (i.e. Rs. 21,246 crores) It is significant to note that the ‘Coalgate’ controversy has hit the Coal sector at a time when it is going through a difficult phase. Official data shows that the list of pending coal block proposals is rising. According to information tabled in the Parliament by the Coal Ministry on 13th August, 2012, 178

LOGISTICS TIMES September 2012

INFRA WATCH

40

proposals of Coal India Limited (CIL) are pending because of delays in getting forest clearances. Of these proposals, 133 proposals are pending at the state level and 45 are delayed because the Ministry of Environment and Forests has not given its approval. Further, 51 proposals of CIL are delayed because state governments and the Ministry of Environment and Forests have not given Environmental clearance. So, as of the end of last month, a total of 229 coal mining projects were awaiting clearances.

Coal Ministry sources say land acquisition and related R&R issues and law and order problems in some coal-producing states are also affecting efforts to increase coal production in the country. Last year, CIL failed to meet coal production targets (illustrated below): COAL INDIA LIMITED (2011-12) Target (2011-12) : 520 million tonnes (is this correct?)

Production (2011-12) : 435.84 million tonnes

LOGISTICS TIMES September 2012

The controversy surrounding the CAG report on coal block allocation is expected to further complicate matters for the Government. With the Prime Minister forced to battle the opposition fire on unfair allocation of coal blocks, the political space for a new push to the pending economic reform agenda doesn’t seem to exist as of now. That said, a section of parliamentarians are pushing for kick-starting the stalled economic reform agenda: the Standing Committee on Finance, headed by BJP leader and former Finance Minister, Yashwant Sinha tabled an important report on “Current Economic Situation and Policy Options “ during the recent monsoon session of parliament. The Report argues: “...the investment climate in the country has suffered a serious setback and investors’ confidence hit mainly because of the concerns over the impact of retrospective tax laws and new General Anti-Avoidance Rules (GAAR)...The Govt may also speed up enactment

of the pending financial reform bills, viz. The Pension Fund Regulatory and Development Authority Bill, 2011, The Insurance Laws (Amendment) Bill 2008, The Banking Laws (Amendment) Bill 2011, The Prevention of Money Laundering (Amendment) Bill 2011, The Direct Taxes Code Bill, 2010 and The Companies Bill, 2011...”. (Page: 75-76) But taking the economic reform process forward won’t be easy. The Prime Minister will have to first create a political consensus within UPA. The coming 4 to 6 weeks are crucial as they provide the government a window to take tough decisions ahead of the forthcoming assembly polls in Gujarat and Himachal Pradesh. With a restive Mamta Banerjee stalling any discussion on economic reforms in the UPA Coordination Committee meetings, the larger question remains: Will the Prime Minister bite the bullet this time and take the reform agenda forward?

(The author is a senior journalist working with NDTV)

Grand Finale 9th February 2013

MEDIA PARTNER

EVENT REPORT

42

India Infrastructure Summit 2012 The Union Ministry of Roads & Highways, in consultation with the Planning Commission and the Finance Ministry, has formulated the ‘Engineering, Procurement and Construction (EPC) Contract Agreement document to create a contractual framework for construction of highways in an efficient, economical and competitive environment, Dr. C. P. Joshi, Union Minister of Road Transport & Highways, said while inaugurating FICCI’s ‘India Infrastructure Summit 2012’ held in Delhi on 31st August.

Dr Joshi said, “The Cabinet Committee on Infrastructure has recently accorded its approval to the EPC Contract document.

It will minimize, if not eliminate, the time LOGISTICS TIMES September 2012

and cost over-runs characteristic of the extant Item Rate Contracts. Further, this will enable a faster roll-out of projects with least cost and greater efficiency & flexibility encouraging contractors to participate in such projects.

The Minister told the delegates that the EPC mode of execution would ensure implementation of the road projects to specified standards with a fair degree of certainty relating to costs and time while transferring the design and construction risks to the contractors.

“We are planning to award 4,000 kms. of highway projects under the EPC mode contract this year. These projects will primarily aim at two-laning of

single-laned roads on existing right of way thus not involving much land acquisition,” Dr. Joshi said.

He also announced that the Ministry has received the approval of Cabinet Committee on Infrastructure for awarding projects in the NHAI domain on OperateMaintain-Transfer (OMT) basis. “We plan to award road projects covering around 4,000 kilometers for better maintenance primarily under OMT mode through the Public Private Partnership route. This would not only help improve the existing roads with better maintenance, leading to higher level of users’ satisfaction but also open a new line of business for OMT concessionaires,” he said.

43

Alluding to the disputes in the sector, Dr Joshi said, “Around Rs. 11,000 crore are stuck up in disputes in the roads and highway sector.

This is a cause for concern and the Government has taken serious measures to resolve these issues at the earliest by conforming to the report of the B.K. Chaturvedi Committee for faster resolution of pending disputes pertaining to National Highways Development Project (NHDP) works.”

Dr. B. K. Chaturvedi, Member Planning Commission, Government of India, in his address, stated that the targets for construction of roads has been raised from 7,300 kms. to 8,000 kms. per year. The Government will also double the investment on rural roads during the 12th Plan period, he said.

The Government, he said, was committed to early resolution of disputes pertaining to land acquisition for infrastructure projects and roads, rail and power line projects were being taken up on priority.

On the occasion, Dr. Joshi launched the ‘FICCI Logistics Forum’ which is chaired

by Raaja Kanwar, Director, Apollo LogiSolutions Ltd. The summit was addressed, amongst others, by Hemant Kanoria, Chairman, FICCI National Committee on Infrastructure and CMD, Srei Infrastructure Finance Ltd; Adil Zaidi, Associate Director, Ernst & Young; K. K. Kapila, Co-Chairman, FICCI National Committee on Infrastructure & CMD, ICT (P) Ltd.; Pratyush Kumar, Co-Chairman, FICCI National Committee on Infrastructure & President & CEO, GE Transportation, South Asia; Rajiv Agarwal, CoChairman, FICCI National Committee on Infrastructure & MD & CEO, Essar Ports Ltd.; and Dr. Rajiv Kumar, Secretary General, FICCI. In the inaugural session, Dr. C. P. Joshi, also launched the FICCI- Ernst & Young

report on ‘Accelerating implementation of infrastructure projects’.

Following are the key highlights of the report: Delayed projects: 78 projects delayed in road & transport sector followed by power with 47 and oil & gas with 31 Reduction in the railways’ share of traffic movement: The share of passenger movement by rail has declined from 74% in the 1950s to present levels of 13%, and for the same period, the share of freight movement by rail has dropped from 86% to 39%.

Railways lagging behind in infrastructure development: The Indian Railways has only added 1,750 km of new lines, from 2006 to 2011.

While China for the same period has added 4,000 km, excluding a highspeed network of around 10,000 km.

Mounting pressure on handling port traffic: India’s 13 major ports and 60 operational non-major ports handle 95% of the country’s external trade by volume and 70% by value. Port traffic has increased at CAGR of

8.1% to reach 884.6 million tones with an average utilization of ~90%, as compared to the international average of 70%.

Need for strengthening national highways: The National Highways only constitute around 1.7% of the road network, but carry 40% of the total road traffic. Yet only 24% of the country’s national highways are fourlane and meet the required standards.

Infrastructure facilities like roads, railways, and ports have under-achieved their investment targets in the Eleventh Plan by -11%, -23%, and -54% respectively.

Overall investment targets have only been achieved due to the strong performance of the telecom (34%) and oil & gas (655%) sectors.

Most infrastructure projects commissioned during the last two plan periods witnessed time and cost overruns of around 42% of the total number of 564 infrastructure projects in India, costing more than INR 1.5 billion. This has resulted in an average escalation of 16.9%, amounting to an incremental cost of INR 1,207 billion.

LOGISTICS TIMES September 2012

SUPPLY CHAIN

44

Total Crate Management Today, top automotive manufacturing brands in India use CHEP Total Crate Management packaging solutions to drive their end to end supply chain.

Devdip Purukaystha President, CHEP India

Packaging: Challenges faced by Automotive Industry Packaging plays a crucial role in the movement of automotive components from the point of production to the consumption location. Deciding on the right packaging is very complex, costly, time consuming and a resource hungry process.

The solution to all these challenges is the CHEP Total Crate Management (TCM).

Total Crate Management (TCM) Total Crate Management is outsourcing of designing, development and management of reusable packaging to a service provider like CHEP, the global leader in automotive packaging solutions. Vehicle manufacturers and their Tier suppliers convert all packaging within their supply chain to high quality, ready to use, reusable packaging which is owned and managed by the service provider. In managing the packaging the cleaning, conditioning and on time delivery are handled as well.

TCM is built around the concept of equipment pooling which is the shared use of standardized equipment by multiple customers. The outer crate is standardized to achieve optimum results while transportation and handling, yet internally customisable by placing low cost durable component specific insert which can be reused throughout the life cycle of the auto component.

Post the design phase TCM encapsulates end-to-end movement of the packaged components from the point of production to the point of consumption and its reverse logistics effectively allowing the OEM and the component manufacturer to concentrate on their core activity -

LOGISTICS TIMES September 2012

Manufacturing.

Components of TCM • Outsource Packaging Needs • Professional Team Consultative Approach • Packaging Equipment Pooling • Total Equipment Management Services (TEMS) Collaboration between OEM, Tier 1 / Tier 2 Suppliers and CHEP convert all automotive components of high quality, ready to use, reusable packaging.

Standardised Outside, Customised Inside How does TCM work?

CHEP engages with the OEM and their Tier suppliers in converting 100% of the components to reusable packaging.

The TCM solution is built through a consultative approach wherein various teams from CHEP work closely with the customer in planning and implementing the solution to cover the entire cycle for a given component.

This 360o approach ensures that all inefficiencies are driven out of the supply chain enhancing the value proposition and the savings associated with it.

Benefits of TCM TCM is successful because it delivers reduced overall supply chain managed packaging costs to the industry while providing on-time delivery of reusable packaging resulting in a better quality component being delivered to the line.

TCM standardises all crates and pallet footprints throughout the industry.

Benefits are visible throughout the supply chain Standardisation drives efficiencies in • Pack density and truck utilisation.

• Automation of handling processes.

• Loading docks, truck and rail container sizes

45

•

Material Handling Equipment As the component moves from the point of production to the point of consumption in standard packaging, space saving and labour reduction are visible as no decanting is required along the supply chain nor is there a need for separate storage area for each supplier at the OEM location. Reusable packaging also reduces damage, especially during monsoon in the warehouses and eliminate the removal of unwanted waste and the space and labour required. Standardised solutions can facilitate international logistics, not just local and national. All this leads to a positive impact on the environment.

Built around the proven cost efficiencies of pallet and plastic crate pooling, TCM will be a game changer for the automotive logistics industry in India CHEP equipment pooling is the shared use of high quality standard crates& pallets by multiple Tier suppliers and OEMs Total Equipment Management Services (TEMS) Total Equipment Management Services is an integral part of TCM and a value added service where the tracking and management of returnable packaging in and out of the Original Equipment Manufacturer (OEM) is done by CHEP. Dedicated resources are placed at the OEM who manage the tracking of incoming packaging from suppliers, pull empties out of the production line, and condition and transport the equipment for reuse.

Benefits of TEMS • 5S level methodology • Space management • Secure • Tracking • On-time delivery LOGISTICS TIMES September 2012

INTERVIEW

46

❝

❞

We can’t afford first class manufacturing with third class logistics LOGISTICS TIMES September 2012

47

On the occasion of its annual Supply Chain workshop which was held near Delhi last month, Frost & Sullivan released a study paper titled - “ Reality of Collaborative Logistics in India.� In an interview with Ritwik Sinha, the VP (Transportation & Logistics Practice) of Frost & Sullivan and author of the study paper V G Ramakrishnan emphasises on the imperative of more collaborative initiatives across the manufacturing and LSP value chain. Excerpts from the conversation: Every year when you organise your annual meet with the industry, you almost tend to present the report card of logistics industry in terms of changes which are happening in the country. How would you explain the highlights of your report this time?

Every year we track changes and there are some changes which are happening.

I tend to believe that internal changes are happening in some major companies and because some of the key market leaders are changing, others in the industry are also following the trend. If somebody with a hefty market share in any segment change, others are bound to follow the suit. But equally important is quality of change. We are critically analysing whether the kind of changes which are happening are required or not? However, there are aspects of business where not much change is visible. For instance,

containerisation. Three years back we did a study on this and had suggested why this segment needs to be given a facelift.

We had also highlighted the challenges.

Our industry is so widespread. If you do containerisation, you would need equipments to handle them. But who will invest in the equipment? Like other sectors, the usual pattern of a few initial movers joined by a larger group at a later stage has not happened in containerisation.

And then there are other challenges which our latest report underlines like manpower availability. Most of the issues we have is because of inefficiency in our system in terms of how we are moving, storing and distributing our goods. I can see a lot of scary numbers of scarcity.

And the critical issue is: how do we move on the technology side and equipment side? We are still not taking automation issue seriously which will reduce the need for manpower.

So at the moment, you are not noticing much in terms of adoption of advanced supply chain processes even as everywhere it is being cited as an imperative need.

At the moment, I would say no. The dilemma is that we have labour and the labour can take care of most of the challenges. But the issue is we have unskilled labour, adoption of new processes is slow and all this result in low productivity. You need to break this jinx in terms of optimal automation. And that is what is happening in majority of the Indian plants and factories. Some of the Indian factories are most advanced and productive units in the world primarily because they have got the right mix of automation and human capital. And logistics industry would eventually have to look at it. Our warehouses have not been constructed for automated or modern equipment based operations. In essence, LOGISTICS TIMES September 2012

INTERVIEW

48

they are meant for labour dominated operations. And today you can’t completely rebuild these units. In next four-five years, there could be tremendous pressure on people to change the way they do logistics.

If you take any large-scale sector of the economy like automotive industry, the lopsided services standard can’t be sustained for a long time. There is nothing called unorganised automotive industry.

Are you pointing to some serious mis-alignment between manufacturing and logistics?

It is true. You are catering to the manufacturing sector which has moved far ahead.

You are catering to businesses like automotive or electronics sector where all major MNCs are present and they have brought their global manufacturing practices. And as LSPs, you are supposed to align your services standards with their demand. But you continue to stay disorganised and will show aversion to invest in technology and new processes.

So what is happening relatively speaking?

You have first class manufacturing but third class logistics. And this is something you can’t afford. Not everybody is a sophisticated customer I agree. But if you take any large-scale sector of the economy like automotive industry, the lopsided services standard can’t be sustained for a long time. There is nothing called unorganised automotive industry. In auto-component segment – 70-80 percent production is with organised companies. Only 20 percent is with unorganised firms. That too for aftermarket business. And anybody who is so unorganised becomes tier-3 supplier of a tier-2 company. So industry is getting organised across. Textile is probably the only industry where there are a lot of individual enterpreneuers. And these are broadly dubbed as SMEs. They are quite large too but you take any well organised sector like FMCG, you will have top few players accounting for 70 percent of the total output of that industry. So 70 percent of your customers are highly sophisticated customers.

LOGISTICS TIMES September 2012

This time you have focused on collaborative logistics and one of the major take aways of your report is that LSPs are finding it difficult to collaborate. What could be the reason? Is it because even best of them are broadly mid-rung players if we look at the vast spectrum of India Inc. and therefore haven’t attained that kind of maturity?

I think, you have summarised it very well.

All of them are still trying to find their feet. And then multi-national companies have also come up. If you really look up at the industry and pick up companies, I don’t see more than 25-30 companies who are purely logistics players. If you extend it to shipping and railways, then there are many more companies. But if you look at pre-dominatly logistics comopanies there are not more than 25-30. Rest everthing is small time. So the industry which is supposed to be so wide and far reaching, just comprised a handful of companies. And all of them are not really big if we look at the entire spectrum of India Inc. But in all fairness, expectations from organised LSPs in India too is somewhat skewed. Customers approach them with the expectation that they would deliver at the cost of unorganised player. There is another kind of problem particularly associated with globally exposed manufacturers and companies.

They do global comparisons without understanding the realities of this market.

Everybody has arbitary targets and you are left with no choice.

Your report points out that a little collaboration which is happening is primarily in the area of sharing of transportation assets. Which are the other notable areas you believe collaboration is possible and doable?

We have made a few suggestions on this front in terms of possible areas of collaboration. Firstly, better asset utlisation outside of the plant. Till the time, it is within your factory, it is your property. But once it goes out of your unit, you are no longer the owner of the product. Even in white goods, why do you have multiplicity of warehouses?

Can you not have some warehouses which have large facility where players can share the space. You can collaborate in transportation especially when it comes to last mile connectivity. You can collaborate hugely on aftersales service because aftersales service also becomes logistics function. Today almost any equipment which is sold is serviced by a third party service provider. They appoint third party service provider. Skill development and skill training is clearly one area where collaboration is quite

49

Reality of Collaborative Logistics in India- Major Highlights

LOGISTICS TIMES September 2012

INTERVIEW

50

possible. It is an open space for all of them and it would be a win,win proposition.

Policy creation standards is another area. If we are talking of collaboration, I think the best manifestation could be in standardisation. But nobody seems to be thinking about it.

The whole point is: everybody is running behind the business.

The business is growing and everybody wants a larger share of the slice. They simply don’t have time to think about policy standards and other collaboration issues.

If you collaborate there would be some level of cost benefit. I don’t see how you can’t derive somekind of cost efficiency out of it. In my opinion, it’s no better than a myth.

So are you telling me that wahtever growth is taking place in this industry is purely quantitative in nature and not qualitative?

I wouldn’t say that is 100 percent true.

There are improvements happening across the business which might not be visible to us as they are happening on shop floors. There are year-on-year savings which they are also achieveing because they are also understanding the nuiances of the customers and they have slowly started re-enginnering their processes and making them more efficient. But qualitative improvement is happening only in a select group of companies. MNCs can obviously do it a bit easier here because of their wide range of global experience. And companies like TCI or Safexpress or Gati also seem to be pursuing the qualitative objectives sincerely.

Two years back, when you had presented a status report on logistics business, one of the strong points highlighted was: 80 percent of the contracts given to LSPs are for a tenure not going beyond one year. Now that points out a very strong degree of mistrust. Since then have you noticed any dilution of this mistrust element?

In a small way, yes. And this would continue to happen.

LOGISTICS TIMES September 2012

Some of the respondents of your survey who are not inclined towards collaboration do not see the real cost advantage in joining hands with other service providers. Do you find any merit in this assumption?

When you collaborate, there has to be a fundamental cost advantage. Those who are disinclined towards it may have toyed with the idea but failed. We don’t know what was the structure of their collaboration. But I am damn sure, if you collaborate there would be some level of cost benefit. I don’t see how you can’t derive somekind of cost efficiency out of it. In my opinion, it’s no better than a myth. May be the quantum of cost benefit that they anticipated did not materialise ultimately. What happens is first when you collaborate, you will get significantly high efficiency improvement. After that, it slowsly starts diminishing. The reason being you would already have taken those savings in your system and after that you are working. But you also need to look at volume increase which you may have registered.

You have been advocating systemic changes in the logistics business which need to be brought in place if this sector has to attain maturity and gain its due recognisition from everyone including government. But

we are in the midst of a slowdown spell and nobody is really sure if the manufacturing will really pick up in the near run. In that context, what all you expect to be unfolding in the next one year in the logistics business?

You would be surprised when I say I am happy that this slowdown has happened.

I will tell you why? We were growing at a fast pace and trust me whatever industry representatives tell you, the growth pressures had hazzled them to a point that they could not sleep well.

All that they were doing was trying to match the demand. And I am happy that everybody is taking a short deep breath now and composing themselves to re-evaluate what has happened. You ask anybody in this sector, in last four years how many times they have been asked to step up what they had been delivering at that point in time. So this period of slowdown can be utilised as consolidation phase. 10 percent of the companies are in organised segment and its time for them to prepare themselves for the next level to ensure that manufacturers do not get disillusioned with them as demand pick up in the future. Next one year even if the economic growth rate is sober, its time for everybody to catch up their breath.

INDIA’S NO.1 ENTRANCE AUTOMATIONS & LOADING BAY EQUIPMENT COMPANY, GANDHI AUTOMATIONS OFFERS:CAMPISA DOCK LEVELER: PERFECT BALANCE OF POWER AND PERFORMANCE! An electro-hydraulic DockLeveler is not simply „a bridge for connecting a vehicle‰. Frequently the important characteristic that this tool needs is undervalued, in order to guarantee an efficient working environment to comply with the safety in work regulations.

Since the invention of the hydraulic Dock-Leveler, very poor design improvement has been implemented by manufacturers of the traditional types, and the result is old concept products with poor characteristics in respect of safety in work and installation.

CAMPISA Dock-Levellers have been manufactured since 1975.

In 1983 a completely different concept was applied to satisfy different customer needs, offering new advantages and often-cheaper costs. The most advanced concept of the CAMPISA Dock-Leveler is to have the whole drive unit contained in a wall box, which is installed on a wall inside the warehouse, at eye level, which allows for easy and economical maintenance, without the necessity to maneuver under the platform or inside the pit, were traditional power packs and controls are usually installed: an undoubtedly dangerous, dirty and uncomfortable operation.

A wide study of previously installed power units motivated us to design the MULTIPLE CONSOLLE. Depending on the type of installation it can hydraulically power several Dock-Levelers with only one CONSOLLE (drive unit), each Dock-Leveler controlled separately by its own control pad.

They can also work simultaneously.

With these solutions we have dramatically economized by optimizing the function of the

single parts so successfully that We have practically eliminated, for several years, any repair intervention.

Further dramatic economies are obtained by reducing the electric mains supply points to one per CONSOLLE instead of one per Dock-Leveler.

The reduction is about 65% in Dock-Leveler installations and about 75% in Dock-Leveler and powered sectional door installations.

This reduction normally results in important economies when installing the mains distribution box. Consequently by reducing the number of motors there is a dramatic saving on electricity costs, as the global mains power engagement is radically reduced.

Radius lip Dock-Levelers allows the dock to connect with the truckbed, therefore making it possible to drive directly on and off with fork-lift trucks, roll containers etc. Loading and Unloading operations become quick, safe and economical.

CAMPISA Dock-Levelers can be easily positioned. They come with the most secure safety devices.

They are built in conformity with the EN 1398.

Telescopic lip Dock-Levelers are

ideal for connecting vehicles unable to drive near to the dock (e.g. sea containers, side loading railway wagons etc.), or where it is imperative to reach a longer total length of the Dock-Leveler itself.

These types can be supplied with A lip extending up to 1 m.

The CAMPISA Dock-Leveler is supplied complete with: Platform and lip in almond antislip steel Single effect lift cylinder, double effect lip cylinder Safety stops in case of accidental departure of the vehicle Maximum pressure valve Side foot protection steel sheets Rubber bumpers 300 mm x 55 mm x 60 mm Wall CONSOLLE containing the whole drive unit and control, with low-level conduit protection, or motor underneath

For further details, Contact: Gandhi Automations Pvt Ltd, 2nd Floor, Chawda Commercial Centre, Link Road, Malad(W) Mumbai 400064, Off : 022- 66720200/66720300(200 lines), Fax : 022-66720201, Email :- sales@geapl.co.in, Website : www.geapl.co.in LOGISTICS TIMES September 2012

PRODUCT

51

EVENTS

52 5

Frost & Sullivan Workshop The 3rd Annual Logistics Strategy Workshop titled “Supply Chain Transformations” was organised by Frost & Sullivan at the Best Western Countty Resort Country Club near Gurgaon from August 22nd to 24th. The worskhop saw participation of nearly 125 delegates including supply chain heads of some of the most noted manufacturing firms as well as LSPs. The conference also saw unveiling of a new study paper titled “Reality of collaborative logistics in India.” Apart from collaborative logistics, two other themes which dominated the proceedings at the conference were: skill set development and multi-modal regime.

LOGISTICS LOGIST STICS TIMES September 2012

Captains of Logistics in Coimbatore

Drive India Enterprise Solutions Ltd. (DIESL), in association with leading industry chamber FICCI organized the inaugural round table conference in Coimbatore on 31st August, 2012. The conference was part of ‘Captains of Logistics’ - a series of multi city roundtable conferences attended by thought leaders of the industry from respective regions contemplating the various challenges faced in the logistics arena. The roundtable conference was presided by N. Rajagopalan, Director, Trigger Apparels along with a panel which included Venkateshwaran Krishnan, Oracle: Milind Shahane, CEO, DIESL; Hitesh Athawasya, Zonal Business Head, DIESL and Shantha Kumar, CEO, eClouds. The series that started off with Coimbatore, will travel to other fast growing cities like Chandigarh, Lucknow, Pune, and Bhubaneshwar.

Auto SCM 2012

Auto SCM 2012 was organised by CII Institute of Logistics in Delhi on 27th-28th August. The Lalit was the venue for the two day conference which had “ Innovation and Flexibility in Auto Supply Chain” as thematic crux. The conference saw delegates from all across the automotive value spectrum as well as LSPs. Some of the leading names from Automotive Logistics turned up as speakers and initiated two days of meaningful discussions on pertinent issues relating with the supply chain management of the automotive industry.

LOGISTICS TIMES September 2012

EVENTS

53 3

EVENTS

54

2nd ‘Logistics Talent Hunt’ promises to be a bigger show The second season of Logistics Talent Hunt was formally kicked off on 8th of September in Delhi. Orgainsed by Million Minds Management Services (formerly known as T2P Consultants), the show promises to be bigger than the inaugural edition with the screening process tp spot upcoming talents being conducted in two more centers – Mumbai and Bangalore- apart from Delhi.

The organisers’ are expecting the participation of over 300 business schools from all over the country as against 200 registered during the inaugural season. Apart from this, Logistics Achievers Award would also be conferred in a grand finale to be organised on 9th February next year. Meanwhile, prior to the formal announcement of the second season programme on 8th Septemeber, Million Minds also organised a seminar splitted into three business sessions where HR heads of over a dozen logistics companies participated.

LOGISTICS LOG OGISTICS TIMES September 2012

Apex Knowledge chamber

ASSOCHAM & India's Most Valued Logistics Magazine

Logistics Times present

India Logistics & SCM Yearbook 2013 Comprehensive Coverage Threadbare Analysis Future Trends Sectoral Report Interviews of leading luminaries Case Studies Columns

+

Extensive Directory Section

A Complete 360 package Ensure your footprint in this Collectors Edition and avail optimal value for money offering.

For Details, Contact R K Bhasin Joint Director (Projects) ASSOCHAM Ph: 011- 46550551 Mob: +91 9999917406

Kalika Singh Business Development Manager Aksharganga Media Pvt. Ltd. Ph: 011 - 22478538/39 Mob: +91- 9891007542

RNI No. DELENG/2011/39329

Regd No.: DL(E)-20/5380/2011-13