Logistics & Supply chain industry in India - current status by Sanjay Gupta

PROJECT:Logistics & Supply chain industry in India: current status

1. EXECUTIVE SUMMARY…………………………………… 3 2. BASIC CONCEPT OF SUPPLY CHAIN……………………..4 3. LOGISTICS INDUSTRY STATUS IN INDIA……………….33 4. 3PL SURVEY REPORT EXPLANATION…………………...47 5. CHALLENGES OF SUPPLY CHAIN IN INDIA…………….52 6. WORLD BANK REPORT ON TACTS………………………..56 7. I.T IN LOGISTICS INDUSTRY……………………………….60 8. REPORT I.T CRITICAL TO INDIA………………………..62 9. CUSTOM CLEARENCE PROCEDURE IN INDIA ……….65 10.

CONCLUSION………………………………………69

11.

BIBLIOGRAPHY…………………………………..70

This project is an effort to throw some light on current situation of supply chain and logistics industry in India .as we know logistics industry is growing industry in India it has immense scope of development provided it gets right kind of infrastructure and strategies, currently India spends 13% of its GDP on logistics is way ahead of developed nations who spend only 8% of there GDP. Indian infrastructure is nothing much to write about because of its pathetic road and poor connectivity though efforts have been made by government to improve its condition. Several infrastructure projects are under way, which is definitely going to boost this industry. In initial part of this project I have tried to explain supply chain and logistics and I have talked about various sectors of logistics industry like road, air, railway, and sea, all these four sector have to be equally developed to boost the growth. then we will study about 3PL it means one company acts as an agent to look after logistics aspect of another company reports of survey in this respect conducted by TCI have been mentioned. As we know most industries are bearing the brunt of recession ,therefore logistics is know expectation we have talked about challenges faced by logistics industry in India, what should be strategies adopted to combat these challenges .information technology can come in handy tool to combat these challenges ,we have discussed how IT can contribute in its own way to fuel industry growth. and at last but not the least we have studied procedure of custom clearance which helps in on time delivery of logistics services which is of the essence for logistics industry. 3

note :effort has been made to provide latest data and information from various sources and research institute ,and it is true to best of my knowledge. Thank you

Basic Concepts of Supply Chain Management

upply chains encompass the companies and the business activities

needed to design, make, deliver, and use a product or service. Businesses depend on their supply chains to provide them with

what they need to survive and thrive. Every business fits into one or more supply chains and has a role to play in each of them.

The pace of change and the uncertainty about how markets will evolve has made it increasingly important for companies to be aware of the supply chains they participate in and to understand the roles that

they play. Those companies that learn how to build and participate in strong supply chains will have a substantial competitive advantage in their markets. CHAPTER 1

N othing Entirely New. . . Just a Significant Evolution The practice of supply chain management is guided by some basic

underlying concepts that have not changed much over the centuries. Several hundred years ago, Napoleon made the remark, “An army

marches on its stomach.” Napoleon was a master strategist and a skillful

general and this remark shows that he clearly understood the importance of what we would now call an efficient supply chain. Unless the soldiers are fed, the army cannot move.

Along these same lines, there is another saying that goes,“Amateurs

talk strategy and professionals talk logistics.” People can discuss all sorts of grand strategies and dashing maneuvers but none of that will be possible

without first figuring out how to meet the day-to-day demands of

providing an army with fuel, spare parts, food, shelter, and ammunition. It is the seemingly mundane activities of the quartermaster and the supply

sergeants that often determine an army’s success. This has many analogies

in business.

The term “supply chain management” arose in the late 1980s and came into widespread use in the 1990s. Prior to that time, businesses used

terms such as “logistics” and “operations management” instead. Some definitions of a supply chain are offered below:

• “A supply chain is the alignment of firms that bring products or services to market.”—from Lambert, Stock, and Ellram

in their book Fundamentals of Logistics Management (Lambert, Douglas M., James R. Stock, and Lisa M. Ellram, 1998,

Fundamentals of Logistics Management, Boston, MA: Irwin/McGraw-Hill, Chapter 14)

• “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also

transporters, warehouses, retailers, and customers themselves.”— from Chopra and Meindl in their book Supply

Chain Management: Strategy, Planning, and Operations (Chopra, Sunil, and Peter Meindl, 2001, Supply Chain Management:

Strategy, Planning, and Operations, Upper Saddle River, NJ: Prentice-Hall, Inc. Chapter 1).

• “A supply chain is a network of facilities and distribution options that performs the functions of procurement of

materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.”—from Ganeshan and Harrison

at Penn State University in their article An Introduction

to Supply Chain Management published at

http://silmaril.smeal.psu.edu/supply_chain_intro.html

(Ganeshan, Ram, and Terry P. Harrison, 1995,“An Introduction to Supply Chain Management,” Department of

Management Sciences and Information Systems, 303 Beam Business Building, Penn State University, University Park, PA).

If this is what a supply chain is then we can define supply chain management

as the things we do to influence the behavior of the supply chain and get the results we want. Some definitions of supply chain management are:

• “The systemic, strategic coordination of the traditional business functions and the tactics across these business functions

within a particular company and across businesses within the supply chain, for the purposes of improving the long-term

performance of the individual companies and the supply chain as a whole.”—from Mentzer, DeWitt, Deebler, Min, Nix,

Smith, and Zacharia in their article Defining Supply Chain

Management in the Journal of Business Logistics (Mentzer, John T.,William DeWitt, James S. Keebler, Soonhong Min, Nancy W. Nix, Carlo D. Smith, and Zach G. Zacharia, 2001, 6

“Defining Supply Chain Management,” Journal of Business

Logistics,Vol. 22, No. 2, p. 18).

• “Supply chain management is the coordination of production, inventory, location, and transportation among the participants

in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.”—my own words.

There is a difference between the concept of supply chain management and the traditional concept of logistics. Logistics typically refers to

activities that occur within the boundaries of a single organization and supply chains refer to networks of companies that work together and

coordinate their actions to deliver a product to market. Also traditional logistics focuses its attention on activities such as procurement, distribution,

maintenance, and inventory management. Supply chain management acknowledges all of traditional logistics and also includes activities such as

marketing, new product development, finance, and customer service. In the wider view of supply chain thinking, these additional activities

are now seen as part of the work needed to fulfill customer requests.

Supply chain management views the supply chain and the organizations in it as a single entity. It brings a systems approach to understanding and

managing the different activities needed to coordinate the flow of products

and services to best serve the ultimate customer. This systems approach provides the framework in which to best respond to business requirements 7

that otherwise would seem to be in conflict with each other. Taken individually, different supply chain requirements often have

conflicting needs. For instance, the requirement of maintaining high levels of customer service calls for maintaining high levels of inventory, but then the requirement to operate efficiently calls for reducing inventory levels. It is only when these requirements are seen together as parts of a larger picture

that ways can be found to effectively balance their different demands.

Effective supply chain management requires simultaneous improvements in both customer service levels and the internal operating efficiencies of the companies in the supply chain. Customer service at its

most basic level means consistently high order fill rates, high on-time

delivery rates, and a very low rate of products returned by customers for whatever reason. Internal efficiency for organizations in a supply

chain means that these organizations get an attractive rate of return on their investments in inventory and other assets and that they find ways to lower their operating and sales expenses.

There is a basic pattern to the practice of supply chain management. Each supply chain has its own unique set of market demands and

operating challenges and yet the issues remain essentially the same in every case. Companies in any supply chain must make decisions individually

and collectively regarding their actions in five areas:

1. Production—What products does the market want? How much of which products should be produced and by when? This activity includes the creation of master production schedules that take

into account plant capacities,workload balancing, quality control, and equipment maintenance.

2. Inventory—What inventory should be stocked at each stage in a

supply chain? How much inventory should be held as raw materials, semifinished, or finished goods? The primary purpose of

inventory is to act as a buffer against uncertainty in the supply 8

chain. However, holding inventory can be expensive, so what are the optimal inventory levels and reorder points?

3. Location—Where should facilities for production and inventory

storage be located? Where are the most cost efficient locations for production and for storage of inventory? Should existing

facilities be used or new ones built? Once these decisions are

made they determine the possible paths available for product to flow through for delivery to the final consumer. 4. Transportation—How should inventory be moved from one supply

chain location to another? Air freight and truck delivery are generally fast and reliable but they are expensive. Shipping by sea or rail is much less expensive but usually involves longer transit times

and more uncertainty. This uncertainty must be compensated for by stocking higher levels of inventory. When is it better to use which mode of transportation?

5. Information—How much data should be collected and how much information should be shared? Timely and accurate information

holds the promise of better coordination and better decision making. With good information, people can make effective decisions

about what to produce and how much, about where to locate inventory and how best to transport it.

The sum of these decisions will define the capabilities and effectiveness of a company’s supply chain. The things a company can do and

the ways that it can compete in its markets are all very much dependent on the effectiveness of its supply chain. If a company’s strategy is to

serve a mass market and compete on the basis of price, it had better have

a supply chain that is optimized for low cost. If a company’s strategy is to serve a market segment and compete on the basis of customer service

and convenience, it had better have a supply chain optimized for 9

responsiveness. Who a company is and what it can do is shaped by its supply chain and by the markets it serves.

How

the Supply Chain Works

Two influential source books that define principles and practice of supply chain management are The Goal (Goldratt, Eliyahu M., 1984, The

Goal, Great Barrington, MA: The North River Press Publishing

Corporation); and Supply Chain Management: Strategy, Planning, and

Operation by Sunil Chopra and Peter Meindl. The Goal explores the

5. Airplanes are a very fast mode of transport and are very responsive. This is also the most expensive mode and it is somewhat limited by the availability of appropriate airport facilities.

6. Electronic Transport is the fastest mode of transport and it is very

flexible and cost efficient.However, it can only be used for movement of certain types of products such as electric energy, data,

and products composed of data such as music, pictures, and text. Someday technology that allows us to convert matter to energy

and back to matter again may completely rewrite the theory and

practice of supply chain management (“beam me up, Scotty. . .”). Given these different modes of transportation and the location of

the facilities in a supply chain, managers need to design routes and 14

networks for moving products. A route is the path through which products move and networks are composed of the collection of the paths

and facilities connected by those paths. As a general rule, the higher the value of a product (such as electronic components or pharmaceuticals), the more its transport network should emphasize responsiveness and

the lower the value of a product (such as bulk commodities like grain or lumber), the more its network should emphasize efficiency. Information

Information is the basis upon which to make decisions regarding the

other four supply chain drivers. It is the connection between all of the activities and operations in a supply chain. To the extent that this

connection

is a strong one, (i.e., the data is accurate, timely, and complete),

the companies in a supply chain will each be able to make good decisions

for their own operations. This will also tend to maximize the profitability of the supply chain as a whole. That is the way that stock

markets or other free markets work and supply chains have many of the same dynamics as markets.

Information is used for two purposes in any supply chain:

1. Coordinating daily activities related to the functioning of the other four supply chain drivers: production; inventory; location; and

transportation. The companies in a supply chain use available

data on product supply and demand to decide on weekly production schedules, inventory levels, transportation routes, and stocking locations.

2. Forecasting and planning to anticipate and meet future demands. Available information is used to make tactical forecasts to guide the setting of monthly and quarterly production schedules and timetables. Information is also used for strategic forecasts to

guide decisions about whether to build new facilities, enter a 15

new market, or exit an existing market. Within an individual company the trade-off between responsiveness and efficiency involves weighing the benefits that good information

can provide against the cost of acquiring that information. Abundant,

accurate information can enable very efficient operating decisions and better forecasts but the cost of building and installing systems to deliver this information can be very high.

Within the supply chain as a whole, the responsiveness versus efficiency trade-off that companies make is one of deciding how much information to share with the other companies and how much information

to keep private. The more information about product supply, customer demand, market forecasts, and production schedules that companies

share with each other, the more responsive everyone can be. Balancing this openness however, are the concerns that each company has about revealing information that could be used against it by a competitor.The potential costs associated with increased competition can hurt the profitability

of a company.

T he Evolving Structure of Supply Chains

The participants in a supply chain are continuously making decisions that affect how they manage the five supply chain drivers. Each organization

tries to maximize its performance in dealing with these drivers

through a combination of outsourcing, partnering, and in-house expertise. In the fast-moving markets of our present economy a company usually will focus on what it considers to be its core competencies in supply chain management and outsource the rest.

This was not always the case though. In the slower moving mass markets of the industrial age it was common for successful companies to attempt to own much of their supply chain. That was known as vertical

integration. The aim of vertical integration was to gain maximum efficiency through economies of scale (see Exhibit 1.1).

In the first half of the 1900s Ford Motor Company owned much

of what it needed to feed its car factories. It owned and operated iron

mines that extracted iron ore, steel mills that turned the ore into steel products, plants that made component car parts, and assembly plants

that turned out finished cars. In addition, they owned farms where they grew flax to make into linen car tops and forests that they logged and sawmills where they cut the timber into lumber for making wooden car parts. Ford’s famous River Rouge Plant was a monument to vertical

integration—iron ore went in at one end and cars came out at the other

end. Henry Ford in his 1926 autobiography,Today and Tomorrow, boasted that his company could take in iron ore from the mine and put out a

car 81 hours later (Ford, Henry, 1926,Today and Tomorrow,Portland,OR: Productivity Press, Inc.).

This was a profitable way of doing business in the more predictable,

one-size-fits-all industrial economy that existed in the early 1900s. Ford and other businesses churned out mass amounts of basic products. But as the markets grew and customers became more particular about the

kind of products they wanted, this model began to break down. It could not be responsive enough or produce the variety of products that were being demanded. For instance, when Henry Ford was asked about the number of different colors a customer could request, he said,“they can have any color they want as long as it’s black.” In the 1920s Ford’s market

share was over 50 percent but by the 1940s it had fallen to below 20 percent. Focusing on efficiency at the expense of being responsive to customer desires was no longer a successful business model.

Globalization, highly competitive markets, and the rapid pace of technological change are now driving the development of supply chains where multiple companies work together, each company focusing on

the activities that it does best. Mining companies focus on mining, timber companies focus on logging and making lumber, and manufacturing companies focus on different types of manufacturing from making 24

component parts to doing final assembly. This way people in each company can keep up with rapid rates of change and keep learning the new skills needed to compete in their particular business.

Where companies once routinely ran their own warehouses or

operated their own fleet of trucks, they now have to consider whether those operations are really a core competency or whether it is more cost effective to outsource those operations to other companies that

make logistics the center of their business. To achieve high levels of operating efficiency and to keep up with continuing changes in technology,

companies need to focus on their core competencies. It requires this kind of focus to stay competitive.

Instead of vertical integration, companies now practice “virtual integration.” Companies find other companies who they can work with to

perform the activities called for in their supply chains. How a company defines its core competencies and how it positions itself in the supply chains it serves is one of the most important decisions it can make.

Participants in the Supply Chain

In its simplest form, a supply chain is composed of a company and the suppliers and customers of that company. This is the basic group of participants

that creates a simple supply chain. Extended supply chains contain three additional types of participants. First there is the supplier’s supplier or the ultimate supplier at the beginning of an extended supply chain. Then there is the customer’s customer or ultimate customer at

the end of an extended supply chain. Finally there is a whole category of companies who are service providers to other companies in the supply chain. These are companies who supply services in logistics, finance, marketing, and information technology.

In any given supply chain there is some combination of companies

who perform different functions. There are companies that are producers, distributors or wholesalers, retailers, and companies or individuals who are the customers, the final consumers of a product. Supporting these

companies there will be other companies that are service providers that provide a range of needed services. Producers

Producers or manufacturers are organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods. Producers of raw materials are

organizations that mine for minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the land, raise animals, or catch seafood. Producers of finished goods use the raw materials and subassemblies

made by other producers to create their products.

Producers can create products that are intangible items such as music, entertainment, software, or designs. A product can also be a service such

as mowing a lawn, cleaning an office, performing surgery, or teaching a

skill. In many instances the producers of tangible, industrial products are moving to areas of the world where labor is less costly. Producers in the developed world of North America, Europe, and parts of Asia are increasingly producers of intangible items and services.

Distributors

Distributors are companies that take inventory in bulk from producers and deliver a bundle of related product lines to customers. Distributors are also known as wholesalers. They typically sell to other businesses and they sell products in larger quantities than an individual consumer would usually buy. Distributors buffer the producers from fluctuations

in product demand by stocking inventory and doing much of the sales

work to find and service customers. For the customer, distributors fulfill the “Time and Place” function—they deliver products when and

where the customer wants them. A distributor is typically an organization that takes ownership of significant inventories of products that they buy from producers and sell

to consumers. In addition to product promotion and sales, other functions the distributor performs are inventory management, warehouse

operations, and product transportation as well as customer support and post-sales service. A distributor can also be an organization that only brokers a product between the producer and the customer and never takes ownership of that product. This kind of distributor performs

mainly the functions of product promotion and sales. In both these cases, as the needs of customers evolve and the range of available products changes, the distributor is the agent that continually tracks customer needs and matches them with products available.

Retailers

Retailers stock inventory and sell in smaller quantities to the general public. This organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection, service, and convenience

as the primary draw to attract customers for the products it

sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.

Customers

Customers or consumers are any organization that purchases and uses a product. A customer organization may purchase a product in order to incorporate it into another product that they in turn sell to other

customers. Or a customer may be the final end user of a product who buys the product in order to consume it.

Service Providers

These are organizations that provide services to producers, distributors, retailers, and customers. Service providers have developed special expertise

and skills that focus on a particular activity needed by a supply chain.

Because of this, they are able to perform these services more effectively and at a better price than producers, distributors, retailers, or consumers could do on their own.

Some common service providers in any supply chain are providers

of transportation services and warehousing services. These are trucking companies and public warehouse companies and they are known as

logistics providers. Financial service providers deliver services such as making loans, doing credit analysis, and collecting on past due invoices. These are banks, credit rating companies, and collection agencies.

Some service providers deliver market research and advertising, while

others provide product design, engineering services, legal services, and management advice. Still other service providers offer information

technology and data collection services. All these service providers are integrated to a greater or lesser degree into the ongoing operations of

the producers, distributors, retailers, and consumers in the supply chain. Supply chains are composed of repeating sets of participants that

fall into one or more of these categories. Over time the needs of the supply chain as a whole remain fairly stable.What changes is the mix of

participants in the supply chain and the roles that each participant plays. In some supply chains, there are few service providers because the other participants perform these services on their own. In other supply chains very efficient providers of specialized services have evolved and the

other participants outsource work to these service providers instead of doing it themselves. Examples of supply chain structure are shown in Exhibit 1.2.

Aligning the Supply Chain with Business Strategy A company’s supply chain is an integral part of its approach to the markets it serves. The supply chain needs to respond to market requirements and do so in a way that supports the company’s business strategy. The business strategy a company employs starts with the needs of the

ESSENTIALS

of Supply

Chain

Management

IN THE REAL WORLD (CONTINUED)

“For manufacturers we offer them the ability to drive standardization with our customers. Through distributor rationalization, we partner

with a few best-in-class distributors per category, which in turn offers them a significant increase in the business they get from our properties. And our customers now have access to a single-source, paperless

process for purchasing all of their MRO products. They outsource their purchasing operations and benefit from better economies of scale.

For each constituent in our model, we provide high levels of data on purchasing activities, customer profiles, and seasonal patterns. We are bringing transparency to the supply chain.”

In reflecting on the last couple of years, Charlie summarized the main lessons learned. “We have to stay very focused on our core proposition. We do purchasing of MRO products and services for

people who manage real estate. We continue to build our value in

that area. We have learned how best to roll out the technology and how to integrate with our supplier partners. We also have learned a lot about how to screen suppliers for their ability to implement our technology

and how to support and assist our client to grow with us.” Looking at the next couple of years, Charlie sees the company continuing

to grow its client base. “We know we have an excellent procurement solution in place now. We will continue to grow and

enhance our facility management service offerings. We will further integrate our systems with those of suppliers. Where there is real

estate and a need to manage it, we have a solution and real estate leaders are starting to realize that.”

customers that the company serves or will serve. Depending on the needs of its customers, a company’s supply chain must deliver the 34

appropriate mix of responsiveness and efficiency. A company whose supply chain allows it to more efficiently meet the needs of its customers will gain market share at the expense of other companies in that market and also will be more profitable.

For example, let’s consider two companies and the needs that their supply chains must respond to. The two companies are 7-Eleven and

Sam’s Club, which is a part of Wal-Mart. The customers who shop at convenience stores like 7-Eleven have a different set of needs and preferences

from those who shop at a discount warehouse like Sam’s Club.

The 7-Eleven customer is looking for convenience and not the lowest price. That customer is often in a hurry and prefers that the store be

close by and have enough variety of products so that they can pick up small amounts of common household or food items that they need

immediately. Sam’s Club customers are looking for the lowest price. They are not in a hurry and are willing to drive some distance and buy large quantities of limited numbers of items in order to get the lowest price possible.

Clearly the supply chain for 7-Eleven needs to emphasize responsiveness.

That group of customers expects convenience and will pay for it. On the other hand, the Sam’s Club supply chain needs to focus tightly on efficiency. The Sam’s Club customer is very price conscious and the supply chain needs to find every opportunity to reduce costs so that these

savings can be passed on to the customers. Both of these companies’

supply chains are well aligned with their business strategies and because of this they are each successful in their markets.

There are three steps to use in aligning your supply chain with your business strategy. The first step is to understand the markets that

your company serves. The second step is to define the strengths or core 31

Basic Concepts of Supply Chain Management competencies of your company and the role the company can or could play in serving its markets. The last step is to develop the needed supply

chain capabilities to support the roles your company has chosen.

Understand the Markets Your Company Serves

Begin by asking questions about your customers. What kind of customer

does your company serve? What kind of customer does your customer sell to? What kind of supply chain is your company a part of?

The answers to these questions will tell you what supply chains your

company serves and whether your supply chain needs to emphasize

responsiveness or efficiency. Chopra and Meindl have defined the following

attributes that help to clarify requirements for the customers you serve. These attributes are:

• The quantity of the product needed in each lot—Do your customers

want small amounts of products or will they buy large

quantities? A customer at a convenience store or a drug store buys in small quantities. A customer of a discount warehouse club, such as Sam’s Club, buys in large quantities.

• The response time that customers are willing to tolerate —Do your customers buy on short notice and expect quick service

or is a longer lead time acceptable? Customers of a fast food restaurant certainly buy on short notice and expect quick

service. Customers buying custom machinery would plan the purchase in advance and expect some lead time before the product could be delivered.

• The variety of products needed—Are customers looking for a narrow and well-defined bundle of products or are they

looking for a wide selection of different kinds of products? Customers of a fashion boutique expect a narrowly defined group of products. Customers of a “big box” discount store

like Wal-Mart expect a wide variety of products to be available. 32

ESSENTIALS of Supply Chain Management

• The service level required—Do customers expect all products to be available for immediate delivery or will they accept partial

deliveries of products and longer lead times? Customers of a

music store expect to get the CD they are looking for immediately or they will go elsewhere. Customers who order a

custom-built new machine tool expect to wait a while before delivery.

• The price of the product—How much are customers willing to pay? Some customers will pay more for convenience or high levels of service and other customers look to buy based on the lowest price they can get.

• The desired rate of innovation in the product—How fast are new products introduced and how long before existing products

become obsolete? In products such as electronics and computers, customers expect a high rate of innovation. In other

products, such as house paint, customers do not desire such a high rate of innovation.

Define Core Competencies of Your Company The next step is to define the role that your company plays or wants to

play in these supply chains. What kind of supply chain participant is

your company? Is your company a producer, a distributor, a retailer, or a service provider? What does your company do to enable the supply

chains that it is part of? What are the core competencies of your company? How does your company make money? The answers to these

questions tell you what roles in a supply chain will be the best fit for your company.

Be aware that your company can serve multiple markets and participate in multiple supply chains. A company like W.W. Grainger serves

several different markets. It sells maintenance, repair, and operating

(MRO) supplies to large national account customers such as Ford and 33

Basic Concepts of Supply Chain Management Boeing and it also sells these supplies to small businesses and building contractors. These two different markets have different requirements as measured by the above customer attributes.

When you are serving multiple market segments, your company will need to look for ways to leverage its core competencies. Parts of

these supply chains may be unique to the market segment they serve while other parts can be combined to achieve economies of scale. For example, if manufacturing is a core competency for a company, it can build a range of different products in common production facilities.

Then different inventory and transportation options can be used to deliver the products to customers in different market segments.

Develop Needed Supply Chain Capabilities Once you know what kind of markets your company serves and the role your company does or will play in the supply chains of these markets, then you can take this last step, which is to develop the supply chain capabilities

needed to support the roles your company plays. This development

is guided by the decisions made about the five supply chain drivers. Each of these drivers can be developed and managed to emphasize 38

responsiveness or efficiency depending on the business requirements. 1. Production—This driver can be made very responsive by building factories that have a lot of excess capacity and that use flexible manufacturing techniques to produce a wide range of items. To be even more responsive, a company could do their production

in many smaller plants that are close to major groups of customers so that delivery times would be shorter. If efficiency is desirable,

then a company can build factories with very little excess capacity and have the factories optimized for producing a limited range of

items. Further efficiency could be gained by centralizing production in large central plants to get better economies of scale. 34

ESSENTIALS of Supply Chain Management

2. Inventory—Responsiveness here can be had by stocking high levels of inventory for a wide range of products. Additional

responsiveness can be gained by stocking products at many locations so as to have the inventory close to customers and available

to them immediately. Efficiency in inventory management would call for reducing inventory levels of all items and especially of

items that do not sell as frequently. Also, economies of scale and cost savings could be gotten by stocking inventory in only a few central locations.

3. Location—A location approach that emphasizes responsiveness would be one where a company opens up many locations to be physically close to its customer base. For example, McDonald’s

has used location to be very responsive to its customers by opening up lots of stores in its high volume markets. Efficiency can

be achieved by operating from only a few locations and centralizing activities in common locations. An example of this is the

way Dell serves large geographical markets from only a few central locations that perform a wide range of activities. 39

4. Transportation—Responsiveness can be achieved by a transportation mode that is fast and flexible. Many companies that sell

products through catalogs or over the Internet are able to provide high levels of responsiveness by using transportation to

deliver their products, often within 24 hours. FedEx and UPS are two companies who can provide very responsive transportation

services. Efficiency can be emphasized by transporting products in larger batches and doing it less often. The use of transportation modes such as ship, rail, and pipelines can be very efficient.

Transportation can be made more efficient if it is originated out of a central hub facility instead of from many branch locations. 35

Basic Concepts of Supply Chain Management 5. Information—The power of this driver grows stronger each year as the technology for collecting and sharing information becomes

more widespread, easier to use, and less expensive. Information, much like money, is a very useful commodity because it can be applied directly to enhance the performance of the other four supply chain drivers. High levels of responsiveness can be

achieved when companies collect and share accurate and timely data generated by the operations of the other four drivers. The

supply chains that serve the electronics markets are some of the most responsive in the world. Companies in these supply chains

from manufacturers, to distributors, to the big retail stores collect and share data about customer demand, production schedules, and inventory levels.

Where efficiency is more the focus, less information about

fewer activities can be collected. Companies may also elect to share less information among themselves so as not to risk having that information used against them. Please note, however, that these information efficiencies are only efficiencies in the short

term and they become less efficient over time because the cost of

information continues to drop and the cost of the other four drivers usually continues to rise. Over the longer term, those

companies and supply chains that learn how to maximize the use of information to get optimal performance from the other drivers will gain the most market share and be the most profitable.

36 ESSENTIALS of Supply Chain Management

A supply chain is composed of all the companies involved in the design, production, and delivery of a product to market. Supply chain management

is the coordination of production, inventory, location, and

transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.

The goal of supply chain management is to increase sales of goods and services to the final, end use customer while at the same time reducing both inventory and operating expenses.

The business model of vertical integration that came out of the

industrial economy has given way to “virtual integration” of companies in a supply chain. Each company now focuses on its core competencies and partners with other companies that have complementary capabilities

for the design and delivery of products to market. Companies must focus on improvements in their core competencies in order to keep up with

the fast pace of market and technological change in today’s economy. To succeed in the competitive markets that make up today’s economy, companies must learn to align their supply chains with the

demands of the markets they serve. Supply chain performance is now a distinct competitive advantage for companies who excel in this area.

One of the largest companies in North America is a testament to the power of effective supply chain management. Wal-Mart has grown

steadily over the last 20 years and much, if not most, of its success is directly related to its evolving capabilities to continually improve its supply chain.

Logistics Industry-current status in India 43

India is being touted as the land of opportunity for logistics service providers all over the world. Indian’s logistics industry is fast coming into its own, poised to touch $125 billion in 2010.From $90 billion at present

INDIAN LOGISTICS INDUSTRY

ROAD

RAILWAYS

SEA

Environment Scan 44

AIR

India

Logistics in India Despite its favorable location between Asia and Europe and a population of more than 1 billion people, India has hardly been able to position

itself on the economic market. It has only been in recent years that the

country has been able to increasingly flex its economic muscle. But, India has much catching-up to do in logistics terms before it can reach the same level as the world’s leading industrial nations.

Geographic challenges in India

for India is bordered on the north by the Himalaya Mountains. For this reason, creating road and rail connections from this direction is a major

undertaking. In the south, though, the Indian peninsula is well suited for sea harbors. India is indeed the country with the world’s second-largest population. But the population is unequally distributed, creating a major challenge logistics service providers.

Core countries for trade The most important export countries for Indian products are the United States, the United Arab Emirates, China, Singapore and Great Britain. The biggest import trading partners are China, the United States, Switzerland, the United Arab Emirates and Belgium .

Indian infrastructure 45

A vital step in India’s further development is expanding the road and rail networks, and modernizing harbors and airports. In the process of

globalization , which is expanding India’s position in world trade, transport volume has climbed rapidly in recent years. The expansion of the

logistics infrastructure has been unable to keep up with this pace. For this reason, transport capacities have already reached their limits.The

transshipping times for ships in Indian harbors are three to four times longer than the average time in the West. Logistics costs are also very high in international comparison because of the poor infrastructure. For this reason, India will have difficulties positioning itself as a global logistics hub in years ahead.

Road transport is especially important for India’s transport system. After all, Transport hubs in India

India has one of the world’s largest road networks, with a total length of 3.3 million kilometers. But much of this network does not meet Western

standards.For instance, a truck takes five to six days to cover the 2,061kilometer-long route between Bangalore and Delhi. The government is

indeed trying to introduce counter-measures and shift freight transports from the roads to the rails. But, first, the rail infrastructure must be expanded and the connections to

harbors and airports improved. Many sub-areas of the 63,000-kilometerlong rail network still use the technology of 1947, the year that British

colonialists left. Only about onequarter of the routes are electrified. One other challenge is the four gauge widths used in the rail network .

Logistics requirements and service areas Road transports are characterized by small forwarders who frequently use antiquated technology. In addition, the splintered political structure requires an excellent understanding of local conditions .

As national highways in India are built and road transports are increasingly liberalized, the productivity of road shipping will rise in years ahead. The network business with LTL in India has excellent potential.

The Indian roadtransport market is forecast to rise to $40 billion by 2012 - it is currently $28 billion .

The CEP market on the subcontinent is growing rapidly. In the last five years, revenue has experienced double-digit growth, climbing to about

$650 million. Its share of the entire logistics market totals only about 3

percent. International service providers are working to set up or acquire domestic networks in India .

Logistics service providers have been focusing more extensively on

traditional storage functions and distribution. But the number of high-bay warehouses that meet European standards is extremely small. Typical added-value services that meet Western standards also are hardly

offered. For this reason, the contract logistics market in India has a share of only about 6 percent of the entire logistics market .

Logistics centers in India In terms of logistics, India remains a developing country in many areas. For instance, it has hardly any multimodal logistics centers. Despite its good geographic position, India has also been unable to evolve into a hub for international freight transports, like Dubai.

In regional terms, India lags behind logistics centers like Singapore, Thailand and Hong Kong. Currently, India is moving forward with a plan to turn the country’s 12 main harbors into integrated freight hubs. Many of these harbors do not have the rail and road connections needed to

handle the transport volume of ships. Containers frequently sit for weeks in the harbor before they can be transported .

Important logistics service providers The largest Indian logistics service providers are Shipping Corporation of India, Container Corporation of India, Great Eastern Shipping, Reliance Ports / Terminals, Essar Shipping, Transport Corporation of India, Reliance Logistics,

Blue Dart Express, Varun Shipping Company and BLR India. International service providers are Schenker, DHL, Arvato, Kühne & Nagel and TNT .

Features of Indian Logistics Industry

•A number of small-integrated players •Transportation costs account for nearly 40% of production costs •Logistics costs around 13% of GDP, compared to 8% in the US.

•Growth in Indian economy is the major driving factor for the demand in logistics industry.

•Chemicals, metals, FMCG, cement and textiles have been identified as the top five contributors to logistics revenues

ROADS Indian Road Network •India has the second highest largest road network-3.3 million km.

•US has the largest road network with 6.4 million km & China-1.8 million km

.National highway 2% of total road length. .But carry 40% of goods traffic of India.

Features of Indian Road Transport •Road Network carry nearly 65% of freight and 85% of passenger traffic.

•Vehicle ownership is firmly in the hands of individual truck owners •67% of vehicle owners have fleets of less than five vehicles. •Traffic on roads is growing at a rate of 7 to 10% per annum

•Government spends-12 per cent of capital and 3 per cent of total expenditure on roads.

Major Roads Projects

•The Golden Quadrilateral (GQ; 5,846 km) connecting the four major cities of Delhi, Mumbai, Chennai and Kolkata

•The North-South and East-West Corridors (NS-EW; 7,300 km) connecting Srinagar in the north to Kanyakumari in the south and Silchar in the east to Porbandar in the west

•Port connectivity and other projects

Future Road Projects

The Golden Quadrilateral

railway freight revenue 50000 40000 RAILWAYS rs crore

30000 20000

Indian Rail Logistics 10000 0

2002-03 2003-04 2004-05 2005-06 2006-07

•The Indian Railways boasts of being the world’s 2

year

largest rail network

spread over 81,511 km and covering 6896 stations •The freight segment accounts for roughly two thirds of railway’s revenues.

•The tonne/kilometre costs for Indian rail freight at three times that of China. [Tata Iron & Steel].

railway freight revenue 50000 40000 rs crore

30000 20000 10000 0

2002-03 2003-04 2004-05 2005-06 2006-07 54

year

railway freight 800 700 600 500 million ton 400 300 200 100 0

2002-03

2003-04

2004-05 year

2005-06

2006-07

India’s Sea Logistics •India now has the largest merchant shipping fleet among the developing countries.

.India ranks 17thin the world in shipping tonnage

•Indian share of maritime transport services is 1% of world market

•The container traffic has registered an impressive growth of 15 per cent over the last five years.

Port Privatization •Port traffic to grow to a level of 650 Million Tonnes Per Annum by 2008-Ministry of Shipping

•Port Privatization is picking up momentum--USD1.39 billion worth projects approved.

•Players ---P&O, PSA, Maersk, Gammon India, CWC and the Dubai Port Authority.

Indian Ports

India’s Aviation Logistics Sector •Aviation holds a small share of India’ s freight market •Air Freight is very expensive in India in comparison to road and rail.

•The size of the world air cargo market is estimated at 27 million tonnes valued at $200 billion. •India accounts for meager 3% of the global air cargo market 58

•As per an expert estimate, Indian air cargo industry is going to be double by the year 2010.

•Cargo-garments, machinery, components, pharmaceuticals, dyes, chemicals and perishables [fruit, vegetables, flowers, fish and meat]. •Major International cargo airports-Mumbai, Chennai, Bangalore, Trichy, Hyderabad, Delhi, Coimbatore, Cochin.

.Major domestic cargo airports –Ahmedabad, Goa, Lucknow, Visakhapatnam,Madurai in addition to the above.

international air cargo 100000 80000 cargo in ton

60000 40000 20000 0

2001-02

2002-03 59

year

2003-04

2004-05

domistic air cargo 50000 40000 cargo in 30000 ton 20000 10000 0

2001-02

2002-03

2003-04

year

2004-05

India’s Aviation Growth Plans •Investments

of USD 5.07 billion over next 5 years in Indian Airport

Infrastructure •Blue-Dart, the only dedicated freight carrier in domestic sector.

•Air India plans to increase cargo revenue from current 10% to 15-20% in 3yrs.

•Jet Air, GoAir, Kingfisher Airlines charting out plans to play bigger role in Indian domestic air cargo

•International Airlines-Cathay Pacific and BA increasing cargo capacity to and from India.

Third Party Logistics-3PL 3 PL •3rdParty Logistics imply that one company acts as an agent to lookafter the logistics aspect of another company or group of companies.

•3RD party logistics entails a study of the customer’s business, supply chain and distribution network, in order to formulate a comprehensive integrated logistics strategy, which will help render all supply-related services from a single window

•India's 3PL sector represents 3 percent of the country's total logistics spend

•The Indian 3PL market is expected to grow at around 20 percent per annum in the next 3-5 years.

•The practice in India reveals that warehousing and outbound transportation, custom clearing and forwarding are the most frequent outsourced activities.

•Activities such as packaging, fleet management and consolidationhave started gaining attention for outsourcing.

3PL Survey in India A survey by the Transport Corporationof India (TCI) and the ManagementDevelopment Institute (MDI) shows •

less than 55% of Indian companiessubscribe to 3PL, compared to more than 75% globally.

•about 57% of the companies planto outsource reverse logistics within the next five years.

•54% plan to outsource inventory management. •53% order processing. •more than 50% of the companies have outsourced activities like transportation, warehousing &customs clearing/forwarding.

Reasons for Logistics Outsourcing

Source: TCI & MDI Survey

Growth Drivers for Logistics in India •General growth of the Indian economy.

•Manufacturing boom-for exports as well as for domestic market. •Expected rise in International trade from India.

•MNC’s setting up manufacturing in India-Nokia, Flextronics.

•Government’s thrust on Infrastructure --US$17 billion to upgrade highway networks.

•Implementation of VAT will lead to growth in warehousing business.

•Opening of organized retail sector -attracting retail chains like Wal-Mart and Carrefour in addition to Indian players like Pantaloon and Reliance.

Government Support

The Indian government is making great efforts by

•Privatizing ports and airports. •Increasing the number of gateway ports •Investing in highway projects •Streamlining customs and excise procedures. •Implementing EDI systems •Improving the rail network.

•The government plans to invest $17 billion in transport infrastructure between 2006-2010

Some of the projects are: •Amend in the National Highway Act to expedite land acquisition, permit private financing and allow tolling.

•Improvement in rural access by launch of the Prime Minister’s Rural Roads Program. .Reduction of congestion on rail corridors and improvement of port connectivity by launch of National Railway Development Program.

•Upgradation of infrastructure and connectivity in the country'stwelve

major ports by initiating the National Maritime Development Program.

•Establishment of Tariff Authority for Major Ports to regulate tariffs.

On a per-annum basis, United States invests 5 percent of its annual logistics spend on

infrastructure, India is investing 23 percent or over four times as much.

Industry Growth=Logistics Growth •“Engineering goods, chemicals and gems & jewelry are the fastestgrowing sectors; manufacturing in India is expected to grow by 9.4

percent in coming years.” says Jacques Green, Managing Director FedExIndia, Middle East & Africa.

Auto •Outsourcing in Auto sector could be worth $375 billion by 2015 and

India could capture up to $25 billion of this amount. [source:McKinsey]

Chemicals •India ’s chemical exports could reach $15 billion by 2015. [source : McKinsey

Electrical and Electronic Products •India’s export in electrical and electronic products could reachup to $18 billion a year by 2015.[source : McKinsey].

Industry Growth=Logistics Growth Retail •Opening up of the organized retail sector is attracting big retail chains like Wal-Mart and Carrefour in addition to big Indian retailers like Pantaloon and Reliance. •All this would require the presence of professional logistics players in the market to carry out supply chain activities.

Thus demand for logistics services would be largely driven by the growth of the Indian economy.

Indian & Foreign Logistics Players •Investing to upgrade and move into 3PL arena–Gati, Safexpress, Patel Logistics, Blue Dart.

•Recent IPO-AllCargo Global Logistics. •Container Freight stations and Inland Container depots-Container

Corporation of India, Gateway Distriparksand Balmer Lawrie & Company.

•Bharti, Taco MobiApps, Patni Computersand Relianceare focusing on

telematics –a technology based on telecommunications plus computing. •Alliances & Acquisitions -DHL acquired Blue Dart, FedEx has a tieup with Prakash Airfreight,Rhenus AG has tied up with Seaways Shipping Ltd.

•Redwood Cityexpanding its India presence by nearly 50%. •Strong Base in India-APL Logistics, TNT Express, UPS and Maersk Logistics •In the port terminal business, Maerskand P&O Portsare consolidating their position by acquiring controlling stakes in private container terminals..

Challenges for Indian Logistics Companies 70

•Competition from Indian and Foreign logistics companies. •Technology to keep pace with demand for real time information. •Corporatization and lack of skill sets. •Shedding local mindset and move to a global mindset.

•Integration of services and value added services. •Funds to fuel expansion & growth. •Inadequate infrastructure and complex tax laws.

Future Projected Trends •The Indian logistics market is likely to grow at a CAGR of 7% during the next five years.

•The unorganized sector may find it difficult to exist at national level due to its inability to keep pace with technology & customer demand.

•Transportation costs are bound to come down in future with improvement in infrastructure and growth in cargo movement.

•4thParty Logistics to take root in India.

[In 4PL, logistics is controlled by a service provider that doesnot own assets to carry out

logistics activities but outsources to sub-contractors, the 3PL].

Top Nine Supply Chain Challenges for 2009 Better make sure risk management is at the top of your todo list this year"

As if a shattered economy isn't bad enough, the prospects of

supply chain disruptions on a global scale have manufacturers taking a closer look at their risk management strategies.

According to Bernie Hart, global product executive, logistics

management, with financial services firm J.P. Morgan's Global Trade Services group, while 2009 will have plenty of

challenges for manufacturers, a number of promising

opportunities will emerge as well. Hart lists the following nine trends that will characterize global supply chains throughout the year

1. Supply chain risk mitigation in an economic downturn Supply chain risk mitigation will receive increased focus in 2009 versus past downturns due to the following factors: • supplier financial risk, • volatility in energy, commodity, labor rates and currency exchange,

•

unpredictable economic recoveries.

2. Searching for working capital "This trend will bring increased scrutiny to the supply chain as companies look to reduce inventory and lower operating or carrying costs," Hart says. "In addition, buyers will look to extend payment terms, while suppliers will drive to collect receivables more quickly, creating the need for a liquidity

buffer -- such as supply chain financing -- to mitigate this brewing payables/receivables conflict. The current credit

environment is pushing buyer/supplier partnerships to look to their trade flows to drive the creation of additional liquidity." 3. A resurgence in letters of credit Hart reports that his firm, financial giant J.P. Morgan, has seen a resurgence in the use of letters of credit to facilitate the

financing of international trade. With credit getting tighter in all

sectors, the supply of letters of credit have been declining

while the cost has risen dramatically, Hart notes. "For the right borrower and the right transaction there are still deals to be done, but the market will remain tight for the near future." 4. Shortening the supply chain U.S. manufacturers will continue to reconfigure their supply

chains, Hart says, by moving plant operations and sourcing vendors closer to home and away from Asia. "Limited free trade agreements, high energy costs, and rising labor and production costs in Asia all contribute to companies re-

evaluating extended supply chains." Mexico in particular has become an increasingly popular source for manufactured

goods, Hart notes, citing a U.S. Commerce Department report that indicates a 7.2% increase from year-to-date imports through Mexico compared to the year before 5. Improved speed and savings in Mexico Mexico is piloting a new customs regime called the Regimen

de Recinto Fiscalizado Estratégico (RFE). "A customs regime," as Hart explains, "is a country's specific set of trade

regulations, processes and practices that regulate the actions

of importers and exporters." The Mexican government's hope is that the RFE will decrease logistics cost in terms of dollars

per container and numbers of days in transit which, in turn,

will help attract additional production to Mexico. The program could save an importer between US$200 to $600 per

shipment, according to Mexico Customs estimates. The RFE is

expected to go live in early 2009, Hart says. 6. More free-trade agreements and more scrutiny While the United States is expected to finalize three new freetrade agreements (FTAs) in 2009 with Colombia, Panama and South Korea, it remains an open question as to whether the Obama administration will view FTAs as a priority. "The

complexity associated with understanding and leveraging FTAs is beyond the scope of many companies because they either lack the expertise, resources, technology, or all of the above to do it efficiently and cost-effectively," Hart says. "Many

companies eventually come to a decision point: either invest internally or outsource to a global trade expert." 7. China clamps down on oversight "Chinese officials have vowed to clamp down on product

safety failures by launching national investigations and ordering local officials to report all possible product safety issues," Hart says. "The regulatory environment is expected to become stricter in China with the introduction of a control list or

catalogue of commercial encryption products developed and

made overseas. Impacting high-tech manufacturers outside of

China, this new control list calls for tighter regulatory oversight of firms that use encryption technology within their products." 8. The Amended Lacey Act The United States is now the first country in the world to

prohibit the import, export, sale or trade in illegally harvested wood and wood products.

As a result of an amendment to the 108-year old Lacey Act, the United States now prohibits the import, export, sale or trade in illegally harvested wood and wood products, Hart

says. "This will require detailed reporting -- scientific name,

quantity, value and country -- of any plant matter incorporated into an imported product brought into the United States. This law broadly covers plants used in processing, no matter how

miniscule the amount and no matter how far removed from the harvesting of the plant." As Hart sees it, the amendment could have "significant consequences for U.S. importers who will be subject to new data reporting requirements," although the specific scope of what items are covered under the amendment is still being defined.

9. A global eye toward consumer product safety Signed into law in August 2008, the Consumer Product Safety Improvement Act could lead to similar regulation around the

world that will address safety standards and requirements for

children's products, such as mandatory testing, the reduction in lead paint usage, and more visible cautionary statements

related to choking hazards, Hart reports. "In November 2008, representatives from China, the European Union and the

United States met in Brussels for the first high-level trilateral summit on product safety to discuss key developments and

further joint activities to improve cooperation and the exchange of information relating to consumer product safety. Upon

import, products must be accompanied by certification that they comply with all applicable consumer product safety rules and 76

similar rules, bans, standards and regulations under any other laws administered by the importing nation."

World Bank report on logistics: Strategies and tactics for a challenging market.

The Phenomenal Growth of Global Trade Over the past half century the business world changed dramatically through globalization

Growth in world trade has exceeded the rate of domestic output every year since 1950

1973 - 1999: World trade grew at an annual rate

nearly three times higher than world Gross Domestic Product (GDP) Trade to GDP Ratio:

• U.S.: tripled since 1970

• World: doubled since 1970

In 2009 this growth is projected to stall

2009 – The Difference a Year Makes

2009 is forecast to experience the first year over year decline in global international trade volumes since 1982.

12 10 8 6

trade 4 volume 2 0 -2 -4

78 2003 2004 2005 2006 2007 2008 2009

Competing in 2009 – New Issues at the Forefront

In the challenging 2009 market three trends will be the most

impactful. How well a business addresses these will determine supply chain success:

Cash Flow and Trade Terms

• Over 90% of merchandise trade is funded by finance instruments

• Approximately 670,000 small and mid-sized suppliers have folded.

Security and Regulatory Compliance

• More than 26 new transportation security regulations in past 6 years

• Nearly 10% of international shipments already have compliance errors

Fluctuating Freight Costs and Capacity

• Carriers working to remove excess capacity to stabilize pricing.

• 450 container ships have been idled – 11% of fleet Variable Energy Costs

• Oil is priced in U.S. dollars, and is impacted by changes in currency.

• 1-cent increase in Jet-A fuel adds $195m in carrier costs. Creating Advantage Through Supply Chain Management

Supply chain leaders (corporations and countries) have been

shown to significantly out-produce and outperform their peers. The global supply chain directly impacts, on average, 75% of a business’ operating results. Corporations with best-in-class freight and logistics

competencies manifest market cap growth 7%-26% above industry average

Up to 70% of the variation in per capita income across

countries can be accounted for by supply chain position. A 1% rise in a nation’s ratio of trade to GDP increases per capita income by at least 0.5%.

Supply Chain Challenges

Primary research finds that supply chains frequently lack

cohesive strategy and operational integration. This is true both for corporations and nations. For Corporations and Nations alike:

The supply chain is crucial to economic success

Top objectives are cost control and service execution

Operational plans are frequently not well integrated with strategy

There is a gap between the recognized importance of the supply chain and its operational performance Supply chain control is fragmented

Companies and countries alike have difficulty effecting supply chain changes

Supply Chain Management is Not a Level Playing Field Effective management of end-to-end freight and ancillary

functions can reduce total distribution cost by up to 5%, with the same impact on profit in many segments as a 30% increase in sales.

Retail Business Improvement Through End-to-End Supply Management Reduced Stock-Outs 2%-8% improvement

Lower Inventory Levels 10%-40% improvement Increased Sales 5%-20% improvement 13 Manufacturing Business Improvement Through End-to-End Supply Mgmt Lower Inventory Levels

10%-40% improvement Faster Replenishment Cycles 12%-30% improvement

Higher Sales 2%-10% improvement

Better Customer Service 5%-10% improvement

Information technology in logistics industry In a report entitled, ?Technology Survey for the Indian Logistics Industry ? 2008? conducted by Kale Consultants Ltd in partnership with 82

Feedback Business Consulting Services Pvt. Ltd, reveals that new investments of INR 285.25 billion (US$5.7 billion) are expected at airports in the next four years to boost their IT requirements, according to Kale?s head of logistics,Sumeet Nadkar. ?This is one of the segments where IT utilisation is maximum compared to other segments in the logistics space,?he notes.

A fragmented industry

The Indian logistics industry, comprising many disorganised enterprises, transporters, express cargo movers, courier companies, freight forwarders,

container companies and shipping agents, is highly fragmented. Firms are facing competitive pressures to focus on core operations and to lower costs which is leading to a growing demand for outsourced logistics services. The Indian logistics industry?s size is estimated at INR2.55 trillion for FY 2008, and its size is expected to grow to INR4.1 trillion by 2013.

Although road freight constitutes 60 per cent of the overall industry, the sector is entirely vested in the hands of small private players. The top-

end of the market is controlled by a handful of multinationals and large domestic players. Nadkar says India spends around 13 per cent of its GDP on logistics, higher than in the US (10 per cent), Europe (11 per cent) and Japan (10 per cent), and this translates to around INR1.5 trillion in extra operating costs for the economy and therefore a loss in capitalformation.

A growing air sector

According to Cygnus Research, the air transport sector contributes over

0.2 percentage points to the country?s GDP at constant 1999-2000 prices. The Technology Survey shows that the Indian logistics industry?s IT expenditure will more than double to about INR10 billion from the existing INR4 billion within the next 5 years - a compound annual growth rate (CAGR) of about 20?22 per cent. According to the World Air Cargo Forecast 2006-2007, the market from India and its neighbouring countries constituted about 3.9 per cent of the world?s air cargo traffic in tonnage and 4.2 per cent in tonne-kilometres in 2005-06. India is now among the top 30 global freight markets, both in terms of total and international freight operations. According to industry forecasts, the airline?s cargo business segment will more than triple by 2025.

Overall, the growth rate of the aviation sector in the next 10 years is expected to be not less than 25 per cent.

According to the Planning Commission, India?s air cargo movements

would grow at over a CAGR of 11.5 per cent from 2007-08 to 2011-12. Air cargo handling warehouses will need an estimated 150,000 sqm of space in thenext 5?10 year

Urgent need to invest

Nadkar says India risks missing out on 1 to 2 per cent GDP growth

unless significant strides are made to bridge the IT gap and improve supply chain efficiencies by effectively using technology. ?Airfreight is often the neglected cousin of an airline, as well as an airport?s passenger business. Air cargo complexes in India are congested not only because of lack of capacity but also due to lack efficiency and planning,? he said.

?Technology can help Indian airports overcome some of the space related constraints and utilise the existing resources in a better way. For example, the airports can make provisions for the agent to pay all his

airport charges, request for carting orders, receive advice of arrival and delivery order, all from his office rather than queuing up at the airport counters,? he says. Similarly, an advance notification from the agent for bringing in cargo can help the airport operator plan his resources accordingly. This will stop the airport terminal gates from being choked with trucks which have to wait endlessly to load/unload cargo. Nadkar says barcode and RFID usage can help track cargo through its life cycle. This also helps faster location of shipments at the cargo warehouse.

He points to the express delivery industry ? which is made up of GATI,

Safexpress, TNT (Speedage), TCI, Blue Dart and Safe Express ? as the leaders in technology usage. These players will continue to remain the highesttechnology buyers constituting to 33 per cent of the technology expenditure by2013 from the present 29 per cent. The key growth driver in this sector is the opening of banking, insurance, retail, aviation and telecom sectors and their penetration in smaller cities due to an increase in global and domestic trade.

Nadkar says India is emerging as a global outsourcing hub for IT, ITeS, pharma, textiles etc., and is set to become one of the largest trading partners in Asia. Regarding India?s courier sector, he says there was an increased usage of express and courier services by all key segments in the industry. The

key players include Blue Dart, First Flight, AFL, DTDC, Overnite and Professional Couriers. Commenting on the freight forwarding industry made up of AFL, Alpha Cargo Express, Om Logistics, Total Logistic, Worldwide and All Cargo,

Nadkar says technology expenditure in freight forwarding is expected to grow by 160 per cent. This industry, which presently constitutes 14 per cent of the IT demand, is expected to rise to about INR1.7 billion, comprising 17 per cent of overall IT spend by FY 2013. Th e current IT market size is about

INR110 billion (US$2.3 billion) and is expected to reach INR211 billion (US$4.4 billion) by FY 2013.

Nadkar says there are an estimated 2000 to 2,100 freight forwarders in

the country, including about 600 involved in airfreight. This includes key players like, Total Logistics, GATI, Excel, Bax Global, Geologistics, Dynamic Logistics and TVS Logistics.

Sumeet Nadkar

Report IT Critical To India

The IT spends in the Indian logistics industry–through

Freight Forwarding, Airports, Warehousing, Express & Courier Services and RFID 86

(Radio Frequency Identification)—will grow in the

next five years to approximately two-and-a-half times the USD$83 million now.

This was the result of a survey, 'Technology

Survey for the Indian Logistics Industry - 2008' conducted by Kale Consultants Ltd.

Air Cargo News FlyingTypers caught up with

Sumeet Nadkar, Head-Logistics Special Business Unit of Kale Consultants to find out the reasons of growth in a market that has been afflicted by the downturn worldwide.

Sumeet pointed out that with the current

uncertainties in the world economy "it is tough to make predictions.

“However, one fact remains that goods will have to

move, as opposed to travel. “Travel can be replaced by video conferencing or teleconferencing, air cargo has to roll.

“So our view is that five years from now, globally

the logistics industry will continue to grow at a steady rate of 6-7 percent."

“In India, he said, “the industry could continue to

grow at about 12-13 percent to satiate the demand of growing young population across the country.

“Air Cargo will also continue to grow at about 11

percent.”

Nadkar also pointed out that "the tough economic

climate will necessitate the focus on efficiency and productivity more than ever.”

Citing India's example, he said, "the lack of

automation in the Indian logistics industry has given rise to the inefficiencies, duplication of processes.

“We believe with the global slowdown and tough

competition, the logistics companies will be keen to

embrace technology to increase operational efficiencies as well as create competitive differentiators.”

As far as domestic air cargo is concerned, the

sector does not look to be doing very well.

Did he feel that the country's air cargo business

will make strides big enough for IT to flourish?

Nadkar was confident that air cargo would do well. He said:

"This is a classical chicken and egg

situation and compounded by the fact that the air cargo industry is in the throes of change.

“To attract more cargo to the air mode, costs will

have to be both controlled and competitive.

“In order to ensure that the air cargo handling

processes must be super-efficient, there has to be

complete understanding of the market and its profitability and IT can accelerate fact-based solutions all around. “With the modernization of the airports, and

creation of intermodal hubs like the one in Nagpur, the untapped domestic demand for safe and reliable

transport is wide open to air cargo.

“Whilst other modes such as roads and rail

continue to languish. air cargo here needs to embrace

various solutions such as IT in a significant manner to rationalize processes and attract more customers.

"India," he said, "spends around 13 percent of its

GDP on logistics, higher than U.S. (10 percent), Europe (11 percent) and Japan (10 percent).

This translates to around $31 bn in operating costs

for the economy and therefore loss in capital formation. “India risks missing out on 1 to 2 percent GDP

unless significant strides are made to bridge this gap

and improve supply chain efficiencies by effectively using technology."

Among the Kale Survey key findings: •

Technology spends in freight forwarding in India

•

Technology spends for warehousing are

are expected to grow by 160 percent.

expected to jump from the current $10 mn to about $25 mn by 2013.

Warehousing, Kale says, is fast emerging as a

strategic function, due to the rapid growth in retail and expansion by domestic and international players.

Elsewhere Kale reports, the express and courier

business in India will continue to remain the largest

single group adding technology in the future constituting

up to 33 percent of technology growth here by 2013, up from the present 29 percent.

What's the status of the logistics industry in India, and what's your future goal?

Logistics plays a vital role in bridging producers and customers—both in the domestic and international sectors. For economic growth the

development of infrastructure (ports, roads, rail, inland waterways, coastal shipping) ought to be improved. Also, communication and multimodal

transportation, coupled with sophisticated handling, warehousing and IT systems, hold the key. There is need for implementation of national and

state plans; in this regard with an appropriate fiscal policy befitting publicprivate partnership. Policies should facilitate implementation of projects

with minimum paperwork and quicker resolution of proposals to ensure their quick execution.

The logistics industry in India is highly fragmented with about 15 established 3 Party Logistics (PL) players. Transparency in commercial matters and business ethics should be ensured by streamlining

documentary requirements which govern the entire gamut of supply chain management.

Lesser state control and facile tax, fiscal and legal system would be of

much assistance. These measures would not only help the industry, but also result in some manufacturers entrusting all their logistics services—

right from the point of dispatch to customer delivery. Thus giving birth to 4th Party Logistics, involving a separate specialised agency, as is the

case in developed nations. Both the manufacturers and customers gain in such a situation which ensures competitive pricing and 'on time' delivery.

TMILL visualises itself to become a 4PL player in the near future and set up standards and benchmarks in the industry.

TMILL is investing Rs 350 crore for acquiring berths and warehouses. At which ports would the new berths be constructed?

The investments will be for acquisition of panamax and handymax 90

vessles, up-gradation of handling facilities and augmentation of warehousing facilities over the next few years.

Haldia and Paradip port-based services will be strengthened, apart from expansion of logistics activities in Mumbai and development of minor ports on the west coast. Location of minor ports for development is under feasibility study.

What's your plan to develop a CFS at Haldia? We have been operating at Haldia Docks System for over two decades, and the port has already allotted us the land. Initially, the area of land

which has been developed and used as a stack yard may be converted into a CFS.

How will you fund your planned projects?

Regarding funds, we have not yet formalised the matter. It depends on the size of the project which we wish to develop.

IQ Martrade is well entrenched in terminal operations in Europe and US. They are vessel owners and charterers who are well-versed in logistics services. Therefore, expertise already exists within the organisation. If required, we will not have reservation for a strategic alliance with a reliable and an established organisation.

What target have you set for revenue in the next two years?

During the first three years of operation, since the formation of the organization, our revenue has increased threefold and PBT 3.5 times. We expect this trend to continue as we have set for ourselves a target of Rs 1,000 crore turnover by 2008-09, and being consistently EVA-plus.

Customs Procedures and Functioning of

Container Freight Stations and

Ports 1. In accordance with international practice, all cargo goods imported into the country or exported out of the country by sea, air, land or rail routes are governed by the provisionsof the Customs Act, 1962 and other laws of the

country related to entry/ exit from the country.Customs ensures that the import and export ofgoods are in compliance with the Customs Act and other laws in force. Accordingly, customs procedures are intended to provide definite, predictable methods by which the goods can enter the

country and get cleared on payment of applicable import duties, fulfilling the

requirements of the law of the land. 2. To regulate and to exercise effective control over import and export activities, goods are allowed for import/export at notified places under section 7 of the Customs Act, 1962. Custodians are appointed under

section 45 of the Customs Act, 1962 for safe storage of goods till they are cleared for home consumption or warehoused. Clearance of goods

involves classification, assessment, examination and payment of Customs duty on imported cargo on the basis of Bill of Entry presented by the importer or his authorized agent. The Central Board of Excise and

Customs (CBEC) has prescribed the procedures through notifications, rules, regulations and circulars which are implemented by field formations. These are updated and modified according to the need, demands of trade and to improve the efficiency of the system. 92

The role of Container Freight Stations (CFS):-

3.1. CFS is a place where containers are stuffed, de-stuffed and

aggregation/ segregation of export/import cargo takes place. With the growing volume of international trade, the need for expeditious clearance of goods at the port within the minimum possible time has been gaining

importance. This is more so when the ports are facing congestion at their premises. Further, for optimal utilization of existing infrastructure, space,

equipment, goods that are landed at ports need to be evacuated straight away without any loss of time. Accordingly the concept of Container Freight Stations (CFS) has grown in importance along with the development and growth of ports.

3.2. A CFS is an extended arm of Port/ ICD/Aircargo Complex, where import/ export goods are kept till completion of their examination

and clearance. The imported goods can be immediately shifted from the port to CFS which also helps in the reduction of port congestion. All the activities related to clearance of goods for home consumption,

warehousing, temporary admissions, re-export, temporary storage for

onward transit and outright export and transshipments take place from such stations. Therefore, clearance of goods from CFS is an important

point of consideration for trade in respect of export/ import Cargo as it is the final Customs contact point. Customs

Present Procedure of clearance of goods at Ports:-

4.1 The Shipping lines/steamer Agents/carriers/ Consol Operators file the Import General Manifest (IGM) in accordance with Section 30 of the Customs Act, 1962. After filing the IGM and on arrival of the

goods, Custom House Agent/Importer files Bill of Entry (cargo declaration) in terms of Section 46 of Customs Act, 1962. The first stage for

processing a Bill of Entry is noting/registration of Bill of Entry (B/E). The B/E is then forwarded to the concerned Appraising group in

the Custom House dealing with the commodity sought to be cleared. The assessing officer in the appraising group assesses the duty liability,

taking due note of any exemption or benefits claimed by the importer. Necessary checks regarding any restriction or prohibition on the

goods imported are followed. In case of doubt, the officer may give an examination order in advance of finalization of assessment.

Otherwise, the B/E is finally assessed and the importer deposits the duty calculated with the nominated banks. 4.2 After assessment the B/E is passed on to the Shed

Appraiser/Superintendent for examination of goods along with the B/E. The Shed Inspector/examiners examine the goods and enter their report

on the B/E with signature of the importer/CHA in token of examination in his presence. After completing the examination of the goods, the shed

Appraiser/Superintendent would give order for “Out of Charge”. However, in rare cases, if some discrepancy is found between the declaration and the result of examination of cargo, the Assistant Commissioner/Deputy Commissioner (AC/DC) revises the assessment on the basis of

examination report. After issuance of Out of Charge order on the B/E, the importer presents the same to the Custodian who in turn issues the Gate Pass after verification of correctness of Bill of Lading and number

of packages. The importer/CHA presents importer’s copy of the B/E and

the Custodian Gate Pass to the Customs Officer at the gate while taking the goods out of the Customs area. 5. As regards exports, Shipping Bills are required to be filed along with

other documents such as invoice, Application for Removal (ARE), packing list etc. The Assessing Officer in the export department checks the value 94

of the goods, classification, rate of duty and others with regards to different provisions and the Foreign Trade Policy and related documents. After the Shipping Bill is passed by export department, the exporter

presents the goods to the Shed Appraiser (Export) for examination. The examination is carried out under supervision of Shed Appraiser/

Superintendent (Export) and after examination, officer gives a “Let Export” order, after which exporter may load the goods into vessel/aircraft under supervision of Customs Officer. Present procedure of Clearance of goods at CFS:-

6. The Main function of CFS is receipt, dispatch and clearance of

Containerized Cargo, up-to-date inventory control and tracking system to locate containers/cargo.

7. The goods received at ports are brought to CFS and stacked in CFS after verification of the seal by Customs Officers. In respect of import

consignment, the Steamer Agents/liners/ Importers desiring to take the consignment to CFS, file Import General Manifests in the port. After

obtaining the permission from the AC/DC, the Container moves to CFS under Customs escort or under bond and bank guarantee. The

CFS allow de-stuffing of the goods. The CHA / importer files the Bill of Entry at Customs House and then Customs formalities of assessment, examination and payment of duty are completed. Thereafter, Customs gives

“Out of Charge” and the Custodian releases the goods from CFS by issuing a Gate-Pass.

8. In respect of exports, the goods are brought directly to CFS under a Shipping Bill. The export cargo in Less than Container Load (LCL)/ Full container Load (FCL) is received by the Custodian of CFS for safe custody. 95

After stuffing of the goods, Container/ Customs Bonded Truck (CBT) is sealed by the Custom Officer and the same is removed from CFS for export through the desired Port.

CONCLUSION If infrastructure is improved across the country, it will bring down the logistics costs and enhance the services required by everyone seeking to invest in India. This will encourage 96

more investments which will boost overall performance and bring out India’s real potential. Growth in express industry is highly correlated to GDP this sector has grown 25 to 30 percent annually for past three years in line but now Indian economy is bearing the brunt of recession adopting right strategies can pull it through and bring back the hay days with Indian and world economy stabilizing in future logistics Scenario in India is only going to improve and grow at rapid rate.

BIBLIOGRAPHY

Business India research work

logistics management magazine

government supply chain and logistics: direction for future

sixth annual survey by PRTM management consultants

study by essence consultants

world bank report on logistics sector

custom clearance procedure report by inter ministerial group

photos fotosearch.com

Various articles and report of BBC news, economist.com.

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