Feb 2016

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SUPPLY CHAIN MANAGEMENT PROFESSIONAL

10th Feb 2016 | Volume 1- No.10 | Rs.200

LEAD STORY

Strategic Packaging Eliminate the Biggest Hidden Supply Chain Waste - DK Rai

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BUDGET

EXPECTATIONS

FEATURE

INDUSTRY INTERFACE

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Budget Expectations – An Industry Poll

Architecting an Omni Channel Supply Chain

An

INDUSTRY

Poll

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editorial Freedom from Budgets It is that time o the year again everyone is busy speculating on what the Finance Minister has up his sleeve. steady stream o advice is being bandied about rom what should his priorities be to what he should not do. Colleges arrange special talks. For close to a month, the nation is occupied with the nature and structure o the budget. Some years the markets turn bullish. nd as the budget speech unravels, it either tanks or goes up again. he Great Indian Rollercoaster.

The structural imbalances that face us cannot be resolved with short term measures. Hope the government stays true to the course.

It is time to examine this rollercoaster or what it is worth. For years the budget represented the one point intervention in the economy. he Government believes the only policy statement it needs to make is in the budget. he RBI believed its Monetary Policy could be based on two statements. Fortunately, the RBI has come around to the realization that the economy cannot wait or it to set a direction once in six months. Should not the Government do the same dynamic and volatile world economy needs mid-course correction as and when new developments happen not in an annual policy statement. It is time we reduced the budget to a mere statement o accounts o the Government its revenues and expenditure. ll the other stuff related to the direction o the economy should be real time - based on the need o the hour. Nothing else, it will ree us rom the annual tamasha o pre-budget and post-budget speeches. nd the economy can be steered real time. his month will see the second edition o the ISCM supply chain summit a select panel o experts will deliberate on building resilience into our supply chains. For those who miss it we will carry excerpts o it in our next issue. ill then appy Reading

SUPPLY CHAIN MANAGEMENT PROFESSIONAL

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Editorial Partner:

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content

Feb 2016 | Volume 1|No. 10

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Academic Advocacy Supply Chain Becomes the Demand Chain

Lead story Keeping the Wheels Turning

Feature Supply Chain Complexity and Performance Measurement Deepak Bartwal

19 LSP Focus Focus on ASEAN - ASR Logistics Rajendra Singh Rao

30 Human Resources ITUC Report

28 Feature

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Challenges posed by globalization of supply chain

Feature Crowdsourcing delivery services is a way to Omni channel success Bipin Reghunathan

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43 Industry

Interface

Architecting an Omni Channel Supply Chain

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SCM News

Innovations in The New York Last Mile Delivery Shipping Crowded cities are pushing firms Exchange to innovate on their last mile distribution. For example, The Coco(NYSHEX) – Cola Company has changed its last Make My Trip mile distribution in Rio De Janeiro. They bring large trucks to certain of Shipping areas in the city, and transfer the last mile delivery on motorcycles. They are using 30 bikes to cover 50 routes. Some innovations in last mile delivery are: Urban Trans-shipment Centers – where incoming freight is transferred to smaller vehicles – like The Legazpi Transshipment Center in Madrid. Automated Parcel Terminals – where delivery personnel can deposit the delivery into a secure locker station, for the customer to pick up when convenient. Mobile Warehouses – Large trailers act as warehouses, where smaller sized containers can be stored for distribution.

Amazon - Now into Freight Forwarding In a surprise move, Amazon’s Chinese arm has registered itself as an ocean freight forwarder. It aims to gain full control over its shipments from China, lower shipping costs and eventually offer 3PL services! It has registered itself as a “NonVessel Operating Common Carrier” It is leasing 20 airplanes in the US and has purchased trucks to beef up its delivery capability in the US. In another innovation, it is using on-demand drivers to drive their trucks! The cost of shipping a 40 feet container from Shenzen to Los Angeles is just USD 1300. Amazon believes its ability to use automation to cut labor costs will help it squeeze costs. Labor costs are the largest component in shipping costs. Evidently, its core business of e-tailing is not profitable!

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A new service is set to be unveiled - The New York Shipping Exchange in 2016. NYSHEX is set to improve efficiencies in the global shipping markets. It is estimated that the industry has incurred economic losses of USD 79 Billion since 2008. The service is set to address problems like unenforceable contracts - most ocean contracts cannot be enforced and carriers are at liberty to impose rate increases and roll bookings as needed. Other issues are overbooking, cancellations and not show up at designated loading times and deteriorating service levels. According to Gordon Downes, Founder and CEO of NYSHEX, “shippers and intermediaries will be able to book container slots on a screen that resembles airline booking sites such as Expedia. Each shipping line is listed along with the availability of slots, prices, and on time performance for individual carriers. This latter value is set by a panel specially created by NYSHEX. The screen walks buyers through each step in the booking cycle, and flags when action needs to be taken. The site also enables customers to re-sell slots already booked that they are not going to use.”

Trace and Track – Is Blockchain the Answer? Firms have a huge challenge in tracking their products across the entire value chain – right from the source of raw materials to the end customer. This is mandatory for firms in the developed world. And for exporters from India who wish to sell in the developed world. For example, products from firms who use child labor are banned in developed parts of the world. The available technology like RFID, GIS and barcodes are not adequate to meet the trace requirements. And their ROI is in question. Enter blockchain. Blockchains are used in Bitcoins. Supply chains can borrow it. Put simply, a Blockchain is a place where a user can store data in semipublicly in a linear space called the Block. This block will be encrypted by a user specific signature. Only the person who has placed the data there can unlock the container to add or modify the data. Others can view that data – and be assured that no one has tampered with it! As entities across the value chain use this technology, tracking and verifying can be done easily and cheap. The only caveat – all the players need to be able to deploy and use a blockchain. And it works for cryptocurrency like the Bitcoin.

February 2016 Supply Chain Mangement Professional

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08-12-2015 PM 05:23:55


Lead Story

KEEPING THE WHEELS OF THE SUPPLY CHAIN MOVING

A supply chain covers the entire value chain – from the raw material to the ultimate consumer. The automobile industry is one of the best users of supply chain – from sourcing thousands of components from across the globe, moving them in a well-choreographed symphony, getting the right products in time, and then shipping the finished product across the country and in some cases across the world. They define the supply chain practices. In this issue of Supply Chain Management Professional, we bring you a collection of articles on the automotive supply chain. We bring you a few opinions from practioners on the automobile supply chain. From the famed Toyota Production systems – like JIT, where firms reduce their inventory, to the Internet of things, we can find the emerging best practices here. The automobile supply chains is embracing technology fast. Automobile companies expect their suppliers to reduce costs, in some cases VMI or Vendor Managed Inventory is pushing in-plant inventory management on to the supplier to keep costs low. Others expect faster delivery – verging on just –in-time, improved quality and reduced handling. What does this mean for the automobile supply chain – we see an increasing pressure on them to manage these expectations. A call to improve their management talent, systems, and processes. We will see the emergence of truly 3PL service providers – not mere transport provider.

There are a few clear trends are visible in the international arena – like 3D printing, Internet of Things moving to center stage in the years to come. We can see a few technologies like driverless trucks at the experimental stage. Not sure how driverless trucks would fare in India. Google realized that its driverless cars could not navigate roads with human drivers, who act impulsively. If that were the case in US, India would be a nightmare. However, these are still a long way away in India. However, there are a few perennial issues – like visibility, sustainability, track and trace capability which are at the core of a supply chain. Automobile supply chains will need to deal with these issues. As regulations on ethical sourcing and triple bottom line reporting come into force, we will see an increased requirement for ensuring supply chain visibility and sustainability measures. These will add to costs to the supply chain. The recent uptick in automobile sales is good news for the supply chain industry. However, the recent Supreme Court order banning registration of large SUVs in New Delhi has ominous portents for the industry. However, as the economy picks up pace, we will enter into a promising era for automobile supply chains. Happy Reading.

February 2016 2016 Supply Supply Chain Chain Management Management Professional Professional February

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Lead Story

Digitization: The Future of Automobile Supply Chains For some time now, the developed world has been talking of “Industry 4.0” or “Industrial Internet” – an industrial ecosystem characterized by interconnected devices, value chains, and business processes. Across the developed world, the automobile sector is at the vanguard of this movement. This will require significant capital investments. The drivers of Industry 4.0 is the opportunity to integrate and manage the value chain. We bring you an overview of the digitization trends in global automotive sector and their benefits.

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Lead Story disruptive changes this will bring about. As technology becomes increasingly embedded into products, we will see IT moving from an interal efficiency enhancer to an integral part of the value chain. This means we will see increased standardization of platforms, providing interoperability.

Source: Digitization Strategies for Automobile Suppliers; Horvath & Partners

The way in which we design, make and sell products depends on the technology we use. The convergence of technologies like social, mobile, cloud and analytics with internet of things and hyper connectivity is changing the face of manufacturing. These technologies can create value by connecting man and machines in a new “digital thread” across the supply chain. The dimensions of this change are huge. A Mckinsey report reveals that when a mere 2 billion individuals connected to the internet in 2010, it contributed USD1.7 trillion to global GDP. Extrapolate it to 50 billion users – the potential for disruption is huge. Imagine – not just people – but men and machines interconnected throughout the supply chain can change the contours of business. An unprecedented level of information flow will be available to us.

In 2015, Horvath Partners- a German consulting firm conducted a research among managers of the automotive industry. The aim of the survey was to identify what impact digitization would have on strategy and the concrete answers that management should have to take care of the digital future. The survey seeks to identify which underlying framework conditions need to be created, in order to fully utilize the potential and benefits of digitization, to recognize the associated risks as early as possible and to initiate counter measures to avoid, reduce, or negate those risks. The survey identified two broad clusters - Those trends on which the management needed to act now - which they called “Urgent Needs- Act Now” - these include Mobile devices, Cyber Security and Big Data. These are identified as the most relevant trends today and therefore extremely urgent for the management to act on. These are at the top of management agenda. The second major trend was “Future Needs- Prepare Today for Tomorrow” - these constitute technologies like Internet of things, Interoperability, Digital Business Models, and Industry 4.0. Managements have decided to adopt a wait and watch approach. These trends may become relevant sometime in the future. Even if these trends will manifest itself sometime in the future, firms need to prepare themselves for the

Digitization in the Automobile Industry The automobile industry has a long product development cycle. We have come a long way from the time our automobile manufacturers took Henry Ford’s dictum to heart – “Any customer can have a car painted any color that he wants so long as it is black.” And we were left with no product innovation for decades. But times have changed. Today, all automobile manufacturers are introducing new products with major technological advances every three to five years. The traditional 10 year cycle has now reduced to five years. They managed it through modular build. Now digitization and its complement of standardization, we will see an accelerated product development cycle, with a faster go to market strategy. This means that innovations, which were the exclusive preserve of the vehicle manufacturer will now happen at any node in the value chain – with the active support and involvement of the OEM. For example the marque car maker Aston Martin has a collaboration with a Chinese technology firm LeTV to incorporate “Internet of Vehicle” system on to its electric car the RapideE. Masters of digital technology will set the pace in years to come. Digitization and Automobile sales One of the most promising area for digitization is on the automobile sales process. Traditional sales process relies on high voltage advertising and extensive dealer networks. Over the past few years there has been a subtle shift – the Gen Next prefers to go on-line Supply Chain Management Professional February 2016

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Lead Story

Extract from the Group Management Report of Volkswagen Group The Volkswagen Group invested €11.5 billion in research and development in the past year, more than any other company. The Group employs 46,000 research and development staff worldwide. Our IT experts now number more than 10,000, because we know the key significance of digitization. Industrial production is entering a new era: the Industry 4.0 project envisages factories where components travel through the production floor on small computer-controlled carts looking for free machines to process them – without human input. Tools and equipment repair themselves and order their own replacement parts automatically. However, the machines will not just be locally controlled, networked and thus independent. Production will also be integrated with suppliers and sales. Comprehensively equipping all production stages with sensors and flexible manufacturing technologies aims to make it possible to deal with capacity fluctuations in an even more rapid and resource-efficient manner. Customer desires can be implemented with even more customization, under Industry 4.0. We are already using many of the technologies on which Industry 4.0 is based in our production process. Driverless transport systems promptly deliver parts, and intelligent tools and machines react to fluctuations and can be analyzed and serviced online. – social media, mobile channels to gather information and shape opinions. Result – the buyer has already fairly made up her mind even before she gets to a dealer. This reduces the scope for the dealer to sell her what she does not want. Unfortunately, just as the extract from Volkswagen shows, automakers are still focusing their investments in either in vehicle digitization – like the Internet of Vehicles, or in In-plant technologies like robotics and driverless delivery systems. Customer interface is far from their minds. Any on-line and social media presence is limited to either a Facebook page or a Twitter feed. Digitization, when coupled with mobile devices can help an automaker make the connection with their customer early on in the decision cycle, and then guide or help them along to make the decision they want. And once the customer buys the product, they can use the same media to remain in touch and offer better after-sales support. Websites like Autocarindia.com and carwale.com offer buyers an option to compare multiple models from

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various competing manufacturers, and provide a degree of pricing transparency. The traditional showrooms cannot match such multi brand comparisons. On the other hand, sites like motrpart.in and spareshub.com are eating into the lucrative after-market sales. Automakers need to take a leaf out of e-commerce players and develop a truly omni-channel sales strategy, where a customer can initiate a dialog through her mobile phone, migrate to Facebook and finally close the deal at a dealership, without having to repeat herself at every step. The retail industry has achieved this. It is time automakers too adopted digital marketing. Digitization in the After-market Another area which is ripe for digitization is after-market service. Technology advances and digital products have made after-sales support a very complex affair. You cannot drive across to the friendly neighborhood mechanic and get the vehicle fixed. The diagnostics need you plug the vehicle into a laptop at the minimum. This is where automaker Tesla of the US has got it right. Customers of Tesla need not go to an approved center for

diagnosis. They can download an app and remotely monitor and control the car using your phone. The functions enabled through the mobile include Keyless driving -unlock and drive your Tesla vehicle without your key; Range status - Check current range, charge status, and receive charging complete notifications; Climate control - Remotely vent your roof or turn on the climate control system; GPS location - never forget where you parked again. The apps can be used to even distribute product upgrades and new features. Digitization and Automobile Safety Safety is an area where digitization can make a huge impact. We have quite a number of safety features already available. For example, Adaptive Cruise Control send out a radar signal to detect any vehicle in front of you and adjust your speed accordingly. Lane Departure Warning systems scan the lane in front of you and will alert you if you move out of the lane suddenly (I wonder how this will work in India!) Pedestrian Detection system will detect if any pedestrians are moving in front of the vehicle and quickly apply brakes. Blind spot warning systems will warn you of the presence of vehicles in the adjacent lanes. Driver attention monitoring system will monitor your driving habits and will warn you if you have been driving too long, or you start losing focus. And Wi-Fi vehicle-to-vehicle communication system will sense approaching vehicles and avert collisions. The till now, the all mechanical and part electric cars are being transformed by a host of digital technologies. The shift in the automobile value chain and the availability of large amount of data can change the automobile industry, and its supply chain. To stay in the game, auto makers need to embrace digitization. Else, a horde of new players will upset the existing applecart.

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Lead Story

Warranty Transformation using Vehicle Telematics A complex world, with follow-the-sun supply chains, hyper-connected partners and expectation of an exceptionally responsive service has pushed organizations to redefine how they run and measure their Supply Chains. With top line growth plateauing, there is more scope for organizations to increase profitability by optimizing their Supply Chains. Analytics is fast emerging as a key enabler to do so. The use of business analytics in Supply Chain processes has become more prevalent over the years. Organizations want to get insights into their Supply Chains and make data-driven decisions, instead of working on best-guess operations. Damodar Sahu, Industry Principal - IoT, Smart Manufacturing and Aftermarket Services, Manufacturing and Hi-Tech Industries at Wipro Technologies explores the world of IoT.

Damodar Sahu

Industry Principal - IoT, Smart Manufacturing & Aftermarket Services, Mfg. & Hi-Tech Industries at Wipro Technologies

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Today’s global manufacturing industry that manufactures anything from Automobiles, Aircrafts, Computer equipment, Consumer durables, Consumer electronics is trying to tackle two critical issues at the same time – how to increase margins and how to reduce service costs as both impact the bottom line directly. In this fast changing commoditized world, pace of product innovation has increased.

demand, change in suppliers and increase in product complexity. This ultimately puts enormous stress on both top line and bottom line there by giving little room to increase margins. So the other option is to reduce service cost and look at generating revenue while servicing the product. As per research, Warranty is one of the costs which organizations are not able to manage effectively.

This has led to frequent product up gradations, fluctuations in product

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Lead Story Challenges of Automotive and Construction Equipment (CE) Industry in particular Vehicle misuse: Manufacturers of automotive and construction equipments are particularly prone to suffering huge losses in Warranty costs due to misuse of their vehicles. The CE industry has even more susceptibility due to lack of proper onboard telematics systems which can monitor the usage of the equipment to determine if the operators abused the machine during normal usage, and if the owners brought it to service regularly. High Warranty Costs: Parts and repair costs in this segment almost form almost form 20-30% of the post sales costs on a recurring basis. Warranty costs are about 10% of the revenues, where companies routinely give away parts as even if they are not at fault, and do not have any way to challenge the warranty claims. Warranty fraud: Coupled to high costs, systematic fraud by rouge users / dealers often presents problems. With no data from the machines available, it is difficult to trace if the part was indeed faulty or was it damaged due to misuse. Expensive Parts/Service: CE and auto parts are expensive, often bulky and require stocking of adequate parts with regional / local dealers. Non availability of correct parts at the right place at the right time results in downtime of critical equipment, and causes tremendous erosion in customer confidence and financial damages. Indirect costs: Freight / Insurance, storage, logistics and other overheads on warranty servicing eats up much of the parts and service margins. Lack of real-time visibility into past and impending repair and service data results in poor parts planning, and revenue leakage. Supplier Recovery Challenges : Warranty parts that are recovered are often sent for repair/replacement

from the OEM’s – with no sufficient data to backup the claims manufacturers often lose the back to back warranty claims with their OEM’s and hence there is further revenue leakage. This means they also have to stock up additional inventory just to manage spares. In short, the Warranty Supply Chain required to manage parts and service can be significantly improved if there is a visibility into what, where and how the customer is using the equipment. Transformation of the Warranty Supply Chain can be greatly assisted with a good telematics solution for the vehicles. The increased cost of putting an onboard telematics solution is easily recovered in the savings from warranty parts and services costs. Connected vehicles with built in telematics are the next big solution to reducing warranty costs and giving a better supply chain to manage warranty process. Why connected vehicles? One of the key inputs to Warranty data is machine usage history and present conditions. In vehicles with heavy usage like off highway construction equipment like Backhoes, Excavators, compactors etc., it is often seen that the unskilled / semi-skilled operators operate the machines to their breaking point. By putting in a state of art telematics system manufacturers can monitor their equipment 24x7. They can log data for future analysis by service centers and technicians, and warranty professionals. Real-time data feeds can even be used for helping detect problems in a timely manner. Impact of connected vehicles on warranty supply chain Clearly there is a significant opportunity to optimize the Manufacturer/OEM their parts

planning to align with the observations on the ground, rather than reacting to events after they occur. Why should we invest now in Connected Vehicles Solution? Solution is affordable: Costs of connectivity have significantly come down. Machine to Machine connectivity SIM cards and connectivity tariff plans have come down and are affordable. Increased Coverage: Both developed and emerging markets are witnessing a flurry of activity in the telecom sector with unprecedented expansions, and hence the geographical coverage of these services are now available across the length and breadth of the country. Where connectivity is not possible, the telematics solution utilizes onboard data logging capability to store and transmit data when connectivity is restored. Location aware services: Mapping services have advanced. Urban, rural and off-highway maps are now available in great detail and clarity. Satellite based GPS coordinates allow pin-pointing of the machine in case of repair or breakdown, enhancing ability to quickly reach and service the machine. Low cost electronics: one of the major costs of the telematics solution is hardware. Recent advances in microcontroller designs provide high degree of integration of CPU and peripherals on to a single chip, reducing component cost and assembly costs. It also increases reliability and life of the solution. Better production techniques are consistently lowering unit volumes. Remote Management of Firmware: Advances in remote diagnostic and firmware update technologies allow field sales and service technician to upgrade onboard telematics solutions in case of a fault or upgrade, without going to the vehicle physically. This also allows controlling of certain user features Supply Chain Management Professional February 2016

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Lead Story Availability of System Integrators: Putting together a connected vehicle solutions involves procurement and integrating many solution components that require a high degree of expertise and experience. Companies like Wipro have proven expertise in this area. Components of a Connected Vehicle Solution: The main components of a connected solution are as follows: On board vehicle telematics hardware Vehicle telematics firmware Connectivity solution (GPRS/GSM) Firmware over the Air (FOTA) Backend telematics server User application Apart from the above the infrastructure required to run this platform are : ● Hardware to run the application (cloud model used ) ● Software – a variety of choices exit here ● FOTA management systems ● Telematics data processing service providers Warranty Supply Chain Optimization with Connected Devices: The key focus of this discussion is how we can optimize warranty supply chain using the inputs from connected devices: For this it is nice to understand which type of parts in a CE / Automotive equipment are prone to failures, and how to use the advance information telematics provides to the Dealer / Manufacturer or even the OEM. The idea is to use the following categories of information to move around the stock and parts around the various dealerships and service centers, so that it achieves two main purposes: ● Low lead time to replace a failed part

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● Low overall inventory (hence lower storage, transport and logistic requirements ) The dimensions in which we can optimize the supply chain are: Geography based optimization – equipment that are prone to damage / misuse due to the geography of the place such as mines, quarries or hard surfaces, high temperatures or humidity can be monitored. Corrosive or high stress failure parts can be proactively positioned in nearest depots / dealers so that there is short downtime. Location information on the onboard telematics system helps by giving real-time location information. Owner/Driver based planning – since the machine is associated with a set of owners / fleet , their driving and operating usage patterns , operating boundaries, exceptions and misuse are tracked and dealers / technicians are informed upfront to take care of special service requirements. Machine health based planning – onboard telematics stream a host of valuable information back to the central server on a regular basis. Critical health parameters such as engine temperature, oil pressure, coolant temperature, oil pump, alternators, tyre pressures – each of these are tell tale signs of impending failures. Monitoring and forecasting typical parts for failure such as oil seals, crank shafts, pistons, rings, gear box components, axle and wheel components etc, can be proactively stocked at the nearest dealer / depot for quick access. Time of day usage based planning – CE’s typically are used both in the day and in the night at construction sites. By analyzing the time and usage patterns service and technician planning can be effectively done, with adequate spares available.

implementation of optimization, real-time data can be used to directly drive decisions making such as autoindenting, field support resources planning etc. Predictive failure forecasting and analysis – by utilizing advanced analytical models which use the past data and mathematical models, it is possible to predict impending failures – these often are a result of a sequence of pre-defined events. Access to real-time telematics data allows predictive engines to match signatures and predict failures. This prevents large scale recalls. Conclusion: Automotive/CE players need to be more customer-focused to be able to achieve success in telematics. Looking at the telematics services from the point of view of the customer and not merely from the technology capabilities point of view would help configure a successful offering. At the same time, automotive players need to make their way through a maze of technologies and business players not all of which have been part of their traditional business. Speed of innovation in telecommunications and electronics, complex array of partner ships, changing customer preferences and evolving standards are some of the issues that they would need to address in order to create a winning pitch. There are a number of ways in which they can go forward with a telematics based solution but each path brings with it its unique set of benefits and risks. One thing is clear though, those who are not able to run with the customers and their mobile needs run the biggest risk of them all, the risk of sitting at the sidelines and watching others snatch their customers away.

Automated integration to ERP Systems – In a more advanced

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Lead Lead Story Story

Strategic Eliminate the Biggest Hidden Supply Chain Waste

Packaging is normally seen as an insignificant component of the total supply chain cost in comparison to the outlays for logistics and products. However, the budgeted costs each year for packaging are quite different than the real total cost of ownership. Poor packaging choices do result in unanticipated costs through excessive waste.

DK Rai

Director Automotive business at CHEP,

Poor packaging choices can be the single biggest source of waste in today’s supply chains, according to CHEP, the world’s leading provider of standardized reusable container and pallet pooling. But selecting the right packaging strategy can create a powerful competitive advantage for manufacturers and tier suppliers alike. DK Rai, Director Automotive business at CHEP, writes about eliminating waste through packaging.

In fact, packaging has its own set of deadly wastes. The packaging costs that are normally budgeted or what manufacturers think they are paying are far different to the reality. An example of such a hidden waste is higher freight costs as a consequence of poor packaging resulting in ‘shipping air’. This means that due to either poor stack-ability or poor part pack density, trucks or sea containers are not fully utilized. This “wasted” cost is normally seen as an increase to the “freight” budget as opposed to the packaging one. Other hidden costs exist as well, including reverse freight costs for returning empty containers to the supplier base as well as the rework and replenishment costs due to poor part protection resulting in damages. Additionally, increased pipeline inventory is a result of longer dwell times produced by repacking or decanting activities – or the cost and environmental impact due to disposal and landfill,

to name just a few. If packaging is seen as an integral part of supply chain planning (pull system), a huge amount of waste could be eliminated. It is therefore important to view the “cost of packaging” in the context of the Total Cost of Ownership. Most companies in the automotive sector already know the benefits of using reusable packaging. However, when OEM and suppliers choose to insource the ownership of reusable packaging, the cost of capital, management, maintenance and return freight are also significant. That appears to be the main reason why many companies still choose one-way packaging for long-distance supply chains. The irony is that longer supply chains tend to have the highest hidden costs. There are many more touch points involved before the parts arrive at the assembly plant. A typical intercontinental shipment can be handled up to 20 times before the part is ready for presentation at lineside, incurring a variety of wastes along the way. The challenge is in finding a balance between reaping the benefits of reusable packaging and avoiding excess capital outlay and ownership costs. This is almost impossible with an “insourced” packaging strategy. By outsourcing the ownership and management of Supply Chain Management Professional February 2016

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Lead Story

packaging, the right focus can be achieved to find this balance. Re-usable packing 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. Packaging has traditionally been managed within its own nodes at Tier I and Tier II component suppliers. When sending just-in-time components into the vehicle manufacturers (OEM) only reusable packaging is used, however, whatever is used throughout the supply chain varies in a multitude of ways. There is everything from gunny sacks to wood packaging, as well as a large amount of corrugated cardboard and polypropylene. If reusable plastic crates are used, often they are not cleaned to specification and the management of them by individual suppliers requires dedicated people and a lot of coordination with the logistics provider to get them returned in time for new shipments. The largest issue with this situation is there is no standardization in the packaging material. Standardization is what will be the first and most

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important step to building a strong logistic infrastructure across the country. There has been an excellent effort to make the plants as best as anywhere else in the world, developing components that are of the best quality when they leave the factory. The next step is to insure what leaves the factory is in the same condition when it arrives to be assembled on the car. Standardization of pallet sizes and crate types drives the efficiencies in pack density and truck utilization we all desire. It allows for the automation of processes when handling which improve handling time and quality. The same can be said for the efficiencies brought to loading docks, truck and rail container sizes and the actual handling equipment that will load and unload them through standardization.

The beauty of our standardized solutions is that we can facilitate that all while optimizing international logistics, not just local and national. It is safe to say, that after several years of debate and testing of different packaging solutions, the battle has been won

by standard reusable packaging. This is because reusable packaging optimizes overall supply chain costs. It does this by delivering pack density and utilization benefits from the points of production right up to the line side delivery and line optimization at the OEM. It reduces damage, especially during monsoon season while providing better transport and storage efficiencies at the warehouses. And more importantly it eliminates the removal of unwanted waste and the space and labor required to do so. Space savings can also be found at the inbound warehouses were decanting and double handling into reusable currently takes place. Since we play out the packaging to work from the point of production to the point of consumption there is no double handling or decanting into reusable bins required. The space, labor and potential damage of this extra handling is eliminated. Indian passenger car, two wheeler and three wheeler production have been experiencing a long period of growth. To move an entire OEM and its suppliers to reusable packaging will take a significant amount of

capital. Capital that could be better used at the production level. With several new vehicle manufacturing plants announcement in the last few months, close consideration must be made regarding any solution that lowers the impact of high amount of capital to produce cars.

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Feature Feature

Supply Chain Complexity and Performance Measurement Deepak Bartwal

Demand Planing Manager, Godrej Consumer Products Ltd.

Complexity is inherent in Supply Chain of any business, be it manufacturing, process industries, retail, IT etc. Evolved supply chain processes aim to reduce/avoid complexities for higher efficiency i.e. on time delivery, optimum inventory etc. However, some of the complexities are unavoidable due to market demand, competitive environment, industry standards, new product launches, new technologies etc. In fact most of the large supply chains are significantly complex than the traditional supply chain due to their wide distribution reach, high range of product assortment and faster delivery times. Deepak Bartwal, from Godrej Consumer Products writes on measuring performance in a complex supply chain.

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Feature While complexity seems to be an integral part of modern day supply chain, it demands increased level of system flexibility and functionality to deal with it, otherwise it may reduce efficiency drastically or simply fail (result being most of the supply chain professionals reacting to complexities instead of system handling it). Meanwhile, supply chain parameters are measured irrespective of level of supply chain complexities. Some organizations may change/relax the KPI measurement for exceptions like new products but overall complexity is never measured over time. In this article, a method is proposed to measure the relative complexity of a FG supply chain, against which we can analyze supply chain performance matrices. This will also help in taking necessary actions to improve the supply chain efficiency. Factors of Complexity Firstly, we have to list down the most important supply chain elements which makes the supply chain simple or complex. These elements will be vital part of any supply chain. Only thing we have to measure is the degree of variation from simple to complex supply chain. Although there could be multiple elements but below are the important one. Combined factor of variation in these elements increases/decreases the complexity. ● Number of Relationships in Network ● Variety of Products (Changeovers over planning period) ● Ever changing Demand Plan ● Accuracy of demand plan ● Reliability of demand plan

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way this defines the spread of supply chain. More number of links will increase the complexity of supply chain. The complexity factor for this element will be ratio between of total number of links and ideal number of links. In below example, in ideal scenario, a product should move from one factory to all CFAs and only one changeover over one planning period (this standard can change from organization to organization) while reality will be somewhat different. Factory capacities, excise benefit, labor issues, geographical reach etc. will increase the count of factory, CST will increase the number of warehuses, while CFA size and lead time will lead to establishment of mother godowns. RM/PM sourcing strategies i.e. domestic vs international etc can also be incorporated. Similarly, manufacturing processes i.e. special packaging, manual processing etc. can also be incorporated. Above is just an illustration of a FG supply chain complexity, similar factor can be derived for procurement or transportation vertical. 2. Variety of Products Frequent changeover in a product not only increases the interaction in supply chain but it also increases the complexity multi-fold. More number of changeover will lead to higher probability of error in planning/ execution. And probably this factor contributes maximum to the issues in supply chain performance. In below example, planning period is considered 3 months period. Actual Links

Ideal Links

1. Number of Relationships

Vendors

4

1

This explains the total number of links in supply chain or number of interaction point through which a product moves to reach to selling point. It can start from vendors to Factories to Mother go-downs to Godown with number of Products. In a

Factories

2

1

Mother Godowns

4

0

Godowns

30

30

40

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Variations are considered against number of changeover. 3. Ever Changing demand plan (Complexity vs Efficiency) Dynamism of demand plan can be a point of debate for efficiency vs complexity. In ideal scenarios, demand plan should not deviate from actual sales but this is far from reality. While there has to be constant efforts to improve the accuracy and stability of short and medium term demand plan, at the same time the variability due to imperfect demand plan generates high level of complexity. a. Accuracy of demand plan The visibility plan for future decides the most of the back end supply chain activities. The accuracy and plan of visibility decide the level of complexity. The low the accuracy, more the impact on supply chain performance. The simplest parameter can be the forecast accuracy of the current month. Error in forecast or plan vs actual can lead to various implication on supply plan. If underselling, future plan will be pushed further while overselling will lead to supply gap in between. b. Reliability of demand plan

While forecast accuracy will impact the supply vs demand for the current month, production and procurement team works on future prospect. Reliability of future demand plans will decide the level of changeover in current month which in turn decides the complexity. This can be measured by comparing demand plan for a particular Relationship month received in Factor various months. For e.g. while planning for Mar, various plan would have been prepared in Dec, Jan and Feb. while Feb being final, backend processes would have begun in Dec or Jan depending on lead time. 0.8

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Feature Total Ideal SKUs No. of Change Selling SKU SKU SKU No. of No. of Region Last Change-over Point CM NM NNM Change Change Month overs Factor -overs -over N & E 15 A A D D 2 30 15 W

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South 9

C

C

D

D

2

22

11

B

C

C

E

3

27

9

79

35

Final Complexity Factor Standard supply chain should have complexity factor of 1. This baseline can be derived depending on supply

0.44

above example, assuming forecast accuracy of 70% and 80% forecast stability will lead to complexity factor of 5.0.

between Complexity and KPI performance. This can give us if our supply chain is able to perform under given complexity or not. Also whether given complexity is needed or internally originated. If supply chain performance deteriorates with higher complexity, definitely there is time for change in supply chain strategies, assuming most of complexities have originated from business need. With the competitive market

Impact on Supply Chain Performances Low Complexity

High

Low No issue Necessary complexities as per design- e.g. multiple factories/vendors to avoid risks

chain design of any organization. Inverse of the multiplication of all of the above four factors will give level of supply Chain complexity. We can analyze and compare the performances of various times. This can also help in deciding whether performance is improving or not. In

Complexity Factor= 1 / (Number of Relationships*Variety*Forecast Accuracy* Forecast Stability) Higher the complexity factor, higher the complexity of supply chain. Final thought We can simply draw a relationship

High Change the Supply Chain Design Rationalize the Complexities or redesign the supply chain dynamics, supply chains are bound to be more and more complex, however to generate high level of performance, we need to identify the necessary complexities and optimum supply chain design. Unidentified complexities can simply create more disturbance in supply chain.

Established in 2007, Spark Logistics Pvt. Ltd. is a Integrated Supply Chain Management Solutions Company based in Mumbai offering high-quality, customized services to both B2B and B2C (E-commerce) customers.

704, Exim Link, 7th Floor, Mulund-Goregaon Link Road, Nahur (West), Mumbai - 400078 +91-22-2566 8550 / +91-22-2566 8551 marketing@sparklogistics.com / admin@sparklogistics.com | www.sparklogistics.com Supply Chain Management Professional February 2016

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DEMAND

PLANNING & FORECASTING FORUM

Nominate

Yourself for the 2nd ISCM Demand Planning and Forecasting Award 2016

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th May 2016

The 2nd ISCM Demand Planning and Forecasting Award 2016 is back. Institute of Supply Chain Management along with SCMPro is organizing The Demand Planning and Forecasting Forum – on Mumbai on the 19th May 2016. Demand Planning Forum celebrates the demand planning and forecasting function in Indian companies, by recognizing and sharing the best practices adopted by both individuals and companies. ISCM invites top companies to share with it the demand planning process.

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Snapshot of Demand Planning and Forecasting Forum, Feb 2015

ISCM will invite top Indian firms to apply for the Demand Planning and Supply Chain recognition. ISCM will shortlist the top 20 entries for jury deliberations The top three best in class forecasting processes – both individual and Corporate categories will be invited to present their case at the forum The Best Six processes will be honoured with the “ISCM Demand Planning and Forecasting of the year” award. The presentation will happen on the 19th May, 2016 at The Orchid, Mumbai.

How to Participate?

To start the process, please register your interest in participating by sending us a mail expressing your interest. We will send you a structured questionnaire. There are three categories we have chalked out- a series for the individual contribution to the function and a separate series for corporate achievement – both in the user and service provider categories.

Nomination Fee ` 15,000 Plus Taxes

For Further Information Contact us: To Partner with us: Riddhi.solanki@scmp.in, To Register: Bhavi.shah@scmp.in Tel.: 022 60020156/ 57/ 58, W.: www.iscmindia.com

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Opinion

LPI

How to Improve Our Logistics Performance?

Across the world, Governments realize that logistics is the key pillar for economic development. To play an integral role in global supply chains, nation states have to develop their logistics sector. Inefficient logistics is a drag on the economy and reduces its competetiveness. In a seminal report titled “Logistics Performance Index”, the world Bank has been debating the role of logistics in economic performance. The report is published once in two years. The next edition of the report is due this year. The Editor of SCMPro, Girish V S takes a look at the LPI report and opines on the ways to improve it.

Every two years, starting 2007, the World Bank publishes the LPI report. The 2014 report - Connecting to Compete 2014 – ranks Germany as the number one nation, and Somalia as the worst performer. If you see the broad trends across the four reports – in 2007, 2010, 2012 and 2014, we see a convergence, with lower performing countries improving their score relative to the developed nations. The figure below shows this broad convergence.

The interesting fact is that India has steadily fallen behind in the LPI rankings. The 2007 rankings placed India at the 39th rank. This has steadily deteriorated to 47 in 2010, 46 in 2012 and 54 in 2014. We seem to be one of the countries who are moving in the opposite direction. See the graph below. The dark blue line represents Germany, ranked number one.There is a significant distance between India and Germany.

Source: LPI2014.pdf, Worldbank The LPI report has two sections – the International LPI and the Domestic

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LPI. The International LPI reflects the views of foreign entities who operate in a country. The Domestic Scorecard is created by a survey of logistics professionals who assess the logistics environments in their own countries. The International LPI reflects six dimensions of trade customs performance, infrastructure quality, Ease of arranging shipments, Quality of logistics services, Tracking and tracing and timeliness of shipments. These measures reflect the perception of the state of logistics in a country.

Why should we look at the LPI at all? Research by the World Economic Forum has shown that improving just two LPI parameters – Customs and transport would lead to a 4.7 percent (USD 2.6 Trillion) increase

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Opinion

ranking of 129 in 2101 to 83 in 2014 based on reforming and modernizing its import, export, and transit operations. India could take a leaf out of this and focus on e-enabling its processes, improvingthe quality of its cargo handling equipments, introducing drive through x-ray scanners and improving its customs risk management capabilites. All of which are within the scope of individual port authorities. The industry needs to put pressure on ports to modernize.

in Global GDP and 14.5percent (USD 1.6 Trillion) in Global Trade. On the other hand, removing customs tarrifs would add just 0.7 percent (USD 400 Billion) to Global GDP and 10.1 percent (USD 1.1 Trillion) to Global Trade. Clearly, there is merit in focusing on LPI.

railroads, roads, information technology);

On the other hand, since it reflects the views of professionals from other countries who have to deal with the Indian logistics sector, it can decide how well we can integrate ourselves into global trade. Even if the Prime Ministers pet theme of Make in India were to take off, it would stumble at the logistics interface. We may make, but it will not go anywhere – not unless we take steps to improve our standing. We look at some of the measures that we need to take to make Indian logistics world class.

5) Ability to track and trace consignments;

The LPI report measures the following six dimensions: 1) Efficiency of the clearance process (i.e., speed, simplicity and predictability of formalities) by border control agencies, including customs; 2) Quality of trade and transport related infrastructure (e.g., ports,

3) Ease of arranging competitively priced shipments; 4) Competence and quality of logistics services (e.g., transport operators, customs brokers);

6) Timeliness of shipments in reaching destination within the scheduled or expected delivery time. Look at it closely. Some of them need government assistance. Some do not. Three of the above measures – Customs, Infrastructure and Service quality are areas for policy regulations. The other three, Timeliness, International Shipments and Track and Trace deal with service delivery and performance. Areas where we can improve without governmental help. Rationalization of customs tarriffs may be part of the policy input, but improving port infrastructure and deploying IT solutions are a function of technology and does not need government policy. A country like Cambodia has moved up from a

Take the another metric – Ease of arranging competetively priced shipments – this is a reflection on the entities invoved in the shipping process – this has two components – direct connectivity and charges. Again areas where the government has little role to play. The third dimension – competence and quality of logistics services – for a service economy we are poor even in this measure. Two issues draw us down – lack of trained and motivated staff and reluctance to invest in efficiency tools like IT systems. With a little investment in their human resources, both in terms of training and compensation, and adopting enterprise solutions –not necessarily the top of the line solutions – we can definitely improve our ranking. The fourth dimension – ability to track and trace requires investments in tracking devices and solutions – again something which the players in the sector have to do. Nothing that the Government can do. I am reminded of the words of Cassius in Julius Caesar - “The fault, dear Brutus, is not in our stars, But in ourselves, that we are underlings.” Clearly, if India has to improve its logistics performance, it needs to turn to the entities involved – not sit back and wait for a budget to change things. Time to wake up and smell the coffee.

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Academic Advocacy

The Supply Chain Becomes the Demand Chain

Martin Christopher

Cranfield School of Management

An enterprise sources raw material, processes it and delivers it to a customer. The entire set of participants – from the source of raw materials, intermediary processors, manufacturers, distributors, retailers and warehouse and logistics service providers form the value chain. Traditionally we think of this chain with the manufacturer pushing the product along the chain. However, the emergence of newer manufacturing models like 3D printing and the availability of vast amounts of data can help firms run their value chains with lesser inventory and at the same time provide rapid response to customer demands. According to the authors, this will help craft a supply chain that is both lean and agile – the call it “leagile” - a feature that was thought not possible. This focus on low cost manufacturing and efficiency is now being replaced by the need to deliver superior value to the customer. When the customer has multiple choices, she will tend to go with the better value proposition. Another issue is the rising volatility in input prices. Firms need to take a nuanced view of their requirements. The authors believe that to respond effectively to these changes, firms need to focus on Demand Chain Management instead of Supply chain Management.

Lynette J. Ryals

Cranfield School of Management

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This article presents a powerful argument for re-evaluating the supply chain management practices – and move towards demand chain management. The authors identify wastage of resources as far greater challenge, rather than scarcity. There was a time when the customer would buy the product offered to her. But in an internet enabled world, where

Slowly, we are waking up to the concept of demand chain – not supply chain. A few firms have started the process – to focus on the demand pull instead of push to define their value chains. For this issue of Academic Advocacy, we review an article written by Martin Christopher and Lynette Ryals of Cranfield School of Management. The article was published in Journal of Business Logistics 2014, 35(1): 29–35 the consumer can shop for her requirements from across the globe, firms need to shift focus to meeting the customer preferences. We are moving into a world where the firm needs to responsive. This brings a second issue into focus – the necessity to bring the marketing and supply chain departments together. Demand creation – the function of marketing and demand fulfillment – the function of the supply chain are linked and hence need to operate together. Therefore, firms need to manage them as closely coupled departments, and not as independent silos. The articles cites the example of this changed thinking – Rolls Royce, the once troubled aircraft engine manufacturer rethought its business model from selling aircraft engines to “power by the hour”, where instead of paying a one time cost for the engines, customers pay per hour of flying time. Rolls Royce branded the service TotalCare. TotalCare is a service concept based upon predictability and reliability and covers service elements such as predictive maintenance planning, work scope creation and management plus off- wing repair and overhaul activities - rewards reliability, a factor customers value. “Customer Centric” should move across from the marketing function to the demand fulfillment function too. Going forward, firms will need a world class, responsive demand chain, apart from great products. Written in simple, lucid style, the article is a must read for supply chain professionals who wish to transform their firm performance.

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Feature

Challenges Posed by Globalization of Supply

chains on logistics and operations –a way forward The globalization of the supply chain leads to complexity and drives the need for expertise and investment in the system. Visibility of the global supply chain becomes pivotal of any enterprise. Key Challenges posed by the globalization of supply chain on logistics and operations are:

Lalit Das

Founder and CEO, 3SC Solutions Pvt Ltd

Over a period of time, we will see accelerated product development and deployment in the Indian market. This calls for a rethink on existing supply chains. The future belongs to organizations who can upgrade their supply chains to global standards. Lalit Das, Founder and CEO, 3SC Solutions Pvt Ltd writes about what it takes to build a globally competitive supply chain.

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● Strategy to produce the products and its variants: With increase in the number of products and its variants as well as production at various places according to the needs of the market and resource availability, the complexity across the supply chain has increased to a great extent. Companies are facing great challenges to strategize their way of operations and making huge investments depending on the needs of the market. ● Managing demand variability: Since the demand for products across various markets is not consistent, it becomes difficult for companies to accurately

forecast and deliver products to customers. Inaccurate forecasts may lead to shortage or excess of inventory, which may result in poor throughput. ● Product life cycle: Product life cycle is getting shortened day by day with advancement in production technology, which leads to obsolescence of products. The lead time for the delivery is also thinning which adds to their complexities. ● Volatility of the market across the globe due to political and macroeconomic factors: The market today is not stable. Changes in value of currencies continuously across the globe, economic instability in different parts of the world, political unrest, supply chain frauds, impact of diseases (e.g. Ebola) etc. leads to problems in the supply chain. ● Visibility of the entire supply chain cycle: Since suppliers, manufacturers and end customers are present across the globe it has

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Feature added to the complexity. There is no visibility across different channels of supply chain from order placement to shipment to delivery of the product. ● Obsolescence of technology due to fast changing ecosystem: To meet the ever changing requirements of customers, firms have to harness the potential of technology, both in their production processes and their supply chains. Rapid changes in technology exposes firms to technology obsolescence. Organisation need to update themselves from time to time to be in competition. ● Cost variability across the supply chain: Due to the operations in different countries, there is variability in operation due to different trade policies involved in different countries. It also varies due to different trade policies involved across the globe. ● Logistic Market Immaturity in Low Cost Countries: Since such countries don’t have developed supply chain management practices, it becomes difficult to penetrate and service the market. To do so, huge amount of infrastructure and cost is required to first establish and service the market. ● Complex trade and compliance across borders and boundaries: There are significant differences in trade policies across countries which needs to be adhered to. It becomes difficult for the organisations to be compliant by themselves. They need to have a separate department to do all the activities related to this or need to hire a third party for keeping track of compliance. To overcome these challenges organisations have to build capacity according to the needs of the market or hire third party logistic providers to provide them with services.

Overcoming these challenges is not an easy task. Firms can do the following to ensure sustainability going forward: ● Strategy for collaborating with different supply chain partners: Companies need to collaborate with third party providers like supply chain partners, supplier logistics providers and customers to provide them services by putting them on one platform. This helps in the reducing the complexity in logistics and operations as they can know the demand of the market as well as the production status. Example: Dell sell using configure-to-order (CTO) strategy to avoid having huge inventory and produce according to the needs of the market. ● Visibility and transparency of supply chain: The need of the hour is to track and trace the status of shipment at any particular time. This can be done using a control tower that manages the location of the shipment from order till delivery of the products. Example Merck Emerson Air cargo Control Tower delivers the information of shipment through their web portal. ● Effective Product Life Management and information/ data and its analytics to minimize errors in accuracy for Demand Forecasting: Effective management of available information and ability to analyze data can help in better forecast. Example: Apple produces based on Make –to-order (MTO) to reduce their inventory by forecasting. ● External Factors that affect supply chain: Aggregation of variability to a dashboard to assign a solution for the various factors on one platform. The variation in factors can be handled using market intelligence.

● Creation of Global Control Tower across the supply chain: Due to increase in the complexity of the supply chain and various parties involved in the supply chain from the ordering till delivery, there is a need to have one platform for bringing different partners on one platform. Example British American Tobacco (BAT) have collaborated for the implementation of a new global integrated logistics solution with support from Kuehne + Nagel. ● Minimize obsolescence in IT system through SaaS: Organizations need to update their software to stay and compete in the market. It could be difficult as well as costly for the organisations to buy the required licenses for all software. Instead of this, the organizations can adopt SaaS (Software as a service), which is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. It is typically accessed by users using a thin client via a web browser. ● Best practices by bringing global trends to local market in Low cost Countries: Since these countries do not have the technology implemented, organisations can tap these market by bringing the best technology and implementing them to provide the best services. Example Ultra Logistics ● Unified Supplier for trade and compliance: A third party service provider can be hired to keep a track of documentation for shipments across globe. Since the challenges posed by the globalization of supply chain are increasing day by day, organizations need to keep a track of the changes in the market and overcome them to be competent in the market.

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LSP Focus

Focus on ASEAN

ASR Logistics

Rajendra Singh Rao

Director, ASR Logistics India Pvt. Ltd.

At a time when the country is resonating to Make in India and when the spotlight is on Small and Medium Enterprises, SCMPro decided to engage with an SME logistics player – ASR Logistics. In a freewheeling discussion with Girish V S, Editor SCMPro, Rajendra Singh Rao -Director, ASR Logistics India Pvt. Ltd. spoke on a variety of issues that a SME player has to face. And how he built the firm – wheel by wheel. We bring you excerpts from the interview.

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On the inspiration to enter into logistics as a business Logistics, or to use the current favorite expression - supply chain management is not an appealing sector for many people. However, if you run a tight operation, it has the potential to deliver as much value as any other industry. I come from a non-business family. My father was an army man. When I was looking at options to start up on my own, I felt logistics is one area where I can easily understand. I set up a small operation, and today have been able to set up a good business. I have

been in this business for 16 years – four of them as an employee and twelve years as an entrepreneur. The logistics sector is growing year on year, thanks to our huge population which will continue to consume. And as our incomes rise, we will see an increase in domestic as well as overseas trade pick up. Any increase in trade is business for the logistics sector. I believe the sector has been growing at 16 to 18 percent, over the past few years. The proof of this is the increasing traffic at our largest container port – JNPT and in the air cargo movement. When I started ASR, the number of BOE

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LSP LSP Focus Focus

booked per day in JNPT was 700. Today that figure is 5000. Over and above this, the present Government encourages the growth of logistics sector. The economy is back on track and I believe the “achhe din” for the logistics sector is a reality. The Prospects for global trade The global economy is set to stabilize. The World Economic Outlook has projected that the world economy will grow by 3.4 percent in 2016 and 3.6 percent in 2017. While China may slow down a bit, India will continue to be the world’s fastest growing large economy.

However, consumer demand is down. Unlike the 2008 recession, caused by a few financial firms failing, the current slowdown is due to reduced consumer demand. Hopefully, the predictions of WEO will hold true and we will get back on the growth path. Compared to the global situation, India is better placed. OROP and seventh pay commission will boost the income of a large segment of our population. This will boost the demand of the local economy. We will see better growth going forward. The sharp drop in oil prices has changed the dynamics of global

trade. Shipping a 40 feet container from Shenzhen, China to Los Angeles, USA costs around USD 1300. And shipping a similar container to India costs USD 300. A year ago, this used to cost USD 1300. We can see a consolidation among shipping lines across the world.

On Sustainability and safety issues impacting logistics sector For a very long time we have been talking about the poor state of the Indian logistics infrastructure. The quality of our roads are one of the Supply Chain Management Professional February 2016

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LSP Focus worst globally. Our rail connectivity is poor and subservient to passenger traffic. Our ports are slow, and suffer from poor connectivity. But to add to these worries, the recent debate on the use of diesel as a fuel, and the concern about older trucks not allowed entry into cities is a cause for concern. We all agree we need to clean up our environment. But can the logistics sector alone pick up the tab? Can this happen unless the customer is willing to pay more for an environmentally friendly transportation sector. India is a huge country. It is estimated that trucks transport 70 percent of our goods. Under these circumstances, we cannot do away with diesel. On challenges to logistics sector There are a few other issues. None of the Indian truck manufacturers provides seatbelts. Trucks do not have to meet any safety standards like cars. Probably, the trucker’s life is not as valuable. In the developed world, there are lanes reserved for trucks. We do not have it in India. There are no medical facilities along the highways. Drivers are not treated with respect. While we talk about safety from every forum, on the ground, there is no focus on safety. We can see signs of improvement. Since we are in the clearing industry also, we are seeing a huge amount of bitumen imported into the country. Bitumen is used only in road construction. Which means we will see more roads. The quality of these roads may be suspect. We need a process in place to ensure better quality in road construction. Countries like Singapore, which receives as much rain as India does has better roads. Look around the world. Indian firms are building roads in Dubai. The quality of roads is far superior to Indian roads. And to top it, they are far cheaper than the costs in India. A third concern is tolls. The government has built toll roads across the country. These toll nakas

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see huge queues. Trucks are forced to idle at these toll stations, causing severe pollution and simply burning fuel. A recent report in the Times of India mentioned that Waiting at toll nakas lead to fuel wastage and inventory related delays to the tune of Rs 87,000 crore annually. In developed countries, pre-paid cards with near field communication is used to pay tolls. We did start a pilot – called ETC. But it is not used by trucks! A fourth challenge is lack of standardization in trucks. In India, we buy trucks based on our own perception of its economies. This will create a few problems – for example, due to this non standardization among trucks, we need to install levelers in our loading docks. In most cases, the truck and the loading dock are not on the same plane! The great Indian jugaad will now come into play, with people using metal sheets to adjust the levels. One reason for this lack of standard truck bodies could be the way in which we sell them. The manufacturers will sell the chassis. The buyer will then take the chassis to his truck body builder and get it constructed as per his fancy. In developed nations, we can buy a fully built truck straight off the dealership, much like the way we buy cars. On their business model Given the challenges in the logistics sector, we have taken a conscious decision not to own any trucks; we are focusing our energies in the container business. We have 1100 containers at present and plan to add another 600 containers this year, and by the end of next year, we will own over 2000 containers. This is subject to the market developing. Our focus is on the international trade. Probably, once GST is rolled out, we may think of doing some domestic business. We may start our domestic operations by 2017. Our focus is the ASEAN trade. We have offices in Singapore, Malaysia, Thailand, Vietnam, Myanmar, and

Indonesia. The Indo-ASEAN free trade agreement has benefitted us. Previously, we used to handle a large quantity of yarn shipments from China. This has shifted to Indonesia because of the ASEAN free trade agreement. We are watching the Indo ASEAN road and rail link project. We believe that it will be a long time before it becomes operational. For the time being, the trade will be through sea routes. Moreover, road transport is viable for distances up to 300 kilometers. Till 800 kilometers, rail is a good option. Over 800 kilometers, sea is the best option. It is the distance that determines the model. For example, the cost of transporting a 20 feet container from JNPT, in Mumbai to Colombo, is around USD 100 – that works out to INR 6800. If we transport the same container from JNPT to Delhi, it will cost us around INR 45000/Strangely, sea is faster. A vessel transits from JNPT to Colombo in 36 hours. No truck can reach Delhi in 36 hours! But there are some hidden delays here. The sailing time is 36 hours. But there is no timeframe for a ship to dock at the port. In Singapore, a ship can berth, load and unload, and leave within 12 hours. In India, we do not have any fixed time frame. If we have to take advantage of the low cost sea freight, we need to focus on port planning. We need to plan in advance, the containers to be offloaded or loaded on to a vessel. In Singapore, you can simultaneously load and unload a ship. This does not happen in India. We do not have the will to do it. A vessels of 3000 TEU can be turned around in 12 hours. In India, it takes upward of 48 hours. Whether it road, rail or sea transport, we have severe challenges. It is up to us to create the right environment to help our trade increase. It is up to us to remove the friction in trade. If we fail to do so, we will be victim of our inefficiencies.

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8-9-10, June, 2016 Pragati Maidan, New Delhi

www.IndiaWarehousingShow.com To Exhibit, Contact: Akshita Kapoor | +91-9811715124 | Co-located Show

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Human Resources

New ITUC Report Exposes Hidden Workforce of 116 Million in Global Supply Chains of Fifty Companies The global supply chains of 50 companies employ only six per cent of people in a direct employment relationship, yet rely on a hidden workforce of 94 per cent according to new research from the International Trade Union Confederation. We bring you summary from the report. You can find the entire report at http:// www.ituc-csi.org/frontlines-report-2016-scandal.

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Human Resources “Just 50 companies including Samsung, McDonalds and Nestle have a combined revenue of $3.4 trillion and the power to reduce inequality. Instead they have built a business model on a massive hidden workforce of 116 million people,” said Sharan Burrow, ITUC General Secretary.

on, these profits risk safety with the result of indefensible workplace injuries and deaths; that these profits are increased by tax evasion or tragically linked to pollution of community land and water.”

The ITUC report, Scandal: Inside the global supply chains of 50 top companies released on the eve of the World Economic Forum in Davos exposes an unsustainable business model, with a global footprint that covers almost every country in the world and profiles 25 companies with headquarters in Asia, Europe, and the United States.

“When global business won’t pay the moderate demands of workers for a minimum wage on which they can live with dignity, $177 in Phnom Penh, $250 in Jakarta, $345 in Manila – then this is knowingly condemning workers and their families to live in poverty. It’s greed pure and simple,” said Sharan Burrow

“Sixty per cent of global trade in the real economy is dependent on the supply chains of our major corporations, which uses a business model based on exploitation and abuse of human rights in supply chains,” said Sharan Burrow. ITUC research shows: ● The cash holdings of 25 companies of $387 billion could increase the wages in their combined hidden workforce of 71.3 million by more than $5000 for a year; ● The combined wealth of 24 companies in the US from including Amazon, Walmart and the Walt Disney company, could buy Canada; ● Nine companies in Asia including Foxconn, Samsung and Woolworths have a combined revenue of $705 billion, the equivalent value of the UAE; ● Seventeen companies in Europe including Siemens, Deutsche Post and G4S have a combined revenue of $789 billion, the equivalent value of Malaysia. “Profits are driven by low wages levels that people cannot live

The ITUC has set out five recommendations for companies to address the scandal of global supply chains: ● Supply chain– know whom you contract from and publish this; ● Safe work – inspect sites, fix hazards and recognize workers’ right to safety committees; ● Secure work – end short- term contracts; ● Minimum living wages – pay wages on which people can live with dignity; ● Collective bargaining – for wage share and decent wages and working conditions. “The number of global framework agreements between multi-national companies and global union federations which address these problems and establish a sustainable footing for the global economy are

on the increase, but we still have a long way to go. Governments must not neglect their responsibilities,” said Sharan Burrow. Labor leaders at the World Economic Forum in Davos will be putting forward a four step plan to transform the business model of global companies and address inequality: ● Employers ensure fair distribution of wealth through minimum living Supply Chain Management Professional February 2016

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Human Resources wages and collective bargaining based on the fundamental guarantee of freedom of association; ● Safety standards are respected with workers in engaged in safety committees; ● Government leaders should implement and enforce the rule of law, mandating the due diligence that the UN Guiding Principles for Business and Human rights demand; ● Governments prioritize the dignity of the social protection floor for their people. “Only by exposing the practices of these companies to consumers and citizens around the world will companies begin to take responsibility for their supply chains and follow the rule of law,” said Sharan Burrow. What is a global supply chain and how does it undermine workers? A supply chain is the system that companies use to source and distribute their products and services from origin to customer. Globalization has heralded a new era for companies turning to lowercost suppliers offshore to maximize profits. Today the majority of the largest multinationals exploit complex global supply chains through countries in which they source cheaper raw materials, use low wage labor, escape government regulation and reduce taxation. Some companies have made public commitments to ensure fair wages, long-term contracts and safe and secure workplaces, but this is by no means the norm. And even companies that have made these commitments have been slow to implement them. In many cases global supply chains squeeze local suppliers,

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manufacturers, distributors, wholesalers and retailers. For labor, companies often look to the lowestcost countries to make investment and sourcing decisions, in particular when the production processes do not require highly skilled labor. This puts considerable pressure on wages and working conditions, particularly in labor-intensive sectors, with companies shifting operations from higher-to-lower wage countries creating a “race to the bottom”. It is often claimed that the “economic upgrading” in global supply chains will automatically translate into social upgrading for workers. In reality this only happens when the rule of law is applied. Due to pressure from global buyers, employment in global supply chains is often insecure with poor working conditions and frequent rights violations. Precarious, temporary or outsourced work or bogus selfemployment is a common strategy to drive down costs. Fast production schedules at cut rates remain the norm, with little respect for rights and standards. Indeed, forced labor, child labor, anti-union discrimination, forced overtime, hazardous workplaces and unpaid wages and social contributions are common in such supply chains. Employment is often affected by fluctuations in demand, creating seasonal demand for employment instead of steady jobs. When workers are injured or fall ill, proper compensation is often denied, with companies failing to provide insurance and governments failing to ensure compensation schemes. The absence of social security and pension schemes in many countries also deprives workers of retirement security. For local producers, global buyers often source goods and services

easily from other companies or even other countries with lower costs and less regulations, putting further pressure on suppliers to cut costs. Multinationals often choose to operate in low-labor-cost countries with weak regulatory environments, leaving workers and communities little legal recourse. Governments also fail to provide laws to protect workers’ fundamental rights or establish appropriate standards on wages, hours and health and safety. Where there are laws, enforcement when companies fail to respect them is weak. Meanwhile companies are usually immune from legal action by workers, as host country tribunals are weak and ineffective and courts in their home countries often have no jurisdiction when the violation is caused by a supplier in another country. Even in the case of parentsubsidiary relationships, it can be difficult if not impossible to hold parent companies accountable for the human rights violations of their subsidiaries. The lack of transparency in global supply chains creates significant issues for workers, as companies claim it is difficult to know the source of their goods and services. There are several ways in which companies avoid tax in their supply chains, for example, through the manipulation of transfer pricing. Transfer pricing is the process of setting of prices for goods and services that are traded between, for example, parent companies and their subsidiaries. Firms frequently manipulate prices to lower the profits in the subsidiary that is located in a country that levies higher taxes and to declare higher profits in a country with lower taxes. This tax dodge robs host countries of essential tax revenue to support public services, including labor inspection.

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Budget Budget 2016 2016

BUDGET EXPECTATIONS An INDUSTRY Poll

Every year, in February, the nation is consumed with a major obsession - what will the Union Budget bring to the industry. Every year, the Government invites industry to share with them their inputs. And come up with a budget that skirts most of these expectations. Yet we continue our obsession. SCMPro asked senior professionals from the SCM sector to send us their expectations. We bring you some of the responses. This time around, we hope we are satisfied.

Sarini Sachdeva Chief Executive Officer; Aardour Worldwide Logistics As a common man my first expectations from this budget is that this year Finance Minister should give some relief to the common man and increase the minimum tax bracket from 2.5 lakhs to 3 lakhs at least . In line with rising inflation, home buyers are anticipating that the government should increases the tax deduction limits on home loan interests from the current limit of Rs 2 lakh to at least Rs 3 lakh. Furthermore, there has been a constant demand that the FM comes up with a separate provision for the principal loan amount which is currently included in 80C. Currently, the maximum limit allowed is Rs 1.5 lakh.

Asim Behera COO,Daifuku India Private ltd. Union Budget 2016 has been received with mixed feelings. Some sections show promise such as more allocation for the Railways with focus on freight movement. Increasing 24X7 customs clearance at ports is a very welcome note. But then there are other important sections which didn’t excite

Jatin Luthra Vice President - Global Growth, Zomato. With e-retail’s boom and make in India’s promises, we are at an inflection point where right steps by the government to boost logistics sector will help bolster our overall growth. Some of the key expectations from Union Budget 2016 for

As a income tax payer I would be looking at raising the threshold limits for deduction of tax at source (TDS) and A high-level panel on simplification of income tax laws has recently recommended enhancement and rationalization of the threshold limits and reduction of the rates of TDS. While inflation and growth concerns are two core areas which the Finance Minister has to urgently address, forthcoming Budget must also set the tone of economy through structural reforms. These reforms have become all the more crucial to make the country’s economy more flexible, create growth opportunities as well as incentive investments. Underlying the importance of reforms, at the recent sixth bi-monthly monetary policy announcement RBI said, “Structural reforms in the forthcoming Budget that boost growth while controlling spending will create more space for monetary policy to support growth, while also ensuring that inflation remains on the projected path of 5 per cent by the end of FY17”. too much such as the much talked about GST bill. Most of us are really looking forward for the passage of this bill but it’s not looking too optimistic. Granted GST has been talked about for a long time now but many of us are still optimistic of its passage, whenever it happens; this once realized to its full potential will bring a new era of warehousing and distribution models. The hike in freight rate is going the wrong way with India already having one of the highest logistics cost. To sum it up it would have been nicer if there was more clarity on GST. logistics are: • Implement GST and unify all markets, finally. • Support 100% foreign direct investment in transportation and warehousing • Push towards multimodal transportation • support enhanced usage of more economical modes of transportation, esp. water - Tax benefits / tax holidays for investments in warehousing (esp. cold storages) and transportation - Allocate funds to support skill development in logistics sector to address shortage of skilled professionals - Improve road infrastructure. Supply Chain Management Professional February 2016

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Budget 2016

Chetan Dixit Partner, Keyur Logistics As a supply chain professional, my perpetual expectation from this budget or from any budget for that matter, would always be that it promotes ease of doing business across the country. Without getting into specifics, I expect and wish that in this budget some steps are taken which would quickly push us further towards:

Amit Pandey Senior Vice President, Head – Procurement, SCM, HR & Admin. Tikona Digital Networks Pvt. Ltd. As the GDP growth of India has surpassed China during Year 2015, our expectations from the budget 2016 has also raised. First expectation would be reduction

S A Mohan CEO Maini Materials Movement Pvt. Ltd. ● Introduction of GST : Goods & Service Tax (GST) is long expected to be the next big bang fiscal reform by the Government. This will lead to the abolition of almost all indirect taxes incurred by corporates and customers. With the introduction of GST the key advantage for all logistics companies will be merging of small warehouses to one productive warehouse. We will be witnessing a warehousing revolution in the country, contributing significantly to the economic growth. Centralized and large warehousing parks would be more agile, operate on economies of scale, present huge cost advantage to companies thereby benefitting consumers economic growth. ● Eliminate import duties on components used in electrically operated warehousing equipment.

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1. Uniform and uncomplicated tax structure across the country as envisaged in the long impending GST bill. 2. Paperless (to the extent possible), permit-less, hasslefree & smooth passage and transit of goods across the states. 3. Better infrastructure in terms of warehousing hubs, roads, railroad, air & shipping facilities across the country for freight movement Simply put, any provisions of budget that would help us progress closer to that forever cherished dream of doing smooth & hassle-free business across the country would be fine with me.

in service tax from 14.5% to 12.5% which can help across various sectors & individual tax payers. The 2016 budget should focus towards sustainable eco friendly supply chain by introducing GST, promoting eco friendly warehouses with solar energy, encouraging railway transportation etc. With “Make in India” campaign this budget should also promote already existing make in India companies. The budget should also allocate some funds for training & development of large number of people involved in supply chain & transportation industry.

Material handling & warehousing equipment manufacturers in India are highly dependent on import of electric components for their machines. Reducing the import duties on these components to zero will assist the MHE sector to grow well. Shift from diesel run equipment to much cleaner and greener equipment in a manufacturing unit or a warehouse is need of the hour. This is important to benchmark our warehousing infrastructure to global standards. ● Industry friendly labor reforms to ensure global competitiveness Labour reforms have been a part of our economy since the onset of Factory Act. Make in India initiative has also bought to light, how important is the role of labour in growth of an industry. Many state governments are now coming up with better policies to support their labour force to their best. Industry friendly labour reforms would help us compete better with global players and boost international trade as well. I’m sure our government will fulfil these expectations in this budget and create an environment for graduating Indian warehousing & logistics market to offer value propositions.

February 2016 Supply Chain Mangement Professional

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Feature

Crowdsourcing Delivery Services

is a Way to Omni Channel Success As more and more consumers are getting connected to the web due to increasing penetration of internet connection they have also started doing online purchasing. Bipin Reghunathan - COO, Radhakrishna Foodland Pvt Ltd writes about the new kid on the block – crowdsourcing delivery. Online shoppers are expected to reach 40 million by 2016 as per the study conducted by Assocham and Grant Thornton. According to the study, a significantly low (19%) but fast growing internet population of 243 million in 2014 and 354 million as on June 2015 is an indicator of sector’s huge growth potential in India. This underlines the potential of internet use in India and as Internet penetration increases, the potential of growth of the e-commerce industry will also increase. The ecomm trade in India is fast rising and it is growing at 34% CAGR since 2009. This sector is expected to touch USD 22 billion by end of 2015. Currently 70% of e trade is in e-travel. However etail business is also catching up has grown from $0.4bn in 2009 to $ 6bn by 2015. While brick and mortar sales is still higher and will continue to remain higher for the next 5 to 10 years however today companies cannot ignore the online presence and increase in the sales thru online channel.

Bipin Reghunathan

COO, Radhakrishna Foodland Pvt Ltd

Many companies have started putting in strategy to make their presence online either through platform providers or thru their own web site. The biggest challenge facing them is how to make their omni channel distribution network more reliable and ensure deliveries within the time frame. Supply chain in India is still not designed to serve omni channel networks. A global survey of supply chain professionals has stated

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Feature that their supply chain strategy for servicing Omni channel is not embedded in SC strategy. In this survey 81% of global supply chain professional in consumer goods and retail space believed that their supply chain is not fit for Omni Channel sales. 76% of respondents confirmed significant supply chain transformation rather than incremental change is required to succeed in an Omni Channel world. 34% respondents confirmed that Omni channel is embedded in their company strategy only 24% believed that they have effective responsiveness for traditional as well as Omni channel supply chain infrastructure. (Study conducted by PWC) If such is a scenario in developed world supply chains, India will surely have similar struggle or much worse. Currently the cost of servicing Omni channel is much higher than a traditional sale or modern trade. Majority of respondents as per the survey agreed that profitability due to Omni channel sales is either zero or negative. With the growth in Ecomm, companies in India can’t be behind. Many of them including brick and mortar retailers have started embedding Omni channel strategy in their overall business strategy. However supply chain in India is still not geared up. Today to support omni channel sales, supply

chain relies on following distribution network 1. 2.

Traditional Distribution center Store back end or front end

Traditional distribution centers are designed to do pallet picks or case picks and deliver products only to their distributors/wholesalers or Modern trade. Omni channel requires the picks to happen in eaches. In order to serve the omni channel requirement the picks are to be done in eaches and again it calls for packing the products before it is shipped to customer. DC’s which are designed for B2B operations now have to support B2C operations which increases the complexity and cost. More over traditional warehouse of all large companies today don’t have warehouse management system when they do B2B sales. Imagine the complexity of managing a B2C sales without a proper technology and WMS in place. Further, for serving its B2B customers, a traditional DC uses various sizes of trucks depending on volume loads and each shipment does not carry more than 3 to 4 delivery points. Hence they are finding it difficult to use the same vehicles to serve an omni channel customer. Most companies are now using cargo/courier service for last mile delivery to meet Omni channel sales. Overall, traditional distribution channels are extremely expensive to

serve orders from online customers, which leads to negative margins for products sold through omni channel. Store Back end or front end: Another option for companies supporting omni channel sales is routing the orders thru stores for deliveries. In this, the front end staff will pick order from the backroom and pack it for shipment readiness. The delivery to consumer happens either by using bikers/ taxis/ bus/ auto etc. or using the courier service to fulfill the order. Again, when order is served from store, the cost of fulfilling is higher because store front end staff is engaged. Their cost structure is different and their job description is different. Second the cost of stores is much higher than having a distribution center. The courier cost also adds up to the unviability of fulfilling the order. Moreover, fulfilling from stores if the picks are done from front end shelves leads to inconvenience to in store customers. To some extent it leads to bad customer experience if the products face stock out at shelves. IT challenges for order fulfillment: Another challenge is the IT system. Many companies have developed a system to track online orders from time of placement to time of delivery. Development of IT system to meet online sales and track them through their ERP system till the

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Feature time the product is delivered will be another critical success factor. Companies who have started omni channel distribution are serving their customers in order to achieve the following objective 1. Strengthen the consumer loyalty 2. Competitive difference 3. Improve consumer insight 4. Increase cross category sales 5. Expanded/differentiated consumer base 6. Increase sales However the cost of fulfilling such online sales is still higher which leads to a question whether sales made thru Omni channel is profitable? Preparedness for growth of Omni channel While the current base of Omni channel sales will be much lower for any company in India and may not even be in double digit percentage contribution. However in few years it will cross beyond 10% to 15% or more. In case of retailers it may take a major proportion of overall sales mix. Companies now have to deliberate and formulate strategy to be successful in doing profitable omni channel distribution. a) IT system: Selecting the right system integrated with their ERP and Fulfillment center system. Use of WMS is key for success. Do they need to have Voice pick, RF base picking, sortation machines etc. are areas where they need to focus. How do they integrate their shipments with their service providers for tracking their customer orders? What systems will be required for handling the reverse logistics? These key questions needs to be answered to develop successful omni channel distribution.

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b) Fulfilling the order: Where will the orders get fulfilled from? Whether separate Etail Distribution center is required? If the order is to be fulfilled from stores what kind of back end infra is required? What kind of infra is required for packing the shipments? Does is require a separate team for tracking and serving the Omni channel sales at the retail store? c) Last mile delivery While IT system and way to fulfill the order can be easy part to formulate and implement, the toughest part is doing the last mile delivery in cost effective manner. Today every online sales are offering free delivery options with delivery time ranging from 2 hrs to 4hrs, same day, next day and so on. The challenge will be to deliver the shipments in a short window of 2hrs to 4 hrs. However free delivery for such short window time which is so called hyper local will be expensive and hence the profitability of such sales will always be stressed. The long term solution to sustainable and profitable omni channel sales will be charging the convenience charge for hyper local or same day delivery. Book My Show charges its customers a convenience charge which customers are willing to pay. Why should it be different for etail companies? Unless the etail companies are willing to purposely spoil the expectation of its customers which later on will become difficult to change. In order to meet the last mile fulfillment requirement there can be two approaches which will majorly drive the success of Omni channel distribution. Click and collect: where customer can place online order and collect from its nearest store. In this model it helps the customer of long waiting time at the stilt or time wasted in finding parking space. Once the

online order is place and payment processed with pick up time confirmed by the company, customer can walk in during the time specified or any time after that and pick the product. This will save a customer a considerable amount of time. Crowdsourcing delivery services : Like Ola or Uber which are a platform service provider for user who wants to travel and taxi drivers, Airbnb which provides a platform for travelers who are looking for cheap stay while travelling and owners who have spare rooms in their home and want to rent it out for few days and earn extra income. Similarly for supporting the last mile delivery crowdsourcing delivery model like Deliv and Instacart will be most successful and cost effective model in future. Where a platform can be created for etailers/companies to direct their pick up/ Delivery plans and connect to delivery assistants who are ready to deliver based on per shipment irrespective for which etailer they are doing the delivery. Delivery of a particular location of various retailers can be diverted to an available and connected delivery assistant in that locality based on his workload and ability to fulfill the order within a specified time. The delivery assistant gets paid by the platform provider and etailer is charged for number of shipments they have diverted thru crowdsourcing platform. Finally the ecomm business will be the future of India and sales made thru the Omni channel will be growing at a faster pace. Hence companies needs to be prepared to serve their online sales in most cost effective and profitable method to be successful. The supply chain professionals of these companies have to think now and develop strategy and embed them into their overall supply chain strategy to meet their organizational Omni channel business objectives. We all need to act now.

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Industry Industry Interface Interface

Architecting an Omni Channel Supply Chain One of the significant transformation we are seeing is the shift from the traditional brick and mortar to an omni channel distribution. How has FMCG supply chain evolved? The FMCG supply chain strategy was predominantly a B2B one – everything used to move through a distributor. Now, firms are trying to deliver to modern trade channels – like Reliance Retail – directly. The new trend is the e-commerce platforms – where retail buyers shop on-line and get it delivered to their doorstep.

T. Devarajan Mohan Joint Managing Director of Cavinkare Pvt. Ltd.

All industries need an effective supply chain – sometimes efficient, else agile. One of the industry segments which depend on an efficient supply chain is the FMCG industry. In this month’s interface, the Editor of SCMPro, Girish V S spoke to T. Devarajan Mohan -Joint Managing Director of Cavinkare Pvt. Ltd. on the trends in supply chain in the FMCG sector. We bring you edited excerpts from the interview.

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Industry Interface This has changed the dynamics of the supply chain. In the traditional format, firms used to deliver the product to the distributor. And that was the end of it. The firms did not take any interest in the further distribution. When modern trade came in, each player had their own way of operations – in terms of stock levels, replenishment, and a host of other terms and conditions. The e-commerce channel has a different set of norms – low volume, quick delivery times and spread across a wide geographic area. This has changed the dynamics of the supply chains, in terms of customer requirement. To meet these emerging paradigm, we are tweaking our strategy. We are trying out a couple of things. The e-commerce channel is under development. We are yet to roll it out across the country. As far as modern trade is concerned, we have introduced an intermediate layer. From the supplier to our factory to the CSA and on to distributor, who will maintain stocks. We track the market sales – not our sales to the distributor. The idea is whatever sales happens from the distributor to the modern trade, we will replenish the distributor. Under the earlier system, the distributor would sell in week one, collect in week two and see some returns in week three – creating an endless transaction cycle. Under the new process, we are ensuring that the distributor is holding ten to fourteen days stock, based on the product. Every week the distributors will upload their stock levels into our portal, which is connected to our enterprise solution. We calculate the stock level and replenish the stock at the distributor level. This reduces the inventory levels in the supply chain. How has this impacted your business? Earlier, from the factory to the CSA, we used to keep around four to five weeks stock. The distributor used to

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carry three weeks stock. In spite of this, due to SKU mismatch, our fill rate was only 90 to 92 percent. Once we started the weekly replenishment mode, stock levels have come down to two weeks at the distributor – we managed to save one week’s working capital! We are now able to meet our deliveries with just fourteen days stock. Another benefit, this is particular for our food products, we are able to improve the freshness of the products hitting the market. How did you manage the information flows to achieve this? To gather realtime information, we are using two software products – one for our sales. This software is available to all our major distributors. The distributors can maintain their stock directly on this system. We pick up this data on a daily basis. Today, we know yesterday’s sales. The smaller distributors will update their stock on to our portal. Both these data are pushed to our enterprise solution. The enterprise solution maintains the stock norms. Based on sales, it will generate the order for the distributor. There is no override to these quantities. This ensures that the distributor does not have to deal with fluctuating stocks. He will receive not more than what was agreed. On the factory side, we similarly keep a week’s stock. Whatever is consumed in the week, the supplier is informed, and the supplier replenishes it. This ensures seamless flow of information, without human intervention. Based on the distributor’s offtake, the factory can schedule a dispatch, without directions from the head office. In effect, we have created a seamless flow of information on the customer’s purchase to the factory and on to the supplier. Apart from this, we track high cost inputs and imported supplies to ensure on-time availability.

How do you manage the reverse logistics for your food products? Food products have a short shelf life. To reduce expiry of products, we maintain a strict stock norm. The stock norm will be decided based on the previous four to twelve weeks sales, according to the SKU. There will be no overstocking. However, if we have planned any special promotion, we will adjust the stock levels. In short, our distributors will not place any orders on us. We plan for their sales. This reduces the loss of food products due to expiry date. To manage the return delivery, we have tied up with automobile carriers – they will carry the return load for us. This has proved cost effective. We also plan our milk runs, to reduce transportation costs. Another way is to keep a tight control on the production. We have stringent production norms- which cannot be violated. This leads to a reduced inventory, but sometimes increased batch frequency. For our food products, rather than fill rate, we chase freshness. We do not mind some loss in sales. But whatever we sell should be fresh. To ensure lower costs, we have specific contracts, where service levels are defined. Violations will lead to penalties. For our international sales, we follow the same pattern – the only difference is the longer transit time. For example, if it takes ten days for a shipment to reach a country, we will keep an additional buffer of ten days in the inventory in that country. Our aim is to provide our customers with the right product at the right time, at the best price. We have tailored our supply chain to achieve this. Our focus has been on efficiency for our B2B supply chain and agility for our e-commerce supply chain.

February 2016 Supply Chain Mangement Professional

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LSP LSP Focus Focus

Setting the Bar High As India wakes to an interconnected world, where firms focus on their core competency, and outsource non-core activities to firms which can best fulfill them, we will see the rise of best in breed 3PL players. We have a significant presence of multinational 3PL players in India. For this months LSP Focus, we bring you an interaction with Ms. Sharmila H Amin, Managing Director - South Asia India, Bertling Logistics India Pvt. Ltd.

Sharmila H. Amin,

Managing Director - South Asia India, Bertling Logistics India Pvt. Ltd.

“We need to have business environment and mindset changes as well as the introduction of new technologies, which will direct impact on development of sector.�

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LSP Focus 1. What are the trends that persist in Indian 3PL logistics scene? How is it different from the global trends? 3PL is gaining importance world over as more and more companies are outsourcing logistics activities to the 3PL operators with a view to focus on their core activities. The 3PL market in India is least developed and highly fragmented. Currently Indian 3PL operators mainly focus on transportation, with some operators also focusing on warehousing as well. The Indian 3PL market is at very nascent stage with very few organized players. World over 3PL is increasing due to focus on quality and better solutions whereas India the main focus is only on reducing cost. Automobile industry dominates the 3PL market with majority share, and is forecasted to remain the fastest growing segment in Indian 3PL market. However, due to the increasing awareness of the Indian firms towards the benefits of logistics outsourcing there is an immense potential for growth of 3PL in India. 2. How could we address the challenges in terms of Infrastructure that is holding back the development of the sector?

Assess: Determine the scope of efforts based on business priorities and impacts Define & Implement: 1) Communicate expectations and engage with suppliers to improve performance, 2) Ensure alignment and follow up internally, and 3) Enter into collaboration and partnerships Measure & Communicate: Track performance against goals and be transparent and report on progress 4. According to you what are the essentials in a 3PL - customer relationship? Is it changing? The most important aspect of customer relationships is the value that we bring to our clients. In today’s dynamic global marketplace, clients are increasing looking for logistics flexibility from their 3PL providers on the way to seamless integration of supply chain activities. Another thing is that most major 3PLs are investing heavily in Big Data capabilities to ensure directto-consumer customization, and they’re asking clients to join them in “gainsharing” relationships as they move forward in the global arena

3. What is your approach to sustainability in Supply Chains?

However, due to the increasing awareness of the Indian firms towards the benefits of logistics outsourcing there is an immense potential for growth of 3PL in India

We follow a very basic but yet effective model:

5. How do you help your customers manage SCM risk?

Commit: 1) Develop the business case by understanding the external landscape and business drivers 2) Establish a vision and objectives for supply chain sustainability and 3)

As a 3PL provider, we own the process and takes full responsibility for entire chain. Not only have we planned for everyday activities but

Apart from changes in regulation that we need, I think we need to have business environment and mindset changes as well as the introduction of new technologies, which will direct impact on development of sector.

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Establish sustainability expectations for the supply chain

for exception as well like alternative transport arrangements. We have a full-fledged audit team as well as analytics team which by use of business intelligence and data keep generating useful solutions 6. As CEO, what are your concerns - that which keeps you awake at nights? Whilst handling HL projects cargoes “The Indian logistics market is not sophisticated from an infrastructural and procedural point of view. I don’t see the Indian market conditions as limitations, but as opportunities. With a ‘can do’ attitude, I would like to inspire our Indian clients to be winners and work on eliminating given constraints. Secondly the Corporate governance structure which is not sophisticated in the region resulting in unscrupulous Managers taking advantage of certain situations. It falls upon leadership to put in place efficient governance structure to prevent such events. 7. What areas in your operations would you like to see more technology penetration? There is not one area where we see more technology application; rather every process has a chance to further benefit from technology advancement. As earlier I said, big data analytics has gained prominence and is core of any client requirement 8. Are there any challenges on the talent front? How are you addressing them? All good things are in short supply and so is human capital. We do see challenges on talent front, but are promoting our people internally to cope with it. More ever, we see these challenges as an opportunity to transform HR from a transactional organization into a business-aligned trusted advisor and solutions provider

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LSP Focus 9. What are your challenges in maximizing revenues?

operating costs, and between 3% and 7% for FMCG.

is one of the options we will be exploring.

The market potential is very huge for 3PL in India, however majority is fulfilled by unorganized sector. We need that the preferences of our prospective change to from pure cost saving to brining quality and seamless supply chain.

First and foremost selecting a 3PL provider who is best suited to meet your specific and unique distribution needs, both culturally and operationally, is critical.

13. What is your key focus now?

With globalization and new technologies, it is critical that 3PL provider has the physical resources and accessibility to shipment data to meet a client’s needs. Realtime data sharing and ongoing timely responsiveness is crucial to providing a seamless supply chain. How flexible is 3PL partner in term of willingness to be on items such as exceptions, scheduling, and services? Value-added customer service-related items and willingness to invest for them can be another factor to choose 3PL

Earlier the problem was getting through the underdeveloped infrastructure. While the Infrastructure is not world class, at least it has improved significantly. Now the challenge is in getting bigger cargoes across. Cost and efficiency pressures have increased and so have the players. So the nature of the challenges has changed, but the challenges themselves are ever increasing- both in volume as well as in complexity. I guess getting over these challenges and being at the forefront of India’s infrastructure growth is the biggest satisfaction I take home.

10. Are there any speed breakers in the growth of logistics sector? How do we deal with them? Several challenges remain before the Indian logistics sector and its future success will depend on the ability of the industry to overcome these hurdles. Some of these impediments are at the firm level while others are at the policy level. At the policy level, the issues of infrastructure and integration of the nation’s logistics network remain the two most critical areas that require attention. Another area that I see is the lack of outsourcing of logistics service. While logistics outsourcing has been in existence for some time now, it was limited to transportation and warehousing While policy needs to be corrected by Government, the second challenge is more to do with taking the initiative at individual company level to outsource logistics. 11. What should be the selection criteria for an outsourcing in logistics partner? Where should we focus? The study also showed that less than 55% of Indian companies subscribe to 3PL services, compared to more than 75% globally, which implies potentially brisk market growth? Present trends indicate that the cement sector has reaped the maximum benefits by outsourcing logistics requirements to 3PLs, especially as logistics constitute between 10% and 15% of their operating costs. For the automobile and engineering sectors, logistics accounts for 5% to 10% of their

The number of women in SCM business is really very low. However the problem is not really about numbers but about understanding the value —value for shareholders, customers and society as a whole 12. Route management is a factor which could possibly lower logistics costs. What has been your experience? Bertling has global class assets in fields of shipping, transport logistics and IT. We have integrated all of these to provide our customers world-class services. We are always looking to further consolidate our position in the market and be leader differentiated by better quality and lower costs and route management

I have been in this industry for over 25 years now and the biggest kick I get is in executing difficult jobs.

14. As a Woman CEO, can you share your thoughts on gender diversity in supply chains? As I reflect on my 30-year career in the professional services industry, the area of gender parity and inclusivity is one of the areas that I remain disappointed we have not made more significant gains in. The number of women in SCM business is really very low. However the problem is not really about numbers but about understanding the value —value for shareholders, customers and society as a whole that could be created with greater gender balance in the increasingly critical supply chain function across industries. The ratio of Women in Men is roughly estimated to be 1: 4 i.e. women constitute only about 20% of the workforce. but across the globe, still only 17 percent of member firms’ partners are women,and that figure is fairly representative across our industry.

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SCM Updates

Budget 2016 – Expectation of the Logistics Industry Mr. Oliver Bohm, CEO, DB Schenker India Pvt. Ltd. The clock is ticking and we are getting closer to the day of the release of the Union Budget. The clock is also sounding several alarm bells on the global economic front with several uncertainty, slowdown and recessionary trends. As we start the year 2016 on a pessimistic note on global economic front, the memories of the economic crisis from 2008 are still quite fresh. During the economic crisis in 2008 to 2010, Indian economy proved itself to be strong and resilient due to inherent strength driven by domestic consumption. The GDP growth in India has surpassed the growth rate of China during 2015. The Budget 2016 should include all possible allocations needed to sustain the growth. There is no better way than to wholeheartedly support the campaign like “Make in India� to withstand the challenges arising out of global economic and political conditions. There is no need to elaborate on the importance of GST implementation and benefits which can be gained through land reforms. These are subjects already in discussion since last budget. We see an immense need for tax benefits for investment in warehousing sector. Special tax holidays should be given up to 5 years for warehouses constructed in rural area. Similarly higher benefit of depreciation rates should be given for investment in the warehouses and material handling equipment manufactured in India. There is a need to look into applicability of the taxes on rental costs for the industry. The rental cost currently is subject to service tax of 14.5 % and is attracting tax deductible at source of 10%. If rent is considered as services being provided, TDS should not be charged at the same rate applicable to interest in deposits. In case of the rent being considered as return on investment, there should not be any service tax applied on the same. There are lot of difficulties for the industry in managing the records of tax deducted at source and subsequently collecting tax certificates. For the benefit of revenue and to simplify processes, the tax payer who deposits more than 75 % of the estimated tax liability of any assessment year before beginning of the assessment year should be given benefit of the concession in the tax rates and exemption from the deduction of tax at source. There is a need for efforts to speed up the process for approval for change of land use. There are significant parcels of land in and around metro cities under agricultural land category. If there is no agricultural activity over past 8 to 10 years, they should be allowed to be converted into commercial use. This will create ample space available for construction of quality warehouses and significantly reduce storage costs and at the same time increase the land revenue for the Government. In support of the Eco-friendly logistics, the budget should provide special incentive for use of solar energy in the warehouses. The increase in efficiency of the railway network, improved conditions of the express ways, timely completion of fright corridors and development of coastal shipping routes will add significant value towards environment friendly logistics and supply chain.

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SCM Updates The budget should allocate funds for education and skill development in the area of transportation and supply chain. This will address the area of current deficit of skilled professional in the area of logistics and is also within the ambit of “skill development program” launched by the Government in this year. There can also be inclusion of actions related to simplification of processes and effective use of digitalisation in the budget process. This remains unattended to quite an extent in the previous budget processes. There should be a forum set up to address the same. Not to forget at the end that the key to unleash the power of the Indian economic growth lies in the speedier implementation of various projects and reforms post announcements.

Global executives see emergence of Sub-Saharan Africa as consumer market Consumer spending by a fast-growing middle class is as important a growth driver for Africa as mineral and resource demand, according to a new survey of global logistics executives. In the survey, which is part of the 2016 Agility Emerging Markets Logistics Index, industry executives rank South Africa, Nigeria, Kenya and Ghana as the most promising markets in Sub-Saharan Africa. Poor infrastructure, lack of power generation and corruption continue to pose the most risk to African economies, according to the more than 1,100 executives responding to the survey. Despite recent growth and surging foreign investment, Sub-Saharan Africa remains a challenging frontier for many. Only 21.2% of logistics industry executives surveyed said their companies have operations there. Another 12.7% said they are in the planning stages to enter African markets. More than 43% said they have no plans to set up in Africa. “The results show a serious disconnect between the perception of the market and actual opportunities. These are some of the world’s fastest-growing economies. Africa’s requirement for logistics services and supply chain expertise is huge and growing every day. At the same time, many of the companies that need logistics to enter the market don’t know how to get started in Africa or aren’t willing to take the risk,” said Geoffrey White, CEO of Agility Africa. “The market is open for first movers who can navigate risk and nurture African talent. The opportunity is for those seeking to build long-term, sustainable businesses that bring world-class practices and adapt to local conditions.” The Agility Emerging Markets Logistics Index, now in its 7th year, offers a snapshot of logistics industry sentiment and ranks the world’s 45 leading emerging markets based on their size, business conditions, infrastructure and other factors that make them attractive to logistics providers, freight forwarders, shipping lines, air cargo carriers and distributors. China, the world’s second-largest economy, remains the leading emerging market by a large margin. Among the countries at the top of the Index rankings this year, UAE (No. 2), India (3) and Malaysia (4) leaped over the commoditydependent economies of Saudi Arabia (5), Brazil (6) and Indonesia (7). Rounding out the top 10 are Mexico (8), Russia (9) and Turkey (10). The leading markets in Sub-Saharan Africa are South Africa (No. 16) and Nigeria (17). South Africa has Africa’s most advanced logistics industry and transport infrastructure, but its economy has been hobbled by chronic power shortages, slumping commodity prices, a plunging currency and labor unrest. Nigeria climbed 10 spots in the 2016 Index, tying Egypt (No. 22) for the biggest gain by any country in the seven years since the Index was first published. Nigeria’s enormous potential has become clearer since its recent decision to update the methods by which it collects economic data. Even so, its economy is heavily reliant on oil and has been hurt by low energy prices. Other countries in the region fall toward the bottom of the rankings: Ethiopia (37), Tanzania (40), Kenya (43) and Uganda (45). Among countries in North Africa, Morocco ranked No. 20, trailed by Egypt (22), Algeria (30), Tunisia (36) and Libya (41).

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r u o ! Y w t o e N G n o i t p i r c s b u S

SUPPLY CHAIN MANAGEMENT PROFESSIONAL

10th Jan 2016 | Volume 1- No.9 | Rs.200

Moving Beyond Risk Supply Chain Resilience

TECHNOLOGY

Robotics – Pushing the Efficiency Frontier

SUPPLY CHAIN MANAGEMENT PROFESSIONAL

10th Feb 2016 | Volume 1- No.10 | Rs.200

Automotive Logistics – Keeping the Wheels Turning

LEAD STORY

FEATURE

Budget Expectations – An Industry Poll

Architecting an Omni Channel Supply Chain

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Strategic Packaging Eliminate the Biggest Hidden Supply Chain Waste - DK Rai

INDUSTRY INTERFACE

STRATEGY SUMMIT

LSP FOCUS

Building Supply Chain Alignment in a New Networked World

Delivering More With Less

SCMPro, India’s only Enterprise monthly magazine for Supply Chain Professionals from Service Users and Enterprise Service Providers. The magazine contains specialist articles, news and information designed to update the readers on the developments in supply chain industry. Specialized articles are contributed by the Industry leaders and Academicians. Besides, there are other updates published to keep the readers keep pace with the Industry. Published every month, the magazine is distributed to the readers through courier. Currently the print copy of the issue is available only for readers based in India. Cover Price Rs.200/22

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Initiative

Join India’s Premier Community of Supply Chain Professionals

ISCM and SCM Pro announce the launch of India’s first exclusive community for supply chain management and logistics professionals.

As a member of ISCM community, you get privileged access to: ◊ Round Tables: Thought-provoking discussions and information on topics most relevant to supply chain managers. ◊ A free subscription of SCMPro – a thought leader-ship magazine for the SCM Professional ◊ 50% discount on Special Publications ◊ 20% discount for ISCM’s events ◊ Access to white papers and other research material from our faculty team and other affiliated professionals.

Who should Join? Supply Chain Professionals, Students, Academicians, Consultants, Government Officials involved with SCM and logistics can be part of this initiative. We value the efforts, knowledge and commitment of all members and encourage all to participate in these activities.

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